oversight

The Housing Authority of the City of Asbury Park, NJ, Did Not Always Administer Its Operating and Capital Funds in Accordance With Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-02-08.

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

        Housing Authority of the City of
                Asbury Park,
               Asbury Park, NJ
   Public Housing Operating and Capital Fund Programs




Office of Audit, Region 2     Audit Report Number: 2018-NY-1003
New York, NY                                    February 8, 2018
To:            Theresa Arce, Director, Office of Public Housing, Newark Field Office, 2FPH

               //SIGNED//
From:          Kimberly S. Dahl, Regional Inspector General for Audit, 2AGA
Subject:       The Housing Authority of the City of Asbury Park, NJ, Did Not Always
               Administer Its Operating and Capital Funds in Accordance With Requirements


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the Housing Authority of the City of Asbury
Park’s administration of its operating and capital funds.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG 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
212-264-4174.
                    Audit Report Number: 2018-NY-1003
                    Date: February 8, 2018

                    The Housing Authority of the City of Asbury Park, NJ, Did Not Always
                    Administer Its Operating and Capital Funds in Accordance With
                    Requirements



Highlights

What We Audited and Why
We audited the Housing Authority of the City of Asbury Park based on our risk analysis of
public housing agencies located in the State of New Jersey. The objective of the audit was to
determine whether the Authority administered its Public Housing Operating and Capital Fund
programs in accordance with applicable U.S. Department of Housing and Urban Development
(HUD), Federal, and Authority requirements.

What We Found
The Authority did not always administer its operating and capital funds in accordance with
HUD, Federal, and Authority requirements. Specifically, the Authority did not (1) adequately
support nearly $1.3 million paid to the Long Branch Housing Authority for technical,
administrative, maintenance, and redevelopment services; (2) follow applicable requirements
when purchasing more than $451,000 in goods and services; and (3) properly support $119,409
in Capital Fund grant obligations. It also improperly used operating funds to pay a settlement
with the State of New Jersey. These issues occurred because the Authority did not have
adequate controls in place and because Long Branch did not fully understand requirements
related to procurement, Capital Fund grant obligations, and allowable Public Housing Operating
Fund program expenses. As a result, HUD did not have assurance that (1) nearly $1.3 million
paid to Long Branch was for eligible, reasonable, necessary, and allocable costs; (2) more than
$451,000 paid for goods and services was for reasonable prices and related to valid contracts; (3)
$119,409 in capital funds would be used for eligible activities in a timely manner; and (4)
$75,722 was available to the Authority to operate and fulfill its mission.

What We Recommend
We recommend that HUD require the Authority to (1) provide documentation to show that
(a) nearly $1.3 million paid to Long Branch was for eligible, reasonable, necessary, and allocable
costs; (b) more than $451,000 paid for goods and services was reasonable and related to valid
contracts that were in place before disbursements were made; and (c) $119,409 in obligations
was supported; (2) reimburse $75,722 for the settlement payment; (3) update its policies and
procedures to ensure (a) that additional payments for technical, administrative, maintenance, and
redevelopment services are adequately supported and that services were provided in accordance
with requirements; (b) compliance with HUD and Federal procurement requirements; and (c)
that capital funds are obligated in a timely manner and adequately supported.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Authority Did Not Always Administer Its Operating and Capital
         Funds in Accordance With Requirements ...................................................................... 4

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

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

Follow up on Prior Audit ......................................................................................11

Appendixes ..............................................................................................................12
         Schedule of Questioned Costs and Funds To Be Put to Better Use ............................ 12

         Auditee Comments and OIG’s Evaluation ................................................................... 13




