oversight

The Red Bank Housing Authority, Red Bank, 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 2018-09-26.

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

            Red Bank Housing Authority
                  Red Bank, NJ
   Public Housing Operating and Capital Fund Programs




Office of Audit, Region 2     Audit Report Number: 2018-NY-1005
New York, NY                                  September 26, 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 Red Bank Housing Authority, Red Bank, 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 Red Bank Housing Authority’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-1005
                   Date: September 26, 2018

                   The Red Bank Housing Authority, Red Bank, NJ, Did Not Always
                   Administer Its Operating and Capital Funds in Accordance With
                   Requirements



Highlights

What We Audited and Why
We audited the Red Bank Housing Authority based on the results of our audit of Asbury Park
Housing Authority because both public housing agencies had agreements with the Long Branch
Housing Authority to provide services. The objective of this audit was to determine whether the
Authority administered its Public Housing Operating and Capital Fund programs in accordance
with 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 payments made to the Long Branch Housing Authority for technical, administrative, and
maintenance services; (2) follow applicable requirements when purchasing goods and services;
(3) adequately support allocations of contract costs among programs; and (4) ensure that
disbursements were properly reviewed and approved before making payments. These conditions
occurred because the Authority did not maintain detailed documentation and did not have
adequate controls to ensure that Long Branch staff understood and followed applicable HUD,
Federal, and Authority requirements. As a result, HUD did not have assurance that more than
$622,000 paid for goods and services was for eligible, reasonable, necessary, allocable, and
properly approved costs.

What We Recommend
We recommend that HUD require the Authority to (1) provide documentation to show that more
than $252,000 paid under an interagency agreement was for eligible, reasonable, necessary, and
allocable costs; (2) update its policies and procedures to ensure that any additional payments
made under interagency agreements are adequately supported before payment is made and that
services are provided in accordance with applicable requirements; (3) provide documentation to
support that more than $334,138 paid for goods and services was reasonable and properly
allocated; and (4) provide documentation to show that $36,508 disbursed was for authorized and
approved costs. Further, we recommend that HUD provide technical assistance to the Authority
to help ensure that future interagency agreements clearly outline the expectations and
documentation required, its board provides adequate oversight and the Authority complies with
HUD, Federal and Authority’s procurement requirements when purchasing goods and services.
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 ...........................................................................................9

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

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .................................................................................. 12

         B. 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 Red Bank Housing Authority was established in September 1957 to build and manage public
housing developments for residents of Red Bank, NJ. 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 90 low-
income public housing units and received more than $1.2 million in operating funds and 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 semiannually by
the Authority’s board at a rate of $40,000. The services provided by Long Branch include
administrative, technical, and general maintenance services.
Our objective was to determine whether the Authority administered its operating and capital
funds in accordance with 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 payments made to the Long Branch Housing Authority for technical, administrative, and
maintenance services; (2) follow applicable requirements when purchasing goods and services;
(3) adequately support allocations of contract costs among programs; and (4) ensure that
disbursements were properly reviewed and approved before making payments. These conditions
occurred because the Authority did not maintain detailed documentation and did not have
adequate controls to ensure that Long Branch staff understood and followed applicable HUD,
Federal, and Authority requirements. As a result, HUD did not have assurance that more than
$622,000 paid for goods and services was for eligible, reasonable, necessary, allocable, and
properly approved costs.
Payments to the Long Branch Housing Authority Were Not Adequately Supported
The Authority did not maintain sufficient records to support $252,000 paid to Long Branch
under interagency agreements. The Authority entered into the agreements with Long Branch for
technical, administrative, and maintenance services at a cost of $40,000 for each 6-month period
plus additional costs for snow removal, grounds keeping, nightly maintenance calls, pest control,
hot water tank replacement, and bookkeeping fees. The agreement required both the Authority
and Long Branch to maintain comprehensive records related to the agreement. It also required
Long Branch to dedicate at least 40 staff hours each week to the Authority. However, the
invoices and other documentation were not comprehensive as required by the agreement. For
example, while it was clear that Long Branch provided some level of services under the
agreement, the Authority could not provide documentation, such as timesheets, to show that
Long Branch staff met the 40-hour minimum outlined in the agreement. Further, while the
Authority stated that the snow removal work was performed by an affiliate agency of Long
Branch, it could not provide documentation to show that the rate charged was reasonable because
there were no documents to show how the snow removal service fee was determined or whether
a cost comparison was performed. As discussed in the sections below, the Authority also could
not show that services provided were always performed in accordance with applicable Federal,
HUD, and Authority procurement requirements.

