Pascua Yaqui HA, Tucson, AZ

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-02-13.

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

                           Issue Date

                                February 13, 1996
                           Audit Case Number


TO:            C. Raphael Mecham, Administrator, Southwest Office of Native American
               Programs, 9EPI

FROM:          Gary E. Albright, District Inspector General for Audit, 9AGA

SUBJECT:       Pascua Yaqui Housing Authority
               Tucson, Arizona

We have completed an audit of the Pascua Yaqui Housing Authority (PYHA), Tucson ,
Arizona. The audit objective was to determine whether the PYHA was operated in a n
efficient, effective and economical m anner, and in compliance with the terms and conditions
of its Annual Contribution Contracts, applicable l aws, HUD regulations, and other directives.
This report includes eleven findings with recommendations.

Within 60 days please furnish us, for each recommendation in this report, a status report on
(1) the corrective action taken, (2) the proposed corrective action and the date for it s
completion, or (3) why action is not needed. Also, please furnish us copies of an y
correspondence or directives issued related to the audit.

To ensure timely action on this report, we will adhere str ictly to the departmental requirement
for a management decision within 120 days after rep ort issuance. If a decision is not reached
by then, we will immediately refer the report to the Director, Office of Native America n

We have provided copies of this report to the auditee.

Should you have any questions, pl ease contact David McCargar, Assistant District Inspector
General for Audit, at (415) 436-8101.

                                               Page i                               96-SF-207-1002
Management Memorandum

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96-SF-207-1002                         Page ii
Executive Summary
We completed an audit of the Pascua Yaqui Housing Authority (PYHA) located near
Tucson, Arizona. The audit objective was to determine whether the PYHA was
operated in an efficient, effective and economical manner, and in compliance with the
terms and conditions of its annual contributions contracts, applicable laws, regulations
and other directives.

                                   The PYHA is experiencing serious managemen t
 PYHA's poor
                                   problems which are adversely affecting its ability t o
 performance is
                                   carry out its housing and grant programs and ,
 adversely affecting its
                                   ultimately, the wel fare of its residents. These problems
 programs and residents
                                   primarily resulted from a serious lack of staffing ,
                                   frequent turnovers in top management, and a failure to
                                   develop appropriat e policies and procedures and assign
                                   individual responsibility for carrying out activities .
                                   Deficiencies are summarized below and discussed i n
                                   detail in Findings No. 2-11.

                                   Although it is in the fourth year of its Comprehensiv e
 The $6 million
                                   Grant program, the PYHA has no re al strategy for using
 Comprehensive Grant
                                   the over $6 million it has been awarded, and has made
 program was poorly
                                   very little progress in identifying and addressing th e
 planned and
                                   physical needs of its units or its very real management
                                   deficiencies. Additionally, it expended over $118,000
                                   for ineligible or unsupported work items. As a result ,
                                   residents are being deprived of n eeded improvements to
                                   their units.

                                   The procurement and contract administration proces s
 Procurement and
                                   was not effectively managed. Problems were noted in
 contract administration
                                   almost all areas of the procurement process, includin g
 were inadequate
                                   preparation of bid specifications; documenting th e
                                   procurement decision making process; performing and
                                   documenting construction inspec tions; and enforcement
                                   of Davis-Bacon wage rates. A review of thre e
                                   procurement actions totaling approximately $605,00 0
                                   identified avoidable costs of about $65,000 and wag e
                                   underpayments of over $10,000.

                                   Accounting procedures and practices did not provid e
 Accounting controls
                                   appropriate control over assets a nd full disclosure of the
 were inadequate
                                   results of its operations and grant activities .

                                          Page iii                                96-SF-207-1002
Executive Summary

                          Weaknesses included th e failure to post accounting records for
                          over seven months; inaccurately posted accounting records ;
                          failure to properl y invest and control over $3 million of excess
                          funds; and lack of controls over obligated but unspent funds .
                          As a result, records and reports were not useful in managin g
                          operations or assisting HUD to monitor the PYHA.

                                 The PYHA needs to provide better quality housing t o
 Maintenance and
                                 residents. Maintenance and renovation procedures and
 renovation procedures
                                 practices did not ensure that Mutu al Help and Low Rent
 were inadequate
                                 units were decent, safe and sanitary as required .
                                 Deficiencies included the failure to complete routin e
                                 maintenance and repairs; uncontrolled pest infestations;
                                 failure to complet e unit renovations and repairs prior to
                                 tenant move-in; and not requiring tenants to clean their
                                 yards and remove junked cars. As a result, livin g
                                 conditions in and around the PYHA's units were ofte n
                                 shameful, dangerous or unsanitary.

                                 The PYHA needs to improve its handling of personnel
 Personnel and travel
                                 and travel functions and ensure that its Board action s
 functions need
                                 are recorded and made available for public and HU D
                                 review. There was confusion among employees as t o
                                 their job responsibilities, the basis for performanc e
                                 ratings, and eligibility for promotions or salar y
                                 increases; travel costs were not supported; and neithe r
                                 the public nor HUD could determine what actions th e
                                 Board had taken for over eight months.

                                 Policies governing tenant and homebuyer occupanc y
 Problems were noted in
                                 functions need to be improved. Problems were note d
 almost all areas of
                                 with almost all occupancy functions, includin g
 tenant and homebuyer
                                 admissions, income verifications and recertifications ,
 occupancy functions
                                 collections, and title transfer to homebuyers. Th e
                                 inadequate management of these functions has resulted
                                 in the housing of ineligible families; rental and hom e
                                 ownership payments based on unverified and outdated
                                 information; a sign ificant increase in tenant/homebuyer
                                 accounts receivables; and the failure to allow Mutua l
                                 Help families the opportunity to obtain ownership o f
                                 their homes when their payment obligations had bee n
 Completed development
 projects need to be             Audits, needed to determine actual development costs,
 audited and closed out          were not obtained on ten projects which had bee n

96-SF-207-1002                          Page iv
                                                                      Executive Summary

                          completed for up to twelve years. As a result, projects wit h
                          over $3.7 million of unused funds have not been closed out .
                          Had these audits been completed, at least $671,000 of thes e
                          funds could have been used by the PYHA for additiona l
                          housing or other housing related purposes. Additionally, th e
                          PYHA has drawn down approximately $496,000 in excess of
                          the actual costs of these projects resulting in increased interest
                          costs to HUD.

                                 Policies and procedures necessary to ensure that it s
Monthly Equity
                                 homebuyers' Monthly Equity Payment Account s
Payment Account funds
                                 (MEPA) were managed in accordance with it s
were mismanged
                                 occupancy agreements and applicable regulations ha d
                                 not been developed and implemented. Consequently ,
                                 the use of such funds has been haphazard, unsupported,
                                 inconsistent, or ineligible. A review of MEP A
                                 withdrawals totaling over $90,000 indicated that ove r
                                 $60,000 of the funds were e xpended for unsupported or
                                 ineligible purposes. The improper use of MEPA funds
                                 deprives the PYHA of funds which it could use t o
                                 construct additional housing or provide other neede d
                                 services to its tenants and homebuyers.

                                 Incomplete drug e limination grants, which have had no
Drug elimination grants
                                 activity for over two years, have been ineffective an d
should be closed
                                 need to be closed out. Unused funds of over $182,000
                                 need to be deobligated; questionable expenditures o f
                                 over $86,000 need to be resolved; and over $30,000 of
                                 equipment purchased with grant funds must b e
                                 accounted for and disposed of or utilized for othe r

                                 Procedures had not been established or responsibilit y
Utility allowances may
                                 assigned to ensure that resident utility allowances were
not be reasonable
                                 properly established and reviewed on an annual basis .
                                 The last analysis of the adequacy of tenant utilit y
                                 allowances was over four years ago. Thus, neither the
                                 PYHA or HUD can be assured that the current utilit y
                                 allowances are appropriate and fair to tenants.

                                 In June 1995 the Southwest Office of Native American
HUD has designated the
                                 Programs (SWONAP) designated the PYHA as a n
PYHA as an Operation
                                 Operation Recovery housing authority. Under th e
Recovery and High Risk
                                 Operation Recovery program, SWONAP will provid e
                                 the PYHA with training and technical assistance in a n

                                         Page v                                 96-SF-207-1002
Executive Summary

                    effort to help it improve its operat ions. In addition, On January
                    19, 1996 SWONAP designated the PYHA as a high risk
                    authority as recommended in our draft audit report. As a high
                    risk housing authority, it will be subject to additiona l
                    monitoring and approvals by HUD and required to develop a
                    management improvement plan to overcome its managemen t

Auditee Comments           We provided copies of the draft findings to the PYHA
                           and received written res ponses (dated December 21) on
                           January 2, 1996. We also discussed the draft finding s
                           with PYHA officials during the audit and at a February
                           2, 1996 exit conference. The PYHA generally agree d
                           with the majority of the recommendations set out in our
                           draft findings. They stated that they have recognize d
                           the seriousness of their management deficiencies an d
                           have already taken significant ste ps to address them and
                           improve their operations. In light of the actions already
                           taken, they felt that it was premature to declare the m
                           high risk. Additionally, they felt that although ther e
                           were problems with their procurement process an d
                           contract administration, many of the specific details set
                           out in the draft finding were in error and procuremen t
                           decisions made were in accordance with its policy and
                           in the best interest of the PYHA. Thus, they believe d
                           that they should not be declared high risk in relation to
                           their procurement activities. In relation to thei r
                           management of homebuyers Monthly Equity Payment
                           Accounts (MEPA), the PYHA felt that ou r
                           interpretation on the restrictions on the use of MEP A
                           funds were incorrect and the funds are essentially th e
                           homebuyers' funds to use as they see fit.

                           We considered the PYHA's comments and mad e
                           revisions to the findings and recommendations wher e
                           appropriate. The PYHA's responses are summarized at
                           the end of each finding, together with our evaluation .
                           Due the voluminous nature of the PYHA's writte n
                           response, we have not included a copy of it in th e
                           report. However, the Executive Director's overal l
                           comments in his letter transmitting the response ar e
                           included as Appendix A.

96-SF-207-1002                    Page vi
                                                      Executive Summary

Recommendations   We are recommending that you continue to designat e
                  the PYHA as a high risk housing authority and als o
                  classify it as high risk in relation to its procuremen t
                  activities. In order to begin addressing its management
                  deficiencies, the PYHA should perform an in-dept h
                  analysis of its current operations, identify staffin g
                  needed to carry out these operations, and then hir e
                  qualified personnel to fill the positions identified. We
                  have also recommended that the PYHA review al l
                  current policies and procedures, update them whe n
                  necessary or adopt new ones if they don' t exist, and then
                  assign individual responsibility to ensure that thes e
                  policies and procedures are implemented.

                  We are making additional recommendations fo r
                  repayment of ineligible costs and establishment o f
                  procedures to correct specific weaknesses d etailed in the

                        Page vii                                96-SF-207-1002
Executive Summary

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96-SF-207-1002                    Page viii
Table of Contents

Management Memorandum                                             i

Executive Summary                                               iii

Introduction                                                     1


    1      Management Problems Are Seriously
           Affecting The PYHA's Housing and Grant
           Programs Administration                               5

    2      The PYHA Did Not Properly Implement Its
           Comprehensive Grant Program                           9

    3      Procurement And Contract Administration
           Need Improvement                                    19

    4      Accounting Procedures And Practices
           Were Inadequate                                     31

    5      Maintenance And Renovation Procedures And
           Practices Require Improvement                       39

    6      The PYHA Needs to Improve Its
           Administrative Management Functions                 47

    7      Tenant And Homebuyer Occupancy Functions
           Were Poorly Managed                                 53

                            Page ix                  96-SF-207-1002
Table of Contents

         8       Audits Were Not Obtained For Ten
                 Completed Development Projects                 59

         9       The PYHA Mismanaged Homebuyers'
                 Monthly Equity Payment Accounts                63

         10 Ineffective Drug Elimination Programs
            Need To Be Closed Out                               71

         11 The Adequacy Of Resident Utility
            Allowances Is Questionable                          75

Internal Control                                                77

         A       Auditee Comments                               79

         B       Ineligible Comprehensive Grant Costs           81

         C       Underpayment of Fence Contractor Employees     83

         D       Results of OIG Inspections of Low Rent and
                 Mutual Help Units                              85

         E       Schedule of Ineligible and Unsupported Costs   87

         F       Distribution                                   89


96-SF-207-1002                      Page x
                                                                     Table of Contents

ACC          Annual Contributions Contract
CFR          Code of Federal Regulations
Comp Grant   Comprehensive Grant Program
DOFA         Date of Full Availability
HUD          The U. S. Department of Housing and Urban Development
IHA          Indian Housing Authority
MEPA         Monthly Equity Payment Account
MHO          Mutual Help and Occupancy (agreements)
PFS          Performance Funding System
PYHA         Pascua Yaqui Housing Authority
SWONAP       Southwest Office of Native American Programs
TOP          Training and Opportunity Program

                                       Page xi                             96-SF-207-1002
Table of Contents

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96-SF-207-1002                     Page xii

BACKGROUND          The Pascua Yaqui Tribe established the Pascua Yaqu i
                    Housing Authority (PYHA) in 1978 to provide decent,
                    safe and sanitary housing for tribal members. As o f
                    September 30, 1995, the PYHA managed 34 3
                    conventional Low Rent units and 340 Mut ual Help units
                    in 13 projects. Additionally, the PYHA had 40 Lo w
                    Rent and 40 Mutual Help units in development, 14 o f
                    which were being built in Guadalupe, A rizona (a suburb
                    of Phoenix.)

                    The PYHA was also managing a Comprehensive Grant
                    Program with approved funding of over $6,000,00 0
                    through fiscal year 1995 (initial funding approval wa s
                    in 1992); two Drug Elimination grants funded fo r
                    $250,000 each; and a Youth Sports Grant of $60,000 .
                    HUD froze funding for these programs because th e
                    PYHA did not submit current year Low Rent an d
                    Mutual Help program budgets. Funding for the Dru g
                    Elimination and Youth Sports Grants has also bee n
                    frozen for lack of progress and failure to submi t
                    required financial and narrative reports.

                    The PYHA was gov erned by a seven member Board of
                    Commissioners appointed by the Tribal Council. Th e
                    Board appointed an Executive Director responsible for
                    management of the PY HA's day-to-day operations. On
                    March 27, 1995, Richard Valenzuela was name d
                    Executive Director. On May 4, 1995, the Triba l
                    Council abolished t he PYHA Board of Commissioners,
                    and named itself as a replacement for the Board. I n
                    January 1996 the Tribal Council ap pointed a new Board
                    of Commissioners.

                    The PYHA administrative offices are located at 472 0
                    W. Calle Tetakusim, on the Tribal reservation nea r
                    Tucson, Arizona. Watkins & Associates, Garland ,
                    Texas, provides fee accounting services to the PYHA.

OBJECTIVES, SCOPE   The purpose of our audit was to determine whether the
AND METHODOLOGY     PYHA was (1) complyin g with its Annual Contribution

                          Page 1                                96-SF-207-1002

                                Contracts, applicable laws, HUD regulations 1, policies and
                                requirements, and (2) using its resources and managing it s
                                programs and operations effectively, efficiently an d
                                economically. Specifically, the objectives were to determin e
                                whether the PYHA:

                                         •       Established and implemented procurement an d
                                                 contract administration policies and procedures
                                                 which ensured that goods and services wer e
                                                 obtained at the best available price and tha t
                                                 contract terms were adhered to.

                                         •       Maintained current and accurate books an d
                                                 records which provided for appropriate contro l
                                                 over assets and full disclosure of the results o f
                                                 its operations and grant activities.

                                         •       Ensured that its Low Rent and Mutual H elp units
                                                 were maintained in a decent, safe and sanitar y

                                         •       Adhered to applicable occupancy requirements
                                                 relating to resident admissions.

                                         •       Completed appropriate certifications an d
                                                 recertifications of resident income and properly
                                                 determined monthly resident payments.

                                         •       Enforced lease or homeownership agreement s
                                                 including    maintenance  and    collectio n

                                         •       Maintained efficient and effective personne l
                                                 policies and procedures.

                                         •       Controlled and accounted for residents' Mutual
                                                 Equity Payment Accounts (MEPA) i n
                                                 accordance with applicable regulations and th e
                                                 Mutual Help and Occupancy Agreements.

    The consol idated Indian Housing regulations are contained in 24 CFR Part 950. The regulations
were moved from Part 905 to the new Part 950 in April 1995. In addition to moving the regulations
to Part 950, some of the regulations were simplified to provide more flexibility to local officials.
References in this report to the regulations cite the current Part 950 requirements.

96-SF-207-1002                                  Page 2

•      Closed out completed developm ents as required.

•      Administered its grant programs in an efficien t
       and effective manner and in accordance with its
       own policies and governing regulations.

•      Established and updated resident          utilit y
       allowances in an equitable manner.

The audit was conducted from March through Augus t
1995, and generally covered the period April 1, 199 3
through August 31, 1995. Where appropriate, w e
extended our review to cover other periods. The audit
was conducted in accordance with generally accepte d
government auditing standards.

Our principal methodologies used to accomplish thi s
work included:

•      Reviews of Phoenix HUD Southwest Offic e
       Native American Program (SWONAP) files and
       interviews with HUD program personnel.

•      Interviews with PYHA and Pascua Yaqui Tribal

•      Interviews with the PYHA's fee accountant and
       reviews of financial records maintained by th e
       fee accountant.

•      Consideration of the PYHA's internal contro l
       systems pertinent to our audit objectives t o
       determine auditing procedures.

•      Inspections of housing u nits in the PYHA's Low
       Rent and Mutual Help programs.

•      Examination of PYHA procedures and controls
       related to procurement, accounting, occupancy,
       maintenance, grant management, personnel ,
       travel, investments, management of restricte d
       accounts, and utility allowances.          Wher e
       pertinent, we also e xamined books, records, and
       other documents relat ed to these areas of PYHA

      Page 3                                96-SF-207-1002

                 operations to determine whether they wer e
                 functioning as intended and/or required.

