oversight

HA of Bowling Green, Bowling Green, KY

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-01-24.

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




                                                             Audit-Related Memorandum
                                                             No. 96-AT-204-1807
January 24, 1996

MEMORANDUM FOR:              Arthur L. Wasson, Director, Office of Public Housing, 4IPH



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

SUBJECT:      Citizen Complaint
              Housing Authority of Bowling Green
              Allegations of Travel Fraud and Personal Use of PHA-Owned
              Vehicles/Maintenance Staff
              Bowling Green, Kentucky

We have completed a review of allegations against the former Executive Director (ED) of th e
Housing Authority of Bowling Green (HABG). The allegations included travel fraud, personal
use of PHA-owned vehicles, and use of HABG maintenanc e staff for repairs at the ED's personal
residence.

An on-site review by your staff and an Independent Accountant (IA) indicated the allegation s
related to travel were valid, which our review confirmed.

                                      BACKGROUND

HABG operates 4 conventional public housing projects totaling 530 un its, and had approximately
40 employees. It is governed by a five-member Board of Commissioners; the Chairperson was
Ms. Susie Oldham. Day-to-day activities are carried out by an ED. The ED against whom the
allegations were made was employed by HABG in August 1992 and resigned in March 1995 .
He was previously employed as ED at the Sante Fe, New Mexico, Housing Authority.

                                           SCOPE

The purpose of our review was primarily to determine whether the allegations were valid, and
if so, to recommend corrective actions. We also reviewed records and conducted interviews to
identify contractors, vendors, employees and officials who may be involved in corruption ,
fraudulent activities, conflicts of interest or other illegal activities that detract from the integrity
and effectiveness of HUD programs. We interviewed your staff and reviewed HABG files i n
your office. We visited HABG and interviewed key HABG employees, contractors, unsuccessful
construction bidders and other persons as considered appropriate. We made limited reviews of
pertinent HABG files and r eviewed HABG's internal control system. We conducted our review
from July through November 1995.

                                            SUMMARY

Based on a review of approximately 60 percent of the former ED's travel claims of $4,100, we
concluded he falsified documents and made bogus claims for about $665, or 27 percent of the
cost reviewed. Most of the fraudulent claims had been detected by the IA. The Board forced the
former ED to resign in part because of prior reviews of his travel, which your office initiated .
The former ED left the New Mexico PHA under a similar cloud, charging personal phone calls
to the PHA and using sick leave improperly. We are recommending that you issue an LD P
against the former ED to preclude similar acts being committed at another PHA, and reques t
HABG to consider filing a claim under its fidelity bond for the bogus claims.

In addition, the former ED executed $1,240,532 of change orders to an existing contract ,
increasing it by 475 percent, instead of competitively bidding the work as required by HU D
regulations and HABG's o wn procurement policy. We recommended that you instruct HABG's
new ED about future proper uses of change orders.

We found no support for the allegations of personal use of HABG vehicles an d maintenance staff.

Details of our findings and re commended corrective actions are in Attachment 1. We discussed
the procurement findin g with HABG's new ED on November 2, 1995, and provided him a draft
of the finding on December 22, 1995 . His written comments are included as Attachment 2. We
provided a draft of both findings to your office, and considered your com ments in the final report.

Within 60 days, please give us, for each recommendation in the memorandum, a status report on:
(1) the corrective actions taken; (2) the proposed corrective act ions and the date to be completed;
or (3) why actions are considered unnecessary. Also, please furnish us copies of an y
correspondence or directives issued as a result of this review.

We provided a copy of this memorandum to HABG.

If you have any questions, please contact me at (404) 331-3369 or Rudy McBee, Assistan t
District Inspector General for audit, at (423) 545-4368.


Attachments:
      1 - Findings and Recommendations
      2 - Auditee Comments
      3 - Distribution
                                                                                ATTACHMENT 1
                                                                                     Page 1 of 6

                          FINDINGS AND RECOMMENDATIONS


Finding 1 -   Former Executive Director Falsified Travel Claims

The former ED falsified a significant portion of the travel cost he claimed reimbursement fo r
during his tenure as ED. The ED is no longer employed by HABG, but we believe appropriate
administrative sanctions still need to be taken to prevent the ED from repeating similar actions
at another PHA.

Based on allegations, the HUD Kentucky State Office requested Buchenberger, Darst @
Company, Certified Public Accountants, to do a special review of HABG travel vouchers an d
policies. The Independent Accountant (IA) performed the review in January 1995 during hi s
regular audit of HABG's financial statements for the year ended September 30, 1994. Excerpts
from the IA's February 17, 1995 letter report are as follows:

       - HABG's travel po licy was to reimburse actual and reasonable meal costs, with receipts
       required, and actual receipted cost of single occupancy lodging. T he IA reviewed five ED
       travel vouchers for travel between November 1992 and September 1994, for payment s
       totaling $1,629.

       - On a conservative basis, allowing the benefit of doubt on all but clearly bogus an d
       altered items, the IA questioned the validity of $445 of cost claimed.

