oversight

The Sacramento Housing and Redevelopment Agency, Sacramento, CA, Did Not Always Use Community Development Block Grant Funds in Accordance with HUD Requirements or Its Own Policies

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-07-25.

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

                Sacramento Housing and
                Redevelopment Agency
        Community Development Block Grant Program




Office of Audit, Region 9     Audit Report Number: 2018-LA-1006
Los Angeles, CA                                     July 25, 2018
To:            Kimberly Y. Nash, Director, San Francisco Office of Community Planning and
               Development, 9AD

               //SIGNED//
From:          Tanya E. Schulze, Regional Inspector General for Audit, 9DGA
Subject:       The Sacramento Housing and Redevelopment Agency, Sacramento, CA, Did Not
               Always Use Community Development Block Grant Funds in Accordance With
               HUD Requirements or Its Own Policies


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 Sacramento Housing and Redevelopment
Agency’s Community Development Block Grant program.
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 website. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
213-534-2471.
                    Audit Report Number: 2018-LA-1006
                    Date: July 25, 2018

                    The Sacramento Housing and Redevelopment Agency, Sacramento, CA, Did
                    Not Always Use Community Development Block Grant Funds in Accordance
                    With HUD Requirements or Its Own Policies

Highlights

What We Audited and Why
We audited the Sacramento Housing and Redevelopment Agency’s Community Development
Block Grant (CDBG) program, based on an Office of Inspector General risk assessment and U.S.
Department of Housing and Urban Development (HUD) concerns. The objective of our audit
was to determine whether the Agency used the City of Sacramento’s CDBG funds in accordance
with HUD requirements and adequately monitored its subrecipients.

What We Found
The Agency adequately monitored its subrecipients. However, it did not always use CDBG
funds in accordance with HUD requirements or its own policies. Specifically, it did not (1) seek
competition or maintain adequate documentation for four of its activities, (2) properly classify
three capital improvement projects, or (3) ensure that one activity continued to meet national
objective requirements. Additionally, the Agency paid for $283 in unallowable costs. This
condition occurred because the Agency disregarded HUD regulations and its own procurement
policy. As a result, HUD had no assurance that $385,414, which the Agency spent on four
activities, was a fair and reasonable cost. Also, the Agency did not properly classify three
activities totaling $119,150.

What We Recommend
We recommend that the Director of HUD’s San Francisco Office of Community Planning and
Development require the Agency to (1) provide supporting documentation for four procurements
made without adequate competition totaling $385,414; (2) support that three feasibility studies
met a final cost objective, reclassify the activities as administration and planning, or repay the
program $55,200 from non-Federal funds; (3) reimburse its program $283 from non-Federal
funds for unallowable costs; (4) provide training to its employees regarding allowable costs; and
(5) provide training on CDBG and procurement regulations to staff involved in CDBG
activities.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Agency Did Not Always Use CDBG Funds in Accordance With HUD
         Requirements or Its Own Policies ................................................................................... 4

Scope and Methodology ...........................................................................................9

Internal Controls ....................................................................................................11

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .................................................................................. 12
         B. Auditee Comments and OIG’s Evaluation ............................................................. 13
         C. Criteria ....................................................................................................................... 26




                                                                     2
Background and Objective
The Sacramento Housing and Redevelopment Agency receives annual Community Development
Block Grant (CDBG) entitlement allocation funds from the U.S. Department of Housing and
Urban Development (HUD). The Agency is a joint powers authority created in 1982 to provide
common professional staffing to the City and County of Sacramento to administer and manage
its housing authorities and the city and county Federal housing and community development
entitlement funds. The Agency uses its annual CDBG allocation to fund projects and activities
undertaken to address the housing and community development needs of low- and moderate-
income persons in the City and County of Sacramento. Federal regulations at 24 CFR (Code of
Federal Regulations) 570.200 require that CDBG funds be used for eligible activities that meet
one of three national objectives:

       •   provide benefit to low- and moderate-income persons,
       •   aid in the prevention or elimination of slums or blight, or
       •   meet a need having a particular urgency.