96-SF-207-1002   Page 4

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               Page 5                  96-SF-207-1002
Finding 1

  Management Problems Are Seriously
Affecting The PYHA's Housing and Grant
        Programs Administration
The PYHA is experiencing serious management problems which are adversely affecting
its ability to carry out its housing and grant programs and, ultimately, the welfare of its
residents. As discussed in Findings 2 through 11, the PYHA is experiencing problems
in almost all areas of operations. These problems resulted primarily from a serious lack
of staffing, frequent turnovers in top management, and a failure to develop appropriate
policies and procedures and assign individual responsibility for carrying out activities.
Due to the seriousness of its management problems, the Southwest Office of Native
American Programs designated the PYHA as high risk on January 19, 1996. As a high
risk housing authority, it will be subject to additional monitoring by HUD and required
to develop a management improvement plan to overcome its management problems.

                                    During the last three years the PYHA's programs an d
 PYHA programs have
                                    responsibilities have grown dramatical ly. It has become
 grown substantially
                                    involved in a large Comprehensive Grant program with
 over the last three years
                                    current funding of over $6 million (it had neve r
                                    previously had a modernization program), ha s
                                    attempted to carry out two Drug Elim ination grants with
                                    total funding of $500,000, and has completed or has in
                                    process five development projects with availabl e
                                    funding of over $15 million and over 160 units (a 2 7
                                    percent increase in its number of units).

                                    During this time it has suffered from a serious lack o f
                                    continuity in top management positions. For example,
                                    it has had three Executive Directors and thre e
                                    Comprehensive Grant program coordinators during the
                                    last three years. At the time of our audit approximately
                                    15 budgeted staff positions were vacant, includin g
                                    Deputy Director, Development Officer, Accountant ,
                                    Tenant Relations Officer, and numerous clerica l

                                    Further complicat ing these problems has been a lack of
                                    policies and procedures for governing its activitie s
                                    including a failure to assign indivi dual responsibility for
                                    carrying out routine work assignment s. These problems

96-SF-207-1002                             Page 6
                                                                          Finding 1

                          have seriously affected the PYHA's ability to carry out
                          programs in a economical and efficient manner whic h
                          promotes stability and economic and social well-being
                          of the tenants.

                          Problems noted during our review are discussed below
PYHA's problems are
                          and in more detail in Findings 2 through 11.
summarized below and
detailed in Findings 2-
                          •      Although it is in the fourth year of it s
                                 Comprehensive Grant program, the PYHA ha s
                                 no real strategy for using over $6 mi llion already
                                 awarded and has made very little or no progress
                                 in identifying and addressing the physical needs
                                 of its units or its very real managemen t

                          •      The procurement and contract administratio n
                                 process was not eff ectively managed. Problems
                                 existed in almost all areas of the procuremen t
                                 process including preparation of bi d
                                 specifications; documenting the procuremen t
                                 decision making process; performing an d
                                 documenting construction inspections; an d
                                 enforcement of Davis-Bacon wage rates.

                          •      Accounting procedures and practices did no t
                                 provide for appropriate control over assets an d
                                 full disclosure of the results of its operations and
                                 grant activities.

                          •      Maintenance and renovation procedures an d
                                 practices did not ensure tha t its Mutual Help and
                                 Low Rent units were maintained in a decent ,
                                 safe and sanitary condition.

                          •      Policies and procedures necessary for th e
                                 prudent management of its personnel and travel
                                 functions had not been developed an d
                                 implemented, and Board actions were no t
                                 recorded and made available for public an d
                                 HUD review.

                          •      Policies governing its tenant and homebuye r
                                 occupancy functions need to be improved .

                                Page 7                                   96-SF-207-1002
Finding 1

                             Problems were noted with almost all occupancy
                             functions including admissions, incom e
                             verifications and recertifications, collections ,
                             and title transfer to homebuyers.

                      •      Audits, needed to deter mine actual development
                             costs, were not obtained on ten projects whic h
                             had been completed for up to twelve years.

                      •      Policies and procedur es necessary to ensure that
                             its homebuyers' Monthly Equity Paymen t
                             Accounts were managed in accordance with its
                             occupancy      agreements      and     applicabl e
                             regulations had not been developed an d
                             implemented. Consequently, the use of suc h
                             funds has been haphazard, unsupported ,
                             inconsistent, or ineligible.

                      •      Drug elimination grants, whose activities wer e
                             never completed and had no activity for ove r
                             two years, have been ineffective and need to be
                             closed out.

                      •      Procedures had not been established o r
                             responsibility assigned to ensure that residen t
                             utility allowances w ere properly established and
                             reviewed on an annual basis.

                      In an attempt to address the above problems, th e
 The Tribal Council
                      PYHA's Board of C ommissioners was abolished by the
 abolished the PYHA
                      Pascua Yaqui Tribal Council in May of 1995. Th e
 Board of
                      Council replaced the Board as the oversight body of the
                      PYHA. However, there has been no significan t
                      improvement in the PYHA's operations since th e
                      Council takeover. Staffing issues have not bee n
                      adequately addressed; perti nent policies and procedures
                      have not been developed, adopted, and implemented ;
                      and other deficiencies noted in our review have no t
                      been addressed or corrected. In Janua ry 1996 the Tribal
                      Council appointed a new Board of Commissioners.

                      In order to begin addressing its managemen t
                      deficiencies, the PYHA needs to perform an in-dept h
                      analysis of its current operations, identify staffin g
                      needed to carry out these operations, and then hir e

96-SF-207-1002               Page 8
                                                                     Finding 1

                    qualified personnel to fill the positions identified. I t
                    also needs to review all current policies and procedures,
                    update them when necessary or adopt new ones if they
                    don't exist, and then assign individual responsibility to
                    ensure that these policies and procedures ar e
                    implemented. Until these basic steps are taken, an y
                    attempts to improve its operati ons will be difficult if not

Auditee Comments    The PYHA stated that while they do have adm inistrative
                    problems, they have dem onstrated that they are capable
                    of taking actions to correct the problems . Also, they felt
                    that some of OIG's concerns regarding their operations
                    were without merit. They further stated that they have
                    taken actions to fill key staff posi tions and to implement
                    needed corrective actions. Accordingly, they feel tha t
                    declaring them to be a high risk housing authority i s

OIG Evaluation of   Although the PYHA has begun the process o f
Auditee Comments    improving their operations, in our opinion, significan t
                    problems still remain to be addressed and corrected .
                    Accordingly, until these deficiencies are corrected, the
                    PYHA should remain a high risk housing authority.

Recommendations     We recommend that you, for this finding as well a s
                    Findings 2-11:

                    A.     Continue the PYHA as a high risk housing
                           authority, subject to additional monitoring an d
                           approvals, until it has demonstrated that it ha s
                           developed and implemented a managemen t
                           system capable of properly administering it s
                           programs, including hiring of adequate qualified
                           staff and adoption and implementation o f
                           appropriate policies and pro cedures necessary to
                           carry out its programs. A deadline should b e
                           mutually established between HUD and th e
                           PYHA, with firm dates, to achieve substantia l
                           improvements.        If this approach is no t
                           successful, you should consider taking over the
                           management of the PYHA.

                           Page 9                                   96-SF-207-1002
Finding 2

                                        B.      Provide technical assistance to the PYHA in the
                                                identification of staffing needs and th e
                                                development and implementation of policies and
                                                procedures needed to properly carry out it s
                                                programs or assist it in contracting for suc h
                                                assistance. Assistance should be provided, a s
                                                needed, for each of the problem areas discussed
                                                in Findings 2-11 (Comp Grant implementation,
                                                procurement, contract management, accounting,
                                                maintenance, personnel, occupancy, projec t
                                                closeout, and utility allowances.)

  The PYHA Did Not Properly Implement
    Its Comprehensive Grant Program
The PYHA did not plan and administer its Comprehensive Grant program in a cost
effective and efficient manner or in compliance with requirements. The PYHA is
entering the fourth year of its program with no real strategy for using the over $6
million awarded and has made little progress in identifying and addressing the physical
needs of its units or its very real management deficiencies. Also, the PYHA expended
over $118,000 for ineligible or unsupported work items. Deficiencies noted indicate the
PYHA does not have the management capacity needed to carry out its program. As a
result, residents are being deprived of needed improvements to their units. These
problems were caused, in part, by lack of knowledgeable and experienced staff.

                                        The Comprehensive Grant (Comp Grant) program ,
 The Comprehensive
                                        which is governed by regulations contained in 24 CFR
 Grant Program began
                                        950.600 2, was first funded in 1992 to provid e
 in 1992
                                        modernization assistance to authorities that own o r
                                        operate units on a reliable and more pre dictable basis; to
                                        enable them to operate, upgrade, modernize an d
                                        rehabilitate housing developments; and to ensure thei r
                                        continued availability for low-income families a s
                                        decent, safe, and sanitary housing.

                                        Indian Housing Authorities are to prepare a
                                        Comprehensive Plan to identify the best use of Com p
                                        Grant program funds. This plan is to include both a

    The consolidated Indian Housing regulations were moved from   Part 905 to a new Part 950 in April

96-SF-207-1002                                 Page 10
                                                                   Finding 2

                     Physical and Ma nagement Needs Assessment based on
                     input from public meetings, authority personnel, tenant
                     organizations, completion of inspections of units an d
                     energy audits.

                     The Physical Needs Assessment Plan is to identify al l
                     work that the authority would need to undertake t o
                     bring its developments up to the modernization an d
                     energy conservation standards established by HUD .
                     The Management Needs Assessment identifies th e
                     improvements needed to upgrade the management and
                     operation of the authority.

                     The PYHA's Comp Grant pro gram was poorly planned.
The Comprehensive
                     There was no documentation to support the data in the
Grant Program was
                     Physical and Management Needs Assessment s
poorly planned
                     submitted to HUD; not all physical and managemen t
                     needs were identified and included in its plan; routin e
                     maintenance items which are the responsibility of th e
                     homebuyers were included; energy conservation needs
                     were not addressed; and input from the re sidents and the
                     public appeared limited. These weaknesses ar e
                     discussed below.

                     Although the PYHA stated in its 1992 through 199 4
The physical needs
                     grant applications that the physical needs addressed in
assessment was
                     its comprehensive plan were based on unit inspections,
                     the PYHA did not have documentation of th e
                     inspections. Without such inspections , the PYHA could
                     not determine physical needs or plan how to use Comp
                     Grant funds.

                     In June 1995, the PYHA submitted new budgets for its
                     1992, 1993, and 1994 Comp Grant progra m. As before,
                     there was no documentation available to support th e
                     Physical Needs Assessment. The Executive Directo r
                     stated that some items included in these budgets wer e
                     based on what former authority officials had promised
                     tenants and homebuyers and not on an actual need s
                     assessment. As a result, the Physical Needs Assessment
                     did not include all needed repairs. During inspection s
                     made during our review we noted that the exteriors o f
                     many units were cracking, resulting in water leakin g
                     into the units from the exterior; most units lacke d
                     weather stripping needed to reduce utility costs an d

                           Page 11                                96-SF-207-1002
Finding 2

                         limit insect infestation; and the concrete foundatio n
                         slabs of the units in one development were cracking .
                         None of these items were addressed in the PYHA' s
                         needs assessment.

                         The PYHA did not adequately determine it s
 The management needs
                         management needs when developing the Management
 assessment was
                         Needs Assessment. As a result, it de veloped no specific
                         plans to address its management deficiencies discussed
                         in other findings of this report.

                         In accordance with 24 CFR 950.672(d)(3), a
                         Comprehensive Plan must in clude a management needs
                         assessment.      This assessment must identify an d
                         prioritize all management needs (eg., a ccounting control
                         systems, employee qualifications, and adequacy o f
                         resident programs and services, occupancy ,
                         maintenance, etc.)

                         Sources of data are to be identified in the need s
                         assessment and retained. However, the PYHA coul d
                         provide no documentation for our review whic h
                         supported its Management Needs Assessment. Fund s
                         were apparently budgete d without real thought or effort
                         to determine actual needs.        Our review note d
                         management deficienci es in each of the areas discussed
                         above (see Findings 3, 4, 5, 6, and 7), yet the PYH A
                         had no documentation indicating that it had identifie d
                         these management deficiencies or developed a plan t o
                         address them.

                         The Physical Needs Assessments included cosmeti c
 Unneeded repairs were
                         work to be completed on Mutual Help uni ts which is the
                         responsibility of the homeowner, such as painting; new
                         appliances; and routine maintenance. When asked why
                         these items were included in the Comp Grant program,
                         we were told that the prior Executive Directors an d
                         Board of Commissioners made promi ses to homebuyers
                         to include such work in the Comp Grant program. The
                         current Executive Director feels compelled to complete
                         the promised work, although it may not be the best use
                         of Comp Grant funds or even an eligible use of funds.

 Lack of energy          The Physical Needs Assessment is to identify all work
 conservation            needed to bring units up to energy conservatio n

96-SF-207-1002                 Page 12
                                                                                 Finding 2

     standards established by HUD. However , the PYHA did not conduct an energy audit
     as part of its planning process or include measures to reduce energy costs in its Comp
     Grant plans. As discussed previousl y, the PYHA's units are badly in need of weather
     stripping. This simple repair item could result in significant energy savings. Ye t
     weatherstripping and other energy saving measures were not planned.

                                  The PYHA had only limited documentation recordin g
Public meetings were
                                  the results of public meetings held as part of its annual
                                  Comp Grant budget (Annual Submission) process .
                                  Documentation was available indicating that some type
                                  of public meetings we re held for 1994. However, there
                                  was no documentation available indicating tha t
                                  meetings were held for the 1993 submission. Further ,
                                  there were indications that not all tenants were invite d
                                  to participate in some meetings. For instance, th e
                                  PYHA held an annual public meeting May 26, 1995 .
                                  However, the PYHA only invited residents from two of
                                  its thirteen developments.

                                  Besides not adequately determining its physical needs,
Budgeted Comp Grant
                                  the PYHA did not ensure that there was no duplication
activities duplicate work
                                  between activities planned to be carried out under th e
budgeted and/or
                                  Comp Grant program and activities budgeted for o r
already completed
                                  previously completed using other funds. We compared
under other activities
                                  items included as Extraordinary Maintenance in th e
                                  Authority's Low Rent Budget with those budg eted under
                                  the Comp Grant program and noted variou s items which
                                  were included in both budgets. For example, stree t
                                  lights were included in both budgets for three projects,
                                  fences were in both budgets for six projects, an d
                                  evaporative coolers were in both budgets for on e
                                  project. Additionally, the PYHA relaced 21 evaporative
                                  coolers in Project 2 about two years ago, but ha s
                                  budgeted to replace the same coolers with Comp Grant

                                  The PYHA expended over $118,000 of Comp Gran t
Comp Grant funds were
                                  program funds on ineligible and questionable wor k
expended on ineligible
                                  items.    This included using funds for routin e
and unsupported
                                  maintenance of Mutual Help units and questionabl e
                                  charges for claimed drug elimination activities. Th e
                                  PYHA also used Comp Grant program funds to mak e
                                  non-emergency phys ical improvements to Mutual Help
                                  units for which homebuyers were delinquent in thei r
                                  house payments. The use of fu nds in this manner raises

                                         Page 13                               96-SF-207-1002
Finding 2

                          further concerns as to whether the PYHA has th e
                          capability to manage its program in a cost efficient and
                          effective manner and in conformance with th e
                          requirements of the program.

                          The PYHA expended $52,502 for routine maintenance
 Funds were used for
                          of Mutual Help units (see Appendix B). These routine
 ineligible routine
                          maintenance repairs included such items as replacement
                          of window glass, miscellaneous plumbing repairs ,
                          leveling of refrigerator, fuse replacement, etc. Routine
                          maintenance costs are not an eligible cost item an d
                          routine maintenance of Mutual Help units is th e
                          responsibility of the homebuyer not the PYHA.

                          Under the Comp Grant program, individual housin g
                          authorities are allowed to expend funds on dru g
 expenditures for drug
                          elimination activities. One of the eligible activities i s
 elimination activities
                          the provision of additional on-duty police, only wher e
                          such police will provide additional security an d
                          protective services over and above those contractuall y
                          obligated by the Cooperation Agreeme nt with the Tribal
                          government. The additional services are to be verifiable
                          through time sheets and written work assignments.

                          The PYHA contracted with the Tribal government t o
                          provide additional security services and through Apri l
                          11, 1995 had expended $66,349 for salary costs o f
                          individuals involved in this drug enforcement activity.
                          However, the Tribal government did not submit an y
                          reports to the PYHA documenting that the one to three
                          employees, whose sal ary was being paid by the PYHA,
                          were even working on drug elimination activities .
                          According to the PYHA Executive Director, triba l
                          officials stated that they would use the employee s
                          however they wanted. The Executive Director did not
                          know what these employees actually did and it i s
                          questionable as to whether the activities were actuall y
                          drug enforcement related.

                          The PYHA used Comp Grant funds to complete non -
 Funds were spent on
                          emergency physical improvements on Mutual Hel p
 ineligible mutual help
                          units whose owners were not in compliance with thei r
                          financial obligations under their homebuye r agreements.
                          Under Comp Grant reg ulations, such improvements are
                          ineligible unless they are necessary to meet statutory or

96-SF-207-1002                  Page 14
                                                                        Finding 2

                         regulatory requirements or there is an emergenc y
                         situation, and prior HUD approval is obtained.

                         In July 1995 the PYHA elected to use force accoun t
                         labor to replace roofs on the 40 Mutual Help units i n
                         Project No. 40-2. However, seven of the fort y
                         homebuyers living in the project were delinquent o n
                         their financial obligations to the PYHA by period s
                         ranging from three to twelve months. The roo f
                         replacement was not an emergency situation, a statutory
                         or regulatory requiremen t, nor was prior HUD approval
                         of the work requested or obtained. Since the work did
                         not meet statutory or regulatory requirements and HUD
                         did not approve waiving the above requirements, th e
                         Authority should not have replaced these seven roof s
                         and the related costs are an ineligible Comp Gran t

                         Generally, a housing authority is expected to obligat e
Implementation was not
                         each year's Comp Grant funds within two years, an d
                         expend such funds within three years, of the date o f
                         HUD's approval of their plan. Although the PYHA i s
                         now in its fourth year of funding under the Comp Grant
                         program, it has made very little progress toward s
                         obligating and expending its funds. Because of serious
                         problems with the posting of i ts accounting records (see
                         Finding 4), neither we nor the PYHA were able t o
                         determine total actual expen ditures or obligations of the
                         Comp Grant program. However, based upo n drawdown
                         information obtained from HUD, the PYHA has onl y
                         expended approximately 15% of its cumulative gran t

                         The delay in implementing the Comp Grant progra m
                         partially resulted from the constant turnover in Com p
                         Grant staff and the extended period of time the Com p
                         Grant coordinator position was vacant. The PYHA has
                         had three Comp Grant program coordinators, and ha d
                         no coordinator for 11 out of 16 months from November
                         27, 1993 to March 20, 1995. Also, there was n o
                         indication that any of the staff in charge of the program
                         had the knowledge or experience to efficiently an d
                         effectively operate a program of this size.

