oversight

The Housing Authority of the City of Spartanburg, SC, Used HUD Program Funds for Ineligible Expenses

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-09-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 OFFICE OF AUDIT
 REGION 4
 ATLANTA, GA




   The Housing Authority of the City of Spartanburg
                  Spartanburg, SC

                   Public Housing Program




2014-AT-1016                            SEPTEMBER 30, 2014
                                                        Issue Date: September 30, 2014

                                                        Audit Report Number: 2014-AT-1016




TO:            Eric A. Bickley, Director of Public Housing, Columbia, SC, 4EPH
               Craig Clemmensen, Director, Departmental Enforcement Center, CV

               //signed//
FROM:          Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT:       The Housing Authority of the City of Spartanburg, SC, Used HUD Program
               Funds for Ineligible Expenses


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the Housing Authority of the City of
Spartanburg’s public housing program.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please call David Butcher, Assistant
Regional Inspector General for Audit, at 865-545-4400, extension 118.
                                             September 30, 2014
                                             The Housing Authority of the City of Spartanburg, SC,
                                             Used HUD Program Funds for Ineligible Expenses




Highlights
Audit Report 2014-AT-1016


 What We Audited and Why                      What We Found

We audited the public housing program    The Authority used HUD program funds for ineligible
of the Housing Authority of the City of  or unsupported expenses, and failed to maintain an
Spartanburg, SC, because of a citizen’s  accurate accounting and financial control system. This
complaint.                               condition occurred because the Authority’s
                                         management and board disregarded HUD’s
Our objective was to determine whether requirements for the proper use of program funds and
the Authority’s performance in the areas failed to create an effective accounting and internal
of financial operations, procurement,    control environment. As a result, the Authority
and inventory practices met HUD          deprived its Public Housing program, and possibly
requirements.                            other HUD programs, of needed funds and may have
                                         defaulted on its consolidated annual contributions
  What We Recommend                      contract with HUD.

                                             The Authority generally failed to follow HUD’s
We recommend that the Director,              procurement regulations or its own procurement
Office of Public Housing, Columbia,          policy. It failed to maintain required documentation,
SC, require the Authority to repay its       paid for services without required contracts, and failed
public housing program for funds             to perform cost analyses. This condition occurred
diverted to other activities as identified   because the Authority’s management and board failed
in the Authority’s fiscal year 2013 audit    to implement sufficient internal controls over the
and over $28,000 for other ineligible        procurement process. As a result, the Authority could
program expenses, provide support            not assure HUD that it procured its goods and services
showing that it used almost $2.4 million     at the lowest cost using full and open competition. For
for eligible program expenses, and           the procurements reviewed, the Authority had more
determine whether the Authority is in        than $1,100 in ineligible spending and was unable to
substantial default of its consolidated      support more than $2.2 million in spending.
annual contributions contract.

We also recommend that the
Departmental Enforcement Center
consider the need for administrative
sanctions.
                            TABLE OF CONTENTS

Background and Objective                                                          3

Results of Audit
      Finding 1: The Authority Used More Than $1Million in HUD Funds for          4
                 Ineligible or Unsupported Costs
      Finding 2: The Authority Failed To Comply With Federal or Its Own           11
                 Procurement Requirements
      Finding 3: The Authority Failed To Maintain an Adequate Inventory Control   15
                 System

Scope and Methodology                                                             18

Internal Controls                                                                 20

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use              22
B.    Auditee Comments and OIG’s Evaluation                                       23
C.    Procurement Deficiencies                                                    61




                                            2
                      BACKGROUND AND OBJECTIVE

The Housing Authority of the City of Spartanburg was established in 1938 by the State of South
Carolina to provide safe and sanitary housing. The Authority is governed by a seven-member
board of commissioners appointed by the city council of Spartanburg, SC, to 5-year terms. An
executive director is responsible for daily operations.

The Authority manages 1,129 conventional low-income public housing units and 2,158 Housing
Choice Voucher program units. It has implemented project based budgeting and accounting
under HUD’s asset management program. The Authority receives funds annually from the U.S.
Department of Housing and Urban Development (HUD) to operate its programs and maintain its
housing stock. It received operating subsidies and capital funds in the following amounts from
fiscal year 2011 to fiscal year 2013.

               Fiscal year       Operating subsidy           Capital funds

                  2011               $4,091,798                $1,689,834
                  2012               $4,183,008                $1,506,817
                  2013               $3,641,647                $1,490,403

The Authority was designated as a “High Performer” with a score of 92 out of 100 on its most
recent Public Housing Assessment System report.

We received a confidential complaint from a concerned citizen. The complainant expressed
numerous allegations or concerns regarding the procurement, financial operations, and inventory
practices at the Authority.

Our objective was to determine whether the Authority’s performance in the areas of financial
operations, procurement, and inventory practices met HUD requirements.




                                               3
                                      RESULTS OF AUDIT

Finding 1: The Authority Used More Than $1 Million in HUD Funds
for Ineligible or Unsupported Costs

The Authority used HUD program funds for ineligible or unsupported expenses, and failed to
maintain an accurate accounting and financial control system. This condition occurred because
the Authority’s management and board disregarded HUD’s requirements for the proper use of
program funds and failed to create an effective accounting and internal control environment. As
a result, the Authority deprived its public housing program, and possibly other HUD programs,
of needed funds and may have defaulted on its consolidated annual contributions contract with
HUD. 1


    The Authority Improperly Used
    HUD Program Funds

                 The Authority used program funds that HUD intended for low-income housing
                 assistance for ineligible expenses. It improperly used program funds to support
                 entities that it created to own and manage its office space and for other
                 disbursements that were an ineligible or unsupported use of HUD funds.

                 HUD Program Funds Used to Support Related Entities
                 The Authority’s HUD financial data schedule reports and independent public
                 accountant audit reports showed that the Authority used HUD funds for the
                 ineligible expenses of related entities. The Authority received independent public
                 accountant audit findings in 2010 and 2013 for the ineligible use of Federal funds.
                 The last annual audit report, dated September 30, 2013, reported that the
                 Authority misused $885,891 that HUD provided for the public housing program.
                 The HUD financial data schedule showed that the Authority’s business activities
                 were the primary beneficiary of these funds.
                 Although the Authority owned its office building debt-free, during 2006, it
                 engaged in a series of transactions with related entities that resulted in the loss of
                 that space and the payment of excessive rent. 2 Without HUD approval, the
                 Authority transferred ownership of its office building and maintenance warehouse
                 to the Spartanburg Housing Authority Property Company, a nonprofit corporation
                 that it had created for the purpose of owning and managing non-dwelling