The Agency is responsible for administering and overseeing the use of the City of Sacramento’s
CDBG funds. The CDBG program is guided by 24 Code of Federal Regulations (CFR) Part 570.

The Agency’s fiscal year runs from January 1 to December 31 and it received the following City
of Sacramento CDBG funds for fiscal years 2015 to 2017.


                         Fiscal year                                Amount

           January 1 – December 31, 2015                          $4,335,943
           January 1 – December 31, 2016                           4,420,123
           January 1 – December 31, 2017                           4,442,443
                     Total CDBG funds                             13,198,509

Our audit objective was to determine whether the Agency used the City of Sacramento’s CDBG
funds in accordance with HUD requirements and adequately monitored its subrecipients.




                                                 3
Results of Audit

Finding: The Agency Did Not Always Use CDBG Funds in
Accordance With HUD Requirements or Its Own Policies
The Agency did not use CDBG funds in accordance with HUD requirements or its own policies.
Specifically, it did not (1) always seek competition or maintain adequate documentation for its
activities, (2) properly classify three activities, or (3) ensure that one activity met national
objective requirements. Additionally, the Agency paid for unallowable costs. This condition
occurred because the Agency disregarded HUD regulations and its own procurement policy. As
a result, HUD had no assurance that $385,414, which the Agency spent on four activities, was a
fair and reasonable cost. Also, the Agency did not properly classify three activities totaling
$119,150.

The Agency Did Not Always Comply With HUD Procurement Regulations and Its Own
Procurement Policy
The Agency did not always comply with its own procurement policy or HUD regulations.
Specifically, it did not seek adequate competition or maintain adequate documentation for 4 of
the 10 activities reviewed. As a result, HUD had no assurance that it received the best value for
the activities listed in the following table.

               Activity                    Lack of      Lack of                 Conflict of        Amount
                                         competition documentation               interest
    Emergency repair program                 x                                                       $272,569
    Food incubator study                     x            x                           x                50,000
    Colonial Heights Library                 x                                                         48,895
    Boys and Girls Club study                             x                                            13,950
      Total activities                       3            2                           1               385,414

Emergency Repair Program
The Agency selected contractors from a list of seven prequalified contractors to perform work
for its emergency repair program. The Agency developed this list from a request for quotations
procurement process. However, it obtained a price quote from only the contractor that
performed the work. The Agency did not obtain additional quotes for work over $3,000 as
required by its own procurement policy (see criteria in Appendix C). 1 It funded repairs for 59




1
 Small purchase procedures - For any amounts above the micropurchase threshold but not exceeding $150,000, the
Agency must obtain a reasonable number of quotes (preferably three or more). For purchases of less than $3,000,
also known as micropurchases, only one quote is required if the quote is considered reasonable.


                                                       4
low-income homeowners in which the cost of the work exceeded $3,000. It restricted
competition for these 59 repairs by obtaining a quote from only the vendor that performed the
repair. The repairs totaled $272,569.

Food Incubator Study
The Agency improperly solicited a proposal from only one source for a food incubator feasibility
study. The Agency was unable to provide sufficient justification for using noncompetitive
procedures. It could not show that the contractor selected was the only contractor capable of
performing the work as required by HUD regulations. 2 Also, it did not provide documentation to
support efforts made to identify other contractors capable of performing the study as required by
its own procurement policy. The Agency based its decision to get only one quote from an
outdated procurement policy that did not comply with HUD regulations. Additionally, it
awarded the food incubator study contract to the property owner of the proposed food incubator
site. This relationship violated the “interests of officials” provision of the contract, which states
that the “contractor covenants that he has no interest and will not acquire any interest, direct or
indirect, in any portion of the project to which the contract pertains.” The contractor’s
ownership interest in the feasibility study property may have influenced the results of the study.

Colonial Heights Library
The Colonial Heights Library project included rehabilitation work of a kitchen and community
room and the construction of a tool shed. The Agency violated procurement requirements and
approved change orders totaling $48,895 for disabled parking spaces and work around planter
boxes that were not part of the original scope of work and were not bid on by contractors
responding to the solicitation. 3 As a result, the $48,895 in change orders for parking spaces and
work done around planter boxes was awarded without competition.

