Puerto Rico Public Housing Administration, San Juan, PR

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-06-26.

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

                                                         U.S. Department of Housing and Urban Development

                                                         District Office of the Inspector General
                                                         Richard B. Russell Federal Building
                                                         75 Spring Street, SW, Room 700
                                                         Atlanta, GA 30303-3388
                                                         (404) 331-3369

June 26, 1996                                                                    Audit Related Memorandum
                                                                                       No. 96-AT-201-1821

MEMORANDUM FOR:                Miriam Saez, Acting Director
                               Public Housing Division, 4NPH

FROM:           Kathryn Kuhl-Inclan
                District Inspector General for Audit, 4AGA

SUBJECT:        Puerto Rico Public Housing Administration
                San Juan, Puerto Rico
                Comprehensive Grant and Drug Elimination Programs

We completed a limited review of selected activities of the Puerto Rico Public Housin g
Administration (PRPHA). Our review included: (1) i nterviews with HUD, PRPHA and management
agent officials, and (2) review of PRPHA and management agent records . Our review was conducted
from April to December 1995 and covered the period from July 1992 to December 1995.

Our review primarily covered the use of funds, procurement and rela ted practices for the construction
of access controls and fences at selected public housing projects. We als o reviewed the accountability
and use of drug elimination grant funds.

While conducting the review, we noted indications of administrative deficiencies that appear t o
warrant additional attention by both HUD and PRPHA staff. We did not develop the deficiencies as
we normally would to meet reporting standards for generally accepted government auditin g


Our findings and recommendations are in Attachment 1. We found that:

     -   Procurement actions were not properly documented in ac cordance with federal procurement

     -   A management agent charged $433,736 of duplicate costs to federal programs.
     -   Accounting records for the 1990 Drug Elimination Grant program were deficient an d
         $347,839 could not be traced to supporting records.

     -   The PRPHA had not remitted to HUD $1,175,998 of unspent 1990 Drug Elimination Grant

Within 60 days, please furnish this off ice, for each recommendation in this report, a status report on:
(1) the corrective ac tion taken; (2) the proposed corrective action and the date to be completed; or
(3) why action is considered unnecessary. Also, please furnish us copies of any correspondence or
directives issued because of the audit.

Should your staff have any questions or need additional informatio n, please contact James D. McKay,
Assistant District Inspector General for Audit on (404) 331-3369 or Aurora Rodriguez, Senio r
Auditor at (809) 766-5540.


     1 - Findings and Recommendations
     2 - Schedule of Ineligible and Unsupported Costs
     3 - Distribution

                                                                                ATTACHMENT 1

                          FINDINGS AND RECOMMENDATIONS

1. Noncompliance with Procurement Requirements

    The PRPHA awarded contracts for the construction of access control facilities, such as th e
    construction of fences and guard houses at the public housing projects.

    Our review disclosed that the records maintained by the PRPHA did not:

    a. Have detail of the significant history of a procurement. These records should 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 of contract price
       (24 CFR 85.36 (b)(9)).

    b. Show cost analysis, i.e., verifying the proposed cost data, the projections of the data, and
       the evaluation of the specific elements of costs and profit (24 CFR 85.36(d)(4)(ii)).

    c. Show that PRPHA performed a cost or price anal ysis in connection with every procurement
       action including contract modifications. The method and degree of analysis is dependent on
       the facts surrounding the particular procurement situation, but as a starting point, grantees
       must make independent estimates before receiving bids or proposals. A cost analysis must
       be performed when the offeror is required to submit the element s of his estimated costs, e.g.,
       under professional, consulting, and architectural engineering services contracts. A cos t
       analysis is necessary when adequate price competition is lacking, and for sole sourc e
       procurement, including contract modifications or c hange orders, unless price reasonableness
       can be established on the basis of a catalog or market price of a commercial product sold in
       substantial quantities to the general public or based on prices set by law or regulation. A
       price analysis should be used in all other instances to determine the reasonableness of th e
       proposed contract price (CFR 85.36(f)(1)).

