oversight

The York Housing Authority Did Not Fully Comply With Procurement Requirements and Spent $21,047 for Ineligible and Unsupported Costs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-08-20.

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

     York Housing Authority, York, NE
         Public Housing and Housing Choice Voucher
                          Programs




Office of Audit, Region 7      Audit Report Number: 2015-KC-1006
Kansas City, KS                                    August 20, 2015
To:            Denise Gipson, Director, Office of Public Housing, 7DPH
               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 7AGA
Subject:       The York Housing Authority Did Not Fully Comply With Procurement
               Requirements and Spent $21,047 for Ineligible and Unsupported Costs


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 York Housing Authority.
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
913-551-5870.
                    Audit Report Number: 2015-KC-1006
                    Date: August 20, 2015

                    The York Housing Authority Did Not Fully Comply With Procurement
                    Requirements and Spent $21,047 for Ineligible and Unsupported Costs




Highlights

What We Audited and Why
We audited the York Housing Authority in York, NE, regarding its procurement and
expenditures for its U.S. Department of Housing and Urban Development (HUD), Office of
Public and Indian Housing (PIH), programs. We selected the Authority for review based on data
analysis showing that the Authority’s executive director was listed as the executive director of
two additional housing authorities and as the fee accountant for all three. Our audit objective
was to determine whether the Authority followed HUD rules and regulations and its own policies
and procedures for procurement and expenditures.

What We Found
The Authority did not properly procure its fee accounting services, adopt a procurement policy
for its Housing Choice Voucher program, or require contractors to comply with contract
provisions. This condition occurred because the Authority lacked detailed operating procedures
that included steps for implementation, such as checklists, and it was not aware that its
procurement policy excluded the Housing Choice Voucher program. As a result, HUD could not
be assured that the Authority received the best value for the $21,248 spent on fee accounting
services. Furthermore, HUD and the Authority lacked assurance that the contractors would
comply with all program requirements, including prevailing wage requirements.

Additionally, the Authority spent $21,047 of its operating funds for ineligible and unsupported
costs. This condition occurred because the Authority did not understand that the applicable
program rules covered the Authority’s use of funds for meals and social activities, the Authority
lacked detailed operating policies and procedures for the review and approval of expenditures,
and it used the incorrect budget form for its Housing Choice Voucher program. As a result, it
did not have $21,047 available for other operating expenses.

What We Recommend
We recommend that HUD require the Authority to (1) reprocure its fee accounting services using
the appropriate policies and procedures to justify the amount spent on these services during our
audit period, (2) repay from non-Federal funds or provide adequate support for the $21,047 spent
for ineligible and unsupported items, and (3) develop and implement policies and procedures to
address the deficiencies noted.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Did Not Fully Comply With Federal and Local
         Procurement Requirements ............................................................................................. 4

         Finding 2: The Authority Spent $21,047 for Ineligible and Unsupported Costs ....... 7

Scope and Methodology .........................................................................................11

Internal Controls ....................................................................................................13

Appendixes ..............................................................................................................14
         A. Schedule of Questioned Costs .................................................................................. 14

         B. Auditee Comments and OIG’s Evaluation ............................................................. 15

         C. Ineligible and Unsupported Cost Detail.................................................................. 24

         D. Criteria ....................................................................................................................... 29




                                                                     2
Background and Objective
Built in 1969, the York Housing Authority in York, NE, manages three significant U.S. Department
of Housing and Urban Development (HUD), Office of Public and Indian Housing (PIH), programs.
These programs include the Public Housing Operating Fund program, the Housing Choice Voucher
program, and the Public Housing Capital Fund program. A six-member board of commissioners
governs the Authority, and an executive director manages its daily operations. The Authority’s
central office is located at 215 North Lincoln Avenue, York, NE.

HUD PIH oversees the Authority’s public and Indian housing programs. HUD’s Public Housing
Operating Fund program provides operating subsidies to housing authorities to assist in funding the
operating and maintenance expenses of their own dwellings. In 2014, HUD provided the Authority
more than $128,000 in operating subsidies to assist with operating and maintenance expenses for its
75 public housing units.

HUD’s Housing Choice Voucher program allows very low-income families to choose affordable,
privately owned rental housing. The Authority administers 99 housing choice vouchers to assist
very low-income families, the elderly, and the disabled in affording decent, safe, and sanitary
housing in the private market. In 2014, HUD provided the Authority more than $220,000 in
voucher assistance.

HUD’s Capital Fund program provides funds annually to the Authority for the development,
financing, and modernization of public housing developments and for management improvements.
In 2014, HUD provided the Authority more than $62,000 in Capital Fund grants.

The Authority used a cost allocation method to allocate funds between its programs and did not
convert to asset management for accounting purposes.

Our objective was to determine whether the Authority followed HUD rules and regulations and
its own policies and procedures for procurement and expenditures.




                                                 3
Results of Audit

Finding 1: The Authority Did Not Fully Comply With Federal and
Local Procurement Requirements
The Authority did not properly procure its fee accounting services, adopt a procurement policy
for its Housing Choice Voucher program, or require contractors to comply with contract
provisions. This condition occurred because the Authority lacked detailed operating procedures
that included steps for implementation, such as checklists, and it was not aware that its
procurement policy excluded the Housing Choice Voucher program. As a result, HUD could not
be assured that the Authority received the best value for the $21,248 spent on fee accounting
services. Additionally, HUD and the Authority lacked assurance that the contractors would
comply with all program requirements, including prevailing wage requirements.

