oversight

The Housing Authority of the City of Annapolis, MD, Did Not Always Follow Applicable Procurement Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-27.

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

   The Housing Authority of the City of
            Annapolis, MD
                            Public Housing Program




Office of Audit, Region 3                Audit Report Number: 2016-PH-1007
Philadelphia, PA                                         September 27, 2016
To:            William D. Tamburrino, Director, Office of Public Housing, Baltimore Field
               Office, 3BPH
               //signed//
From:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA
Subject:       The Housing Authority of the City of Annapolis, MD, Did Not Always Follow
               Applicable Procurement Requirements




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the Housing Authority of the City of Annapolis’
procurement activities.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at 215-
430-6734.
                       Audit Report Number: 2016-PH-1007
                       Date: September 27, 2016

                       The Housing Authority of the City of Annapolis, MD, Did Not Always Follow
                       Applicable Procurement Requirements




Highlights

What We Audited and Why
We audited the Housing Authority of the City of Annapolis’ procurement activities due to a
hotline complaint. The complaint alleged that the Authority failed to follow procurement
requirements. This is the second of two audit reports on the Authority. 1 Our audit objective was
to determine whether the Authority procured services and products using operating and capital
funds in accordance with applicable requirements.

What We Found
The Authority did not always follow applicable requirements when it procured services and
products. The allegation in the complaint had merit. Specifically, it (1) did not document cost
estimates before making purchases or selecting a developer, (2) did not make purchases
competitively, (3) acquired services and products without having contracts in place, (4) paid
vendors for services after their contracts had expired, (5) did not select a developer
competitively, and (6) did not properly extend a contract. These conditions occurred because the
Authority lacked controls to ensure that it complied with applicable requirements. As a result,
the U.S. Department of Housing and Urban Development (HUD) had no assurance that the
prices the Authority paid for services and products using $3 million in Federal funds were fair
and reasonable.

What We Recommend
We recommend that HUD require the Authority to (1) provide documentation to show that prices
paid for services and products totaling $3 million were fair and reasonable or reimburse the
applicable program from non-Federal funds for any amount that it cannot support, (2) develop
and implement controls to ensure that it complies with all applicable procurement requirements,
and (3) provide training to all employees involved in the procurement process.




1
    Audit Report 2016-PH-1006, The Housing Authority of the City of Annapolis, MD, Did Not Always Administer
    Its Resident Opportunities and Self-Sufficiency Program in Accordance With Applicable Requirements, issued
    August 31, 2016
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Authority Did Not Always Follow Applicable Procurement
         Requirements..................................................................................................................... 4

Scope and Methodology ...........................................................................................8

Internal Controls ....................................................................................................10

Appendixes ..............................................................................................................11
         A. Schedule of Questioned Costs .................................................................................. 11

         B. Auditee Comments and OIG’s Evaluation ............................................................. 12

         C. Payment Sample ........................................................................................................ 25

         D. Schedule of Deficiencies and Unsupported Costs .................................................. 26




                                                                    2
Background and Objective
The Housing Authority of the City of Annapolis was founded in 1937 to provide affordable
housing in Annapolis, MD, for families who lacked the means to purchase or rent housing at
market prices. The Authority’s mission is to achieve excellence by providing housing and self-
sufficiency opportunities and promoting customer satisfaction to enhance the quality of life for
low-, very low-, and moderate-income residents. The Authority is an independent agency
chartered by the State of Maryland, funded by the U.S. Department of Housing and Urban
Development (HUD), under the direction of a board of commissioners appointed by the mayor of
Annapolis. The board of commissioners consists of five members. An executive director,
appointed by the board of commissioners, manages the daily operations of the Authority.

HUD established the public housing program to provide decent and safe rental housing for
eligible low-income families, the elderly, and persons with disabilities. HUD provides funds to
local housing agencies that manage housing for low-income residents at rents they can afford. It
provides operating funds annually to public housing agencies for the operation and management
of public housing. It provides capital funds annually to public housing agencies for the
development, financing, and modernization of public housing developments and for management
improvements.

The Authority owns and manages 790 public housing units for 2,500 residents. During our audit
period, HUD authorized the Authority the following assistance for its public housing program for
fiscal years 2013 to 2015:

                 Fiscal year            Operating Fund            Capital Fund
                                           program                  program
                      2015                $3,155,627               $1,535,627
                      2014                 3,250,166                1,564,193
                      2013                 3,020,219                1,516,324
                     Totals                9,426,012                4,616,144


Our audit objective was to determine whether the Authority procured services and products using
operating and capital funds in accordance with applicable requirements.