Boys and Girls Club Study
The Agency entered into a subrecipient agreement with the Boys and Girls Club of Greater
Sacramento to perform a feasibility study of a freestanding Boys and Girls Club clubhouse in the
Del Paso Heights community. The Boys and Girls Club contacted firms to perform the study.
However, it did not maintain records sufficient to detail the history of the procurement and had
no documentation to support that $13,950 paid for the study was reasonable. 4 The Agency
provided the Boys and Girls Club’s written statement, which described its efforts to contact
several firms to do the study. This statement, written in response to our audit, said that the price
paid was based on estimates and information received from these firms. However, the statement
did not include written cost estimates to support the cost of the study.




2
  2 CFR 200.320(f)
3
  2 CFR 200.319(a)
4
  2 CFR 200.318(i)


                                                  5
The Agency Did Not Properly Classify Three Activities
The Agency classified three activities reviewed as capital improvement project scoping
activities. It classified capital improvement project scoping activities as activity delivery costs
for activities that had not been fully developed. Activity delivery costs are those allowable costs
incurred for implementing and carrying out eligible CDBG activities. The table below identifies
these three activities.


                                    Activity                                Amount
                   Entrepreneur center feasibility study                     $55,200
                   Food incubator feasibility study                           50,000
                   Boys and Girls Club feasibility study                      13,950
                                  Total unsupported                          119,150

HUD requirements state that a grantee must be aware of the risk associated with initiating a
project that does not materialize or reach fruition and, therefore, does not meet a national
objective or final cost objective. In such cases, the incomplete activity will most likely be
determined ineligible and the staff costs disallowed or possibly considered general administrative
costs. 5

It is unclear whether the three feasibility studies met a national objective or their respective final
cost objectives. The Agency stated that it had no specific plan to proceed with the construction
of a new Boys and Girls Club but it planned to proceed with the food incubator and entrepreneur
center. The Agency had not entered an activity into HUD’s Integrated Disbursement and
Information System (IDIS) 6 for the three projects, which would support the final cost objectives.
Without meeting a national objective or final cost objective, the costs for the three studies were
ineligible as activity delivery costs. For this reason, the Agency will need to reclassify these
costs. If the Agency reclassifies these costs to program administrative costs, it will need to
ensure that the reclassification does not cause the planning and administration cost objective to
exceed the 20 percent cap. 7

The Agency Did Not Ensure That One Activity Met an Ongoing National Objective
The installation of a tool shed at the Colonial Heights Library initially met a national objective.
The national objective for the project was low-moderate area benefit. The Agency was able to
support that the library was located in a low- to moderate-income area. However, HUD




5
  Notice CPD [Office of Community Planning and Development] 13-07(III)(A)(6)
6
  IDIS is a nationwide database that provides HUD with current information regarding the program activities across
the Nation. IDIS provides timely information on grantee performance, needs, and trends that allows HUD to
monitor grantee expenditures and accomplishments. Grantees can use system reports to manage their CPD formula
grant programs more effectively.
7
  24 CFR 570.200(g)


                                                         6
regulations 8 state that the activity must provide benefits that are available to all of the residents in
a particular area. We performed a site visit to the library and observed that the tool shed was
securely boarded up and not available for residents to use. The circulation supervisor at the
library stated that the library boarded up the shed shortly after completion because individuals
kept breaking into it. We determined that the tool shed did not provide a benefit to the residents
of this particular area as required. As a result, the $29,704 spent on building the shed was
unsupported. 9

Because of our audit, the Agency promptly contacted the Sacramento Public Library to
determine the library’s plan for the tool shed going forward. The library stated that it had
attempted to implement security measures but the vandalism continued. The library stated that
the best and safest course of action was to reimburse the Agency for the cost of the shed. The
library reimbursed the Agency the $29,704 spent to build the shed.

The Agency Paid for Unallowable Costs
The Agency reimbursed one of its subrecipients for the delivery of bottled water during our audit
period. Only costs necessary and reasonable for the performance of the Federal award are
allowed. 10 The bottled water service was not necessary for the performance of the Federal
award. As a result, the $283 that the Agency spent on bottled water was not an allowable cost.