    d. Show that the PRPHA negotiated profit a s a separate element of the price for each contract
       in which there is no price compet ition and in all cases where cost analysis is performed. To
       establish a fair and reasonable profit, consideration must be given to the complexity of the
       work to be performed, the risk borne by the contractor, the contractor's investment, th e
       amount of subcontractin g, the quality of its record of past performance, and industry profit
       rates in the surrounding geographical area for similar work (24 CFR 85.36 (f)(2)).

    e. Show that the PRPHA evaluated contractor's integrity, records of past performance an d
       financial and technical resources (24 CFR Part 85.36(b)(8)).

Further, the contracts for the construction of access control facilities did not contain 12 of the
contract provisions required by 24 CFR Part 85.36(i). The only provision included was the one
specified in 24 CFR 85.36 (i)(1) that provides for legal remedies when contractors violate o r
breach contract terms.

Additionally, the PRPHA's accounting records do not provide for an a ccounts payable subsidiary
ledger or other similar record from which the project's budget and history of contract payments
could be easily determined. Instead, the PRPHA relies on a disbursement vouchers file. T o
determine the payments made to a contractor, the accounting employee must add the amounts
of the payment vouchers contai ned in the vouchers file. The PRPHA's accounting system does
not meet the requirements specified in 24 CFR 85.20.


We recommend that you require the PRPHA to:

1A.       Establish controls to ensure compliance with 24 CFR 85.36 and other local/stat e
          procurement procedures.

1B.       Establish and maintain financial management systems as required by 24 CFR Par t

2. Duplicate Charges to Federal Programs

    Inter Island Rental P.R. Corporation (management agent), charged $433,736 of duplicate costs
    to federal programs.

    The management agent ma de improvements at various public housing projects as part of HUD
    Comprehensive Grant Program. The management agent charged the total cost of th e
    improvements on HUD Form 50080 (Comprehensive Gran t Program Payment Voucher), which
    generally were submitted monthly to the PRPHA. The PRPHA reimbursed the managemen t
    agent for the total costs.

    For the period June 21, 1993 to June 2 1, 1994, the agent also claimed a refund of $438,598 for
    the same site improvements costs from the "Administracion del Derecho al Trabajo" (ADT), a
    local government agency. ADT administers the Special Work Incentive Program of the U S
    Department of Agriculture sponsored by the Commonwealth of PR Social Services Department.
    The amount of $438,598 was adjusted to $433,736 for which the management agent ha d
    received $424,598 at the audit field work date. Invoice No. 708-7300 for $9,138 had not yet
    been paid.

    Under the Special Work Incentive Program, employers are entitled to a reimbursement of 5 0
    percent of the salaries paid to program participants. The management agent requested the 50
    percent reimburseme nt from this federal program although 100 percent of the salaries had also
    been claimed from the HUD Comprehensive Grant Program.

    In summary, the wages were claimed (100 percent) from HUD as a cost incurred undertaking
    CGP activities. Additionally, the agent submitted invoices to ADT asking for reimbursement
    of 50 percent of the wages paid to the participants, when these costs were billed to HUD. These
    invoices were paid by the Social Services Department. Therefore the ag ent claimed and received
    duplicate reimbursement for wages. We consider $433,736 as ineligible program costs.


    2A.       We recommend that you require the PRPHA to seek reimbursement of the $433,736
              from the management agent.

3.   Accounting Records for the 1990 Drug Elimination Program were Deficient

     The PRPHA did not maintain adequate accounting records for the 1990 Drug Eliminatio n
     Program. As a result, $347,839 of the $1,573,528 reported by the PHA as expended in it s
     Financial Status Report dated Marc h 11, 1994, could not be traced to the PRPHA's accounting
     records. The $347,839 are unsupported.