1
  A consolidated annual contributions contract is a written contract between HUD and a public housing authority in
which the authority agrees to administer its public housing program in accordance with HUD regulations and
requirements.
2
  These transactions occurred under the administration of the previous executive director.
                                                         4
                 properties. Although the nonprofit subsequently leased the property in the private
                 market, it never paid the Authority the $420,000 purchase price.
                 After losing its office space, the Authority rented space in the former Mary H.
                 Wright Elementary school that its nonprofit had purchased and transferred to
                 another related entity, Mary Wright, LLC (Mary Wright). 3 Mary Wright
                 renovated the building using construction loans totaling almost $4.8 million 4 and
                 rented nearly 19,000 square feet to the Authority for office space. The Authority
                 was paying nearly $220,000 annually for this space for three years until HUD
                 notified it that it could only pay local market rates. The Authority subsequently
                 lowered the rate but continued to pay Mary Wright for more space than it needed.
                 Although Mary Wright rented some of the remaining office space to the City of
                 Spartanburg, it was not able to generate income sufficient to cover operating
                 expenses and debt service. One of the loans that Mary Wright obtained to
                 renovate the building had a $3 million balloon payment due in February 2015.
                 The Authority has no funds available for this payment and the executive director
                 stated that there was no concrete plan for dealing with it.
                 In addition to paying rent, the Authority used HUD program funds to pay Mary
                 Wright’s operating expenses. It paid for all building maintenance, real estate
                 taxes, utilities, major expenses for repairs of mechanical systems, and some debt
                 service. The executive director stated that he would continue to use HUD funds
                 to pay for other Authority activities because his other sources of funds were
                 insufficient to cover recurring expenses. He stated that the Board was aware he
                 used HUD funds to support the building but believed that they had no other
                 option.
                 The Authority’s misuse of funds intended to benefit the low-income participants
                 of HUD’s public housing program represents violations of its contract with HUD.
                 The contract states, in Section 9, 5 that the Authority must use public housing
                 funds only for public housing projects under contract. Further, Section 17 6 states
                 that HUD can find the Authority in substantial default of the contract for
                 dispositions or encumbrances of any project, or portion of a project, without HUD
                 approval.

                 Other Cash Disbursements Were Ineligible or Unsupported

                 The Authority used Federal funds to pay $24,594 in ineligible expenses, could not
                 show that it had properly charged an additional $142,434 to HUD programs, and
                 miscoded $1,687 in expenses. HUD regulations required the Authority to
                 maintain detailed disbursement records to document eligible expenditures. 7

3
  SHA Property Company is the managing member of Mary Wright, LLC.
4
  The first loan has two notes. The senior note is $3,000,000, while the supplemental note is $750,000. The second
loan is $1,010,029.
5
  Consolidated Annual Contributions Contract, part A, section 9(C)
6
  Consolidated Annual Contributions Contract, part A, section 17(B)
7
  24 CFR 905.310(b)
                                                        5
                 Cash disbursements were ineligible or unsupported
                 Eight of the 14 disbursements reviewed did not have adequate documentation,
                 including four instances where the Authority paid for services without a valid
                 contract. The Authority used $19,865 of Capital Fund money to pay its law firm
                 for non-capital fund uses, a violation of the program regulations 8, and could not
                 show that it had properly charged $14,737 9 to various HUD programs. This
                 condition occurred because the Authority’s finance staff was not aware of the
                 terms of the vendors’ contract agreements such as the amount to pay per unit for a
                 repair.

                 Capital fund draws were ineligible or unsupported
                 The Authority paid ineligible expenses or could not provide support for five of the
                 seven fund drawdowns reviewed. The five disbursements contained $4,230 in
                 ineligible uses and $127,697 without proper support. Examples include using
                 capital funds to pay for repairs at non-public housing developments, and lack of
                 documentation supporting payments to consultants. This condition occurred, in
                 part, because the Authority’s written procedures did not outline the specific
                 document requirements needed to support each drawdown.

                 Credit card purchases were ineligible or miscoded
                 During our audit period, the Authority purchased $140,314 in goods and services
                 with its Visa credit cards. We reviewed three credit card payments totaling
                 $17,590, or about 13 percent, of the total charges. The Authority had $499 in
                 ineligible costs and $1,687 in miscoded costs. There were ineligible purchases of
                 zoo tickets, a professional membership, food, and a gift card. The Authority
                 charged these purchases to the Resident Opportunities and Self Sufficiency
                 (ROSS) grant, a grant that it used to fund supplies, equipment, furniture, salaries,
                 and local travel for program staff. Additionally, the Authority miscoded the cost
                 of a job posting to the capital fund program’s administration budget line item
                 instead of the management improvement budget line item. The Authority had
                 insufficient procedures in place for the use of its credit cards and review of
                 transactions.

    The Authority Failed To Maintain
    Auditable Records

                 The Authority’s records for establishing the proper use of HUD funds were not
                 auditable. This condition occurred because the Authority failed to maintain
                 accounting records showing the sources and uses of funds for its various


8
  24 CFR 905.202(a) – Costs not associated with a public housing project or development are ineligible activities
and costs for the Capital Fund Program.
9
  Total questioned cost of $53,514 was reduced to $14,737 to avoid double counting of $38,777 in questioned costs
in Finding 2.
                                                        6
                  activities. This failure may have placed the Authority in default of Section 15 10
                  of its contract because it failed to maintain an accounting system that included
                  auditable records showing the source and proper use of program funds.

                  The Authority pooled funds from numerous sources and paid most of its
                  obligations from one general fund account. HUD permits this type of system but
                  only if the accounting system can track the sources and uses of funds in sufficient
                  detail to maintain an adequate audit trail. 11 When funds are pooled, the contract
                  prohibits an entity from withdrawing more funds from the pool than it has
                  deposited. 12 Since balances between programs indicate that funds belonging to a
                  program were used for another activity, interfund balances must be promptly
                  cleared with a cash payment to the program that provided the funds.
                  The Authority’s accounting was inadequate to show the sources and uses of funds
                  for all transactions, and the staff was unable to explain why this was so. The staff
                  stated it was unable to provide reconciled interfund balances that included all
                  financial activity since the last independent audit in September 2013. Staff told us
                  that accurate interfund balances would not be determined until the end of the
                  fiscal year.
                  Without interfund balances, it was not possible to determine how the Authority
                  had used HUD funds provided for operation of public housing or its other
                  programs, or how the interfund balances may have changed since the last audit
                  report. Staff attributed the problem to issues with the Authority’s computer
                  system that dated back to the implementation of the system in October 2011.
                  The financial and accounting staff’s inability to explain how their system worked
                  indicated that their management had not provided them with the information or
                  direction they needed to perform their jobs. The Authority’s policies and
                  procedures were not always written, which made it difficult to maintain
                  consistency. In addition, the chief financial officer position had experienced
                  excessive turnover. The most recent chief financial officer resigned during our
                  review and had not been replaced at the end of fieldwork.
                  Accounting entries were unapproved or unsupported
                  Some accounting entries to adjust account balances lacked either proper
                  explanation, support, or evidence of approval. All seven journal vouchers 13

10
   Consolidated Annual Contributions Contract, part A, section 15(A) The Housing Authority (HA) must maintain
complete and accurate books of account for the projects of the HA in such a manner as to permit the preparation of
statements and reports in accordance with HUD requirements, and to permit timely and effective audit.
11
   HUD Guidebook 7510.1G, paragraph II-15 and Consolidated Annual Contributions Contract, part A, sections 9
and 15.
12
   Consolidated Annual Contributions Contract, part A, section 10(C) The HA shall not withdraw from any of the
funds or accounts authorized under this section amounts for the projects under ACC, or for the other projects or
enterprises, in excess of the amount then on deposit in respect thereto.
13
   Journal vouchers are accounting records used to note the details of a financial transaction for recordkeeping and
auditing purposes.
                                                          7
                   reviewed (totaling $2,490,236) had some type of deficiency. The entries lacked
                   sufficient descriptions or had not been approved by the senior accountant, as
                   required by the Authority’s procedures. In some cases, the financial staff could
                   not explain the purpose of the entries. For example, one journal voucher, an
                   adjusting entry of $891,635 for the fiscal year 2013 audit, could not be located or
                   explained.

