oversight

The Houston Housing Authority, Houston, TX, Needs To Improve Its Procurement and Financial Operations and Its Housing Choice Voucher Program Subsidy Determinations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-12-27.

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

            Houston Housing Authority,
                  Houston, TX
         Public Housing and Housing Choice Voucher
                          Programs




Office of Audit, Region 6      Audit Report Number: 2017-FW-1003
Fort Worth, TX                                  December 27, 2016
To:            Lorraine Walls, Director, Office of Public Housing, 6EPH

               //signed//
From:          Theresa Carroll, Acting Regional Inspector General for Audit, 6AGA
Subject:       The Houston Housing Authority, Houston, TX, Needs To Improve Its
               Procurement and Financial Operations and Its Housing Choice Voucher Program
               Subsidy Determinations


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 Houston 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
817-978-9309.
                    Audit Report Number: 2017-FW-1003
                    Date: December 27, 2016

                    The Houston Housing Authority, Houston, TX, Needs To Improve Its
                    Procurement and Financial Operations and Its Housing Choice Voucher
                    Program Subsidy Determinations


Highlights

What We Audited and Why
We audited the Houston Housing Authority’s public housing and Housing Choice Voucher
programs. We selected the Authority for review in accordance with our audit plan and based
upon risk analyses. Our objectives were to determine whether the Authority (1) followed U.S.
Department of Housing and Urban Development (HUD) requirements when it procured goods
and services and incurred miscellaneous expenses, (2) calculated tenant housing assistance
payments in accordance with HUD payment standards, and (3) conducted tenant certifications in
a timely manner.

What We Found
The Authority did not follow HUD’s regulations or its own policies when contracting for goods
and services and paying for miscellaneous expenses. This condition occurred because the
Authority did not implement adequate internal controls over its procurement and financial
operations. The Authority also did not always use correct payment standards or perform annual
tenant recertifications for its voucher program tenants in a timely manner and in accordance with
HUD regulations and its administrative plan. This condition occurred because the Authority
lacked written procedures for applying payment standards and its staff did not understand HUD’s
regulations. Further, its staff turnover and caseloads were high. As a result, the Authority paid
more than $3.2 million in Federal funds for ineligible and unsupported costs.

What We Recommend
We recommend that HUD require the Authority to (1) repay more than $183,000 in ineligible
expenditures; (2) support or repay more than $3 million in questionable costs; and (3) implement
adequate internal controls, including written procedures, to ensure that its procurement and
expense payments comply with HUD’s regulations and its own policies.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Did Not Follow HUD Regulations or Its Own Policies
         Regarding Procurement and Financial Operations....................................................... 4

         Finding 2: The Authority Did Not Always Use Correct Payment Standards or
         Perform Annual Tenant Recertifications in a Timely Manner .................................... 9

Scope and Methodology .........................................................................................12

Internal Controls ....................................................................................................14

Appendixes ..............................................................................................................16
         A. Schedule of Questioned Costs .................................................................................. 16

         B. Auditee Comments and OIG’s Evaluation ............................................................. 17

         C. Contract and Purchase Order Errors ..................................................................... 71

         D. Questionable Miscellaneous Purchases ................................................................... 72




                                                             2
Background and Objective
The Houston City Council created the Houston Housing Authority in 1938 in response to the
U.S. Housing Act of 1937 and enabling State legislation that charged local entities with
providing decent, safe, and sanitary housing for low- to moderate-income families and
individuals. While the Authority is independent of the Houston city government, the Houston
City Council appointed the first board of commissioners and executive director that same year.

The Authority is governed by a board of commissioners appointed by the mayor of Houston.
The board of commissioners helps guide the Authority by setting policy and providing leadership
and oversight, which enables the Authority to reach its goals and advance its mission.

As of 2014, the Authority served more than 60,000 low-income persons, the most in the agency’s
history, including more than 17,000 families housed through the Housing Choice Voucher
program and another 5,500 living in 25 public housing and tax credit developments throughout
the city.

From fiscal years 2012 through 2014, the Authority received the following funding from the U.S.
Department of Housing and Urban Development (HUD) for its public housing and voucher
programs. See table 1.

Table 1: HUD funding
     Fiscal year                  Public housing program                   Housing Choice
                                                                          Voucher program
                          Public Housing            Public Housing
                        Operating Fund and           Capital fund
                             moderate
                        rehabilitation grants
 2012                            $10,718,595               $4,837,826            $123,498,232
 2013                              13,839,062                                     122,079,091
                                                            4,643,927
 2014                              14,468,517                                      107,662,642
                                                            4,676,215
 Total                            $39,026,174                                    $353,239,965
                                                          $14,157,968

Our reporting objective was to determine whether the Authority (1) followed HUD requirements
when it procured goods and services and incurred miscellaneous expenses, (2) calculated tenant
housing assistance payments in accordance with HUD payment standards, and (3) conducted
tenant certifications in a timely manner.




                                                3
Results of Audit

Finding 1: The Authority Did Not Follow HUD Regulations or Its
Own Policies Regarding Procurement and Financial Operations
The Authority did not follow HUD regulations or its own policies when contracting for goods
and services and paying for miscellaneous expenses. These conditions occurred because the
Authority did not implement adequate internal controls over its procurement and financial
operations and its staff did not understand HUD’s regulations. As a result, the Authority made
nearly $3.2 million in questionable payments to various vendors for goods and services.

The Authority Had Ineligible and Unsupported Costs of Nearly $3.2 Million
Of the $10.6 million in Federal funds reviewed, the Authority spent nearly $3.2 million for
questionable costs. Of the $3.2 million, the Authority inappropriately spent $142,703 for a
contract that had a conflict of interest and $40,548 in excess of contract amounts. Also, it spent
$13,043 for ineligible miscellaneous expenses. Further, the Authority could not provide
adequate support to show that it spent more than $3 million, including $126,785 to off-duty
police officers for security services, in compliance with Federal regulations and its own policies.

                         The Authority Did Not Follow HUD Regulations
                  Or Its Own Policies When Contracting for Goods and Services

Of 35 procurement files reviewed, 22 procurements 1 violated 24 CFR (Code of Federal
Regulations) 85.36 and various requirements in the Authority’s procurement policy and
procurement procedures manual, resulting in nearly $3.2 million in questioned costs.
Specifically, the Authority failed to (1) adequately administer its contracts to prevent conflicts of
interest, ensure that it did not make payments in excess of contract or purchase order amounts,
and ensure that it received appropriate goods and services for its payments; (2) maintain
sufficient support for payments or to document the history of its procurements, such as
independent cost estimates; and (3) maintain a complete list of its contracts. Appendix C
provides a list of the 22 procurements, the deficiencies identified, and the associated questioned
costs.