The Authority Did Not Properly Procure Its Fee Accounting Services
The Authority did not properly procure its fee accounting services as required by HUD’s Public
Housing and Housing Choice Voucher program rules.

According to HUD’s Public Housing program rules (Handbook 7460.8, REV-2, section 5.2 and
5.4) and the Authority’s procurement policy, the Authority should have used its small purchase
procedures for the procurement of its fee accounting services. These procedures require that the
Authority obtain a reasonable number of quotes to establish cost reasonableness for purchases
between $2,000 and $100,000. Between October 2011 and December 2014, it spent $12,873 of
Public Housing Operating Funds on fee accounting services but did not obtain quotes for those
services .

According to HUD’s Housing Choice Voucher program rules (Regulations at 24 CFR 982.161),
the Authority may not enter into any contract or arrangement in connection with the Housing
Choice Voucher program in which any present officer or employee of the Authority has any
interest, direct or indirect, during tenure or for one year thereafter. However, the Authority
signed its employment agreement with its executive director in October 2011 and signed its
agreement for fee accounting services with a company owned by the executive director in
November of the same year. Between October 2011 and December 2014, the Authority spent
$8,375 on fee accounting services for its Housing Choice Voucher program. Although the
conflict of interest prohibition can be waived by the HUD field office, the Authority did not
attempt to obtain a waiver.

The Authority Did Not Adopt a Procurement Policy For Its Housing Choice Voucher
Program
The Authority did not have a procurement policy for its Housing Choice Voucher program.
HUD’s Housing Choice Voucher program rules (HUD Handbook 7460.8, REV-2, section 1.2),
require that the Authority follow state and local law. The Nebraska Housing Agency Act
requires the Authority to adopt policies, rules, and procedures governing the procurement of


                                                4
goods and services. Additionally, HUD’s Housing Choice Voucher program requirements
(Regulations at 24 CFR 982.54) require the Authority to establish local policies for
administration in its administrative plan for the Housing Choice Voucher program. The
Authority does not have a separate procurement policy for the Housing Choice Voucher
program, and it did not include procurement requirements in its administrative plan.

The Authority Did Not Require Contractors To Comply With Contract Provisions
The Authority did not include in its Public Housing fee accounting contract provisions required
by HUD Handbook 7460.8, REV-2, section 5.10, or table 5.1. The contract did not specify the
required 3-year period for record retention found in the Handbook. It was also missing
provisions for ownership and proprietary interest, as well as energy efficiency.

Additionally, the Authority did not execute contracts for two Capital Fund projects reviewed.
The projects were to replace the fire panel and refrigerators in the public housing units. HUD
Handbook 7460.8, REV-2, section 5.10, states that the Authority must incorporate the clauses
contained in form HUD-5370-EZ, General Conditions for Small Construction/Development
Contracts, into its construction contracts greater than $2,000 but not more than $100,000.
Without a contract in place, the Authority did not require contractors to comply with these
provisions. Authority staff told us that the Authority did not always execute contracts with
contractors. It based the decision on the type of work and its familiarity with the contractor.

The Authority Lacked Policies and Detailed Procedures
The Authority’s procurement policy lacked detailed operating procedures that included steps for
implementation, such as checklists. The Authority’s procedures did not ensure that it followed
its procurement policy, along with HUD Handbook 7460.8, REV-2, and requirements at 24 CFR
85.36 for its Public Housing Operating Fund program.

In addition, the Authority did not realize its procurement policy excluded the Housing Choice
Voucher program. The Authority stated that the items it procured for the Housing Choice
Voucher program were generally included in the procurements for its Public Housing Operating
Fund program using the Authority’s procurement policy.

HUD Lacked Assurance
HUD could not be assured that the Authority received the best value for the $21,248 spent for fee
accounting services. Furthermore, without a procurement policy for the Housing Choice
Voucher program, HUD lacked assurance that the Authority’s Housing Choice Voucher
procurement process was fair and equitable and that any monies spent represented the most
favorable prices it could have obtained. Additionally, HUD and the Authority lacked assurance
that the contractors would comply with all program requirements, and the Authority put itself at
risk by not always executing contracts that included all required contract provisions, including
prevailing wage requirements.




                                                 5
Recommendations
We recommend that the Director of HUD’s Omaha, NE, Office of Public Housing require the
Authority to

      1A.    Develop and implement detailed operating procedures, including checklists,
             which fully implement its procurement policy and HUD requirements.

      1B.    Develop and implement a procurement policy for its Housing Choice Voucher
             program and update its administrative plan to include procurement.

      1C.    Reprocure its fee accounting services using the appropriate policies and
             procedures to ensure properly procured services going forward and to use the
             quotes from that procurement to justify the $12,873 spent from the Public
             Housing Operating Fund program and the $8,375 spent from the Housing Choice
             Voucher program funds for fee accounting services from October 2011 through
             December 2014. The Authority should repay any unsupported portion to the
             appropriate program fund from non-Federal funds.

      1D.    Request a conflict of interest waiver for its fee accounting services contract for its
             Housing Choice Voucher program if a conflict exists following the
             reprocurement.

      1E.    Submit all contracting actions to HUD, including solicitation and contracts, for
             the public housing programs it administers, including but not limited to the
             Operating Fund and Capital Fund programs, for review and approval prior to
             executing contracts until the Authority demonstrates compliance and HUD
             determines based on the information available that prior review is no longer
             necessary.