Conclusion
The Agency did not always seek competition or maintain adequate documentation for its
activities, properly classify three activities, or ensure that one activity met national objective
requirements. Further, the Agency paid for unallowable costs. This condition occurred because
the Agency disregarded HUD CDBG requirements and its own policies. In one case, the Agency
ignored its current procurement policy and used an outdated policy to justify a noncompetitive
procurement action. As a result, HUD had no assurance that $385,414, which the agency spent
on four activities, was a fair and reasonable cost. Also, the agency did not properly classify three
activities totaling $119,150.

Recommendations
We recommend that the Director of HUD’s San Francisco Office of Community Planning and
Development require the Agency to
        1A.      Support that the 59 contracts awarded for the emergency repair program were fair
                 and reasonable or repay its program $272,569 from non-Federal funds.

        1B.      Obtain technical assistance from HUD to revise its Emergency Repair Program to
                 meet CDBG requirements.




8
  24 CFR 570.208(a)(1)(i)
9
  This amount is separate from the $48,895 in Colonial Heights Library change orders questioned above.
10
   24 CFR 200.403(a)


                                                        7
1C.   Support that the contract awarded for the food incubator study was fair and
      reasonable and met a final cost objective or repay its program $50,000 from non-
      Federal funds.

1D.   Support that change orders executed outside the scope of the Colonial Heights
      Library contract were fair and reasonable or repay its program $48,895 from non-
      Federal funds.

1E.   Support that the contract awarded for the Boys and Girls Club feasibility study
      was fair and reasonable and met a final cost objective or repay its program
      $13,950 from non-Federal funds.

1F.   Provide procurement training to its staff members who work on CDBG program
      activities and ensure that staff members comply with HUD requirements and use
      its current procurement policy.

1G.   Support that the entrepreneur center feasibility study met a final cost objective or
      repay its program $55,200 from non-Federal funds.

1H.   Reimburse its program $283 from non-Federal funds for unallowable bottled
      water costs.

1I.   Review all invoices provided from its minor repair subrecipient between January
      1, 2015, and December 31, 2017, and repay the program from non-Federal funds
      for all bottled water service payments not identified in this audit report.

1J.   Provide training to its employees regarding allowable costs to ensure that all costs
      submitted by contractors and subrecipients are eligible for reimbursement.




                                        8
Scope and Methodology
We performed our audit fieldwork at the Agency’s offices located at 801 12th Street,
Sacramento, CA, from November 2017 through March 2018. Our audit period covered January
1, 2015, to December 31, 2017, and was expanded when necessary.

To accomplish our objective, we

•   Reviewed applicable CDBG program requirements and applicable Federal regulations.

•   Reviewed relevant background information, including organizational charts and grant
    agreements.

•   Reviewed relevant Agency policies and procedures.

•   Reviewed audited financial statements, consolidated and annual action plans, and
    consolidated annual performance evaluation reports.

•   Interviewed appropriate Agency personnel and HUD staff.

•   Reviewed HUD monitoring reports.

•   Reviewed reports from IDIS to obtain CDBG disbursement information for the period tested.

•   Reviewed drawdowns (vouchers) and supporting documentation for sampled program
    expenditures.

Sampling Information
The audit universe consisted of 52 vouchers amounting to almost $16 million in drawdowns
during fiscal years 2015, 2016, and 2017. We selected a nonstatistical audit sample of three
vouchers, choosing one voucher from each year. The total amount of the three vouchers selected
was almost $3.5 million, which represented 21.62 percent of the dollar amount of the total
universe. Based on our review of the vouchers, we requested additional documentation for six
activities to support the eligibility, national objective, and procurement of each activity. We
selected these six activities based on dollar amount and concerns HUD had regarding the
program. We also selected 100 percent of the construction contracts to review. The dollar
amount of the three construction contracts totaled more than $1.4 million. Our audit results were
limited to the vouchers in our sample and cannot be projected to the universe.