                                               3
Results of Audit

Finding: The Authority Did Not Always Follow Applicable
Procurement Requirements
Contrary to HUD regulations and its procurement policy, the Authority improperly procured
services and products from 11 of 12 vendors reviewed. Specifically, it (1) did not document cost
estimates before making purchases or selecting a developer, (2) did not make purchases
competitively, (3) acquired services and products without having contracts in place, (4) paid
vendors for services after their contracts had expired, (5) did not select a developer
competitively, and (6) did not properly extend a contract. These conditions occurred because the
Authority lacked controls to ensure that it complied with applicable requirements. As a result,
HUD had no assurance that the prices the Authority paid for services and products using $3
million in Federal funds were fair and reasonable.

The Authority Did Not Document Cost Estimates
The Authority did not document independent cost estimates when making purchases from 10
vendors totaling more than $1.6 million and before selecting and providing a developer $700,000
using Federal funds. Regulations at 24 CFR (Code of Federal Regulations) 85.36(f) required the
Authority to prepare an independent cost estimate before receiving bids or proposals. The
Authority’s procurement policy required it to prepare an independent cost estimate before
soliciting for all purchases above its $2,000 micropurchase limit. The independent cost estimate
serves as a yardstick for evaluating the reasonableness of the contractor’s proposed costs or
prices. It also is used to determine the contracting method to be used. The Authority generally
paid each of the 10 vendors more than $25,000 annually during our audit period. 2 The
Authority’s procurement policy required it to use the sealed bid method of procurement for these
services and products because the total value of the purchase exceeded $25,000. The policy also
stated that the sealed bid method was preferred for procuring these services when the costs were
expected to exceed $25,000. When selecting a development partner, HUD Handbook 7460.8,
REV-2, required the Authority to complete a cost or price analysis before submitting proposals
to determine an estimated value for the requested services. However, the Authority could not
provide documentation to show that it complied with these requirements. As a result, payments
totaling more than $2.3 million were unsupported.

The Authority Did Not Make Purchases Competitively
The Authority did not have documentation to show that it competitively made purchases from 10
vendors totaling more than $1.6 million. Only 1 of the 10 vendor files had documentation
suggesting that the Authority used a competitive process to procure services. In that instance,


2
    There were two instances where the Authority did not pay a vendor more than $25,000 in a year. In one
    instance, it paid a vendor more than $22,000 in 2013, and in the other instance it paid a vendor more than
    $21,000 in 2015.



                                                          4
the file contained a copy of a request for proposal and a bid summary sheet showing that the
Authority received five bids. However, there was no documentation to support the information
on the bid summary, and the bid summary showed that one bidder submitted a bid with an annual
cost that was $28,231 less than the bid submitted by the vendor that the Authority paid for the
service. Regulations at 24 CFR 85.36(b)(9) required the Authority to maintain records sufficient
to detail the significant history of its procurements. These records would include but would not
necessarily be limited to the rationale for the method of procurement, selection of contract type,
contractor selection or rejection, and basis for the contract price. Regulations at 24 CFR
85.36(c)(1) required the Authority to conduct all procurement transactions in a manner providing
full and open competition. Since the Authority did not have documentation to show that it
purchased services and products competitively, payments totaling more than $1.6 million were
unsupported.