                               Page 15                                 96-SF-207-1002
Finding 2

                      Recently the expenditure rate increased after the PYHA
                      began large dollar projects such as replacing roofs ,
                      fencing, and street lights. However, based on pas t
                      performance and current problems facing the progra m
                      (as discussed above), i t is doubtful the PYHA will meet
                      its target dates for the obligation and expenditure o f
                      funds. In September 1994 HUD extended the deadline
                      for obligating first year Com p Grant funds to December
                      1994 and the deadline for expending the funds t o
                      December 1995. The December 1994 deadli ne has long
                      past and the PYHA has not yet obligated its first yea r
                      Comp Grant funds.

                      24 CFR 950.687 requires HUD to evaluate th e
 HUD is to evaluate
                      performance of the authority to determine whether the
 IHAs' Comp Grant
                      authority has carried out its activities in a timel y
                      manner, in accordance with the Act, includin g
                      requirements that the work carried out meets th e
                      modernization and energy conservation standards an d
                      other applicable laws and regulations. If it i s
                      determined the authority does not have continuin g
                      capacity to operate its Comp Grant program , this section
                      provides various corrective actions or sanctions to b e
                      taken against the authority, including freezing o r
                      recapture of unspent funds and repayment of ineligible
                      costs. Any repayment mus t be from non-HUD sources.

                      Clearly the PYHA has not carried out an acceptabl e
                      Comp Grant program and it is questionable whether i t
                      has the continuing capacity to do so in the future. I n
                      our opinion, HUD should conside r freezing the PYHA's
                      Comp Grant funding until an acceptable, full y
                      documented Comprehensive Plan is completed an d
                      HUD is assured it will be properly implemented.

Auditee Comments      The PYHA admitted that it has had serious problem s
                      with the administration of its Comp Grant program .
                      However, it stated that actions have been taken t o
                      improve program administration, including hiring a n
                      architect to assist in developing a comprehensive plan.
                      Accordingly, it feels that attention should be given t o
                      the current administration's ability to manage th e
                      program, not to what happened in the past.

96-SF-207-1002              Page 16
                                                                   Finding 2

                    The PYHA stated that OIG's characterization o f
                    painting and appliance repairs as being cos metic and not
                    eligible Comp Grant activities was in error. In regards
                    to energy conser vation measures, the PYHA stated that
                    an energy audit would not be cost effective because of
                    climatic conditions. However, it stated that revise d
                    Comp Grant activities will addres s energy conservation.
                    Additionally, it stated that the expenditures for roofing
                    on units whose homebuyers' were not current on thei r
                    monthly payments and expenditures on repairs of units
                    in project 40-2 were eligible Comp Grant activities. It
                    stated that the roofing repairs on the units of ineligible
                    homebuyers were in the best interest of the PYHA and
                    resulted in significant cost savings and that the repair s
                    on units in project 40-2 were for eligible work item s
                    included in its approved plan that were simply done out
                    of sequence because of delays in implementing th e
                    Comp Grant program.

                    In relation to payments to the Pascua Yaqui tribe fo r
                    drug enforcement activities, the PYHA stated that th e
                    payments were for police officers whose activities were
                    in the best interest of the Yaqui community. It state d
                    that there was no duplication between work item s
                    budgeted under its conventional housing program an d
                    its Comp Grant program. Items were included in th e
                    operating budget because of problem s with Comp Grant
                    funding and the intention was to repay the operatin g
                    fund with Comp Grant funds when received.

OIG Evaluation of   We recognize the PYHA's recent efforts to address the
Auditee Comments    major deficiencies hindering the implementation of it's
                    Comp Grant program. However, the fact remains tha t
                    neither a fully documented Physical and Managemen t
                    Needs Assessment nor a detailed Comprehensive Plan
                    have been comple ted. Until these items are completed,
                    the PYHA's Comp Grant program will continue t o
                    languish and will not meet the minimum requirement s
                    or the intent of the program. In regard to the PYHA' s
                    specific concerns with information contained in th e
                    draft finding, we have made revisions to the findin g
                    where deemed appropriate. However, we continue t o

                          Page 17                                 96-SF-207-1002
Finding 2

                 disagree with many of the PYHA's comments .

                 •     Although an energy audit is not specificall y
                       required by the Comp Grant progra m
                       regulations, the Physical Needs Assessmen t
                       must identify all work needed to bring units up
                       to energy conservation standards established by
                       HUD. Thus, the PYHA must ensure tha t
                       improvements needed to meet these standard s
                       are identified either through the completion o f
                       an energy audit or by other equivalent means.

                 •     In our opinion, appliance replacemen t
                       (specifically refrigerators) and painting are th e
                       responsibility of the mutual help homeowner s
                       and not an eligible Comp Grant expenditure .
                       Removable appliances have traditionally bee n
                       considered personal property and thus thei r
                       replacement would not be a real propert y
                       improvement. Painting, specifically interio r
                       painting, is a routine maintenance item which is
                       not an eligible Comp Grant progra m

                 •     We do not concur with the PYHA's claim tha t
                       the roof replacement on units of homebuyer s
                       who were delinquent on their financia l
                       obligations were eligible. In order for work t o
                       be done on such units, prior HU D approval must
                       be obtained. Such approval was not obtained .
                       Additionally, based on information submitted ,
                       the economics of scale, as it related to the seven
                       units discussed, would not have resulted i n
                       significant cost savings as claimed. However ,
                       due to the difficulty in going back and assigning
                       roofing costs to specific uni ts, we have amended
                       our recommendation to only require futur e

                 •     We continue to consider the $52,502 discussed
                       in the finding to be routine maintenance costs ,
                       which were the respons ibility of the homeowner
                       and thus ineligible Comp Grant expenditures .
                       The type of work as discusse d in the finding and

96-SF-207-1002        Page 18
                                                              Finding 2

                         detailed in Appendix B is clearly miscellaneous
                         minor repairs and not part of a structured Comp
                         Grant program.

Recommendations   We recommend you require the PYHA to:

                  2A.    Freeze the PYHA's Comp Grant fund ing until an
                         acceptable, fully documented and supporte d
                         Comprehensive Plan has been submitted an d

                  2B.    Refund to the Comp Grant program, from no n
                         HUD sources, the $52,502 of ineligible routine
                         maintenance costs charged to the pr ogram which
                         are detailed in Appendix B;

                  2C.    Submit for your determination of eligibilit y
                         documentation to support the $66,349 o f
                         personnel costs charged to the Comp Gran t
                         program's drug elimination activity; and

                  2D.    Cease performing non-emergency Comp Grant
                         work on Mutual Help units when residents ar e
                         not in compliance with the financia l
                         requirements   of   their   Homeownershi p

                        Page 19                              96-SF-207-1002
Finding 2

                 (This page is intentionally blank.)

96-SF-207-1002                  Page 20
                                                                                 Finding 3

          Procurement And Contract
       Administration Need Improvement
The PYHA did not effectively manage its procurement and contract administration
process. Problems were noted in almost all phases, including preparation of bid
specifications; documenting the procurement decision making process; performing and
documenting inspections; and enforcement of Davis-Bacon wage rates. Problems
occurred because the PYHA staff and Board members had inadequate knowledge of
contracting procedures and an acceptable contract administration system had not been
established. As a result, HUD has no assurance the PYHA gives fair and equitable
treatment to all firms involved in the purchasing process; that supplies, services,
equipment, and materials are procured efficiently, effectively, and at the best prices; or
that required wage rates are paid by its contractors. In this regard, a review of three
procurement actions totaling $605,189 identified avoidable costs of about $65,000 and
wage underpayments of over $10,000.

                                   Regulations contained in 24 CFR 950.160, require, i n
 Housing authorities
                                   part, that a housing authority (1) maintain record s
 must establish an
                                   sufficient to detail the significant history of a
 effective procurement
                                   procurement, including evidence that the solicitatio n
 management system
                                   and award procedures were conducted in complianc e
                                   with tribal and federal requirements includin g
                                   requirements for wage rate s; (2) adopt, promulgate, and
                                   comply with rules or regulations for the procuremen t
                                   and administration of supplies, materials, services, and
                                   equipment which ensures that all procuremen t
                                   transactions are conducted in a full and ope n
                                   competitive manner; and (3) maintain a contrac t
                                   administration system that ensures that contractor s
                                   perform in accordance with the terms, conditions, an d
                                   specifications of their contracts.        More specifi c
                                   requirements     of    procurement        and   contrac t
                                   administration systems are contained in 24 CFR 85.36.

                                   We reviewed the procurement and contrac t
 Procurement process
                                   administration process relating to three contract s
 relating to three
                                   totaling $605,189. These procurements included th e
 contracts was reviewed
                                   purchase of vehicles, fences and street lighting. W e
                                   evaluated documenta tion on hand, interviewed bidders,
                                   and reviewed contractor payrolls. Significant problems

                                          Page 21                               96-SF-207-1002
Finding 3

                 were noted in each of the three procurements a s
                 discussed below:

96-SF-207-1002        Page 22
                                                                           Finding 3

                           The procurement process used for the purchase of eight
The procurement
                           vehicles was seriously flawed. As a result, the PYH A
process for vehicle
                           incurred at least $19,300 in unnecessary costs an d
purchase was flawed
                           competition was improperly limi ted. In August of 1994
                           the PYHA solicited price quotations for the purchase of
                           six vehicles. Subsequently, in Ja nuary 1995, the PYHA
                           purchased eight (instead of six) vehicles at a total cos t
                           of $139,894. Problems in the solicitation process ar e
                           discussed below.

                           The PYHA purchased all vehicles from a Ford dealer .
The decision to buy all
                           However, it could have purchased four of the vehicles
vehicles from one dealer
                           from a Chevrolet dealer for a total of $11,820 less -
was not prudent
                           $2,955 each. We were informed that the Chevrolet s
                           were not purchased because a Board member dislike d
                           Chevrolets and the PYHA decided to issue the purchase
                           contract to the Ford dealer who had the overall low total
                           bid. However, there was only a price quote, not a
                           formal bid. Thus, the PYHA could have, and shoul d
                           have, split the procurement and selected th e
                           combination of prices which would have resulted in the
                           least cost, even if it meant buying vehicles from mor e
                           than one dealer [reference 85.36(b)(4)].

                           The PYHA decided to increase the number of vehicles
New bids should have
                           it would purchase from six to eight. However, new bids
been solicitated when
                           were not requested even though this was a significan t
the number of vehicles
                           change from the original solicitation. By not doing so,
                           the PYHA limited competition and could not be assured
                           that the best available price was received. As note d
                           below, the dealer from whom the vehicles wer e
                           purchased increased the prices.

                           The PYHA did not purchase the eight vehicles unti l
Delays in purchasing
                           January 1995, five months after its solicitation. Thi s
the vehicles cost an
                           delay resulted in the PYHA paying an additional $7,480
additional $7,480
                           for the vehicles. The price of the vehicles went up and
                           the increase was passed on by the dealer.

                           In November 1994, the PYHA awarded a $325,29 5
The procurement of
                           contract for the construction of chain li nk fences for 180
fences was improperly
                           of its residential units. However, the total solicitatio n
                           and administration process had serious problems, a s

                                  Page 23                                 96-SF-207-1002
Finding 3

                            The drawings and specifications used were originall y
 Specifications were
                            developed for a fence which t he PYHA had constructed
                            around a holding pond. They were not fully applicable
                            for residential use so the PYHA crossed out items se t
                            out in the drawings and deleted certain items from th e
                            specifications. However, this created conf usion as some
                            items were crossed out in the drawings but not deleted
                            from the specifications and visa versa. For example ,
                            braces and threaded trusses wer e shown in the drawings
                            but not required in the narrative specifications. Thi s
                            resulted in at least one bidder including the braces and
                            trusses in his bid because of the conflicting information.

                            According to bid specifications, the Davis-Bacon wage
 Incorrect Davis-Bacon
                            rate for fence workers was $8.50 per hour . This was not
 wage rates were cited in
                            the correct hourly wage rate because the $8.50 did not
 the specifications
                            include the mandatory hourly fringe benefit which must
                            be paid. According to HUD Labor Rel ations Office, the
                            Davis-Bacon wage rate for this job would be $10.8 1
                            ($8.29 plus $2.52 for benefits), not $8.50. The PYHA
                            failed to obtain a current wage decision and wa s
                            unfamiliar with wage requirements.

                            We reviewed the fence contractor's payrolls for th e
                            period January 19, 1995 through May 4, 1995 an d
                            determined that employees were underpaid $10,457 as
                            a result of the use of the wrong wage rat e (see Appendix

                            The contract for fence construction was not awarded to
 The fence contract was
                            the lowest responsive bidder, resulting in the PYH A
 not awarded to the low
                            paying $37,600 more than necessary for the fences .
                            The PYHA did not have document ation explaining why
                            the low bidder was rejected as required by 24 CF R
                            85.36(b)(5). However, the staff verbally informed u s
                            that the low bidder did not submit a Training and
                            Opportunity Plan (TOP) as required by the bi d
                            specifications. However, PYHA files indicated that i t
                            also had problems with the winning contractor's TO P
                            submitted as part of the bid. The bidder was permitted,
                            after bid opening, to submit a new TOP.

                            We noted that the TOP was not included in th e
                            "Documents and Forms to be Included with Bid "
                            section of the specifications. We interviewed the lo w

96-SF-207-1002                    Page 24
                                                                      Finding 3

                       (losing) bidder who informed us that the bi d
                       specifications and PYHA verbal explanations cause d

                       Because of the inconsistencies in the bid documents and
                       the failure of the bidders to completely comply with all
                       requirements of the s olicitation, the PYHA should have
                       either rejected all bids or allowed the submission o f
                       additional documentation, both of which were allowed
                       for in the bid solicitation documents. The PYHA di d
                       neither and it resulted in unnecessary costs of $37,600.

                       The PYHA verbally approved changes in contrac t
The PYHA verbally
                       requirements without verification as to the advisability
approved contract
                       of the changes. For example, the PYHA accepted a
                       proposed contract change order suggested by th e
                       contractor which resulted in a change in the depth of the
                       fence post holes from 36" to 30" for all fence posts .
                       The contractor stated "The change will not alter th e
                       strength of finished product and [we] will warrant thi s

                       We asked another fence installer whether such a change
                       would affect the strength of the fence. He said yes, that
                       it is very important to have 36" holes in the type of soil
                       where these fences were constructed. Any shallowe r
                       hole would affect the fences' strength.

                       Prudent contract admin istration practices would require
                       that all contract change orders be approved in writing to
                       preclude potential misunderst andings and possible legal
                       action. Additionally, prudent practices would requir e
                       that, prior to the approval of any change order, th e
                       advisability and co st of it be reviewed and approved by
                       a knowledgeable individual.

                       The PYHA did not pe rform adequate inspections of the
The PYHA did not
                       fences during construction and after completion. As a
perform or document
                       result, the fences, as constructed and accepted by th e
adequate inspections
                       PYHA, do not meet contract specifications.

                       We requested an estimator for another fence compan y
                       to inspect the completed fences to determine whethe r
                       they met contract specifications. The inspector state d
                       the fence did not meet the specifications as follows:

                             Page 25                                 96-SF-207-1002
Finding 3

                        •       Contract specifications called for 7 gaug e
                                tension wire but 9 gauge, a smaller size, wa s

                        •       Contract specifications required gate posts have
                                a 2 7/8" diameter. The inspector stated that the
                                posts installed were 2 3/8" diameter.

                        The PYHA stated that it changed the origina l
                        specifications relating to wire gauge and gate posts prior
                        to bid opening through an adde ndum sent to all bidders.
                        However, the two losing bidders claimed they received
                        no such addendum. The PYHA's documenta tion behind
                        its contention was contradictory and did not adequately
                        show that the specifications for wire gauge and fenc e
                        posts were changed prior to bid opening.

                        In addition to the above, the sp ecifications required a 2"
                        gap between the ground and bottom of the fence. Our
                        inspection of the fence showed this gap was often over
                        We requested copies of the Authority's inspections o f
                        the fences to determine their extent and adequacy. The
                        responsible employee stated he ha d inspected fencing at
                        every unit, but did not have any documentation.

                        The Authority did not adequately review contracto r
 The PYHA did not
                        payrolls or complete worker interviews. As a result ,
 enforce construction
                        HUD has no assurance contractors are complying with
 labor standards
                        Davis-Bacon wage rates, HUD and contrac t

                        HUD Handbook 1344.1 Rev 1, Federal Labor Standards
                        Compliance in Housing and Community Development
                        Programs, Chapter 3, r equires employee interviews and
                        payroll reviews to ensure employees are categorized in
                        the correct job classification, paid Davis-Bacon wag e
                        rates, deductions are authorized and the net pay i s

                        A review of payrolls for this contract revealed that the
                        contractor did not pay Davis-Bacon Wage rates (se e
                        above), nor did it pay amounts as shown on the payrolls
                        submitted to the PYHA. We compared the amounts of
                        canceled payroll checks for one pay period with th e

96-SF-207-1002                 Page 26
                                                                     Finding 3

                       original payroll. We noted that the net pay of som e
                       workers did not agree with the payroll submitted to the
                       PYHA. The contractor told us that the difference wa s
                       a deduction for employee purchase of lifting belts, but
                       did not explain why the original erroneous payroll s
                       were submitted to the PYHA. The PYHA would hav e
                       noted this discrepancy had they properly reviewe d
                       payroll records and interviewed workers.

                       In April 1995, the PYHA awarded a $140,000 contract
There were problems
                       for street lighting at several Low Rent projects .
with installation of
                       However, the PYHA had no documentation in its fil e
street lighting
                       relating to the se lection process. PYHA officials stated
                       that they had appointed their architect as contrac t
                       administrator and thu s thought that they did not need to
                       retain any documentation related to bid selection o r
                       contract administration. Interviews with one of th e
                       bidders and review of available information indicate s
                       that there were problems with the original bi d
                       specifications, the contractor selection, and contrac t
                       administration as follows:

                       •      According to one bidder, the bid specification s
                              were incomplete because they did not contai n
                              Davis-Bacon wage rates.            He stated h e
                              repeatedly called the PYHA to obtain th e
                              applicable rates, bu t never received them. Also,
                              the lighting plan was flawed because it called for
                              an excess number of controllers. Norma l
                              installation requires one controller for every 100
                              lights. However, the Au thority's plan required 9
                              controllers for 47 lights. The bidder said th e
                              unneeded 8 controllers raised the cost of th e
                              lights by about $8,000.

