U.S. Department of Housing and Urban Development
Wanamaker Building, Suite 1005
100 Penn Square East
Philadelphia, PA 19107-3380
District Inspector General for Audit
Report No. 96-PH-201-1015
March 19, 1996
MEMORANDUM FOR: William D. Tamburrino, Director, Office of Public
Housing, Maryland State Office, 3BPH
FROM: Edward F. Momorella, District Inspector General
for Audit, 3AGA
SUBJECT: Special Procurement Report
Housing Authority of Baltimore City
Attached for your information and action is a Special Report
on procurement activities at the Housing Authority of Baltimore
City (Authority).
The review was conducted in response to a request from United
States Senator Barbara Mikulski, and covered procurement activities
at the Authority since the issuance of our September, 1994 audit
report.
As you know, our independent review was conducted in
conjunction with the recent comprehensive review by your staff and
the HUD contracting office. We have reviewed your final report and
agree with the observations and recommendations.
Based on our review, we make the following additional
recommendations related to the Authority's procurement activities.
Staffing & Training of Procurement Personnel - Perform an
assessment of the staffing and training needs for the Authority's
Purchasing Department to assure the Authority is adequately
staffing this critical function.
Retain Threshold at $25,000 - Require the Authority to
maintain its threshold at the current level of $25,000 until the
Authority has cleared all the findings reopened in recommendation
1B above and your monitoring reviews indicate the Authority is
operating its procurement activities properly.
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Reopen Prior Audit Recommendations - Reopen recommendations
1B, 6A, 6B, and 6C from our prior audit report, number 94-PH-201-
1016, dated September 23, 1994.
Use Enforcement Remedies To Obtain Compliance - We also
recommend that your office make appropriate use of the enforcement
remedies outlined in 24 CFR Part 85.43. We recognize that with the
number of procurement transactions executed, errors and omissions
can occur, however, any indications of the Authority's
unwillingness to address staffing levels, or other indicators of
intent to circumvent procurement procedures, should prompt HUD to
take action to disallow the cost of that procurement, as provided
by Part 85.43
Within 60 days, please give us, for each recommendation made
in the report, a status report on: (1) the corrective action
taken; (2) the proposed corrective action and date to be completed;
or (3) why action is considered unnecessary. Also, please furnish
us with copies of any correspondence or directives issued because
of the review.
Should your staff have any questions, please have them contact
me or J. Phillip Griffin, Assistant District Inspector General for
Audit, at (215) 656-3401.
INTRODUCTION
At the request of United States Senator Barbara Mikulski, we
performed a special review of procurement activities at the Housing
Authority of Baltimore City (Authority).
The review was performed between December 1995 and February 1996,
and covered the activities from July 1994 through December 1995.
Where appropriate, the review was extended to include other
periods.
The objectives of the review were to : 1) determine if the
Authority's procurement activities were administered in accordance
with applicable laws and regulations, and in an economical,
efficient and effective manner; 2) assess the effect of the
Authority's increase in dollar threshold for formal bidding; and 3)
follow-up on promised corrective actions to procurement
deficiencies cited in our prior audit report issued on September
23, 1994.
Specific procedures included, but were not limited to, review of
applicable laws, regulations and policies, review of the
Authority's books and records, vendor invoices, vehicle inventory,
and interviews of various individuals. We also inspected 31
rehabilitated properties, and reviewed the recent procurement
review performed by HUD public housing & procurement staff.
Judgmental sampling was used for testing purposes and inspection of
properties.
BACKGROUND
We reviewed applicable documentation pertaining to selected
procurement actions which included requisitions, bid lists,
tabulations, and advertisements. Also, we interviewed Authority
personnel to obtain information related to certain procurements.
The following chart illustrates our review of the approximately
7,700 purchase orders issued between July 1, 1994, and December 31,
1995.
Number of Dollar Number
Purchase Orders Threshold Reviewed
7,610 $25,000 or less 113
90 Greater than $25,000 33
The following chart illustrates the number of purchase orders by
various dollar levels:
In addition to these purchase orders, we also reviewed selected
Authority contracts.
SUMMARY
Even though improvements have been made, especially discontinuing
noncompetitive emergency rehabilitation purchase orders,
procurement violations and control weaknesses still exist. Several
of the corrective actions promised as a result of prior audit
recommendations remain to be implemented.
Specific deficiencies noted include:
* Two purchase orders and an extension were issued to a
suspended contractor.
* Purchase orders were issued without dollar limits.
* Payments were made in excess of purchase order limits.
* Personal Service contract was not re-bid for 10 years.
* Two contracts did not receive the formal bidding required.
