oversight

The Cumberland Plateau Regional Housing Authority, Lebanon, VA, Did Not Procure Services in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-07-15.

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

 OFFICE OF AUDIT
 REGION 3
 PHILADELPHIA, PA




   Cumberland Plateau Regional Housing Authority
                   Lebanon, VA

        HOME Investment Partnerships Program




2014-PH-1007                             JULY 15, 2014
                                                        Issue Date: July 15, 2014

                                                        Audit Report Number: 2014-PH-1007




TO:            Ronnie Legette, Director, Office of Community Planning and Development,
               Richmond Field Office, 3FDM
               //signed//
FROM:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA


SUBJECT:       The Cumberland Plateau Regional Housing Authority, Lebanon, VA, Did Not
               Procure Services in Accordance With HUD Requirements


    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 Cumberland Plateau Regional
Housing Authority’s HOME Investment Partnerships 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 do not hesitate to call me at
215-430-6730.
                                            July 15, 2014
                                            The Cumberland Plateau Regional Housing Authority,
                                            Lebanon, VA, Did Not Procure Services in Accordance
                                            With HUD Requirements



Highlights
Audit Report 2014-PH-1007


 What We Audited and Why                     What We Found

We audited the Cumberland Plateau           The Authority did not procure services in accordance
Regional Housing Authority’s HOME           with HOME program requirements. It paid three
Investment Partnerships program             contractors to demolish six houses that were not
because a Russell County, VA, special       demolished and maintained a prequalified contractor
grand jury investigation resulted in the    list, which included contractors that were not properly
indictment of four people involved with     licensed. The Authority’s 27 client files contained 115
the Authority’s HOME program. Our           procurement-related violations, and every file
audit objective was to determine            contained at least one violation. As a result, the
whether the Authority procured services     Authority made ineligible payments totaling $312,077
in accordance with U.S. Department of       and unsupported payments totaling $308,797 for
Housing and Urban Development               rehabilitation services that were either not received or
(HUD) regulations and other applicable      not procured in accordance with applicable
requirements.                               requirements.

 What We Recommend

We recommend that HUD direct the
grantee to work with the Authority to
(1) reimburse the grantee’s program
$312,077 from non-Federal funds for
ineligible payments; (2) provide
documentation to support its use of
$308,797 in program funds or
reimburse the grantee from non-Federal
funds for any payments that it cannot
support, and (3) based on the outcome
of the State’s investigation and criminal
trial, make a referral to HUD
recommending administrative sanctions,
as appropriate, up to and including
debarment of the Authority’s former
rehabilitation specialist, the Planning
District Commission’s former deputy
director, and the involved contractors.
                            TABLE OF CONTENTS

Background and Objective                                                  3

Results of Audit
      Finding: The Authority Did Not Comply With HOME Program and Other
      Procurement Requirements                                            5

Scope and Methodology                                                     12

Internal Controls                                                         14

Appendixes
A.    Schedule of Questioned Costs                                        16
B.    Auditee Comments and OIG’s Evaluation                               17
C.    Schedule of Deficiencies and Questioned Costs                       35




                                            2
                            BACKGROUND AND OBJECTIVE

The HOME Investment Partnerships program was created under Title II of the Cranston-
Gonzalez National Affordable Housing Act, as amended, and is regulated by U.S. Department of
Housing and Urban Development (HUD) regulations at 24 CFR (Code of Federal Regulations)
Part 92. The program provides formula grants to States and local units of government that
communities use, often in partnership with local nonprofit groups, to fund a wide range of
activities that build, buy, or rehabilitate affordable housing for rent or home ownership or
provide direct rental assistance to low-income people. It is the largest Federal block grant to
State and local governments designed exclusively to create affordable housing for low-income
households.

HOME funds are awarded annually as formula grants. Participating States and local
governments may choose among a broad range of eligible activities, using program funds to (1)
provide home purchase or rehabilitation financing assistance to eligible homeowners and new
home buyers and (2) build or rehabilitate housing for rent or ownership. States may also use
HOME funds for other reasonable and necessary expenses related to the development of
nonluxury housing, including site acquisition or improvement, demolition of dilapidated housing
to make way for HOME-assisted development, and payment of relocation expenses.

The Cumberland Plateau Regional Housing Authority was organized in 1970 as a political
subdivision under general statutes of the Commonwealth of Virginia. The Authority is governed
by a six-member board of commissioners appointed by the board of supervisors of four counties 1
in southwest Virginia. The Authority’s board of commissioners is responsible for program
oversight, and its executive director is responsible for its daily operations. Its offices are located
at 35 Fox Meadow Drive, Lebanon, VA. The Authority was a subgrantee for HOME program
funds for its indoor plumbing and rehabilitation program (program) from the Virginia
Department of Housing and Community Development (grantee). The grantee provided the
Authority approximately $2.4 million in HOME funds over a 5-year period to administer its
program.