                       •      One bidder stated he was low bidder o n
                              February 7, 1995 and February 15, 1995, bu t
                              was not chosen and was not told why. Th e
                              bidder protested the February 15, 1995 award ,
                              but received no reply from the Authority. I n
                              accordance with 24 CFR 85.36(b)(9) an d
                              85.36(b)(12), the PYHA must have procedure s
                              in place to resolve disputes relating to thei r
                              procurements and must retain record s

                             Page 27                                96-SF-207-1002
Finding 3

                                 documenting significant events of th e
                                 procurement. In this case, these requirement s
                                 were not met and HUD has no assur ance that the
                                 bid process and contract award was fair o r

                          •      The PYHA did not have any records showin g
                                 employee interviews were held to ensur e
                                 contractor employees were properly categorized
                                 or paid Davis-Bacon wage s. Our requests to the
                                 contractor for suppo rting payroll documentation
                                 were ignored.

                          As discussed above, the PYHA has serious problem s
 Several factors caused
                          with its procurement and contract admini stration. These
                          problems are a result of several factors. The PYHA ,
                          although it has adopted a procurement policy, has no t
                          developed procedures for carrying out the policy an d
                          administering the resulting contracts. As a result, n o
                          one is fully aware of their responsibilities or what they
                          are required to do. Further, the person nominally i n
                          charge of large pr ocurement actions, including contract
                          administration, has many other responsibilities and thus
                          does not have the time to spend on proper contrac t
                          administration. Further, this individual has had n o
                          previous experience with large procurement actions and
                          has had no relevant procurement training.

                          In view of these problems, we believe that the PYH A
                          should be declared a "high risk" grantee as it relates to
                          its procurement activity. As provided for in 24 CF R
                          85.12 appropriate restrictions, including requiring prior
                          contract approval and additional monitoring, should be
                          applied until such time as the PYHA has demonstrated
                          that it has the capability to properly manage it s
                          procurement and contract administration process.

Auditee Comments          The PYHA agreed with most of the draf t
                          recommendations, but disagreed with OIG's analysis of
                          their specific procurement actions. They felt that al l
                          procurement actions reviewed by OIG adhered to th e
                          PYHA's adopted procurement policy. However, the y
                          stated that they are taking action to improve thei r
                          procurement process including the hiring of a

96-SF-207-1002                  Page 28
                                              Finding 3

procurement officer, use of professional consultants on
large procurements, revision of its existing procurement
policy, and training of those involved in th e
procurement process. In regards to the specifi c
procurements reviewed by OIG, they disagreed wit h
OIG's conclusions and facts as follows:

•      They stated that delays in the procurement o f
       vehicles resulted from disagreem ent between the
       Board and the Executive Director and that th e
       staff had no control over this. They stated tha t
       the purchase of all vehicles at one time woul d
       not have resulted in any savings as volum e
       discounts would not have appl ied. Additionally,
       they stated that the purchase of the higher priced
       Ford vehicles was in the best interest of th e
       PYHA as in the past they had maintenanc e
       problems with Chevrolets. Thus, choosing th e
       Fords would result in decreased maintenanc e

•      The PYHA stated that it had used the lates t
       available wage rates in its bid documents fo r
       fencing work. It also stated that the bid awar d
       was given to the lowest responsible bidder, the
       low bidder was rejected as it didn't have a
       Training and Oppor tunity Plan as part of its bid,
       and that the requirement for this plan was wel l
       documented in the bid documents. The PYHA
       stated that the reduction of the depth of pos t
       footers didn't affect the strength of the fence as
       the specifications in the bid documents were for
       a seven foot high fence rather than the six foo t
       high fence actually built. Further, it stated that
       this change was documented through chang e
       order No. 1 to the contract. The PYHA claimed
       that the fence was build in accordance with the
       bid specifications, as re vised by addendum prior
       to bid opening. The PYHA also stated that th e
       limited scope of the contract would not hav e
       required documentation of interim inspections.

•      The PYHA stated that the contracting an d
       contract administration for its street lightin g
       contract was handled by a professiona l

      Page 29                                96-SF-207-1002
Finding 3

                           Architectural and Engineering firm. It state d
                           that the correct wage decision was included i n
                           the bid documents, the low bidder on the jo b
                           was rejected because it did not subm it a Training
                           and Opportunity Plan, and the response to th e
                           bid protest was documented.

                    The PYHA felt that much of the information in OIG' s
                    draft finding was shown to be inacc urate by its response
                    and therefore, it shouldn't be declared high risk i n
                    relation to its procurement activities.

OIG Evaluation of   Based upon the PYHA's response, it appears that i t
Auditee Comments    recognizes existing problems in its procurement an d
                    contract administration process. However, we do no t
                    concur that the additional information submitted by the
                    PYHA demonstrates in any substantial manner tha t
                    OIG's facts or conclusions pre sented in the draft finding
                    were inaccurate. In fact, the information submitted was
                    often contradictory and raises even more concerns .

                    •      No matter who in the PYHA was responsible ,
                           delays in purchasing vehicles resulted i n
                           increased prices; the PYHA can not be assure d
                           that volume discoun ts could have been obtained
                           if all vehicles had been purchased at one time ;
                           and the PYHA had no documentation available
                           to support its claim that vehicle maintenanc e
                           costs would be less on Fords versus Chevrolets.
                           Future procurements should be pr operly planned
                           to ensure that the purchases ar e timely and result
                           in the best available price.

                    •      The PYHA's claim that the proper wage rate was
                           used for the fencing contract is inaccurate. The
                           documentation submitted to support this wa s
                           simply a form filed out by the former Executive
                           Director listing wage rates with the notatio n
                           "pending approval". The correct wage rat e
                           determination wa s subsequently received by the
                           PYHA but not used. Contrary to the PYHA' s
                           claim, the requirement for a Training an d
                           Opportunity Plan was not well documented i n

96-SF-207-1002            Page 30
                                                                Finding 3

                        the bid plans and did cause confusion to th e
                        bidders. In relation to th e changed depth of post
                        holes, both non-winning bidders stated that th e
                        reduction would affect the fences' strength .
                        Even if the depth of the holes would b e
                        adequate, this would only demonstrate the poor
                        quality of the original specifications, whic h
                        called for the deeper holes. Further, it should be
                        noted that the official change order relating t o
                        this factor was not made until six months afte r
                        substantial completion of the contract. I n
                        relation to the PYHA's claim that contrac t
                        specifications for wire gauge and fence post s
                        were changed by addendum prior to bi d
                        opening, the information submitted to suppor t
                        this claim was contradic tory. Further, both non-
                        winning bidders stated that they received n o
                        such addendum. We do not agree with th e
                        PYHA's claim that interim inspections on thi s
                        type of contract do not need to be documented.

                  •     In relation to the PYHA's statement that th e
                        contracting and contract admini stration for street
                        lighting was handled by an outside firm, thi s
                        does not relieve the PYHA of its responsibilit y
                        to ensure that the contracting was done i n
                        accordance with its procurement policy an d
                        other applicable requirements and full y
                        documented. Information submitted related t o
                        the wage decision for this project supports th e
                        bidder's claim of problems encountered i n
                        obtaining such information. The original bi d
                        solicitation for this contract was dated December
                        20, 1994, yet the wage determination was no t
                        sent to contractors until January 21, 1995, eight
                        days before the scheduled bid opening. Th e
                        PYHA's claim that the low bidder was rejecte d
                        because of a failure to submit a Trainin g
                        Opportunity Plan, was contradicted by th e
                        documentation it submitted in support of thi s

Recommendations   We recommend that you require the PYHA to:

                       Page 31                                 96-SF-207-1002
Finding 3

                 3A.    Develop and implement procedures t o
                        effectively and efficiently carry out it s
                        procurement and contract administratio n
                        process, including determining appropriat e
                        method of procurement, proper development of
                        plans and specifications, documentation of th e
                        procurement process, proper notification o f
                        losing bidders, appropriate response to bi d
                        protests, approval of change orders, conducting
                        and documenting inspections on ongoing an d
                        completed work, and wage requiremen t

                 3B.    Ensure that the workers on the fence project are
                        paid the $10,457 in wage underpayments set out
                        in Appendix C; and

                 3C.    Obtain and review payrolls related to th e
                        contract for street light installation and ensur e
                        that contractor employees were paid at th e
                        appropriate Davis-Bacon wage rate.

                 In addition, we recommend that you:

                 3D.    Declare the PYHA to be "high risk" in relatio n
                        to its procurement management until such time
                        that it has demonstrated that it has the capacit y
                        to manage its procurement process i n
                        accordance with the requirements of 24 CF R
                        85.36. During this period, all pro curements over
                        $5,000 should be submitted to your office fo r
                        approval prior to award and intensiv e
                        monitoring of the PYHA should be undertaken.

96-SF-207-1002         Page 32
                                       Finding 3

(This page is intentionally blank.)

               Page 33                96-SF-207-1002
Finding 4

      Accounting Procedures And Practices
               Were Inadequate
The PYHA had not adopted and/or implemented accounting procedures and practices
that provided for appropriate control over assets and full disclosure of the results of its
operations and grant activities. Weaknesses noted included:

         •       Failure to post accounting records for over seven months.
         •       Inaccurately posted accounting records, including cash and investment
                 accounts, accounts receivable and payable, tenant accounts receivable,
                 fixed assets, travel advances, and casualty losses.
         •       Failure to properly invest and control excess funds.
         •       No controls over obligated but unspent funds.

As a result, the PYHA's records did not reflect the PYHA's true financial position and
the results of its operations and could not be used to manage its operations and grant
activities or assist HUD in monitoring the PYHA's activities. Additionally, Low Rent
funds were used to pay over $213,000 of other program costs; potential investment
income was lost; over $337,000 of investment income was not allocated to the
appropriate programs; and the PYHA's assets were not adequately protected.

Deficiencies were due to: (a) failure pay the fee accountant or obtain a new fee
accountant; (b) failure to staff budgeted accounting positions or provide adequate
training to existing staff; (c) lack of policy and procedures; (d) failure to assign
responsibilities; and (e) lack of coordination between the Comp Grant program staff
and the accounting section.

                                    Section 309 (Low Rent) and A rticle 12.3 (Mutual Help)
 PYHA is required to
                                    of the PYHA's ACCs require it to maintain complet e
 maintain complete and
                                    and accurate books of account an d records. In addition,
 accurate records
                                    24 CFR 85.20, which establishes the standards fo r
                                    financial management systems of governmental unit s
                                    receiving funding from HUD, requires that accounting
                                    records must be maintained " ... which adequatel y
                                    identify the source and application of fund s provided for
                                    financially-assisted activities."

                                    As of September 1995, the PYHA's books of accoun t
 PYHA's accounting
                                    had not been posted since January 31, 1995 .
 records were not posted
                                    Effectively, neither the PYHA or HUD knows th e
 for seven months
                                    financial status of any of its housing or grant programs

96-SF-207-1002                            Page 34
                                                                                   Finding 4

     and the PYHA is attempting to manage its operations without having the necessary
     accounting data. The lack of posting was partially caused by the former Board o f
     Commissioners' refusal to pay the fee accountant $30,325 for services performe d
     dating back to fiscal year 1 992. The fee accountant stopped all accounting work and
     threatened to initiate legal action against the PYHA if not paid. This impass e
     continued until June 1995 at which time the fee accountant was paid. The curren t
     Executive Director stated that he didn't know why the former Boar d of Commissioners
     had refused to pay the fee accountant. During this period the PYHA took no action
     to obtain a new fee accountant and the Board of Commissioners did not attempt to fill
     three vacant (budgeted) accounting posit ions. These actions further aggravated a bad
                                     The fee accountant, in addition to posting the PYHA' s
                                     formal accounting records, was responsible fo r
                                     preparing it's budgets and required grant an d
                                     development program reports. When he cease d
                                     providing services the PYHA not only didn't know it s
                                     financial status, it couldn't provide its reports to HUD.
                                     As a result, the PYHA's operating subsidy funding fo r
                                     its Low Rent and Mutual Help program was frozen a t
                                     the start of its new fiscal year on April 1, 1995 .
                                     Additionally, drawdown authority for its developmen t
                                     and Comp Grant programs was placed in jeopardy. In
                                     order to get around these problems the PYHA use d
                                     funds from its Low Rent and Mutual Help restricte d
                                     accounts to fund its day to day operations. Finally, i n
                                     order to free up its funding, the PYHA prepare d
                                     required reports for submission to SWONAP base d
                                     upon estimates rather than actual data.

                                   General Ledger accounts were not reconciled or posted
PYHA's accounting
                                   correctly and there was no documentation available t o
records were inaccurate
                                   support and explain many accounting entries. As a
                                   result, PYHA accounting books do not balance an d
                                   neither it or HUD are sure of the PYHA's actua l
                                   financial status.     We attribute these accountin g
                                   problems to the PYHA's staff's unfamiliarity with th e
                                   proper accounting treatment of many items and to th e
                                   former Board of Commissioner's failure to fill th e
                                   accountant and two other budget ed staff positions in the
                                   accounting section which were necessary for the proper
                                   administration of its on-site accounting function.

                                   Following are examples of discrepancies noted durin g
                                   our review of the PYHA's accounting records:

                                          Page 35                                 96-SF-207-1002
Finding 4

                        The PYHA's General Ledger did not reflect accurat e
 Cash and investments
                        cash and investment balances for each program an d
                        grant activity. As a result, it i s difficult to determine the
                        actual cash position of each program and grant activity,
                        making it burdensome to properly administer th e
                        programs.       Further, because of the method o f
                        accounting, it is almost impossible to determin e
                        investment balances needed to compute operatin g
                        subsidy for its Low Rent program and to allocat e
                        interest earned to the proper activities.

                        Cash - Rather than maintaining separate cash balances
                        for each program and grant activity, all the PYHA' s
                        cash was recorded in the Low Rent Program's General
                        Ledger with offsetting accounts receivable/payable for
                        all other programs and grants. All expenditures wer e
                        paid out of one bank account. This account was not a
                        revolving fund and there was no reconciliation of th e
                        fund on a monthly basis with each program or gran t
                        activity providing funds needed to cover its estimate d
                        expenditures. Effectively, these funds were primaril y
                        funds of the Low Rent program. This method o f
                        accounting is in violation of the accountin g
                        requirements of ACC Sections 12.2 (Mutual Help) and
                        402 (Low Rent) relating to the pooling of funds and/or
                        the use of revolving funds. This type of accounting has
                        resulted in the Low Rent program fronting the costs of
                        almost all the activities of the PYHA. For example, at
                        January 31, 1995 $213,368 was owed to the Low Rent
                        program by other grant activities:

                                Comprehensive Grant Program       $ 133,180
                                Drug Elimination Grant - Year Two    73,383
                                Youth Sports Grant                    6,805

                                Total owed to Low Rent                     $213,368

                        Investments - HUD Handbook HM 7510,1, Low-Ren t
                        Housing Accounting Handbook, Chapter 4, paragrap h
                        15, requires that a register or other record shall b e
                        maintained to record the purchase and sale o f
                        investment securities. As a minimum the register shall
                        provide a complete d escription of the securities, date of
                        purchase, price paid and interest paid. Additionally ,
                        Sections 401(E) (Low Rent) and 12.1(e) (Mutual Help)

96-SF-207-1002                 Page 36
                                                                        Finding 4

                          of the PYHA's ACCs require it to take actions t o
                          identify and invest all funds in excess of its immediate
                          needs. 24 CFR 85.20 requires a system whic h
                          maximizes the yield from investments.

                          The PYHA did not have an investment registe r
                          identifying inves tments and the source of funds used to
                          purchase the investments or know how much mone y
                          was invested or where it was i nvested. We were able to
                          determine (and account for) that at January 31, 1995 the
                          PYHA had $3,189,488 invested in 10 differen t
                          accounts. However, neither we nor the PYHA coul d
                          readily determine to which program th e funds belonged.
                          As a result the PYHA has been unable to allocat e
                          interest earned to the appropriate program. At January
                          31, 1995 the PYHA's accounting records showe d
                          unallocated interest earnings of over $337,000 datin g
                          from 1990.

                          Additionally, the PYHA did not have a policy for th e
                          prudent management and investment of excess funds .
                          Up until December 1994 it had over $3 million i n
                          checking and savings accounts and as of January 1995
                          still had over $1.1 million in checking and saving s
                          accounts and short term CDs earning less than 3. 0
                          percent annual interest. A good cash managemen t
                          program could have dramat ically increased the PYHA's
                          interest earnings.

                          The PYHA did not analyze balances in its Account s
Accounts receivable and
                          Receivable and Payable accounts on a periodic basis to
                          resolve any long outstanding or questionable entries .
                          Our analysis of the PYHA's Receivable and Payabl e
                          Accounts identified numerous outstanding items up t o
                          12 years old that had not been resolved and which th e
                          PYHA could not explain. For examp le, Account 1125 -
                          Accounts Receivable HUD, included a $17,40 6.36 entry
                          from July 1988; Account 2118 - Accounts Payabl e
                          HUD, included a March 1984 entry for $35,708; an d
                          Account 2290 - Deferred Credits Other, included a
                          $98,640 March 1990 entry.

                          Such entries should be analyzed on a ongoing basis to
                          ensure that proper action is taken on them, includin g
                          recovering funds due and paying legitimate debts .

                                Page 37                               96-SF-207-1002
Finding 4

                   However, no one at the PYHA was assigned th e
                   responsibility for reviewing these accounts.

                   The aggregate total individual homebuyers' account s
 Tenant accounts
                   receivable as maintained by the PYHA differed fro m
                   the General Ledger balance (posted by the fe e
                   accountant) by approx imately $33,000. The PYHA had
                   not attempted to resolve th is discrepancy. We analyzed
                   the account and determined that part of the differenc e
                   consisted of:

                   1.      $3,616 representing the cost of maintenanc e
                   work done by the PYHA on Mutual Help units. Rather,
                   than charging this to the homebuyers' accoun t
                   receivable balance the PYHA improperly added the cost
                   to the purchase price of the homes. The fee accountant
                   had properly accounted for these costs as account s
                   receivable when posting to the general ledger. On-site
                   staff were unfamiliar with the proper accounting fo r
                   such costs.

