oversight

The Reno-Sparks Indian Colony, Reno, NV Did Not Always Comply With HUD Procurement Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-02-10.

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

            Reno-Sparks Indian Colony,
                   Reno, NV
     Indian Housing Block Grant and Indian Community
            Development Block Grant Programs




Office of Audit, Region 9     Audit Report Number: 2016-LA-1001
Los Angeles, CA                                February 10, 2016
To:            Carolyn O’Neil, Administrator, Southwest Office of Native American Programs,
               9EPI
               //SIGNED//
From:          Tanya E. Schulze, Regional Inspector General for Audit, 9DGA
Subject:       The Reno-Sparks Indian Colony, Reno, NV Did Not Always Comply With HUD
               Procurement Regulations




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 Reno-Sparks Indian Colony’s Indian Housing
Block Grant and Indian Community Development Block Grant funds.
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
213-534-2471.
                    Audit Report Number: 2016-LA-1001
                    Date: February 10, 2016

                    The Reno-Sparks Indian Colony, Reno, NV Did Not Always Comply With
                    HUD Procurement Regulations




Highlights

What We Audited and Why
We audited the Reno-Sparks Indian Colony based on a complaint alleging the misuse of U.S.
Department of Housing and Urban Development (HUD) funds due to improper procurement
activities. The objective of the audit was to determine the validity of the complaint and whether
the Colony used its Indian Housing Block Grant and Indian Community Development Block
Grant funds in accordance with HUD requirements.

What We Found
The complaint allegations had merit. The Colony did not follow HUD’s or its own procurement
requirements. This condition occurred because the Colony was unaware of and overlooked HUD
procurement regulations and its own procurement requirements. As a result, it was unable to
support that $6,000 awarded for plumbing services was fair and reasonable.

What We Recommend
We recommend that the Administrator of the Southwest Office of Native American Programs
require the Colony to (1) provide documentation showing that $6,000 in Indian Housing Block
Grant funds spent on plumbing services was fair and reasonable or reimburse its program from
non-Federal funds; (2) review its procurement history and trends and award competitive
contracts for services on which it routinely uses noncompetitive awards, such as plumbing
services; (3) amend its legal contract to include all required clauses; and (4) provide additional
training to procurement and housing staff to ensure that its staff has the knowledge to perform all
future procurements in accordance with HUD regulations.
Table of Contents
Background and Objective......................................................................................5

Results of Audit ........................................................................................................6
         Finding: The Reno-Sparks Indian Colony Did Not Always Follow HUD
         Procurement Regulations ................................................................................................. 6

Scope and Methodology .........................................................................................10

Internal Controls ....................................................................................................12

Appendixes ..............................................................................................................13
         A. Schedule of Questioned Costs .................................................................................. 13
         B. Auditee Comments and OIG’s Evaluation ............................................................. 14
         C. Criteria ....................................................................................................................... 18




                                                                      4
Background and Objective
On January 15, 1936, with approval of a constitution and bylaws by the tribal members and the
Bureau of Indian Affairs, the Reno-Sparks Indian Colony became a federally recognized tribe.
The Colony is a sovereign tribal government with an elected chairman and eight-member tribal
council, which serves as the governing body according to the constitution. The Colony formed a
Housing Department to improve the quality of life for its residents by assisting tribal members in
obtaining and maintaining comfortable, safe, and sanitary homes.
The Indian Housing Block Grant program (IHBG) is a formula grant that provides a range of
affordable housing activities on Indian reservations and in Indian areas. The block grant
approach to housing for Native Americans was enabled by the Native American Housing
Assistance and Self Determination Act of 1996. Eligible activities include housing development,
assistance to housing developed under the Indian housing program, housing services to eligible
families and individuals, crime prevention and safety, and model activities that provide creative
approaches to solving affordable housing problems.

The U.S. Department of Housing and Urban Development (HUD) authorized the Colony the
following assistance for its IHBG program for calendar years 2015 and 2014:

                             Calendar year           IHBG program
                                 2015                  $1,392,722
                                 2014                  $1,446,667
                                 Total                 $2,839,389

The purpose of the Indian Community Development Block Grant (ICDBG) program is the
development of viable Indian and Alaska Native communities. This development includes the
creation of decent housing, suitable living environments, and economic opportunities primarily
for persons with low and moderate incomes as defined in 24 CFR (Code of Federal Regulations)
1003.2. HUD awarded two ICDBG grants to the Colony in 2011 and 2010. The Colony used
these grants to pay for contracts awarded during our audit period. The two grants are as follows:

                            Contract number          ICDBG program
                            B-11-SR-32-0151             $605,000
                            B-10-SR-32-0151             $548,745
                                 Total                 $1,153,745

Our office received a complaint alleging that the Colony potentially misused HUD funds due to
improper procurement activities. The complainant alleged that the Colony inappropriately
extended the bid deadline after opening the complainant’s bid.

