oversight

The Hot Springs Housing Authority, Hot Springs, AR Did Not Comply With Federal Regulations and Other Requirements When Administering Its Public Housing Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-08-14.

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 14, 2015
                                                                                                MEMORANDUM NO:
                                                                                                     2015-FW-1807


Memorandum
TO:            Johnny Wooley
               Director, Office of Public Housing, 6FPH

               //Signed//
FROM:          Gerald R. Kirkland
               Regional Inspector General for Audit, 6AGA

SUBJECT:       The Hot Springs Housing Authority, Hot Springs, AR Did Not Comply With
               Federal Regulations and Other Requirements When Administering Its Public
               Housing Programs


                                             INTRODUCTION

In accordance with our regional plan to review public housing programs and because of a
complaint filed by a contractor with the U.S. Department of Housing and Urban Development’s
(HUD) Office of the Inspector General (OIG) and issues identified by HUD’s Office of Public
Housing, we performed a review of the Hot Springs Housing Authority. The contractor alleged
that the Authority did not procure a contract in compliance with Federal regulations. In addition,
HUD was concerned that the Authority’s travel costs appeared excessive and that the Authority
had a large staff turnover during a 42-month period 1 in which 64 staff left the Authority. Our
objectives were to determine whether the Authority procured contract services in compliance
with Federal, State, and the Authority’s requirements and whether the Authority spent public
housing funds on allowable costs. We also reviewed the appropriateness of the Authority’s
board of commissioners’ oversight.

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 review.


1
    September 2010 to March 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.
                              METHODOLOGY AND SCOPE

The Authority did not have adequate or complete records, which limited the scope of the review.
As a result, the Authority could not provide a reliable universe of procurements and
expenditures. Therefore, the review results were from a specific non-representative sample
selection. Additionally, we did not interview the former executive director to obtain
explanations for her decisions or additional documentation because the Authority terminated her
and she was the subject of other proceedings.

To achieve our review objectives, we performed the following:

   •   Reviewed relevant laws, regulations, contracts, and other HUD requirements and
       guidance.
   •   Reviewed the Authority’s procurement policy, amended and updated June 23, 2009.
   •   Reviewed the independent public accountant audit reports for the Authority’s fiscal years
       ending June 30, 2012, and June 30, 2013.
   •   Reviewed available electronic financial data from September 1, 2010, to March 25, 2014.
   •   Selected and reviewed 10 contracts to determine compliance with requirements. Because
       the Authority did not have a contract log or procurement master list, it could not provide
       the universe of its contracts. Therefore, we used total contract expenditures and
       concerns, or allegations about specific procurements to select the contracts for review.
   •   Reviewed credit card statements from September 2010 to February 2014 for improper or
       ineligible transactions.
   •   Reviewed a non-representative sample of checks and supporting documents, such as
       invoices and receipts, for improper or ineligible payments. The payments were selected
       based upon the payee including specific vendors, employees, or commissioners.
   •   Reviewed the Authority’s general operating account bank statements from
       October 1, 2010, to March 31, 2014.
   •   Selected and reviewed training and travel costs charged to the Authority’s public housing
       account.
   •   Reviewed the board of commissioners’ meeting minutes for meetings held from
       July 21, 2010, to April 28, 2014.
   •   Subpoenaed training records from seven training vendors.
   •   Subpoenaed fee accountant records from September 2010 to June 2011.
   •   Subpoenaed financial records from the Authority’s software provider.
   •   Interviewed HUD and Authority staff and current and former commissioners.

We conducted the review at the Authority’s office at 1004 Illinois Street, Hot Springs, AR, and
our offices in Little Rock, AR, Fort Worth, TX, and Oklahoma City, OK, from March 2014 to
March 2015. Except as noted above, the scope of the review generally covered the period
September 1, 2010, to March 25, 2014. We expanded the scope through May 15, 2014, for
payments made to the former executive director for apparently unused leave.




                                               2
                                              BACKGROUND

The Authority was established on October 3, 1960, to provide affordable housing to low- and
moderate-income families and individuals. The City of Hot Springs’ board of directors appoints
the five members of the board of commissioners. In addition to providing oversight of the
Authority, the board of commissioners selects the executive director, who also serves as the
board secretary. The executive director is responsible for the efficient day-to-day operations of
the Authority. The former executive director served as executive director from
September 7, 2010, until the board of commissioners terminated her employment without cause,
effective April 23, 2014. She was the executive director during our entire review period. The
board of commissioners hired a new executive director on September 15, 2014.

To help the Authority manage its 375 public housing units, HUD provides operating and capital
funds. The Authority also administers 658 housing choice vouchers. To receive the funds, the
Authority signed contracts stating that it would comply with HUD regulations and requirements.
The following table shows the financial assistance that HUD authorized the Authority for the
review period.