     Part 85.20(b)(2) of the CFR requires Grantees to maintain records which adequately identify
     the source and application of funds provided for financially-assisted activities. These records
     must contain information pertaining to grant or subgran t awards and authorizations, obligations,
     unobligated balances, assets, liabilities, outlays or expenditures, and income.

     The only record made available by the PHA was a Transaction Listing by Fund. From thi s
     record we were able to trace expenditures amounting to $1,225,689 or 78 percent of th e
     reported expenditures. The balance of $347,839 ($1,5 73,528 - $1,225,689) could not be traced
     to the PRPHA accounting records.

     The PRPHA has been in a troubled status since 1981 and one of its main problems has been with
     record keeping and reporting.


     We recommend that you:

     3A.       Require the PRPHA to either provide evidence that the $347,839 are traceable t o
               their accounting records or to deduct this amount from the amount claimed fo r
               program closeout.

     3B.       Require the PRPHA to submit a certificat ion showing that the accounting records for
               program years 1993, 1994 and 1995 are kept in accordance with progra m

4.   The PRPHA has not Remitted Unspent 1990 Drug Elimination Funds to HUD

     Contrary to program requirements, the PRPHA had not remitted to HUD $1,175,998 o f
     unexpended funds. As a result, unnecessary finance charges on borrowed funds are incurred by
     the United States Treasury.

     Program regulations (24 CFR Part 961.30(f)) state that Grantees are required to use gran t
     amounts according to their approved work plan, which generally shall not exceed 24 months.
     This was reemphasized by HUD in the grant approval letter dated September 21, 1990 .
     According to information in a HUD monitoring report dated September 1991, the gran t
     beginning date was March 11, 1991 and the ending date was March 11, 1993. The PRPH A
     submitted the 1990 Drug Elimination Program Final Financial Report on March 23, 1994 .
     Instead of remitting to HUD the unexpended funds, the PHA requested HUD approval to use

     We believe HUD should require the PHA to remit the 1990 unused funds because the tim e
     period for use of the funds has lapsed. Furthermore, the PRPHA has been slow in using th e
     additional funds awarded. For example, at our audit field date the PRPHA had used only $2.5
     million of the $6 million awarded for 1993, and only $4,000 of the $14.2 million awarded for
     1994. The PRPHA had not used any of the $12 million awarded for 1995.


     We recommend that you:

     4A.      Require the PRPHA to remit the $1,175,998 to HUD.

     4B.      Advise the PRPHA that 1993, 1994 and 1995 funds not used within the grant period
              must also be remitted to HUD. The PHA should also be reminded that progra m
              regulations became more specific on this area in 1993, permitting only a maximu m
              extension of 6 months to the 24 months already established.

                                                                                                     ATTACHMENT 2

                                  SCHEDULE OF INELIGIBLE COSTS

    Recommendation                             Ineligible Costs 1                      Unsupported Costs 2

                 2A                                      $ 433,736
                 3A                                                                                    $347,839
                 4A                                        1,175,998

                                Total                    $1,609,734                                    $347,839

    Costs not allowable by law, contract, HUD or local agency policies or regulations.

    Costs not clearly eligible or ineligible but warrant being contested (e.g., lack of satisfactory documentation to support
    the eligibility of the cost).

                                                                            ATTACHMENT 3


Secretary's Representative, 4AS
Acting Director, Public Housing Division, 4NPH
Field Comptroller, 4AF
Director, Accounting Division, 4AFF
Assistant General Counsel, 4AC
State Coordinator, Caribbean Office, 4NS
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Chief Financial Officer, F (Room 10166) (2)
Director, Office of Internal Control and Audit Resolution, FOI (Room 10176) (2)
Comptroller of Public and Indian Housing, PF
ATTN: Audit Liaison Officer (Room 4122) (3)
Associate Director, US GAO, 820 1st St. NE Union Plaza,
Bldg. 2, Suite 150, Washington, DC 20002