                                Grant year                   HOME funds received
                                  2007                            $569,600
                                  2008                              51,990
                                  2009                             502,413
                                  2010                             807,341
                                  2011                             435,946
                                  Total                         $2,367,290

The Authority engaged the Cumberland Plateau Planning District Commission to provide grant
management services to implement the program’s projects. Both the Authority and the Planning
District Commission were responsible for ensuring that the Authority’s program was
implemented according to applicable rules and regulations.

1
    The counties of Buchanan, Dickenson, Russell, and Tazewell


                                                         3
In August 2011, the grantee received a complaint alleging criminal activity with single-family
housing rehabilitation programs within the Cumberland Plateau region. In October 2011, the
grantee turned the investigation over to the Virginia State Police. That investigation developed
into a special grand jury investigation. The investigation resulted in an indictment of four
people, including one current Authority employee (suspended indefinitely), one former Authority
employee, one contractor, and one former employee of the Planning District Commission. The
Authority’s role as a subgrantee was suspended indefinitely by the grantee on June 4, 2012, due
to the seriousness of the allegations brought against the Authority. The Authority no longer
receives any HOME program funds.

Our audit objective was to determine whether the Authority procured services in accordance with
HUD regulations and other applicable requirements.




                                               4
                                RESULTS OF AUDIT

Finding: The Authority Did Not Comply With HOME Program and
Other Procurement Requirements
The Authority did not procure services in accordance with HOME program requirements. It paid
three contractors to demolish six houses that were not demolished and maintained a prequalified
contractor list, which included contractors that were not properly licensed. The Authority’s 27
client files contained a total of 115 procurement-related violations, and every file contained at
least one violation. These conditions occurred because the Authority did not have a written
agreement with the Planning District Commission that defined the program’s requirements, its
rehabilitation specialist and the Planning District Commission’s deputy director did not
satisfactorily perform their job duties, the Authority did not provide adequate oversight of the
work performed, and the Authority did not have procedures and controls in place to ensure that it
complied with program requirements. As a result, the Authority made ineligible payments
totaling $312,077 and unsupported payments totaling $308,797 for rehabilitation services that
were either not received or not procured in accordance with applicable requirements.


 Client Files Did Not Contain
 Evidence That Procurement
 Requirements Were Followed

              The Authority’s procurement process had significant problems. The Authority
              awarded 27 contracts valued at $1.8 million to 10 contractors during the audit
              period. We reviewed the client files for each of these 27 projects and identified
              115 violations related to procurement. Appendix C provides a summary of our
              results. The Authority

                  •   Executed contracts with four clients who did not legally own the assisted
                      properties until after they signed a HOME-funded rehabilitation contract,
                      resulting in ineligible payments totaling $278,077. Regulations at 24 CFR
                      92.254(c) require that the ownership of the assisted housing meet the
                      definition of home ownership. The grantee’s program manual states that
                      home ownership is created when a family that does not legally own or
                      legitimately control its place of residence becomes the legal owner of its
                      place of residence. The Authority’s management plan states that there are
                      three types of households eligible to participate in the program, including
                      owners of single-family residences, owners of mobile homes built since
                      1978, and persons with life-estate rights.

                  •   Exceeded established cost limits and overcharged $82,133 for base
                      construction costs, administration fees, and construction-related soft costs.
                      Construction-related soft costs include fees for the rehabilitation specialist,


                                                 5
                          engineers, and architects and inspection costs. The Authority’s
                          management plan set the maximum amount payable for base construction
                          costs, administration fees, and construction-related soft costs. The
                          $82,133 the Authority received beyond the established limits was
                          unsupported.

                      •   Accepted faxed bids in the procurement process for four clients. There
                          were two contracts awarded based on a faxed bid. The related payments
                          totaling $114,014 were unsupported. Regulations at 24 CFR
                          85.36(d)(2)(ii)(C) state that if sealed bids are used, all bids will be publicly
                          opened at the time and place prescribed in the invitation for bids. The
                          grantee’s program manual required the Authority to use sealed bids.

                      •   Executed a contract for services when different sealed bids were submitted
                          on the same day from the same contractor for the same project, which
                          resulted in an unsupported payment of $8,000. 2 There was no
                          documentation explaining why the bid awarded was greater than the
                          lowest bid submitted. Regulations at 24 CFR 85.36(d)(2)(ii)(D) state that
                          a contract will be awarded to the lowest responsive and responsible bidder.