These deficiencies occurred because the Authority did not implement adequate controls to ensure
that it complied with both Federal regulations and its own written policies. Although the
Authority’s written policies appeared to comply with Federal regulations, the Authority did not
enforce them. These deficiencies were also noted regarding the Authority’s non-Federal funds.


1
    For 8 of the 35 procurement files, either the Authority claimed that expenditures were from non-Federal funds
    and would not provide us supporting documentation, or the general ledger did not show any payments from
    Federal funds. Since the Authority would not provide documentation showing that the expenditures were from
    non-Federal funds, we could not be certain of the funding source.



                                                         4
The Authority Did Not Adequately Administer Its Contracts
As shown in table 2, the Authority paid for a contract that had a conflict of interest, and overpaid
a contract for relocation services. As a result, it made $183,251 in ineligible payments.

Table 2: Contract administration violations and resulting ineligible payments
                                                                Ineligible
                               Violation
                                                                 amount
             Payments for a contract with a conflict of
                                                                     $142,703
             interest
             Payments exceeding contract amounts                       40,548
             Total ineligible payments                               $183,251

The Authority Executed a Contract That Had a Conflict of Interest
Bid evaluation documents from 2010 for one contractor showed that one of the Authority’s bid
evaluators was the owner. We identified the conflict by matching the bid evaluator’s address and
phone number to the contractor’s address and phone number. The contract file did not include
documentation showing that the employee had informed the Authority of the conflict of interest.
According to section 3.0, page 2, paragraph II, of the Authority’s policy, “No employee, officer,
commissioner, or agent of the HHA [Authority] shall participate directly or indirectly in the
selection, award, or administration of any contract if a conflict of interest, either real or apparent,
would be involved.” Thus, any payments using Federal funds under the contract would be
ineligible.

After the contract was awarded, records showed that the Authority employee signed documents
approving payments to the related company. Further, the procurement file included an amended
contract, which modified the payment structure and extended the terms of the contract. The last
payment to the vendor was in September 2013. Total Federal payments to the contractor were
$142,703, including $52,981 in public housing funds and $89,722 in voucher administrative
fees. 2

The Authority Paid $40,548 in Excess of Agreed-Upon Amounts
The Authority made payments in excess of contract or purchase order amounts. A board
resolution and contract for relocation services limited payments to $300,000. The Authority paid
$40,548 in Federal funds more than this contract limit and must reimburse the overpayment to its
public housing program from non-Federal sources.

The Authority Did Not Maintain Sufficient Documentation To Support Procurements
The Authority did not maintain complete procurement records, including contracts, purchase
orders, independent cost estimates, the rationale for the method of procurement, selection of
contract type, cost analyses, and contractor selection or rejection. This deficiency violated both
24 CFR 85.36(b) and section 18.0, page 19, of the Authority’s procurement policy, which require
the Authority to maintain sufficient records to detail the history of each of its procurements,


2
    All conflicts of interest involving Housing Choice Voucher program funds are prohibited by 24 CFR 982.161.



                                                        5
including the rationale for the method of procurement, selection of contract type, contractor
selection or rejection, and the basis for the contract price. As a result, the Authority could not
provide adequate support to show that it spent more than $3 million, including $126,785 for
security services, in compliance with Federal regulations and its own policies.

For example, the Authority did not have required independent cost estimates for 21 of the
procurements reviewed. Both Federal regulations and the Authority’s procurement policy
require independent cost estimates. 3 Since the Authority did not perform independent cost
estimates, it could not ensure that it paid reasonable prices for its goods and services.

Because the Authority failed to maintain records sufficient to detail the significant history of
these procurements, we could not determine whether it procured the goods and services properly.
For example, the Authority paid $126,785 in Federal public housing program funds to off-duty
police officers for security services. The Authority could not provide a contract or evidence of
its procurement actions to support the payments. The Authority admitted that there were no
contracts between it and the off-duty officers. Further, it executed a separate security service
agreement with Harris County Precinct 6 in 2012. Although the Authority paid the off-duty
officers with Federal funds, we were uncertain whether it paid the Precinct 6 contract for the
same security services or the source of funding for the contract because the Authority did not
provide evidence of payments to Precinct 6.

The payments to the off-duty officers may have duplicated services that were to be provided
under the executed contract with Precinct 6. The officers submitted invoices, but there was no
purchase order or contract to support the payments. Further, there was no documentation to
ensure that the officers provided the services during the time specified on the invoices. The
payment dates ranged from January 2012 through April 2013.

The Authority Did Not Maintain a Complete List of Contracts
The Authority did not maintain an adequate and reliable contract log listing its procurement
activity as required by section 8.2, page 51, of its procurement procedures manual. Thus, it
could not determine how many contracts it had. When asked for a list of current contracts, the
Authority provided a four-page list of contractors that it prepared by listing contracts found in
the office of its general counsel. The list contained inactive and expired contracts and contracts
that had not been paid. We determined the existence of other contracts from our review of the
general ledgers, check registers, and purchase order logs.

                         The Authority Did Not Follow HUD Regulations
                  or Its Own Policies When Paying for Miscellaneous Expenses




3
    Section 6.0, page 8, of the Authority’s procurement policy; section 3.2, page 8, of its procurement procedures
    manual; and 24 CFR 85.36(f)(1)




                                                         6
A review of 62 sample disbursements totaling more than $92,000 found deficiencies with 41
disbursements totaling almost $29,000. 4 In addition to ineligible payments to a conflict of
interest entity and unsupported payments for the security services previously discussed, the
Authority made advances and reimbursements to employees for ineligible items and reimbursed
employees and a contractor for local mileage without proper support and without filling out the
appropriate forms.

The deficiencies occurred because the Authority generally did not implement adequate policies
or procedures to ensure that expenditures were eligible and supported. HUD regulations required
the Authority to establish policies and procedures to effectively carry out its financial
responsibilities, including internal controls. 5

The Authority Inappropriately Spent $13,043 for Ineligible Items
The Authority made 22 disbursements totaling $13,043 for miscellaneous ineligible items. This
amount included purchases of items by the Authority and advances and reimbursements to
employees for such items as catered food, gift cards, drinks, picture frames, invitations, t-shirts,
and musical entertainment. Appendix D provides a list of the 22 disbursements. The Authority
failed to show that these purchases were necessary and reasonable for proper and efficient
performance and administration of Federal awards.

The Authority Paid $1,283 in Unsupported Local Mileage Reimbursement
In seven disbursements, the Authority reimbursed employees and a contractor $1,283 for local
mileage without proper documentation. This amount included $1,266, which it approved and
reimbursed to employees who did not fill out required information on their mileage
reimbursement forms. None of the employees provided beginning and ending mileage balances
as required by the Authority’s travel policy. Further, the Authority paid a $17 mileage
reimbursement to a consultant, who failed to provide mileage calculations. The Authority made
$1,222 of the payments with voucher administrative fees and the remaining $61 with public
housing program funds.