      Table 1: HUD funding for Federal fiscal years reviewed
               Program            2011          2012          2013         2014
       Housing choice           $3,088,182 $2,793,162        $2,989,157 $2,447,045
       vouchers
       Public housing operating  1,162,669     1,244,328      1,340,740 1,346,683
       subsidies
       Public housing capital      466,305       423,800        410,697    376,697
       funds
       Totals                   $4,717,156 $4,461,290        $4,740,594 $4,170,425

                                         RESULTS OF REVIEW

The Authority did not operate its public housing programs in accordance with Federal
regulations and other requirements. Specifically, it improperly procured or lacked support for
the 10 contracts reviewed totaling $611,338. Further, it spent $14,651 on ineligible costs 2 and
did not have support for an additional $51,470. These conditions occurred because the former
executive director ignored or failed to follow Federal regulations and the Authority’s
consolidated annual contributions contract with HUD. In addition, the board of commissioners
failed to provide adequate oversight of the Authority and former executive director. As a result,
the Authority incurred at least $677,459 in questioned costs.

The Authority Did Not Follow Procurement Requirements

The Authority did not comply with procurement requirements or effectively administer its
procurements to ensure that it made financially responsible decisions. For example, it (1)

2
    This included $3,000 in public housing funds spent to maintain non-public-housing properties.




                                                        3
attempted to award or awarded contracts to parties that had apparent conflicts of interest, (2) did
not consistently follow established procurement methods, and (3) did not maintain procurement
records that were reliable or adequate. These conditions occurred because (1) the Authority did
not implement adequate policies and procedures, (2) the board and Authority staff were not
aware of all procurement requirements, (3) the former executive director elected not to follow
the requirements, and (4) the board did not provide adequate oversight or establish an adequate
internal control environment. As a result, the Authority incurred $614,338 in questioned costs. 3

The Authority Attempted To Award or Awarded Contracts to Parties That Had Apparent
Conflicts of Interest
The Authority did not always award contracts to the lowest responsible bidder and awarded a
contract to a business that had an apparent conflict of interest with the former executive director.
The Authority’s records showed that it intended to procure contracts despite apparent conflicts of
interest. For example, in 2012, the Authority determined that it needed to replace the roof and
siding to one of its properties due to damage incurred from a storm. The Authority had two
separate bid solicitations for this work. Both solicitations involved relationships between a
bidder and the former executive director.

In the first bid solicitation in October 2012, the company that submitted the highest bid was the
cousin of the former executive director’s husband. The company also employed the former
executive director’s husband. Further, the Authority had recently hired the wife of the
company’s owner. The Authority canceled the first bid solicitation, despite receiving responsive
bids, 4 because it decided the bids were too low based on insurance estimates. However, after
canceling the first bid solicitation, the Authority conducted its own cost estimate and concluded
that the cost would be approximately within the price range of the bids submitted. Had the
Authority conducted the cost estimate before the solicitation, it would have known that the bids
were within range, and should have awarded the contract to the lowest responsive bidder.
Although the former accountant tried to award the contract to the lowest responsive bidder, the
former executive director did not allow him to make the award.

During the second bid solicitation in December 2012, the Authority violated procurement
requirements 5 by awarding the contract to a contractor that was not the lowest responsive
bidder. 6 After receiving and opening the bids, the Authority interviewed three of the five bidders
to determine which one would be awarded the contract. Under sealed bid procurement
requirements, there was no provision to interview bidders as the purpose of a sealed bid is to
award the contract to the lowest responsive bidder. Further, the bids should be publicly opened
at the time and place prescribed in the invitation for bids. 7 Thus, there was no need to interview

3
    This includes $3,000 in public housing funds that the Authority inappropriately used to maintain
    non-public-housing properties.
4
    The Authority did not accept a low responsive bid from another company in the first bid solicitation.
5
    HUD Handbook 7460.8, REV-2
6
    According to 24 CFR (Code of Federal Regulations) 85.36(d)(2), sealed bids are publicly solicited and a firm
    fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with
    all the material terms and conditions of the invitation for bids, is the lowest in price. The sealed bid method is
    the preferred method for procuring construction.
7
    Regulations at 24 CFR Part 85.36




                                                           4
the bidders. The Authority’s records did not document why it deviated from normal sealed bid
procurement practices. The contractor that was awarded the contract had a working relationship
with the company that was the highest bidder in the first solicitation, which was the company
that employed the former executive director’s husband. The awarded contractor failed to provide
a bid bond as required. 8 In addition, the contractor could not obtain the required performance
bond. Because of these deficiencies, the Authority withdrew the contract and awarded it to
another bidder. In addition to incurring unsupported costs of $246,775 because of improperly
awarding the contract, 9 the Authority exposed itself to a lawsuit from other bidders. For both bid
solicitations, the Authority did not follow basic procurement requirements. 10

In another example, the Authority and its board of commissioners authorized a change in the
Authority’s financial and program management provider. Eight days after the Authority hired
the former executive director, she requested the board of commissioners’ approval to change the
Authority’s accounting system and services. The Authority contracted with a software company
that had previously employed the former executive director. The Authority could not provide
rating sheets for all companies that submitted proposals and the rating sheets that it provided
were unsigned so it was not known who rated the companies. Additionally, after the award of
the contract, the Authority provided change orders to the company without support or
justification. Because of dissatisfaction with the company among board members and staff due
to usability concerns, unreliable data, and undelivered functionality, the Authority discontinued
its contract after approximately 2 years and after the former executive director’s employment
was terminated. The Authority paid the company more than $110,000 and reverted to its
previous financial and program management provider.