* Thirteen noncompetitive purchase orders were issued without
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justification.
* 64 Instances of no price analysis to assure best price.
* 17 Instances of failure to justify "emergency" work.
* Lack of a central "contract register" for the Authority.
* Funds unnecessarily used for purchase of personal use
vehicle.
* Use of procured vehicle by non Authority personnel.
( Details of the above deficiencies are attached as Exhibit I )
EFFECT OF INCREASE IN DOLLAR THRESHOLD FOR FORMAL BIDDING
As illustrated in the charts above, of the approximately 7,700
purchase orders issued between July 1, 1994, and December 31, 1995,
only 90 (slightly more than one percent) exceeded the previous
threshold of $25,000. Considering the low volume of purchases over
the previous threshold and the Authority's past and present
problems with procurement, we see no compelling need for the
Authority to increase its threshold to $100,000.
CORRECTIVE ACTIONS ON PRIOR AUDIT RECOMMENDATIONS
NOT COMPLETELY IMPLEMENTED
In our prior audit report dated September 23, 1994, we made several
recommendations related to the Authority's procurement process.
Based on our review, some of the recommendations which had
previously been closed should be reopened. These recommendations
were closed largely based on assurances from the Authority that
proper corrective action had been taken. The following is a
summary of the actions required of the Authority in the original
recommendations.
1B. Consistently apply both its own procurement policies and
HUD's procurement regulations at 24 CFR 85.36 (and in
particular, HUD approval for all noncompetitive proposals
prior to contract award).
6A. Develop and consistently implement written procurement
procedures to identify criteria, rationale, selection of
contract type, contractor selection, and the basis for
price.
6B. Maintain sufficient records to detail the significant
history of the procurement.
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6C. Review proposed procurements to avoid purchase of
unnecessary or duplicative items. Also, consider
consolidation or breaking-out purchases for economy.
With regard to recommendation 1B., the draft report by the Maryland
State Office of its recent review of the Authority's procurement
process contained the following:
"The HABC Procurement Policy has been rewritten based on the
HUD sample. However, this policy was accepted by HUD on
February 21, 1995, conditioned on the removal of Para III
E.1.e. which allowed the Executive Director to declare an
emergency and use non-competitive procurement as a result of
such declaration. The procurement policy given to this Office
on December 21, 1995, still contained paragraph III E.1.e.
This addition is unacceptable."
In conclusion, we found: (1) the Authority did not properly
administer its procurement activities; (2) there does not appear to
be a need for the Authority to increase its dollar threshold for
formal bidding; and (3) promised corrective actions on prior
procurement deficiencies have not been taken as claimed.
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EXHIBIT 1
The Authority Procurement Activities Should be Improved
The Authority's administration of procurement activities does not
adhere with Federal procurement and HUD handbook requirements. As
a result, there is no assurance that the Authority's procurement
practices are efficient, effective, and economical.
We noted the following deficiencies in our review of the
Authority's procurement practices.
A. Two purchase orders and an extension were issued to a
suspended contractor;
B. Purchase orders were awarded noncompetitively;
C. Documentation for small purchases was not maintained;
D. Formal bidding procedures were not used;
E. Required HUD approval for change orders over $25,000 was
not obtained;
F. A personnel service contract was not rebid;
G. Funds were not used in an economical and efficient
manner;
H. Purchase orders were issued without a dollar limit;
I. A purchase order's payment threshold was exceeded;
J. Required Contract Register is not maintained; and
K. A vehicle is being utilized by a non-Authority employee.
Details of these deficiencies are as follows.
A. The Authority awarded two purchase orders and extended an
existing purchase order to a suspended contractor.
On July 26, 1995, Elias Contracting Company was suspended under the
provisions of 24 CFR 24.405. As a result, the firm was excluded
from participating in federal procurement contracts. However, the
Authority awarded and extended the following purchase orders while
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the firm was suspended.
P.O. 11129 in October 18, 1995 for $900,
P.O. 11709 in November 8, 1995 for $6055, and
P.O. 06503 was to expire in September 30, 1995, however,
the Authority extended it for three additional months.
According to HUD Handbook 7460.8 REV-1, contracts shall not be
awarded to debarred, suspended, or ineligible contractors.
The contractor received new business while it was suspended because
the Authority's Purchasing Department does not review the "List of
Parties Excluded From Federal Procurement and Nonprocurement
Programs" which is published monthly by the U.S. General Services
Administration.
B. The Authority noncompetitively awarded purchase orders.
From the period July 1994 to June 1995, the Authority
noncompetitively awarded 13 purchase orders. The Authority
provided various explanations why the purchase orders were awarded
noncompetitively:
equipment was manufactured by the vendor and vendor would
provide the best service;
vendor was a prior low bidder and could still provide the
best price; and
maintenance department prefers one brand of
equipment/appliances.