                                                6
Finding 2: The Authority Spent $21,047 for Ineligible and
Unsupported Costs
The Authority spent $21,047 of its operating funds for meals, social activities, donations, and
other ineligible and unsupported costs. This condition occurred because the Authority did not
understand that the applicable program rules covered the Authority’s use of funds for meals and
social activities, complete the correct budget form for its Housing Choice Voucher program, and
lacked detailed operating policies and procedures for the review and approval of expenditures.
As a result, the Authority did not have $21,047 available for other operating expenses.

The Authority Spent Operating Funds for Ineligible and Unsupported Costs
The Authority spent its operating funds for its public housing and Housing Choice Voucher
programs on items that were not reasonable or necessary for the operation of the project. It spent
funds for social activities, meals, grocery items, donations, and floral arrangements for board
members.

The Authority provided holiday meals to the tenants of its public housing units for the Fourth of
July, Thanksgiving, and Christmas holidays. It also provided meals to its board members during
its monthly board meeting. The executive director and board chair stated that the Authority
stopped providing meals to tenants and board members after HUD told it to do so in 2014.
These purchases significantly decreased during the Authority’s 2015 fiscal year.

The Authority also hosted a bingo game on Monday afternoons for tenants of its public housing
units. It provided small prizes and grocery items to tenants during these games.

According to 2 CFR Part 225, appendix A, part C, for a cost to be allowable under a Federal
award, it must be necessary and reasonable for the proper and efficient performance and
administration of the project. Appendix B to Part 225 provides principles to be applied in
establishing the allowability of certain items. It states that meals, donations, gifts, and social
activities are not allowable costs. Additionally, section 9(C) of the Authority’s annual
contributions contract states that the Authority may withdraw funds from its general fund only
for the payment of costs for development and operation of the property. The costs noted were
not for the development or operation of the property. The table below details the ineligible
expenditures.

                                                      Public Housing      Housing Choice
                      Expenditure                     Operating Fund        Voucher
                                                         program            program
           Catered holiday meals for tenants                     $855                   -
                  Gift cards for tenants                           756                     -
                       Bingo cage                                  179                     -
                     Grocery items                                  93                     -




                                                  7
                     Coffee makers                                 64                    -
                       Donation                                    41                 $34
        Floral arrangements for board members                      39                  24
               Meals for board meetings                            37                  23
                    Splenda packets                                 3                   -
                         Totals                                 $2,067                $81

Further, the Authority did not have receipts for $53 spent at a grocery store. Therefore, we could
not determine whether the Authority spent the funds on eligible items.

The Authority’s general ledger included expenditures similar to those of the vendors reviewed
that appeared to be ineligible based on discussions with the Authority. The table below outlines
the items we did not review but that we identified as potentially ineligible costs. The table in
appendix C includes a more detailed breakdown.

                                           Public Housing         Housing Choice
                    Expenditure            Operating Fund           Voucher
                                              program               program
                    Grocery store                   $5,244                      -
                     Restaurants                        3,914                $386
                      Floral shop                          81                    7
                        Totals                        $9,239                 $393

Additionally, the Authority spent $9,214 on Housing Quality Standards inspections for its
Housing Choice Voucher program between October 2011 and December 2014 without including
the inspections in the Authority’s operating budget. Section 11(d) of the Authority’s annual
contributions contract states that the Authority shall not incur any operating expenditures except
pursuant to an approved operating budget. Further, the Authority’s employment contract with its
executive director includes Housing Choice Voucher program inspections in the list of executive
director employment duties. The Authority paid its fee accountant for these services, which are
not included in the fee accounting service contract.

The Authority Did Not Understand Program Rules
The Authority did not understand that the applicable program rules applied to its use of the
funds. Specifically, it considered the holiday meals it provided to tenants as an amenity and used
the meals as a promotional tool for bringing in new tenants. Additionally, it did not view the
bingo game as a social activity but, rather, as an activity to help its elderly tenants be more
active.



                                                8
The Authority Completed the Incorrect Budget Form for Its Voucher Program
The Authority used HUD Form 52571 to complete its annual operating budget. The Authority
recognized that this form did not have a line item for the Housing Quality Standards inspections,
but the Authority did not attempt to add this expense to its operating budget. According to
HUD’s Housing Choice Voucher Guidebook 7420.10G, Chapter 20.3, the budgeting process
should include preparation of HUD Form 52672. This form includes a line item for maintenance
and operation.

The Authority Lacked Detailed Operating Policies and Procedures
The Authority lacked detailed policies and procedures for the review and approval of
expenditures. It did not have policies and procedures in place to determine cost eligibility based
on requirements found at 2 CFR Part 225 and its consolidated annual contributions contract
before board approval and payment.

The Money Was Not Available for Other Operating Expenses
As a result of the deficiency noted above, the Authority did not have $21,047 available for other
operating expenses.

Recommendations
We recommend that the Director of HUD’s Omaha, NE, Office of Public Housing require the
Authority to

       2A.     Repay the affected programs the $2,148 spent for meals, social activities,
               donations, gifts, and floral arrangements from non-Federal funds.

       2B.     Provide adequate support for the $53 spent at the grocery store or repay the
               affected program from non-Federal funds.

       2C.     Provide adequate support for the $9,632 not reviewed to show that funds were
               spent for eligible items or repay the affected program from non-Federal funds.

       2D.     Repay the Housing Choice Voucher program for the $9,214 spent for Housing
               Quality Standards voucher inspections from non-Federal funds.

       2E.     Ensure that its board of commissioners and staff attend HUD-approved training
               on the program rules and regulations and the proper use of Federal funds.

       2F.     Develop and implement policies and procedures for the review and approval of
               expenditures to ensure that the Authority fully implements HUD requirements.