                                                9
We determined that data contained in source documentation provided by the Agency agreed with
data contained in IDIS. We, therefore, assessed the computer data to be sufficiently reliable for
our use during the audit.

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.




                                                10
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   effectiveness and efficiency of operations,
•   reliability of financial reporting, and
•   compliance with applicable laws and regulations.

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

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

    •   Effectiveness and efficiency of program operations – Implementation of policies and
        procedures to ensure that program funds are used for eligible purposes.
    •   Reliability of financial information – Implementation of policies and procedures to
        reasonably ensure that relevant and reliable information is obtained to adequately support
        program expenditures.
    •   Compliance with applicable laws and regulations – Implementation of policies and
        procedures to ensure compliance with applicable HUD rules and requirements.

We assessed the relevant controls identified above.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

    •   The Agency lacked adequate controls to ensure that its employees fully complied with HUD
        regulations or its own procurement policies (finding).




                                                  11
Appendixes

Appendix A


                          Schedule of Questioned Costs
               Recommendation
                                  Ineligible 1/    Unsupported 2/
                   number
                       1A                                  $   272,569
                       1C                                       50,000
                       1D                                       48,895
                       1E                                       13,950
                       1G                                       55,200
                       1H               $   283
                      Total                 283                440,614




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. In this case, the Agency reimbursed its subrecipient for bottled
     water, which was not reasonable or necessary for the performance of the award.
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. The unsupported amount in this case includes
     $385,414 in awards without documentation to support competition and reasonableness of
     final cost and $55,200 spent on a feasibility study with no documentation showing a final
     cost objective.




                                             12
Appendix B


             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




Comment 1



Comment 2

Comment 3

Comment 4




                               13
Comment 5




Comment 6




            14
Comment 7



Comment 8



Comment 9




Comment 10

Comment 11

Comment 6

Comment 9




             15
Comment 12




Comment 13




             16
Comment 14



Comment 15


Comment 16




             17
Comment 17




Comment 18



Comment 19

Comment 20




Comment 21




             18
19
Comment 10




Comment 12




Comment 14




Comment 17




Comment 22




             20
Comment 22

Comment 22



Comment 22


Comment 22




             21
                            OIG Evaluation of Auditee Comments


Comment 1 We agree that the Agency must provide supporting documentation for the
          unsupported costs identified in Appendix A. However, the unsupported costs total
          $440,614, not $385,000.
Comment 2 We updated some of the bold headings in the report as discussed during the exit
          conference.
Comment 3 We removed the statements that the Agency was unaware of HUD regulations and
          replaced it with the statement that the Agency disregarded HUD regulations and its
          own procurement policy.
Comment 4 We disagree that the findings presented are not supported. The City did not always
          use CDBG funds in accordance with requirements. The findings in the report are
          factual and supported by documentation and information obtained during the audit.
Comment 5 We acknowledge the Agency’s participation in various HUD programs. However,
          this audit was limited to the Agency’s CDBG program.
Comment 6 We agree that the agency went through a procurement process that resulted in a
          qualified list of contractors. However, the existence of a qualified contractors list
          does not eliminate the need to seek competition and ensure cost reasonableness.
          Regulations at 24 CFR 200.319(d) states that the non-Federal entity must ensure
          that all prequalified lists of persons, firms, or products which are used in acquiring
          goods and services are current and include enough qualified sources to ensure
          maximum open and free competition. The Agency developed the qualified list,
          ensured that it was current, but did not seek competition from the list.
Comment 7 We disagree that the clients’ needs rise to a level of urgency that allows the agency
          to bypass obtaining multiple quotes. In one case reviewed, the client reported
          problems with her heating and air conditioning on June 1, 2016. The Agency did
          not send a fax to the contractor to evaluate the needs of the client until July 12,
          2016, more than 30 days after the client reported the problem. We agree the needs
          of the clients are important. However, as shown by the Agency’s response in this
          case, it was not an emergency that would justify only receiving one quote.
Comment 8 The contracts do contain bid price schedules developed by the Agency. However,
          the bid price schedule does not include all types of work performed under the
          Emergency Repair Program. For example, in two of the three client files reviewed,
          the Agency approved the replacement of air conditioning and heating units at
          prices that were not included in the bid price schedule. Instead, the Agency
          obtained a single quote greater than $3,000 without seeking additional quotes in
          violation of both HUD regulations and its own procurement policy.
Comment 9 We acknowledge that the Agency faces challenges in administering the Emergency
          Repair Program as currently designed. We added an audit report recommendation