                   The Authority’s management and board failed to establish an adequate accounting
                   system or internal control environment for its financial transactions. HUD
                   regulations 14 state that effective control and accountability must be maintained for
                   all grant and sub-grant cash, real and personal property, and other assets. The
                   Authority’s accounting system and its related controls failed to provide
                   information for making sound financial decisions and failed to provide HUD
                   assurance that public housing funds, or other HUD provided funds, were properly
                   used to benefit program participants.

     Recent Developments

                   On July 11, 2014, HUD’s Columbia field office, Office of Public Housing, put the
                   Authority on a “zero dollar review threshold” until further notice. This action
                   required the Authority to submit copies of all invoices, bills, and receipts to the
                   field office prior to expending or obligating any HUD funds by check, cash, or
                   promissory note. Additionally, HUD required the Authority to submit all
                   procurement documents for HUD’s approval prior to awarding and executing
                   contracts.

     Conclusion

                   The Authority’s misuse of Federal funds and failure to provide an accurate
                   accounting for its use of Federal funds has placed it in default of multiple
                   provisions of its contract and other program requirements. As such, the
                   consolidated annual contributions contract states that HUD may determine that
                   the Authority is in substantial default of the contract and take possession of the
                   projects under the contract to obtain proper management.

     Recommendations

           We recommend that the Director, Office of Public Housing, Columbia, SC,
                   1A.    Require the Authority’s management and board to immediately cease
                          using HUD program funds for unauthorized purposes.



14
     24 CFR 85.20(b)(3)
                                                     8
                1B.      Require the Authority to repay its public housing program the amount
                         identified in the Authority’s fiscal year 2013 audit report and any
                         additional HUD program funds misused since the last audit report.

                1C.      Ensure that all board members obtain HUD-approved training that
                         explains their overall roles and responsibilities, including those related to
                         internal control and financial matters.

                1D.      Require the Authority to procure an accounting firm to identify sources
                         and uses of funds disbursed since October 1, 2013, and quantify the
                         interfund balances. Once determined, the Authority should reconcile and
                         eliminate the interfund balances. Any ineligible funds should be repaid
                         from non-Federal funds.

                1E.      Require the Authority to reimburse the appropriate capital fund grant
                         $24,095 using non-Federal funds.

                1F.      Require the Authority to provide proper support for $14,737 15 in operating
                         disbursements or repay the affected programs from non-Federal funds.

                1G.      Require the Authority to provide support for $127,697 in other capital
                         fund drawdowns or repay the affected capital fund grant from non-Federal
                         funds.

                1H.      Require the Authority to provide proper support for $1,687 in unsupported
                         credit card payments or repay the affected programs from non-Federal
                         funds.

                1I.      Require the Authority to repay the appropriate programs $499 from non-
                         Federal funds for the improper use of the Authority’s credit cards.

                1J.      Require the Authority to establish and implement proper accounting,
                         including adequate written policies and procedures, for staff to follow.

                1K.      Require the Authority to ensure that central office and asset management
                         staff with accounting and finance responsibilities, have received adequate
                         training for performance of their duties.

                1L.      Prepare a memorandum to the Deputy Assistant Secretary for Field
                         Operations disclosing the activities potentially causing a breach or default
                         of sections 9(C) and 15(A) of the consolidated annual contributions
                         contract.


15
  The actual amount for unsupported disbursements was $53,514. To avoid double counting, the amount was
reduced for the $38,777 in recommendation 2A.
                                                      9
We also recommend that the Director of the Departmental Enforcement Center, in
coordination with the Director of HUD’s Columbia Office of Public Housing,
       1M.    Consider administrative sanctions against the Executive Director and
              board for misuse of HUD program funds.




                                      10
Finding 2: The Authority Failed To Comply With Federal or Its Own
Procurement Requirements
The Authority generally failed to follow HUD’s procurement regulations or its own procurement
policy. It failed to maintain required documentation, failed to provide for full and open
competition, paid for services without required contracts, and failed to perform cost analyses.
This condition occurred because the Authority’s management and board failed to implement
sufficient internal controls over the procurement process. As a result, the Authority could not
assure HUD that it procured its goods and services at the lowest cost using full and open
competition. For the procurements reviewed, the Authority had more than $1,100 in ineligible
spending and was unable to support more than $2.2 million in spending.



     The Authority Failed To Follow
     Procurement Requirements

                 The Authority’s management did not consistently follow HUD’s procurement
                 regulations 16 or its own procurement policy. Authority records were insufficient
                 to identify the total universe of contracts procured for the review period. The
                 Authority did not maintain a centralized contract register or other documents
                 listing its procurement activity and did not keep its procurement documents filed
                 with the procurement officer or another central location.
                 We selected and reviewed 12 17 procurements, 7 from the 74 procurements listed
                 on the contract list compiled by the audit team with assistance from Authority
                 staff, and 5 selected for review by auditors during the performance of the
                 assignment. Each of the procurements had at least one deficiency, and 10 had
                 multiple deficiencies, resulting in $2,227,249 in unsupported costs and $1,102 in
                 ineligible costs. See Appendix C for a list of procurements and deficiencies.

                 The Authority Failed To Maintain Required Documentation
                 Regulations required the Authority to maintain a complete history for all
                 procurements. 18 Documentation provided to support the history of 10 of the 12
                 procurements reviewed was generally incomplete. Neither the staff nor
                 management could explain whether missing documentation had been discarded,
                 misplaced, or had never existed.



16
   24 CFR (Code of Federal Regulations) 85.36
17
   There were originally 13 procurements reviewed. One procurement was removed after it was determined that
nonfederal funds were used with this contract resulting in only 12 procurements reviewed. Three of the 12
procurements resulted in 3 vendor selections for each.
18
   24 CFR 85.36(b)(9)
                                                      11
                  The Authority Failed to Provide Full and Open Competition

                  The regulations required the Authority to conduct its procurement transactions in
                  a manner providing full and open competition. 19 The Authority could not provide
                  sufficient documentation showing this for 8 of the 12 contracts. Instead of
                  performing the required advertising20, the Authority targeted vendors for two
                  procurements. For the architecture and engineering procurement, the Authority only
                  requested quotes from five firms or individuals that it chose. For a grading contract,
                  the Authority allowed a contractor to perform the advertising and the only
                  documentation the contractor provided was a listing of individuals that it had
                  selectively contacted.

                  The Authority Paid For Services Without Required Contracts
                  In several cases, the Authority obtained and paid for services without executing
                  contracts or continued to use contractors after their contracts had expired.
                  The Authority failed to execute contracts
                  The Authority hired and paid vendors without following procurement
                  requirements or executing a contract. The Authority used three vendors to
                  provide temporary staff without entering into a contract or following any
                  procurement requirements. This action resulted in $450,435 in unsupported
                  expenditures.

                  The Authority obtained services from expired contracts
                  The Authority has had the same independent public accountant since 2007. The
                  2007 contract was a one-year contract to audit the Authority’s fiscal year 2006
                  records. Although the contract did not have an option for extensions, the
                  Authority continued to use the firm’s services for six years past the end date. The
                  January 2012 board minutes stated that they would continue to use the firm
                  because it knew the Authority’s unwritten rules. The Authority’s records showed
                  that it had paid the firm $47,522 from public housing funds during 2014. The
                  source of funds used for prior year payments was unclear.

