oversight

The South Landry Housing Authority, Grand Coteau, LA, Did Not Always Comply With Federal Procurement and Financial Requirements, Including a Procurement Using Recovery Act Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-08-19.

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

                                               U.S. DEPARTMENT OF
                               HOUSING AND URBAN DEVELOPMENT
                                        OFFICE OF INSPECTOR GENERAL




                                                    August 19, 2014
                                                                                              MEMORANDUM NO:
                                                                                                   2014-FW-1806


Memorandum
TO:           Cheryl Williams
              Director, Public and Indian Housing, 6APH

              //signed//
FROM:         Gerald Kirkland
              Regional Inspector General for Audit, 6AGA

SUBJECT:      The South Landry Housing Authority, Grand Coteau, LA, Did Not Always
              Comply With Federal Procurement and Financial Requirements, Including a
              Procurement Using Recovery Act Funds


                                                 INTRODUCTION

In accordance with our regional plan to review public housing programs and because of
weaknesses identified by the U.S. Department of Housing and Urban Development (HUD), we
reviewed the public housing programs of the South Landry Housing Authority, Grand Coteau,
LA. Our objective was to determine whether the Authority administered its HUD public housing
programs in accordance with regulations and guidance.

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.

                                     METHODOLOGY AND SCOPE

The review generally covered the Authority’s procurement practices, time and leave records,
inventory tracking, financial transactions including credit card purchases, and American
Recovery and Reinvestment Act of 2009 grant from January 1, 2009, to November 30, 2013.
We expanded the scope as necessary to meet the objective. We conducted the review at the
Authority’s administrative office in Grand Coteau, LA, and at the HUD field office and our
offices in New Orleans and Baton Rouge, LA, from December 2013 through May 2014.


                                               Office of Audit (Region 6)
                                819 Taylor Street, Suite 13A09, Fort Worth, TX 76102
                                      Phone (817) 978-9309, Fax (817) 978-9316
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
To accomplish our objective, we performed the following:
   • Reviewed relevant laws, regulations, and other HUD requirements;
   • Reviewed the Authority’s procurement policy and accounts payable procedures;
   • Reviewed the Authority’s financial statements and reports, bank statements, general
       ledgers, invoices, and other supporting documentation;
   • Reviewed the Authority’s procurement and accounts payable files;
   • Reviewed the Authority’s credit card transactions;
   • Reviewed HUD’s monitoring reports;
   • Reviewed the Authority’s board meeting minutes and board resolutions; and
   • Interviewed Authority and HUD staff.

We requested the Authority’s financial transactions data, but the Authority could not provide the
data in electronic format. The Authority also did not keep a list of its contractors. From a
review of the general ledger, we identified 15 contractors and reviewed the procurement files for
all 15 to determine whether the Authority followed HUD’s and its own procurement
requirements. Because of possible issues with the Authority’s use of its seven credit cards, we
selected all of the credit cards for review to determine whether the Authority ensured that
purchases were eligible and supported. Lastly, we randomly selected 42 of 402 inventoried
items to determine whether the Authority properly accounted for and tracked the items.

                                           BACKGROUND

The South Landry Housing Authority is a public agency, established to provide safe and sanitary
housing for very low-income families and individuals. It is located at 400 Crape Myrtle Drive,
Grand Coteau, LA, and manages 148 low-rent units. The Authority is governed by a
five-member board of commissioners, which is responsible for establishing policies, hiring an
executive director to manage the Authority’s day-to-day operations, and overseeing the executive
director. From fiscal years 2009 through 2013, HUD provided Public Housing Capital and
Operating Fund program and Recovery Act grant funds. See table 1.

           Table 1: HUD funding
            Fiscal year Operating funds          Capital funds       Recovery Act
                                                                        funds
               2009              $ 356,860              $207,256          $263,721
               2010                 409,814              206,559
               2011                 417,892              170,542
               2012                 365,065                    0
               2013                 381,329              151,682
              Totals             $1,930,960             $736,039            $263,721

Our objective was to determine whether the Authority administered its HUD public housing
programs in accordance with regulations and guidance.




