oversight

HUD Awarded an Architectural and Engineering Contract Without Conducting an Adequate Price Analysis and Paid the Contractor Without Adequate Support

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-03-04.

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

OFFICE OF AUDIT
REGION 7
KANSAS CITY, KS




         U.S. Department of Housing and Urban
      Development, Office of the Chief Procurement
                        Officer

      Contracting for Architectural and Engineering
                        Services




2014-KC-0001                                  March 4, 2014
                                                 U.S. DEPARTMENT OF
                              HOUSING AND URBAN DEVELOPMENT
                                          OFFICE OF INSPECTOR GENERAL




                                                                    Issue Date: March 4, 2014

                                                                    Audit Report Number: 2014-KC-0001

TO:            Keith Surber, Acting Chief Procurement Officer, AC

               //signed//
FROM:          Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT:       HUD Awarded an Architectural and Engineering Contract Without Conducting an
               Adequate Price Analysis and Paid the Contractor Without Adequate Support


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of HUD’s architectural and engineering
contracts.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. This report is issued without recommended corrective actions
for reasons identified in the report itself. 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 do not hesitate to call me at
913-551-5870.




                                                Office of Audit Region 7
                                 400 State Avenue, Suite 501, Kansas City, KS 66101
                                      Phone (913) 551-5870, Fax (913) 551-5877
                          Visit the Office of Inspector General Web site at www.hudoig.gov. 
                                          March 4, 2014
                                          HUD Awarded an Architectural and Engineering
                                          Contract Without Conducting an Adequate Price
                                          Analysis and Paid the Contractor Without Adequate
                                          Support


Highlights
Audit Report 2014-KC-0001


 What We Audited and Why                        What We Found

We initiated this review based on a referral   HUD awarded a manufactured home inspection
involving a multi-State manufactured           contract without conducting an adequate price
home inspection contract awarded by the        analysis and paid the contractor without adequate
U.S. Department of Housing and Urban           support. Specifically, it failed to conduct an
Development (HUD) in which the                 adequate price analysis of all fixed unit price
contractor billed and received excessive       elements, accepted the contractor’s quote without
payments. Our audit objective was to           negotiating, and approved and paid vouchers
determine whether HUD properly procured        without adequate support for travel costs incurred
and made reasonable payments for its           and for subcontracted work. As a result, HUD did
manufactured home inspection contract.         not pay a reasonable price for three inspections
                                               costing $10,000.
 What We Recommend

This report contains no recommendations.
No further action is necessary with respect
to this report because the contract is
complete and it did not exceed the
minimum contract amount of $10,000.




                                                  
                          TABLE OF CONTENTS

Background and Objective                                                       3

Results of Audit                                                               4
      Finding: HUD Awarded Its Manufactured Home Inspection Contract Without
      Conducting an Adequate Price Analysis and Paid the Contractor Without
      Adequate Support

Scope and Methodology                                                          6

Internal Controls                                                              7

Appendix
A.    Auditee Comments and OIG’s Evaluation                                    8




                                          2
                       BACKGROUND AND OBJECTIVE
The U.S. Department of Housing and Urban Development’s (HUD) Office of the Chief
Procurement Officer (OCPO) is responsible for awarding and administering contracts and
purchase orders to achieve HUD’s mission, goals, and objectives. OCPO was established in
March 1998 as part of a HUD reform initiative to streamline and improve HUD’s procurement
operations. It conducts procurement activities in its Washington, DC, office or one of its five
field contracting offices in Denver, CO, Atlanta, GA, Chicago, IL, Fort Worth, TX and
Philadelphia, PA. OCPO is primarily staffed with contract specialists and contracting officers
with support by other staff.

OCPO’s primary function is to obtain high-quality, time-sensitive services and products required
by HUD headquarters to meet HUD’s operational and program mission needs. It also develops
and keeps current HUD’s procurement regulations and procurement-related policies, handbooks,
and procedures. The Chief Procurement Officer serves as HUD’s senior procurement executive.
The Chief Procurement Officer delegates procurement authority to HUD personnel who meet
Federal qualification standards.

HUD program offices must plan their contracting needs annually. OCPO provides customer
service and advice to support acquisition planning and the development of acquisition strategies.
Program offices then submit requisitions for individual contract actions to OCPO in accordance
with their plan. The requisition includes an Independent Government Cost Estimate (IGCE)
from the Program Office to OCPO who relies upon the information in conducting price analysis.
During the request stage, OCPO designs appropriate solicitation and contract documents to
support program mission objectives. Once the contract is awarded, contracting and program
office staff work together to oversee the successful completion of the contract and the delivery of
the needed products and services.

Our audit objective was to determine whether HUD properly procured and made reasonable
payments for its manufactured home inspection contract.




                                                3
                               RESULTS OF AUDIT


Finding: HUD Awarded Its Manufactured Home Inspection Contract
Without Conducting an Adequate Price Analysis and Paid the Contractor
Without Adequate Support
HUD awarded a manufactured home inspection architectural and engineering contract without
conducting an adequate price analysis and paid the contractor without adequate support. As a
result, HUD did not pay a reasonable price for three inspections costing $10,000.