The objective of the audit was to determine the validity of the complaint and whether the Colony
used its IHBG and ICDBG funds in accordance with HUD requirements.


                                                 5
Results of Audit

Finding: The Reno-Sparks Indian Colony Did Not Always Follow
HUD Procurement Regulations
The Colony did not always follow HUD’s or its own procurement requirements. This condition
occurred because the Colony was unaware of and overlooked HUD procurement regulations and
its own procurement requirements. As a result, it was unable to support that $6,000 awarded for
plumbing services was fair and reasonable.

The Colony Did Not Always Follow HUD Procurement Requirements
We reviewed a sample of 10 contracts to determine whether the Colony complied with HUD
procurement regulations and found that all 10 contracts violated at least one requirement in CFR
Part 85 (See Appendix C). The Colony has made final payments on 9 of the 10 contracts in the
sample. Contract 3 (legal) was the only active contract. The following table identifies the
violations noted in each contract file.

Contract       Contract         Services         Lack of     Premature     Missing     Missing    Missing
number         amount           provided       competition      bid       debarment      cost     contract
                                                              opening       checks     analysis    clauses
1               $528,764       Housing                                        x           x
                             rehabilitation
2               $508,850       Housing                           x
                             rehabilitation
3                $80,000         Legal                                                    x          x
4                $48,600        Hazard                                        x                      x
                                cleanup
5                $28,331       Housing                                        x           x
                             rehabilitation
6                  $8,850      Housing                                        x
                             rehabilitation
7                 $8,200       Plumbing                                       x           x
8                 $8,040       Plumbing                                       x           x
9                 $6,000       Plumbing            x                          x           x
10                $5,960       Plumbing                                       x           x
             $1,231,595 1                          1             1            8           7          2


We determined that the complaint alleging that the Colony failed to comply with HUD
procurement regulations was valid.



1
    The Colony used $410,580 in IHBG and $627,034 in ICDBG funds to pay for contracts 1 and 2. It used IHBG
    funds for contracts 3 through10.



                                                        6
Lack of Competition

The Colony failed to obtain adequate competition when it awarded a contract for plumbing
services totaling $6,000. HUD regulations state that if small purchase procedures are used,
grantees must obtain price or rate quotations from an adequate number of qualified sources 2. The
Colony did not provide evidence that it sought competition and did not provide support for the
use of noncompetitive procurement procedures. As a result, it was unable to support that the
$6,000 it spent on plumbing services was fair and reasonable. Also, the Colony awarded three
contracts to the same plumbing company without obtaining competition. It used Noncompetitive
procedures due to no hot water reported by the tenant. The Colony stated that the issues
stemmed from sediment in the plumbing system and installing sediment filters and normal type
water heaters would solve the problem. Because the Colony is aware of the sediment problem
and the potential for future hot water issues, it should competitively procure a plumbing
contractor. By doing this, the Colony will avoid the use of noncompetitive procedures and
ensure that it gets best value for services it received.

Premature Bid Opening

We identified one contract in which the Colony extended a sealed bid deadline after it had
opened the bid without providing a sound reason for not accepting the bid 3, which compromised
the procurement integrity. The contracting officer stated that he received guidance from HUD to
extend the bid due date but was unable to provide documentation to show that HUD provided
this guidance. By extending the bid deadline, the Colony received a lower bid; however, if it
does so in the future, contractors may be hesitant to submit bids for projects, which could
potentially restrict competition.

Missing Debarment Checks

The Colony failed to show evidence that it performed a check of the Federal debarment or
suspension list for 8 of the 10 contracts reviewed. HUD regulations state that grantees must not
make an award to any party that is debarred or suspended or is otherwise excluded from or
ineligible from participation in Federal assistance programs 4. The Colony’s procurement policy
also requires that it maintain documentation to support that it checked to ensure that the
contractor was not included on the excluded parties list 5. Colony officials stated that they
performed the checks and did not know why the debarment check documentation was missing.
We performed the debarment checks in the Federal Government’s System for Award




2
  24 CFR 85.36(d)(1)
3
  24 CFR 85.36(d)(2)(i)(E)
4
  24 CFR 85.35
5
  To protect the government’s interest, any agency can exclude, i.e., suspend or debar, businesses or individuals
  from receiving contracts or assistance. Agencies must report all excluded parties to the Excluded Parties List
  System (EPLS)



