oversight

HA of the City of Hoboken, Hoboken, NJ

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-03-13.

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

                                                                    Issue Date

                                                                         March 13, 1996
                                                                    Audit Case Number

                                                                         96-NY-204-1001




TO:           Carmen Valenti, Director, Office of Public Housing
                               New Jersey State Office


FROM:         A. Paul Kane, District Inspector General for Audit
                                  New York/New Jersey

SUBJECT:      Housing Authority of the City of Hoboken
              Low Rent Housing Program
              Hoboken, New Jersey


We have completed an audit of the Housing Authority of the City of Hoboken, New Jersey
(hereafter called the PHA) pertaining to selected operations of its Low Rent Housing Program.
The audit generally covered the period from October 1, 1993 through June 30, 1995, and, where
appropriate, was extended to December 31, 1995. The objectives of the audit were to determine
whether the PHA complied with the U.S. Department of Housing and Urban Development
(HUD) requirements and policies pertaining to: 1) personnel practices; 2) procurement; 3)
maintenance; and 4) housing quality standards.

Generally, the PHA maintained its housing units in decent, safe and sanitary condition. In
particular, we found that the PHA's housing stock met the required Housing Quality Standards
and can be considered comparable to that of commercial apartment buildings in the area.
However, this report contains two findings that warrant your attention. The findings showed that
the PHA entered into an employment buyout arrangement with its Executive Director that in our
opinion was not necessary and reasonable. Also, the PHA procured professional legal services
in a manner that did not provide for full and open competition. As a result, we consider
$171,476.42 as unnecessary and unreasonable costs and $17,482.10 as unsupported costs.

Within 60 days, please give us, for each recommendation cited in the report, a status report on:
(1) the corrective action taken; (2) the proposed corrective action and the date to be completed;
or (3) why the action is not considered necessary. Also please furnish us copies of any
correspondence or directives issued related to the audit.

Should you or your staff have any questions, please contact William H. Rooney, Assistant
District Inspector General for Audit on (212) 264-8000 extension 3978.
Management Memorandum




                 (THIS PAGE LEFT BLANK INTENTIONALLY)




96-NY-204-1001                   Page ii
Executive Summary

We completed an audit of the Housing Authority of the City of Hoboken (PHA) pertaining to
selected operations of its Low Rent Housing Program. Our objectives were to determine whether
the PHA complied with HUD's requirements and policies pertaining to: 1) personnel practices;
2) procurement; 3) maintenance; and 4) housing quality standards.

Our review disclosed that the PHA complied with HUD's regulations and requirements pertaining
to the housing quality standards. Also, the housing units were well maintained and comparable
to commercial units in the area. However, in regard to personnel practices and procurement, we
questioned an employment buyout arrangement existed with the PHA's Executive Director and
we questioned the procurement of the PHA's legal services.




                                    The PHA paid its Executive Director $171,476.42 in excess
 Buyout Arrangement
                                    of his annual salary to buyout the last nine months of his
 With Executive Director
                                    five year employment contract. According to PHA
 Was Unnecessary
                                    Commissioners, the health of the Executive Director was a
                                    major concern. However, one year after the buyout, the
                                    Executive Director was still functioning in the same
                                    capacity.   We consider the buyout arrangement as
                                    unnecessary resulting in unreasonable charges to the PHA.

                                    The PHA awarded a legal service contract that had a
 PHA Legal Services
                                    different scope of services and different method of payment
 Contracts Are
                                    than the advertised request for proposals. Also, the PHA
 Questionable
                                    extended a legal contract and without justification changed
                                    the method of payment. The PHA contends that the
                                    changes in scope of services and method of payment were
                                    recommended by HUD, however the PHA could not
                                    provide supporting documentation to verify this. Therefore,
                                    we consider $17,482.10 in legal costs as unsupported.

                                    We recommend that you take the appropriate actions
 Recommendations
                                    against the Board of Commissioners for authorizing the
                                    buyout and that you require the PHA to instruct the
                                    Executive Director to return the buyout payments to the
                                    PHA. Additionally, we recommend that you make a
                                    determination as to the eligibility of the current and future
                                    fees paid to the attorney. Any costs found to be ineligible
                                    should be reimbursed by the PHA from non-Federal funds.