                  The Authority contracted for accounting services. The contractor provided the
                  auditors with contracts for 2010 and 2012 along with subsequent change orders
                  and addenda. Although the 2010 contract and change orders ended November
                  2011, the Authority continued to use the contractor until it signed a new contract
                  in 2012. The Authority paid the contractor $98,125 during our audit period,
                  $41,466 after the 2011 contract expired and $56,659 after it failed to properly
                  procure the 2012 contract.
19
  24 CFR 85.36(c)
20
  HUD Handbook 7460.8, section 7.1 states that any of the following solicitation methods can be used, as long as it
provides for full and open competition: advertising in newspapers, advertising in various trade journals, or e-
procurement.
                                                          12
                 The Authority entered into three $80,000 contracts for unit turnarounds on May 3,
                 2011. The Authority continued to pay the contractors to turn around units after
                 the initial contract year ended and above the $80,000 per contract threshold. The
                 $531,758 that the Authority paid the vendors without a valid contract was
                 unsupported.
                 In November 2011, the Authority signed a one-year contract for refuse removal
                 services for its public housing developments. Although the contract had a not-to-
                 exceed limit of $77,808, and expired in November 2012, the Authority continued
                 to use the contractor and, as of May 31, 2014, paid $229,230, or $151,422 over its
                 maximum limit. In addition, the bid documents showed that the winning
                 contractor had bid only $35,688. The contract documents contained no
                 justification as to why the Authority signed the contract for more than the bid
                 amount and the procurement officer could not explain why this occurred.
                 The Authority procured a pest control contract for January 2011 through January
                 2012. The Authority could provide no support that it signed an option or
                 completed a new procurement and continued to pay the contractor a total of
                 $114,599 for more than two years after the contract had expired.

                 The Authority Failed To Perform Cost Analyses
                 The regulations required the Authority to perform a cost or price analysis for all
                 procurements before it received bids or proposals. 21 Eight of the 12 procurements
                 lacked evidence that the Authority prepared the required cost analyses. As a
                 result, the Authority had no support for the reasonableness of the cost.

     The Authority Lacked
     Sufficient Internal Controls


                 Although the Authority had a procurement policy and some procedures,
                 management did not ensure that staff followed the requirements. The staff
                 indicated that they had received little direction from management regarding how
                 to handle procurements. Management had not provided staff the detailed written
                 guidance needed for their daily procurement responsibilities. Asset management
                 staff stated they handled procurements based on their past experiences. Each asset
                 manager interviewed provided a different amount when asked what their purchase
                 threshold was. Further, the Authority had experienced excessive turnover for the
                 procurement manager position. There had been three different people in this
                 position, and periods of vacancy, since October 2011.




21
  Regulations at 24 CFR 85.36(f) read in part, “Grantees and subgrantees must perform a cost or price analysis in
connection with every procurement action including contract modifications.”
                                                        13
Conclusion

             Because of its failure to comply with HUD’s procurement regulations or its own
             policies, the Authority used $1,102 in HUD program funds for ineligible costs and
             could not provide support for another $2,227,249. This condition occurred
             because the Authority’s board and the executive director failed to implement
             adequate or enforce existing controls. After the Authority makes needed
             improvements, it will be able to assure HUD that its procurements are made at a
             reasonable cost and obtained using fair and open competition as required by
             Federal regulations.

Recommendations

             We recommend that the Director, Office of Public Housing, Columbia, SC,
             require the Authority to
             2A.    Repay the applicable program(s) $1,102 for ineligible expenditures from
                    non-Federal funds.
             2B.    Provide support for $2,227,249 in unsupported payments or repay the
                    appropriate program from non-Federal funds.
             2C.    Determine how much it paid the independent public accountant from HUD
                    program funds after the contract expired and repay any ineligible amounts
                    from non-Federal funds.
             2D.    Ensure that procurement staff are adequately trained and have detailed
                    written guidance for performing their responsibilities.
             2E.    Ensure that the Authority’s board and management understand their
                    procurement responsibilities and consider whether additional procurement
                    training would be appropriate.




                                             14
Finding 3: The Authority Failed To Maintain an Adequate Inventory
Control System
The Authority failed to implement sufficient written policies and procedures for inventory
control. The Authority did not have accurate inventory records, could not account for some
assets, and had not completed required physical inventories. As a result, the Authority could not
assure HUD that program funds it expended for equipment and supplies were properly used for
program activities or that the values reflected in its inventory records were accurate.


     The Authority Failed To
     Develop and Implement
     Adequate Inventory Controls

                 Although regulations 22 required the Authority to maintain effective control and
                 accountability over all assets and keep detailed property records, management
                 failed to implement effective written policies or procedures for inventory. Staff
                 used informal unwritten procedures but failed to apply them in a consistent or
                 effective manner to ensure that the Authority maintained accurate inventory
                 records, safeguarded inventory, or completed the required periodic physical
                 inventories.

                 Inventory Records Had Errors and Omissions

                 The Authority’s inventory records contained numerous errors and omissions.
                 Review of the inventory listing showed deficiencies, such as incorrect or missing
                 equipment purchase or installation dates and missing serial numbers. HUD’s
                 regulations 23 required the Authority to maintain complete property records,
                 including such information as acquisition date, location, serial numbers, cost, etc.

                 A review of a September 2011 purchase of 115 stoves showed that staff had not
                 entered stoves into the Authority’s inventory records and could not tell us where
                 the stoves were located. They were also unable to tell us how the old stoves,
                 which the Authority had presumably replaced, had been disposed. At our request,
                 the Authority staff attempted to locate the new stoves but was only successful in
                 locating 16 of them. Authority staff later determined that, although the Authority
                 had purchased the stoves with 2011 public housing capital funds, it had placed 12
                 of the 16 stoves, valued at $2,779, in the Authority’s Section 8 project-based
                 development. The placement of stoves purchased with public housing funds in a
                 Section 8 project based development is an ineligible use of funds and must be
                 repaid. 24 The Authority paid $25,445 for the 99 stoves that it could not locate.

22
   24 CFR 85.32 (d)(1)
23
   24 CFR 85.32 (d)(1)
24
   See footnote 7
                                                  15
                   No Physical Inventories Were Performed

                   The Authority staff was unable to provide documentation for a complete physical
                   inventory of its assets. Staff provided documents that showed that the Authority
                   had performed limited inventories about 4 years ago but the date of the last
                   complete physical inventory was unknown. HUD’s regulations 25 required the
                   Authority to perform a physical inventory of all assets and reconcile to the
                   property records at least once every two years.

                   Since there were no official procedures, the employees with responsibility for
                   Authority assets were handling inventory in different ways. Some of the site
                   managers were trying to devise systems to establish accountability at their sites
                   and some were not. None of the site managers were properly accounting for
                   appliances. One stated that the maintenance workers were trusted to do the right
                   thing.