       - Many meal receipts appeared bogus. Some were generic and in the same handwriting
       as that in the travel voucher. Some printed from cash register or computer systems had
       altered dates; the dates and times did not match the dates and times they were supposed
       to support on travel vouchers; and some showed meals for more than one person (n o
       voucher documented business purpose for guests).

       - In one case, tickets used to support meals in Louisville were from a restaurant no t
       located in Louisville. The tickets were altered to hide the restaurant location.

       - In another case, meals and other travel costs were claimed when it is doubtful the ED
       was in travel status, o r it appeared he was traveling for personal pleasure. Auto rent and
       airport parking were claimed for six days for a three day conference.

       - The most serious breach was an al tered motel bill supporting claimed expenses of $120
       for a night's lodging in Louisville . The actual bill was to a friend of the ED from a motel
       in Lexington, at a daily rate of $62. The bill was alt ered to change the dates, the name (to
       the ED), and double the amount.
                                                                               ATTACHMENT 1
                                                                                    Page 2 of 6

The IA attached a schedule detailing the $445 by date and type of expense. We reviewed th e
documenta tion supporting the IA's analysis and generally agree with his findings. We als o
interviewed the former ED's friend who confirmed the ED paid for some of her meals and that
she altered the motel receipt he used to support the $120 motel claim. Travel vouchers signed
by the former ED contained a certification that all expenses claimed were incurred by th e
employee in the discharge of official business, and that all data furnished was true and correct.

In addition to the five vouchers, we reviewed two additional vouchers for travel in January and
June 1993 totaling $889. We found question able claims totaling $220 similar to those described
by the IA. In summary, a combined review of ap proximately 60 percent of the former ED's total
travel claims ($2,500 of $4,100) resulted in questionable claims totaling $665, or about 2 7
percent of the claims reviewed.

In addition, we queried representatives of the Sante Fe, New Mexico, Housing Authority (HA)
regarding the circumstances surrounding the former ED's departure. The Board Chairperson at
that time stated the former ED charged about $600 of personal long distance phone calls to the
HA and took 16 hours of sick leave while interviewing for another job. The HA reduced th e
former ED's check for unused annual leav e to reimburse the HA for both the phone calls and the
leave.

24 CFR 24.700 authorizes Public Housing Directors to order an LDP for any program participant
based upon adequate evidence of, among other things, irregularities in past performance in, or
falsely certifying in connection with, a HUD program. The evidence supports fraudulent travel
claims and false certifications as to the accuracy of the claims, and therefore supports an LD P
against the former ED.

HUD Comments

The Kentucky Director Of Public Housing stated he disagreed with issuing an LDP against the
former ED. He summarized prior HUD, IA and HABG Board actions in dealing with th e
problem, which led to the former ED's forced resignation, and stated this was an administrative
matter which had been ad equately dealt with and should not be included in the audit report. He
stated that an LDP was considered and discussed with staff and attorneys. He choose not to issue
an LDP because (1) h e feared it would be overturned by an administrative law judge on appeal,
because of sympathetic Board members, the relatively small amount of money involved, and the
ED's ability to explain the dishonest acts as innocent mistakes; (2) previo us LDPs issued had been
ignored by other state offi ces; and (3) the former ED would, in effect, be denied participation in
Kentucky anyway once word got out to PHAs in the state about what happened at HABG.
                                                                             ATTACHMENT 1
                                                                                  Page 3 of 6
OIG Evaluation of HUD Comments

We see little reason to fear reversal of an LDP given the obvious and flagrant nature of the acts
committed. In any event, we disagree that such concern is an adequate basis not to issue th e
LDP. We discussed the travel claims with the former ED, and he provided no plausibl e
explanation for the bogus claims. Neither do we consider it reasonable to assume, or to use as
reasons not to issue an LDP, that the LDP will be ignored or that the ED will be ostracized by
other PHAs even without the LDP. Falsifying documents to support claims is a serious offense,
which, combined with the former ED's actions a t the Sante Fe Housing Authority and statements
to us that he planned to seek another ED position, clearly warrants as a minimum the LD P
sanction.

Recommendation

We recommend that you:

1A.    Issue an LDP against the former ED as provided by 24 CFR 24.700.
1B.    Request the ED to consider filing a claim under HABG's fidelity bond for the bogus travel
       claims.
                                                                               ATTACHMENT 1
                                                                                    Page 4 of 6

Finding 2 -    HABG Did Not Competitively Procure Construction Services

HABG did not follow required procurement methods in performing CIAP construction work .
HABG added $1,240,532 of work to an existing contract by change orders, increasing th e
original contract by 475 percent, instead of competitively bidding the work. Not bidding th e
work was unfair to other contractors and may have resulted in excessive costs to HABG.

Federal requirements state that procurement by sealed bids is the preferred method for procuring
construction when costs exceed $25,000, and that all procurement must be done in a manne r
providing full and open competition (24 CFR 85.36(c),(d)).