The Authority Did Not Consistently Follow Established Procurement Methods
The Authority failed to appropriately perform its fiduciary duty and responsibility to award
contracts by established processes. For 5 of 10 sampled procurements, the Authority did not
follow procurement requirements or methods. 11 Among other things, the Authority

     •   Split contracts to avoid proper procurement procedures such as competitive bidding,
     •   Did not conduct required independent cost estimates, 12 and
     •   Allowed contracts to gradually increase without reevaluating the proper procurement
         method. 13




8
     The Authority’s bid solicitation required a responsive bidder to provide completed, signed, and dated copies of
     the bid form, bid guarantee with bid bond, noncollusive affidavit, and form HUD-5369-A (Representations,
     Certifications, and Other Statements of Bidders, Public and Indian Housing Programs).
9
     The Authority paid a company, which was not the lowest responsive bidder, $246,775 to complete the project.
10
     Regulations at 24 CFR Part 85.36
11
     State of Arkansas Procurement Law and Rules
12
     Regulations at 24 CFR 85.36(f)(1) require grantees to perform a cost or price analysis in connection with every
     procurement action, including contract modifications.
13
     According to State of Arkansas Procurement Law and Rules 19-11-229(b)(1), contracts exceeding an estimated
     purchase price of $25,000 must be awarded by competitive sealed bidding.




                                                          5
The following table shows the common deficiencies for the five contracts.

     Table 2: Procurement deficiencies
                                                                  Improper bid            No independent
               Scope of work                     Split bids        solicitations           cost estimate
       Air conditioner chiller                                           x
       Wheel chair ramp, porch, curb,                 x                   x
       and trough
       Landscaping 14                                                     x                        x
       Parking lot construction                                           x                        x
       Unit demolition and                                                x
       remodeling

The Authority Did Not Maintain Procurement Records That Were Reliable or Adequate
The Authority did not maintain reliable or adequate procurement records as required. 15 It did not
provide evidence that it researched bidders before public opening as required. 16 For example, the
Authority awarded a construction contract for more than $32,000 to a company that was not
licensed to work on contracts greater than $20,000. Further, it did not have support showing that
it procured the services by sealed bid.

The Authority did not have a complete history for any of the 10 procurements reviewed. The
following chart shows the frequency of noncompliance with the requirements.

                         Occurrences of missing procurement documentation

                  Contractor eligibity
        Request for proposals or bids
                      Advertisements
                        Cost estimate
                Selection justification                                                           No support

                       Change orders                                                              Support

                  Contract provisions
                 Complete scorecards
                               Bid log

                                          0     2         4       6       8      10       12


14
     The Authority improperly used $3,000 of its public housing funds to pay the landscaping company for
     maintenance of non-public-housing properties.
15
     Regulations at 24 CFR 85.36(b)(9) require grantees to maintain records sufficient to detail the significant
     history of their procurements.
16
     HUD Handbook 7460.8, REV-2, chapter 10, section.2(C), Contractor Researching Responsibility




                                                              6
The Authority did not effectively administer its procurement activities or follow requirements
because of its failure to implement appropriate policies and procedures; its former executive
director’s improper actions; and insufficient training for its board of commissioners,
management, and staff. Further, its board of commissioners did not provide adequate oversight
to establish effective controls to administer its procurement activities, including selecting the
appropriate contractors, making eligible payments, and maintaining sufficient records. As a
result, the Authority incurred $614,338 in questioned costs.

The Authority Improperly Spent Its Public Housing Funds on Ineligible and Unsupported
Activities

In violation of Federal regulations and its consolidated annual contributions contract, the
Authority spent at least $11,651 of its public housing funds on unallowable costs and did not
maintain adequate support for at least $51,470 in expenditures. For instance, the Authority spent
$1,100 17 for the former executive director’s home security deposit, 18 and the former executive
director charged at least $425 in gasoline to the Authority’s credit card while she was on
vacation leave. 19 HUD required the Authority to spend public housing funds on necessary and
reasonable activities for its program 20 and adequately document its expenditures 21 by maintaining
complete and accurate records. 22 The ineligible expenditures occurred because the former
executive director ignored or failed to follow Federal regulations and the Authority’s
consolidated annual contributions contract with HUD. Further, the board of commissioners did
not properly oversee the former executive director, who charged ineligible costs to her Authority
credit cards and prepared expense reports that included expenses for personal use. Authority
staff either did not have required training or elected not to question the former executive
director’s actions. As a result, the Authority did not have $11,651 available for eligible public
housing program activities and could not support the eligibility of $51,470.