     Conclusion

                   The Authority failed to develop, document, and implement an adequate inventory
                   control system, including procedures for conducting and documenting periodic
                   physical inventory counts and adjusting the asset records. If the Authority makes
                   needed improvements, it will be able to more reliably and consistently account for
                   the assets it has, their correct locations, and account for any assets that may have
                   been lost, stolen, or disposed of. It will also be able to assure HUD that program
                   funds spent on equipment and supplies were properly used for Authority activities
                   and that the values in its inventory records are accurate.

     Recommendations

                          We recommend that the Director, Office of Public Housing, Columbia, SC,
                          require the Authority to
                          3A.    Develop and implement an improved inventory control system,
                                 including procedures for conducting and documenting periodic
                                 physical inventory counts and adjusting its asset records.
                          3B.    Promptly perform a complete physical inventory and adjust the
                                 accounting records, as needed.
                          3C.   Locate and properly record the 99 new stoves or repay its 2011 Capital
                                Fund program $25,445 from non-Federal funds.


25
     24 CFR 85.32 (d) 2
                                                     16
3D   Repay the 2011 Capital Fund program $2,779 for the ineligible
     placement of 12 stoves from its project based Section 8 development.




                         17
                         SCOPE AND METHODOLOGY

We performed our fieldwork at the Authority’s main offices located at 201 Caulder Avenue,
Spartanburg, SC, the HUD field office in Columbia, SC, and at our office in Greensboro, NC.
We performed our audit work from January through July 2014. Our audit period was October
2011 through December 2013. We expanded the audit period as needed to accomplish our
objective.

To accomplish our objective, we

   •   Reviewed relevant laws, regulations, and HUD guidance;
   •   Reviewed the Authority’s policies and procedures;
   •   Reviewed the Authority’s board of commissioners meeting minutes from October 2011
       through December 2013;
   •   Reviewed the Authority’s audited financial statements for fiscal years 2008 - 2013;
   •   Analyzed the Authority’s financial records;
   •   Reviewed a list of Authority contracts; and
   •   Interviewed Authority and HUD Columbia, SC, field office staff.

We reviewed the Authority’s general ledger interfund reports, financial data schedule, and
independent public accountant reports to determine whether the Authority maintained large
interfund balances during our audit period. We also attempted to reconcile these balances to
those reported to HUD.

We selected a non-statistical sample of 14 (out of 245) cash disbursements over $1,500 (totaling
$243,376 out of $2,015,748) from 4 months in the Authority’s check register during our audit
period. Checks for standard charges such as utilities and benefit payments were excluded from
the sample. We reviewed the disbursements to determine whether they complied with HUD and
Authority requirements.

We selected a non-statistical sample of 7 (out of 31) Line of Credit Control System payment
vouchers totaling $757,467 out of $1,305,203, to review for accuracy and eligibility. The sample
included each Capital Fund program grant drawdown during the audit period.

We reviewed a non-statistical sample of three Visa credit card payments for questionable
charges. The three payments reviewed accounted for $17,590, or about 13 percent, of the
$140,314 in goods and services charged to the credit card during our audit period.

We reviewed a non-statistical sample of seven journal vouchers totaling $2,490,236 between
October 2011 and December 2013 to determine whether each had an adequate description,
approval, and justification. We were not able to identify a complete universe since the Authority
could not provide one. We selected vouchers based on high dollar amounts and nonrecurring
entries like payroll.

                                               18
We selected a non-statistical sample of 12 26 procurements for compliance with HUD and
Authority requirements. Three of the 12 procurements resulted in 3 vendor selections for each.
Of the 12 procurements reviewed, 7 were selected from the 74 procurements that we compiled
with the assistance of Authority staff. The remaining five procurements selected were listed in
the check register or initially reviewed during the cash disbursement review. We selected our
sample to ensure we included procurements from the current procurement manager’s work,
concerns raised by the complainant, and our review of the Authority’s board minutes. We were
unable to compile a complete list of procurements or contract amounts due to the state of the
Authority’s procurement records.

We selected a purchase of 115 stoves, totaling $31,490, to determine whether the items were
properly accounted for. This purchase was one of three bulk purchases of appliances purchased
during our audit period.

The results of the non-statistical samples apply only to the items reviewed and cannot be
projected to the universe as a whole.
We tested electronic data that we relied upon during the performance of the various review
steps. We conducted tests and procedures to ensure the integrity of computer-processed data that
were relevant to our audit objective. The tests included, but were not limited to, comparisons of
computer-processed data to invoices and other supporting documentation. We found the data to
be generally reliable for our purposes.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




26
  There were originally 13 procurements reviewed. One procurement was removed after it was determined that
nonfederal funds were used with this contract resulting in only 12 procurements reviewed.
                                                      19
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objective:

               •      Effectiveness and efficiency of operations – Policies and procedures that
                      have been implemented to reasonably ensure that procurement,
                      expenditure, and financial reporting activities are conducted in accordance
                      with applicable laws and regulations.
               •      Compliance with applicable laws and regulations – Policies and
                      procedures that have been implemented to reasonably ensure that
                      payments to vendors and procurement activities comply with applicable
                      laws and regulations.
               •      Safeguarding of resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct
               (1) impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.



                                                 20
Significant Deficiencies

             Based on our review, we believe that the following items are significant deficiencies:

             •      The Authority lacked controls over the use of HUD program funds and
                    failed to maintain an adequate accounting system and financial controls
                    (finding 1).

             •      The Authority did not have adequate controls in place to ensure that
                    procurement activities complied with applicable laws and regulations
                    (finding 2).

             •      The Authority failed to implement written policies and procedures for
                    inventory control and the Authority’s informal system was inadequate
                    (finding 3).




                                              21
                           APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE

                   Recommendation                            Unsupported
                                          Ineligible 1/
                           number                                     2/
                        1E                     $ 24,095
                        1F                                      $    14,737
                        1G                                          127,697
                        1H                                            1,687
                        1I                          499
                        2A                        1,102
                        2B                                      2,227,249
                        3C                                         25,445
                        3D                       2,779         _________
                       Total                   $28,475         $2,396,815


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                             22
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                          23
Comment 2




Comment 3



Comment 4




Comment 5




Comment 4




            24
Comment 4




Comment 4




Comment 4




Comment 6




Comment 4




            25
Comment 7




Comment 6




Comment 2

Comment 6



Comment 6




            26
Comment 6



Comment 6

Comment 8



Comment 2


Comment 9




Comment10




            27
Comment 11




Comment 2




             28
Comment 12




Comment 13




             29
Comment 14




Comment 15




             30
Comment 2


Comment 6




Comment 16




Comment 8




             31
Comment 11




Comment 6




             32
Comment 2




Comment 6




Comment 6




            33
Comment 14



Comment 14




Comment 14




Comment 14




Comment 14




Comment 3




             34
Comment 6




Comment 17
Comment 2

Comment 18




Comment 19




             35
Comment 20

Comment 11

Comment 2
Comment 7




Comment 21




             36
Comment 22


Comment 23




Comment 24




Comment 23




Comment 23




             37
Comment 6




Comment 24




Comment 25




Comment 26




             38
39
Comment 27




Comment 28




             40
Comment 29




             41
Comment 30




Comment 31




             42
Comment 32




Comment 21




             43
Comment 33




Comment 34




             44
45
Comment 35




             46
Comment 14




Comment 6




             47
Comment 6




Comment 9




Comment 9




            48
Comment 9




Comment 9




Comment 9




            49
50
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority’s comments state that it appreciates and agrees with the OIG’s
            recommendations with regard to improving its recordkeeping and updating
            policies and procedures related to interfund transfers, procurement, and inventory
            control. However, it adamantly disagrees with the scope and magnitude of certain
            of the draft audit’s findings and recommendations. It stated that it believes its
            very detailed responses together with the documentation provided to the OIG
            constitutes sufficient and appropriate evidence that addresses many, if not all, of
            the OIG’s findings in the draft audit.