                                                2
                                                   RESULTS OF REVIEW

     The Authority did not comply with HUD regulations when administering its procurement and
     financial operations. Specifically, it

           •   Violated HUD’s and its own procurement requirements,
           •   Improperly used its credits cards,
           •   Did not properly account for and track its inventory,
           •   Did not maintain proper time and leave records for employees, and
           •   Failed to maintain official board records or give public notice of board meetings.

     These conditions occurred because the Authority did not have (1) adequate oversight by the
     board and its former executive director or (2) finalized and approved written policies and
     procedures to govern its procurement activities, credit card use, inventory, time and attendance
     tracking, and board proceedings. As a result, it incurred questioned costs totaling more than $1
     million, and could not provide assurance that it was operated effectively, spent HUD funds in
     accordance with requirements, and protected those funds from waste and abuse.

     The Authority Violated HUD’s and Its Own Procurement Requirements
     The Authority is required 1 to maintain procurement records for each contractor. However, a
     review of procurement files for 14 contractors determined that the Authority did not maintain
     adequate procurement documentation as it did not have a contract or procurement file records 2
     for 8 contractors and did not perform an independent cost estimate 3 for 6. See table 2.

Table 2: Procurement deficiencies
         Contractor name            Total disbursement or funding source                      Deficiency
                                    Operating    Capital    Recovery Act
 Barras Architects                               $ 31,352                         No independent cost estimate
 Custom Computer Systems              $14,795                                     No procurement file
 Digitech Office Machines               1,828                                     No procurement file
 E.L. Habetz Builders, Inc.                       139,968                         No independent cost estimate
 Gilbert’s Computer Services            9,238                                     No procurement file
 Housing Solutions Alliance            37,269                                     No independent cost estimate
 L.K. Breaux & Associates                                        $134,726         No independent cost estimate
 Management Resource Group             18,543                                     No contract or procurement file
 Mike Estes, P.C.                      40,330                                     No procurement file
 Peter Smith                            3,760                                     No contract or procurement file
 Petron, LLC                                      184,000                         No independent cost estimate
 R.M. Fire Protection                  15,114                                     No contract or procurement file
 Smith’s Plumbing                       6,560                                     No contract or procurement file
 True Construction                                247,084                         No independent cost estimate
 Totals                              $147,437    $602,404        $134,726


     1
           The Authority was required to follow HUD requirements at 24 CFR (Code of Federal Regulations) 85.36.
     2
           HUD Handbook 7460.8, REV. 2, Procurement Handbook for Public Housing Agencies, Section 3.3(A)
     3
           24 CFR 85.36(f)



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For the eight contractors with no contract or procurement documentation, the Authority used the
small purchase method to acquire the services but did not document that it received quotes from
other contractors, as required. 4 In addition, three of these contractors have provided professional
or technical services to the Authority on a continued basis for the past 17 years without the
Authority ever executing a contract. 5 As related to the six with no independent cost estimates,
the Authority used the competitive proposal or sealed bid procurement methods to acquire the
services; however, the Authority did not obtain an independent cost estimate 6 before awarding
the contracts.

In addition, the Authority did not have documentation to justify why it did not ensure full and
open competition 7 for two of its contracts. For its combined 2009 and 2010 Capital Fund grant
project, the Authority awarded its architectural and engineering contract to Barras Architects
without soliciting competitive proposals from other architectural firms and used Barras
Architects for all of its Capital Fund projects from 2007 to 2011. As related to its accounting
contract, Housing Solutions Alliance had been the Authority’s fee accountant since 2002.
Instead of advertising periodically, the Authority continuously renewed the contract.

The Authority Improperly Used Its Credit Cards
The Authority had seven credit cards, including six business credit cards in its name and a Chase
Visa credit card in its former executive director’s name with one to five users or cards.
Regulations prohibit the use of program funds to pay interest or late fees on credit cards 8 and
membership fees other than to business, technical, and professional organizations. 9 Also, costs
must be supported as well as necessary and reasonable 10 for the effective operation of housing
programs. During the review period, the Authority used $3,840 in program operating funds to
pay ineligible credit card late fees, and finance charges, and ineligible membership fees. See
table 3.