                                                 9
2G.   Review its employment contract with its executive director to ensure it properly
      reflects the executive director duties. If the Authority determines the executive
      director should not be responsible for Housing Quality Standards inspections as
      currently provided for in the employment contract, it should provide for an
      Authority employee to complete the inspections as part of an approved budget, or
      it should procure those services using appropriate policies and procedures and
      request a conflict of interest waiver if a conflict exists following the procurement.

2H.   Update its budget for the Housing Choice Voucher program utilizing HUD Form
      52672.




                                        10
Scope and Methodology
Our audit period generally covered October 1, 2011, through December 31, 2014. We performed
our fieldwork from February through April 2015 at the York Housing Authority located at 215
North Lincoln Avenue, York, NE.

To accomplish our objective, we

      Interviewed the Authority’s staff and board chair;
      Interviewed HUD’s Office of Public Housing staff in Omaha, NE;
      Reviewed the Authority’s policies and procedures, procurement files, contracts, and
       financial records; and
      Reviewed Federal and State regulations and HUD requirements.

To select our samples, we reviewed the Authority’s Public Housing Operating Fund program and
Housing Choice Voucher program general ledgers for expenditures exceeding the $2,000 micro
purchase threshold, including recurring payments to the same vendor that exceeded this amount,
potentially ineligible payments, payments to the Authority’s fee accountant, and travel and
training expenditures. We identified expenditures as potentially ineligible based on the
transaction description in the general ledger. We identified several items with descriptions
attributed to restaurants, floral shops, and a grocery store. We also included items for which we
were unsure of the service being provided to the Authority. We entered the amounts on tabs of
an Excel worksheet according to the general ledger expenditure description and used the
worksheet to select our samples.

For our procurement sample, we reviewed the procurement of the two contractors that received
the largest capital fund expenditures during the audit period and the procurement of the
Authority’s fee accountant.

For the expenditure sample, we reviewed two capital fund expenditures, representing $43,554
(16 percent) of the population of $264,695; one training expenditure, representing $1,161 (19
percent) of the population of $6,018; one travel expenditure, representing $2,481 (10 percent) of
the population of $24,733; three expenditures paid to the Authority’s fee accountant,
representing $4,143 (8 percent) of the population of $49,529; and seven potentially ineligible
expenditures from different vendors that were identified for being potentially ineligible,
representing $2,182 (14 percent) of the population of $15,808. A portion of the travel
expenditures was also included in the fee accountant category due to the accountant being the
payee of the travel reimbursements. Therefore, the total unique universe of expenditures for our
audit period was $342,469.

Each expenditure reviewed represented the largest expenditure in the respective category, with
the exception of the expenses paid to the Authority’s fee accountant and the ineligible expenses.



                                                11
For the expenses paid to the fee accountant, we reviewed the second largest expenditure, the
largest expenditure from the end of the Authority’s fiscal year during the audit period, and the
largest expenditure charged to the Authority’s maintenance and operations account for its
Housing Choice Voucher program. For the ineligible expenditures, we reviewed the largest
expenditures for six of the vendors and the second largest expenditure for another vendor
because it was charged to the Authority’s office expense account.

Our results apply to the items reviewed, and we cannot project to the portion of the population
that we did not test.

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




                                                 12
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:
   Controls over the Authority’s procurement.
   Controls over the Authority’s expenditures.

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.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

   The Authority lacked detailed processes and procedures for implementing HUD procurement
    (see finding 1) and expenditure (see finding 2) regulations.
Separate Communication of Minor Deficiencies
We reported minor deficiencies to the auditee in a separate management memorandum.




                                                  13
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1C                                      $21,248
                          2A                   $2,148
                          2B                                           53
                          2C                                        9,632
                          2D                       9,214

                        Totals                $11,362             $30,933



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.




                                              14
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




                               15
Ref to OIG   Auditee Comments
Evaluation



Comment 1




Comment 2




Comment 3




                            16
Ref to OIG   Auditee Comments
Evaluation




Comment 1


Comment 4




                            17
Ref to OIG   Auditee Comments
Evaluation




Comment 5




                            18
Ref to OIG   Auditee Comments
Evaluation

Comment 6




Comment 7

Comment 8




Comment 9




Comment 10


Comment 11




                            19
Ref to OIG   Auditee Comments
Evaluation

Comment 12



Comment 13




Comment 14




                            20
                         OIG Evaluation of Auditee Comments


General     The Authority took considerable effort in its response to minimize the efforts of
            the auditors and the audit results identified in the report. HUD and the
            Authority’s Board should take the findings seriously. During our review, we
            found the Authority did not maintain adequate documentation to support
            procurements, nor did it keep a listing of its procurements or contracts. We
            reviewed a small sample of procurements and expenditures using the Authority’s
            general ledger. We reviewed $53,521 of a total universe of $342,469
            expenditures during our 3.25-year audit period – not 4 years as stated in the
            auditee’s comments. Our universe did not come close to the $2,840,064 of
            expenditures suggested by the auditee, nor can our results be projected to such a
            population. We did not expand the scope of our review because we determined
            that it was likely that we would uncover similar issues as those reported, and it
            would have placed a burden on the Authority to cost justify additional items.

Comment 1   During our audit, we found the Authority did not properly procure its fee
            accounting services. We did not comment on the Authority’s hiring of its
            executive director because the Authority had an employment contract with its
            executive director and considered the executive director an employee of the
            Authority.