While the Authority's explanations may seem logical, the fact is,
24 CFR 85.36 (C) requires all procurement transactions to be
conducted in a manner providing full and open competition
consistent with the standards of 24 CFR 85.36.
C. The Authority did not maintain documentation for its small
purchases.
24 CFR 85.36(b)(9) requires the Authority to maintain a significant
history of a procurement. However, the Authority did not maintain
the documentation needed to determine the reasonableness of price
or justification of an emergency purchase order.
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The following illustrates the results of our review in this area:
No. of P.O.s Threshold Deficiencies No. of
reviewed Deficiencies
83 $1,000 or less Price analysis 54
not performed.
Emergency not 10
justified.
30 $1,000 or Price analysis 10
more, but less not performed.
than $25,000
Emergency not 7
justified.
D. The Authority did not use formal bidding procedures.
The Authority awarded two insurance contracts that exceeded
$100,000 and did not utilize formal bidding procedures as required
by 24 CFR 965.205(b). The contracts were executed after the
Authority changed its procurement threshold to $100,000. The
Authority used informal bidding procedures for the following
purchase orders because it was not aware that formal bidding
procedures were required in the procurement of insurance contracts.
P.O. NUMBER VENDOR NAME CONTRACT AMT.
11020 American Phoenix Corp. $ 293,474
11019 American Phoenix Corp. $1,817,360
E. The Authority did not obtain HUD approval for change orders
over $25,000.
According to 24 CFR 85.36(g)(2)(v), HUD approval is required when
a contract is increased by more than $25,000. The following change
orders for the Fairfield Replacement Housing were executed without
HUD approval:
C.O.# DATE AMOUNT
10
6 5/23/95 $26,616
7 5/23/95 $31,106
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F. The Authority did not rebid a personal service contract.
A personal service contract has not been rebid in the last 10
years. Specifically, the Authority executed a no bid, no term
limit legal representation contract on September 4, 1985. The
contract was modified on October 15, 1992. As of FY 96, the
contract was still active. The amounts paid in FY 95 and 96 were
$101,062 and $32,050 respectively.
According to HUD Handbook 7460.8 REV-1, prior HUD approval is
required when contracts are for services whose initial period
exceeds two years, and any option, extension, or renewal of a
contract for services which makes the total length of the contract,
as modified, exceed two years.
The Authority stated that the contract has not been terminated
because litigation is lengthy and engaging a new legal firm was not
cost effective.
G. The Authority did not use public funds in an economical and
efficient manner.
In a repeat finding from the September 23, 1994 OIG audit report,
limited housing funds of $19,498 were used to purchase a new 1995
fully loaded Chevrolet Astro Van. This vehicle was purchased for
the use of the Director, Management Information Services. The
personal use vehicle was purchased when the Authority had a fleet
of 117 Vans in its 1995 year end vehicle inventory. Including this
vehicle, the Authority has 19 vehicles which are assigned to
individuals and may be taken home by those individuals.
H. The Authority issued purchase orders without dollar limits.
The Authority executed open ended orders and times/materials orders
without not-to-exceed amounts. As a result, unlimited acquisitions
of goods and services may occur. Therefore, Federal informal and
formal procurement regulations may be circumvented. The following
purchase orders were issued without not-to-exceed amounts.
P.O. 05822
P.O. 05825
P.O. 09229
P.O. 09231
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I. The Authority made payments that exceeded the purchase order's
payment threshold.
Purchase order 06503 was executed for the servicing and repairs of
residential gas and oil furnaces; however, no one tracked total
expenditures against the order. Specifically, the Authority paid
over $216,131 on a not to exceed $75,000 a year purchase order.
J. The required Contract Register is not being maintained by the
Authority.
HUD Handbook HM 7510.1. requires the Authority to maintain a
Contract Register. The Contract Register should contain the amount
of each formally executed contract and all subsequent financial
transactions.
Although a partial Contract Register is maintained by the
Engineering Service Department, the Purchasing Department does not
maintain a register for its procurements.
K. An Authority vehicle is being used by a non-Authority
employee.
A City employee that formerly worked at the Authority was assigned
an Authority vehicle. Although the individual returned to the City
on January 18, 1994, the vehicle is still assigned to the
individual according to the Authority's records at the end of 1995.
The above deficiencies parallel problems cited in OIG audit report
94-PH-201-1016, issued September 23, 1994. The audit cited that
the Authority needs to strengthen its procurement practices.
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Housing Authority of Baltimore City
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-03-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)