                                                            2
Background and Objective
The U.S. Department of Housing and Urban Development’s (HUD) public housing program was
established to provide decent and safe rental housing for eligible low-income families, the
elderly, and persons with disabilities. Operating funds and capital funds are two major
components of HUD’s public housing program. Operating funds provide annual operating
subsidies to public housing agencies to assist in funding the operating and maintenance expenses
of low-income housing units. Capital funds provide annual formula grants to public housing
agencies for the development, financing, and modernization of public housing developments and
management improvements.
The Housing Authority of the City of Asbury Park was established in 1938 to build and manage
public housing developments for residents of Asbury Park. The Authority is under the
jurisdiction of HUD’s Newark Office of Public and Indian Housing and is governed by a seven-
member board of commissioners appointed by the mayor, city council, and New Jersey
Department of Community Affairs as delegated by the governor. The Authority owns and
manages 586 operating subsidy units at 7 sites, and it received more than $8.3 million in
operating funds and $2.7 million in capital funds from fiscal years 2015 through 2017.
The Authority’s main administrative functions are provided by the management of the Long
Branch Housing Authority under an interagency agreement, which is renewed annually. The
services provided by Long Branch include (1) technical assistance for daily operations and
monitoring; (2) consulting services for administrating staff; and (3) maintenance, rehabilitation,
and procurement services.
Our objective was to determine whether the Authority administered its operating and capital funds
in accordance with applicable HUD, Federal, and Authority requirements.




                                                 3
Results of Audit

Finding: The Authority Did Not Always Administer Its Operating
and Capital Funds in Accordance With Requirements
The Authority did not always administer its operating and capital funds in accordance with
HUD, Federal, and Authority requirements. Specifically, the Authority did not (1) adequately
support nearly $1.3 million paid to the Long Branch Housing Authority for technical,
administrative, maintenance, and redevelopment services; (2) follow applicable requirements
when purchasing more than $451,000 in goods and services; and (3) properly support $119,409
in Capital Fund grant obligations. It also improperly used operating funds to pay a settlement
with the State of New Jersey. These issues occurred because the Authority did not have
adequate controls in place and because Long Branch did not fully understand requirements
related to procurement, Capital Fund grant obligations, and allowable Public Housing Operating
Fund program expenses. As a result, HUD did not have assurance that (1) nearly $1.3 million
paid to Long Branch was for eligible, reasonable, necessary, and allocable costs; (2) more than
$451,000 paid for goods and services was for reasonable prices and related to valid contracts; (3)
$119,409 in capital funds would be used for eligible activities in a timely manner; and (4)
$75,722 was available to the Authority to operate and fulfill its mission.

Payments to the Long Branch Housing Authority Were Not Adequately Supported
Contrary to regulations at 2 CFR (Code of Federal Regulations) 200.403, the Authority did not
ensure that nearly $1.3 million paid to Long Branch was for eligible, reasonable, necessary, and
allocable costs. The Authority entered into an interagency agreement with Long Branch for
technical, administrative, maintenance, and redevelopment services when it had turnover at the
executive director level before our review period. The agreement included a schedule of Long
Branch employees, the tasks they would perform, an estimated number of hours per week, and a
statement indicating that the number of hours would vary. While the annual agreements did not
detail how compensation would be determined, they listed a monthly maximum and stated that
both housing authorities would maintain a comprehensive system of expense and operational
records associated with the agreement. However, the monthly invoices for the 3-year period
reviewed did not contain detailed information to support the amounts charged, such as how many
hours staff members worked and what services they provided, or supporting documentation to
show that services were performed. Instead, the total capital and operating funds invoiced each
month generally matched the maximum monthly compensation listed in the agreement. The
invoices and Authority payment vouchers provided also did not show how the allocation of the
costs between operating and capital funds was determined. Further, while the agreement
indicated that the Authority compared the cost and availability of the identified supplies and
services on the open market with the cost of contracting for the services, the Authority could not
show how it performed this analysis and determined that the costs were reasonable and necessary
and that the agreement provided for greater economy and efficiency as required by section 14.2
of HUD Handbook 7460.8, REV-2. These issues occurred because the Authority did not have



                                                 4
adequate controls in place to ensure that it complied with applicable HUD, Federal, and
Authority requirements. For example, while the Authority’s board reviewed invoices received
from Long Branch prior to making payment, it did not have procedures in place to ensure that
adequate support was provided. As a result, HUD did not have assurance that nearly $1.3
million paid to Long Branch during our review period, including more than $670,000 paid from
operating funds and $623,000 paid from capital funds, was for eligible, reasonable, necessary,
and allocable costs.