                                            Page iii                                 96-NY-204-1001
Executive Summary



                    The results of the audit were discussed with PHA Officials
 Exit Conference
                    during the course of the audit and at an exit conference held
                    on March 5, 1996 attended by:

                    PHA Officials

                    Dominic M. Gallo, Acting Executive Director
                    Carmen Matarazzo, Assistant Comptroller
                    James L. Bosworth, PHA General Counsel

                    HUD - New Jersey State Office Official

                    Edward DePaula, Acting Director, Office of Public Housing

                    HUD - Office of Inspector General

                    William H. Rooney, Assistant District Inspector General

                                  for Audit
                    Karen A. Campbell, Auditor in Charge
                    Joseph F. Vizer, Auditor

                    The Auditee's comments are included as Appendix A to this
                    report. In addition, the comments have been summarized
                    and provided after each finding in the report. Where
                    appropriate, we have prepared an evaluation of the
                    Auditee's comments.




96-NY-204-1001              Page iv
Table of Contents

Management Memorandum                                          i


Executive Summary                                             iii


Introduction                                                   1


Findings

    1      Buyout Arrangement With Executive
           Director Was Unnecessary Resulting In
           Unreasonable Charges                                3

    2      PHA Legal Services Contracts Are
           Questionable                                        9


Internal Controls                                            15


Follow Up On Prior Audits                                    17


Appendices

    A      Auditee Comments                                  19

    B      Schedule of Unreasonable/Unnecessary
           and Ineligible Costs                              25

    C      Distribution                                      27


Abbreviations

                              Page v               96-NY-204-1001
Table of Contents



        ACC         Annual Contribution Contract
        CIAP        Comprehensive Improvement Assessment Program
        CFRs        Code of Federal Regulations
        CGP         Comprehensive Grant Program
        HUD         U.S. Department of Housing & Urban Development
        IA          Independent Accountant
        OIG         Office of Inspector General
        RFPs        Request For Proposals




96-NY-204-1001                             Page vi
Introduction
The PHA is governed by a Board of Commissioners consisting of seven unpaid members who
formulate and direct the PHA's policies and procedures. The Chairman of the Board is Eugene
G. Drayton. Dominic M. Gallo, is the Acting Executive Director responsible for general
management and supervision over the administration of PHA business and affairs.

As of year ended September 30, 1994, the PHA operates 1353 units of Federally-assisted low rent
public housing units under Consolidated Annual Contributions Contract NY-432 and administers
312 units under its Section 8 Program. The PHA received $2,888,406 in operating subsidies and
$5,697,368 in Comprehensive Grant Program (CGP)/Comprehensive Improvement Assessment
Program (CIAP) in fiscal year 1994.

The books and records are maintained at the PHA's Management Office, which is located at 400
Harrison Street and at its Rental Collection Office, 221 Jackson Street, in Hoboken, New Jersey.




                                    The audit objectives were to determine whether the PHA
 Audit Objectives
                                    complied with HUD's requirements and policies pertaining
                                    to:

                                    •   personnel practices,
                                    •   procurement,
                                    •   maintenance and
                                    •   housing quality standards.

                                    The audit covered the period from October 1, 1993 through
 Audit Scope and
                                    June 30, 1995. However, we reviewed activity prior and
 Methodology
                                    subsequent to the audit period as necessary through
                                    December 31, 1995. The audit site work was conducted
                                    from July 25, 1995 through January 26, 1996.

                                    To accomplish our audit objectives, interviews were
                                    conducted with HUD, State Office, and PHA officials. We
                                    evaluated the PHA's organizational structure and reviewed
                                    the PHA's policies and procedures for managing overall
                                    operations. Also, audit procedures included an examination
                                    of records and files. In addition, we performed detailed
                                    audit testing of selected transactions in the areas reviewed.

                                    The audit was conducted in accordance with generally
                                    accepted government audit standards.