                                                22
              to have the Agency work with HUD to ensure the Emergency Repair Program
              meets CDBG requirements.
Comment 10 We are encouraged that the Agency has reviewed the costs for the 59 Emergency
           Repair Program contracts and determined that the costs were reasonable. The
           Agency should provide that support to HUD during the audit resolution process.
Comment 11We were unable to determine which two projects were duplicates. As a result, the
          Agency should provide evidence of duplication to HUD during the audit resolution
          process.
Comment 12 We disagree that the qualifications of the partners awarded the food incubator
           study were sufficient to justify a non-competitive procurement. Regulations at 24
           CFR 200.320(f) states that procurement by noncompetitive proposals is
           procurement through solicitation of a proposal from only one source and may be
           used only when one or more of the following circumstances apply.
              1. The item is available only from a single source;
              2. The public exigency or emergency for the requirement will not permit a delay
                 resulting from competitive solicitation;
              3. The Federal awarding agency or pass-through entity expressly authorizes
                 noncompetitive proposals in response to a written request from the non-Federal
                 entity; or
              4. After solicitation of a number of sources, competition is determined
                 inadequate.
              The agency did not ensure the procurement met any of the above requirements for
              awarding a noncompetitive contract. The food incubator study did not result from
              an emergency, the Agency did not provide evidence it received prior approval
              from HUD and the Agency never issued a solicitation for the services. The
              contractor’s unique qualifications described by the Agency might show that the
              contractor was qualified to perform the study. However, it does not support that
              they were the only contractor that could do the study. As a result, the Agency
              inappropriately restricted competition.
Comment 13 The draft report does state the ownership interest may have influenced the results
           of the study. The study was to determine whether the food incubator was feasible
           at a specific location. We assert that because the contractor who performed the
           study also owned the proposed site, he may have benefitted financially based on
           the results of the feasibility study. As a result, this created a conflict of interest
           that could have affected the conclusion of the study.
Comment 14 We disagree that the ADA parking spaces were part of the scope of the project.
           Regulations at 2 CFR 200.319(c) states that the Agency must ensure that all
           solicitations incorporate a clear and accurate description of the technical
           requirements for the material, product, or service to be procured. It further states
           that the solicitation must identify all requirements, which the offerors must fulfill


                                                23
               and all other factors to be used in evaluating bids and proposals. Because the
               agency did not obtain the required permits ahead of the procurement, it was
               unable to develop a solicitation that contained a clear and accurate description of
               the technical requirements and did not identify all requirements, which the
               offerors must fulfill. In addition, the contract documentation did not contain an
               independent cost estimate for the additional concrete work, supporting that the
               amount spent on the additional work was fair and reasonable.
Comment 15 We are encouraged that the Agency reviewed the cost of the ADA work. The
           agency should submit all supporting documentation showing cost reasonableness
           to HUD during the audit resolution process.
Comment 16 We adjusted the report to state that the tool shed initially met a national objective.
           However, the library boarded up the shed shortly after it was built and the shed
           did not provide a service to the low to moderate income community as intended.
Comment 17 We disagree that this is a mischaracterization. Regulations at 24 CFR 570.501
           states that the Agency is responsible for ensuring that CDBG funds are used in
           accordance with all program requirements. The use of a designated public
           agencies, subrecipients, or contractors does not relieve the recipient of this
           responsibility. In addition, in its response the Agency stated that it worked
           closely with the subrecipient before and during this CDBG-funded activity.
           Despite the close contact with the subrecipient, the agency was unable to produce
           supporting documentation for the procurement of the Boys and Girls Club
           feasibility study.
Comment 18 This explanation of the procurement provided by the Agency was not provided to
           the audit team during the audit process. The Agency should provide all
           documentation to support its explanation to HUD during the audit resolution
           process.
Comment 19 We are encouraged that the Agency reviewed the reasonableness of the cost of the
           study. The Agency should provide documentation supporting the reasonableness
           of the study to HUD during the audit resolution process.
Comment 20 We agree that written quotes are not required. However, 2 CFR 200.318(i)
           requires the non-Federal entity to maintain records sufficient to detail the basis for
           the contract price. The Agency was unable to provide documentation to support
           how it developed the contract price and that the contract price was fair and
           reasonable.
Comment 21 We disagree that the lack of bottled water created a health and welfare concern for
           the employees of the repair program. The subrecipient’s office contained a
           kitchen area with potable water. The audit team provided an opportunity to the
           Agency to support that the potable water at the subrecipient’s site posed a health
           concern to the subrecipient’s employees. The Agency did not provide
           documentation to support that the potable water was a health hazard.