            The reprocurement of fee accounting services that the Authority plans to use to
            justify the cost of previous fee accounting services took place after OIG had
            completed its review. OIG did not review any bids for the reprocurement of the
            services. At the time of the report issuance, OIG could not comment on the
            Authority’s ability to support previous fee accounting service expenses.

Comment 2   An exclusion clause in the Authority’s procurement policy specifically excludes
            the Housing Choice Voucher program and states that the Authority will use state
            and local law in its place. However, state law requires the Authority to maintain
            policies for all of its programs, and 24 CFR 982.54 requires the Authority to
            include any local laws utilized in its administrative plan for the Housing Choice
            Voucher program. The Authority is not required to adopt a separate policy if it
            were to include the Housing Choice Voucher program in its current policy.

Comment 3   The Authority failed to comply with HUD requirements. HUD requirements
            include required contract provisions to protect HUD funds, program participants,
            and to ensure compliance with federal rules and regulations, including prevailing
            wage requirements.

Comment 4   In our review of the Authority’s procurement, we identified significant
            deficiencies in the Authority’s procurement. According to HUD Handbook
            7460.8, REV-2, section 12.2(L), solicitation and contracts by any PHA (public



                                             21
            housing authority) whose procurement procedures or operations fail to comply
            with the procurement standards in 24 CFR 85.36 shall have prior HUD approval.
            We found the Authority did not comply with 24 CFR 85.36 when it failed to
            maintain documentation on the procurement for its fee accounting services or
            require contractors to comply with the required contract provisions. Our
            recommendation that all contracting actions go through the Omaha field office
            still stands.

Comment 5   Our review only included a small sample of the Authority’s expenditures and
            procurements over a 3.25-year audit period – not 4 years as stated in the auditee’s
            comments (see the Scope and Methodology section on pages 11-12). We did not
            review 100% of the funds expended during the audit period. Our limited review
            cannot be projected to the entire population of expenditures. Therefore, it cannot
            be said that the items we did not review were spent in accordance with HUD’s
            rules and regulations.

Comment 6   2 CFR 225 prohibits the use of federal funds for the following:
             Amusement (trips to theme parks, county fairs, etc.)
             Diversions (theatre, movies, sports events, etc.)
             Social activities (parties, bowling nights, etc.)
             Any directly associated costs for the events in the categories above (tickets to
               shows or sports events, meals, lodging, rentals, transportation, and gratuities).

Comment 7   We have not seen any guidance from HUD that PHAs could use federal funds for
            the suggested Father’s Day activities. HUD encourages housing authorities to
            seek additional funds or partnerships to provide activities with beneficial
            outcomes to public housing residents and communities.

Comment 8   Expenditures must be spent for items that are reasonable and necessary for the
            operation of the property. The Authority is prohibited from using federal funds
            for meals, donations, and floral arrangements. As we previously noted in finding
            2, these purchases significantly decreased during the Authority’s 2015 fiscal year.

Comment 9   The Authority did not have a contract with its fee accountant to provide Housing
            Choice Voucher inspections. Additionally, the inspector the Authority paid
            through its fee accountant was already an employee of the Authority. The
            Authority could have paid its employee to conduct the inspections without
            involving its fee accountant in the transaction. Furthermore, the Authority did not
            include the voucher inspections in its operating budget. Section 11(d) of the
            Authority’s annual contributions contract states that the Authority shall not incur
            any operating expenditures except pursuant to an approved operating budget.
            Therefore, the expenditure is ineligible.




                                              22
Comment 10 The Authority did not understand the requirements of 2 CFR 225. Specifically,
           the Authority did not understand that funds spent on social activities were
           prohibited.

Comment 11 HUD’s Housing Choice Voucher Guidebook 7420.10G, Chapter 20.3 states that
           “the budgeting process includes preparation and submission of form HUD-
           52672.” Neither the Guidebook, nor the form itself, indicates that the form only
           applies to certain Housing Choice Voucher programs. Furthermore, the
           Authority's annual contribution contract with HUD states that the Authority shall
           not incur any operating expenditures except pursuant to an approved operating
           budget. The Authority should work with HUD to determine the best way going
           forward to ensure that all of the Authority’s operating expenditures are included
           in its budget.

Comment 12 Policies and procedures are the only way to ensure that the Authority complies
           with HUD rules and regulations and expends funds effectively and efficiently.
           The Authority failed to comply with HUD rules and regulations for its
           procurement and expenditures, as noted in the audit report.

Comment 13 The Authority did not have the $21,047 available to spend on other operating
           expenditures, and the funds could have been spent on other eligible activities or
           moved into the Authority’s reserves for future shortages. Also, our audit period
           was 3.25 years – not 4 years as stated in the auditee’s comments.

Comment 14 Audits conducted by the Office of Inspector General have very different scopes
           and objectives than those conducted by HUD. Therefore, it is not uncommon for
           the OIG to identify issues not previously identified by HUD.