Conclusion
Because the Authority’s internal controls were not adequate and its staff did not understand
HUD’s regulations, the Authority did not follow HUD regulations or its own policies when
contracting for goods and services and paying for miscellaneous expenses. As a result, it spent
nearly $3.2 million for contracts and expenses that were questionable.
Recommendations
We recommend that the Director of the Houston Office of Public Housing require the Authority
to



4
    Includes three disbursements totaling $6,447 that were questioned earlier as part of $142,703 in procurement
    costs paid to a person with a conflict of interest and nine payments totaling $8,033 that were questioned earlier
    as part of $126,785 paid to off-duty police officers for security services
5
    25 CFR 85.20(b)(1-3) and HUD Handbook 7460.7, section 2-1



                                                          7
1A.   Repay its public housing program $52,981 from non-Federal funds for payments
      made on a contract that had a conflict of interest.

1B.   Repay its Housing Choice Voucher administrative fees $89,722 from non-Federal
      funds for payments made on a contract that had a conflict of interest.

1C.   Repay its public housing program $40,548 from non-Federal funds for ineligible
      payments made in excess of contract amounts and on an expired contract.

1D.   Support or repay $3,014,541 to its public housing and voucher programs from
      non-Federal funds for the contractor payments listed in appendix C.

1E.   Implement procedures to ensure that it complies with HUD regulations and its
      own procurement policies, to include procedures to ensure that it maintains a
      complete history of its procurements, and prevent it from overpaying contracts
      and agreed-upon amounts.

1F.   Ensure that staff members involved with the procurement process are adequately
      trained in both Federal procurement regulations and the Authority’s procurement
      policies.

1G.   Repay its public housing program $13,043 from non-Federal funds for
      miscellaneous ineligible items.

1H.   Support or repay its Housing Choice Voucher program administrative fees $1,222
      from non-Federal funds for unsupported mileage reimbursements.

1I.   Support or repay its public housing program $61 from non-Federal funds for
      unsupported mileage reimbursements.

1J.   Implement policies and procedures to ensure that costs are eligible and adequately
      reviewed, documented, and supported.




                                       8
Finding 2: The Authority Did Not Always Use Correct Payment
Standards or Perform Annual Tenant Recertifications in a Timely
Manner
The Authority did not always use correct payment standards or perform annual tenant
recertifications for its Housing Choice Voucher program tenants in a timely manner and in
accordance with HUD regulations and its administrative plan for 5 of 10 randomly selected
tenant files reviewed. These errors occurred because the Authority lacked written procedures for
applying the payment standards, its staff was unfamiliar with HUD’s subsidy and payment
standards, and its staff turnover and caseload were high. As a result, the Authority overpaid
$639 in rent subsidies for five families.

The Authority Used Incorrect Payment Standards
The Authority did not always use correct Housing Choice Voucher program payment standards
when it calculated housing assistance payments. In 4 6 of 10 randomly selected cases reviewed,
the Authority did not follow HUD’s regulations and its administrative plan in applying the
correct payment standards, resulting in its paying incorrect rent subsidies. In one of the four
cases, the Authority’s internal monitoring detected the error and made a correction, but the
corrected recertification was effective 4 months after the incorrect recertification. As shown in
table 3, the Authority overpaid $384 in rent subsidies for the four families.

Table 3: Effect of using incorrect payment standards
            Type                      PHA*      OIG**                                      Number         Total
  Tenant                                                                     Over-                        over-
              of       Effective    payment payment                                          of
    ID                                                                      payment                      payment
            action                  standard standard                                      months
   95213 Annual 05/01/2013               $945     $1,290                           $34 7         4             $136
  546080 Annual 06/01/2013                772        765                              7         12               84
  509269 Interim 02/01/2014               945        937                              8         10               80
  509269 Annual 10/01/2013                945        937                              8          4               32
   52838 Interim 11/01/2014               945        765                             13          4               52
  Total                                                                                                        $384
* PHA = public housing agency
** OIG = Office of Inspector General




6
    For two families, cases 509269 and 52838, the Authority also did not perform recertifications in a timely
    manner.
7
    Overpayment calculated after netting for the effects of voucher size and income errors that the Authority made
    but detected and then tried to correct through its quality control process




                                                         9
The Authority Did Not Perform Annual Tenant Recertifications in a Timely Manner
The Authority failed to perform annual tenant recertifications in a timely manner for 3 8 of the 10
randomly selected cases reviewed. The three cases were between 1 and 3 months late, which
resulted in overpayments totaling $255 for late recertifications.

Further, HUD’s Multifamily Tenant Characteristic System reexamination report for January
2015 showed that the Authority had not performed 353 of 14,989 required annual tenant
recertifications, or 2.35 percent, in a timely manner. The Authority performed the
recertifications from 1 to 21 months late. 9

Various Causes Contributed to These Conditions
These conditions occurred because the Authority lacked written procedures for applying the
payment standards and Authority staff was unfamiliar with HUD regulations regarding subsidy
and payment standards. In addition, according to Authority managers, the Authority’s Housing
Choice Voucher program department suffered from high staff turnover and a high caseload per
staff member.

In response to sequestration, 10 the Authority further complicated the process by changing its
payment standards twice in 2013 and twice in 2014 and changing occupancy standards in both
2013 and 2014. Thus, in addition to determining when to implement a new payment standard
during each recertification, caseworkers had to determine which payment standard was to be
used. 11 Staff also had to determine whether the unit size continued to be appropriate after the
changes in occupancy standards, even if there was no change in the number of family members
living in the unit.
Conclusion
The Authority had deficiencies in 5 of 10 randomly selected tenant files reviewed. The
deficiencies included using incorrect payment standards and conducting late recertifications for
its tenants. These conditions occurred because the Authority lacked written procedures for
applying the payment standards, its staff was unfamiliar with HUD regulations, and its staff
turnover and caseload were high. As a result, the Authority overpaid $639 in rent subsidies for
five families.
Recommendations
We recommend that the Director of the Houston Office of Public Housing require the Authority
to

         2A.      Repay $639 from non-Federal funds to its Housing Choice Voucher program.


8
     Cases 509269 and 52838 also had incorrect assistance payments due to applying incorrect payment standards.
9
     The report is a snapshot of files that had not been certified for at least 13 months as of January 1, 2015.
10
     Sequestration is a term adopted by Congress to describe a fiscal policy process that automatically reduces the
     Federal budget across most departments and agencies. The Budget Control Act of 2011 included mandatory
     budget cuts that were to go into effect on January 2, 2013, later deferred until March 11, 2013.
11
     HUD does not allow changes that result in increases charged to tenants to take effect until the second annual
     recertification, except when the family moves into a new unit.



                                                          10
2B.   Develop and implement appropriate written procedures to reduce the risk of
      future overpayments and underpayments in its Housing Choice Voucher program.

2C.   Determine a reasonable caseload that should be assigned to each staff member
      and adjust the caseloads accordingly.