                   2.     $3,810 representing monthly administrativ e
                   charges for vacated Mutual Help units which wer e
                   improperly charged to homebuyer accounts receivable
                   balances by the PYHA's on-site accounting staff. Th e
                   fee accountant had properly excluded these charge s
                   from his account receivable balances which wer e
                   represented in the General Ledger.

                   The PYHA needs to resolve the unid entified differences
                   in this account and establish procedures to reconcil e
                   account balances on a monthly basis in the future.

                   The PYHA did not have procedures in place to properly
 Fixed assets
                   record fixed assets when purch ased and account for and
                   control them through a periodic physical inventory .
                   During the last two years there has been no accounting
                   for newly purchased fixed assets or any physica l
                   inventory counts. We attem pted to account for selected
                   items which had been recently purchased. Several o f
                   the items selected for review including a television, a
                   monitor, and weed eaters could not be located and ar e
                   assumed to have been stolen. Ac cording to PYHA staff,
                   other equipment items may be missing as a result o f
                   recent break ins at the PYHA's adminis trative office and

96-SF-207-1002           Page 38
                                                                   Finding 4

                   maintenance facilities. However, because of a lack o f
                   records they can't tell if anything is missing.

                   The PYHA is improperly accounting for trave l
Travel advances
                   advances. When an employee receive s a travel advance
                   the PYHA records it as an expense rather than as a n
                   advance/receivable. Further, th e PYHA is not requiring
                   employees to account for the advances after travel i s
                   completed through submission of a travel expens e
                   report as required by its travel policy. For example ,
                   only seven of twenty one travel advances we reviewed
                   were subsequently supported by the employee filing a
                   travel report. Accordingly, the PYHA does not kno w
                   whether the advances gi ven employees were eventually
                   supported by the actual costs of the employees' travel .
                   Since the PYHA does not properly account fo r
                   advances we could no t readily determine the amount of
                   travel advances which have not been accounted fo r
                   (also see Finding 6).

                   The PYHA did not properly account for costs incurred
Casualty losses
                   in the renovation of damaged Mutual Help units .
                   During the renovation period these costs and relate d
                   insurance proceeds, where applicable, are to b e
                   recorded in account 4620 Casualty Losses -
                   Noncapitalized. As of January 31, 1995 this accoun t
                   had a recorded credit balance of $28,273. A credi t
                   balance typically indicates that the insurance proceeds
                   exceeded the cost of restoring the damaged units .
                   However, the $28,273 credit balance was not accurat e
                   as the PYHA had failed to charge account 4620 fo r
                   force account salaries applicable to the restoration of the
                   damaged units. Proper accounting for all applicabl e
                   costs is necessary to enable the PYHA to determine the
                   actual cost of renovation and fi le for full reimbursement
                   from the insurance carrier or obtain additional subsidy
                   funding from HUD when the costs are greater than the
                   insurance coverage or where the original damage wa s
                   not covered by insurance.

                   The initial insurance payment for damaged units i s
                   equal to 80 percent of the estimated cost o f
                   rehabilitation. The insurance company will pay th e
                   remaining 20 percent of the claim only after the PYHA
                   submits documentation supporting its total cost o f

                          Page 39                                 96-SF-207-1002
Finding 4

                        rehabilitation. In addition, HUD provides additiona l
                        subsidy if the cost of restoration exceeds the insurance
                        proceeds. However, to make thes e supplemental claims
                        an accounting for all applicable costs must first b e

                        In December 1994 the PYHA decided to use forc e
                        account staff to restore vacated Mutual Help unit s
                        which had been damaged by fire or abandoned. Th e
                        force account staff also performs work under th e
                        PYHA's Comp Grant program, and the allocating fo r
                        their time amongst the two programs is th e
                        responsibility of the Comp Grant program coordinator.
                        However, as of August 1995, the Comp Grant program
                        coordinator had not submitted, to the accountin g
                        section, an allocation of force account labor tim e
                        applicable to each program which is necessary t o
                        determine the total cost of rehabilitation of damage d
                        units. Thus, since December 1994 the PYHA has been
                        unable to submit any final insurance claim or a request
                        to HUD for additional subsidy. Since a portion of th e
                        force account labor cost is also a Comp Grant program
                        expense, the accuracy of the Comp Grant progra m
                        accounting records has also been affected.

                        The Comp Grant program coordinator stated that hi s
                        department was working on the allocations, but did not
                        explain why they had not b een done. The PYHA needs
                        to take immediate action to account for past forc e
                        account labor cost and establish procedures to ensur e
                        that in the future such information is submitted to th e
                        accounting section along with each payroll submission.

                        The PYHA had not established procedures to accoun t
 There was no control
                        for and control obligated but unspent funds for any o f
 over obligated funds
                        its activities. The PYHA's formal accounting system ,
                        maintained by the fee accountant, has the capability to
                        capture and disclose this information, if available .
                        However, the fee accountant stated that the PYHA has
                        never provided him with the information necessary t o
                        make the applicable postings. Knowledge of obligated
                        funds is critical for the effective management of th e
                        PYHA's activities . Further, such information is needed
                        to enable the PYHA to properly report to HUD on th e
                        progress of its grant activities.

96-SF-207-1002                Page 40
                                                                 Finding 4

Auditee Comments   The PYHA agreed with the draft finding an d
                   recommendations and sta ted it has begun to address the

Recommendations    We recommend that you require the PYHA to:

                   4A.    Bring its accounting records current and submit
                          required year end and grant reports to you;

                   4B.    Reimburse the Low Rent Program fo r
                          expenditures made on behalf of other programs
                          and implement procedures to preclude the need
                          for interprogram borrowing in the future.

                   4C.    Establish policies and procedures to account for
                          each program's and grant's cash and follo w
                          proper procedures if a revolving or similar type
                          fund is used;

                   4D.    Establish an investment policy to ensure excess
                          funds are identified and invested prudently and
                          maintain an investment register to account fo r
                          the source and disposition of all investments;

                   4E.    Analyze Accounts Receivable and Payabl e
                          balances to determine their propri ety and resolve
                          any long outstanding or questionable items ,
                          including write off as appropriate;

                   4F.    Reconcile on-site Tenant Accounts Receivables
                          to the General Ledger balance maintained by the
                          fee accountant and resolve any difference s

                   4G.    Establish and implement procedures for th e
                          control of fixed assets including prope r
                          recording and identification when purchased and
                          periodic physical inventories. Additionally ,
                          identify fixed asset purchases not previousl y
                          recorded, ensure that they are recorded an d
                          determine their current location;

                         Page 41                                96-SF-207-1002
Finding 4

                 4H.    Establish policies and procedures which wil l
                        ensure that force account labor costs ar e
                        properly accounted for on an ongoing basis, i.e.
                        at the time of each payroll submission t o

                 4I.    Require that all travel advances be properl y
                        accounted for as advances until such time as a
                        travel voucher is submitted by the traveler t o
                        support any claimed costs; and

                 4J.    Establish policies and procedures to properl y
                        account for obligated but unspent funds.

96-SF-207-1002         Page 42
                                                                                   Finding 5

 Maintenance and Renovation Procedures
  and Practices Require Improvement
The PYHA needs to provide better quality housing to residents. Maintenance and
renovation procedures and practices did not ensure that units were decent, safe and
sanitary as required. Specifically, routine maintenance and repairs were not completed;
needed pest control was not completed; unit renovations and repairs were not
completed prior to or after tenant move-in; and tenants were not required to clean their
yards or remove junked cars. As a result, living conditions in and around the PYHA's
units were often shameful and dangerous or unsanitary. These conditions resulted
from a lack of staffing and assigned responsibility for conducting annual inspections;
a failure of Comp Grant, maintenance and occupancy staff to co-ordinate and
communicate on inter-related activities to ensure that needed repairs were identified
and completed; and a reluctance to enforce Low-Rent and Mutual Help
tenant/homebuyer maintenance requirements.

                                   The PYHA is responsible for maintaining Low Ren t
                                   units and ensuring that tenants perform applicabl e
 procedures did not
                                   housekeeping functions to keep the units clean an d
 ensure that units were
                                   sanitary (reference Section 209 of its ACC). Mutua l
 maintained in a decent,
                                   Help homebuyers are responsible for repair an d
 safe and sanitary
                                   maintenance of the ir own units. The PYHA is required
                                   to ensure that homebuyers adhere to thes e
                                   responsibilities (reference Article 6 of its ACC). I f
                                   homebuyers can't or won't meet these responsibilities ,
                                   the PYHA is to take action to remove them from th e
                                   Mutual Help program. This can be done throug h
                                   eviction, transfer to a Low-Rent unit, or throug h
                                   conversion of the homebuyer's Mutual Help unit to the
                                   low-rent program [24 CFR 950.428(d) and (e) ,
                                   950.446(f), 950.458(a)].

                                   To identify needed repairs and ensure that tenants an d
                                   homebuyers are properly maintaining their homes, the
                                   PYHA is required to perfor m periodic inspections of all
                                   its units, usually at least once each year (reference 2 4
                                   CFR 950.345 and 950.428). However, due to a lack of
                                   occupancy staffing (only five of nine budgete d
                                   occupancy positions were filled at the time of ou r
                                   review) and a failure t o clearly designate responsibility,

                                          Page 43                                 96-SF-207-1002
Finding 5

                 the inspections were not done and needed repairs were
                 not identified and corrected. Wh en needed repairs were
                 identified by the PYHA, it had not develope d
                 procedures to ensure that they were made. The PYHA
                 failed to assign respons ibility for completing repairs for
                 which it was responsible and had no procedures to deal
                 with homebuyers responsible for but incapable o r
                 unwilling to perform needed maintenance.

                 To determine whether these procedural problem s
                 effected the upkeep of the PYHA's units, w e
                 judgmentally selected 32 units for inspection (16 Lo w
                 Rent Units and 16 Mutual Help units.) Thirty (15 Low
                 Rent and 15 Mutual Help) of the thirty two units w e
                 inspected had health and safety violations or neede d
                 repairs (Appendix D) . Consequently, tenants are living
                 in conditions hazardous to their health. Although many
                 of the items we noted were minor, failure to promptl y
                 correct them could adversely affect tenants' an d
                 homebuyers' health and lead to future costly repairs.

                 We categorized deficiencie s as either Health and Safety
                 or Other Needed Repairs. Health and safety item s
                 included unlockable doors or windows; vermi n
                 infestation; inoperative heaters; no smoke detectors ;
                 missing windows; water leaks; electrical hazards, etc .
                 Needed repairs included missing or damaged screens ;
                 cabinet doors broken or coming loose; cracked sinks ;
                 holes in walls; interior or exterior needing paint ,
                 cracked windows, etc.

                 Following are examples of conditions noted during our

                 Project 7 No. 38 - Low Rent

                 •       This unit had such severe health and safet y
                         violations that we notified the Tribal Healt h
                         Department. The unit was filthy with feces o n
                         the kitchen floor and massive cockroac h
                         infestation. We could not enter one bedroo m
                         because it was housing a dog, and anothe r
                         bedroom was so full of junk we could not enter.
                         PYHA employees said this was not the first time
                         they found the unit in this condition. However,

96-SF-207-1002          Page 44
                                                                Finding 5

                         there was no documentation showing that th e
                         PYHA had taken any action to correct th e

                  Project 5 No. 41 - Mutual Help

                  •      This unit was infested with cock roaches and was
                         filthy. The Homebuyer said the heater had no t
                         worked in two years and in wintertime she an d
                         her children bring blankets into the living room
                         to try to stay warm. Windows were broken and
                         the smoke detector did not work.

                  Project 2 No. 3 - Mutual Help

                  •      This unit was filthy, windows were missing, the
                         dead bolt lock did not work, the bathroom had a
                         serious mildew problem, and paint was peeling
                         from the ceiling.

                  Project 4 No. 15 - Low Rent

                  •      The sink drain pipes in the bathroom leaked ,
                         there appeared to be a short in the wiring, tile s
                         were coming up from the floor, and a windo w
                         was not sealed. Additionally, a large amount of
                         trash and a junked car were in the yard.

                  We found no evidence that the Low Rent tenants ha d
                  informed the PYHA of the needed rep airs. Their failure
                  to notify the PYHA makes the annual inspections even
                  more critical in the PYHA' s attempt to maintain units in
                  a decent, safe, and sanitary condition.

                  During our inspections we noted that some Low Ren t
Many units were
                  units suffer from severe cockroach infestation. Th e
infested with
                  PYHA advises tenants that there is a bad problem with
                  cockroaches in rental units and attempts to schedul e
                  extermination service (spraying). Quarterly sprayin g
                  for insects is required as part of the Low Rent leas e
                  agreements; however, only 4 5% of the families allowed
                  their units to be sprayed, due to failure to make or keep
                  appointments. Because the PYHA has filled only on e
                  of two budgeted pest control positions, if a unit is no t

                        Page 45                                96-SF-207-1002
Finding 5

                           sprayed at the appointed time, the PYHA has to wai t
                           three months until the unit can be rescheduled .
                           Although denyin g access for spraying violates the Low
                           Rent lease, PYHA maintenance officials said they d o
                           not take action or notify the occupancy section of lease
                           agreement violations. The infestation problem will not
                           be controlled until the lease agreements are enforce d
                           and units can be treated on a routine basis.

                           The PYHA did not complete needed repairs befor e
 Repairs of low rent and
                           tenants moved into Lo w-Rent and Mutual Help units or
 mutual help units were
                           follow-up to ensure that needed repairs identified i n
 not completed prior to
                           tenant move-in inspections were completed. Thi s
 tenant move-in
                           resulted from the failure to develop procedures an d
                           assign responsibility for the inspection of units an d
                           completion of repairs prior to and after occupancy .
                           There was confusion as to whether the Comp Gran t
                           program coordinator, maintenance supervisor, o r
                           occupancy staff was responsible for ensuring tha t
                           repairs were identified and completed.

                           The PYHA has assigned responsibility for readyin g
                           vacant Low Rent units to its maintenance staff an d
                           vacant Mutual H elp units to a force account staff under
                           the direction of the Comp Grant program coordinator .
                           However, no one was given responsibility to inspec t
                           units to ensure that repairs were pr operly completed and
                           units were ready for occupancy. The only inspections
                           are those made by the occupancy staff at the time o f
                           tenant move-in. Further, no one was made responsible
                           for ensuring that items noted by the occupancy staf f
                           were corrected. Maintenance staff claimed tha t
                           correction of uncompleted repairs to Mutual Help units
                           was the responsibility of the force account staff whil e
                           the force account staff claimed that it was th e
                           maintenance staff's responsibility. As a result no on e
                           took responsibility and needed repairs were no t

                           We inspected six Low Rent units where tenant move-in
 Low rent units were not
                           occurred between December 19 94 and April 1995. Our
 ready for occupancy
                           inspections were completed from one to four month s
                           after move-in. Few of th e deficiencies noted during the
                           original tenant move-in inspections had been corrected
                           at the time of our inspections. Also, our inspection s

96-SF-207-1002                   Page 46
                                             Finding 5

identified other problems not noted during the original
move-in inspection. The results of several of ou r
inspections are detailed below:

Project 7 No. 15

The tenant moved in D ecember 23, 1994. The move in
inspection documented many problems with the uni t
which still existed at the time of our April 24, 199 5
inspection as follows:

•      Kitchen light fixture not working properly, ho t
       water heater not working properly, two missing
       window blinds, faucet leaking, back yard ligh t
       fixture missing, fur nace vent cover missing, and
       light socket in living room burnt out.

We found the following additional problems not noted
on the original move-in inspection:

•      Exterior doors did not lock, screens missing ,
       kitchen sink leaking, no curtain rods, fir e
       extinguisher not dated, door knobs missing, and
       no door stops.

Project 6 No. 15

The tenant moved in January 31, 1995. Our inspection
on April 24, 1995 identified the following uncorrected

•      No curtain rods, no toilet paper holder, hole i n
       bedroom wall, outside front light did not work,
       heater did not have a filter.

We identified additional problems with the uni t

•      No fire extinguisher, refrigerator leaked water ,
       and the unit needed weather stripping.

We also accompan ied PYHA employees on two move-
in inspections (made three to four days after tenan t
move-in) which identified the following problem s
which had not been corrected prior to tenant move-in.

      Page 47                               96-SF-207-1002
Finding 5

                           Project 4 No. 8

                           •      No locks on windows, cockroach infesta tion, gas
                                  leak during the first weekend of occupancy, no
                                  closet clothes rods, and a curtain rod which fell
                                  down because it was the wrong size.

                           Project 6 No. 29

                           •      No locks on windows, no screens, refrigerato r
                                  not working properly, no fire extinguisher, and
                                  water cooler leaking.

                           The PYHA needs to develop and implement procedures
                           which clearly set out methods and responsibility fo r
                           ensuring that needed unit repairs are identified an d
                           completed prior to tenant move-in.

                           We accompanied occupancy staff on the move-i n
 Repairs were not always
                           inspections for two restored Mutual Help units. On e
 made to Mutual Help
                           unit still needed many repairs on the scheduled day o f
 units prior to move-in
                           move in as follows:

                           Project 2 No. 27

                           •      No bedroom closet poles, exposed electrica l
                                  wires, no windows locks, no medicine cabine t
                                  shelves, poor interior paint job, no door stop ,
                                  swamp cooler not assembled or functional ,
                                  storage building needed new roof, roofing o f
                                  unit blowing off, gaps in both bathroom ceilings
                                  due to bathroom fans being smaller than th e
                                  holes cut for them.

                           The other unit inspected (Project 2 No. 2) was i n
                           excellent condition. In our opinion, however thi s
                           resulted not from the actions o f the PYHA, but from the
                           actions of the homebuyer to whom this unit wa s
                           awarded. The unit was awarded to a PYHA employee
                           whose husband is a contractor. Thus the homebuyer s
                           had the knowledge of what work needed to b e
                           completed and refused to move in until the unit was free
                           from defects. With proper assi gnment of responsibility,
                           the PYHA could have the same type of success with all
                           unit renovations.

