oversight

PRPHA, San Juan, PR

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-06-24.

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

                                                      U.S. Department of Housing and Urban Development
                                                      District Office of the Inspector General
                                                      Office of Audit
                                                      Richard B. Russell Federal Building
                                                      75 Spring Street, SW, Room 330
                                                      Atlanta, GA 30303-3388
                                                      (404) 331-3369




June 24, 1998                                          No. 98-AT-201-1806



TO:             Deborah Vincent, General Deputy Assistant Secretary For Public and
                  Indian Housing, P


FROM:           Nancy H. Cooper
                District Inspector General for Audit- Southeast/Caribbean, 4AGA


SUBJECT:        Assessment of Progress
                Puerto Rico Public Housing Administration
                San Juan, Puerto Rico


We completed a limited review of the Puerto Rico Public Housing Administration (PHA). The
former Secretary of the U. S. Department of Housing and Urban Development (HUD) requested
the review to assess the PHA’s progress in correcting its long standing problems. Specifically, we
focused our review on the PHA’s progress in completing certain goals, strategies, and tasks listed
in its Partnership Agreement and Memorandum of Agreement. Our limited review was not
intended to depict all accomplishments, nor all areas needing improvement.

This report will not be formally controlled under HUD’s Audits Management System. However,
we plan to evaluate the PHA’s efforts in subsequent audits after the PHA has an opportunity to
complete many of the past due actions.

Should you or your staff have any questions, please contact James D. McKay, Assistant District
Inspector General for Audit, at (404) 331-3369, or Aurora Rodriguez, Senior Auditor at (809)
766-5540.
                 Executive Summary
We completed a limited review of the Puerto Rico Public Housing Administration (PHA). The
former HUD Secretary requested the review to assess the PHA’s progress in correcting its long
standing problems. The PHA signed a Partnership Agreement and a Memorandum of Agreement
(MOA) with HUD on February 6, 1995, and June 21, 1996, respectively. These agreements laid
out goals and strategies designed to improve the overall performance of the PHA so that it could
be removed from HUD’s troubled housing list.

Our assessment showed the PHA had slowly implemented some of the goals and strategies
contained in the agreements. We noted that the PHA did not complete many of its strategies
within the established target dates. Although the PHA had made some improvements, it still had
much work to do to become operationally sound. The PHA still lacked adequate systems,
controls and procedures. Many of the PHA’s actions involve continuing activities. The PHA
needs to be more diligent and aggressive in pursuing corrective actions. It also needs to
periodically assess its actions to assure its initiatives correct the problems they were designed to
address.

We gave a draft report to the Secretary of Housing and the PHA Administrator and held an exit
conference on April 27, 1998. The PHA provided written responses for each chapter. The
PHA’s comments are summarized with each chapter and included as Appendix A. We did not
include the supporting attachments, but will make them available upon request.

The PHA agreed that not all the goals and strategies were met within the time schedule agreed
upon, but its overall goal of getting off HUD’s troubled list was reached. The tasks and time
schedules changed once the PHA met the overall goal. The PHA stated that it is continuing its
efforts in correcting aspects in the agency that need focused attention. The officials recognized
that a major deficiency was the lack of a functional computerized system. They stated they
recently received approval of the computer plan, and are moving forward to complete the
installation of equipment, update software, and train personnel.

We did not make any recommendations in this report. Accordingly, this report will not be
formally controlled in HUD's Audit Management System. However, we plan to evaluate the
PHA’s efforts in subsequent audits after the PHA has an opportunity to complete many of the
past due actions.




                                                 ii
                 Table Of Contents
Management Memorandum                                          i
__________________________________________________________________
Executive Summary                                             ii
___________________________________________________________________
Introduction                                                   1

Chapters

      1            Vacancy Reduction and Unit Turnaround                 4

      2            Maintenance                                      8

      3            Annual Inspections                               10

      4            Modernization                                         12

      5            Rent Collection and Tenant Accounts Receivable        15

      6            Development                                           18

      7            Financial Management Functions                        20

Appendices

     A       Auditee Comments                                       23

     B       Distribution                                                34




                                        iii
Abbreviations

      CGP       Comprehensive Grant Program
      CIAP      Comprehensive Improvement Assistance Program
      DEP       Drug Elimination Program
      HQS       Housing Quality Standards
      HUD       U.S. Department of Housing and Urban Development
      MOA       Memorandum of Agreement
      PHA       Puerto Rico Public Housing Administration
      PHMAP     Public Housing Management Assessment Program




                                      iv
                                                                                       Introduction




                             Introduction
Public housing and urban renewal programs first started in Puerto Rico in 1938. The Puerto Rico
Urban Renewal and Housing Corporation was created in 1957 for the purpose of consolidating
and reorganizing those programs. On June 10, 1972, the government of Puerto Rico established
the Department of Housing, attaching the Corporation to the Department of Housing, and
transferring the powers and faculties of the Board of Directors of the Corporation to the
Secretary of Housing.