2D.   Ensure that staff members who determine payment standards and perform
      recertifications and quality control staff are adequately trained.




                                      11
Scope and Methodology
We performed the audit from November 2014 through June 2015 at the Authority’s office
located at 2640 Fountain View Drive, Suite 400, Houston, TX, and the Office of Inspector
General’s (OIG) Houston field office. The audit generally covered the period January 1, 2012,
through October 31, 2014. We adjusted the review period when necessary to accomplish our
objective.

To accomplish our audit objective, we

•    Interviewed Authority employees and the board of commissioners chairman;
•    Reviewed reports issued by an independent auditor for 2012 and 2013;
•    Reviewed and obtained an understanding of the Authority’s written policies and procedures,
     relevant laws and regulations, and the Authority’s bylaws and consolidated annual
     contributions contract with HUD;
•    Reviewed board of commissioners minutes;
•    Obtained and reviewed the Authority’s procurement records;
•    Obtained and reviewed the Authority’s purchase orders and check registers for the audit
     period;
•    Obtained and reviewed the Authority’s general ledger; and
•    Coordinated with HUD staff.

We limited our review to the use of Federal funds. We focused primarily on public housing
funds, but the Authority combined the public housing funds with Housing Choice Voucher
program administrative fees, other Federal funds, and non-Federal funds to make its payments.
Therefore, some of the questioned costs in the report include both public housing funds and
voucher administrative fees.

We identified Federal funds by tracing deposits into specific general ledger accounts and
reviewing payments from those accounts. However, we had a scope limitation because the
Authority refused to provide documentation for contracts that it stated were paid with non-
Federal funds. Therefore, we were unable to conclude whether all the contracts reviewed were
paid with Federal or non-Federal funds.

We selected and reviewed a sample of 35 procurements totaling $10.6 million from data
provided by the Authority, including a list of contracts and contractors, general ledgers, check
registers, and purchase order logs, to determine whether purchase orders and contracts were
procured in accordance with regulations and HUD’s guidance. 12 The data included 1,074
purchase orders and contracts on a current contracts list provided by the Authority or procured
by the Authority between January 1, 2012, and October 31, 2014. We selected contracts and

12
     24 CFR 85.36 and HUD Handbook 7460.8, REV-2



                                                   12
purchase orders that appeared unusual in nature, were for high dollar amounts, were for
potentially duplicate goods and services, or appeared to be renewed for more than 3-year terms.
We did not select a statistical sample because we did not intend to project the results of our
testing.

We selected and reviewed a sample of 62 disbursement transactions totaling $92,215 from data
provided by the Authority to determine whether the disbursements were eligible and adequately
supported as required by HUD regulations. 13 The data included 38,947 disbursement
transactions between January 1, 2012, and October 31, 2014, totaling $39.1 million. We selected
transactions that were (1) for high dollar amounts or personal in nature; (2) for miscellaneous
items, such as food or entertainment, or reimbursements to employees for such miscellaneous
items; (3) for mileage reimbursements to employees; and (4) payments to individuals for security
services. We did not select a statistical sample because we did not intend to project the results of
our testing.

We randomly selected 10 tenant files from the list of 16,751 current Housing Choice Voucher
program tenants as of December 31, 2014, from HUD’s Multifamily Tenant Characteristic
System as of December 31, 2014. We selected a random sample to determine what types of
errors might exist in the files. We did not select a statistical sample because we did not intend to
project the results of the sample testing. We reviewed the files to determine whether the
Authority calculated assistance payments properly.

We obtained downloads of procurement files and disbursement transactions and a listing of
Housing Choice Voucher program tenants during the audit. We did not assess the reliability of
these data because we used the data for sample selection only.

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.




13
     2 CFR Part 225 and 24 CFR 85.20



                                                  13
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   Effectiveness and efficiency of operations,
•   Reliability of financial reporting, and
•   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

•   Effectiveness and efficiency of operations: Policies and procedures in place to reasonably
    ensure that program activities were conducted in accordance with applicable laws and
    regulations; specifically, policies and procedures (controls) intended to ensure that the
    Houston Housing Authority complied with HUD regulations and its administrative plan in
    operating its HUD programs.

•   Relevance and reliability of information: Policies and procedures in place to reasonably
    ensure that participant file errors and housing assistance payment errors were reduced.

•   Compliance with applicable laws and regulations: Policies and procedures in place to
    reasonably ensure that procurement, housing assistance payment, disbursement, and file
    documentation was complete and accurate and complied with applicable 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.




                                                 14
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

•   The Authority did not have adequate controls in place to ensure that goods and services were
    procured in accordance with HUD’s and the Authority’s requirements and that purchases,
    advances, and reimbursements to employees who purchased miscellaneous items were
    eligible and supported (finding 1).

•   The Authority did not have adequate controls in place to ensure that housing assistance
    payments were always accurate, properly calculated, eligible, and supported. Specifically,
    the Authority did not always use correct Housing Choice Voucher payment standards when it
    calculated housing assistance payments. In addition, the Authority did not perform annual
    recertifications in a timely manner (finding 2).




                                                 15
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A               $52,981
                          1B                89,722
                          1C                40,548
                          1D                               $3,014,541
                          1G               $13,043
                          1H                                     1,222
                           1I                                       61
                          2A                   639

                        Totals           $196,933          $3,015,824



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.
2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                              16
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation




                               17
             Auditee Comments
Ref to OIG
Evaluation




Comment 1




Comment 2




                            18
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                            58
OIG Evaluation of Auditee Comments

Comment 1:   The Authority generally disagreed with the findings and believed that they should
             be removed from the report or significantly revised.

             We reviewed the Authority’s response and supporting documentation, and made
             such changes as the documentation warranted.

Comment 2:   The Authority stated that written audit conclusions and findings were not
             provided in a timely manner and in a continuous process throughout the audit, and
             as the issues were developed onsite as required by the OIG Audit Operations
             Manual. Further, the Authority stated that no written findings were
             communicated to the executive staff during the field work or after the executive
             staff requested them at the exit conference. The Authority also stated that it had
             been forced to respond for the first time to written findings in the report and that
             the findings were a surprise to it, and that it had little time to review records prior
             to the exit conference. Finally, the Authority stated that the draft report was not
             complete or accurate and that if the OIG had shared the findings on a continuous
             basis and as issues arose, the Authority would have been able to dispel the
             findings.

             We disagree. We provided the Authority written findings in an e-mail on
             March 27, 2015, at the end of the survey phase. We met with the executive
             director and his senior staff on April 2, 2015 to discuss the specifics of these
             findings and answer any questions. Between December 2014, and June 2015, we
             had face to face meetings between the audit supervisor and the executive director
             and his staff and numerous phone calls and e-mails providing status updates.