                                             Page vii                                96-NY-204-1001
Introduction



                 A copy of this report has been provided to the PHA's
                 Acting Executive Director.




96-NY-204-1001          Page viii
                                                                                        Finding 1




 Buyout Arrangement With Executive Director
 Was Unnecessary Resulting in Unreasonable
                 Charges
In January 1995, the PHA paid its Executive Director $171,476.42 in excess of his annual salary
to buyout the last nine months of his five year employment contract that would have ended in
September 1997. According to the PHA commissioners, the PHA was concerned about the
Executive Director's health; therefore, they agreed to buyout his contract and retain his expertise
by moving him to a less stressful position. However, one year after the buyout, he was still
functioning as the Executive Director. In our opinion, the buyout payments were unnecessary and
unreasonable charges to the low-rent housing program. Therefore, we question the entire buyout
arrangement and the applicable payments.




                                      Part 85 of Title 24, Code of Federal Regulations requires
 Criteria
                                      Public Housing Authorities to follow Office of
                                      Management and Budget Circular A-87, Costs Principles
                                      for State and Local Governments. This Circular, specifically
                                      Attachment A, provides that costs must be necessary and
                                      reasonable in order to be charged to a program.

                                      On October 1, 1992, the PHA entered into a five year
 PHA enters into five year
                                      employment contract with the Executive Director that
 employment contract
                                      would have ended on September 30, 1997.

                                      On March 17, 1994, the Board of Commissioners passed a
                                      resolution which amended the Executive Director's
                                      employment contract and provided compensation upon
                                      termination. Specifically, the resolution said that the
                                      Executive Director would be paid salary and benefits from
                                      the date of termination to the end of his contract period.

                                      On December 15, 1994, the Board of Commissioners
                                      passed a resolution stating that the PHA agreed to purchase
                                      the last nine months of the Executive Director's contract
                                      (January 1, 1997 through September 30, 1997). The PHA
                                      would make immediate payments based upon the current
                                      wage structure and fringe benefits.



                                               Page 3                                  96-NY-204-1001
Finding 1



                       In January 1995, the PHA paid the Executive Director the
                       following amounts totalling $171,476.42:

                       -- $84,284.84 Salary payments for the period January 1,
                          1997 through September 30, 1997.

                       -- $8,108.63 Annual leave payments that the Executive
                          Director would have accrued between January 1, 1997
                          and September 30, 1997.

                       -- $56,330.37 Annual leave payments for leave that the
                          Executive Director accrued as of December 31, 1994.

                       -- $22,752.58 Sick leave payments for leave that the
                          Executive Director accrued as of December 31, 1994.

                       The Newark Office Housing Specialist responsible for
 Discussion with HUD
                       assisting this PHA recalls discussing the five year
 Officials
                       employment contract with a PHA representative, but it was
                       never formally approved as required by the Annual
                       Contribution Contract (ACC).

                       The Newark Office, Director of Public Housing said that he
                       was not aware of this five year employment contract. He
                       quoted Section 315 of the ACC, which provides that the
                       PHA should not enter into any management agreement
                       when the initial period is in excess of two years, unless
                       prior written consent is obtained from HUD. The Director
                       explained that he has never approved an employment
                       contract that exceeded two years, much less a five year
                       employment contract.

                       More importantly, neither the Housing Specialist nor the
                       Director of Public Housing were aware that the
                       commissioners passed a resolution amending the
                       employment contract entitling the Executive Director to a
                       buyout. Furthermore, they were not aware of any monies
                       paid to the Executive Director much less the magnitude of
                       the monies paid.

                       The Director of Public Housing explained that buyouts may
                       be eligible; it would depend upon the terms of the buyout
                       and the reason to execute a buyout provision. For example,
                       if the PHA desired to buyout the last month or two of an


96-NY-204-1001                 Page 4
                                                                            Finding 1



                         employment contract, depending upon the circumstances
                         regarding the need for the buyout, he probably would not
                         object. Finally, the Director said that in this situation the
                         buyout was unnecessary and unreasonable.