These issues occurred because Long Branch considered itself to be a fixed-fee consultant and did
not believe that it needed to maintain additional documentation. Further, the Authority did not
have adequate controls. For example, the Authority did not ensure that the agreement laid out
what comprehensive records would be maintained or included with submitted payment requests
or how Long Branch should document that it met the minimum hours. It also did not have



                                                4
procedures to ensure that adequate support was provided or that services were performed
properly before allowing Long Branch staff to process the payments to Long Branch. As a
result, HUD did not have assurance that more than $252,000 paid to Long Branch was for
eligible, reasonable, necessary, and allocable costs for services performed in accordance with
applicable requirements.

Goods and Services Were Not Properly Procured
The Authority did not always follow applicable HUD, Federal, and Authority requirements when
purchasing more than $334,000 in goods and services with operating and capital funds.
Specifically, for three professional services contracts, it did not advertise sufficiently and did not
prepare independent cost estimates and cost analyses. Further, it did not obtain price or rate
quotations from an adequate number of qualified sources before making purchases that fell under
its micropurchase and small purchase requirements.

       Cost Estimates and Cost Analyses Were Not Prepared
       The Authority did not prepare independent cost estimates before receiving proposals and
       cost or price analyses when awarding three contracts with disbursements totaling
       $161,600 for general legal, fee accounting, and auditing services. Regulations at 24 CFR
       85.36(f) and 2 CFR 200.323(a), and sections 3.2 and 10.3 of HUD Handbook 7460.8,
       REV-2, required the Authority to perform independent cost estimates and a cost or price
       analysis to determine whether the price was reasonable. The Handbook specifically
       required a cost analysis in cases in which only one offer was received. The Authority’s
       procurement policy also required it to prepare cost estimates and cost analyses.
       However, there was no documentation in the Authority’s procurement files related to
       establishing price reasonableness even though the Authority had received only one
       proposal for each contract.

       Advertisements Were Not Sufficient
       The Authority did not advertise sufficiently when procuring legal, fee accounting, and
       auditing services. HUD Handbook 7460.8, REV-2, required that the solicitation be run
       for a period sufficient to achieve effective competition, which in the case of paid
       advertisements, means that the solicitation should generally be run not less than once
       each week for 2 consecutive weeks. The Authority’s policy also required it to run the
       paid advertisement once each week for 2 consecutive weeks. However, the Authority
       published advertisements for 1 day, even though it had received only one proposal for
       each contract from the same vendors with which it had previously contracted for the
       services.

       Price or Rate Quotations Were Not Obtained
       The Authority did not obtain price or rate quotations from an adequate number of
       qualified sources when it paid approximately $172,538 to 14 vendors for purchases that
       fell under the micropurchase and small purchase thresholds. Regulations at 2 CFR
       200.320(a) and (b) required the Authority to document that micropurchase prices paid
       were reasonable and obtain price or rate quotations from an adequate number of sources
       for small purchases. However, the Authority could not show that it had documented the



                                                  5
       reasonableness of the prices paid. For example, it paid approximately $25,336 to a
       vendor for computer software support services without obtaining a price or rate
       quotation. According to Authority officials, they had been using the same vendor since at
       least 2001. While the Authority stated that it kept using the same vendor because it
       would not be cost effective and feasible to change the agency’s entire software system, it
       did not provide documentation, such as an independent cost estimate or quotes and
       comparisons showing how it reached this conclusion or written justification for not
       switching the vendors. During the same time-frame, the Authority did not ensure that
       13 additional purchases below its micropurchase and small purchase thresholds were
       supported by price quotes before disbursing $147,202 to the vendors. For example, the
       Authority paid $19,289 and $15,795 to two vendors for various hardware and
       maintenance supplies but did not obtain quotes for these purchases.

These deficiencies occurred because the Long Branch staff performing work on the Authority’s
behalf did not fully understand applicable procurement requirements and the Authority did not
have adequate controls to ensure that it complied with HUD, Federal, and Authority procurement
requirements. As a result, HUD did not have assurance that $334,138 in operating and capital
funds disbursed for goods and services was reasonable and that the procurement transactions
were conducted in a manner providing full and open competition.

Allocation of Contract Costs Was Not Always Supported
The Authority did not always adequately support the allocation of contract costs among its
programs. Federal cost principle requirements at 2 CFR Part 225, appendix A, paragraph C(3)
and 2 CFR 200.405 required costs to be properly allocated among funding sources. The
Authority’s accounting records showed that $161,600 paid for the professional services contracts
discussed above came from the Authority’s operating and capital funds. However, it appeared
that the professional services contracts were intended to be funded from the Authority’s public
housing program and Housing Choice Voucher Program. The Authority did not provide
documentation to show that the payments made matched the planned funding sources. This
condition occurred because the Authority did not have adequate controls to ensure that Long
Branch staff complied with Federal cost principle requirements. As a result, HUD did not have
assurance that $161,600 paid for professional services was allocable to the Authority’s operating
and capital funds.