                      •   Did not ensure that client files contained a copy of the contractor’s license.
                          The grantee’s program manual states that a construction contract must
                          include the contractor’s name, license number, expiration date, and
                          designation.

                      •   Did not ensure that work was completed within the applicable timeframe.
                          The grantee’s program manual requires that rehabilitation work on a single
                          house be completed within 60 days of the construction start date.

                      •   Paid contractors before inspection and project completion contrary to the
                          Authority’s management plan requirements. The Authority’s management
                          plan states that the Authority must ensure that work is inspected before
                          making payment to contractors.

                      •   Did not verify client income contrary to the grantee’s program manual.
                          To be assisted, regulations at 24 CFR 92.203 require clients to meet
                          income eligibility requirements.

                      •   Did not ensure that client files contained a description of household assets
                          or income. The grantee’s program manual requires that all income and
                          assets be verified by independent source documentation. To be assisted,
                          regulations at 24 CFR 92.203 require clients to meet income eligibility
                          requirements.

2
  This is the difference between the contractor’s two bids ($52,611 - $44,611 = $8,000). The $44,611 bid was the
lowest bid received.


                                                        6
              •   Did not ensure that client files contained construction start and completion
                  dates. The grantee’s program manual requires that construction contracts
                  include the date or number of days until construction will begin.

              •   Did not ensure that the amount of the bid submitted by the contractor
                  equaled the accepted bid amount on the bid summary. The bid form
                  submitted by the contractor listed a bid in both numerical and written
                  form, and the Authority accepted the numerical bid amount. The
                  Authority’s bid form states that bid amounts must be stated in both words
                  and figures and that in case of a discrepancy, words shall govern.

              •   Accepted bids for demolition services when the demolition method was
                  not known at the time the bids were received. Since the demolition
                  method was not known, the Authority could not have determined an
                  accurate cost estimate. Regulations at 24 CFR 85.36(f) state that
                  subgrantees must perform a cost or price analysis in connection with every
                  procurement action. Grantees must make independent estimates before
                  receiving bids or proposals.

           These problems occurred because the Authority did not have a written agreement
           with the Planning District Commission that defined the program’s requirements.
           Therefore, we could not determine whether the Commission was aware of
           requirements and the standards for the expected work product were known as they
           related to the preparation of client files. In addition, the Authority lacked controls
           to ensure that the client files were complete and contained documentation to
           demonstrate compliance with applicable requirements. We could not determine
           why the Authority did not have a written agreement and why it lacked controls
           because the responsible employees were either no longer employed (one of two
           Authority employees and one Commission employee) or suspended indefinitely
           (one Authority employee). Moreover, the grand jury indicted these three persons.

Contractors Did Not Demolish
Homes as Required by Contract

           Although the Authority paid three contractors $43,000 in HOME funds to
           demolish six houses, the contractors did not demolish them. The Authority’s
           management plan for its program stated that homes were to be demolished and
           could not be used for storage or other purposes. The Authority paid contractors to
           demolish 26 houses in 26 HOME-funded projects. However, they demolished
           only 20 of the houses. This condition occurred because, contrary to the
           Authority’s management plan, the Authority’s rehabilitation specialist did not
           always inspect properties to ensure that work was completed as required,
           including the demolition of homes. A lack of oversight by the Authority and the
           Planning District Commission also contributed to this condition, as neither entity
           reviewed the work conducted by the Authority’s rehabilitation specialist or the
           Planning District Commission’s deputy director. Because the Authority paid


                                             7
                  contractors for work that was not performed, the $43,000 3 that the Authority paid
                  was ineligible. The following photographs show three of the six homes that the
                  contractors did not demolish.




                  Client #4: The client’s new house (on the left) was built beside the client’s former
                  home (on the right), which was not demolished and was being used by the client for
                  storage. The Authority paid the contractor $9,500 to demolish this mobile home.




3
  This figure includes $9,000 in ineligible costs related to a client who did not legally own the assisted property until
after signing a HOME-funded rehabilitation contract, which was discussed in the section above. To avoid double-
counting, only $34,000 of the $43,000 discussed here was included in the ineligible costs reported in
recommendation 1A.


                                                            8
Client #14: The client’s former house was not demolished. The Authority
paid the contractor $9,000 to demolish this house.




Client #15: The client’s new house (background) was built behind the former
house (foreground), which was not demolished and was being used by the client for
storage. The Authority paid the contractor $9,000 to demolish this house.