The Authority Acquired Services and Products Without Having Contracts in Place
The Authority paid seven vendors more than $1.3 million with Federal funds without having
contracts in place when it acquired plumbing services, heating repair services, unit repair
services, pest control services, lawn care service, appliances, and maintenance supplies. For five
of the seven vendors, the Authority had no contract to support the payments. For the other two
vendors, the Authority provided copies of contracts but one contract was signed only by the
Authority and it was not dated. The other contract was not signed and dated by the vendor and
the Authority. Both contracts had designated places for the parties to sign and date them. A
contract is not complete if it is not signed by all parties.
The Authority generally paid each of the seven vendors more than $25,000 annually during our
audit period. 3 The Authority’s procurement policy required it to use the sealed bid method of
procurement for purchases that exceeded $25,000 and it also stated that the sealed bid method
was preferred for procuring construction, supply, and noncomplex service contracts when the
costs were expected to exceed $25,000. Under the sealed bid method, the Authority awards a
contract. Since the Authority did not follow its policy and have contracts in place as required, it
could not demonstrate that payments it made were for the work requested. Since the Authority
did not have contracts for these services and products, payments totaling more than $1.3 million
were unsupported.
The Authority Paid Vendors for Services After Contracts Expired
The Authority paid three vendors $951,504 with Federal funds for trash removal, unit
rehabilitation and legal services after their contracts expired. Regulations at 24 CFR 85.36(b)(2)
required the Authority to maintain a contract administration system to ensure that contractors
performed in accordance with the terms, conditions, and specifications of their contracts. The
Authority’s procurement policy required it to use the sealed bid method of procurement for
purchases that exceeded $25,000 and it also stated that the sealed bid method was preferred for
procuring certain services when the costs were expected to exceed $25,000. Under the sealed
bid method, the Authority awards a contract. Since the Authority paid for these services without
having contracts in place because they expired, payments totaling $951,504 were unsupported.


3
    In one instance, the Authority paid a vendor more than $21,000 in 2015.



                                                         5
The Authority Did Not Select a Developer Competitively
The Authority paid a developer $700,000 with Federal funds for construction services for a
mixed-finance project but did not have documentation to show that it competitively selected the
developer. Regulations at 24 CFR 941.606(n)(1)(ii) required the Authority to use an open and
competitive process to select a partner or owner entity in mixed-finance development of public
housing units. In this case, the Authority paid the developer a total of $700,000 in September
and October 2015. However, it could not provide documentation to show that it complied with
this requirement. Therefore, the Authority’s payments totaling $700,000 were unsupported.

The Authority Did Not Properly Extend a Contract
The Authority did not properly extend a contract for payments that it made to a vendor totaling
$64,599 with Federal funds. The contract included a clause to extend the term of the contract for
three 1-year renewal periods. According to the contract, the Authority had the right to extend the
term of the contract upon providing the vendor 120 days prior written notice of its intent to
renew before the end of each applicable term. The contract also required any notice to be sent in
writing via facsimile, overnight delivery service, or certified mail. However, the Authority did
not have documentation to show that it extended the contract. Regulations at 24 CFR
85.36(b)(2) required the Authority to maintain a contract administration system to ensure that
contractors performed in accordance with the terms, conditions, and specifications of their
contracts. Regulations at 24 CFR 85.36(b)(9) required the Authority to maintain records
sufficient to detail the significant history of a procurement. Since the Authority did not have
documentation to show that it properly extended the terms of the contract, payments for services
totaling $64,599 were unsupported.

The Authority Lacked Controls
The Authority lacked controls to ensure that it procured services and products according to
applicable procurement requirements. According to the Authority, it did not provide adequate
oversight of its procurement officer to ensure that it complied with applicable requirements. The
Authority’s procurement officer resigned on December 7, 2015, the date the Authority received
our audit notification letter. During the audit, the Authority explained that it could not locate
some of the documentation and files due to the sudden departure of the procurement officer. It
also explained that it was not aware that contracts had expired and it could not locate historical
documentation related to them. The Authority hired an accountant in February 2016 and
assigned procurement duties to this employee in April 2016. This employee had limited
procurement experience. In June 2016, the Authority hired a person with some procurement
experience from a temporary employment company to assist the accountant assigned
procurement duties.

Conclusion
The Authority did not always follow applicable procurement requirements. Contrary to HUD
regulations and its procurement policy, the Authority improperly procured services and products
from 11 of 12 vendors reviewed. This condition occurred because the Authority lacked controls
to ensure that it complied with applicable requirements. As a result, HUD had no assurance that




                                                6
the prices the Authority paid for services and products totaling $3 million 4 were fair and
reasonable.

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

         1A. Provide documentation to show that prices paid for services and products totaling
             $3,028,666 were fair and reasonable or reimburse the applicable program from non-
             Federal funds for any amount that it cannot support.

         1B. Develop and implement controls to ensure that it complies with all applicable
             procurement requirements.

         1C. Provide training to all employees involved in the procurement process.

We also recommend that the Director of HUD’s Baltimore Office of Public Housing

         1D. Provide technical assistance to the Authority to ensure that it properly conducts its
             procurement activities.




4
    To avoid double-counting unsupported costs in our recommendations, we reported costs related to more than one
    deficiency only once (appendix D).