            We commend the Authority for recognizing the need for improving recordkeeping
            and updating its various policies and procedures as recommended in the draft
            audit report. As we explained to the Authority during the exit conference, we will
            correct any errors in the draft report; however, we will provide to HUD, for
            assistance in clearing the audit findings, any documentation the Authority has
            recently located that was unavailable to us during the audit.

Comment 2   The Authority’s comments state that it has already repaid the full $885,891
            identified in its fiscal year 2013 financial audit as being owed to the Public
            Housing Program.

            The documentation provided only supports $338,039 of the $885,891 was repaid.
            Of this $338,039, $164,890 was taken from JC Bull, the Authority’s project based
            Section 8 development, as a loan until it receives its Rental Assistance
            Demonstration development fees and predevelopment loan. Additionally, the
            documentation shows that the Authority paid the funds to its Central Office Cost
            Center and not to Public Housing as required. The Authority should provide
            proper documentation to the HUD Columbia Field Office to clear the
            recommendation.

Comment 3   The Authority’s comments state that its board of commissioners met on
            September 22, 2014, to implement updated policies and procedures related to
            interfund transfers, procurement, and inventory control.

            We appreciate the Authority’s efforts to implement updated policies and
            procedures based on our audit results. The HUD Columbia field office will
            review the actions taken by the Authority to clear the applicable report
            recommendations.

Comment 4   The Authority’s comments voiced concern regarding the amount of time provided
            to respond to the draft report. They state that they were only provided one week
            to respond to the draft report, less than 24 hours to review the revised draft sent


                                             51
            on September 22, 2014, and we were unreasonable in denying their request for a
            one-week extension to provide a final response.

            The deficiencies outlined in the draft report should not have been new to the
            Authority. We worked with the Authority over several months to obtain the
            information on which the report is based. During that time, on several occasions,
            we discussed deficiencies with Authority’s management including the executive
            director and the chief financial officer. We provided the draft findings by email
            to the Authority’s executive director on September 11, 2014, and suggested that
            the Authority use them to begin drafting comments. We followed up with the
            complete draft report containing these findings with minor revisions on
            September 16, 2014. The revised draft provided to the Authority on September
            22, 2014, only recategorized the majority of the ineligible costs to unsupported
            costs contained in the original draft report. This was to the benefit of the
            Authority, since it provided it the opportunity to provide HUD support for the
            costs, and should not have resulted in any additional evaluation or response. At
            the September 23, 2014, exit conference we granted the Authority an additional
            day to modify its response but advised the Authority that the final report would
            contain few changes from the draft and subsequently denied the requested one
            week extension. Thus, in total, we provided the Authority thirteen days to
            respond to the findings and believe that should have been more than adequate
            time.

Comment 5   The Authority also remarked that at the exit conference the OIG staff seemed to
            acknowledge the unreasonableness of their inflexible timing schedule by stating
            they had not had time to review our draft responses to the draft audit in detail.
            The Authority stated that this caused the need for them to walk through their
            comments for nearly two hours.

            The Authority submitted its comments to us late in the day on Wednesday,
            September 24, 2014, and the exit conference occurred Thursday morning at
            11:00am. We informed the Authority that we did not have time for a detailed
            analysis but that we had read the comments and were aware of the contents. As
            was the case here, the discussion draft is meant to encourage feedback at the exit
            conference and provide OIG the latitude to adjust report wording, tone, or
            findings. Due to the number and complexity of the audit issues, a two-hour exit
            conference is not unusual. While we appreciated getting the Authority’s written
            comments prior to the exit conference, the discussion draft is intended to serve as
            the document to solicit formal comments after the issues are formally discussed at
            the exit conference.

Comment 6   The Authority’s comments state that it is making management changes,
            implementing key management improvements, providing training for staff, and
            establishing proper accounting policies and procedures.


                                            52
                   We appreciate the Authority’s effort to make the necessary changes to ensure the
                   Authority is managed in the most efficient and effective way. The HUD
                   Columbia field office will review the actions taken by the Authority to clear the
                   applicable report recommendations.

Comment 7          The Authority’s comments state that it has been designated by HUD as a “High
                   Performer” since fiscal year end 2012.

                   The Authority’s status as a high performer refers to a designation under HUD’s
                   Public Housing Assessment System (PHAS) and is based largely on the integrity
                   of data the Authority submits to HUD. PHAS is also limited in its ability to
                   detect misuse of funds as was explained in a 2009 United States Government
                   Accountability Office report: “…PHAS is limited in its ability to identify housing
                   agencies that may be at greater risk of inappropriate use or mismanagement of
                   funds because it was not designed to detect inappropriate use, and in some cases
                   has not detected housing agencies showing signs of housing fund
                   mismanagement.” 27

Comment 8 The Authority’s comments state that it switched to a fee-for-services approach in
          lieu of cost allocation beginning in FY2013. It further states that this approach is
          permissible under HUD’s requirements.

                   We agreed, and removed all references to the lack of a cost allocation plan from
                   the report.

Comment 9          The Authority’s comments state that it will ensure going forward that it conducts
                   physical inventories at least once every two years and has recently completed a
                   fixed asset inventory. It also states that it has located 99 missing stoves and
                   recorded them in its inventory log.

                   We appreciate the Authority’s effort to complete a fixed asset inventory, its plans
                   to conduct the required inventories in the future, and its effort to locate the
                   missing stoves. After the final report is issued, the Authority should work with
                   HUD to confirm the proper documentation of the stove inventory.

Comment 10 The Authority’s comments state that it has learned some valuable lessons through
           its internal assessment and the OIG’s audit process, recognizes the need to update
           its policies and procedures, improve its recordkeeping, and ensure it employees
           are knowledgeable regarding such policies and procedures. It also states that
           there are a number of very serious mistakes in the draft audit and that the
           conclusions in the draft audit should be management improvement suggestions as
           opposed to audit findings against the Authority.



27
     United States Government Accounting Office, GAO-09-33, June 2009
                                                      53
                  We acknowledge the Authority’s recognition that it needs to update its policies
                  and procedures, improve its recordkeeping, and ensure its employees are
                  knowledgeable regarding the policies and procedures is a very positive first step.
                  It must now follow through with the development and implementation for these
                  very important elements of internal control. Regarding the Authority’s comment
                  that the draft audit contains very serious mistakes, we adjusted the report where
                  needed and disclosed them in our response to these comments. The information
                  in this report includes a possible default of the Annual Contributions Contract.
                  The OIG has a responsibility to report serious matters.

Comment 11 The Authority’s comments are unclear as to when it learned of the misuse of
           public housing funds. It states that the Authority itself identified the ineligible use
           of funds and took action but the timing is not stated. In other locations in the
           comments, it states that it took action after learning of the misuse of funds in June
           2014 when the audit report was issued.