On December 30, 1992, following sealed bid solicitations, HABG awarded a constructio n
contract for $330,207 to Lanham Brothers General Contractors, Inc., for work included i n
HABG's 1992 CIAP grant. However, over the next two years HABG issued 11 change orders
totaling $1,240,532 to the contract, adding work in HABG's 1993 and 1994 CIAP grants. The
change orders added a significant amount of work that (a) was similar to work included in the
original contract, but cost more per unit, where there was suffic ient information to compare costs,
or (b) was not included in the original contract. Much of the work should have been rebid, a s
evidenced by the following examples:

       Change Order           Amount          Description

               4              $19,014         Site drainage work not inclu ded in original contract.
                                              (HABG's procurement policy, based on state law ,
                                              requires sealed bids for purchases in excess o f
                                              $10,000.)

               6               96,579         Renovate tub plumbing and paint 189 bathrooms @
                                              $511 each. Represented significant increase i n
                                              original contract scope of work; insufficien t
                                              information to make cost comparison.

               6,9            436,757         Convert 23 units into handicap units @ unit cost s
                                              ranging from $16,574 to $22,909 by bedroom size.
                                              Original contract included conversion of four units
                                              at undeterminable unit costs.

               6,9,10 317,094         Construct additional 131 one-bay storage buildings @
                                      $2,420 each. Original contract cost per unit was $1,688.
                                                                               ATTACHMENT 1
                                                                                    Page 5 of 6

                6              40,536         Construct additional 12 two-bay storage building s
                                              @ $3,378 each. Original contract cost per unit was
                                              $2,245.

               10             166,908         Change interiors and install patio doors for 42 units
                                              @ $3,974 each. Original contract did not includ e
                                              patio doors and did not contain unit prices for other
                                              items.

The former ED and current HABG staff con tended HUD staff verbally assured them it was legal
to issue change orders in lieu of bidding the work provided: (1) the work items were similar to
those in the original contract; and (2) the contract or agreed to complete the work at the same unit
price. Even if true, much of the change order unit costs were either higher or could not b e
favorably compared to original contract costs.

The HUD Kentucky Director of Public Housing, comm enting on our draft finding, advised us he
was unsure what was said to HABG s taff, but what should have been said based on HUD policy
was that change order work must be the same as, rather than similar to, work in the origina l
contract, and be done at the same unit price. He added that HUD's suggested wording for PHA
procurement policies states that options for additional quantities may be included in contracts,
provided they are included in the solici tation, properly defined and limited, exercised only at the
price specified in the contract, and exercised only if more advantageous than conducting a new
procurement (Handbook 7460.8, Procurement Handbook for PHAs, Appendix 1, Section V ,
Paragraph B). Although this same language is included in HABG's procurement policy, suc h
options were not included in the construction contract.

Federal procurement requuirements and/or HABG's own procurement policy required HABG to
competitively bid most of the $1,240,532 of work added by change orders to the origina l
contract. Much of the work was the same as or similar to work in the or iginal contract, but higher
unit costs (where comparisons were feasible) an d significant increases in the scope of work were
unfair to other contractors and may have resulted in excessive HABG costs.

Auditee Comments

HABG's ED stated he could not speculate why his predecessor procured the construction work
as he did, or what HUD advice was given. However, he advised that in the future he woul d
follow the procurement policies and procedures in HUD Handbook 7460.8. The full text of the
ED's comments is in Attachment 2.
                                                                            ATTACHMENT 1
                                                                                 Page 6 of 6

OIG Evaluation of Auditee Comments

The ED's comments are responsive to the finding.

Recommendation

2A.    We recommend that you provide to HABG the substance of your December 28, 199 5
       comments to us on the draft finding, particularly the information about options fo r
       additional quantities includable in contracts, as the new ED may not be familiar with the
       provisions.
ATTACHMENT 2
     Page 1 of 2
ATTACHMENT 2
     Page 2 of 2
                                                                    ATTACHMENT 3

                                    DISTRIBUTION


Secretary's Representative, 4AS
Director, Office of Public Housing, 41PH
Field Comptroller, 4AF
Director, Accounting Division, 4AFF
Field Audit Liaison Officer, 4AFI
Special Agent in Charge, Southeast/Caribbean, 4AGI
Assistant General Counsel, 4AC
Kentucky State Coordinator, 41S
Assistant Inspector General for Investigation, GI
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Chief Financial Officer, F (Room 10166) (2)
Deputy Chief Financial Officer for Operations, FO (Room 10166) (2)
Director, Office of Internal Control and Audit Resolution, FOI (Room 10176) (2)
Office of Public and Indian Housing Comptroller, PF
 ATTN: Audit Liaison Officer (Room 4122)
Associate Director, US GAO, 820 1st St. NE Union Plaza,
Bldg. 2, Suite 150, Washington, DC 20002
Executive Director, Housing Authority of Bowling Green, 218 Double Springs Road, Bowling
Green, Kentucky 42101