                                                        7
Scope and Methodology
We conducted the audit from December 2015 through July 2016 at the Authority’s office located
at 1217 Madison Street, Annapolis, MD, and our offices located in Baltimore, MD, and
Richmond, VA. The audit covered the period July 2013 to December 2015 but was expanded
when necessary to include the Authority’s payments using Federal funds for services and
products from vendors without having contracts, properly executed contracts, and properly
executed contract extensions.

To accomplish our objective, we reviewed
   •   Applicable laws and regulations, the Authority’s annual plan, HUD’s program
       requirements at 24 CFR Part 941 and 24 CFR 85.36, and other guidance.

   •   The Authority’s program files, procurement files, annual audited financial statements for
       fiscal years 2013 and 2014, policies and procedures, board meeting minutes, and
       organizational chart.

   •   The Authority’s payment register, general ledgers, cash receipts journal and other
       accounting documentation.

We also interviewed Authority employees and HUD staff.

To achieve our audit objective, we relied in part on the Authority’s computer-processed data. We
used a check register from the Authority’s computer system for our audit period to select a sample
of vendors and payments to review. Although we did not perform a detailed assessment of the
reliability of the data, we performed a minimal level of testing and found the data to be adequate for
our purposes.

During the audit period, the Authority disbursed $9.4 million in operating funds and $2.7 million in
capital funds. The Authority did not maintain a contract register; therefore, we obtained and
reviewed the Authority’s automated check register for the audit period. The check register showed
that the Authority made 5,320 disbursements totaling $13 million. Using Audit Command
Language software, we summarized the 5,320 disbursements by vendor, which indicated that the
Authority paid the $13 million to 480 vendors. Of the 480 vendors, the Authority paid 78 more than
$25,000 during the audit period. The Authority paid those 78 vendors $11.7 million. We sorted the
78 vendors by total payment in descending dollar value order. The Authority paid the top 25
vendors $9.1 million. We excluded 13 of the 25 vendors from our review because the payments
were for operating subsidies, reserve deposits, utilities, fringe benefits, and insurance. Therefore,
our sample included 12 vendors to which the Authority paid $2.6 million during the audit period, of




                                                  8
which $2.4 million was Federal funds5 (appendix C provides details). Although this approach did
not allow us to make a projection to the population, it was sufficient to meet the audit objective.

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.




5
    $1.3 million in operating funds and $1.1 million in capital funds equals $2.4 million in Federal funds



                                                          9
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:

•   Effectiveness and efficiency of program operations – Policies and procedures that
    management has implemented to reasonably ensure that a program meets its objectives.
•   Validity and reliability of data – Policies and procedures that management has implemented
    to reasonably ensure that valid and reliable data are obtained, maintained, and fairly
    disclosed in reports.
•   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that program participants comply with program laws
    and regulations.
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 controls to ensure that it complied with applicable procurement
    requirements.




                                                  10
Appendixes

Appendix A


                             Schedule of Questioned Costs
                           Recommendation
                                             Unsupported 1/
                               number
                                   1A             $3,028,666


1/   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.




                                             11
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




                              12
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2




Comment 3




                              13
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 3




Comment 3




Comment 4




Comment 5



Comment 6




                              14
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 6


Comment 7




Comment 8




Comment 9

Comment 10




Comment 11




                              15
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 12




Comment 13


Comment 14



Comment 15




Comment 16




                              16
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 17




Comment 18




Comment 19




                              17
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 20




Comment 5




Comment 21




Comment 22




Comment 23




                              18
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




                              19
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority stated that it will attempt to show that the prices questioned in the
            audit report were fair and reasonable. As part of the audit resolution process,
            HUD will evaluate the Authority’s corrective actions to ensure that they satisfy
            the recommendation.

Comment 2   The Authority stated that it will review HUD procurement requirements and
            develop or improve controls over procurement. As part of the audit resolution
            process, HUD will evaluate the Authority’s corrective actions to ensure that they
            satisfy the recommendation.

Comment 3   The Authority stated that it will encourage and fund, if its budget permits,
            professional training and certification for its procurement officer and other staff
            involved with procurement. It will also encourage ongoing self-study of relevant
            procurement regulations. As part of the audit resolution process, HUD will
            evaluate the Authority’s corrective actions to ensure that they satisfy the
            recommendation.