The Puerto Rico Public Housing Administration was created in 1989 and also placed under the
direction of the Department of Housing, for the purpose of creating an efficient and flexible
administration of public housing. In 1991, the Corporation was dissolved and placed under
liquidation due to lack of management capability.

Currently, the Puerto Rico Public Housing Administration is the second largest public housing
agency in the nation. Approximately 10 percent of the island’s population live in public housing.
The PHA operates 337 housing projects, with 56,994 units scattered throughout 78
municipalities. All projects are built of concrete with construction dates ranging from 1941 to
1991. The highest concentration of units, representing about half of the total, is in the San Juan
area.

Over the last 3 years HUD has provided over $187 million in operating subsidies. Also, HUD has
provided the PHA over $560 million for the following additional programs:

            Source of Funding                        1994            1995            1996
   Drug Elimination Grant                        $ 14,289,750     $ 12,822,360    $ 10,724,453
   Hope VI (Urban Revitalization Program)          50,000,000          400,000
   Lead Based Paint Risk Assessment                                  1,320,880
   Comprehensive Grant Program                    172,718,545      163,594,656      134,424,279
    Total Additional Funding                     $237,008,295     $178,137,896     $145,148,732

HUD and the PHA have known about problems at the PHA for many years. In 1981, the
Caribbean Office designated the predecessor agency as “financially troubled.” In 1985, it was
redesignated as operationally troubled due to serious fiscal, administrative, and maintenance
deficiencies. The PHA continued failing to meet expected performance. In 1988, a
comprehensive review of its operations revealed it had an increasingly deteriorating trend. By
1990, the Caribbean Office and the PHA had entered into their second MOA to try to address the
problems. Twelve months later, the PHA still was not able to resolve its problems and did




                                                1
                                                                                        Introduction

not show any signs of improvement. Finally, in mid-1991, HUD imposed severe sanctions by
freezing about $288 million of unobligated modernization funds and $20 million of unobligated
development funds. To find a solution to the management problems, the Governor took several
radical steps. In March 1992, he transferred the modernization and development programs to the
Public Building Authority to act as an agent for the PHA. At his direction, on August 1, 1992,
the PHA contracted with private management firms to administer and maintain the developments.
The PHA was dramatically downsized from a work force of over 4,500 employees to under 100
employees. In November 1996, the PHA transferred the administration of the modernization
program from the Public Building Authority to three private management firms. Therefore, the
PHA's role was reduced to an "asset manager" with supervisory responsibilities and oversight of
the private management firms.

Although major aspects of public housing operations were under private management, the PHA
failed to meet the expected performance standards and was designated as “troubled” for fiscal
years ending June 30, 1993, and 1994. HUD assigned scores of 53 and 54 percent under the
Public Housing Management Assessment Program (PHMAP). HUD assigned failing scores in the
areas of uncollected rents, unit turnaround, and development.

In February 1995, HUD and the PHA entered into a 6 month action plan. The action plan listed
eight major areas needing operational and administrative improvement. The purpose of the plan
was to identify specific goals and activities for specific start-up technical capacity building and
systems development, and to allow the PHA to develop a 2 year improvement plan. The
strategies were to be completed by August 1995, and the 2 year operational improvement plan
was due by October 1, 1995. A consultant assessed progress after 4 months of implementation.
The report concluded that the PHA was an organization in crisis needing fundamental
organizational changes. It further stated that the PHA lacked trained staff to carry out many tasks
which all housing authorities are required to perform. The report disclosed that only 36 percent
of the strategies were completed, and the rest were in various stages of implementation.

HUD contracted with a consultant to perform an independent PHMAP assessment for the year
ended June 30, 1995. The consultant assigned a score of 50 percent in the draft report.
However, HUD did not accept the report, and did not provide a PHMAP score for fiscal year
ending June 30, 1995. HUD found unresolvable discrepancies in determining a PHMAP score in
the areas of vacancies, unit turnaround, and routine operating expenses.