17
     The actual security deposit was $1,000, not $1,100.
18
     State of Arkansas Travel Regulations did not authorize security deposits as an allowable expenditure. It
     authorized only the packing, crating, loading, and unloading of household effects and actual transportation
     expenditures according to the Internal Revenue Service publications.
19
     It was at least $425 because she did not keep clear records of her leave taken.
20
     Regulations at 2 CFR Part 225, appendix A, paragraph C(1)(a)
21
     Regulations at 2 CFR Part 225, appendix A, paragraph C(1)(j)
22
     Section 15(A) of the consolidated annual contributions contract




                                                          7
The following table shows categories of the ineligible activities paid for with public housing
funds.

     Table 3: Ineligible activities totaling $11,651
                                        Activity                                     Amount
                                                23
      Entertainment, gifts, and meals for staff                                       $3,693
                                                      24
      Personal costs of the former executive director                                  3,637
                                25
      Meals for board meetings                                                         2,041
                                                                                  26
      Gifts for public housing residents, including gifts for paying rent on time      1,217
                 27
      Donations                                                                          883
                                                         28
      Guest ticket for spouse of former board member                                     180
      Total                                                                          $11,651

The Authority Did Not Keep Records To Support More Than $51,000
The Authority’s former executive director had not set up a system for documenting her leave and
supporting expenditures. 29 As a result, the Authority incorrectly paid $23,621 to her for accrued
leave upon her termination. Further, the Authority did not keep adequate documentation to
support $14,446 and spent $13,403 on unsupported training. Without the proper controls and
under the influence of the former executive director, Authority staff did not maintain supporting
documentation or justification for payments. Further, the board of commissioners did not
adequately monitor the former executive director’s vacations and expenditures. As a result, the
Authority’s records did not support that it spent at least $51,470 of the $156,647 (33 percent)
reviewed on allowed public housing activities.

The Former Executive Director Did Not Keep Complete Records of Her Leave
The Authority did not have records to show that it correctly paid the former executive director
$23,621 for 482 hours 30 of accrued leave when the board of commissioners terminated her
employment without cause on April 23, 2014. This occurred because the Authority’s staff did
not comply with the Authority’s requirements when calculating leave and improperly made a
retroactive change to the leave accrual based on a November 2013 employment agreement. In
addition, the former executive director did not completely report all leave taken during her
employment with the Authority. As a result, the entire $23,621 was unsupported.
23
     Regulations at 2 CFR Part 225, appendix B, paragraph 20, did not allow the Authority to spend public housing
     funds on goods and services for its staff’s personal use.
24
     Federal regulations did not authorize the former executive director to spend public housing funds for her own
     personal use.
25
     Section 14(B) of the contract prohibited the Authority from paying its commissioners for their services.
     Providing meals at board meetings gave the impression that the Authority compensated its commissioners.
26
     Regulations at 2 CFR Part 225, appendix B, paragraph 20, did not allow the Authority to spend its public
     housing funds for personal use.
27
     Regulations at 2 CFR Part 225, appendix B, paragraph 12, did not allow the Authority to give contributions or
     donations, including cash, property, and services, to any organization.
28
     Federal regulations did not authorize this cost. The former board member wrote that he was not aware that his
     wife was registered as a guest of the conference. Table amounts were rounded.
29
     Regulations at 2 CFR Part 225 required the former executive director to keep complete records.
30
     We rounded the number of hours of leave.




                                                         8
Authority staff miscalculated the former executive director’s accrued leave. Until November
2013, the former executive director did not have an employment agreement, and therefore, she
should have accrued leave according to Authority policy. The former executive director’s
November 18, 2013, employment agreement increased her accrued leave to 200 hours per year
for 2 years and 240 hours thereafter. According to the chairman of the board of commissioners,
without the board’s knowledge, the former executive director required staff to retroactively
implement the contract provisions even though the agreement terms were not retroactive. The
Authority retroactively adjusted her accrued leave for a pay period to reflect 240 hours of annual
leave starting on September 7, 2012. 31 Nothing in the Authority’s policies or employment
agreement permitted this. If the Authority’s staff had calculated the former executive director’s
leave according to the Authority’s requirements, she would have accumulated only 359 hours
instead of the 656 hours that the Authority’s records showed, a 297-hour difference.

In addition to accumulating more hours than supported, the former executive director did not
report used leave. According to leave records, the former executive director reported that she
took only 54.5 hours of leave (almost 7 days) during her more than 3½ years of employment
with the Authority. Upon termination of the former executive director, staff reviewed her
calendar for leave not reported and initially calculated that the Authority owed her $13,519 for
276 hours of unused leave. 32 The calendar included only her scheduled leave from October
2011, approximately 1 year after she was employed. The Authority did not have controls in
place to monitor whether the former executive director took vacation not reported on her
calendar.

After receiving $13,519 for 276 hours, the former executive director claimed that she was owed
additional hours of leave. The Authority then paid her an additional $10,102 for 206 hours of
leave that the former executive director had included in her calendar. According to the chairman
of the board of commissioners, the former executive director disagreed that she took leave on
some of the days since she took her cellphone and computer with her on trips and was in touch
with staff.




31
     This date was 2 years after she was hired.
32
     The calendar showed that the former executive director had 380 hours of used leave (656 original estimated
     unused leave less 380 hours used leave equals 276 hours unused leave).




                                                         9
The following table shows the leave listed on the former executive director’s calendar and the
leave later successfully contested and paid by the Authority.