                                      9
    The Authority’s Prequalified
    List of Contractors Included
    Contractors That Were Not
    Properly Licensed

                  The Authority’s prequalified contractor list contained contractors that were not
                  properly licensed. Of 24 contractors that were prequalified to bid on program
                  projects, 7 had issues that should have disqualified them from bidding or working
                  on rehabilitation projects. During the audit period, these seven contractors were
                  either not licensed, their license had expired, or they did not have the appropriate
                  license designation. The Authority awarded contracts to two of the seven
                  contractors. It awarded two contracts to one contractor and one contract to the
                  other contractor. The Authority made unsupported payments to these two
                  contractors totaling $104,650. 4 Regulations at 24 CFR 85.36(c)(4) state that
                  grantees and subgrantees will ensure that all prequalified lists of firms, which are
                  used in acquiring services, are current and include enough qualified sources to
                  ensure maximum open and free competition. The grantee’s program manual
                  states that contractors must be licensed by the Virginia Department of
                  Professional and Occupational Regulation. This condition occurred because the
                  Authority lacked adequate oversight to ensure that all contractors on the
                  prequalified list were properly licensed.

    Conclusion

                  The Authority did not procure services in accordance with HUD regulations and
                  other applicable requirements. It paid three contractors to demolish six houses
                  that were not demolished and maintained a prequalified contractor list, which
                  included contractors that were not properly licensed. These conditions occurred
                  because the Authority did not have a written agreement with the Planning District
                  Commission that defined the program’s requirements, its rehabilitation specialist
                  and the Planning District Commission’s deputy director did not satisfactorily
                  perform their job duties, the Authority did not provide adequate oversight of the
                  work performed, and the Authority did not have procedures and controls in place
                  to ensure that it complied with program requirements. As a result, the Authority
                  made ineligible payments totaling $312,077 5 and unsupported payments totaling
                  $308,797. 6




4
  To avoid double-counting, this figure does not include $59,617 that we classified as ineligible costs and $6,600
that we classified as unsupported costs for the same projects discussed in the two sections of the finding above.
5
  $312,077 = $278,077 + $34,000
6
  $308,797 = $82,133 + $114,014 + $8,000 + $104,650


                                                         10
Recommendations

          We recommend that the Director of HUD’s Richmond Office of Community
          Planning and Development direct the grantee to work with the Authority to

          1A.     Reimburse the grantee’s program $312,077 from non-Federal funds for the
                  ineligible disbursements.

          1B.     Provide documentation to support its use of $308,797 in program funds or
                  reimburse the grantee’s program from non-Federal funds for any amount
                  that it cannot support.

          1C.     Review and update its pre-qualified contractor list to ensure that it
                  includes only properly licensed contractors.

          1D.     Based on the outcome of the State’s investigation and criminal trial, make
                  a referral to HUD recommending administrative sanctions, as appropriate,
                  up to and including debarment of the Authority’s former rehabilitation
                  specialist, the Planning District Commission’s former deputy director, and
                  the involved contractors.




                                            11
                            SCOPE AND METHODOLOGY

We performed our onsite audit work from August 2013 through February 2014 at the Authority’s
office located at 35 Fox Meadow Drive, Lebanon, VA, the grantee’s office located at 468 East
Main Street, Abingdon, VA, and the Russell County Courthouse located at 53 East Main Street,
Lebanon, VA. The audit covered the period January 2010 through July 2013.

To accomplish our objective, we

    •   Reviewed applicable HUD regulations at 24 CFR Parts 92 and 85.

    •   Reviewed State guidance in the Virginia Public Procurement Act.

    •   Reviewed the grantee’s monitoring reports, its contract with the Authority, and program
        guidance established by the grantee in its manual for the indoor plumbing and rehabilitation
        program.

    •   Reviewed the Authority’s program documents, including the administrative plan,
        procurement policy, client files, general ledger, program contracts between the Authority
        and the clients, annual audited financial statements for fiscal years 2011 and 2012, board
        meeting minutes, and organizational chart.

    •   Visited 24 properties assisted with program funds.

We also interviewed Authority and grantee employees and HUD staff.

The Authority assisted 27 clients with HOME funds during the audit period. We reviewed all of
these clients to determine whether they were eligible for assistance and whether the assistance
was provided in accordance with established procurement requirements. Of the 27 HOME-
funded projects, 26 included new construction, with the client’s old house to be demolished,
while 1 client’s house was to be rehabilitated. Between September 19 and November 21, 2013,
we visited 24 of the 26 properties to determine whether the contractors had demolished the
houses as required. We did not visit two properties because we relied on the work conducted by
the Virginia State Police and its determination that the contractors had not demolished the houses
on those properties as required.