HUD and the PHA executed a new MOA on June 21, 1996. The MOA included short term
strategies as well as an overall improvement and operational guide. The PHA desired to improve
its management performance and eliminate its troubled status by accomplishing the goals and
strategies outlined in the MOA. The MOA targeted the following areas for improvement:
vacancies, modernization, rent collections, unit turnaround, outstanding work orders, annual
inspections, tenant accounts receivable, and development. The MOA was to remain in effect for a
2 year period ending June 1998, and the PHA agreed to take all possible actions to achieve the
targets and time frames. Also, the PHA agreed that the terms of the MOA would continue in
effect for the period specified, even if HUD certified to a passing score of “60” or above on a
PHMAP assessment prior to the completion of all tasks.



                                                2
                                                                                        Introduction

On August 14, 1996, the PHA submitted its PHMAP certification for fiscal year ending June 30,
1996, and requested modifications for indicators 2 (Modernization), 5 (Unit Turnaround), 6
(Work Orders) and 7 (Housing Quality Standards). HUD approved the requested modifications
by letter dated December 13, 1996. The PHA obtained a passing score for indicators 2 and 5, but
did not obtain a passing score on indicators 6 and 7, even with the modifications. However, the
modifications allowed the PHA to obtain an overall passing score of 67 percent. Our
computations showed that the overall PHMAP score without the modifications would have been
below 60 percent, which would have kept the PHA in the Troubled Category.

HUD reviewed the PHA’s documentation and certifications for fiscal year ended June 30, 1997.
On November, 4, 1997, HUD approved a score of 63.6 percent. HUD did not grant any PHA
modification requests, but adjusted the overall score by adding two points to reflect an adjustment
given for differences in neighborhood environment. The PHA received less than 60 percent for
modernization, therefore it was designated Modernization Troubled. HUD concluded that the
PHA had made significant improvements, but pointed out two critical areas needing improvement:
financial management, and modernization organization.

Review Objectives, Scope and Methodology

The objective of the review was to assess the PHA’s progress in implementing the strategies
contained in the MOA and eliminating its long standing problems reported in past reports and
reviews.

Our review assessed the actions taken by the PHA between February 6, 1995, and December 31,
1996. The period was extended as necessary. Our field work was performed between February
and August 1997. We interviewed HUD and PHA personnel and consultants to identify
procedures and assess actions taken or scheduled. To assess the progress of the PHA in
addressing its agreements with HUD, we examined the following:

   ·   HUD monitoring reports
   ·   Consultant studies
   ·   The February 1995 Six Month Action Plan
   .   Public Housing Management Assessment Program records
   ·   The June 1996 Memorandum of Agreement
   ·   Memorandum of Agreement (MOA) Quarterly Performance Target Progress Reports

We provided a copy of this report to Honorable Ana Carmen Alemany, Secretary, Puerto Rico
Housing Department and to John S. Blakeman, Administrator, Puerto Rico Public Housing
Administration.




                                                3
                                                                                       Chapter 1




   Vacancy Reduction and Unit
          Turnaround
Previous HUD and consulting reviews showed the PHA did not have an effective vacancy
reduction and unit turnaround program. Further, the reviews disclosed that the PHA did not
have: a system to track vacancy/unit turnaround; reliable data to support certified scores on
vacancy numbers and percentages; information for vacancy adjustments such as units vacant due
to modernization and illegal occupancy; and accurate records on occupancy dates.

Vacancy Number and Percentage

HUD uses vacancy information to determine a PHA’s progress in reducing vacancies. The goal
was to achieve an actual vacancy percentage of 2 percent or less for a score of “B.” The MOA
pointed out that in 1994 the PHA had 1,918 vacant units, representing a “C” score in the PHMAP
evaluation. In order to increase the score, the PHA proposed to undertake a number of
administrative changes which would enhance its ability to track and to provide reliable data and
make the property managers accountable for units which remained vacant in excess of 20 days.
The PHA proposed 12 strategies with the following target dates:

     1.    Track vacancy reports submitted monthly by property management
           companies.                                                              7/1/96
     2.    Develop computerized tracking system for occupancy for each
           development and each area. This will require modification for CAM
           II software.                                                           9/30/96
     3.    Report of non compliance to companies for failure to reach specified
           occupancy goals.                                                        8/1/96
     4.    Develop/update Annual Comprehensive Occupancy Plan.                    9/15/96
     5.    Meet monthly with management agents who are meeting their
           occupancy targets.                                                     10/1/96
     6.    Develop technical assistance plans for areas where targets are not On-
           being met.                                                            going
     7.    Coordinate with Modernization and Planning Division to ensure
           advance notice of relocation or reoccupancy timeliness.                 7/1/96
    8.     Properly code all vacancies.                                            9/1/96
    9.     Develop plan for monitoring follow-up and review of all vacancies.      8/1/96
   10.     Assign tenant selection and assignment function to management
           agents.                                                                 2/1/97
   11.     Initiate meetings with judges regarding need to support evictions for
           non-payment of rent.                                                    3/1/97
   12.     Provide training to judges regarding public housing program.            6/1/97



                                               4
                                                                                         Chapter 1

Nine of the 12 strategies were due to be completed by December 31, 1996. The PHA reported in
its December 31, 1996, progress report that it had accomplished strategies 3, 5, 6, and 9. The
PHA reported that there was no need to meet with management agents regarding occupancy
targets because the vacancy reports for October and November1996 were in compliance
(strategies 3, 5 and 6). We reviewed summary vacancy reports and noted that some management
agents reported vacancies that exceeded the PHA’s goal of 2 percent. For example, the
management agent for area 9 reported vacancy rates of 8.5 percent for each month of October,
November, and December 1996. The management agent for area 19 reported vacancy rates of
3.2, 3.3, and 2.5 percent. The management agent for area 20 reported vacancy rates of 2.2, 2.4
and 2.5 percent. Therefore the management agents were not in compliance with the PHA goals,
and the PHA should have issued reports of non compliance for failure to reach specified
occupancy goals. We asked a PHA official why the management agents were reported as in
compliance when they were not. The official stated they included information without ensuring it
was correct.

The PHA reported it had developed a plan for follow-up and review of all vacancies (strategy 9).
However, a PHA official stated they did not go on site to verify the accuracy of reported vacancy
information.

We discussed the status of the other strategies with PHA staff. PHA staff said they had started
but had not completed the strategies due to reorganizations and staff limitations. They indicated
the target dates would have to be extended.

Unit Turnaround

Unit turnaround measures the average number of calendar days between the day a unit is vacated
and the day it is leased. The goal was to reoccupy the unit in less than 20 calendar days. The
1996 MOA pointed out the PHA lacked a system but reported an average of 18 calendar days to
reoccupy the units. However, the inability of some management agents to document their results
raised questions about the accuracy of the data. The lack of an adequate tracking system resulted
in an “F” (fail) rating. The MOA contained 12 strategies to address unit turnaround:

     1.      Develop uniform tracking system with appropriate reporting forms.         5/96
     2.      Translate forms into Spanish.                                             5/96
     3.      Develop training program for management agents on the use of
             forms, interpretations of policy and how to fill out forms properly.      5/96
     4.      Develop computerized tracking system through modifications in the
             property management software.                                           10/1/96
     5.      Assess implementation of training system and use of forms.              7/30/96
     6.      Provide follow-up technical assistance to property managers not
             properly using forms                                                     7/1/96
     7.      Identify areas that are not in compliance through spot checks as well
             as regular site audits by the Asset Management Division - establish
             area targets.                                                            7/1/96



                                                5
                                                                                           Chapter 1


       8.   Develop report of non-compliance of property managers who fail to
            meet defined turnaround targets.                                         7/1/96
       9.   Use tracking system to identify program areas that are responsible
            for the greatest amount of time in turnaround time and concentrate
            technical assistance.                                                   10/1/96
     10.    Develop user manual and policy guidebook for CAM II property
            management software.                                                     7/1/96
     11.    Train all property management companies on maximizing use of
            CAM II software.                                                         7/1/96
     12.    Request from HUD modifications of this PHMAP indicator.                 8/15/96

All strategies were to be completed by October 1, 1996. The PHA reported in its December 31,
1996, progress report that it had completed 10 of the 12 strategies. The strategies reported as not
complete were strategies 6 and 10. However, we noted that five strategies, reported as complete,
were not fully accomplished.