96-SF-207-1002                   Page 48
                                                                          Finding 5

                          In violation of their Low Rent leases and Mutual Help
 Junked automobiles
                          agreements, many tenants and homebuyers had allowed
 and other garbage were
                          abandoned vehicles, significant amounts of trash, an d
 allowed to accumulate
                          other junk to accumulate in their yards. This not only is
 in tenants' and
                          unsightly, but can be a health hazard. PYHA officials
 homebuyers' yards
                          were reluctant to attempt to enforce the lease an d
                          homeownership agreement provisions requiring tha t
                          yards be kept clean because the Pascua Yaqui Trib e
                          does not require tenants in its homes to maintain clean
                          yards or dispose of abandoned vehicles. The Triba l
                          homes are often right next to the PYHA units an d
                          tenants/homebuyers in the PYHA units don't want to be
                          held to different standards. In our opinion, the PYHA
                          should not accept this line of thinking but enforce it s
                          lease and Mutual Help agreements and work with th e
                          Pascua Yaqui Tribe to establish simila r requirements for
                          its units to improve the living conditions of all Triba l

Auditee Comments          The PYHA stated that it has hired additiona l
                          maintenance staff and once the new employees lear n
                          their jobs, maintenance operations will improve .
                          Additionally, the PYHA stated that the confusio n
                          among unit renovation work teams resulted from th e
                          magnitude of renovation work performed during the last
                          year. During this period, the PYHA stated that it s
                          maintenance and forc e account crews had renovated 35
                          low rent and 8 Mutual Help units, thereby greatl y
                          increasing the availability of housing. Further, th e
                          PYHA felt that rehabilitation work not completed o n
                          renovated units did no t make them unfit for occupancy,
                          and that the needed repairs were subsequentl y
                          accomplished. The PYHA agreed to implement all the
                          draft recommendations.

OIG Evaluation of         We recognize the significant effo rts made by the PYHA
Auditee Comments          during the last year in rehabilitating units and increasing
                          the availability of housing. However, our concern i s
                          that the PYHA had no procedures in place to ensure that
                          repairs/renovation work was properly completed or that,
                          once identified, any defects were corrected in a timely
                          manner.       Further, many of the deficiencies i n

                                 Page 49                                 96-SF-207-1002
Finding 5

                  rehabilitation work noted during our inspections o f
                  renovated units, as set out in the finding, were healt h
                  and safety violations. Such items are not minor and do
                  affect the habitability of the units and the safety of the
                  tenants. We inspected these units up to four month s
                  after tenant move-in. Yet the deficiencies existing at the
                  time of tenant move-in had not been corrected.

Recommendations   We recommend that you require the PHYA to:

                  5A.    Inspect all units to identify current maintenance
                         needs. This could be done in conjunction wit h
                         inspections made to develop a Comprehensiv e
                         Plan (see Recommendation 2A.)

                  5B.    Develop and implement procedures to ensur e
                         that units are inspected yearly and timely actions
                         are taken to correct any deficiencies noted;

                  5C.    Develop and implement procedures to resolv e
                         instances where homebuyers are unwilling o r
                         unable to maintain their residences, includin g
                         eviction, transfer to low-rent units , or conversion
                         of units to low-rent;

                  5D.    Establish and implement a plan to address pes t
                         infestation in units;

                  5E.    Develop and implement procedures to ensur e
                         that needed repairs are completed and units are
                         ready for occupancy before move-in .
                         Procedures should assign responsibility an d
                         include instructions for conducting inspection s
                         prior to occupancy and completin g the identified
                         needed repairs.

                  In addition we recommend you:

                  5F.    Encourage the Pascua Yaqui Tribe to adopt and
                         enforce housing standards for Tribal units t o
                         eliminate junked cars and trash in yards.

96-SF-207-1002          Page 50
                                                                                 Finding 6

     The PYHA Needs to Improve its
   Administrative Management Functions
The PYHA needs to improve its handling of personnel and travel functions and ensure
that its Board actions are recorded and made available for public and HUD review.
Serious problems were noted in these areas, including the failure to:

       •      Implement personnel policies and procedures which met the
              requirements of its Annual Contribution Contracts.
       •      Establish employee personnel files which included yearly employee
              evaluations, job descriptions, salary rates and personnel actions.
       •      Maintain documentation that newly hired employees met the
              qualification standards for their positions and that the hiring process
              was equitable.
       •      Ensure that travel costs were justified and fully documented through
              employee submission of travel vouchers at the completion of the travel.
       •      Document Board actions through the maintenance of written minutes.

As a result, there was confusion among employees as to job responsibilities, the basis for
performance ratings, and eligibility for promotions or salary increases; travel costs were
not supported; and neither the public or HUD could tell what actions its Board had
taken for over eight months, including whether resolutions were legally approved by the

                                   Article VII, paragraph 7.1(a) of the Mutual Help ACC
 IHAs are required to
                                   and Section 307 of the Low Rent ACC require th e
 adopt personnel policies
                                   PYHA to adopt and comply with a personnel polic y
 and procedures
                                   comparable with local public practices and an y
                                   requirements or regulations of HUD. Such polic y
                                   should include job titles and classifications, salary and
                                   wage rates, qualification standards and payment o f
                                   expenses for commissioners, officers and employees in
                                   travel status.

                                   Based on available information, it appears that th e
 Appropriate personnel
                                   PYHA has adopted a formal personnel policy .
 procedures were not
                                   However, staff could not locate and provide a copy o f
                                   the policy for our review. Mor eover, the PYHA did not
                                   establish procedures for handling personnel matters or
                                   assign responsibility for such matters to anyone. I n
                                   1994 the PYHA hired a consultant to create jo b

                                          Page 51                               96-SF-207-1002
Finding 6

                      descriptions for its staff and establish a structure d
                      wage/salary system.        The PYHA felt that th e
                      consultant's final product was not adequate and didn' t
                      adopt its recommendations. We rev iewed the personnel
                      files of five employees and noted numerous problem s
                      including no job descriptions or qualifications standards
                      for the position; no periodic evaluations of jo b
                      performance; no documentation of any personne l
                      actions; and no indication as to whether the employees
                      were eligible for or received salary increases. Such a
                      system impedes the PYHA's ability to manage its staff
                      and is unfair to employees.

                      The PYHA did not document its hiring process. Thus ,
 Personnel hiring
                      it can not be determined whether the process was open
 practices were not
                      and fair and resulted in the selection of the bes t
                      qualified applicants. In March 1995, the PYH A
                      appointed a new Executive Director and Com prehensive
                      Grant Program Coordinator. The only documentatio n
                      available was a handwritten memo from the f ormer Vice
                      Chairman of the Board of Commissioners appointin g
                      the two individuals and establishing their salaries .
                      There was no documentation setting out the hirin g
                      process and qualification standards for the positions or
                      indicating how the salary rates were determined .
                      Further, because of the lack of a personnel policy an d
                      Board minutes, there was no confirmation of the former
                      Vice-Chairman's authority to make the hiring decision
                      and establish the salary rates.

                      Also questionable was the PYHA's June 1995 hiring of
                      a Development Officer and Home ownership Counselor.
                      The Pascua Yaqui Tribe "assisted" the PYHA in th e
                      hiring process. However, the PYHA was given no real
                      say in the hiring and there was no documentatio n
                      available to demonstrate that the individuals hired met
                      minimum qualification requirements of the position s
                      and were the best qualified applicants. According to the
                      Executive Director, the Development Officer had n o
                      development experience and the Homeownershi p
                      Counselor was only hired for the summer. Fina l
                      selections were made without the Executive Director' s

96-SF-207-1002              Page 52
                                                                           Finding 6

                           Without documentation, neither the PYHA nor HU D
                           can be assured that the hiring process was equitable ,
                           fair, and resulted in the hiring of qualified applicants.

                           The PYHA's Travel Policy requires that travel outsid e
Necessity and support
                           its jurisdiction be approved by the Board o f
for travel costs was not
                           Commissioners.        The travel must be the mos t
                           economical and expeditious means available a s
                           documented by a travel report submitted within fiv e
                           working days after return. The report must includ e
                           purpose of travel, points of travel an d dates and times of
                           departures and returns. The traveler must also submi t
                           coupons for transportation tickets, lodging receipts ,
                           receipts for reimbursable cash expenditures and renta l
                           car contracts. The policy allows travel advances only if
                           previous travel advances have been accounted for.

                           The PYHA did not comply wi th its policy. A review of
                           recorded travel costs incurred during the period between
                           July 1994 and June 1995 identified numerou s
                           discrepancies in the PYHA control over tra vel expenses.

                           •       Prior Board approval of travel was received for
                                   only one of five instances, where required .
                                   (Note: We were unable to determine whethe r
                                   board approval was received in six othe r
                                   instances as Board minutes were not available.)

                           •       Travel advances made to travelers wer e recorded
                                   as expenses rather than as advances, thereb y
                                   reducing the PYHA's controls over fina l
                                   accountability (see Finding 4).

                           •       Travel reports (vouche rs) were not submitted by
                                   the travelers for 14 of the 21 trips reviewed .
                                   Thus, the PYHA could not determine whethe r
                                   employees' actual travel costs were more or less
                                   than advances received or ensure the travel was
                                   completed by the most economical an d
                                   expeditious means. Also, contrary to its policy,
                                   in 14 instances, the PYHA gave employee s
                                   travel advances even though they had no t
                                   accounted for previous advances throug h
                                   submission of travel vouchers.

                                  Page 53                                 96-SF-207-1002
Finding 6

                           •      The necessity of travel was not always apparent
                                  from available documentation. For example, a
                                  PYHA Secretary attended two training classe s
                                  which involved significant travel expense -
                                  Finance and Budget Training and the Nationa l
                                  American Indian Housing Council Conventio n
                                  and Trade Show. However, the Secretary wa s
                                  not involved with finance and budget nor wa s
                                  she a member of the Housing Council. Prior to
                                  approval of training and related tr avel the PYHA
                                  must ensure that the training is pertinent to th e
                                  employee's job responsibilities and a prudent use
                                  of funds.

                           •      The PYHA did not ensure travel costs wer e
                                  reasonable.     A review of travel voucher s
                                  indicated that travelers were paid excess pe r
                                  diem, lodging, and other costs. For instance, a
                                  secretary was paid six nights lodging and seven
                                  days per diem to attend a convention i n
                                  Honolulu, Hawaii but official conventio n
                                  business was for only three days. This resulted
                                  in overpayment of at least $355. In anothe r
                                  instance the PYHA paid $402 for the forme r
                                  Executive Director's car rental during a
                                  convention in San Diego. Since the convention
                                  was held at the hotel where the form er Executive
                                  Director was staying, there was no need to rent
                                  a car.

                           No PYHA employee was given responsibility o r
                           authority to ensure that travel costs are necessary ,
                           reasonable, and properly accounted for. This ha s
                           resulted in the PYHA's inability to demonstrate that its
                           travel funds were judiciously utilized and that travel was
                           necessary and carried out in accordance with its adopted
                           travel policy.

                           Contrary to Tribal Ordinance PYLA 79-1, whic h
 Official board business
                           requires the maintenance of complete and accurat e
 was not documented
                           records of all meetings and actions taken by the Board,
                           the PYHA did not have available for review, th e
                           minutes of the meetings of th e Board of Commissioners
                           held after December 13, 1994. The responsibility fo r
                           transcribing the recorded minutes of Board meeting s

96-SF-207-1002                   Page 54
                                                                  Finding 6

                    was delegated to a PYHA secretary. Although, during
                    our field work we and the Executive Di rector repeatedly
                    requested the secretary to transcribe the meetin g
                    minutes, it was never done. Approved Board minute s
                    are not only necessary to allow the Public and HUD to
                    monitor the PYHA activi ties, they are legally necessary
                    to establish official PYHA policy and document it s
                    actions. Without them, it is impossible to determin e
                    what actions the Board has taken and deter mine whether
                    claimed resolutions and contract approvals are legall y

Auditee Comments    The PYHA concurred with all the draf t
                    recommendations. However, it felt that it was no t
                    completely at fault as previo us audits and HUD reviews
                    had not identified any problems with the administration
                    of its personnel and travel functions. Further, th e
                    PYHA stated that it does have a personnel policy, bu t
                    that it is outdated. It has been attempting to revise the
                    policy for the last two years.

OIG Evaluation of   The PYHA, not HUD or the independent auditors, i s
Auditee Comments    responsible for ensuring that appropriate personnel and
                    travel policies are adopted and followed. In regards to
                    the personnel policy, it appears that the PYHA ha s
                    adopted such a policy. However, they could not locate
                    and provide us with a copy. The only thing that could
                    be located was a copy of its employee handbook which
                    summarized the policy. A policy that can not be found
                    is meaningless.

Recommendations     We recommend you require the PYHA to:

                    6A.    Establish and follow to a personnel polic y
                           covering job titles and classifications, salar y
                           and wage rates, qualification standards, weekly
                           hours of work, and leave regulation s. The hiring
                           policy should meet HUD requirements an d
                           ensure fairness in hiring and full documentation
                           of actions taken;

                          Page 55                                96-SF-207-1002
Finding 6

                 6B.    Establish and mainta in complete personnel files
                        for all employees including posi tion descriptions
                        and job classifications, salary and wage rate s
                        including availability of periodic increases ,
                        periodic performance evaluations, and records of
                        all personnel actions involving the employee;

                 6C.    Assign responsibility for ensuring adherence to
                        its travel policy and perform a periodic revie w
                        of travel to ensure that travel is justified ,
                        documented, and adheres to its travel policy;

                 6D.    Cease giving travel advanc es to Board Members
                        and employees who hav e unliquidated advances
                        from previous travel. The PYHA shoul d
                        consider limiting travel advances to 80% o f
                        costs to encourage submission of vouchers after
                        travel is completed (see Finding 4 regardin g
                        proper accounting for advances);

                 6E.    Obtain travel expense reports from employee s
                        and board members for all outstanding trave l
                        advances where expense reports have not bee n
                        submitted; review the reports to determin e
                        whether the advances are fully accounted for ;
                        and if excess advances are id entified, require the
                        traveler to reimburse the excess; and

                 6F.    Have past Board minutes transcribe d
                        immediately and ensure that future Boar d
                        meeting minutes are transcribed timely.

96-SF-207-1002         Page 56
                                                                                     Finding 7

      Tenant And Homebuyer Occupancy
       Functions Were Poorly Managed
The PYHA did not ensure that its tenant and homebuyer occupancy functions were
properly managed. We noted problems in almost all areas affecting tenant and
homeowner occupancy - admissions, income verifications and recertifications,
collections, and title transfers to homebuyers. Inadequate management resulted in
housing of ineligible families; rental and homeownership payments based on unverified
and outdated information; a significant increase in tenant/homebuyer account
receivables; and the failure to allow Mutual Help families the opportunity to obtain
ownership of their homes when their payment obligations had been fulfilled. The
failure to properly administer these functions resulted from a severe staffing shortage,
Board interference in its day-to-day activities, a failure to identify and adopt procedures
needed to implement policies, and a lack of clear employee job responsibilities and
supervision. Each of these areas is discussed below.

                                    The PYHA's admission policies require that a waitin g
                                    list be established to ensure reasonabl eness, fairness and
                                    priority in the admission of tenant and homebuye r
                                    families into its housing programs. Prior to bein g
                                    placed on the waiting list, income and other information
                                    must be verified to ensure family elig ibility and priority.
                                    Additionally, governing regulations set out in Title 2 4
                                    Code of Federal Regulations (CFR) 950.301 require that
                                    to be eligible for housing, families must be low-income
                                    and priority in housing be gi ven to families who qualify
                                    for Federal preference. Preferences apply to familie s
                                    who have been involuntarily displaced, live i n
                                    substandard housing, or who are paying more that 5 0
                                    percent of income for rent. The family's eligibility for
                                    Federal preference must be verified.

                                    The PYHA's waiting lists w ere meaningless and did not
                                    establish reasonable priorities for housing eligibl e
                                    families. We identified four waitin g lists. The lists were
                                    confusing and had names added or deleted withou t
                                    explanation. Three list s were dated September 7, 1994,
                                    May 13, 1995, and August 3, 1995. One list wa s
                                    undated. The list dated September 7, 1994 had only 12
                                    names on the list, yet other information indicated tha t
                                    approximately 275 families had previously applied for

                                           Page 57                                  96-SF-207-1002
Finding 7

                 housing. It appears these lists were not even used i n
                 determining housing priority and eligibility. A review
                 of 10 families who obtained housing during the period
                 January through June 1995 indicated that only one was
                 on the September 7, 1994 waiting list. Two of the four
                 families housed af ter May 13, 1995 were not on the list
                 dated May 13, 1995. In relation to th e waiting list dated
                 August 15, 1995, it was determined that all familie s
                 who responded to update requests were placed on th e
                 list without verifying that the y were eligible for housing
                 or qualified for Federal or other preferences.

                 During the period January through June 1995 th e
                 PYHA awarded housing to 10 fami lies based upon their
                 claimed Federal preference eligibility/priority .
                 However, a review of these families' files indicated that
                 in six of the ten cases the families either did not mee t
                 Federal preference requirements or there wa s
                 insufficient information available to make a
                 determination as to eligibility. For example:

                 •       One family was a warded housing, as authorized
                         by the Tribal Chairman, based upon claime d
                         involuntary displacement from its previou s
                         housing. However, file information indicate s
                         the family was not involuntarily displaced an d
                         had given a 30 day notice to its previou s
                         landlord that it would be moving.

                 •       A family was awarded housing because it wa s
                         living in substandard housing. Documentatio n
                         consisted of an inspection of the family' s
                         previous housing which noted that there was no
                         heating in the housing uni t. However, there was
                         no indication as to whether this lack of heatin g
                         was permanent or temporary, i.e. a result of a
                         broken heating system which could be repaired.

                 •       A family was forced to vacate its h ousing in July
                         1994 and was awarded h ousing by the PYHA in
                         June 1995 based upon involuntary d isplacement.
                         No determination was made as to whether th e
                         Federal priority which existed in July 1994 was
                         still applicable one year later.

96-SF-207-1002          Page 58
                                                                          Finding 7

                            The PYHA not only did not properly verify claime d
                            Federal preferences, it did not ensure that families met
                            the low-income requirements of its adopted policies ,
                            Section 204(b) (Low Rent) and Section 5.2 (Mutua l
                            Help) of its ACCs, and 24 CFR 950.301(b). Fo r
                            example, two of the three families awarded Mutual Help
                            housing during the period January t hrough August 1995
                            had incomes over the applicable low-income limits for
                            admission. In one instance the family's annual income
                            was $47,800 versus the maximum income limit o f
                            $30,950. In the other instance the family's income was
                            $40,250 versus the income limit of $28,650. In bot h
                            instances a family member worked for the PYHA. I n
                            one instance the employee family member wa s
                            responsible for determining families' eligibility fo r
                            housing. Thus it appears that the waiting list priorities
                            and eligibility requirements were manipulated for th e
                            benefit of PYHA employees and to the detriment o f
                            other eligible families (Note: regulations allow fo r
                            housing other than low income families; however, to do
                            so, the PYHA needs to amend its admission policy.)