                                               23
  Appendix C
                                  Ineligible and Unsupported Cost Detail

  Finding 2 – Ineligible cost detail

                                                                Public
                                                                            Housing
                                                               Housing
 Check                                                                       Choice
                Date                Expenditure               Operating                   Total
number                                                                      Voucher
                                                                Fund
                                                                            program
                                                              program
112061      12/12/2011 Meals for board meetings                    $37.41       $22.82       $60.23

                          Catered holiday meals for
112069        1/5/2012                                             855.00             -      855.00
                                   tenants
                            Floral arrangements for
112571       12/6/2011                                              38.61        23.54         62.15
                                board members

112737        4/8/2013               Bingo cage                    179.22             -      179.22

112737        4/8/2013             Coffee makers                    63.79             -        63.79
112737        4/8/2013            Splenda packets                    2.87             -           2.87
113042      10/28/2013                Donation                      41.00        34.00         66.00
113153        1/9/2014          Gift cards for tenants             756.00             -      756.00
113153        1/9/2014             Grocery items                    92.84             -        92.84

                       Totals                                   $2,066.74       $80.36    $2,147.10*

  *We reported this number as $2,148 throughout the report due to rounding.
  Finding 2 – Unsupported cost detail

                                                                Public
                                                                            Housing
                                                               Housing
 Check                                                                       Choice
                Date                Expenditure               Operating                    Total
number                                                                      Voucher
                                                                Fund
                                                                            program
                                                              program
113153        1/9/2014              Grocery store                  $52.99             -       $52.99




                                                         24
 Finding 2 – Potentially ineligible expenditures

                                                      Public
                                                                  Housing
                                                     Housing
 Check                                                             Choice
              Date           Expenditure            Operating                      Total
number                                                            Voucher
                                                      Fund
                                                                  program
                                                    program
111974    11/10/2011          Restaurant                 $15.48         $9.43         $24.91

111979    11/10/2011        Grocery store                117.98                -      117.98

112023     12/9/2011          Restaurant                  22.90         13.96          36.86

112027     12/9/2011        Grocery store                139.38                -      139.38

112033     12/9/2011         Floral shop                  30.82                -       30.82

112066     1/5/2012         Grocery store                441.89                -      441.89

112097     2/9/2012           Restaurant                  21.50         13.12          34.62

112105     2/9/2012         Grocery store                109.19                -      109.19

112151     3/9/2012           Restaurant                  21.73         13.25          34.98

112155     3/9/2012         Grocery store                 70.04                -       70.04

112190     4/11/2012          Restaurant                  21.11         12.88          33.99

112197     4/11/2012        Grocery store                 68.55                -       68.55

112234     5/11/2012          Restaurant                  28.04         17.10          45.14

112240     5/11/2012        Grocery store                104.99                -      104.99

112279     6/8/2012           Restaurant                  30.28         18.46          48.74

112286     6/8/2012         Grocery store                 87.92                -       87.92

112294     6/8/2012          Floral shop                  12.26             7.48       19.74

112327     7/5/2012           Restaurant                  23.35         14.24          37.59

112333     7/5/2012         Grocery store                116.45                -      116.45




                                               25
                                            Public
                                                        Housing
                                           Housing
 Check                                                   Choice
           Date      Expenditure          Operating                      Total
number                                                  Voucher
                                            Fund
                                                        program
                                          program
112337   7/5/2012     Restaurant               115.20                -      115.20

112374   8/9/2012     Restaurant                20.70         12.63          33.33

112379   8/9/2012    Grocery store             336.96                -      336.96

112417   9/5/2012     Restaurant                20.38         12.42          32.80

112424   9/5/2012    Grocery store              82.52                -       82.52

112463   10/3/2012    Restaurant                20.30         12.37          32.67

112469   10/3/2012   Grocery store              62.22                -       62.22

112510   11/9/2012    Restaurant                22.28         13.59          35.87

112516   11/9/2012   Grocery store             235.57                -      235.57

112557   12/6/2012    Restaurant                11.28             6.87       18.15

112563   12/6/2012   Grocery store              97.66                -       97.66

112566   12/6/2012    Restaurant               732.60                -      732.60

112601   1/8/2013     Restaurant                19.48         11.87          31.35

112609   1/8/2013    Grocery store             824.96                -      824.96

112612   1/8/2013     Restaurant               718.20                -      718.20

112641   2/8/2013     Restaurant                20.17         12.30          32.47

112648   2/8/2013    Grocery store             103.26                -      103.26

112696   3/8/2013     Restaurant                19.60         11.95          31.55

112700   3/8/2013    Grocery store             102.91                -      102.91

112739   4/8/2013     Restaurant                22.30         13.60          35.90




                                     26
                                            Public
                                                         Housing
                                           Housing
 Check                                                    Choice
           Date      Expenditure          Operating                    Total
number                                                   Voucher
                                            Fund
                                                         program
                                          program
112745   4/8/2013    Grocery store               65.80             -       65.80

112786   5/10/2013    Restaurant                22.14          13.50       35.64

112792   5/10/2013   Grocery store              65.21              -       65.21

112833   6/7/2013     Restaurant                26.45          16.12       42.57

112839   6/7/2013    Grocery store              90.62              -       90.62

112881   7/8/2013     Restaurant                26.45          16.12       42.57

112885   7/8/2013    Grocery store              62.86              -       62.86

112922   8/9/2013     Restaurant                23.27          14.19       37.46

112928   8/9/2013    Grocery store             424.03              -      424.03

112931   8/9/2013     Restaurant               158.04              -      158.04

112966   9/5/2013     Restaurant                23.96          14.61       38.57

112972   9/5/2013    Grocery store              57.99              -       57.99

113010   10/9/2013   Grocery store              86.10              -       86.10

113012   10/9/2013    Restaurant                18.45          11.25       29.70

113063   11/7/2013   Grocery store             223.65              -      223.65

113110   12/5/2013   Grocery store              90.53              -       90.53

113114   12/5/2013    Restaurant               853.83          32.72      886.55

113157   1/9/2014     Restaurant               676.48              -      676.48

113162   1/9/2014     Floral shop               37.71              -       37.71

113193   2/6/2014    Grocery store              67.27              -       67.27




                                     27
                                               Public
                                                            Housing
                                              Housing
 Check                                                       Choice
           Date         Expenditure          Operating                    Total
number                                                      Voucher
                                               Fund
                                                            program
                                             program
113196   2/6/2014        Restaurant                 19.66         11.98       31.64