Goods and Services Were Not Properly Procured
The Authority did not always follow applicable requirements at 24 CFR 85.36, 2 CFR Part 200,
HUD Handbook 7460.8, and the Authority’s procurement policy when purchasing more than
$451,000 in goods and services with operating and capital funds. Specifically, it did not ensure
that (1) micropurchases and small purchases were supported by price quotes, (2) purchases made
using an intergovernmental agreement complied with Federal procurement requirements, (3) the
method of procurement used for larger purchases was documented and the prices paid for these
goods and services were reasonable, and (4) contracts were executed and on file before making
payments to vendors.

      The Authority did not ensure that purchases below its micropurchase and small purchase
       thresholds were supported by price quotes prior to disbursing $123,319 to 20 vendors.
       For example, in December 2016, the Authority disbursed $4,125 for storm windows but
       did not document that it had obtained at least three price quotes as required by its
       procurement policy. Further, we noted that the Authority’s micropurchase threshold of
       $2,500 exceeded the $2,000 threshold outlined in HUD Handbook 7460.8, REV-2,
       section 3.2.

      The Authority used an intergovernmental agreement with the State of New Jersey to
       purchase vehicles for $54,380 from two vendors without ensuring that the procurement
       complied with Federal procurement requirements as required by paragraph 14.2.A.3 of
       HUD Handbook 7460.8, REV-2. For example, the Authority did not research the State’s
       basis for selecting the vendors and did not ensure that the State performed cost or price
       analyses to determine that the prices were reasonable.

      The Authority did not document the procurement method used for larger purchases or
       that the prices paid for these goods and services were reasonable prior to disbursing
       $148,397 to six vendors. In one case, the Authority did not document the method of
       procurement used when purchasing security cameras and an intercom system and
       whether it performed a cost or price analysis as required by regulations at 2 CFR
       200.318(i), 200.320, and 200.323(a). In another case, the Authority paid more than
       $21,000 for a piece of equipment after receiving only one bid but did not document that
       the price was reasonable despite the lack of price competition as required by regulations
       at 24 CFR 85.36(f)(1).

      The Authority did not ensure that contracts were executed and on file prior to disbursing
       $125,589 to four vendors. In one case, the Authority failed to execute a contract for the


                                                5
       purchase of a bobcat, which it used to pick up dirt and remove snow. In three other
       cases, the Authority continued to use and pay vendors after the initial contracts expired
       without executing an extension or option.

These deficiencies occurred because the Authority did not have adequate controls over the
maintenance of procurement files and to ensure that its procurement policy was in line with
applicable Federal requirements. Further, Long Branch staff providing assistance did not fully
understand applicable procurement requirements. As a result, HUD did not have assurance that
$326,096 in operating and capital funds disbursed for goods and services was reasonable and that
the Authority had valid contracts in place when disbursing $125,589 to vendors.

Obligations of a Capital Fund Grant Were Not Adequately Supported
The Authority did not maintain adequate documentation to support $119,409 in 2015 Capital
Fund grant obligations. Regulations at 24 CFR 905.326 required the Authority to maintain
complete records of the history of each Capital Fund grant, including records to support
obligations. While the Authority had obligated all $903,409 in capital funds from its 2015 grant,
its records supported $784,000 in obligations. The Authority indicated that the remaining
$119,409 in obligations was related to force account labor from its approved budget and other
miscellaneous expenses. However, the force account labor was related to an outdated 2011
estimate, and the Authority did not provide any contracts, purchase orders, or other
documentation to support the remaining obligation amount. This condition occurred because
Long Branch believed that the 2011 force account labor estimate was sufficient and that other
obligations were effective once it intended to spend the funds. As a result, HUD did not have
assurance that the capital funds would be used for eligible activities in a timely manner.

Operating Funds Were Used To Pay a Settlement With The State
The Authority did not maintain documentation to show that $75,722 in operating funds paid to
the State of New Jersey to satisfy a settlement was an eligible expense. The payment was made
after the Authority’s former executive director misused funds received from the State’s
Department of Labor and Workforce Development and a court ordered the Authority to repay the
funds. However, section 9(e)(1) of the Housing Act of 1937 does not list settlement payments as
an eligible use of operating funds, and the Authority did not provide documentation to show that
the settlement payments were otherwise allowable or related to eligible expenses. This condition
occurred because Long Branch believed that court-ordered payments were allowable. As a
result, $75,722 was not available to the Authority to operate and fulfill its mission of providing
safe and decent housing.