             We reviewed the information we collected during the remainder of 2015, and
             drafted a report which we presented to the Authority on May 12, 2016. We
             provided specific information in response to Authority questions regarding the
             draft report in e-mails on May 23, 2016, June 3, 2016, and June 6, 2016. We held
             an exit conference to address the Authority’s questions regarding the report and
             findings on May 26, 2016, and evaluated documentation provided by the
             Authority both at and after the exit conference. Further, we extended the deadline
             for written comments from June 1, 2016, to June 10, 2016, as the Authority
             requested. We believe that we have provided appropriate timely and continuous
             feedback to the Authority both during and after the audit work. We further
             believe that we have given ample opportunity for the Authority to address the
             findings, and that we have been very responsive to the Authority’s questions.

Comment 3:   The Authority stated that findings were contrary to HUD’s guidance regarding
             eligible uses of funding and that the findings were outside the scope of the OIG’s
             audit authority.


                                                59
             Regarding eligible uses of funding, we made appropriate changes to the draft
             report when the Authority provided documentation that warranted such changes.
             Regarding our audit authority, we avoided reference to the Authority’s use of
             non-Federal funds where possible. From the beginning of the audit, the Authority
             expressed concern that we might review how it used its non-Federal funds. Its
             refusal to provide certain documentation during the audit made it impossible for
             us to conclusively determine which contracts were paid in whole or in part with
             Federal funds.

Comment 4:   The Authority stated that findings for high dollar value seemed like they were
             being used for shock value rather than payment issues.

             We disagree. We selected our samples based on the methodology stated in the
             report and reported on the deficiencies identified.

Comment 5:   The Authority stated that it had already uncovered and reported a conflict of
             interest contract to the OIG and the Harris County District Attorney in October
             2013, and told auditors about the situation at their first meeting. It further stated
             that auditors took credit for the Authority’s discovering and reporting fraud, and
             that the report penalized it and created a disincentive for reporting fraud. It also
             stated that the employee was terminated, it cooperated with the District Attorney,
             the employee paid restitution, and the money was received. The Authority
             requested recommendation 1A be removed from the audit report. Alternatively, it
             requested that the report be revised to reflect that the Authority, and not OIG
             uncovered and reported the conflict of interest and helped prosecute the individual
             involved.

             We disagree and did not remove the recommendation or change the report based
             on this comment. The Authority did not call the conflict of interest to our
             attention. We selected this contract because (1) one of the payments was a high
             dollar value in our expenditure sample, (2) the contract was a possible duplication
             of services since two contractors provided background check services, and (3) the
             contract was renewed. We concluded from the procurement file documents that
             the contract was improperly procured due to a conflict of interest with one of the
             Authority’s former employees. In an interview in December 2014, the Authority
             stated that the employee committed fraud by making false pension withdrawals.
             The Authority did not mention a conflict of interest or procurement. Further, the
             court documents that the Authority provided us showed the conviction to be based
             on tampering with government records (specifically, a police report) and theft by
             a public servant.

             Neither the court documents, nor the Authority referred to the conflict of interest
             or a fraudulent procurement. Finally, the court-ordered restitution was not for




                                               60
             payments on the improperly procured contract, but for repaying false pension
             withdrawals and tampering with governmental records.

Comment 6:   The Authority stated that there was no legal authority for requiring or suggesting
             that it should have cross-checked address and telephone numbers of vendors with
             employees. The Authority further stated that no large organization can prevent all
             employees’ wrongful acts, and that the Authority’s detection of the wrong doing
             suggests it has adequate and appropriate procedures in place to identify such
             issues. The Authority noted that it has all employees sign a conflict of interest
             statement annually, and that its new hires are briefed on its employee handbook
             which includes a section prohibiting conflicts of interest, and requiring employees
             to promptly disclose such conflicts.

             Internal controls are the steps that the Authority can take to help ensure it
             complies with the requirements. A policy of random cross checking addresses
             and telephone numbers with employees and the families of employees is an
             internal control that would probably reinforce the idea that a perpetrator could get
             caught, and thus have a deterrent effect on employee fraud. The Authority should
             seek assistance from the PIH office in Houston if it is unable to determine what
             internal controls it can or cannot implement.

             The Authority’s policy on disclosures may give the Authority more leverage
             when it pursues an employee for violating its prohibitions against conflicts of
             interest. However, a policy of independently reviewing employees could have a
             deterrent effect and could help to limit the Authority’s exposure to such
             noncompliance.

Comment 7:   The Authority stated that $99,770 of the conflict of interest contract was paid with
             non-public housing funds, and the finding amount should be reduced to $53,189.

             We were unable to reconcile the dollar amounts that the Authority provided in its
             response with the extracts from the general ledger and check registers that it
             provided during the field work. According to the extracts, the Authority paid a
             total of $142,703 in Federal funds for the conflict of interest contract. The
             Authority paid $52,981 in public housing funds and $89,722 in voucher
             administrative fees.

Comment 8:   The Authority stated that although the vendor should have been disqualified due
             to the conflict of interest, the vendor provided the lowest price and actually
             provided the services. The Authority also stated that there was no authority to
             make conflict of interest payments ineligible based solely on the conflict of
             interest.

             We disagree. Regardless of the price, and whether the Authority received
             services under this contract, the conflict of interest clearly violated both Federal



                                                61
                 regulations and the Authority’s own policies. The Authority’s employee was the
                 contractor, evaluated his own contract for the Authority during the procurement
                 process, and signed documents that approved his own payments under the
                 contract. Therefore, the $142,703 paid in violation of conflict of interest
                 requirements is ineligible.

Comment 9:       The Authority stated in a footnote that OIG told it in an e-mail on June 8, 2016,
                 that no payments associated with reference 576450 14 were ineligible.

                 We initially considered the payments to be ineligible, but ultimately deemed them
                 unsupported because we could not determine whether they were Federal or non-
                 Federal funds. However, they are still questionable expenses.

Comment 10: Regarding a questioned relocation services contract, the Authority stated that the
            vendor was paid to handle the logistics of reimbursing tenants for their moves,
            and that these payments were not part of the contract. The Authority provided an
            exhibit which included a task order referring to relocation benefit checks and
            several invoices which included line items for relocation checks.

                 The documents in the exhibit appeared to be incomplete and did not support the
                 Authority’s assertion regarding payments to tenants. The Authority’s general
                 ledger coding did not differentiate between payments to the vendor and payments
                 to the tenants. The Authority will have to provide clear evidence of payments
                 made to the tenants through the vendor. We did not change the report or the
                 recommendations based on this comment. We did not include the exhibit in the
                 report, but it is available upon request.

Comment 11: The Authority stated floor decking was paid with a change order, and that the
            change order was consistent with HUD requirements and with Authority policies.
            In response to the draft report, the Authority provided an exhibit which included
            the change order.

                 We agreed that the change order approved the overpayment and revised the
                 report.

Comment 12: The Authority stated that the leasing services payments were not made with
            public housing funds and not subject to procurement policies and regulations
            referenced in the audit.