                            Deficiencies resulted from the PYHA's failure t o
                            develop specific procedures and a clear assignment o f
                            responsibility for the verification of informatio n
                            submitted.      Further, inadequate supervision wa s
                            provided to staff to ensure that actions taken met th e
                            PYHA's and applicable HUD requireme nts. As a result,
                            ineligible families were housed at the expense of other
                            needy, eligible families.      Further, the PYHA' s
                            haphazard manner of maintaining its waiting list an d
                            awarding housing could serve to destroy the public' s
                            confidence in the PYHA's ability to administer it s
                            programs in an equitable manner for the benefit of al l
                            eligible families.

                            The PYHA did not complete Fiscal Year 1 994 and 1995
Annual and interim
                            recertifications of tenant information as required b y
recertifications were not
                            Sections 208(A) (Low Rent) and 5.3(a) (Mutual Help)
                            of its ACCs, 24 CFR 950.315, and its own policies .
                            Staff stated that recertifications were not done because
                            of a lack of staff. The prior Board of Commissioner s
                            did not allow the Executive Director to fill vacancies .
                            At the time of our audit the PYHA had five vacan t
                            occupancy positions.

                                  Page 59                                96-SF-207-1002
Finding 7

                            The problem continues to worsen as set out below:

                   No. of         not completed        not completed
      Program      Units                   as of 3/20/95                   as of

     Low Rent       322                             32(10%)
     Mutual Help    320                             39(12%)
     Total          642                             71(11%)

                            As a result, there is no assurance that rents are prope r
                            and that HUD's Low Rent operating subsidy is correct.
                            The failure to complete yearly recertifications is a
                            recurring problem. In September 1993 the SouthWest
                            Office of Native American Programs (SWONAP )
                            notified the PYHA that it had not met HU D
                            recertification requirem ents for fiscal years 1991, 1992,
                            and 1993. SWONAP reduced the PYHA's Fiscal Year
                            1993 Low Rent operating subsidy by $106,193. Th e
                            operating subsidy was reduced to reflect estimate d
                            income losses resulting from the failure to recertify .
                            The reduced income resulted in an increased operating
                            subsidy for the affected years. The current failure t o
                            recertify incomes, unless corrected, will also result i n
                            decreased operating income and a related (improper )
                            increase in future operating subsidies.

                            The PYHA also did not complete interim incom e
                            recertifications as required by their Low Ren t
                            admissions and occupancy policy. As a result, th e
                            PYHA could not be assured that tenants were payin g
                            their required rent. Our review of the rent roll s
                            identified 41 of 322 (12%) families as having zer o
                            income. Some families have bee n listed as zero income
                            for over three years. Since fam ilies cannot exist for any
                            length of time without income, PYHA employee s
                            should have completed interim recertifications a s
                            required by paragraph 6.2 of its admissions an d
                            occupancy policies which state in part:

96-SF-207-1002                    Page 60
                                                                         Finding 7

                                 "If, at the time of...Re-Examination, ...it
                                 is not possible to make an estimate o f
                                 Family Income for the next twelve -
                                 month period with any degree o f
                                 accuracy...a Special Re-Determinatio n
                                 shall be scheduled by the Housin g

                                 If at the time of such special Re -
                                 Examination, it is still not possible t o
                                 make a reasonable estimate of Famil y
                                 income, special re-examinations shal l
                                 continue to be scheduled and conducted
                                 until such time as a reasonable estimat e
                                 of Family income can be made for th e
                                 next twelve months."

                          The Supervisory Home ownership Counselor stated that
                          interim recertifications were not completed due to lack
                          of staff.

                          The PYHA's tenant/homebuyer accounts r eceivables are
Tenant and homebuyer
                          increasing at an alarming rate. During the period June
accounts receivable are
                          1994 to June 1995 Low Rent tenan t accounts receivable
                          increased from $9,717 to $28,843 (296 percent) an d
                          homebuyer accounts receivable increased from $12,993
                          to $51,796 (398 percent). Such a trend, if it continues,
                          could have serious consequences as it wou ld deprive the
                          PYHA of funds needed for proper maintenance an d
                          operation. PYHA staff said they lacked the staff needed
                          to properly perform their collection and counselin g
                          efforts and the former Board of Commissioner s
                          instructed them to disregard policies requiring th e
                          sending of collection letters to delinquent tenants an d
                          homebuyers and the eviction of those seriousl y
                          delinquent in their payments. In our opinion, suc h
                          actions reduce tenants' and homebuyers' incentives t o
                          make their payments.

                          In accordance with Mutual Help and Occupanc y
Transfers of title were
                          Agreements, the PYHA is to convey title of Mutua l
not being made
                          Help units to the homebuyers when the unamortize d
                          purchase price balance can be covered from the balance
                          in the monthly equity payment account (MEPA) .
                          However, the PYHA has not developed procedures o r

                                Page 61                                 96-SF-207-1002
Finding 7

                    assigned responsibility for conveying title. As a result,
                    homebuyers who have met the requirements fo r
                    obtaining title to their properties continue to mak e
                    monthly payments which are no longer required .
                    During our audit, the accounting section identified four
                    homebuyers who qualified for ownership and other s
                    who will soon be eligible. Thus, the PYHA needs t o
                    immediately develop and implement procedures t o
                    ensure that eligible homebuyers receive timely title t o
                    their properties.

Auditee Comments    The PYHA generally agree d with the recommendations
                    set out in the draft finding and stated that it has already
                    begun the process of correcting the deficiencies cited .
                    In this regard, it stated that almost all delinquen t
                    recertifications have now been brought current. Th e
                    PYHA also pointed out that regulations governing th e
                    mutual help program allow for admission of a limite d
                    number of families whose income exceeds th e
                    established low income limits (up to 10 percent of th e
                    available units).

OIG Evaluation of   We agree that up to 10 percent of available units under
Auditee Comments    the mutual help program can be occupied by familie s
                    whose incomes exceed the levels established for low -
                    income families. However, in order to d o so, the PYHA
                    must demonstrate to HUD's satisfaction that there is a
                    need to house such families that cannot reasonably b e
                    met except under this program. Further, the admission
                    policies adopted by the PYHA must be amended t o
                    allow for such admissions. Neither of these tw o
                    requirements have yet been met.

Recommendations     We recommend you require the PYHA to:

                    7A.     Develop and implement procedures to establish
                            and maintain a waiting list that meet s
                            requirements, ensures reasonableness an d
                            fairness in establishing priorities for housing ,

96-SF-207-1002             Page 62
                                                Finding 7

       and provide for verification of information and
       supervisory review;

7B.    Complete all overdue tenant and homebuye r
       recertifications and implement procedures fo r
       performing interim recertifications whe n
       appropriate, including interim recer tifications for
       tenants/homebuyers who report zero income;

7C.    Aggressively enforce its adopted collectio n
       policies; and

7D.    Develop and implement procedures to identif y
       and transfer title to those homebuyers who have
       met the requirements for obtaining title to thei r

In addition, we recommend you:

7E.    Reduce Low Rent operating subsidy t o
       compensate for any excessive subsidy paid due
       to decreased rental income resulting from th e
       PYHA's past failure to recertify tenants on a
       timely basis; and

7F.    Advise the PYHA of actions to take in thos e
       cases where ineligible families rece ived housing.

      Page 63                                  96-SF-207-1002
Finding 8

         Audits Were Not Obtained For Ten
          Completed Development Projects
The PYHA did not obtain final development cost audits on ten projects which have been
completed for up to twelve years. As a result, HUD has been unable to close out the
projects and deobligate or reformulate over $3.7 million of unused funds. Had these
audits been completed, at least $671,000 of these funds could have been reformulated
by the PYHA for additional housing or other housing related purposes. Additionally,
the PYHA has drawn down approximately $496,000 in excess of the actual costs of these
projects resulting in increased interest costs to HUD.

                                 In accordance with the requirements of 24 CF R
 Development costs are
                                 950.285, a housing authority is to submit to HUD a
 to be audited so projects
                                 certificate of actual development cost within 24 months
 can be closed out
                                 of the date of full availability (DOFA) of eac h
                                 development project. Additionally, with in 36 months of
                                 DOFA an audit verification of the actual developmen t
                                 costs is to be submitted. If these time frames are no t
                                 met, HUD may make a determination that al l
                                 development activities have been completed an d
                                 proceed with the fiscal closeout of the project. Fund s
                                 awarded to a housing authority but not used may, with
                                 HUD's approval, be reformulated and used fo r
                                 additional housing or other related activities.

                                 During the period March 1983 through April 1992 ten
 Development costs of ten
                                 projects reached DOFA. The PYHA submitted Actual
 projects  were       not
                                 Development Cost Certificates to HUD for nine of the
                                 projects, but did not ensure that its annual financia l
                                 statement audits included audits of development costs.
                                 As a result, final (actual) development costs were no t
                                 audited within 36 months of DOFA, or since, and none
                                 of the ten projects have been closed out. Undisbursed
                                 award balances on these projects totaled over $3. 7
                                 million dollars. Of this, at least $671,000 would b e
                                 available to the P YHA for reformulation. More would
                                 be available, depending on interest charge s by HUD and
                                 the value of land donations, which would reduce th e
                                 total unobligated balance of $3.7 million. Also, fo r
                                 these ten projects the PYHA had drawn down ove r

96-SF-207-1002                          Page 64
                                                                                 Finding 8

                                   $496,000 in excess of its actual costs, causing HUD to
                                   incur unnecessary interest costs.

                                   A summary of these projects is set out below:

                                                                  DRAWS IN
                       GROSS                 DISBURSABLE          EXCESS OF
 Project               UNOBLIGATED           AMOUNT NOT           ACTUAL
 No.       DOFA        AWARD                 DISBURSED            COSTS
 40-2       3/31/83    $ 335,725             $ 137,291            $ 10,730
 40-3       4/30/86      173,992                   5,656            36,405
 40-4      12/31/86      369,446                   36,733           14,263
 40-5       5/31/87      763,951                   42,362           21,783
 40-6       6/30/87      211,616                   26,667           32,794
 40-7      12/31/87      864,365                   50,122           92,510
 40-8      11/30/87      635,121               228,290              226,834
 40-9*     11/30/91      130,594                   18,094             498
 40-10     11/30/91      64,953                    11,766           19,500
 40-11      4/30/92      160,317               119,949              40,862

 TOTAL                 $3,710,080            $ 671,839            $ 496,179

* Actual Development Cost Certificate has not been submitted by the PYHA.

                                   Due to the age of some of these projects, it i s
                                   questionable as to whether the PYHA ha s
                                   documentation available needed to complete audits o f
                                   the older projects. If this is the case, then HUD should
                                   initiate action to close out the projects based upo n
                                   available information.          But it is the PYHA' s
                                   responsibility to ensure future audits include al l
                                   developments which have reached DOFA.

Auditee Comments                   The PYHA stated that staff was previo usly unaware that
                                   audits had not been conducted of complete d
                                   development projects and that HUD had never informed

                                         Page 65                               96-SF-207-1002
Finding 8

                  them that there was a need to close out the projects .
                  However, it is now in the process of contracting for the
                  audit of the completed projects and will take neede d
                  actions to close out the projects.

Recommendations   We recommend you:

                  8A.    Require the        PYHA to obtain audits o f
                         completed         projects,      where      neede d
                         documentation is still available, and submit the
                         audits to your office for review and projec t
                         closeout. You should close out, based upo n
                         available information, those projects where a n
                         audit is not feasible due to the lack of supporting

                  8B.    Require that the PYHA include audits o f
                         development costs in all future annual (single )
                         audits, when applicable; and

                  8C.    Require the PYHA to remit to HUD th e
                         $496,179 excess drawdowns on the te n
                         completed projects.

96-SF-207-1002          Page 66
                                       Finding 8

(This page is intentionally blank.)

               Page 67                96-SF-207-1002
Finding 9

     The PYHA Mismanaged Homebuyers'
      Monthly Equity Payment Accounts
The PYHA has not adopted and implemented policies and procedures to manage its
homebuyers' Monthly Equity Payment Accounts (MEPA) as required by 24 CFR
950.428 and 437. As a result, the use of such funds has been haphazard, unsupported,
inconsistent and contrary to the terms of the homebuyers' Mutual Help and Occupancy
Agreements and applicable regulations. We reviewed MEPA withdrawals totaling
$90,222 and determined that $60,417 (67 percent) was expended for unsupported or
ineligible purposes. The improper use of MEPA funds deprives the PYHA of funds
which it could use to construct additional housing or provide other needed services to
its tenants and homebuyers.

                                  Specific concerns noted during our audit included:
 MEPA payments were
 either improper or
                                  •      Payments were made for homebuyer utility bills
                                         without verification to assure that th e
                                         homebuyer was unable to pay the m
                                         (unsupported $2,674).

                                  •      MEPA funds were used fo r routine maintenance
                                         although homebuyers are responsible for suc h
                                         costs and appeared to have income to pay th e
                                         expensess without using MEPA funds (ineligible

                                  •      Homebuyers were allowed to use MEPA funds
                                         to buy appliances which are personal propert y
                                         and an ineligible use of MEPA funds (ineligible

                                  •      There was no policy as to whether homebuyers
                                         had to repay MEPA funds used to pay fo r
                                         utilities, maintenance and property betterment s
                                         and additions.

                                  •      There was no verification homebuyers use d
                                         MEPA funds for the uses claimed (unsupported

96-SF-207-1002                          Page 68
                                                                         Finding 9

                       •       The PYHA did not define luxury items an d
                               allowed homebuyers to use MEPA funds fo r
                               items we considered luxury items (ineligibl e

                       Funds in homebuyers' MEPAs represent equity towards
MEPA funds represent
                       the purchase of their homes under the Mutual Hel p
homebuyers' equity
                       program. The homebuyer, based upon income, makes
                       monthly payments which are placed in the account .
                       Once the account balance equals the unamortize d
                       balance of the purchase price of the property, it can be
                       used by the homebuyer to make final purchase. A t
                       purchase this balance reverts to the housing authorit y
                       and can be used for other low-income housin g purposes,
                       including construction of additional units.

                       Homebuyers have no right to receive or use the funds in
                       the accounts except as set out in their Mutual Help and
                       Occupancy (MHO) Agreements (reference 24 CF R
                       950.437 and 950.440). Uses set out in the MH O
                       agreements (other than for the ultimate purchase of the
                       home) are for payment of past due administrativ e
                       charges and for utilities an d maintenance only when the
                       homeowner can't meet the costs of these items and the
                       failure to pay utilities or perform required maintenance
                       would result in conditions hazardous to the life or safety
                       of the occupants.

                       A housing authority may allow homebuyers to use their
                       MEPA funds for betterments and additions. If so, th e
                       authority is to determine whether the homebuyer must
                       replenish the funds and, if so, if in terest will be charged.
                       Funds can not be used for luxury items, as determined
                       by the housing authority [reference 24 CF R

                       To properly administer MEPA accounts and ensur e
                       consistent and fair treatment of all homebuyers, it i s
                       incumbent on a housing authority to adopt an d
                       implement policies specifically setting out its rule s
                       relating to allowable uses of MEPA funds an d
                       procedures to ensure that funds released are use d
                       properly.    However, the PYHA did not adop t
                       comprehensive policies and procedures.            We
                       judgementally reviewed 87 M EPA withdrawals totaling

                              Page 69                                  96-SF-207-1002
Finding 9

                           $90,222, relating to 15 homebuyers. Based on ou r
                           review, the lack of effective policies and procedure s
                           resulted in haphazard management and improper use of
                           MEPA funds. As discussed below $60,417 of th e
                           $90,222 was unsupported or ineligible:

                           The PYHA released funds to homebuyers for payment
 No need determination
                           of utilities without verifying that the homebuyers were
 was made prior to
                           unable to pay for the utilities or that a true emergenc y
 release of funds to pay
                           existed as required by 24 CFR 950.428(e) and sectio n
                           8.5 of the MHO Agreements.

                           We reviewed utility payments totaling $4,192 made by
                           the PYHA on behalf of four homebuyers. The PYH A
                           made emergency need determinations relating to onl y
                           one of the four homebuyers. No need determination s
                           were made for the other three families on whose behalf
                           payments totaling $2,674 were made. Consequently ,
                           the use of MEPA funds in these cases was no t
                           supported.     The PYHA was also paying th e
                           homebuyers' telephone bills, including substantial long
                           distance charges. In our opinion, such charges are not
                           eligible uses of MEPA funds as their nonpaymen t
                           would not create an emergency situation.

                           The PYHA used MEPA funds totaling $5,644 to pay for
 MEPA funds were
                           routine maintenance needs of five homebuyer s
 released to homebuyers
                           (painting, plumbing repairs, water heater replacement ,
 to pay for routine
                           and miscellaneous repairs.) Under the terms of th e
                           MHO agreements (section 8.4) and pertine nt regulations
                           [24 CFR 950.428(d)] the homebuyer is responsible for
                           routine and non-routine maintenance, including al l
                           repairs and replacements. MEPA funds can only b e
                           used if the homebuy er fails to perform the maintenance
                           and it is determined that the condition of the propert y
                           creates a hazard to the life, health, or safety of th e
                           occupants, or if there is a ris k of damage to the property
                           if the condition is not corrected. Such a determination
                           was made in only one instance involving replacement of
                           a water heater costing $176. The remaining $5,468 of
                           maintenance payments were not supported and ar e
                           ineligible uses of MEPA funds. In this regard, $4,276
                           of the payments went directly to the homebuyers (who
                           were Board members, PYHA employees or relatives )

96-SF-207-1002                    Page 70
                                                                       Finding 9

                        without any verification that the claimed maintenanc e
                        work was done.

                        The PYHA improperly used MEPA funds totalin g
$7,244 was paid for
                        $7,244 to purchase appliances for homebuyers. A s
ineligible appliance
                        previously mentioned, all routine maintenance an d
                        replacements are the responsibility of the homebuyer.
                        Further, appliances are considered personal propert y
                        and not a property betterment or a ddition. Accordingly,
                        funds should not be released to homebuyers fo r
                        appliance purchases. Appliances purpo rtedly purchased
                        included washers (2), dryers (2), microwave, an d
                        refrigerators (2). In all but one instance, the checks for
                        payment went to an appliance dealer. However, th e
                        PYHA did not verify that the appliances were actually
                        purchased and received by th e homebuyer. Further, the
                        appliances purportedly purchased were in man y
                        instances very expensive, eg., $1,283 for a refrigerator
                        and $2,424 for a refrigerator and stove.