Disbursements Were Not Always Properly Reviewed and Approved
The Authority did not always ensure that disbursements were properly reviewed and approved.
Its internal controls policy required proper review and approval of documents, such as invoices,
expense reports, receipts, and other supporting documentation before payments were made to
vendors. However, the payment vouchers for $622,646 of the $637,415 in disbursements
reviewed did not show that the Authority had proper approvals and authorizations before making
payments. This condition occurred because the Authority did not have adequate controls to
ensure that vouchers were properly approved and authorized. As a result, HUD did not have
assurance that $622,646 paid for goods and services was for approved costs.




                                                6
Conclusion
The Authority did not always administer its operating and capital funds in accordance with HUD
requirements. These conditions occurred because the Authority did not maintain detailed
documentation and did not have adequate controls to ensure that Long Branch staff understood
and followed applicable HUD, Federal, and Authority requirements. As a result, HUD did not
have assurance that more than $622,000 paid for goods and services was for eligible, reasonable,
necessary, allocable, and properly approved costs. If the Authority updates its policies and
procedures and receives technical assistance from HUD, it will help ensure that additional
payments made under interagency agreements are adequately supported, services under such
agreements are provided in accordance with applicable requirements, and goods and services are
procured properly for prices that are reasonable.

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 $252,000 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 are adequately supported before payment is made and that the
         services are provided in accordance with applicable requirements. These requirements
         include but are not limited to HUD, Federal, and Authority requirements related to
         procurement, allocation of costs, and review and approval of payments.

     1C. Provide documentation to show that the $161,600 paid for legal, fee accounting, and
         auditing services was for prices that were reasonable and that the costs were properly
         allocated among the Authority’s programs or reimburse its Operating and Capital Fund
         programs from non-Federal funds for any amount that it cannot support or is not
         considered reasonable.

     1D. Provide documentation to show that $172,538 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.

     1E. Provide documentation to show that $36,508 disbursed1 was for authorized and
         approved costs or reimburse its Operating and Capital Fund programs from non-Federal
         funds for any amount that it cannot support.


1
    To avoid double counting, we reduced the unsupported costs for recommendation 1E by the amounts discussed
    in 1A, 1C, and 1D. The $36,508 is the full $622,646 disbursed that was not supported by proper approvals less
    the amounts cited in 1A ($252,000), 1C ($161,600), and 1D ($172,538).




                                                         7
We recommend that the Director of HUD’s Newark Office of Public Housing

    1F. Provide technical assistance to the Authority to help ensure that 1) future interagency
        agreements, including the renewal of its agreement with Long Branch clearly outline
        the expectations and documentation required to show that work was performed, (2) its
        board provides adequate oversight of work performed under interagency agreements,
        and 3) it complies with HUD, Federal, and Authority procurement requirements when
        purchasing goods and services.




                                                8
Scope and Methodology
We conducted the audit from February through July 2018 at the Authority’s office located
at 52 Evergreen Terrace, Red Bank, NJ, and our office located in Newark, NJ. The audit
covered the period January 2015 through December 2017, and we expanded it to include
documents related to the Authority’s ongoing use of Long Branch for services, including
the most recent interagency agreement dated January 2018.

To accomplish our audit objective, we interviewed applicable HUD and Authority officials. We
also reviewed the following:
    •    Relevant background information.
    •    Applicable laws, regulations, and HUD guidance.
    •    Authority policies and procedures, annual contributions contract, 5-year plans, and
         annual action plans.
    •    Audited financial statements and other financial reports provided by the Authority.
    •    Contracts, agreements, and related procurement files.
    •    Check registers, invoices, receipts, voucher disbursements, and other records related to
         the Authority’s operating and capital funds.

According to the Authority’s accounting data, it disbursed approximately $1.65 million in
operating and capital funds during our review period. We summarized data by vendor, the
amount paid, and the nature of the expenses. After excluding payments for utilities, taxes, and
insurance, we selected a nonstatistical sample of disbursements to review the Authority’s use of
operating and capital funds. The sample included the 18 payees that received the most funds
during our audit period. We also selected the four highest reimbursements made to current and
former employees and two payments (100 percent) related to the Rental Assistance
Demonstration. In total, we selected 24 payees that received $637,415, representing more than
39 percent of the $1.65 million disbursed. We reviewed the procurement and disbursement files
and other supporting documentation provided by the Authority for each of the payees selected.
Although this approach did not allow us to make a projection to the full $1.65 million disbursed
during our period, it allowed us to review more than 39 percent of the total disbursements and
was sufficient to accomplish our audit objective.