                 The Authority made the leasing service payments with Community Program
                 Development funds instead of public housing funds. The questioned costs were
                 $102. We advised the Authority and removed the reference from the report.


14
     We did not reference vendor 57450. We assume that the Authority meant to say vendor 576459.



                                                       62
Comment 13: The Authority stated that an amount for $71,512 in excess of a contract for
            reference A009263 was correlated with a not to exceed amount of $300,000. The
            Authority stated that its ledger showed no payments in excess of $300,000 and
            that we had changed the amount to $68,271. The Authority requested
            recommendation 1B be removed from the report.

              According to data provided by the Authority during the field work, it spent a total
              of $410,806 for this “not to exceed $300,000” contract. It paid $68,272 in public
              housing funds between January 2012 and August 2012, and exceeded the
              $300,000 limit from December 2012 through May 2013. We deleted the
              overpayment reference in Appendix C because the Authority paid the Federal
              funds portion of the contract before it began overpaying the contract in December
              2012; however, the Federal funds portion is still unsupported because the
              Authority did not provide an acceptable independent cost estimate. We did not
              remove the recommendation from the report.

Comment 14: The Authority stated that the independent cost estimates were maintained in a
            separate department and not in the procurement files. It provided copies in four
            exhibits attached to its response. The four exhibits and some additional
            explanation were for six contracts with questioned expenses totaling $1,699,101.
            The expenses were for replacing floor decking, exterior painting, interior
            renovation work, demolition, household appliances, and management fees. The
            Authority requested recommendation 1C be removed from the report.

              We disagree and did not change the report based on this comment. We reviewed
              the documents that the Authority provided as independent cost estimates. HUD
              Handbook 7460.8 section 3.2, paragraphs D.2 and D.3 outline the different
              requirements for independent cost estimates on purchases at or above the small
              purchase threshold ($2,000 for the Authority). According to the handbook,
              independent cost estimates for purchases above the small purchase threshold are
              normally broken out into categories including labor, materials, and other direct
              costs. The Authority’s documentation contained no such details. Without the
              breakouts, we could not determine the source of the total estimates, and the costs
              remain unsupported. We did not include the exhibits in the report, but they are
              available upon request.

Comment 15: The Authority stated that it obtained pricing from at least three commercial
            vendors for household appliances, and that the pricing was effectively an
            independent cost estimate. It further stated that even if it did not obtain an
            independent cost estimate, the quoted prices for commercially available
            appliances ensured that the price paid was reasonable.

              The Authority did not provide documentation showing that it obtained pricing
              from at least three commercial vendors for the appliances, or that it compared
              quoted prices for commercially available appliances. Therefore, these costs



                                                63
               remain unsupported. The Authority can provide HUD with any additional
               information available during the audit resolution process.

Comment 16: The Authority stated that management fees for one of its properties did not need
            an independent cost estimate because HUD’s published safe harbor rate sets a
            maximum amount a PHA can pay a property management company, and that the
            safe harbor rate is effectively an independent cost estimate. It further stated that it
            paid 50 percent less than the safe harbor rate which means that it was not an
            unsupported or unreasonable amount.

               We disagree. The Authority should not assume that the maximum it could pay
               under current regulations is in any way related to the most cost effective amount.
               The Authority missed an opportunity to determine whether it could reasonably
               pay less than 50 percent of the safe harbor rate because it did not perform an
               independent cost estimate.

Comment 17: The Authority stated an independent cost estimate was unnecessary for an amount
            paid to terminate a services contract for a property that was being demolished. It
            further stated that this amount was negotiated down 40 percent and was not a
            procurement action.

               We agreed that an independent cost estimate might not be appropriate for this
               contract and deleted the reference to a missing independent cost estimate in
               Appendix C. However, the amount is still questionable because the Authority did
               not provide a timely written cancellation notice as required by the contract.
               Instead, it allowed the contract to automatically renew for an additional 7 years,
               while HUD regulations state contracts should not exceed 5 years.

Comment 18: The Authority stated it maintained evidence for replacing an HVAC system for
            $463,095. It stated the evidence included the material necessary for an
            independent cost estimate, and that the material showed it obtained information
            regarding cost of work before the solicitation. It offered to provide the evidence
            to the local PIH office or to OIG upon request.

               The Authority did not provide the evidence in either the package of materials that
               it gave us at the exit conference or as part of the support for its written comments.
               The Authority should provide the evidence to the local PIH office during the audit
               resolution process.

Comment 19: The Authority stated that the draft audit asserted or implied that the lack of an
            independent cost estimate alone rendered a procurement questionable or
            unsupported and that its competitive procurement process demonstrated that
            payments were supported and reasonable.




                                                 64
              The lack of an independent cost estimate (which both Federal regulations and
              Authority policy require) renders a procurement unsupported because there is no
              evidence that the payments were reasonable.

Comment 20: The Authority stated that services provided by off duty officers were generally
            outside the scope of a contract the Authority had with Precinct 6. It further stated
            that the Precinct 6 contract was for additional property patrols; while the off-duty
            officers were paid for attendance when necessary, including a presence at its
            headquarters.

              The Authority did not provide evidence to show what services it received from
              the off duty officers, or that the services were outside the scope of the Precinct 6
              contract. The Authority should have provided a contract or other documentation
              showing the scope of work the off duty officers performed so that we could
              compare the duties. However, an Authority manager stated that the Authority did
              not have contracts with the off duty officers. Further, when we requested the
              2012 payments to Precinct 6 under the contract, the Authority manager stated that
              the Authority paid the off duty officers instead of Precinct 6
.
Comment 21: The Authority noted that the report did not mention that duplicate payments to off
            duty police officers had previously been adjudicated in Harris County District
            Court. The Authority stated that it fully cooperated, the prosecutions were
            complete, defendants paid restitution to the Authority, and that references to
            duplicative billing should be removed from the report because duplicate payments
            had already been repaid.

              During the audit, the Authority did not provide evidence that the amount of
              restitution was appropriate, or that it repaid the restitution to its public housing
              fund. The audit noted that direct payments to the officers may have duplicated
              payments under a contract with Precinct 6. We did not remove references to
              duplicative billing from the report.

Comment 22: The Authority acknowledged that it did not maintain a complete list of contracts
            for the audit period, but stated that it now maintains a complete list. It further
            noted that the audit did not attribute improper or unsupported payments to the
            lack of a complete list.

              The audit report contains the results of testing at the time of the field work. We
              did not test for changes after the field work was complete. The audit did not
              attribute improper or unsupported payments to the lack of a complete list of
              contracts. Rather, references to the lack of a complete list show that the
              Authority’s documentation was not organized and did not comply with
              regulations at the time of the field work. The Authority should work with HUD to
              ensure that the newly maintained list of contractors complies with the regulations.




