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 Auditee Comments Ref to OIG Evaluation Comment 2 Comment 2 Comment 2 Comment 3 Comment 3 Comment 4 19 Auditee Comments Ref to OIG Evaluation Comment 1 20 Auditee Comments Ref to OIG Evaluation Comment 3 21 Auditee Comments Ref to OIG Evaluation Comment 5 Comment 5 22 Auditee Comments Ref to OIG Evaluation Comment 5 23 Auditee Comments Ref to OIG Evaluation Comment 5 Comment 6 24 Auditee Comments Ref to OIG Evaluation Comment 6 Comment 6 25 Auditee Comments Ref to OIG Evaluation Comment 6 Comment 7 Comment 7 26 Auditee Comments Ref to OIG Evaluation Comment 8 Comment 8 27 Auditee Comments Ref to OIG Evaluation Comment 8 Comment 7 Comment 9 28 Auditee Comments Ref to OIG Evaluation Comment 10 29 Auditee Comments Ref to OIG Evaluation Comment 10 30 Auditee Comments Ref to OIG Evaluation Comment 11 Comment 11 Comment 12 31 Auditee Comments Ref to OIG Evaluation Comment 12 Comment 13 32 Auditee Comments Ref to OIG Evaluation Comment 14 33 Auditee Comments Ref to OIG Evaluation Comment 14 Comment 14 34 Auditee Comments Ref to OIG Evaluation Comment 14 Comment 14 Comment 14 35 Auditee Comments Ref to OIG Evaluation Comment 15 Comment 16 36 Auditee Comments Ref to OIG Evaluation Comment 17 Comment 18 37 Auditee Comments Ref to OIG Evaluation Comment 19 Comment 20 38 Auditee Comments Ref to OIG Evaluation Comment 21 Comment 22 Comment 22 39 Auditee Comments Ref to OIG Evaluation Comment 22 Comment 23 Comment 23 Comment 23 Comment 23 40 Auditee Comments Ref to OIG Evaluation Comment 23 Comment 23 Comment 23 41 Auditee Comments Ref to OIG Evaluation Comment 23 Comment 23 Comment 23 42 Auditee Comments Ref to OIG Evaluation Comment 23 Comment 24 43 Auditee Comments Ref to OIG Evaluation Comment 25 Comment 25 Comment 26 44 Auditee Comments Ref to OIG Evaluation Comment 26 45 Auditee Comments Ref to OIG Evaluation Comment 5 46 Auditee Comments Ref to OIG Evaluation Comment 13 Comment 14 47 Auditee Comments Ref to OIG Evaluation Comment 26 Comment 26 Comment 23 48 Auditee Comments Ref to OIG Evaluation Comment 23 Comment 25 Comment 26 49 Auditee Comments Ref to OIG Evaluation Comment 27 Comment 27 50 Auditee Comments Ref to OIG Evaluation Comment 28 Comment 29 51 Auditee Comments Ref to OIG Evaluation Comment 30 52 Auditee Comments Ref to OIG Evaluation Comment 31 53 Auditee Comments Ref to OIG Evaluation Comment 32 54 Auditee Comments Ref to OIG Evaluation Comment 32 Comment 33 55 Auditee Comments Ref to OIG Evaluation Comment 33 Comment 33 56 Auditee Comments Ref to OIG Evaluation Comment 29 Comment 31 Comment 32 Comment 33 57 Ref to OIG Auditee Comments Evaluation Comment 34 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. 69 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. 70 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 71 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 72
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)