     Table 4: Leave taken by the former executive director according to her calendar
                                                          Leave
                                                                        Leave hours
                         Reason for trip according        hours
            Dates                                                      contested and
                                to calendar 33          according
                                                                            paid
                                                       to calendar

      October 2011            [former executive director]                 32                   32
                              off
      May 2012                “Kansas for [deleted]                       40
                              Graduation on May 9th”
      August 2012             [former executive director]                 64
                              vacation
      March 2013              “Kansas to city children and                24                   24
                              grandchildren” 34
      April 2013              “austin [sic] for brothers 60               16                   16
                              birthday” 35
      June 2013               [former executive director]                 24                   24
                              out of office
      September 2013          Kansas                                      20                   20
      December 2013           [former executive director] to              20                   20
                              Kansas for Christmas
      February 2014           Cruise                                      40
      April 2014              Leave for Kansas 36                         70                   70
      Various                 Floating holiday hours                      30
      Total                                                              380                  206

In response to allegations that the former executive director was not always at the Authority
during work hours, the chairman of the board of commissioners claimed that she worked at home
in the mornings, answering emails and corresponding with staff. However, she did not have a
telework agreement with the Authority. Another claim made was that the former executive
director worked late on the days when she arrived late. Because of the lack of criteria that might
permit such arrangements, documentation related to the frequency and materiality of
occurrences, and oversight, the Authority did not know whether it paid the former executive
director in excess of her contract terms; that is, paid her when she was not working or on formal
leave.

33
     Names were redacted from the table. The reasons listed closely resemble actual calendar statements.
34
     On these 3 days when she claimed to be working, she charged gasoline to the Authority’s credit card while in
     other States.
35
     On these 2 days when she claimed to be working, she purchased gasoline in Red Oak and Austin, TX, using the
     Authority’s credit card.
36
     The board of commissioners approved these 70 hours as administrative leave, which staff had improperly
     deducted from her vacation balance.




                                                       10
The Authority had no records other than calculations of its employees’ rationale for making these
payments. This condition occurred because the board of commissioners failed to monitor the
former executive director’s use of leave. Further, the former executive director failed to
establish controls to support her leave or ensure that the Authority had controls in place to
maintain accurate leave records. Without these basic controls, the Authority had no reliable
support for the former executive director’s leave payments.

The Authority Could Not Support $14,446
Because the Authority did not keep complete and accurate records, it could not support $14,446
spent for various items. The following are examples of some incomplete and inaccurate records.

   •   Authority staff canceled training, resulting in canceled flights costing $3,346. The
       supporting documents did not show that either the airlines reimbursed the funds or
       Authority staff used the purchased tickets for public housing purposes.
   •   For a $2,475 payment to a department store, the Authority did not have supporting
       documents, such as packing slip(s) and purchase order(s), to show that the purchase was
       for the public housing program.
   •   Using the Authority’s credit cards, the former executive director purchased at least
       $2,400 in gasoline for travel that did not appear to be for public housing purposes.
   •   In May 2012, the former executive director charged a $714 flight to Peoria, IL, to the
       Authority’s credit card. However, the Authority did not have documentation supporting
       the purpose for this trip. Further, the board of commissioners did not approve travel or
       training for this location and time.
   •   The former executive director instructed staff to pay more than $500 from public housing
       funds for magazines delivered to her personal residence.
   •   The former executive director charged more than $500 to the Authority’s credit card for
       car washes and service on her personal vehicle.

The Authority Mismanaged Training of Its Staff
The Authority could not support the necessity or justify the reasonableness of $13,403 in training
costs. It did not set up a system to document that training was approved, completed, reasonable,
and supported. Further, the Authority did not have adequate controls and procedures to ensure
that its staff and board of commissioners received the training necessary to perform their duties
and training funds were used effectively and efficiently. The board of commissioners was
responsible for ensuring that policies were developed and providing oversight of the former
executive director. Neither the former executive director nor the board of commissioners met
these responsibilities. Further, it appeared that the former executive director was the main
beneficiary of the training as she participated in half of the reported training events.
Additionally, some of the training may not have been the most cost effective or beneficial to the
organization. Based upon interviews with staff and the board of commissioners, the lack of
understanding of requirements allowed many of these conditions to occur.

The Authority did not establish or implement a system to identify training needs, approve
training, support training costs, or determine the cost reasonableness of the training. Authority
staff kept only two training certificates in a training file, and the documents attached to its check



                                                 11
copies generally did not support that staff completed the training. As with other expenditures,
the Authority was required to retain documentation to support payments. With the high turnover
of staff during the former executive director’s tenure, the Authority should have focused on
ensuring that staff members had the skills to do their jobs and carry out the mission of the
Authority.

Some of the training that the former executive director attended did not appear to be required for
her specialized knowledge. For example, she attended a 4-day user conference in Lexington,
KY, given by the software company that she worked for before her employment with the
Authority. 37 According to her resume, her job duties with the software company included
assisting clients in retrieving data, identifying internal training needs, providing training, and
setting up new software. She also trained fellow staff members, implemented training standards
and certifications, developed and enhanced the product, assisted with writing specifications, and
tested the final product. Given this experience, it seems unreasonable to send her to additional
training in the use of this software. The Authority spent at least $2,386 in travel costs to send her
to this training.