To achieve our audit objective, we relied in part on computer-processed data from the grantee’s
computer system and reports from HUD’s Integrated Disbursement and Information System. 7
Although we did not perform a detailed assessment of the reliability of the data, we did perform
a minimal level of testing and found the data to be adequate for our purposes.



7
 HUD’s Integrated Disbursement and Information System provides program information and funding data for the
HOME program.


                                                     12
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.




                                              13
                              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:

               •      Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

               •      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

               •      Safeguarding 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.




                                                 14
Significant Deficiencies

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

             The Authority did not

                •   Have a written agreement with the Planning District Commission that
                    defined the program’s requirements.

                •   Provide sufficient oversight of the work performed by its rehabilitation
                    specialist and the Planning District Commission’s deputy director.

                •   Implement procedures and controls to ensure that it complied with
                    program procurement requirements.




                                              15
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                Recommendation
                                         Ineligible 1/      Unsupported 2/
                    number
                        1A                 $312,077
                        1B                                      $308,797

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.




                                             16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         17
Comment 2

Comment 3

Comment 4



Comment 4




Comment 4




            18
Comment 4



Comment 4




Comment 3


Comment 3




Comment 5




Comment 6




            19
Comment 7


Comment 7


Comment 8

Comment 9

Comment 1

Comment 10




Comment 11




             20
Comment 11




Comment 11


Comment 1


Comment 1

Comment 12


Comment 3



Comment 8




             21
Comment 8

Comment 8




Comment 13


Comment 13

Comment 13


Comment 13


Comment 13

Comment 1




             22
Comment 14


Comment 14




Comment 3

Comment 1




Comment 7

Comment 1

Comment 9




             23
Comment 1


Comment 15




Comment 3

Comment 1



Comment 16

Comment 16




             24
Comment 1




Comment 17




Comment 17




Comment 18




             25
Comment 18




Comment 1




Comment 1


Comment 19



Comment 19




             26
Comment 12


Comment 12




Comment 8
Comment 18

Comment 13
Comment 14




             27
Comment 17




             28
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority stated that it did not have access to the large majority of the
            documents which the auditors reviewed, and which served as the basis for our
            conclusions and recommendations. Due to the ongoing criminal investigation, we
            could not provide the Authority copies of all of the documentation that we
            obtained from its seized files. However, during the audit we provided copies of
            key documents to the Authority to facilitate discussion of the audit issues.

Comment 2   The Authority stated that our scope and methodology were flawed but it did not
            identify the part of the scope and methodology that it believed was flawed.
            However, as stated in the audit report, 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.

Comment 3   The Authority stated that we did not meet with the Cumberland Plateau Planning
            District Commission or its staff. We audited the Authority. The Authority was a
            subgrantee for HOME program funds for its indoor plumbing and rehabilitation
            program that it received from the Virginia Department of Housing and
            Community Development (the grantee). The Authority was ultimately
            responsible for ensuring that its indoor plumbing and rehabilitation program
            complied with HOME program requirements. The Authority engaged the
            Cumberland Plateau Planning District Commission to provide grant management
            services to implement its program’s projects. The Commission’s deputy director
            was the main point of contact associated with the Authority’s program. We did
            not interview the deputy director because his employment had been terminated
            before our audit began and he was involved in a related ongoing criminal
            investigation. We reviewed the documentation seized by the Virginia State Police
            from the Authority and the Cumberland Plateau Planning District Commission
            including the client files for clients assisted through the Authority’s indoor
            plumbing and rehabilitation program.

Comment 4   The Authority stated that we overlooked the undisputed fact that the scope of the
            Cumberland Plateau Planning District Commission’s work was clearly set forth at
            the outset of the management plan. The Authority asserted that the Commission
            was aware of its administrative duties and responsibilities related to the indoor
            plumbing and rehabilitation program as a result of its management plan.
            However, contrary to its assertion, the management plan is a document created by
            the Authority for the Virginia Department of Housing and Community
            Development. Although it describes the process and procedures it plans to use to
            implement the program, it does not constitute a binding agreement between the
            Authority and the Commission and officially notify the Commission of its duties
            and responsibilities. We found no evidence that the Authority executed a written



                                            29
            agreement or contract with the Cumberland Plateau Planning District
            Commission. The Authority has not provided a copy of an agreement or a
            contract in response to our inquiry. The executive director did not provide a copy
            of the draft contract that he claimed to have prepared and tendered to the
            Commission. Moreover, the audit results showed that the Commission did not
            always comply with program requirements and the Authority did not provide
            adequate oversight of the work performed by the Commission as described in the
            management plan.

