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 standards. SUMMARY Our findings and recommendations are in Attachment 1. We found that: - Procurement actions were not properly documented in ac cordance with federal procurement requirements. - 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 funds. 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. Attachments: 1 - Findings and Recommendations 2 - Schedule of Ineligible and Unsupported Costs 3 - Distribution 2 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)). 3 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. Recommendations 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 85.20. 4 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. Recommendation 2A. We recommend that you require the PRPHA to seek reimbursement of the $433,736 from the management agent. 5 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. Recommendations 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 requirements. 6 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 them. 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. Recommendation 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. 7 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 1 Costs not allowable by law, contract, HUD or local agency policies or regulations. 2 Costs not clearly eligible or ineligible but warrant being contested (e.g., lack of satisfactory documentation to support the eligibility of the cost). 8 ATTACHMENT 3 Distribution 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 9
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)