                         In December 1995, we discussed the buyout with the
Discussion with PHA
                         commissioners who authorized the buyout payments. The
Commissioners
                         commissioners explained that in March 1994, the Executive
                         Director told them that he was not healthy and the that job
                         was too stressful. Subsequently, he suggested that the
                         commissioners appoint a temporary Executive Director.
                         Also, he suggested that a new position (Reorganization
                         Officer) be created and that he be selected for this position.
                         According to the commissioners, as Reorganization Officer,
                         he would make suggestions to the PHA regarding cost
                         effectiveness.

                         The commissioners said during their December 1994,
                         meeting, the Executive Director indicated that he was
                         having occasional chest pains; therefore, he requested that
                         his contract be bought out and that he become the
                         Reorganization Officer. The commissioners agreed because
                         they believed that he was doing a good job and that they
                         desired to keep his expertise at the PHA.

                         In January 1995, according to the commissioners, they
                         bought out the last nine months of the Executive Director's
                         contract, moved him to the Reorganization Officer position
                         and appointed an Acting Executive Director. However, the
                         newly appointed Acting Executive Director died three
                         weeks later. Therefore, the prior Executive Director
                         assumed the functions of the Executive Director. However,
                         one year after the buyout, he was still functioning as the
                         Executive Director. We asked the commissioners why.
                         They said that they desired to promote from within the
                         PHA, but they have not been successful. It should be
                         mentioned that during our field work, we did not observe
                         the PHA actively recruiting another Executive Director and
                         the Commissioner agreed that they were not actively
                         seeking a new Executive Director.

                         We attempted to determine how the PHA was able to fund
Funds received from
                         a buyout of this magnitude. We found that in 1989, Public
local electric company
                         Service Gas & Electric, the local electric company, needed


                                  Page 5                                  96-NY-204-1001
Finding 1



     access to PHA land. As part of the electric company's standard business practice, it paid the
     PHA $175,000 for easement rights. In 1990, the monies were put into an escrow fund
     because of discrepancies that arose during a title search. In early January 1995, these
     discrepancies were resolved and the monies were deposited into the PHA's general fund.
     When we asked the Executive Director about the source of funds from which the PHA paid
     the buyout, he responded that it came from the Public Service Gas & Electric funds
     mentioned above and that he considered these non-Federal funds. We discussed this issue
     with a HUD attorney who advised that once non-Federal funds are co-mingled with Federal
     funds, the monies are considered Federal funds.

                                     The OIG defines unnecessary costs as costs which are not
 The buyout is
                                     generally recognized as ordinarily, prudent, relevant and/or
 unnecessary and
                                     necessary within established practices. Likewise the OIG
 unreasonable
                                     defines unreasonable costs as costs which by their very
                                     nature and amount, exceed the costs incurred by the
                                     ordinarily prudent person in the conduct of a competitive
                                     business.

                                     We believe that the buyout arrangements and the applicable
                                     payments are unnecessary and unreasonable for the
                                     following reasons:

                                     •   In January 1995, the commissioners created the
                                         Reorganization Officer position for the Executive
                                         Director because the Executive Director position was
                                         too stressful. However, he was to continue to receive the
                                         $112,380 annual salary that was budgeted for the
                                         Executive Director position. In short, there was no
                                         corresponding reduction in salary for a position with
                                         less responsibility.

                                     •   The PHA did not identify the duties of the
                                         Reorganization Officer. There were hand written notes
                                         which the Executive Director presented to the
                                         commissioners with some suggestions as to how he
                                         could save the PHA money.

                                     •   In December 1994, the Executive Director presented the
                                         Reorganization Officer idea to the commissioners.
                                         However, in July 1994 and May 1995 when the PHA
                                         submitted its original and revised budgets this position
                                         was not listed.




96-NY-204-1001                                Page 6
                                                   Finding 1



•   The PHA's Personnel Policies dated April 1987, provide
    that an individual is entitled to accumulate a maximum
    of 50 vacation days. Therefore, upon leaving
    employment with the PHA, an individual could be
    reimbursed for a maximum of 50 vacation days. As
    part of this buyout the PHA paid the Executive Director
    for 130 days.