The PHA reported that it had developed a uniform tracking system with appropriate reporting
forms (strategy 1). Although a manual system had been developed, we noted the management
agents submitted contradictory and inaccurate information. For example, some units were
reported as both vandalized and deferred due to modernization. Also, units in the pre-
modernization stage were not accounted for as part of unit turn around time.

The PHA reported that it had completed a computerized tracking system (strategy 4) and
evaluated implementation after training the management agents (strategy 5). However, we
determined that the computerized tracking system was not fully developed. The software
produced some reports with some information that would be needed in a tracking system.
However, the reliability of the information was questionable. For example, we reviewed a
December 31, 1996, turnaround report. We noted the report contained several errors pertaining
to the move-in and move-out dates of new and former residents. The errors resulted in a negative
amount of turn around days, which obviously can not occur. A PHA official stated that they did
not really have a computerized tracking system. The official said the software program contained
historical data that could be used to follow or trace certain trends, but was not a tracking system.
The official advised that the software would need to be modified to meet the new HUD PHMAP
requirements. However, a new version of the software was not expected to be released until the
end of 1997.

The PHA reported that it had reviewed the October and November 1996 reports and determined
they were in compliance (strategies 7 and 8). We noted that reports prepared by PHA monitors
showed average turnaround times of 68 days at one project and 119 days at another project,
which were not in compliance with the PHA’s 18 day goal.




                                                 6
                                                                                        Chapter 1

A PHA official provided various reasons for not meeting the target dates. He stated that most of
the dates were not real target dates, and once the PHA was off the troubled list, they forgot the
MOA. He also stated that considerable efforts were targeted to the changes required under the
new PHMAP rules.

HUD staff performed a confirmatory review of PHMAP documentation and certifications for
fiscal year ended June 30, 1997. Although HUD’s review objective did not assess strategy
implementation, HUD did assess vacancy and unit turnaround time. HUD pointed out that staff
still produced reports manually, and that the system was archaic, time consuming and contributed
to a high level of errors. HUD pointed out the PHA needed to complete development of the
computerized tracking system.

Auditee Comments

The PHA commented that it is currently discussing changes with the software vendor. It is also
no longer required to track and report unit turnaround data as a result of the revised PHMAP
rules.

Conclusion

Although the PHA had made some progress, we concluded the PHA still did not have a reliable
tracking system supported by reliable and accurate data. The PHA needed to continue efforts to
develop an automated system to produce reliable and accurate data.




                                               7
                                                                                        Chapter 2




                           Maintenance
Previous HUD and consultant reviews showed the PHA work order system was inadequate. The
reviews disclosed that the system was not sufficient to provide the PHA with a means of
monitoring the maintenance operations and tracking the work actually performed.

HUD uses information concerning outstanding work orders (emergency and non-emergency) to
evaluate how the PHA accounts for and controls its work orders, and its timeliness in preparing
and issuing work orders. The MOA pointed out that in 1994, the PHA had 6 percent outstanding
non-emergency work orders, representing a “C” score in the PHMAP evaluation. The PHA
established a goal to reduce outstanding non-emergency work orders to 4 percent, and complete
99 percent of emergency work orders within 24 hours. The MOA consolidated PHA efforts to
improve the work order system. The MOA pointed out that property managers did not use a
standard work order reporting form, did not use uniform work order assignment forms for their
employees, and did not uniformly classify work order requests. The MOA contained the
following 11 strategies to improve the work order system:

    1. Develop uniform tracking system with appropriate reporting forms;
       emphasis on standardization.                                              5/96
    2. Translate forms into Spanish.                                             5/96
    3. Develop training program for management agents on the use of
       forms, interpretations of policy and how to fill out forms properly.      5/96
    4. Develop computerized tracking system through modifications in the
       property management software.                                          10/1/96
    5. Assess implementation of tracking system and use of forms.             6/30/96
    6. Provide follow-up technical assistance to property managers not
       properly using forms.                                                  6/30/96
    7. Identify areas that are not in compliance through spot checks as
       well as regular site audits.                                            8/1/96
    8. Develop report of non compliance for property managers who fail
       to meet defined turnaround targets.                                     8/1/96
    9. Update maintenance and tenant charges list.                             9/1/96
   10. Update policies and procedures for tenant supplied appliances such
       as stoves, refrigerators, water heaters, and electric hot water
       shower heads.                                                           9/1/96
   11. Request from HUD a modification for calculation of this indicator.     8/15/96




                                              8
                                                                                       Chapter 2

All the strategies should have been completed by October 1, 1996. The PHA’s December 31,
1996, progress report showed that 8 strategies had been addressed and were considered complete
(strategies 1, 2, 3, 4, 6, 7, 8, and 11). We found that one of the strategies was not fully
implemented (strategy 4). The PHA reported that it had developed a computerized tracking
system to monitor work orders. However, we found that not all property managers used or
submitted the required reports.