                                                 65
Comment 23: The Authority disagreed with the audit assertion that it did not follow HUD
            regulations or its own policies when paying miscellaneous expenses and believes
            the assertion and recommendation 1F 15 should be removed from the report. The
            Authority strongly believes that the expenses are both eligible and integral to
            residence participation in Authority programs. The Authority stated:

                      •   Ten of the 22 questioned disbursements were not made with public
                          housing funds, but were instead paid with voucher administrative fees.
                      •   Four of the 12 remaining disbursements were to support a Father’s Day
                          event which HUD encourages and supports though its guidance.
                      •   Five of the 12 remaining disbursements were for three resident council
                          meetings, and the Authority believed that PIH Notice 2013-21 made them
                          eligible activities.
                      •   Two of the 12 remaining disbursements were for school supplies for
                          summer interns and entertainment at a summer literacy festival and the
                          Authority believed that PIH Notice 2013-21 made them eligible expenses.
                      •   One of the 12 remaining disbursements was for purchasing grills at an
                          elderly development and was a necessary and reasonable cost.

                 We disagree and did not change the report based on this comment. Regarding the
                 10 of 22 questioned disbursements, the Authority did not provide evidence
                 showing the source of the payments in its response. The coding used in its
                 general ledger did not show the payments as administrative fees. Further, even if
                 these purchases were made with voucher administrative fees, they would still be
                 an ineligible use of Federal funds.

                 Regarding all 22 questioned disbursements, the Authority cited PIH Notice 2013-
                 21 to support them, but it gave no support for its advancements and
                 reimbursements to employees for these purchases. The Notice requires the
                 Authority to have policies and procedures to address employee advances and
                 reimbursements, which the Authority did not have during the audit. According to
                 the Notice, the Authority must establish policies regarding the funds, and the
                 funds must meet the intent of HUD regulations. The Authority could not provide
                 specific policies for employment reimbursements during the audit except for
                 policies governing annual tune ups, tuition, and mileage. There were no policies
                 for reimbursing other expenditures.

                 Regarding the purchase of food, the Notice states reasonable refreshments and
                 light snack costs are allowable. Some of the food expenses consisted of catered
                 events which would not be considered light snacks. The Notice makes no
                 mention of t-shirts, invitations, grills, games, etc. Further, the Notice refers to
                 OMB Circular A-87 to determine allowable expenses. According to the Circular,


15
     Recommendation number changed from 1F in draft report to 1G in final report.



                                                        66
                   expenses must be necessary and reasonable for proper and efficient performance
                   and administration of Federal awards, which would not include clothing, barbecue
                   grills, and games. It further stated that entertainment expenses are not allowed.
                   Therefore, these costs, consisting of 22 questioned disbursements, and totaling
                   $13,043 remain ineligible and must be repaid from non-Federal funds.

                   The Authority should work with HUD during the audit resolution process to
                   ensure the recommendation is adequately addressed.

Comment 24: The Authority believed the finding should be removed from the report or that the
            recommendation should be for the Authority to provide support to the Houston
            PIH office or repay.

                   We did not remove the finding or reclassify the nature of the questionable costs.
                   We reiterate that there were two problems with the Authority’s advances and
                   reimbursements for the miscellaneous expenses. First, the expenses did not
                   appear to be reasonable or necessary uses of Federal funding. Second, these are
                   employee advances and reimbursements for miscellaneous costs. The Authority
                   will need to provide support to the Houston PIH office that it has developed
                   policies and procedures to address such advances and reimbursements to help
                   reconcile recommendation 1I, and repay any remaining questioned costs.

Comment 25: The Authority stated that $1,222 of the $1,283 in questioned mileage
            reimbursements were paid with non public housing funds, and the remaining $61
            could be supported through mileage per an internet map site. It offered to provide
            this information to the local PIH office. The Authority requested that
            recommendation 1G 16 be revised to reflect that only $61 of the questioned costs
            were paid with public housing funds.

                   Further review showed that the Authority paid $1,222 in questioned mileage
                   reimbursements with voucher administrative fees. The Authority’s travel policy
                   requires beginning and ending mileage on the reimbursement forms which the
                   employees did not provide. Therefore, these reimbursements were unsupported,
                   and the Authority should reimburse them from non-Federal funds to its voucher
                   administrative fees fund. We revised the report and added a recommendation to
                   provide support for or reimburse the $1,222 of questioned voucher administrative
                   fees, and the $61 of questioned public housing program funds.

Comment 26: The Authority stated it had taken steps to improve procurement before the audit
            started, and that the report failed to acknowledge that the procurement
            recommendations had already been addressed. Specifically, it had (1) procured a
            contract administration software program and trained staff to use it, resulting in
            improved contract administration and tracking, and ensured a complete list of

16
     Recommendation changed from 1G in draft report to 1J and 1I in final report.



                                                          67
                   active contracts was maintained, (2) provided ongoing training to staff on HUD
                   procurement regulations and Authority policies, and how to use the new contract
                   management software, (3) initiated steps to ensure all procurements were
                   documented in a single file, and (4) hired a dedicated contract administrator to
                   help ensure its contracts and procurements were uniform and properly
                   administered. Therefore, the Authority requested that recommendations 1D and
                   1E be removed from the report. 17

                   Despite the claimed improvements, the Authority’s controls were not effective
                   during the audit period. The Authority should provide evidence to HUD that it
                   adequately implemented the recommendations during the audit resolution process.
                   We did not remove the recommendations from the report.

Comment 27: The Authority stated that the Housing Choice Voucher program errors were minor
            and should be classified as such.

                   We disagree. The issues noted in the audit were not minor. They affected 5 of 10
                   randomly selected samples. We limited testing to 10 random samples from a
                   population of 16,751 vouchers because we believed that the sample results would
                   tell us what types of problems the population of files would contain. We intended
                   to focus on the types of problems and did not intend to project the results.
                   However, projecting the results using EZ Quant software shows that with a 95
                   percent certainty, at least 22 percent, or 3,685 of the voucher files either used
                   incorrect payment standards, or were not recertified within 12 months as required.
                   Projecting only the incorrect payment standards rate shows that the Authority
                   made payment standard errors in at least 15 percent, or 2,513 files.

Comment 28: The Authority noted that the payment standard errors in the report were from
            2013 and 2014, and blamed them on sequestration, a budget funding situation that
            no longer exists.

                   The audit showed that several problems contributed to the payment standard
                   errors, including the lack of written procedures, staff being unfamiliar with HUD
                   regulations, high staff turnover, and high caseload per staff member. Better
                   controls would put the Authority in a better position to prevent and identify the
                   problems that we identified.

Comment 29: The Authority stated that the amount of overpayments was minimal and provided
            a spreadsheet showing that the errors resulted in a total overpayment of about one
            quarter of one percent, or $384 out of nearly $150,000. The Authority agreed
            with the repayment amount.