Conclusion
The Authority did not always administer its operating and capital funds in accordance with
HUD, Federal, and Authority requirements. Specifically, it did not adequately support payments
made to the Long Branch Housing Authority, follow applicable requirements when purchasing
goods and services, properly support Capital Fund grant obligations, and ensure that operating
funds were used only for eligible costs. These issues occurred because the Authority did not
have adequate controls in place and because Long Branch did not fully understand requirements
related to procurement, Capital Fund grant obligations, and allowable Public Housing Operating



                                                6
Fund program expenses. As a result, HUD did not have assurance that (1) nearly $1.3 million
paid to Long Branch was for eligible, reasonable, necessary, and allocable costs; (2) more than
$451,000 paid for goods and services was for reasonable prices and related to valid contracts; (3)
$119,409 in capital funds would be used for eligible activities in a timely manner, and (4)
$75,722 was available to the Authority to operate and fulfill its mission.

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

       1A.     Provide documentation to show that the $1,294,062 paid to the Long Branch
               Housing Authority was for eligible, reasonable, necessary, and allocable costs or
               reimburse its Operating and Capital Fund programs from non-Federal funds for
               any amount that it cannot support or that is not considered reasonable.

       1B.     Update its policies and procedures to ensure that any additional payments made
               under interagency agreements for technical, administrative, maintenance, and
               redevelopment services are adequately supported prior to making payment and
               that these services are provided in accordance with applicable requirements.

       1C.     Provide documentation to show that the $326,096 paid for goods and services was
               reasonable or reimburse its Operating and Capital Fund programs from non-
               Federal funds for any amount that it cannot support or that is not considered
               reasonable.

       1D.     Provide documentation to show that it had valid contracts in place before
               disbursing $125,589 to three vendors or reimburse its Operating and Capital Fund
               programs from non-Federal funds for any amount that it cannot support.

       1E.     Update its procurement policies and procedures to ensure compliance with HUD
               and Federal procurement requirements.

       1F.     Provide documentation to support $100,496 in 2015 Capital Fund grant
               obligations that have already been disbursed or reimburse HUD from non-Federal
               funds for any amount it cannot support.

       1G.     Provide documentation to support $18,913 in 2015 Capital Fund grant obligations
               that have not yet been disbursed or request that HUD recapture the funds in
               accordance with regulations at 24 CFR 905.306.

       1H.     Improve its policies and procedures to ensure that capital funds are obligated in a
               timely manner and adequately supported.

       1I.     Reimburse its Operating Fund from non-Federal funds for the $75,722 settlement
               payment made to the State of New Jersey.



                                                 7
Scope and Methodology
We conducted the audit from April through November 2017 at the Authority’s office
located at 1000½ Third Avenue, Asbury Park, NJ; Long Branch’s office located at 2 Hope
Lane, Long Branch, NJ; and our office located in Newark, NJ. The audit covered the period
April 2014 through March 2017.

To accomplish our audit objective, we interviewed applicable HUD, Authority, and Long Branch
officials and staff. We also reviewed

        Relevant background information.

        Applicable laws, regulations, HUD guidance, and Authority policies and procedures.

        Annual contributions contracts, 5-year plans, and annual action plans.

        Audited financial statements and other financial reports provided by the Authority.

        Contracts, contract files, check registers, invoices, receipts, voucher disbursements, and
         other records related to the Authority’s operating and capital funds.

The Authority disbursed approximately $9.6 million in operating and capital funds during our
review period. We selected $2.3 million in disbursements for review, including $1.6 million in
Capital Fund disbursements and more than $650,000 in Operating Fund disbursements. To
select disbursements for review, we summarized the data by funding source, vendor, and fiscal
year and analyzed the amounts disbursed to each vendor, the nature of the expenses, whether the
vendors appeared to be related entities, and other risk factors observed during prior Office of
Inspector General (OIG) reviews. Although this approach did not allow us to make a projection
to the full $9.6 million disbursed during our period, it allowed us to review nearly 24 percent of
the total disbursed and was sufficient to accomplish our objective. We obtained and reviewed
documentation to determine whether the Authority documented required authorizations for
purchases and whether it followed applicable procurement and cost principle requirements.