                                                 24
Comment 22 During the audit resolution process, the Agency should provide supporting
           documentation to HUD for all actions taken to clear the report recommendations.




                                             25
Appendix C
                                             Criteria


2 CFR 200.318(i)
The non-Federal entity must maintain records sufficient to detail the history of procurement.
These records will include, but are not necessarily limited to the following: rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and the basis
for the contract price.

2 CFR 200.319(a)
All procurement transactions must be conducted in a manner providing full and open
competition.


2 CFR 200.320(b)
Small purchase procedures are those relatively simple and informal procurement methods for
securing services, supplies, or other property that do not cost more than the Simplified
Acquisition Threshold. If small purchase procedures are used, price or rate quotations must be
obtained from an adequate number of qualified sources.

2 CFR 200.320(f)
Procurement by noncompetitive proposals. Procurement by noncompetitive proposals through
solicitation of a proposal from only one source and may be used only when one or more of the
following circumstances apply:
        (1) The item is available only form a single source;
        (2) The public exigency or emergency for the requirement will not permit a delay
            resulting from competitive solicitation;
        (3) The Federal awarding agency or pass-through entity expressly authorizes
            noncompetitive proposals in response to a written request from the non-Federal
            entity; or
        (4) After solicitation of a number of sources, competition is determined inadequate.

2 CFR 200.403(a)
Except where otherwise authorized by statute, costs must meet the following general criteria in
order to be allowable under Federal awards:
        (a) Be necessary and reasonable for the performance of the Federal award

24 CFR 570.200(g)
No more than 20 percent of any origin year grant shall be expended for planning and program
administrative costs.




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24 CFR 570.208(a)(i)
   Area benefit activities include activities, the benefits of which are available to all the
   residents in a particular area, where at least 51 percent of the residents are low and moderate
   income persons.

HUD Notice CPD [Office of Community Planning and Development] 13-07(III)(A)(6)
A grantee must be aware of the risk associated with initiating a project that does not materialize
or reach fruition and, therefore, does not meet a CDBG national objective or a final cost
objective. In such cases, the incomplete activity will most likely be determined ineligible and
the staff costs disallowed.

HUD Notice CPD 13-07(III)(B)(1)
Activity delivery costs (ADCs) are those costs not subject to the 20 percent limitation for
program administrative costs. Accordingly, they are treated as part of the total cost for
delivering a final cost objective under the CDBG program. This is the only limiting requirement
– that the ADCs are incurred in order to implement and carry out specific CDBG-assisted
activities.

At times, the initial costs for an eligible CDBG activity may be treated as administrative costs;
however, in the activity’s final accounting, it may be more appropriate to treat these costs as
ADCs.

Where an activity is not completed, or the activity does not meet a CDBG national objective, the
up-front costs must be allocated as PACs [program administrative costs] because they cannot be
associated with achieving a final cost objective.

Sacramento Housing and Redevelopment Agency, Procurement Policy 2016
Small Purchase Procedures
For any amounts above the Micro Purchase threshold, but not exceeding $150,000, SHRA may
use small purchase procedures. Under small purchase procedures, SHRA shall obtain a
reasonable number of quotes (preferably three or more). For purchases of less than $3,000 only
one quote is required.




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