 Inadequate Analysis and
 Support

              Inadequate Price Analysis
              HUD failed to conduct an adequate price analysis of proposed fixed unit
              prices. This contract involved the inspection of manufactured homes in a multi-
              State region. HUD’s cost estimate lacked the direct labor category of an inspector
              or engineer, who would conduct the inspection. It included only the direct labor
              categories of clerical, reviewers, and quality control, for which it estimated 62
              hours, 70 hours, and 20 hours, respectively. HUD estimated that it would cost
              about $12,502 per year for this contract but did not estimate the minimum number
              of inspections that would be completed each year or the cost of each inspection.
              Without an adequate price analysis, it could not show that it was reasonable to
              include $10,000 as a minimum contract amount.

              HUD accepted the contractor’s quote of $1,000, $1,300, $1,800, and $2,000 per
              inspection for the base through the third option year, respectively, without
              negotiating the price or analyzing the quote to determine whether it was paying
              the best price for the service. This quote could not be compared with HUD’s cost
              estimate as HUD did not develop an expected price per inspection.

              Payments Without Adequate Support
              HUD approved and paid vouchers from the contractor without adequate support
              for travel costs incurred and for subcontracted work. These vouchers were for
              manufactured home inspections conducted in the States of Utah and Texas.

              Two of these vouchers included billings for travel reimbursement at the maximum
              amount allowable under the contract for travel to and from the inspection sites in
              Utah. However, the contractor failed to submit support for the travel expenses,
              and the related inspection reports were created by a local Utah company, making
              it apparent that the contractor had not traveled to Utah.


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          Further, according to the contract, the owner of the contractor company was
          required to notify HUD and seek its approval if he subcontracted the
          inspections. However, he subcontracted the two Utah inspections to an
          engineering company based in Cedar City, UT, and the Texas inspection to an
          engineering company based in Hewitt, TX, without HUD’s prior approval to use
          subcontractors.
          	
Unknown Cause
                                  	
          	
          We did not develop the cause of the issues identified as the contracting officer for
          this contract is no longer with HUD and due to the age and the contract amount
          we did not believe it was necessary.

Improper Payments

             HUD did not pay a reasonable price for three inspections costing $10,000 as
             shown in the below table.
              
                       Description          Subcontractor    Invoiced     Invoiced      Total
                                              invoiced      amount for   amount for    amount
                                               amount        services      travel        paid
                    Inspection in Texas         $550           $815                      $815
                   Inspection #1 in Utah        $350          $1,800       $2,108       $3,908
                   Inspection #2 in Utah        $632          $1,800       $2,108       $3,908
                   Final billing to reach
                 minimum contract amount                                                $1,369
                           Total                  $1,532                               $10,000


             HUD paid $4,216 in travel reimbursements for the two Utah inspections. One of
             the properties was located in the same city as the subcontractor company that
             conducted the inspection, and the other property was located about 60 miles
             away. In addition, the local subcontractors charged the contractor $1,532 for the
             three inspections, while HUD paid the contractor $10,000 for the same
             inspections. Based on the underlying costs, HUD overpaid for these
             inspections. However, the details of the amounts billed were inconsequential
             since the contract terms required HUD to pay a minimum contract amount of
             $10,000 regardless of the number of inspections conducted.

             This contract is now complete, and the contractor is not receiving HUD contracts.

Recommendation

             This report contains no recommendations, and no further action is necessary with
             respect to this report.



                                              5
                                               
                        SCOPE AND METHODOLOGY

To accomplish our objective, we

      Reviewed relevant laws, regulations, and HUD guidance, 

      Reviewed information about the principals of the contractors reviewed, and 

      Interviewed HUD staff and contractor staff.  
        

We selected this manufactured home inspection contract based on a referral from the Office of
Investigation. This contract was 1 of 2,107 contract actions by HUD, coded as architectural and
engineering services contracts, between 2009 and 2012.

We performed our audit between September 2013 and January 2014. We performed fieldwork at
HUD’s office in Washington, DC. Our audit generally covered January 1, 2009, through
December 31, 2012, but we expanded that period as necessary to complete our review of the
selected architectural and engineering contract.

Our review involved obtaining a spreadsheet of computer-processed contracting data, but we did
not use the data to support our audit conclusions as the data were used only for background
information. Therefore we did not assess the data’s validity.

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(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                6
                                                 
                              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:

                  Policies and procedures to ensure that architectural and engineering services
                   are competitively procured.
                  Policies and procedures to ensure that all payments are supported by adequate
                   documentation.

               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.

               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance regarding the effectiveness of the
               internal control structure as a whole. Accordingly, we do not express an opinion
               on the effectiveness of HUD’s internal controls.




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                                       APPENDIX

Appendix A

         AUDITEE COMMENTS AND OIG’S EVALUATION

Auditee Comments

The auditee elected not to provide written comments.




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