In addition to our sample of disbursements for review, we reviewed the Authority’s obligations
for its 2015 Capital Fund grant. We selected this grant for review because it was the only one
where the funds were awarded during our audit period and the obligation deadline for the funds
fell during our audit period.1 We obtained and reviewed contracts, purchase orders, or other
documentation related to the obligations to determine whether they were adequately supported.


1
    The 2016 and 2017 Capital Fund grants were awarded during our audit period, but had obligation deadlines that
    fell outside of our audit period. Further, while the 2013 and 2014 Capital Fund grants had obligation deadlines
    during our audit period, the funds were awarded prior to our audit period.



                                                          8
Although this approach did not allow us to make a projection to all Capital Fund grants awarded
or obligated during our audit period, it was sufficient to accomplish our objective.

To achieve our objective, we relied in part on computer-processed data from HUD’s Public and
Indian Housing Information Center system and Line of Credit Control System and data from the
Authority, such as its disbursement log. We used the data as background information and to
select disbursements and contracts for review. Although we did not perform a detailed
assessment of the reliability of the data, we performed a minimal level of testing and found the
data to be adequate for our purposes. The testing included comparing information from these
systems for the sampled items to the Authority’s records. We based our conclusions on source
documentation obtained from HUD and the Authority.

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 finding
and conclusion based on our audit objective.




                                                9
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   effectiveness and efficiency of operations,
   reliability of financial reporting, and
   compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

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

   Program operations - Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.
   Compliance with laws and regulations - Policies and procedures that management has
    implemented to reasonably ensure that the use of funds is consistent with laws and
    regulations.
   Validity and reliability of data - Policies and procedures that management has implemented
    to reasonably ensure that valid and reliable data are obtained, maintained, and fairly
    disclosed in reports.
   Safeguarding resources - Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.

Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

   The Authority did not have adequate policies and procedures to ensure that it followed
    applicable requirements.



                                                  10
Follow up on Prior Audit
The Housing Authority of the City of Asbury Park, Asbury Park, New Jersey, Requires
Improved Controls over Capital Funds, Salaries, and Maintenance, Audit Report 2007-
NY-1006, Issued May 24, 2007
The following recommendation was still open at the time of this report: 1A. Reimburse HUD
for the excessive administrative fee charge of $692,990 in capital funds in accordance with
procedures described in 24 CFR 905.120. HUD agreed to an annual repayment plan with the
Authority over a 25-year period. The current balance of the payment amount is $415,796. We
will track the progress of HUD’s resolution of this recommendation through the management
decision process prescribed in HUD Handbook 2000.06, REV-4.




                                              11
Appendixes

Appendix A


           Schedule of Questioned Costs and Funds To Be Put to Better Use
         Recommendation                                    Funds to be put
                             Ineligible 1/ Unsupported 2/
             number                                         to better use 3/
                1A                                 $1,294,062
                 1C                                  326,096
                1D                                   125,589
                 1F                                  100,496
                1G                                                       $18,913
                 1I              $75,722

               Totals              75,722           1,846,243             18,913


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.
3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this case, if the Authority implements our
     recommendation and provides documentation to support $18,913 in 2015 Capital Fund
     grant obligations that have not yet been disbursed or requests that HUD recapture the
     funds, it will ensure that these funds are put to better use for eligible activities.




                                              12
Appendix B
             Auditee Comments and OIG’s Evaluation


              Auditee Comments
Ref to OIG
Evaluation




                               13
             Auditee Comments and OIG’s Evaluation


              Auditee Comments
Ref to OIG
Evaluation




Comment 1




Comment 2




Comment 3




                               14
             Auditee Comments and OIG’s Evaluation


              Auditee Comments
Ref to OIG
Evaluation



Comment 3



Comment 4



Comment 5


Comment 6




Comment 7




                               15
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority maintained that monthly timesheets were consistently provided as
            support for the services performed by Long Branch. We disagree. While the
            Authority provided spreadsheets listing the number of hours worked by Long
            Branch staff to support 15 of the 48 Long Branch invoices reviewed, the records
            did not meet the Federal cost principle requirements for documenting salaries and
            wages and did not adequately support the payments made under the agreement.
            While we informed the Authority on five occasions that it had not provided
            sufficient time records, it did not provide any additional records for the invoices
            reviewed during our audit. As part of the normal audit resolution process, the
            Authority will need to provide documentation to HUD supporting the nearly $1.3
            million paid to Long Branch and showing that it was eligible and properly
            allocated between its operating and capital funds.