Instead of attending available training within the area, the former executive director and board of
commissioners often attended training out of State. For instance, according to HUD, the
National Association of Housing and Redevelopment Officials held training for commissioners
in Arkansas four times a year. Rather than attending training in Arkansas, the former executive
director and several members of the board of commissioners attended training in San Diego and
Martha’s Vineyard. The Authority incurred questionable travel costs of $4,402 38 for airline
travel.

                                               CONCLUSION

The Authority did not comply with Federal or State requirements or its own policies and
procedures in managing its public housing program. Specifically, the Authority and its former
executive director did not appropriately procure services or lacked support for 10 contracts
totaling $611,338. Further, the Authority spent $14,651 for ineligible costs and did not have
support for an additional $51,470. These conditions occurred because the Authority did not
adopt and implement or follow appropriate policies and procedures and the former executive
director ignored or failed to follow Federal regulations and the Authority’s consolidated annual
contributions contract with HUD. In addition, the board of commissioners failed to provide
adequate oversight of the Authority and former executive director. As a result, the Authority
incurred at least $677,459 in questioned costs.




37
     This was the same company discussed above for the improper software procurement.
38
     The travel to San Diego and Martha’s Vineyard cost $2,777 and $1,625, respectively.




                                                       12
                                          RECOMMENDATIONS

We recommend that the Director, Office of Public Housing, Little Rock, require the Authority to

1A. Repay its public housing program $3,000 from non-Federal funds for ineligible payments
    to maintain non-public-housing properties. However, if the Authority made any of the
    expenditures from its capital fund grants that have not been validated within 2 years, or if
    the Authority is unable to determine the source of funds used to pay expenditures, the
    Authority should repay HUD.

1B. Support or repay its public housing program $611,338 from non-Federal funds for
    improperly procured contracts. However, if the Authority made any of the expenditures
    from its capital fund grants that have not been validated within 2 years, or if the Authority
    is unable to determine the source of funds used to pay expenditures, the Authority should
    repay HUD.

1C. Implement adequate controls, policies, and procedures to ensure compliance with
    regulations, including maintaining complete and accurate records, appropriate board of
    commissioners’ oversight, and proper spending of funds.

1D. Provide adequate training to its board of commissioners, management, and staff on
    appropriate policies and procedures.

1E. Repay its public housing program $11,651 from non-Federal funds for ineligible
    expenditures. However, if the Authority made any of the expenditures from its capital fund
    grants that have not been validated within 2 years, or if the Authority is unable to determine
    the source of funds used to pay expenditures, the Authority should repay HUD.

1F. Support or repay its programs, as appropriate, $23,621 from non-Federal funds for
    unsupported leave balance payments to the former executive director. However, if the
    Authority made any of the expenditures from its capital fund grants that have not been
    validated within 2 years, or if the Authority is unable to determine the source of funds used
    to pay expenditures, the Authority should repay HUD.

1G. Support or repay its public housing program $14,446 from non-Federal funds for
    unsupported expenditures. 39 However, if the Authority made any of the expenditures from
    its capital fund grants that have not been validated within 2 years, or if the Authority is
    unable to determine the source of funds used to pay expenditures, the Authority should
    repay HUD.

1H. Support or repay its public housing program $13,403 from non-Federal funds for
    unsupported training and travel. However, if the Authority made any of the expenditures
    from its capital fund grants that have not been validated within 2 years, or if the Authority
39
     In June 2014, the Authority repaid $1,200 of this amount to its public housing program.




                                                         13
      is unable to determine the source of funds used to pay expenditures, the Authority should
      repay HUD.

We also recommend that the Director, Office of Public Housing, Little Rock

1I.   Review the current actions of the board of commissioners to determine its effectiveness and
      whether it is “presently responsible.” If not, appropriate action should be taken, such as
      referring the board members to the Departmental Enforcement Center for proper
      administrative sanctions, including suspensions, limited denials of participation, and
      debarments as deemed appropriate.




                                               14
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


               Recommendation           Ineligible 1/        Unsupported 2/
                   number
                     1A                        $ 3,000
                     1B                                                $611,338
                     1E                           11,651
                     1F                                                  23,621
                     1G                                                  14,446
                     1H                                                  13,403
                  TOTALS                       $14,651                 $662,808



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 review. 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.




                                             15
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                                   Auditee Comments

                                  HOUSING AUTHORITY OF THE CITY OF HOT SPRINGS
                                      1004 ILLINOIS ST. HOT SPRINGS, ARKANSAS 71901
                               (501)-624-4420. FAX: (501) 624-2745. E-mail: rherrington@hshousing.org
                                    EXECUTIVE DIRECTOR: RICHARD HERRINGTON, JR

             August 5, 2015

             Mr. Gerald Kirkland
             Regional Inspector General for Audit
             Region 6
             819 Taylor Street,
             Suite 13AO9
             Fort Worth, Texas 76102

             Subject: Response to the HACHS OIG Audit Report


             Dear Mr. Kirkland:

             This is the official response from the Housing Authority of the City of Hot Springs, (HACHS).

             FINDING 1

Comment 1    The HACHS has examined the procurement issues regarding the findings. As the present Executive Director I have
             reviewed your conditions statement and have no disagreement with it. I do have a disagreement with the method
             of how you arrived at the $614,338 in questionable costs. Please note the following.