                                                           7
Management 6 for the eight contractors and did not find them listed. The Colony needs to
perform and document the debarment checks for all contractors to ensure it does not provide
HUD funds to companies restricted from doing business with the Federal Government.
Missing Cost Analysis
The Colony lacked evidence that it performed a contract cost analysis for 7 of the 10 contracts
reviewed. HUD regulations state that grantees must perform a cost analysis in connection with
every procurement, including contract modifications. As a starting point, grantees must make
independent estimates before receiving bids or proposals. Of the seven contracts, two were
missing independent cost estimates, three did not contain evidence that the Colony performed a
cost analysis of the amendments, and four sole source plumbing contracts lacked a cost analysis.
For the contracts that had independent cost estimates, it appeared that the estimates were
informal guesses rather than estimates supported by analysis. One estimate was included in the
solicitation itself, which violated the Colony’s requirements to safe guard all cost estimates. The
Colony needs to ensure that it develops supported cost estimates on all procurement actions and
perform detailed cost analyses when required to ensure that it receives the best value for the
services it receives.

Missing Required Clauses
Of the 10 contracts reviewed, 2 lacked required contract clauses. HUD regulations 7 require
grantees to include specific provisions in their contracts to protect the rights of the grantee and
ensure compliance with federal laws such as the Copeland “Anti-Kickback” Act and the Davis-
Bacon Act. However, in two of the contracts reviewed, some or all of the provisions were
missing.

Conclusion
The Colony did not comply with HUD regulations or its own procurement policies when using
its IHBG and ICDBG funds. This condition occurred because the Colony was unaware of and
overlooked HUD procurement regulations and its own procurement policy. The Colony hired a
new procurement specialist and provided procurement training to the procurement specialist and
the director of its Housing Department. However, despite the training we continued to note
violations in the contract files. As a result, the Colony was unable to support that $6,000
awarded for plumbing services was fair and reasonable.




6
  The System for Award Management (SAM) is the official U.S. Government system that consolidated the
  capabilities of Central Contract Registration, Online Representations and Certifications Application, and Excluded
  Parties Listing System.
7
  24 CFR 85.36(i)



                                                          8
Recommendations
We recommend that the Administrator of the Southwest Office of Native American Programs
require the Colony to
      1A.    Provide documentation showing that $6,000 in IHBG funds spent on plumbing
             services was fair and reasonable or reimburses its program from non-Federal
             funds.

      1B.    Review its procurement history and trends and award competitive contracts for
             services for which it routinely uses noncompetitive awards, such as plumbing
             services.

      1C.    Amend its legal contract to include all required clauses.

      1D.    Provide additional training to procurement and housing staff to ensure that its
             staff has the knowledge to perform all future procurements in accordance with
             HUD regulations.




                                               9
Scope and Methodology
We performed our audit work at the Colony’s office in Reno, NV, from September 22through
November 6, 2015. Our audit covered the period October 1, 2013 through September 30,
2015. To accomplish our objective, we performed the following:
•     Reviewed the applicable rules and regulations pertaining to the use of IHBG and ICDBG
      funds;
•     Reviewed the Colony’s Indian housing plans to ensure that HUD-funded projects were
      included in the plans;
•     Reviewed the documentation provided by the complainant;
•     Reviewed the Colony’s procurement and ethical policy and procedures;
•     Interviewed Colony personnel and HUD Southwest Office of Native American Programs
      staff;
•     Reviewed the Colony’s financial documentation, including the general ledger and
      disbursement journal;
•     Reviewed the Colony’s procurement log;
•     Reviewed a sample of contract files;
•     Reviewed eligibility documentation
•     Performed Accurint 8 searches to determine whether potential conflicts of interests existed.
We selected a nonstatistical sample of 10 contracts to review, which the Colony paid for with
IHBG and ICDBG funds. We used a nonstatistical sample to ensure we selected the contract
mentioned in the complaint and the contracts with the highest dollar amounts. The findings
pertain to the sample only. Therefore, we did not project the results to the universe. We selected
our sample based on (1) information provided by the complainant, (2) dollar amount and timing
of the procurement, and (4) sole-source procurements. The Colony’s contract log showed that it
awarded 52 contracts during our audit period. The disbursements journal showed that it spent
more than $2million in IHBG and $676,401 in ICDBG funds for a total of more than $2.7
million in HUD funds during our audit period. The 10 contracts selected for review totaled more
than $1.2 million, which represented 45 percent of all expenditures.
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


8
    LexisNexis Accurint for Government is a point-of-need solution that enables government agencies to locate
    people, detect fraud, uncover assets, verify identity, perform due diligence, and visualize complex relationships. It
    helps enforce laws and regulations; fight fraud, waste, and abuse; and provide essential citizens’ services.