In addition to the above samples, we reviewed 100 percent of the Authority’s Capital Fund
obligations for 2015 and 2016 grants2 and its calculations for Operating Fund subsidies for 2015
through 2017.


2
    The 2015 and 2016 Capital Fund grants were obligated during our audit period. While the 2017 funds had been
    appropriated, the Authority had not passed the obligation deadline.




                                                        9
To achieve our objective, we relied in part on computer-processed data from HUD’s Financial
Assessment Submission – Public Housing System, Public and Indian Housing Information
Center system, and Line of Credit Control System and data from the Authority, such as its check
register. 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.




                                                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:

•   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 controls to ensure that it followed applicable HUD,
    Federal, and Authority requirements.



                                                  11
Appendixes

Appendix A


                             Schedule of Questioned Costs
                          Recommendation
                                             Unsupported 1/
                              number
                                  1A                $252,000
                                  1C                 161,600
                                  1D                 172,538
                                  1E                  36,508
                                 Total               622,646


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                              12
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2




                               13
Ref to OIG   Auditee Comments
Evaluation




Comment 3




Comment 4




                            14
Ref to OIG   Auditee Comments
Evaluation




Comment 5




Comment 6




                            15
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority maintained that it retained Long Branch as a consultant and that it
            was charged a flat monthly fee. The Authority also noted that Long Branch
            employees performed all services necessary to achieve goals of the Red Bank
            Housing Authority, often working longer and more hours than required under the
            agreement, and indicated that employees will provide certifications to show that
            they worked the number of hours per the agreements. The Authority’s planned
            action is partially responsive to recommendation 1A. Further, the Authority
            needs to ensure that future interagency agreements clearly outline the expectations
            and documentation required to show that work was performed.

Comment 2   The Authority stated that it believes the $252,000 paid was for eligible,
            reasonable, necessary, and allocable costs for several reasons including that
            (1) the costs were necessary for the Authority’s operations, (2) the services
            provided were consistent with the functions of a public housing agency, and
            (3) the costs were authorized under its policies and procedures, and the Agency
            Plan that was approved by HUD. We agree that the services provided appeared to
            be within the normal duties of a public housing agency and that using funds for
            such services is allowable under the plan. However, the Authority did not
            maintain comprehensive documentation as required by the agreement and it could
            not show that Long Branch had met the minimum number of hours. Further, it
            did not provide documentation to show that the rate charged for snow removal
            was reasonable. Without such documentation, HUD does not have assurance that
            the amount paid was for eligible, reasonable, necessary, and allocable costs. As
            part of the normal audit resolution process, the Authority will need to provide
            documentation to further support the amount paid or reimburse its programs for
            any amount that it cannot support or that is not considered reasonable.

Comment 3   The Authority stated that it was charged a flat rate for snow removal and for on-
            call and overnight services. It further noted that the services are charged per
            month or per season, that snow removal records were kept for insurance and
            liability purposes, and on call services averaged 15 calls per month. We agree
            that the Authority provided some records showing the services it received, such as
            the on call services. However, as discussed in the finding, the Authority could not
            provide documentation to show that the rate charged for snow removal was
            reasonable because there were no documents to show how the per season fee was
            determined or whether a cost comparison was performed. It also could not
            provide documentation showing how the rate for on call and overnight services
            was determined. As part of the normal audit resolution process, the Authority
            will need to provide documentation to show that the amount paid for these
            services was reasonable.




                                             16
Comment 4   The Authority stated that it planned to (1) update its policies and procedures to
            ensure compliance with procurement requirements, (2) provide documentation to
            show that the payments for goods and services were reasonable and properly
            allocated, and (3) settle the inter-fund liabilities between its programs. The
            Authority’s planned actions are generally responsive to recommendations 1B, 1C,
            and 1D. If the Authority cannot provide adequate documentation related to the
            payments for goods and services during the audit resolution process, it should
            reimburse its Operating and Capital Fund programs from non-Federal funds for
            the amount that it cannot support or is not considered reasonable.

Comment 5   The Authority maintained that both it and Long Branch had internal procedures
            related to the review and approval of disbursements. However, the payment
            vouchers for $622,646 of the $637,415 in disbursements reviewed did not show
            compliance with their internal controls policy. As part of normal audit resolution
            process, the Authority will need to provide documentation to show that payments
            were for authorized and approved costs or reimburse any amount that it cannot
            support.

Comment 6   The Authority stated that it had obtained additional documentation from the
            former employee related to the Medicare Part B premiums and that it shows there
            was no overpayment. Based on the additional documentation provided after the
            exit conference, we agree that the calculations were correct and there was no
            overpayment. As a result, we have removed the portion of the finding related to
            this issue from the final report.




                                             17