•   The Personnel Policies dated April 1987, provide that
    the maximum compensation to be paid by the PHA for
    sick leave was $15,000. As part of the buyout the PHA
    paid the Executive Director $22,752.58.

•   The Executive Director position was believed to be too
    stressful; therefore, his contract was bought out. Yet one
    year after the buyout, he was still functioning as the
    Executive Director and the commissioners have not
    been actively searching for another Executive Director.

•   According to the commissioners, the PHA bought out
    the last nine months of the Executive Director's contract
    (January 1, 1997 through September 30, 1997) because
    in January 1997, he would have sufficient years to
    receive a civil service retirement. Also, the
    commissioners desired to keep the Executive Director
    at the PHA in another position because of his expertise.
    In our opinion, if the commissioners desired to retain
    the Executive Director at the PHA they could have
    transferred him to another job until January 1997
    without buying out his contract.

•   For the year ended September 30, 1995, the Executive
    Director received $171,476.42 as a result of the buyout
    out, plus his annual salary of $112,380 for
    compensation totalling $283,856.42. We believe that
    this an unreasonable amount for a PHA to compensate
    an employee.

In summary, the low-rent housing program must be
managed in the most economical manner. Therefore, we
believe that payments of this magnitude to buyout an
employment contract are unnecessary and unreasonable
charges to the low-rent housing program. In addition, we
believe that the commissioners exercised poor judgement


         Page 7                                  96-NY-204-1001
Finding 1



                    when it approved the buyout arrangements and authorized
                    the payments.




Auditee Comments    The PHA provided a detailed explanation of this finding
                    and it is included in its entirety as part of Appendix A to
                    this report. Generally, the response provides that HUD was
                    made aware of the five year contract, amendments to the
                    contract, the buyout and its source of funding through
                    Board minutes and resolutions forwarded to HUD. As for
                    the funding source of the buyout, the easement
                    compensation was not federal funds.




OIG Evaluation of   HUD Field Office personnel simply do not have the time to
Auditee Comments    read all the Board of Commissioner minutes and resolutions
                    sent to them. Furthermore, as mentioned in the finding,
                    Section 315 of the ACC requires the PHA to obtain written
                    consent from HUD for any management or personnel
                    services contracts that exceed two years. This was not
                    done.

                    The funds from the sales of the easement were deposited
                    into the PHA's General fund. According to the HUD Field
                    Office attorney, once funds are deposited into the General
                    Fund, the funds are considered Federal funds.




Recommendations     We recommend that you:

                    1A.    Require the PHA to instruct the Executive Director
                           to return the buyout payments to the PHA.

                    1B.    Take the appropriate action against the Board of
                           Commissioners for authorizing the buyout.




96-NY-204-1001              Page 8
                                                                                       Finding 2




            PHA Legal Services Contracts Are
                    Questionable

The PHA awarded a legal service contract that had a different scope of services and different
method of payment than its advertised request for proposals (RFP). Also, the PHA extended a
legal contract for six months and without justification changed the method of payment from an
hourly rate to a retainer basis. A PHA official said that the changes in the scope of services and
the changes in methods of payment were recommended by the HUD attorney; however, the
official could not provide any documentation to verify this. Therefore, we consider $17,482.10
in legal costs as unsupported pending a HUD eligibility determination.




                                     Title 24, Code of Federal Regulations (CFRs) Part 85.36
 Criteria
                                     provides that all procurement transactions will be
                                     conducted in a manner providing full and open competition.

                                     HUD Handbook 7460.8 REV-1, Procurement Handbook for
                                     PHAs, Chapter 4 provides that the procurement of legal
                                     services should follow the competitive proposal method
                                     identified in Part 85.36(d) of the CFRs. According to
                                     Paragraph 4-25 of this Handbook, contracts shall be
                                     awarded only in accordance with the terms of the RFP.
                                     Furthermore, Paragraph 4-21 provides that if changes in the
                                     RFP are needed, a written amendment should be issued by
                                     the PHA. If the change is substantial the RFP should be
                                     canceled and a new RFP issued.