                                                             10
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                11
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 objectives:

•   Controls to ensure that IHBG and ICDBG funds are used in compliance with HUD
    regulations.
•   Controls to ensure that procurement policies and procedures are followed.
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 Colony did not have controls in place to ensure that its staff complied with HUD
    procurement regulations and its own procurement policies (finding).




                                                  12
Appendixes

Appendix A


                             Schedule of Questioned Costs
                           Recommendation
                                             Unsupported 2/
                               number
                                   1A              $6,000

                                 Total             $6,000



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. In this instance, the Colony did not support the
     reasonableness of the contract award ($6,000).




                                              13
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               14
Comment 2




Comment 3




Comment 4




Comment 5




            15
Comment 6




            16
                         OIG Evaluation of Auditee Comments


Comment 1   The contract for Purchase Order 19987 states that the plumbing work was for
            repairing a manifold, removing old piping and installing galvanized piping. There
            is no mention of replacing a hot water heater. Also, the Colony’s procurement
            procedures state that procurements based on noncompetitive proposals shall be
            supported by a written justification for using such procedures. As stated in the
            report, the Colony did not provide any support for using noncompetitive
            procedures for this procurement.
Comment 2   We reviewed the documentation provided by the Colony and determined that the
            documentation was not sufficient to show the price paid was fair and reasonable.
            Specifically, the documentation does not support that it sought competition and
            appears that the scope of work is different than the scope of work in question.
            The Colony needs to reimburse the program from nonfederal funds or provide
            further supporting documentation to HUD for review during the audit resolution
            process.
Comment 3   The Colony should submit supporting documentation to HUD during the audit
            resolution process to show it reviewed its procurement history and trends and that
            it awards contracts competitively.
Comment 4   The Colony should submit the supporting documentation to HUD for review
            during the audit resolution process.
Comment 5   We are encouraged that the Colony is willing to provide additional procurement
            training to its staff. The Colony should submit supporting documentation to HUD
            for any additional training its employees receive during the audit resolution
            process.
Comment 6   The Colony provided attachments labeled as Exhibits A-G with its response. We
            did not include the exhibits in the report because they were too voluminous;
            however, they are available upon request.




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Appendix C
                                             Criteria


24 CFR 85.35
       Subawards to debarred and suspended parties
       Grantees and subgrantees must not make any award or permit any award (subgrant or
       contract) at any tier to any party which is debarred or suspended or is otherwise excluded
       from or ineligible for participation in Federal assistance programs under Executive Order
       12549, “Debarment and Suspension.”


24 CFR 85.36(d)(2)(ii)(E)
       (ii) If sealed bids are used, the following requirements apply:
       (A) The invitation for bids will be publicly advertised and bids shall be solicited from an
       adequate number of known suppliers, providing them sufficient time prior to the date set
       for opening the bids;
       (B) The invitation for bids, which will include any specifications and pertinent
       attachments, shall define the items or services in order for the bidder to properly respond;
       (C) All bids will be publicly opened at the time and place prescribed in the invitation for
       bids;
       (D) A firm fixed-price contract award will be made in writing to the lowest responsive
       and responsible bidder. Where specified in bidding documents, factors such as discounts,
       transportation cost, and life cycle costs shall be considered in determining which bid is
       lowest. Payment discounts will only be used to determine the low bid when prior
       experience indicates that such discounts are usually taken advantage of; and
       (E) Any or all bids may be rejected if there is a sound documented reason.
24 CFR 85.36(d)(4)(ii)
       (4) Procurement by noncompetitive proposals is procurement through solicitation of a
       proposal from only one source, or after solicitation of a number of sources, competition is
       determined inadequate.
       (i) Procurement by noncompetitive proposals may be used only when the award of a
       contract is infeasible under small purchase procedures, sealed bids or competitive
       proposals and one of the following circumstances applies:
               (A) The item is available only from a single source;



                                                 18
             (B) The public exigency or emergency for the requirement will not permit a delay
             resulting from competitive solicitation;
             (C) The awarding agency authorizes noncompetitive proposals; or
             (D) After solicitation of a number of sources, competition is determined
             inadequate.
      (ii) Cost analysis, i.e., verifying the proposed cost data, the projections of the data,
      and the evaluation of the specific elements of costs and profits, is required.
      (iii) Grantees and subgrantees may be required to submit the proposed procurement to the
      awarding agency for pre-award review in accordance with paragraph (g) of this section.