         Table 3: Ineligible interest, late fee, and membership expenditures
             Expenditure description          Chase Visa       Sam’s Club     Exxon Mobil
          Interest charges                            $416             $262         $ 933
          Late fees                                    225              565           754
          Annual membership fees                                        685
          Totals                                        $641         $1,512         $1,687

In addition, the Authority used its credit cards to purchase many questionable items, such as
food, drinks, candle warmers, candy, ice machine repairs, foam pillows, portable heaters, and
meals at restaurants. However, it did not have documentation to support $144,263 of these and
other credit card purchases. See table 4.



4
     HUD Handbook 7460.8, REV. 2, Section 5.1 and 5.5(D)
5
     HUD Handbook 7460.8, REV. 2, Section 5.5(C)
6
     24 CFR 85.36(f)
7
     24 CFR 85.36(c)1
8
     Appendix B to 2 CFR 225(23)(a)
9
     Appendix B to 2 CFR 225(28)(a)
10
     Appendix A to 2 CFR 225(c)(1)(a)(j)



                                                    4
           Table 4: Purchases lacking supporting documentation
                         Credit card name                      Amount
            Sears                                                    $ 76,165
            Lowe’s                                                     28,796
            Sam’s Club                                                 21,387
            Chase Visa                                                 11,835
            Office Depot                                                5,601
            Home Depot                                                    479
            Total                                                   $144,263

When asked about some of the charges on the Chase Visa, the Authority provided several
explanations. For example, for the meals purchased at restaurants, the Authority stated that
employees were taken to lunch for national employee recognition days, such as boss’s day or
secretary’s day and board members received an annual Christmas meal. In another example, the
Authority purchased items for and prepared an annual gumbo for its housing residents, vendors,
councilman, alderman, and others. However, there was no documentation in the file showing
approval or how these meals or other purchases were necessary and reasonable for the effective
operation of the Authority’s programs.

The Authority Did Not Properly Account for and Track Its Inventory
The Authority is required to take inventory once every 2 years and maintain a control system to
ensure adequate safeguards for preventing loss, damage, or theft of property. 11 However, site
inspections determined that for 42 items on the Authority’s inventory list, it could not account
for 7 appliances 12 purchased between January 1996 and August 2013 from its capital funds for a
total cost of $2,070. In addition, for 89 other appliances, the inventory list did not have
information regarding where the items were located, such as in a housing unit or storage.

The Authority Did Not Maintain Proper Time and Leave Records for Its Employees
The Authority’s policy13 required the employees and supervisors to certify in the time records
that employees’ recorded work and leave hours were accurate. However, a review of the records
determined that they were not always certified. The Authority’s policy also required employees
to use a time clock. However, the former executive director required employees to submit a
manual daily work and time log and a printed monthly calendar showing the leave taken. The
former executive director, who was also the timekeeper, recorded each employee’s leave
information 14 on a leave record card, but employees did not have access to this information. In
addition, information regarding the employees’ leave balance, use, and accrual was not included
on their payroll documents, preventing employees from having records of their leave.




11
     24 CFR 85.32(d)(2-3)
12
     Five ranges and two refrigerators
13
     Authority’s personnel policy, dated May 2004
14
     The former executive director used the Louisiana State Civil Service’s leave crediting table to determine leave
     earned for each employee.



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The Authority Failed To Maintain Board Records or Give Public Notice of Its Meetings
The Authority is required 15 to give written notice of its regular meetings, with an agenda, and
keep written minutes of all meetings as public record. However, the Authority neither advertised
notices of its board meetings nor prepared written meeting agendas. It also did not maintain
official records of its board minutes and board resolutions as none of the board documents were
certified with approving signatures or the Authority’s seal. By not following the requirements,
the Authority prevented residents and the public from being informed about its operations,
performance, and policies.

The Authority Did Not Have Adequate Oversight or Written Policies and Procedures
The board is expected to provide leadership, support, and oversight of the executive director and
establish and approve policies that comply with Federal program regulations as well as State and
local laws. The executive director is responsible for ensuring that the Authority’s day-to-day
operations comply with HUD requirements. However, the board had not received training and
was unaware of it roles and responsibilities. Also, while the Authority had written by-laws to
govern its board, those by-laws were more than 50 years old 16 and included procedures that
conflicted with program requirements. For instance, the bylaws stated that regular board
meetings may be held without notice; however, as discussed above, the Authority is required to
provide notice.