Comment 5   The Authority stated that we failed to squarely address the duties (and failings) of
            the Cumberland Plateau Planning District Commission. Although the
            Commission was involved with the implementation of the program, the Authority,
            as a subgrantee of the Virginia Department of Housing and Community
            Development, was ultimately responsible for ensuring that its program complied
            with applicable requirements. The Authority was responsible for overseeing the
            day-to-day operations of the indoor plumbing and rehabilitation program. The
            Authority’s employees including the executive director, rehabilitation specialist
            and financial manager were responsible for performing duties such as preparation
            of cost estimates, bid tabulations, inspection of projects, payment to contractors
            and other administrative duties. Although the Commission was tasked to perform
            some of the administrative duties, the Authority was responsible for ensuring that
            it complied with program requirements.

Comment 6   The Authority stated that it reasonably relied on the Virginia Department of
            Housing and Community Development’s annual compliance and performance
            reviews and random audits to help verify that its program was being conducted
            properly. Although the Department’s 2010 compliance review indicated proper
            procurement procedures were followed, in its 2011 compliance review the
            Department reported that the Authority’s procurement process was not consistent
            with its procurement policy because the Authority allowed faxed bids. The
            Authority was required to ensure that bids be sealed, delivered to a specific place
            at a predetermined time and opened in public. The Authority did not always
            follow procurement requirements.

Comment 7   The Authority stated that we failed to apply the terms of its contract with the
            Virginia Department of Housing and Community Development including the
            special conditions to the agreement. The Authority misinterpreted the terms “set-
            up report” and “construction start dates.” The Virginia Department of Housing
            and Community Development’s manual states that the Department has minimum
            guidelines that may be adopted or revised to a more stringent standard. These
            minimum guidelines state that rehabilitation work on a single house must be
            completed within 60 days of construction start. Furthermore, construction
            contracts between the Authority, its clients and contractors show that the 60-day
            requirement must be followed. The contracts stated that upon commencement of
            work, the contractor agreed to complete the work within 60 calendar days, time




                                             30
              being of the essence. A penalty of $100 a day could be assessed for each day past
              the end of the 60-day agreed upon period.

              The special conditions to the agreement did not address construction start dates,
              but instead addressed “set-up” dates. The agreement stated that the Department
              agreed to pay the Authority the total allowable and eligible amounts set-up,
              approved, drawn down and expended for each project during the contract period.
              The Authority’s set-up requests would be approved if completion reports were
              submitted within 120 days of set-up approval verifying that projects were
              completed promptly.

Comment 8     The Authority stated that the Virginia Department of Housing and Community
              Development approved the set-up and approved (and deemed eligible) all
              amounts submitted by the Authority. The Department established the maximum
              allowable cost limits for the Authority’s program. The Authority’s 2010 and
              2011 management plans, which were approved by the Department, included
              attachments which established maximum allowable cost limits that were more
              stringent than the Department’s requirements. The Authority exceeded its cost
              limits for 26 projects, which resulted in $82,133 in costs that did not comply with
              the cost limits established in its management plan.

Comment 9     The Authority stated that it believed that work was completed within 120 days, or
              within such time as was agreed to by the Virginia Department of Housing and
              Community Development. Contrary to its assertion, the Authority did not ensure
              project completion dates met program requirements. Of the 21 clients whose
              project’s construction was not completed within 60 days of the construction start
              date, there were 2 clients whose construction was not completed within 120 days,
              which is twice the allowable limit.

Comment 10 The Authority asserted that we willfully failed to explore and consider all sources
           of relevant information. The Authority’s statement has no merit. We considered
           all sources of relevant information throughout the audit period.

Comment 11 The Authority stated that we distorted the provisions of the management plan.
           However, the wording in the audit report came directly from the management
           plan regarding eligible households. Specifically, page 42 of the Authority’s 2011
           management plan required that eligible participants be owners of single-family
           residences, owners of mobile homes built since 1978, and persons with life estate
           rights. For the four clients classified as ineligible, none of them owned their
           home at the time of application and none of them obtained life estate rights prior
           to participating in the program. Moreover, none of the files for the four clients
           contained documentation to demonstrate that the clients paid taxes and insurance
           on the subject properties for at least 3 years. Therefore, these clients were not
           eligible for assistance.




                                               31
Comment 12 The Authority requested that the finding and recommendation of repayment be
           deferred for resolution until it can gather documents and information. As part of
           the normal audit resolution process, HUD’s Richmond Office of Community
           Planning and Development will work with the Authority and the Virginia
           Department of Housing and Community Development to resolve the
           recommendations in the audit report within the timeframes prescribed in HUD
           Handbook 2000.06, REV-4.