             Upon examining the additional request that we made to your office regarding contracts and breakdowns of
             questionable cost for procurement, we disagree with the following samples of 1,2,3,5 and 10.

             Sample (1) - Roofing and fascia siding for $246,775 - The HACHS original bid was $214,968.02 as paid by the agency
             insurance company. Through change orders, the final amount was $346,775. The HACHS acknowledges the
             wrongful use PHA funds to the amount of $31,806.98. That is the only amount owed for repayment. No payback
             warranted except for $ 31,806.98.

             Sample (2) - AC Chiller - The payment was also made with insurance proceeds in the amount of $35,740.00 which
             was the total amount of work the organization received. No payback warranted.

             Sample (3) – The Wheel Chair Ramp / Soil erosion - The wheel chair ramp was paid with Capital Funds on 10/11/10.
Comment 2    The soil erosion, also paid by CFP is a totally separate job that was bidded out and completed on 11/2/10. The
             winning bids on both contracts happened to have gone to the same company, Jay Crete. The jobs were bidded out
             separately weeks apart, so no split procurement occurred. In addition, that in 2009 the agency procurement policy
             defined a micro purchase as $5,000 or less and only one quote was needed. No payback warranted.

             Sample (5) – Landscaping/Lawn Maintenance - The contract between HACHS and Justin Ritter, DBA Lawns, Limbs
Comment 3    and Landscaping, had a two year option. The option is based on work being performed by



              COMMISSIONERS: AL CARNEY, CHAIRMAN; DR CHARLENE CLAYE, VICE CHAIRMAN; JOYCE CRAFT; KATHY MUSE; LEE MURPHY




                                                            16
                                 HOUSING AUTHORITY OF THE CITY OF HOT SPRINGS
                                     1004 ILLINOIS ST. HOT SPRINGS, ARKANSAS 71901
                              (501)-624-4420. FAX: (501) 624-2745. E-mail: rherrington@hshousing.org
                                   EXECUTIVE DIRECTOR: RICHARD HERRINGTON, JR

            the contractor and accepted satisfactorily by the PHA. HACHS decided to exercise the two year option which is not
            illegal or unethical for $53,859. No payback warranted. The remaining balance of $3,000 is owed because it was
Comment 4   done on the PHA owned properties which should not have happened.

            Sample (10) – Unit Demolition and Remodel - The unit demolition and remodel cost was $13,910.00. Insurance
Comment 1   proceeds paid $11,616.10 on 2/8/11. A check is due the agency for an additional $1,694.01 from the insurance
            company for this job. HACHS used PHA funds to pay the balance of $2,293.90.

            In addition we also challenge Samples 8 (Emerge Accounting) and Sample 9 (Barton, Gonzalez, and Myer, P.A.) You
Comment 5   have not provided any information in which to document your claim of questionable cost of procurement which
            would have allowed the HACHS to comment on.

            Based upon your work sheet we challenge $425,405.12. We agree to pay back of $188,932.88 regarding contracts.

            FINDING 2

            Upon reviewing the Public Housing Funds Spent on Ineligible Activities we agree with most of the amounts. We are
            disputing the following due to the fact that the items were not paid out of Public Housing Funds or were reimbursed.

            Check #15962: High Wine Country Gift Basket and Dollar Tree, gifts for staff - The amounts in question, $223.77 and
Comment 6   $50.00 were paid out of employee association funds and paid out the Revolving Fund Checking Account. Funds are
            deducted from employees pay each month to cover items specifically for the staff.

            Check#16900: Sam’s Club, gifts for staff - The funds used to pay this bill, $112.84, were also paid out of employee
            association funds and paid out of the Revolving Fund Checking Account.

            Check#30109: Southwest Airlines, airline flight for former executive director’s husband - On 11-26-12 a check was
Comment 7   made out to HACHS for $415.20 and deposited in the PH General Fund. The check in amount for $20.00 was not
            reimbursed by [the former Executive Director].

            Check#30254: Todd Stiedle, lunch for staff training in Hot Springs - Todd Stiedle, Janiel Walsh and Mary Beth Goodin
Comment 8   attended a Fred Pryor HR Laws 2013 Seminar in Hot Springs (Event #133188). We feel we are being penalized for
            attending seminars in Hot Springs. The cost included three lunches which would have been cheaper than paying per
            diem and travel costs. This was a legitimate seminar attended by staff. They were on company business.

            Check#30669: Mary Beth Goodin, lunch for staff training in Hot Springs - Todd Stiedle, Janiel Walsh and Mary Beth
            Goodin attended a Fred Pryor Payroll Laws 2013 Seminar in Hot Springs (Instructor, Oginga Carr). The cost included
            three lunches which would have been cheaper than paying per diem and travel costs. This was a legitimate seminar
            attended by staff. They were on company business.