17
     Recommendations changed from 1D and 1E in draft report to 1E and 1F, respectively, in the final report.



                                                          68
                  The Authority correctly noted that the error rate was about one quarter of one
                  percent of the nearly $150,000 that it spent for the 10 vouchers. However, we
                  would point out that the Authority spent more than $353 million for about 16,700
                  vouchers during the audit period, and not just $150,000 for 10 vouchers. We did
                  not consider the overpayments to be minimal.

Comment 30: The Authority stated that the annual recertification timing errors were only 2.35
            percent of its total recertifications and were within HUD’s 5 percent standard.
            The Authority requested OIG classify the 2.35 percent noncompliance rate as a
            minor deficiency.

                  As noted in the report, this was a snapshot of files that had not been recertified for
                  at least 13 months and some had not been recertified for as much as 33 months. 18
                  We noted that the Authority did not provide a reason for failing to recertify files
                  for nearly two years after the due date. We did not consider this to be a minor
                  error.

Comment 31: The Authority stated it had implemented written procedures to correctly apply
            payment standard decreases well before the audit. It stated that recommendation
            2B and the finding should be deleted because it had already developed and
            implemented procedures to reduce over- and under-payments in the Housing
            Choice Voucher program.

                  We disagree and did not delete the finding or recommendation based on this
                  comment. The errors occurred after the Authority said it had implemented the
                  written procedures. Therefore, the written procedures were not effective.

Comment 32: The Authority stated its caseloads decreased throughout the audit period and that
            it continues to monitor and make adjustments as necessary. However, it believed
            that its current staffing was reasonable, efficient, and effective as shown by its
            generally strong performance on Section 8 Management Assessment Program
            (SEMAP) 19 indicators, and despite severe reductions to its administrative fees. It
            believed the payment standard errors were more attributable to its efforts to
            operate under sequestration instead of its caseload size. It further believed this
            issue has been resolved, and stated that recommendation 2C and the finding
            should be removed as it has already reduced the caseload to a reasonable point.

                  As noted in the report, we did not conclude that the high caseloads per staff
                  contributed to the errors. Rather, the Authority’s managers made that conclusion.


18
     12 month recertification requirement + 21 months late = 33 months without a recertification
19
     SEMAP is a set of performance standards that HUD established to measure whether a public housing agency
     administers its Section 8 program properly and effectively. SEMAP scores are the public housing agency’s self
     assessment of its performance, and help HUD target monitoring and assistance to PHA programs that need the
     most improvement.



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              We acknowledge that the Authority said it was addressing the issue, but we did
              not test files after the audit period and cannot conclude whether the error rate
              changed. Further, we do not believe SEMAP scores are a definitive indicator of
              performance as they are self-reported numbers, and could be subject to internal
              bias. We did not delete the finding or recommendation based on this comment.
              The Authority should work with HUD to ensure the recommendation is
              adequately addressed.

Comment 33: The Authority stated it was committed to training and compliance, and used
            compliance software, a dedicated trainer, and quality control. Further, it required
            housing specialists to become certified within one year. It also implemented
            continuing education requirements and provided training initiatives for all
            voucher staff, including supervisors and quality control personnel. It said it
            already has a robust training program for its voucher and quality control personnel
            and stated that recommendation 2D and the finding should be removed.

              We acknowledge that the Authority said it was committed to training and quality
              control. We did not evaluate the quality of the Authority’s training program.
              Further, the only file we reviewed that had been through the Authority’s quality
              control program had been corrected, but the correction was not implemented
              properly. We did not delete the finding or recommendation based on this
              comment. The Authority should work with HUD to ensure that the
              recommendation is adequately addressed.

Comment 34: The Authority requested an opportunity to review the revised report.
            We did not submit a revised report to the Authority because there were few
            revisions, none of which warranted a formal revised draft report.




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Appendix C
                            Contract and Purchase Order Errors
     Payee,                        No contract    Payments
                                                               Ineligible
purchase order,                  administration, exceeding                Unsupported
                       No                                      payments
 or request for                  missing files or  contract                 payments
                  independent                                    using
  proposals or                     documents,     amount or               using Federal
                  cost estimate                                 Federal
   quotation                     and conflict of   without                    funds
                                                                 funds
    number                           interest      contract
539066                  X               X                        $142,703
578946                  X                             X            40,548
A011445                 X                                                      $130,990
576459                  X                             X                         211,594
A009263                 X                                                        68,272
585329                                  X                                        11,934
A011224                 X               X             X                         126,785
583794                  X                                                       229,566
PO 5096                 X               X                                        13,120
PO 7254                 X                                                        11,125
PO 7253                 X                                                        10,900
A008296                 X                                                        24,974
570110                  X                                                         3,596
570732                  X                                                       463,905
572431                  X                                                       107,130
A220451                 X                                                     1,167,015
A220248                 X                                                        58,609
589106                  X                                                        35,900
581823                  X                                                        41,334
580431                  X                                                        31,560
580170                  X                                                        42,000
583013                  X               X                                       224,232
 Totals                 21              5             3          $183,251    $3,014,541




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Appendix D
                       Questionable Miscellaneous Purchases
          Payment to
                        Other                    Line item description for misc. items
 Payee     employee                 Expenditur
                       misc. item                   as described in the Authority’s
number     for misc.                    e
                       purchase                             general ledger
             items
539378         X                        $    13 Reimbursement - refreshments Father’s
                                                Day celebration
558626        X                              56 Reimbursement - student intern
                                                expenses
570683        X                             136 Reimbursement - decorations for
                                                Appreciation Day
558626        X                             509 Reimbursement - misc. expenses & car
                                                mileage
578379        X                             200 Advance - decorations FSS graduation
578379        X                             150 Advance - drinks/snacks FSS M&G
                                                Conf
578379        X                             420 Advance - invitations
580637                     X              1,019 Catering HHA awards ceremony
578379        X                             110 Advance - (picture) frames for
                                                Opportunity Center
570683        X                             229 Reimbursement - misc. expenses
E220087       X                              65 Reimbursement - donuts for intake
                                                briefing
574112                     X                750 Richard Davis Unique Sounds - Sound
                                                & DJ
559180                     X                350 Balance due for musical entertainment
588446                     X                100 Family Literacy Fest Duney Homes
574012                     X              1,044 Affordable Moonwalks - basketball toss,
                                                football
A012911                    X              1,049 Academy Awards - 95 G880 Gildan
                                                Golf Shirt - For
535600                     X              1,195 James Coney Island - food for
                                                Fatherhood event
566870                     X                400 Breakfast resident ldrshp mtg
577839                     X              1,090 Catering for FSS graduation 12/20/13
577956                     X              2,380 Catering Christmas lunches
A220169                    X                398 50 Breakfast - Omelettes & Such
                                                Breakfast
574330                     X              1,380 Qty 4 Park grill with mounting pole
                                                each grill is
Totals        10          12            $13,043




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