                  Had the Authority maintained an accurate ongoing record of the interfund
                  accounts, it would have known of the pending audit results long before the fiscal
                  year 2013 report was issued in June 2014. It should also have immediately ceased
                  funding nonfederal uses with Federal funds at that time. It should also have
                  provided information on interfund transfers board meetings.

Comment 12 The Authority objected to our statement in the report saying that it had transferred
           its former office space to its related nonprofit without HUD approval. Its
           comments state that HUD has made it clear to housing authorities that
           instrumentalities, such as its nonprofit, are considered the housing authority and,
           as such, the Authority’s conveyance of ownership of its office building to its
           instrumentality is not a disposition and does not trigger the need for HUD
           approval.

                  The Authority cannot transfer or dispose of a public housing property to itself,
                  including its instrumentalities. Public housing grant funds cannot be used for
                  development without following 24 CFR Part 905 and placing the building under
                  the Annual Consolidated Contract and having a Declaration of Trust. Even if the
                  Authority obtained a Declaration of Trust, there is a constructive use restriction
                  on the former office building by that same statute. 28

Comment 13 The Authority’s comment state that the Executive Director did not make a
           statement that “there was no plan for dealing with” the refinancing.

                  We did not state that the Authority did not have a plan for dealing with the
                  refinance of the $3 million balloon payment. We stated that there was no

28
   24 C.F.R. § 905.505(a) states that a PHA shall obtain written HUD approval for all Capital Fund financing
transactions that pledge, encumber, or otherwise provide a security interest in public housing assets or other
property, including Capital Funds, and use Capital Funds for the payment of debt service or other financing costs.
                                                         54
              concrete plan for dealing with the matter. During our fieldwork, the executive
              director informed us of at least three potential plans for dealing with the
              refinancing of the $3 million balloon payment – none of those plans included
              bond refinancing as an option.

Comment 14 The Authority’s comments state that it acknowledges that certain cash
           disbursements were ineligible or unsupported.

              For any unsupported amounts, the Authority should provide the HUD Columbia
              field office the necessary supporting documentation when requested as part of the
              audit resolution process.

Comment 15 The Authority disagreed that its records were not auditable.

              As stated in the report, the Authority was unable to provide records establishing
              the proper use of HUD funds; thus, the records were not auditable.

Comment 16 The Authority’s comments state that it did not have sufficient time, two business
           days, to respond to our concerns with seven journal vouchers.

              During the audit, we attempted to obtain an explanation for these journal vouchers
              from the Authority’s management, the chief financial officer, and the senior
              accountant. They were not able to explain the journal vouchers or provide the
              missing voucher. Journal vouchers should be self-explanatory and all journal
              vouchers should be retained. The Authority provided no information to contradict
              the journal voucher deficiencies in the report.

Comment 17 The Authority stated that it had disclosed its ineligible use of public housing
           funds to the HUD Columbia field office well prior to the draft audit report being
           issued.

              However, the Authority does not state when this occurred. We met with the HUD
              Columbia field office staff on April 21, 2014, and asked if they were aware of the
              finding in the pending FY 2013 audit report. The Staff that we spoke with told us
              that they were not aware of the finding or what was in the report since it had not
              been submitted at that time. In order to prevent possible miscommunication, in
              the future it may be better to provide written documentation regarding such
              matters to the HUD field office.

Comment 18 The Authority state that it does not believe that HUD Columbia should declare a
           breach of Section 9C of the Consolidated Annual Contributions Contract. If HUD
           Columbia believes it needs to declare such a breach, then it should deem the
           breach cured by the actions of the Authority in disclosing this issue previously to
           HUD Columbia and then correcting and reimbursing theses ineligible
           expenditures.

                                               55
              Only the HUD Assistant Secretary for Public and Indian Housing, in consultation
              with the HUD Office of General Counsel, can declare a breach of the Consolidate
              Annual Contributions Contract, not the field office. HUD will consider all the
              facts, including those cited by the Authority, before making such a determination.

Comment 19 The Authority’s comments state that HUD OIG’s concern that a possible violation
           of the ACC may have occurred due to the inability of the Authority to provide
           reconciled interfund balances since September 30, 2013, was based upon
           conversations with certain unidentified staff of the Authority.

              Our concern that a possible violation of the ACC may have occurred was based
              upon the inability of the interim Chief Financial Officer and the Senior
              Accountant to provide us with reconciled interfund account balances since the end
              of fiscal year 2013.

Comment 20 The Authority’s comments state that the findings in the draft audit do not warrant
           a recommendation to pursue administrative sanctions against the executive
           director and the board for misuse of HUD program funds.

              We acknowledge that the issues with the Mary Wright Center were inherited by
              the current Executive Director. However, as noted in our report, the Authority
              received a finding for ineligible use of federal funds (Section 8) in its FY 2010
              audit report and then again in FY 2013 (Public Housing funds) under the current
              management. Furthermore, the Executive Director informed us during the review
              that the Authority would continue to use federal funds to pay nonfederal expenses
              because there was no other viable option for the Authority. We believe that the
              contents of the report justify the recommendation.

Comment 21 The Authority’s comments state that OIG greatly overstated the Authority’s
           procurement deficiencies and made a number of mistakes in analyzing the
           Authority’s compliance with applicable procurement requirements. Specifically,
           it states that the roof repair contract was for certain of the Authority’s project
           based Section 8 developments and not subject to procurement regulations.

              We based our results on the documents as provided by the Authority, and not
              what the Authority is now saying these documents intended to mean. In its
              invitation for bids for the roofing contract, the Authority clearly stated the
              contract would be for public housing units as follows: “This IFB is to help SHA
              in the up keep of our Roof Systems in our Public Housing Communities. One of
              our top priorities is to maintain the conditions of our roofs in all our Public
              Housing units and to ensure the quality and craftsmanship in the Roofing
              Replacement Services.” However, although the invitation for bid erroneously
              specified public housing, upon further review of the accounting records we
              determined that the repairs were actually paid for from the Section 8 project based

                                              56
              account and not public housing. As such, we removed the contract from the
              report.

Comment 22 The Authority’s comments state that the OIG failed to recognize that a number of
           contracts followed small purchase procedures that have different requirements.
           This led the OIG to vastly overstate the number of procurement deficiencies, the
           number of expired contracts, and the level of unsupported and ineligible amounts.

              We determined that all but three of the procurements, including expenditure of
              non-federal funds, were above the $100,000 threshold. However, the limited
              documentation provided for two of the three procurements under the small
              purchase threshold (fire damage and grading) show the Authority either issued an
              Invitation for Bids or requested proposals from vendors. Therefore, small
              purchase threshold rules do not apply. Additionally, the Authority did not
              conduct a cost analysis for the design contract. This is required regardless of
              what procurement method is used.

Comment 23 The Authority’s comments state that it was able to locate nearly all of the
           procurement files that the OIG identified as missing and provided nearly all such
           documentation to the OIG at the exit conference.

              The Authority’s staff was unable to provide sufficient procurement
              documentation while the audit team was onsite. In an effort to obtain
              procurement files or other documentation, we spoke with the procurement officer
              and senior staff on several different occasions. During the exit conference, we
              informed the Authority that we would provide the information they were able to
              locate, and provide to us, to the HUD Columbia field office to assist in clearing
              the report recommendations.

Comment 24 The Authority’s comments state that we did not provide them with detailed
           information regarding the specific procurements we reviewed.