24 CFR 85.36(f)(1)
      (1) Grantees and subgrantees must perform a cost or price analysis in connection
      with every procurement action including contract modifications. The method and
      degree of analysis is dependent on the facts surrounding the particular procurement
      situation, but as a starting point, grantees must make independent estimates before
      receiving bids or proposals. A cost analysis must be performed when the offeror is
      required to submit the elements of his estimated cost, e.g., under professional, consulting,
      and architectural engineering services contracts. A cost analysis will be necessary when
      adequate price competition is lacking, and for sole source procurements, including
      contract modifications or change orders, unless price reasonableness can be
      established on the basis of a catalog or market price of a commercial product sold in
      substantial quantities to the general public or based on prices set by law or regulation. A
      price analysis will be used in all other instances to determine the reasonableness of the
      proposed contract price.

24 CFR 85.36(i)
      (i) Contract provisions. A grantee’s and subgrantee’s contracts must contain provisions
      in paragraph (i) of this section. Federal agencies are 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.
      (1) Administrative, contractual, or legal remedies in instances where contractors violate
      or breach contract terms, and provide for such sanctions and penalties as may be
      appropriate. (Contracts more than the simplified acquisition threshold)
      (2) Termination for cause and for convenience by the grantee or subgrantee including the
      manner by which it will be effected and the basis for settlement. (All contracts in excess
      of $10,000)
      (3) Compliance with Executive Order 11246 of September 24, 1965, entitled “Equal
      Employment Opportunity,” as amended by Executive Order 11375 of October 13, 1967,
      and as supplemented in Department of Labor regulations (41 CFR chapter 60). (All



                                                19
construction contracts awarded in excess of $10,000 by grantees and their contractors or
subgrantees)
(4) Compliance with the Copeland “Anti-Kickback” Act (18 U.S.C. [United States Code]
874) as supplemented in Department of Labor regulations (29 CFR part 3). (All contracts
and subgrants for construction or repair)
(5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a–7) as supplemented
by Department of Labor regulations (29 CFR part 5). (Construction contracts in excess
of $2000 awarded by grantees and subgrantees when required by Federal grant program
legislation)
(6) Compliance with Sections 103 and 107 of the Contract Work Hours and Safety
Standards Act (40 U.S.C. 327–330) as supplemented by Department of Labor regulations
(29 CFR part 5). (Construction contracts awarded by grantees and subgrantees in excess
of $2000, and in excess of $2500 for other contracts which involve the employment of
mechanics or laborers)
(7) Notice of awarding agency requirements and regulations pertaining to reporting.
(8) Notice of awarding agency requirements and regulations pertaining to patent rights
with respect to any discovery or invention which arises or is developed in the course of or
under such contract.
(9) Awarding agency requirements and regulations pertaining to copyrights and rights in
data.
(10) Access by the grantee, the subgrantee, the Federal grantor agency, the Comptroller
General of the United States, or any of their duly authorized representatives to any books,
documents, papers, and records of the contractor which are directly pertinent to that
specific contract for the purpose of making audit, examination, excerpts, and
transcriptions.
(11) Retention of all required records for three years after grantees or subgrantees make
final payments and all other pending matters are closed.
(12) Compliance with all applicable standards, orders, or requirements issued under
section 306 of the Clean Air Act (42 U.S.C. 1857(h)), section 508 of the Clean Water Act
(33 U.S.C. 1368), Executive Order 11738, and Environmental Protection Agency
regulations (40 CFR part 15). (Contracts, subcontracts, and subgrants of amounts in
excess of $100,000)
(13) Mandatory standards and policies relating to energy efficiency which are contained
in the state energy conservation plan issued in compliance with the Energy Policy and
Conservation Act (Pub. L. [Public Law] 94–163, 89 Stat. 871). [53 FR (Federal Register)
8068, 8087, Mar. 11, 1988, as amended at 60 FR 19639, 19642, Apr. 19, 1995]




                                         20
Colony Procurement Policy

Procedures
2. $2,001 to $9,999, Small Purchases - Quotes
   $5,001 to $9,999, Housing Department Small Purchases – Quotes
Small purchase procedures are those relatively simple and informal procurement methods for
securing services, supplies, or other property. These purchases require competition. Market
conditions dictate the appropriate level of competition. Price or rate quotations will be obtained
from at least three qualified sources, if competition is available. If competition is not available,
sole source justification is required from the department. Procurement has the authority to make
the final decision.




                                                  21