                        The PYHA released $71,022 to homebuyers fo r
$71,022 was used for
                        betterments and additions to their properties. However,
betterments and
                        the PYHA has never adopted policies which woul d
additions without any
                        allow such use of MEPA funds or set out terms for their
policy or procedures
                        use, including whether or not the funds must b e
                        replaced by the homebuyer. Since the PYHA has no t
                        formally adopted policies relating to the use of MEPA
                        funds, their use is governed by the individual MH O
                        agreements which do not allow for betterments an d
                        additions. Failure to adopt policies and procedures for
                        use of MEPA funds for betterments and addition s
                        resulted in serious deficiencies:

                        •      The PYHA released $30,428 for planne d
                               improvements which w ere not completed by the
                               homebuyers. In these instances the funds were
                               given directly to the homebuyers prior to th e
                               start of work on the claimed betterments an d
                               additions. Of further concern is that th e
                               individuals receiving these paym ents were either
                               Board members, PYHA employees, or thei r
                               relatives. Since the claimed work was no t
                               completed, funds were used for purposes othe r
                               than the intended betterments and additions.

                              Page 71                                 96-SF-207-1002
Finding 9

                   •       The PYHA has not adopted policies definin g
                           luxury items as required. As a result, it allowed
                           $14,603 of MEPA funds to be used for items ,
                           which we consider luxury items and a n
                           ineligible use of MEPA. This i ncluded purchase
                           of storage sheds ($2,997); building a patio wall
                           ($4,722 - payment dir ectly to homebuyer), patio
                           ($2,500 - payment directly to homebuyer), an d
                           patio cover ($542); and conversion of a thre e
                           bedroom unit to a two bedroom unit ($3,842).

                                           *               *               *

                   The PYHA's failure to adequately regulate the use o f
                   MEPA funds has r esulted in a complete loss of control.
                   Rather than serving to create equity in the homebuyer's
                   property, the MEPAs have effectively become savings
                   accounts which the homebuyers can access at any time
                   for any purpose. This is p articularly disturbing as those
                   who appear to benefit most are Board members an d
                   employees or their relatives. The im proper, unregulated
                   use of MEPA funds depriv es the PYHA of funds which
                   it could use to construct additional housing or provid e
                   other needed services to its tenants and homebuyers.

Auditee Comments   The PYHA stated that it previou sly adopted a policy for
                   the use of MEPA funds, and it processed requests fo r
                   use of these funds in accordance with this policy on a
                   case by case basis. It believes that this policy doe s
                   require revision. It states that it is aware of n o
                   definition of luxur y items and that pertinent regulations
                   allow the housing authority to make this determination.
                   The PYHA further stated that it is not i n the best interest
                   of the housing authority to deny anyone the possibility
                   of using MEPA funds for bettering or replacing an item
                   which the homebuyer will eventually own.

                   The PYHA also stated that it could not comprehen d
                   how the balances in a homebuyer's MEPA accoun t
                   could be used to build addi tional housing as, at the time
                   of conveyance, the balance in the account would zer o
                   out. Thus, there would be no funds left to buil d
                   additional housing.

96-SF-207-1002            Page 72
                                                                  Finding 9

                    Additionally, the PYHA stated that OIG failed to giv e
                    consideration to actual day to day family activitie s
                    which would eventually require the replacement o f
                    household items or repair of the unit. Thus, it is not in
                    PYHA's best interest to deem routine maintenance a n
                    ineligible expense. Work items to be paid for fro m
                    MEPA should be at the discretion of the homebuyer.

OIG Evaluation of   The PYHA could not provide us with evidence that its
Auditee Comments    Board of Commissioners had ever adopted procedures
                    related to the use of MEPA for betterments an d
                    additions. It did have a draft policy which wa s
                    supposedly used. However, the policy was so genera l
                    that it was not workable, as discussed in the finding .
                    The PYHA's response also raises additional concern s
                    relating to staff's knowledge of the Mutual Hel p
                    program. This program is a home ownership program.
                    The homebuyer's monthly payment in excess of th e
                    administrative fe e is to go to the MEPA account. Once
                    the balance in this account is equal to the unamortized
                    purchase price, the homebuyer can use the funds t o
                    obtain title to the property. T he MEPA balance used by
                    the homebuyer to purchase the property then reverts to
                    the housing authority to use for housing relate d
                    purposes, including development of new housing.
                    Additionally, under this program the homebuyer, just
                    like any homeowner, is responsible for all maintenance
                    of the unit, to be paid for from non-MEPA sources. The
                    homebuyer has no right to MEPA funds, except as se t
                    out in the MHO agreements. In order to provid e
                    homebuyers with more disposable income to meet their
                    maintenance needs, the monthly payments under thi s
                    program are set at 15% of the homebuyers' adjuste d
                    income, rather than the 30% which is required under the
                    rental program.

                    In relation to luxury items, we agree that the PYHA i s
                    responsible for establishing a reasonable and pruden t
                    definition of such items. However, they had not don e
                    so. Thus, in order to analyze the use of MEPA funds ,
                    we had to use our own definition of luxury items. We
                    used the dictionary definition of luxury and th e
                    description of luxury items set out in HUD Handbook,
                    7485.3, Comprehensive Grant Program.

                          Page 73                                96-SF-207-1002
Finding 9

Recommendations   We recommend you require the PYHA to:

                  9A.    Immediately adopt and implement policies an d
                         procedures to govern the use of MEPA fund s
                         including determining emergency need an d
                         procedures for verification prior to payment for
                         utilities and routine maintenance; definition o f
                         eligible uses of MEPA relating to betterment s
                         and additions; procedures to verify that fund s
                         will be used for the intended purposes ;
                         identification of luxury items; and policie s
                         relating to replenishment of MEPA b y
                         homebuyers who are allowed to wit hdraw funds.
                         Until such policies and procedueres are
                         adopted and implemented, you should ceas e
                         allowing MEPA funds to be used for an y
                         purpose other than delinquent administrativ e
                         fees or emergency maintenance performed b y
                         the PYHA;

                  9B.    Require homebuyers to repay their MEP A
                         accounts the $27,315 spent for ineligibl e

                  9C.    Require homebuyers to repay that portion of the
                         $33,102 they can not document was spent o n
                         eligible improvements; and

                  9D.    Submit to your office, for review ,
                         documentation      supporting   all   MEP A
                         disbursements over $500 made since Januar y
                         1992. Homebuyers should be required to repay
                         any disbursements not meeting MEPA eligibility

96-SF-207-1002          Page 74
                                       Finding 9

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               Page 75                96-SF-207-1002
Finding 10

    Ineffective Drug Elimination Programs
            Need To Be Closed Out
The PYHA must take action to close out its two drug elimination grants. These grants
($250,000 each), originally funded in 1990 and 1991, have had questionable effectiveness
and have had no activity for over two years. Yet the PYHA has taken no action to close
out the grants and de-obligate unused funds totaling over $182,000. Additionally, over
$86,000 of questionable expenditures must be resolved and over $30,000 of equipment
purchased with grant funds must be accounted for, disposed of, or used for other
purposes. In accordance with grant terms, all drug elimination funds were to be
expended within two years from the date of obligation (reference Notice PIH 90-43 and
24 CFR 962.26(b)). However, because of a lack of staffing and other priorities the
PYHA has taken no action to close out the grants.

                                   The activities funded under the grants were no t
 Effectiveness of grant
                                   adequately managed and as a result had n o
 activities is questionable
                                   demonstrable success. The programs were to include
                                   tenant security patrols, additional security officers ,
                                   youth mentor programs, resident training, an d
                                   development of video's by local youth. Although th e
                                   programs started off well, a lack of staffing an d
                                   ineffective management resulted in the programs being
                                   abandoned. For example, the tenant security patrol s
                                   were abandoned, the mentor program was drop ped, only
                                   one security officer was available for any significan t
                                   period of time, and the videos were never completed.

                                   Additionally, the PYHA did not maintain records with
                                   which it could measure the success of programs o r
                                   submit required financial and narrative reports to HUD
                                   needed to monitor the grant activities. Although ove r
                                   $317,000 was expended under the two gran ts the PYHA
                                   has no evidence, or tracking system, to show that th e
                                   expenditures have had any impact on drug elimination.
                                   Also, there was $182,000 in unused funds.

                                   The PYHA expended $86,412 in drug elimination grant
 Expenditures for
                                   funds for security officer salary costs. The securit y
 security officers were
                                   officers were Tribal employees and as such thei r
 not supported
                                   activities were governed by, and the y reported to, Tribal
                                   authorities not the PYHA. In accordance with th e

96-SF-207-1002                           Page 76
                                                                         Finding 10

                           written agreement between the Tribe and the PYHA ,
                           time sheets and narrative reports were to be submitte d
                           by the security officers to document that they wer e
                           actually involved in drug elimination activities.
                           However, these reports were never submitted and thus
                           there is no docum entation available to demonstrate that
                           these security officers actually worked on dru g
                           elimination activities. PYHA officials stated that the y
                           asked Tribal officials for such reports but their requests
                           were ignored. Without such documentation th e
                           eligibility of the security officers' salary costs i s

                           The PYHA purchased over $30,000 of equipment with
 Equipment purchased
                           its drug elimination grant funds. This equipmen t
 with grant funds needs
                           included mountain bikes, high quality ( expensive) video
 to be accounted for and
                           equipment, two-way radios, etc. The PYHA als o
 used or disposed of
                           purchased games and toys for the youth who were t o
                           participate in activities offered as part of the dru g
                           elimination programs. These programs have bee n
                           inactive for over two year s yet no action has been taken
                           to account for this equipment and either dispose of it or
                           use it for other activities as required by 24 CF R
                           85.32(e). Most of the equipment is currently not being
                           used and is stored away and being allowed t o

Auditee Comments           The PYHA stated that it is in the process of obtaining an
                           independent audit of its drug elimination gran t
                           activities. Once the audit is completed the grants wil l
                           be closed out. In relation to the payment of $86,412 for
                           security officer salary costs, the PYHA stated that these
                           individuals were in actuality working as police officers
                           for the Tribal gover nment and answering calls intended
                           for shift officers. The PYHA further stated that it was
                           not its "obligation to undermine the obvious necessit y
                           for police officers to address all community needs.."

OIG Evaluation of          The use of police officers to meet all community needs
Auditee Comments           may be admirable. However, it does not meet the terms
                           of the PYHA's drug elimination grant applications .
                           Further, there is no documentatio n available to establish

                                 Page 77                                 96-SF-207-1002
Finding 10

         that the officers even worked on drug elimination activities affecting the PYHA and
         its residents.

Recommendations                       We recommend you require the PYHA to:

                                      10A. Obtain and submit for your review an d
                                           determination of eligibility, documentatio n
                                           detailing the activities o f security officers whose
                                           salary was charged to the drug eliminatio n
                                           program. If it is determined that the $86,41 2
                                           charged to the program is not supported and an
                                           eligible drug elimination program expense ,
                                           require the PYHA to refund the funds from non
                                           HUD sources;

                                      10B.    Submit to your office the required financial data
                                              (including audits) to allow for close out of it s
                                              1990 and 1991 drug elimination grants ,
                                              including recapture of unused funds; and

                                      10C.    Prepare an inventory and account for al l
                                              equipment purchased with drug eliminatio n
                                              funds and submit for your review and approval
                                              a planned use or disposition action for eac h

96-SF-207-1002                               Page 78
                                      Finding 10

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               Page 79                96-SF-207-1002
Finding 11

            The Adequacy Of Resident Utility
              Allowances Is Questionable
The PYHA had no records documenting the basis on which its residents' utility
allowances were established or when the last review of their adequacy was performed.
As a result, neither HUD nor the PYHA and its residents have assurances that the
current allowance reflects the cost of reasonable consumption of utilities by an energy-
conservative household of modest circumstances consistent with the requirements of a
safe, sanitary and healthful living environment.

                                   24 CFR 950.874 requires housing authorities to review
 Utility allowances should
                                   at least annually the basis on which utility allowance s
 be reviewed annually
                                   have been establishe d and, if justified, establish revised
                                   allowances. Additionally, 24 CFR 950. 865 require s
                                   that a record be maintained t hat documents the basis for
                                   the allowances established. However, the PYHA ha d
                                   not established procedures or assigned responsibility to
                                   ensure reasonable utility allowances.

                                   A current utility allowance is especially important t o
                                   PYHA residents considering the high cost of utilitie s
                                   resulting from the severe climate of Southern Arizona.
                                   According to PYHA records, the last change (an d
                                   apparent analysis) in resid ent utility allowance was four
                                   years ago.

Auditee Comments                   The PYHA concurred with the finding and stated tha t
                                   needed corrective action will be taken.

Recommendations                    We recommend you require the PYHA to:

                                   11A. Conduct a review of the adequacy of its current
                                        resident utility allowances within 60 days, an d
                                        establish revised allowances if determine d
                                        appropriate. If staff is not qualified to make the
                                        reviews, the PYHA should contract out fo r
                                        them; and

96-SF-207-1002                            Page 80
                                              Finding 11

11B.    Establish procedures and assi gn responsibility to
        ensure that reviews of the adequacy of utilit y
        allowances are performed annually and that the
        basis for allowances established are full y

       Page 81                                96-SF-207-1002
Internal Control
In planning and performing our audit, we considered internal control systems used by th e
PYHA to determine our auditing procedures and not to provide assurance on internal control.
Internal control is the process effected by an entity's board of commissioners, management,
and other personnel, designed to provide reasonable assurance regarding the achievement of
objectives in the following categories:

                 Effectiveness and efficiency of operations,
                 Reliability of financial reporting, and
                 Compliance with applicable laws and regulations.

In each of these three categories of o bjectives, organizations will establish their own specific
control objectives and control procedures aimed at achieving these broad objectives. I f
organizatio ns are to meet these control objectives, five components of internal control -
control environment, risk assessment, control activi ties, information and communication, and
monitoring - must be present. That is, the control object ives in each category are inextricably
linked with the five supporting components.

                                      We determined the following inte rnal control categories
 We evaluated pertinent
                                      were relevant to our audit objectives:
 internal control systems
                                                 Grant Administration
                                                 Procurement and Contract Administration
                                                 Accounting Books and Records
                                                 Dwelling Unit Maintenance and Renovation
                                                 Personnel and Travel Administration
                                                 Tenant/Participant Management
                                                 Development Closeout
                                                 Utility Allowances

                                      We evaluated all of the relevant control categorie s
                                      identified above by determining the risk exposure an d
                                      assessing control design and implementation.

                                      A significant weakness exists if internal c ontrol does not
 Significant control
                                      give reasonable assurance that all three contro l
 weaknesses were noted
                                      objectives are met. Based on our revie w, we believe the
                                      following were significant weaknesses:

                                              The PYHA did not possess the administrativ e
                                              capacity to operate its housing and gran t

96-SF-207-1002                               Page 82
                                 Internal Control

 programs in an efficient and effective manne r
 (Findings 1 and 2).

 The PYHA did not develop or did no t
 implement policies and procedures adequate to
 ensure that its programs and activities wer e
 carried out in an efficient and effective manner
 and in compliance with requirements and did not
 adequately assign responsibility to staf f
 (Findings 1 through 11).

 PHYA staff did not adequatel y understand HUD
 requirements (Findings 1, 2, 3, and 9).

 Accounting procedures and practices did no t
 provide for appropriate control over assets an d
 full disclosure of the results of operations an d
 grant activities (Finding 4).

Page 83                               96-SF-207-1002
Appendix A

Auditee Comments

96-SF-207-1002     Page 84
          Appendix A

Page 85    96-SF-207-1002
Appendix B

Ineligible Comprehensive Grant Costs

96-SF-207-1002    Page 86
          Appendix B

Page 87    96-SF-207-1002
Appendix C

Underpayment of Fence Contractor

96-SF-207-1002   Page 88
                                      Appendix C

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               Page 89                 96-SF-207-1002
Appendix D

Results of OIG inspections of Low Rent
and Mutual Help Units

96-SF-207-1002     Page 90
                                      Appendix D

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               Page 91                 96-SF-207-1002
Appendix E

Schedule of Ineligible and Unsupported

96-SF-207-1002     Page 92
                                                                               Appendix E

                                                          Ineligible        Unsupported
 Finding number and subject                               Amount (1)        Amount(2)

 2. CompGrant funds used for routine repairs                     $52,502
 2. CompGrant funds used for drug elimination                                        $66,349
 3. Underpayment of contract fence employees                      10,457
 8. Excess development advances to
    completed projects                                           496,179
 9. Ineligible disbursements of MEPA funds                        27,315
 9. Unsupported disbursements of MEPA funds                                             33,102
 10. Unsupported use of Drug Elimination
    Grant funds                                                                         86,412
    Totals                                                      $586,453            $185,863

(1) Ineligible amounts obviously violate law, contract, HUD or local agency policies or
   regulations, such as buying unneeded services.

(2) Unsupported amounts do not obviously violate law,a contract, policy or regulation
   but warrant being contested for various reasons such as the lack of satisfactory
   documentation to support eligibility and HUD approval.

                                           Page 93                              96-SF-207-1002
Appendix E

                 (This page intentionally blank).

96-SF-207-1002                Page 94
                                                                             Appendix F

Administrator, Southwest Office of Native American Programs, 9EPI (1)
State Coordinator, Phoenix Office, 9ES
Director, Accounting Division, 9AFF
Office of the Comptroller, Texas State Office, 6AF
Assistant to the Secretary for Field Management, SC
Barbara Burkhalter, Audit Liaison Officer, PF (2)
Acquisitions Librarian, Library, AS
Chief Financial Officer, F (2)
Deputy Chief Financial Officer for Operations, FO (Room 10166) (2)
Associate Director, US General Accounting Office, 820 1st St, NE, Union Plaza, Bldg 2,
      Suite 150, Washington, D.C., ATTN: Jim Wells (2)
Pascua Yaqui Housing Authority (2)
Tribal Chairman, Pascua Yaqui Indian Reservation

                                          Page 95                             96-SF-207-1002
Appendix F

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96-SF-207-1002                  Page 96