Comment 4   The Authority stated that it welcomes HUD’s assistance and will develop an
            effective line of communication with the Director of HUD’s Baltimore Office of
            Public Housing. As part of the audit resolution process, this recommendation will
            be satisfied when HUD has completed the necessary actions to ensure that the
            Authority is properly conducting its procurement activities.

Comment 5   The Authority agreed that it did not have documentation to show that it
            competitively selected the developer for a $700,000 project. It also stated that it
            will continue to search for evidence to show that it competitively selected the
            developer. As part of the audit resolution process, HUD will evaluate the
            Authority’s corrective actions to ensure that they satisfy recommendation 1A.

Comment 6   The Authority asserted that it competitively solicited bids for trash removal
            services and awarded a contract with four 1-year renewal options. It agreed that it
            did not formally renew the option years. It stated that it resolicited for these
            services and would award a contract in September 2016. It also stated that it will
            document vendor performance in an enhanced contract administration system that
            involves requesting feedback for all users. We did not find documentation to
            show that the contract included four 1-year options. As discussed on page 4 of
            the audit report, the Authority did not provide documentation to show that it
            purchased services and products competitively from 10 vendors, including the
            trash removal services. As discussed on page 5 of the audit report, the Authority
            paid three vendors for services after contracts expired, including these services.
            As part of the audit resolution process, the Authority can provide documentation
            to HUD to address the questioned costs reported in recommendation 1A.



                                             20
Comment 7     The Authority asserted that it awarded the initial contract for legal services
              competitively but agreed that it did not formally renew the three option years. It
              also stated that it formally modified the contract one time, extending it for 6
              months, through March 31, 2016. It also stated that it has resolicited for these
              services and would award a contract in September 2016. We do not agree that the
              Authority awarded the initial contract competitively because, as discussed on
              page 4 of the audit report, it did not provide documentation to show that it
              purchased services and products competitively from 10 vendors, including the
              legal services. Also, the “extension” that the Authority executed in September
              2015 was not appropriate because the term of the initial contract and the three
              option years ended in February 2015. If in September 2015 the Authority
              determined that it needed the services of outside legal counsel, it should have
              obtained these services through a competitive procurement process. As part of
              the audit resolution process, the Authority can provide documentation to HUD to
              address the questioned costs reported in recommendation 1A.

Comment 8     The Authority stated that it will provide documentation to show that it used sealed
              bid procedures or piggy-back contracting mechanisms as evidence that it got the
              best government terms, including pricing, direct from the manufacturer. It also
              asserted that periodic and recent spot price comparisons by its facilities specialist
              will support its contention that it paid low prices for appliances. As discussed on
              page 4 of the audit report, the Authority did not provide documentation to show
              that it purchased services and products competitively from 10 vendors, including
              the appliances. As discussed on page 5 of the audit report, the Authority paid
              seven vendors without having contracts in place, including for appliances. As
              part of the audit resolution process, the Authority can provide documentation to
              HUD to address the questioned costs reported in recommendation 1A.

Comment 9     The Authority stated that the cost was reimbursable from an insurance company.
              As shown in appendix C, the Authority used public housing funds to pay the
              vendor. As discussed on page 4 of the audit report, the Authority did not provide
              documentation to show that it purchased services and products competitively from
              10 vendors, including the unit rehabilitation services. As discussed on page 5 of
              the audit report, the Authority paid three vendors for services after contracts
              expired, including these services. As part of the audit resolution process, the
              Authority can provide documentation to HUD to address the questioned costs
              reported in recommendation 1A.

Comment 10 The Authority asserted that it solicited bids for lawn care services and awarded a
           non-competitive contract in 2008 that was approved by HUD because there was a
           single offeror and the vendor’s pricing was fair and reasonable. It also agreed that
           it did not formally renew the optional renewal years. It also stated that it
           resolicited and competitively awarded a new contract in July 2016. We do not
           know whether the Authority solicited bids for these services before awarding the
           contract in 2008 because it did not provide any documentation related to it. It



                                               21
              provided a copy of a contract from 2010 that was for an initial 1-year period plus
              an option for four 1-year renewal periods. As discussed on page 4 of the audit
              report, the Authority did not provide documentation to show that it purchased
              services and products competitively from 10 vendors, including the lawn care
              services. Moreover, as discussed on page 5 of the audit report, the Authority had
              a copy of a contract but it was signed only by the Authority and it was not dated.
              The contract had designated places for the parties to sign and date the contract. A
              contract is not complete if it is not signed by all parties. As part of the audit
              resolution process, the Authority can provide documentation to HUD to address
              the questioned costs reported in recommendation 1A.