113234   3/6/2014       Grocery store             117.81              -      117.81

113239   3/6/2014        Restaurant                17.40          10.62       28.02

113281   4/10/2014      Grocery store              91.20              -       91.20

113285   4/10/2014       Restaurant                20.48          12.48       32.96

113323   5/9/2014       Grocery store              64.47              -       64.47

113365   6/6/2014       Grocery store              67.90              -       67.90

113370   6/6/2014        Restaurant                80.18              -       80.18

113401   7/10/2014       Restaurant                20.27          12.37       32.64

113404   7/10/2014      Grocery store              93.47              -       93.47

113448   8/8/2014       Grocery store              73.14              -       73.14

113485   9/10/2014      Grocery store              85.53              -       85.53

113526   10/8/2014      Grocery store              84.28              -       84.28

113564   11/7/2014      Grocery store             138.51              -      138.51

113612   12/5/2014      Grocery store              91.17              -       91.17

               Totals                           $9,238.72       $393.48   $9,632.20




                                        28
Appendix D
                                             Criteria

2 CFR 225 – Cost Principles for State, Local, and Indian Tribal Governments
Appendix A
C. Basic Guidelines
   1. Factors affecting allowability of costs. To be allowable under Federal awards, costs
       must meet the following general criteria:
       a. Be necessary and reasonable for proper and efficient performance and administration
           of Federal awards.
       j. Be adequately documented.
   2. Reasonable costs. A cost is reasonable if, in its nature and amount, it does not exceed
       that which would be incurred by a prudent person under the circumstances prevailing at
       the time the decision was made to incur the cost.

Appendix B
12. Donations and contributions
    a. Contributions or donations rendered. Contributions or donations, including cash,
       property, and services, made by the governmental unit, regardless of the recipient, are
       unallowable.

14. Entertainment. Costs of entertainment, including amusement, diversion, and social
     activities and any costs directly associated with such costs (such as tickets to shows or
     sports events, meals, lodging, rentals, transportation, and gratuities) are unallowable.

24 CFR 982 – Section 8 Tenant-Based Assistance: Housing Choice Voucher Program
982.4 Definitions
Administrative plan. The plan that describes PHA policies for administration of the tenant-based
programs. See § 982.54.
982.54 Administrative plan
(a) The PHA must adopt a written administrative plan that establishes local policies for
administration of the program in accordance with HUD requirements. The administrative plan
and any revisions of the plan must be formally adopted by the PHA Board of Commissioners or
other authorized PHA officials. The administrative plan states PHA policy on matters for which
the PHA has discretion to establish local policies.
982.161 Conflict of Interest
(a) Neither the PHA nor any of its contractors or subcontractors may enter into any contract or
arrangement in connection with the tenant-based programs in which any of the following classes
of persons has any interest, direct or indirect, during tenure or for one year thereafter:




                                                  29
        (1) Any present or former member or officer of the PHA (except a participant
        commissioner);
        (2) Any employee of the PHA, or any contractor, subcontractor or agent of the PHA, who
        formulates policy or who influences decisions with respect to the programs;
        (3) Any public official, member of a governing body, or State or local legislator, who
        exercises functions or responsibilities with respect to the programs; or
        (4) Any member of the Congress of the United States.
(b) Any member of the classes described in paragraph (a) of this section must disclose their
interest or prospective interest to the PHA and HUD.
(c) The conflict of interest prohibition under this section may be waived by the HUD field office
for good cause.

HUD Handbook 7460.8, REV-2 – Procurement Handbook for Public Housing Agencies
Chapter 3 – 3.3 Documentation
   A. General 24 (CFR 85.36(b)(9)). The PHA [public housing agency] must maintain
      records sufficient to detail the significant history of each procurement action. Such
      documentation is particularly important in the event a protest is lodged against the PHA.
      It will also facilitate future purchases of similar supplies or services since it will not be
      necessary to recreate solicitation documents. Supporting documentation shall be in
      writing and placed in the procurement file. These records shall include, but shall not
      necessarily be limited to, the following:
       1. Rationale for the method of procurement selected. For example, the contract file
          would not need to state why the Contracting Officer chose small purchase procedures
          to order a desk but would want to note why noncompetitive proposals was used for a
          roofing contract.
       2. The solicitation.
       3. Selection of contract pricing arrangement, but only if not apparent. For example, the
          contract file would not need to document why a firm fixed-price was used to obtain
          building materials.
       4. Information regarding contractor selection or rejection, including, where applicable,
          the negotiation memo, the source selection panel, evaluation report, cost and price
          analysis, email correspondence (including offers, selections, pertinent pre- and post-
          award discussions and negotiations, etc.)
       5. Basis for the contract price (as prescribed in this handbook), and
       6. Contract administration issues/actions.
          The level of documentation should be commensurate with the value of the
          procurement.
   B. Record Retention (24 CFR 85.42(a) and (b). PHAs shall retain all significant and
      material documentation and records concerning all procurements they conduct. These
      records must be retained for a period of three years after final payment and all matters
      pertaining to the contact are closed. If any claims or litigation are involved, the records
      shall be retained until all issues are satisfactorily resolved.