             COMMISSIONERS: AL CARNEY, CHAIRMAN; DR CHARLENE CLAYE, VICE CHAIRMAN; JOYCE CRAFT; KATHY MUSE; LEE MURPHY




                                                          17
                                  HOUSING AUTHORITY OF THE CITY OF HOT SPRINGS
                                      1004 ILLINOIS ST. HOT SPRINGS, ARKANSAS 71901
                               (501)-624-4420. FAX: (501) 624-2745. E-mail: rherrington@hshousing.org
                                    EXECUTIVE DIRECTOR: RICHARD HERRINGTON, JR

             From the list provided regarding Ineligible Activities totaling $11,651.00, we are agreeing to $10,781.72 and
Comment 9    challenging $869.28.In addition to the above the HACHS does not challenge $52,008.00 for [the former Executive
             Director’s] severance and annual leave. Please note that all of the expenditures were directly related to the actions
             of the previous Executive Director, Barbara Baer.

             Please also note that I believe that the HACHS has made many successful strides since the departure of [the former
Comment 10   Executive Director]. For instance, the Board of Commissioners has received training from Jackson Management
             Consulting on agency operations and necessary effective policies for operations. In addition, the HACHS received
             assistance in agency finance operations. The Board of Commissioners hired a new Executive Director who developed
             seventeen (17) new policies which included Procurement among them.

             As the Executive Director I am planning on having a comprehensive and thorough Board of Commissioners training
             this fall along with a Procurement and Contract Management training for my staff and all board members. These
             trainings along with others will only improve the operations of the agency.

             If you have any questions please do not hesitate to contact me at 501 – 321 – 4711.


             Yours,


             Richard Herrington, Jr


             Cc: Johnny Wooley – Director Office of Public Housing, Little Rock




              COMMISSIONERS: AL CARNEY, CHAIRMAN; DR CHARLENE CLAYE, VICE CHAIRMAN; JOYCE CRAFT; KATHY MUSE; LEE MURPHY




                                                            18
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed that it did not comply with procurement requirements or
            effectively administer its procurements to ensure that it made financially
            responsible decisions. However, the Authority questioned whether it should be
            required to repay funds that it received from an insurance company.

            Based upon its financial documents, the Authority paid the insurance premiums
            with Federal funds. The Authority will need to work with HUD to support that
            these costs were paid from non-Federal funds and complied with requirements.

Comment 2   The Authority claimed that it did not split the procurements for the wheel chair
            ramp and soil erosion work because it “bidded (sic) out separately weeks
            apart.” The Authority claimed that the two contracts complied with the micro
            purchase requirement in its procurement policy.

            We disagree. Based upon the Authority’s documentation and its response, it
            appears the Authority split the scope of work to put it under the $5,000 micro
            purchase ceiling. The Authority did not provide other bids or quotes. The
            contracts totaled $5,900, which exceeded the $5,000 micro purchase ceiling cited
            by the Authority. Although the Authority’s signed approval and payment dates
            differ for both projects, the purchase orders for both contracts were dated
            September 29, 2010, indicating that the Authority originally grouped the work
            together.

Comment 3   The Authority stated that its contract with a landscaping firm had a 2-year option,
            which was based on work being performed by the contractor and accepted
            satisfactorily by the Authority. Thus, the Authority deemed that $53,859 spent
            for the lawn services was not illegal or unethical.

            The Authority did not provide documentation to support that it properly procured
            the contract.

Comment 4   The Authority acknowledged that $3,000 paid to the landscaping contractor was
            for work performed at an Authority owned property. We appreciate the Authority
            acknowledging that it owes the $3,000.

Comment 5   The Authority claimed that we did not provide enough information for it to
            comment on the unsupported procurements for two sample items, a fee accountant
            contract and an audit services contract. We provided the Authority with a list of
            missing documentation for both contracts. The Authority provided some, but not
            complete, documentation for the questioned fee accountant contract. It did not
            provide any additional documentation for the audit services contract or contest the
            remaining contracts.




                                             19
              As stated in the finding, the Authority did not provide sufficient support for either
              contract. The Authority will need to provide adequate support to HUD or repay
              $611,338 as stated in Recommendation 1B.

Comment 6     The Authority claimed it paid about $387 of the questioned costs from an
              employee association account that was funded with deductions from employees’
              paychecks to cover items purchased for them. The Authority did not provide an
              accounting of the employee association account. The Authority will need to work
              with HUD to document it made the payments from the employee association
              account.

Comment 7    The Authority stated that the former executive director reimbursed the Authority
             $415 of the $435 that the Authority inappropriately paid for an airline ticket for
             the former executive director’s husband. However, it did not provide
             documentation to support the reimbursement. The Authority will need to provide
             the documentation to HUD for closure of the recommendation.

Comment 8     The Authority contended that lunch paid for staff during a seminar held in Hot
              Springs was eligible because staff was on official training and the Authority saved
              travel costs. The Authority will need to provide support to HUD that the
              payments for lunches were allowable costs that complied with requirements, or
              that the payments were from non-Federal funds.

Comment 9     The Authority did not challenge the remaining questionable costs including the
              severance and annual leave paid to the former executive director.

Comment 10 The Authority stated that it replaced the former executive director and made
           changes to its operations, including developing 17 new policies. Further, its
           board received training and the Authority plans to provide additional board
           training along with procurement and contract management training to staff and
           the board. We acknowledge the Authority’s efforts to improve its operations.
           The Authority will need to provide the policies to HUD to evaluate prior to
           closure of the recommendation.




                                               20