Comment 11 The Authority stated that it will exert better internal controls including estimating
           and tracking actual maintenance purchases to facilitate identification of services
           that need to be procured using a sealed bid contract. As part of the audit
           resolution process, HUD will evaluate the Authority’s corrective actions to ensure
           that they satisfy recommendation 1B.

Comment 12 The Authority asserted that it competitively solicited bids for pest control services
           and awarded a contract with four 1-year renewal options. It agreed that it did not
           formally renew the option years and that it has not located the fully executed
           contract. It also stated that it resolicited for these services and awarded a contract
           to another vendor in August 2016. As discussed on page 4 of the audit report, the
           Authority did not provide documentation to show that it purchased services and
           products competitively from 10 vendors, including the pest control services. As
           discussed on page 5 of the audit report, the Authority had a copy of a contract but
           it was not signed and dated by the vendor and the Authority. The contract had
           designated places for the parties to sign and date the contract. A contract is not
           complete if it is not signed by all parties. As part of the audit resolution process,
           the Authority can provide documentation to HUD to address the questioned costs
           reported in recommendation 1A.

Comment 13 The Authority stated that it used the credit card for miscellaneous, mainly micro-
           procurement charges for products and services, and that it used the credit card
           minimally for purchases of nominal values. Of the $148,816, we reviewed two
           payments totaling $7,338 for expenses such as first aid kits, conference-related
           airfare, renewal of a computer software license, and a state vehicle emissions
           inspection fee for one of the Authority’s vehicles. We found the purchases were
           generally below the Authority’s $2,000 micropurchase limit. Since our initial
           review did not disclose any significant problems, we did not review additional
           credit card charges.

Comment 14 The Authority stated that it presumed it competitively solicited and awarded a
           contract for heating system repairs and that it formally renewed the contract
           annually. It asserted that the contract should have had four 1-year renewal
           options that it should have renewed formally. The Authority stated that it has not



                                               22
              located the contract and that it resolicited for these services and would award a
              contract in September 2016. As discussed on page 4 of the audit report, the
              Authority did not provide documentation to show that it purchased services and
              products competitively from 10 vendors, including the heating system repair
              services. As discussed on page 5 of the audit report, the Authority paid seven
              vendors without having contracts in place, including for these services. As part of
              the audit resolution process, the Authority can provide documentation to HUD to
              address the questioned costs reported in recommendation 1A.

Comment 15 The Authority stated that it will provide documentation to show that it used sealed
           bid procedures or piggy-back contracting mechanisms as evidence that it got the
           best government terms, including pricing, supported by periodic and recent spot
           price comparisons by its facilities specialist. As part of the audit resolution
           process, HUD will evaluate the Authority’s corrective actions to ensure that they
           satisfy recommendation 1A.

Comment 16 The Authority stated that it competitively awarded a contract for unit repairs and
           that the contract did not include renewals for option years. It also stated that it
           resolicited for these services and contracted for them in August 2016 and that the
           new contract prices support its contention that the prices questioned in the audit
           report were fair and reasonable. As discussed on page 4 of the audit report, the
           Authority did not provide documentation to show that it purchased services and
           products competitively from 10 vendors, including unit repairs. As discussed on
           page 5 of the audit report, the Authority paid seven vendors without having
           contracts in place, including for unit repairs. As part of the audit resolution
           process, HUD will evaluate the Authority’s corrective actions to ensure that they
           satisfy recommendation 1A.

Comment 17 The Authority contended it performed all or most of the cost estimates related to
           the purchases that were questioned in the audit report but it did not document
           them or maintain the documentation. It also stated that it will create the missing
           cost estimates if it can confirm the value and the methodology. In the future, the
           Authority will document cost estimates by internal memoranda and digitally save
           them in its files. As part of the audit resolution process, HUD will evaluate the
           Authority’s corrective actions to ensure that they satisfy recommendations 1A and
           1B. We adjusted the wording in the report to show that the Authority did not
           document cost estimates rather than not prepare cost estimates.