In addition, the Authority did not have controls in place to ensure that the Authority’s day-to-day
operations complied with HUD requirements. Specifically, although the Authority had 22
written policies, the board had approved only its procurement policy, which was dated June
2009. The remaining 21 policies were either incomplete or still in draft form, lacked effective
dates of implementation, and were not provided to staff. Lastly, employees did not receive
proper training. For example, one Authority employee, who had been with the Authority for 17
years and assisted with procurement, had received procurement training only once in November
2013.

Conclusion
Because the Authority’s management failed to implement adequate controls and provide
adequate oversight, the Authority incurred questioned costs totaling more than $1 million and
could not provide reasonable assurance that it was operated effectively, spent HUD funds in
accordance with requirements, and protected those funds from waste and abuse.




15
     Louisiana Revised Statute 42:19 and 20.
16
     The by-laws did not show an effective date; however, approved board resolutions included within the by-laws
     were dated 1960.



                                                        6
                                              RECOMMENDATIONS

We recommend that the Director, Office of Public Housing, New Orleans, LA, require the
Authority to

1A.       Support that disbursements made to Barras Architects, E.L. Habetz Builders, Petron, LLC
          and True Construction were reasonable or repay $602,404 17 from non-Federal funds to
          HUD for contractor disbursements without adequate procurement records. In addition,
          provide justification showing why it did not ensure full and open competition for its
          contract with Barras Architects.

1B.       Support or repay $147,437 from non-Federal funds to its Operating Fund program for
          contractor disbursements without adequate procurement records. Specifically, provide a
          contract or procurement file for Custom Computer Systems, Digitech Office Machines,
          Gilbert’s Computer Services, Management Resource Group, Peter Smith, R.M. Fire
          Protection, Smith’s Plumbing and Mike Estes, P.C., as applicable. In addition, provide
          documentation showing why it did not ensure full and open competition for its contract
          with Housing Solutions Alliance and that disbursements made to this contractor were
          reasonable.

1C.       Support that disbursements made to L.K. Breaux & Associates were reasonable or repay
          from non-Federal funds $134,726 to HUD for transmission to the U.S. Treasury for
          amounts paid from its Recovery Act funds for contracts without adequate procurement
          records.

1D.       Repay $3,840 from non-Federal funds to its Operating Fund program for amounts paid
          for ineligible credit card purchases and transactions.

1E.       Support or repay from non-Federal funds $144,263 to its Operating Fund program for
          credit card purchases that did not have receipts or other support.

1F.       Support or repay from non-Federal funds $2,070 to its Capital or Operating Fund
          program as appropriate for the missing appliances.

1G.       Implement internal control procedures to ensure that credit cards are used only for
          eligible costs and that supporting documentation is maintained.

1H.       Perform a physical inventory of all items, update its inventory records, and verify the
          existence of and provide the location of the 89 appliances on its inventory list without
          locations.

1I.       Implement adequate written policies and internal control procedures for its equipment
          inventory and record keeping.


17
      Barras Architects $31,352, E.L. Habetz Builders $139,968, Petron, LLC $184,000, and True Construction
      $247,084



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1J.   Establish and implement a timekeeping policy to include procedures for the certification
      and reviews of work and leave hours for accuracy.

1K.   Provide HUD-approved training to its board members and employees regarding their
      roles and responsibilities.

1L.   Ensure public notices and written agendas are provided for future board meetings and
      board documents are properly recorded and approved.

1M.   Ensure that the board’s by-laws are updated and in compliance with program
      requirements.

1N.   Finalize and obtain board approval of its written policies and procedures.




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Appendix A

                 SCHEDULE OF QUESTIONED COSTS
                  Recommendation           Ineligible       Unsupported
                      number                   1/               2/
                         1A                                   $ 602,404
                         1B                                     147,437
                         1C                                     134,726
                         1D                    $3,840
                         1E                                       144,263
                         1F                                         2,070

                          Totals               $3,840          $1,030,900



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.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation              Auditee Comments


      The interim executive director of the South Landry Housing Authority stated that
      her office had no comments.




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