Comment 2   The Authority stated that Long Branch provided it with a side-by-side cost
            comparison showing how much it would cost the Authority to hire additional staff
            and how it could save money by utilizing force account labor through Long
            Branch. However, the documentation provided during the audit did not show how
            Long Branch or the Authority performed its analysis and determined that costs
            were reasonable and necessary and that the agreement provided for greater
            economy and efficiency as required by section 14.2 of HUD Handbook 7460.8,
            Rev-2. Therefore, as part of the audit resolution process, the Authority will need
            to provide documentation to HUD showing that the amount it paid Long Branch
            was reasonable and necessary, or repay from non-Federal funds any amount that it
            cannot support or that is not considered reasonable.

Comment 3   The Authority stated that it had identified an issue with a former procurement
            employee’s filing habits and indicated that it had not yet located some files and
            documents such as price quotes for micropurchases and small purchases, research
            related to New Jersey State contract purchases, and executed contracts. It further
            stated that it would properly file the documents when they are located. As part of
            the normal audit resolution process, the Authority will need to provide
            documentation to HUD showing that the prices it paid for goods and services
            were reasonable or repay from non-Federal funds any amount that it cannot
            support or that is not considered reasonable.

Comment 4   The Authority stated that when using intergovernmental agreements, it relied on
            the vetting of vendors performed by those agencies and believed that performing
            supplemental comparisons would not be an efficient use of its time. The
            Authority further noted that it purchased the bobcat from the only vendor in the
            region to offer the specific piece of equipment it needed. HUD Handbook 7460.8,
            REV-2 required the Authority to ensure that the purchase complied with Federal
            procurement requirements. While the Authority received only one bid, it did not
            document that the price paid was reasonable as required by 24 CFR 85.36(f)(1).


                                              16
            Further, it did not document that it complied with the requirements of 24 CFR
            85.36(d)(4) to purchase from a single source, such as documenting showing how
            it solicited bids and that the equipment was only available from one source.
            Therefore, as part of the normal audit resolution process, the Authority will need
            to provide documentation to HUD showing that the amount paid for the
            equipment was reasonable or repay from non-Federal funds any amount that it
            cannot support or that is not considered reasonable.

Comment 5   The Authority indicated that it would review its procurement policies to ensure
            compliance with HUD regulations and take action to revise its policies if needed.
            The Authority’s planned actions are generally responsive to recommendation 1E.
            However, it should ensure that its procurement policies and procedures comply
            with both HUD and Federal procurement requirements.

Comment 6   The Authority maintained that HUD’s initial approval of its request to obligate
            $60,000 of its capital funds for force account labor was sufficient and that
            additional approvals were not necessary. Further, the Authority explained that the
            remaining $59,409 was budgeted for repairs based on estimates identified through
            their capital needs planning process. We disagree that HUD’s approval of the
            Authority’s request to obligate capital funds for force account labor was
            sufficient. Regulations at 24 CFR 905.314(j) required the Authority to seek
            HUD’s approval and document that the cost for procuring the services was
            reasonable when compared to using its own labor. The Authority did not provide
            adequate documentation to show that the cost was reasonable. Further, the
            Authority did not provide adequate documentation to support the capital funds
            obligated for repairs.

Comment 7   The Authority contended that it accounted for the $75,722 settlement payment to
            the State as a Central Office Cost Center expense, though it acknowledged that an
            accumulated deficit raises the question of whether these non-Federal funds were
            available for the payment. Further, the Authority indicated that it would consult
            with its fee accountant and HUD to determine the proper course of action to
            resolve this matter. We disagree with the Authority’s assertion that it accounted
            for the payment as a Central Office Cost Center expense because the
            documentation provided showed the funds had been accounted for as an
            Operating Fund expense and paid from the Authority’s operating funds.
            However, we agree with the Authority’s plan to consult with its accountant and
            HUD to determine the proper course of action. As part of the normal audit
            resolution process, the Authority will need to provide documentation to HUD
            showing that it has reimbursed its Operating Fund for the $75,722 payment.




                                              17