Comment 18 The Authority asserted that it used sealed bids for many or most of the purchases
           addressed in the audit report. As stated in the audit report, the Authority did not
           provide documentation to show that it purchased services and products
           competitively. As part of the audit resolution process, the Authority will have an
           opportunity to provide documentation to show that the prices it paid for services
           and products were fair and reasonable and HUD will evaluate the Authority’s
           corrective actions to ensure that they satisfy recommendation 1A.



                                              23
Comment 19 The Authority stated that it is searching for evidence that it had contracts in place
           for some of the vendors. As part of the audit resolution process, the Authority can
           provide documentation to HUD to address the questioned costs reported in
           recommendation 1A.

Comment 20 The Authority agreed that it paid for trash removal, legal, and unit rehabilitation
           services after the contracts expired. It also stated that it has resolicited for these
           services using the sealed bid method of procurement. We agree that the unit
           rehabilitation contract was not a multi-year contract. However, the contract for
           legal services included a clause to extend the term of the contract for three 1-year
           renewal periods and we could not find any renewal options in the contract
           documentation for trash removal services. The $951,504 of questioned costs
           related to this issue does not include the option years for the legal services
           because we addressed them separately in the audit report on page 6.

Comment 21 The Authority stated that it could not identify the vendor related to the $64,599 of
           unsupported costs that we associated with a contract that the Authority did not
           properly extend. Appendix D provides a schedule of deficiencies and
           unsupported costs and it shows that the contract the Authority did not properly
           extend was related to the payments for legal services that we reviewed. During
           the audit, we informed the Authority of our results, including this issue, although
           the dollar amount associated with this issue was less at that time. As part of the
           audit resolution process we will provide a spreadsheet detailing the unsupported
           payments to HUD and the Authority to facilitate resolution of the unsupported
           payments addressed in recommendation 1A.

Comment 22 The Authority stated that it will document vendor performance in an enhanced
           contract administration system that involves requesting feedback for all users. As
           part of the audit resolution process, HUD will evaluate the Authority’s corrective
           actions to ensure that they satisfy recommendation 1B.

Comment 23 The Authority stated that it will improve controls over its procurement process.
           As part of the audit resolution process, HUD will evaluate the Authority’s
           corrective actions to ensure that they satisfy recommendation 1B.




                                               24
Appendix C


                                           Payment Sample
        Vendor        Service or product      Amount Operating Capital                             Other
          no.                                   paid     funds     funds                           funds 6
           1          Project development     $700,000           $700,000
           2             Trash removal         376,944  $372,685                                   $4,260
           3             Legal services        193,127    88,584                                  104,542
           4              Appliances           179,296     3,602  175,283                             411
           5           Unit rehabilitation     178,975     4,100  174,875
           6               Lawn care           158,240   134,435    23,505                             300
           7               Plumbing            156,821   156,821
           8              Pest control         149,003   128,343                                    20,660
           9          Credit card charges      148,816    63,338    28,838                          56,640
          10         Heating system repairs    136,552   109,808                                    26,744
          11         Maintenance supplies      136,179   131,552                                     4,627
          12              Unit repairs         117,252    95,002    22,250
                       Totals                2,631,205 1,288,270 1,124,751                        218,184




6
    Non-Federal, central office cost center funds. We did not include these funds in any questioned costs reported in
    the finding.



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Appendix D


                            Schedule of Deficiencies and Unsupported Costs

    #       Service or product                   Violations noted*                Total unsupported costs 7

                                            1      2      3       4       5

    1       Project development            X       X                                        $700,000

    2          Trash removal               X       X              X                          629,5647

    3             Lawn care                X       X      X                                  348,7017

    4            Pest control              X       X      X                                  269,5447

    5        Unit rehabilitation           X       X              X                          239,1557

    6            Appliances                X       X      X                                  178,885

    7             Plumbing                 X       X      X                                  156,821

    8          Legal services              X       X              X       X                  147,3847

    9      Maintenance supplies            X       X      X                                  131,552

    10           Unit repairs              X       X      X                                  117,252

    11    Heating system repairs           X       X      X                                   109,808

                 Totals                    11     11      7       3       1                 3,028,666


* Violations noted during review
   1. No cost estimate
   2. No competition
   3. No contracts
   4. Contract expired
   5. Contract not properly extended




7
     Includes $707,821 in unsupported payments using Federal funds that occurred outside the audit period for
     services and products from vendors without contracts and a contract that was not properly extended



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