                                     Our review objectives included a determination whether
                                     legal services were obtained in compliance with
                                     procurement standards. Therefore, we examined the method
                                     of procurement used by the PHA to contract for legal
                                     services and we examined the contracts and billings related
                                     to the scope of services.

                                     On January 31, 1995 and February 10, 1995, the PHA
 PHA requests legal
                                     advertised a RFP for legal services. The PHA requested an
 services
                                     attorney for a one year period to review legal matters which




                                              Page 9                                  96-NY-204-1001
Finding 2



     would arise in connection with the business and management of the PHA's various housing
     programs.

                                   The scope of legal services requested encompassed the
                                   PHA's ordinary business. The services to be provided were
                                   as follows:

                                   (A)    Attendance at all PHA meetings and legal
                                          supervision of the PHA's minutes;

                                   (B)    Attendance at committee meetings when requested;

                                   (C)    Confer with and advise the officers, employees and
                                          members of the PHA on legal matters, when
                                          requested;

                                   (D)    Advise and assist the PHA in the preparation of all
                                          legal documents, papers, contracts, specifications,
                                          bonds, waivers, and other legal drafting when
                                          required;

                                   (E)    Appear for the PHA in all routine litigation;

                                   (F)    Approve the legality of contracts;

                                   (G)    Handle all legal questions and matters arising under
                                          contracts of the PHA and render legal opinions on
                                          all matters submitted by the PHA;

                                   (H)    Give notice to and consult with the PHA's insurance
                                          carriers in all cases of injury to person or property
                                          involving the PHA; and

                                   (I)    Review and approve all documents pertaining to
                                          temporary and permanent financing of the PHA's
                                          projects covered by this agreement.

                                   The RFP required that all qualified candidates interested in
                                   submitting a proposal for legal services submit a written
                                   proposal based upon an hourly rate .

                                   Our review noted that the PHA received two proposals in
 Two proposals submitted
                                   response to the RFP. One proposed to charge the PHA at
 in response of RFP
                                   a rate of $115.00 per hour with an annual fee not to exceed


96-NY-204-1001                             Page 10
                                                                                   Finding 2



  $25,000 per year. The scope of legal services to be performed encompassed the exact scope
  of services outlined in the RFP.

                                 The second proposal, received from the PHAs' attorney for
                                 the past 18 years, was in two parts. In the first part, the
                                 attorney offered to represent the PHA for standard PHA
                                 contractual work at the rate of $115.00 per hour with an
                                 annual fee not to exceed $25,000. In the second part, the
                                 attorney offered that if the PHA required legal services
                                 related to the Comprehensive Grant Program
                                 (CGP)/Comprehensive Improvement Assessment Program
                                 (CIAP) the rate would be $115.00 per hour with an annual
                                 fee not to exceed $25,000. In short, there were two parts to
                                 the proposal, each part had a maximum annual fee of
                                 $25,000.

                                 On April 1, 1995, the PHA awarded its attorney for the past
PHA did not award legal
                                 18 years a legal services contract for a one year period
services contract in
                                 ending March 31, 1996. This contract provided for an
accordance with RFP
                                 annual fee of $50,000 payable in twelve equal installments.
                                 The contract provided for two components with separate
                                 billings:

                                     General Counsel at $25,000.
                                     CIAP/CGP at $25,000.

                                 According to a PHA official, the contract provisions were
                                 verbally recommended by the HUD attorney; however, the
                                 official was unable to provide any documentation to verify
                                 this.

                                 Our review determined that the RFP asked for an hourly
                                 rate pertaining to legal matters for the various housing
                                 programs. Therefore, in our opinion the contract was not
                                 awarded in accordance with the RFP. Specifically, the PHA
                                 awarded the contract based upon 12 monthly equal
                                 installments when the RFP asked for an hourly rate. Also,
                                 the RFP asked for legal services pertaining to various
                                 housing programs; however, the PHA awarded the contract
                                 in two components: general counsel and CIAP/CGP. We
                                 believe that the CIAP/CGP should have been included as
                                 part of the various housing programs and not as a separate
                                 component.