Comment 13 The Authority stated that our view that the transmission of bid paperwork via fax
           at a point long after the bidding process is at odds with the law. This is incorrect.
           There was only one bid form included in the client file for the winning bidder.
           The bid form showed a faxed timestamp of “01-07-11; 01:54PM; #2/2”, or
           January 7, 2011, almost 5 months after bids were opened. The transmission of
           bid paperwork via fax at a point long after the bidding process is contrary to the
           required sealed bid method of procurement. Moreover, there were two sets of bid
           opening documents in the file dated August 18, 2010. The winning bidder’s name
           and bid amount appeared on one bid opening document but not the other. Also,
           although the bid opening apparently occurred on August 18, 2010, the
           construction contract was not signed until March 3, 2011.

              Regarding the faxed bid in the amount of $54,697, the Authority stated that it
              erroneously accepted the bid. The related payments totaling $54,697 are
              unsupported since the faxed bid should not have been accepted.

              Since we classified the related payments totaling $114,014 as unsupported costs,
              the Authority has the opportunity to provide documentation to HUD to address
              the audit issue and support the payments. By accepting faxed bids when the
              sealed bids were required the Authority created an appearance of impropriety and
              potential fraud.

Comment 14 The Authority stated that the auditor did not know the dates that the bids were
           submitted. However, documentation in the client file indicated that the Authority
           used the sealed bid method of procurement. Accordingly, all bids should have
           been opened on the same day at the same time. The documentation in the client
           file showed that bids were opened on the same day from the same contractor in
           different amounts because there were two sets of bid opening documents dated
           August 18, 2010, in the file. There was no reference in the file to explain this
           situation. There were two bid forms from the same contractor; one bid totaled
           $52,611 and another bid totaled $44,611. The client file does not explain why the
           winning bid was $8,000 more than the lower bid submitted by this contractor.
           Additionally, it appears the bidder’s original bid form as well as the bid amounts
           from the other bidders on the bid opening form had been altered. As a result of
           the issues surrounding the legitimacy of the bid, the $8,000 difference in the two
           bids is unsupported. The Authority has the opportunity to provide documentation
           to HUD to address the audit issue and support the payments.




                                              32
Comment 15 The Authority stated that the observations of the auditor were inconsistent. This
           is not correct. The Authority’s statement is a distortion of the events. The auditor
           identified several inconsistencies in this client file and the auditor sent an e-mail
           to the Authority on January 27, 2014, that discussed them. In the e-mail, the
           auditor noted that on March 10, 2011, the Authority’s inspection review showed
           that the work was 75 percent complete. However, a March 3, 2011, Authority
           inspection review showed that the work was 100 percent complete. On March 11,
           2011, the Authority wrote a check for $18,245 as final payment for completion of
           100 percent of the work. The check was cashed on March 14, 2011. However, on
           April 11, 2011, about a month after the contractor cashed the final payment, the
           contractor certified the work was completed.

Comment 16 The Authority stated that we failed to note savings to the taxpayers, and a benefit
           to the client served, because it erroneously used a numerical bid amount rather
           than the bid amount expressed in words. As stated in the audit report, the
           Authority did not comply with its established procedure when it accepted the
           numerical bid amount. We did not claim any questioned costs as a result of this
           deficiency.

Comment 17 The Authority stated that it, and the Virginia Department of Housing and
           Community Development, during the May 28, 2014, exit conference, noted that
           there was no loss of taxpayer dollars related to the amounts we identified, that
           quality work was performed for the program recipients, and fair value was given
           for the work performed. However, as stated in the audit report, the Authority
           made unsupported payments to two contractors. We reported only $104,650
           because, as noted in footnote 4, to avoid double-counting, we did not include
           $59,617 that we classified as ineligible costs and $6,600 that we classified as
           unsupported costs for the same projects discussed elsewhere in the finding. The
           Virginia Department of Housing and Community Development’s program manual
           stated that contractors must be licensed by the Virginia Department of
           Professional and Occupational Regulation. Accordingly, the Authority will have
           the opportunity to provide documentation to HUD to support its assertion that
           quality work was performed.

Comment 18 The Authority acknowledged that money was paid to contractors for work that
           was not performed and asserted that it should not repay any related funds, rather it
           should ensure the demolition of the homes that were not demolished to ensure that
           no one lives in those substandard homes. As stated in the report, the Authority
           paid contractors to demolish homes, but they did not do so. The $43,000 in
           payments related to the six homes that were not demolished needs to be repaid
           because the payments were ineligible. Ineligible costs are costs charged to a
           HUD-financed program that are not allowable by law; contract; or Federal, State,
           or local policies or regulations.