                                                 30
Chapter 5 – 5.10 Standardized Forms/Mandatory Contract Clauses
  A. General. Except in the case of bid specifications and contracts for construction or
      maintenance work in excess of $2,000 (see paragraphs B and C, below), small purchases,
      including purchase orders, are subject only to the mandatory clauses contained in Table
      5.1.

       PHAs may be further bound by certain State or local requirements (See Chapter 13).
       Other than these Federal, State or locally-mandated provisions, PHAs should include
       language with any small purchase that is necessary and appropriate, consistent with good
       business practice.

       In addition to Table 5.1, HUD has developed forms which contain the contract clauses
       required for small purchases related to construction and maintenance work. The use of
       the Table and these forms are described in the paragraphs below.

   B. Mandatory Requirements for Construction Contracts greater than $2,000 but not
      more than $100,000. PHAs must incorporate the clauses contained in form HUD-5370-
      EZ, General Conditions for Small Construction/Development Contracts, and the
      applicable Davis-Bacon wage decision. Form HUD-5370-EZ has been designed for small
      construction jobs. PHAs may use form HUD-5370 in lieu of the HUD-5370-EZ if the
      former is more appropriate given the nature of the work.

   C. Mandatory Requirements for Maintenance Contracts (including nonroutine
      maintenance work) greater than $2,000 but not more than $100,000. PHAs must
      incorporate the clauses contained in Table 5.1; Section II of form HUD-5370-C, General
      Conditions for Non-Construction Contracts, and the applicable HUD wage decision.
TABLE 5.1 Mandatory Contract Clauses for Small Purchases Other than Construction
  The following contract clauses are required in contracts pursuant to 24 CFR 85.36(i) and
  Section 6002 of the Solid Waste Disposal Act, as amended by the Resource Conservation
  and Recovery Act. HUD is permitted to require changes, remedies, changed conditions,
  access and records retention, suspension of work, and other clauses approved by the Office of
  Federal Procurement Policy. The PHA and contractor is also subject to other Federal laws
  including the U.S. Housing Act of 1937, as amended, Federal regulations, and state law and
  regulations.
   Examination and Retention of Contractor’s Records. The PHA, HUD, or Comptroller
   General of the United States, or any of their duly authorized representatives shall, until three
   years after final payment under this contract, have access to and the right to examine any of
   the Contractor’s directly pertinent books, documents, papers, or other records involving
   transactions related to this contract for the purpose of making audit, examination, excerpts,
   and transcriptions.
   Right in Data and Patent Rights (Ownership and Proprietary Interest). The PHA shall
   have exclusive ownership of, all proprietary interest in, and the right to full and exclusive
   possession of all information, materials, and documents discovered or produced by


                                                 31
   Contractor pursuant to the terms of this Contract, including, but not limited to, reports,
   memoranda or letters concerning the research and reporting tasks of the Contract.
   Energy Efficiency. The Contractor shall comply with all mandatory standards and policies
   relating to energy efficiency which are contained in the energy conservation plan issued in
   compliance with the Energy Policy and Conservation Act (Pub.L. [Public Law] 94-163) for
   the State in which the work under this contract is performed.
York Housing Authority Consolidated Annual Contributions Contract

Section 9 – Depository Agreement and General Fund
   (C) The HA [housing authority] shall maintain records that identify the source and
   application of funds in such a manner as to allow HUD to determine that all funds are and
   have been expended in accordance with each specific program regulation and requirement.
   The HA may withdraw funds from the General Fund only for: (1) the payment of the costs
   of development and operation of the projects under ACC [annual contributions contract] with
   HUD; (2) the purchase of investment securities as approved by HUD; and (3) such other
   purposes as may be specifically approved by HUD. Program funds are not fungible;
   withdrawals shall not be made for a specific program in excess of the funds available on
   deposit for that program.

Section 11 – Operating Budget
   (D) The HA shall not incur any operating expenditures except pursuant to an approved
   operating budget.

HUD Guidebook 7420.10G – Housing Choice Voucher Program

Chapter 20.3
The PHA must prepare an annual estimate of required annual contributions and an operating
budget to ensure that costs do not exceed the annual contributions provided by HUD. Housing
assistance payments, ongoing administrative fees, hard-to-house fees, audit costs, and, in certain
cases, preliminary fees are included in the calculation of annual contributions. The preparation
of a budget and the imposition of good financial management controls are critical components of
the PHA's financial management process. The budgeting process includes preparation and
submission of form HUD-52672, Supporting Data for Annual Contribution Estimates, and form
HUD-52673, Estimate of Total Required Annual Contributions.

York Housing Authority Procurement Policy

Small Purchase Procedures
   For any amounts above the Petty Cash ceiling, but not exceeding $100,000, the YHA
   [Authority] may use small purchase procedures. Under small purchase procedures, the
   YHA shall obtain a reasonable number of quotes (preferably three); however, for purchases
   of less than $2,000, also known as Micro Purchases, only one quote is required provided the
   quote is considered reasonable. To the greatest extent feasible, and to promote competition,
   small purchases should be distributed among qualified sources. Quotes may be obtained


                                                 32
orally (either in person or by phone), by fax, in writing, or through eprocurement. Award
shall be made to the qualified vendor that provides the best value to the YHA. If award is to
be made for reasons other than lowest price, documentation shall be provided in the contract
file. The YHA shall not break down requirements aggregating more than the small purchase
threshold (or the Micro Purchase threshold) into several purchases that are less than the
applicable threshold merely to: (1) permit use of the small purchase procedures or (2) avoid
any requirements that applies to purchases that exceed the Micro Purchase threshold.




                                           33