              During the entrance conference, we were told that the procurement officer would
              be our point of contact for anything procurement related. While onsite, we were
              in constant communication with the procurement officer regarding our
              procurement sample, and while looking for documentation. When the
              procurement officer was unable to provide us with the documentation we
              requested, we spoke with senior management about what we needed. After taking
              notes on several occasions, management provided us with everything they said
              was available after reviewing their files.

Comment 25 The Authority’s comments state that it does not believe that $54,997 it spent for
           the independent public accountant contract is unsupported because it received
           value commensurate with the cost.


                                              57
              Although we acknowledge that the Authority may have received value, it still
              needs a properly executed contract. A written contract specifies the
              responsibilities of the parties to the contract, protects their interests if there is a
              dispute, and specifies the payment terms.

Comment 26 The Authority’s comments state that we did not provide them with specific
           contract information for the accounting services contract as promised.

              The Authority was aware that we were looking at the 2012 accounting services
              procurement. During our review, we met with senior management several times
              to get documentation concerning the accounting services. We were in constant
              communication with the former chief financial officer to get the complete
              procurement file. The Authority eventually provided a stack of documentation,
              including spreadsheets and emails, not in any order. We received the 2012
              contract only after we contacted the contractor directly.

Comment 27 The Authority’s comments provided further information regarding the contract for
           fire damage repair services. It contends that the contract should be considered a
           micro-purchase contract since the Authority only utilized $1,000 of public
           housing money. It further contends that even if the OIG analyzed this as a small
           purchase, the Authority met the small purchase procurement requirements.

              The information the Authority provided in its comments regarding the fire
              damage contract was not made available during the audit. In response to our
              questions for this contract during the audit, the Authority was only able to provide
              us with the scope of work, two bids, a pre-bid meeting write up, and a contract.
              No other information, such as the Invitation for Bid mentioned in the comments,
              was provided. Further, since the Authority issued an invitation for bids, the small
              purchase procedures mentioned by the Authority would not apply.

Comment 28 The Authority’s comments contain numerous details regarding procurement of
           public relations contracts.

              This information was not made available during the audit despite numerous
              requests. In response to our questions for more information about this
              procurement during the audit, the Authority could only provide a copy of the 2013
              contract.

Comment 29 The Authority’s comments state that it is unaware of details regarding the security
           contract because it occurred during the previous authority administration.

              It is irrelevant that the contract occurred during the previous Authority
              administration because the record retention rule in 24CFR85.42 require that the
              Authority maintain procurement records for three years after the final expenditure
              report. This procurement was active since the most recent financial records

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              showed check numbered 225137 was disbursed on July 2, 2014. Based upon this
              latest payment date, the regulations required the Authority to maintain the security
              contract procurement records until at least July 2017.

Comment 30 The Authority’s comments state that it is not true that it used three vendors to
           provide temporary staff without entering into a contract or following any
           procurement requirements.

              During our audit, the Authority could provide no documentation to support their
              selection of these vendors. We contacted the three vendors referenced in the
              report and verified that they had no contracts.

Comment 31 The Authority’s comments state that the pest control contract was only expired for
           2014 because it had executed a renewal option contained in the 2011 contract that
           covered 2012 and 2013. It further states that amounts paid without a contract
           should not be unsupported because it received value for the payments.

              Although we agree that the 2011 contract allowed for the possibility of the option
              period, no information we were provided during the audit showed that an option
              had been exercised. In addition, although the Authority may have received value
              associated with payments it made when it had no contract in force that does not
              negate the requirement to document the exercising of an option.

Comment 32 The Authority’s comments claim that the unit turnaround contracts were only
           expired for 2014 because it had renewed them for 2012 and 2013 as provided for
           in the contracts.

              We based our conclusion on the documents provided by the Authority. Its
              contracts required the Authority to execute a written change if the time period or
              dollar threshold were exceeded. Each of the three contracts was originally for one
              year and was not to exceed $80,000. The Authority did not have the written
              documentation to show the contracts were renewed, as was its option, or that the
              contractors could exceed the $80,000 per contract threshold.

Comment 33 The Authority’s comment state that the refuse contract was not expired because it
           had exercised an option to renew the contract. It also provided an explanation of
           why the final contract was over twice the bid price.

              Like the unit turnaround contracts, its refuse contract required the Authority to
              execute a written change if the contract period or dollar threshold was exceeded.
              Again, the Authority did not comply with the requirement for documenting the
              extension of the time or the dollar threshold. In addition, during the audit, the
              Authority was unable to provide any explanation or documentation as to why it
              awarded the refuse contract at over twice the bid price.


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Comment 34 The Authority’s comments state that the OIG failed to note that the grading
           contract was entered into pursuant to a small purchase procurement and contains a
           lengthy explanation of why it believes that it properly procured the grading
           contract.

              The Authority’s explanation of what occurred during this procurement may be
              correct; however, this information was not provided to us during the audit, either
              through file documentation or by explanation by Authority staff. We were
              provided a contract, copies of four proposals, and little else. As such, without a
              clear history, we could not determine the type of procurement the Authority had
              performed and whether it had followed the applicable requirements.

Comment 35 The Authority’s comments state that the architect and engineering contract was
           properly procured because it was a small purchase and some requirements, such
           as the advertising requirement, did not apply.

              While we understand the fact that the current amount spent on the contracts would
              qualify as a small purchase, the Authority procured three contracts within this
              procurement, and signed indefinite quantities contracts not to exceed $100,000. If
              the Authority had given all of the work in this procurement to one vendor, it
              would have clearly been above the $100,000 threshold, in total. HUD Handbook
              7460.8 Rev 2 Chapter 5.3(C) states, “the Contracting Officer shall not break down
              requirements aggregating more than the small purchase threshold into multiple
              purchases that are less than the applicable threshold merely to permit use of the
              small purchase procedures or avoid any requirements that apply to purchases that
              exceed those thresholds. However, larger requirements may be broken into
              smaller ones to afford small and minority businesses the opportunity to participate
              in the PHA’s procurements. The Contracting Officer should document in the
              contract file the reasons for breaking down larger requirements into smaller ones.”
              There was no such documentation in the Authority’s files.




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Appendix C
                          PROCUREMENT DEFICIENCIES

                                         Procurement Deficiencies
     Type of     Unsupported      Ineligible     Lack of      Insufficient       Lack of      Expired        Lack of
     contract      amount          amount        history       advertising      executed      contract         cost
                                                             documentation      contract                     analysis
Independent           $47,522                       X              X                              X             X
public
accountant
contract
Accounting            $98,125                       X              X                              X             X
services
Fire damage            $1,000                       X              X
contract
Public                $61,621                       X              X                                            X
relations
Security            $691,584                        X              X                                            X
contract
Temporary           $450,435                        X              X                X                           X
services
contract
Pest control        $114,599                        X                                             X
contract
Unit                $531,758          $1,102                                                      X
turnaround
Refuse              $151,422                        X                                             X
contract
Grading             $46,880 29                      X              X                                            X
contract
Architect             $25,902                       X              X                                            X
and
engineering
Design                 $6,400                                                                                   X
contract
Total             $2,227,249          $1,102       10              8                1             5             8




29
  The Authority charged this amount to the Central Office Cost Center. However, the Authority had plans to
reimburse the Central Office Cost Center when it received Choice Neighborhood Initiative funds.
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