                                         Page 11                                 96-NY-204-1001
Finding 2



                      Our review disclosed that for a seven month period ending
                      October 31, 1995, the PHA paid the attorney a total of
                      $29,166.62 in equal monthly installments of $4,166.66.
                      However, our review of the attorney's billing determined
                      that he worked a total of 135.4 hours during this period. In
                      our opinion, if the PHA had awarded the contract based
                      upon an hourly rate as requested in the RFP and used the
                      $115.00 hourly rate that was included in the attorney's
                      proposal, only $15,571 would have been charged to the
                      PHA (135.4 X $115.00 ). Therefore, we consider
                      $13,595.62 as unsupported legal costs ($29,166.62 minus
                      15,571) pending a HUD eligibility determination.

                      The PHA entered into a contract for legal services for a one
 PHA extended legal
                      year period ending September 30, 1994. The contract
 contract
                      provided for a fee based upon an hourly rate of $115.00
                      with a maximum not to exceed of $25,000.

                      On October 13, 1994, the PHA's Board of Commissioners
                      passed Resolution No. 5518 authorizing the extension of
                      the legal services contract on a month to month basis until
                      a committee reviewed the professional services
                      procurement policy and recommended revisions to the
                      policy. Our review determined that the PHA extended the
                      contract for six months ending March 31, 1995.

                      Our review of attorney's billings for the original contract
                      determined that for the one year period prior to the
                      extension of the contract, the PHA paid the attorney
                      $21,835.50 ( $115.00 per hour for general counsel and
                      $65.00 per hour for associate counsel).

                      However, our review of the six month extension ending
                      March 31, 1995, disclosed that the PHA did not pay for
                      legal services in accordance with the terms of the original
                      contract. Specifically, in six monthly installments, the PHA
                      paid the attorney a total of $12,499.98. In short, the PHA
                      switched from an hourly rate to a $2,083.33 monthly
                      retainer. Again the PHA official said that the HUD attorney
                      recommended this arrangement, but the official could not
                      provide any documentation to verify this. In our opinion,
                      the payments for the extended six months should have
                      continued at the rate determined in the original contract



96-NY-204-1001                Page 12
                                                                       Finding 2



                    ($115.00 per hour for general counsel services) and not
                    switched to the retainer basis.

                    From the attorney's billings, we determined that during this
                    six month extended period, the attorney charged 74.90
                    hours for general counsel services at $115.00 per hour
                    amounting to $8,613.50. The difference between the
                    amount that the PHA actually paid for legal services
                    ($12,499.98) and the amount it should have paid
                    ($8,613.50) equals $3,886.48. Therefore, as a result of
                    switching from the hourly rate to the retainer basis, we
                    believe that the PHA paid excessive legal costs amounting
                    to $3,886.48.




Auditee Comments    The PHA provided an explanation to this finding and its is
                    included in its entirety as part of Appendix A to this report.
                    Generally, it provides that as a result of the New Jersey
                    Strike Force that the RFP was interpreted to mean an annual
                    retainer supplemented by an hourly billing for monitoring
                    purposes. The PHA official said that this interpretation was
                    obtained from HUD counsel. Also, when the 1993-1994
                    contract had to be extended the PHA extended it, an annual
                    retainer concept because it was recommended by HUD.




OIG Evaluation of   Our discussion with HUD Field Office counsel indicated
Auditee Comments    disagreement. Therefore, we recommended that the Field
                    Office make a determination on the eligibility of the
                    attorney fees.



Recommendations     We recommend that you:


                    2A.    Make a determination as to the eligibility of the
                           current and future fees paid to the attorney. Any
                           costs found to be ineligible should be reimbursed by
                           the PHA from non-Federal funds.




                            Page 13                                  96-NY-204-1001
Finding 2



                 2B.   Instruct the PHA to comply with the provisions of
                       24 CFR Part 85.36 to ensure that procurement of all
                       future professional services is conducted in a
                       manner providing for full and open competition.