Comment 19 The Authority requested an extension of time to complete a more thorough
           response to the audit report based on language in HUD OIG audit report 2014-



                                              33
PH-1001. However, during that audit, we requested the auditee provide
documentation to us within 19 days of our request. The auditee requested an
additional 37 days to gather the documentation. In consideration for the auditee’s
needs and due to the constraints an extension would have imposed on the audit
process, we informed the auditee that it could provide the documents to HUD for
review after the audit.




                                34
Appendix C

                               SCHEDULE OF DEFICIENCIES
                                 AND QUESTIONED COSTS

                                                                                                                    Total
                                                                                                     Total           un-
                                                                           Total       Project     ineligible     supported
    Client            Violations noted during file review *              violations     cost         costs          costs
             1   2    3    4    5    6    7    8    9    10    11   12
Client 1         X              X    X                                       3          $57,480     $ 3,500 $         3,300
Client 2         X    X              X    X                                  4           65,981               -      57,997
Client 3         X    X         X    X    X                                  5           76,433               -      68,800
Client 4         X                                                           1           74,550        9,500          4,100
Client 5     X   X              X    X    X         X                        6           78,460       78,460               -
Client 6         X              X         X    X                             4           64,550               -       2,200
Client 7         X              X    X    X                                  4           59,795               -       3,300
Client 8         X              X    X    X    X                             5           68,703               -       3,300
Client 9         X              X    X    X                                  4           56,000        3,000         53,000
Client 10    X   X              X    X    X              X                   6           56,617       56,617               -
Client 11        X              X    X    X                                  4           47,400               -       1,900
Client 12        X              X    X                                       3           74,250               -       3,300
Client 13        X    X         X    X              X          X    X        7           58,250               -      58,250
Client 14    X   X              X    X    X    X    X                        7           73,500       73,500               -
Client 15        X              X    X    X                                  4           72,500        9,000          2,700
Client 16        X              X    X         X         X                   5           67,500               -       3,300
Client 17        X    X    X    X    X    X                                  6           63,821               -      11,300
Client 18        X              X              X                             3           58,536               -       3,300
Client 19        X                   X                   X                   3           68,550               -       5,650
Client 20        X              X    X                                       3           51,990               -       3,300
Client 21        X              X              X                             3           70,375               -       3,300
Client 22        X              X    X    X                                  4           73,500               -       3,300
Client 23        X                                                           1           69,200               -       3,300
Client 24    X                  X    X         X         X     X             6           69,500       69,500               -
Client 25        X              X    X    X         X    X                   6           73,500               -       3,300
Client 26        X              X    X    X                                  4           73,500               -       3,300
Client 27        X                        X         X          X             4           73,250        9,000          3,300
                                                                                                              8
Totals       4   26   4    1    22   21   16   7    5    5     3    1       115       $1,797,691   $312,077       $308,797 9

8
  In addition to the ineligible costs related to violations listed in column 1 of the chart, the total ineligible costs
include $34,000 for payments the Authority made to contractors for demolition services that were not performed for
client 1 ($3,500), client 4 ($9,500), client 9 ($3,000), client 15 ($9,000), and client 27 ($9,000). See report pages 7
and 8.
9
  In addition to the unsupported costs related to the violations listed in columns 2, 3 and 4 of the chart, the total
unsupported costs include $104,650 for payments the Authority made to contractors that were not properly licensed
for client 9 ($49,700) and client 13 ($54,950). See report page 10.


                                                          35
* Violations noted during review:

The violations in this column resulted in ineligible costs (see footnote 8):
   1. The client did not own the property until after the contract was signed. ($278,077 See
       report page 5.)

The violations in these columns resulted in unsupported costs (see footnote 9):
   2. The Authority overpaid for base construction costs, administration fees, and construction-
       related soft costs. ($82,133 See report page 5.)
   3. The Authority accepted faxed bids. ($114,014 See report page 6.)
   4. Bids were submitted twice on the same day from the same contractor for the same
       project. ($8,000 See report page 6.)

The violations in these columns resulted in no questioned costs: (See report pages 6 and 7.)
   5. The contractor’s license, designation, or both were missing from the file.
   6. Work was not completed in the applicable timeframe.
   7. The Authority paid the contractor before inspection.
   8. The client’s income was not verified.
   9. Descriptions of household assets or income were missing from the file.
   10. Construction start and completion dates were missing.
   11. Amounts on contractor bid forms did not equal the amounts on the summary bid sheet.
   12. The demolition method was not known at the time of bidding, yet cost estimates were
       accepted.




                                              36