96-NY-204-1001          Page 14
                                         Finding 2




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                Page 15                96-NY-204-1001
Internal Controls
In planning and performing our audit, we evaluated the internal controls of the Project to
determine our auditing procedures and not to provide assurance on internal controls. Internal
controls are the process by which an entity obtains reasonable assurance as to achievement of
specific objectives. Internal controls consist of interrelated components, including intergrity,
ethical values, competence, and the control environment which includes establishing objectives,
risk assessment, information systems, control procedures, communication, managing change, and
monitoring.




                                    We determined the following internal control categories
 Relevant Controls
                                    were relevant to our audit objectives:

                                    •   Controls over cash receipts and disbursements.

                                    •   Controls over petty Cash and change funds.

                                    •   Controls over accounts receivables and security
                                        deposits.

                                    •   Controls over payroll.

                                    •   Controls over investments.

                                    •   Controls over general accounting and
                                        administrative controls.

                                    We evaluated all the relevant control categories identified
 Internal Controls
                                    above by determining the risk exposure and assessing
 Assessed
                                    control design and implementation.

                                    A significant weakness exists if internal controls do not
                                    give reasonable assurance that resource use is consistent
                                    with laws, regulations, and policies; that resources are
                                    safeguarded against waste, loss and misuse; and that
                                    reliable data are obtained, maintained, and fairly disclosed
                                    in reports.

                                    Based on our review, the following controls have
 Assessment Results
                                    significant weaknesses:

                                    Controls over payroll (Finding 1).


                                             Page 15                                96-NY-204-1001
Internal Controls



                    Controls over general accounting and administrative
                    controls (Findings 1 and 2).




96-NY-204-1001             Page 16
Follow Up On Prior Audits
The latest audit of the PHA was performed by the Independent Auditor (IA) Polcari & Company,
for the twelve month period ended September 30, 1994. The report contains two
recommendations pertaining to the PHA's Drug Enforcement Project. At the completion of our
audit field work, all of the recommendations had been resolved.




                                           Page 17                              96-NY-204-1001
Follow Up On Prior Audits




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96-NY-204-1001                      Page 18
                                                                              Appendix B

Schedule of Unnecessary/Unreasonable and
Unsupported Costs


                  Finding   Unnecessary/
                  Number    Unreasonable (1)                Unsupported (2)
                        1            $171,476.42
                        2                                       $17,482.10




(1) Unnecessary/
      Unreasonable Costs    - Unnecessary costs are those which are not generally
                              recognized as ordinary, prudent, relevant, and/or
                              necessary within established practices. Unreasonable
                              costs exceed the costs that would be incurred by the
                              ordinarily prudent person in the conduct of a competitive
                              business.

(2) Unsupported Costs       - Costs not clearly eligible or ineligible but which warrant
                              being contested. These costs require future decision by
                              HUD program officials. This decision may involve legal
                              interpretation or clarification of applicable policies and
                              regulations.




                                       Page 25                                96-NY-204-1001
Appendix B




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96-NY-204-1001                   Page 26
                                                                                Appendix C

Distribution
Director, Public Indian Housing, (2)
(Acting) Secretary Representative, AS
Director, Accounting Division, 2AAF
Audit Liaison Officer, New Jersey State Office, (3)
(Acting) Director, Office of Public Housing, 2APH
Assistant to the Deputy Secretary for Field Management, SDF,(Room 7106)
Deputy Assistant to the Secretary, SLD (Room 7118)
Office of Assisted Housing, PH (Attention: Comptroller/Audit Liaison Officer, Room 4204) (3)
Acquisitions Librarian, Library, AS (Room 8141)
(Acting) Chief Financial Officer for Operations,F (Room 10166)(2)
Deputy Chief Financial Officer, FF (Room 10166) (2)
Associate General Counsel, Office of Assisted Housing & Community Development, CD (Room
 8162)
Assistant Director In Charge, US GAO, 820 1st Street NE, Union Plaza, Building 2, Suite 150,
 Washington, DC 20002 (2)
Executive Director, Housing Authority of the City of Hoboken,
 Hoboken, New Jersey




                                           Page 27                              96-NY-204-1001