Although the PHA had made progress in implementing the strategies, the efforts had not been
effective in improving the PHA’s performance.

HUD’s confirmatory review for fiscal year ending June 30, 1996, showed the PHA’s outstanding
non-emergency work orders exceeded 12 percent and that it had completed only 87 percent of
emergency work orders within 24 hours. The result was an “F." The PHA’s December 31, 1996,
progress report disclosed that the PHA met the 99 percent target on emergency orders.
However, its score on outstanding non emergency work orders worsened to 17 percent.

HUD staff performed a confirmatory review of PHMAP documentation and certifications for
fiscal year ended June 30, 1997. The PHA certified to a grade of “F” for emergency work orders
completed or abated within 24 hours, and an average of 48 days to complete non-emergency
work orders for a grade of “D”. Although HUD’s review objective did not assess strategy
implementation, HUD did assess the work order system. HUD pointed out that the PHA
modified the form used by the tracking system. The form omitted essential information that
identified the number of work orders for repair of units or systems generated by the annual
inspections. Also, the PHA did not generate work orders for failed items identified in the annual
inspections. For example, HUD noted the PHA did not generate emergency work orders for
safety violations concerning gas stoves and shower water heaters that were connected to the
bathroom lamp with extension cords. Thus, HUD could not ascertain the actual number of
emergency work orders generated and whether they were corrected or abated within 24 hours.
Furthermore, HUD could not determine the number of deferred non-emergency work orders
outstanding, nor the number of days that should have been calculated. HUD concluded there was
a system to track work orders, but the system was not effectively used since some work items by-
passed the system, and the PHA was not consistent in issuing emergency work orders.

Auditee Comments

The PHA stated it had recently corrected all inspection forms to capture missing information. The
PHA said it plans to purchase 12,000 electric stoves for those units in developments that are in
violation of HUD housing quality standards. The PHA also plans to purchase water heaters for
those units where shower head heaters are currently in use. They believed these measures will
lead to safer living environments, and substantially improve the PHMAP score.

Conclusion

Although, the PHA had implemented many strategies, we concluded the PHA had not established
an effective computerized maintenance tracking system and implemented procedures and controls
to complete work orders within acceptable time frames.

                                               9
                                                                                       Chapter 3




                  Annual Inspections
Previous HUD and consultant reviews showed that the PHA lacked adequate systems for tracking
annual inspections and the condition of units and systems.

The MOA pointed out the PHA did not have standard reporting and tracking forms, did not
monitor property managers’ performance, and failed to provide continued technical assistance to
those firms who were not in compliance. Additionally, the PHA needed to formalize a number of
significant housing quality policy issues. For example, the PHA did not provide stoves,
refrigerators, or domestic hot water. Many tenant supplied appliances and hot water makers were
often hazardous. Also, most smoke detectors were battery operated, and there was no program
to assure that batteries were functioning. The PHA proposed 13 strategies with the following due
dates:

      1.    Develop uniform tracking system with appropriate reporting
            forms.                                                                   5/96
      2.    Translate forms into Spanish.                                            5/96
      3.    Develop training program for management agents on the use of
            forms, interpretations of policy, and how to fill out forms
            properly.                                                                5/96
      4.    Develop computerized tracking system through modifications in
            the property management software.                                     10/1/96
      5.    Assess implementation of tracking system and use of forms.            6/30/96
      6.    Provide follow-up technical assistance to property managers not
            properly using forms.                                                 6/30/96
      7.    Identify areas that are not in compliance through spot checks as
            well as regular site audits by the Asset Management Division.          7/1/96
      8.    Develop report of non-compliance for property managers who
            fail to meet defined turnaround targets.                               7/1/96
      9.    Develop policies and procedures for inspection of propane
            tanks, water heaters, refrigerators and stoves; include
            responsibility for tenant supplied appliances and tenant charges
            if tenant does not correct deficiencies.                               9/1/96
     10.    Develop tracking system for major system repairs.                      9/1/96
     11.    Computerize tracking system on calendar days to correct
            deficiencies found in Housing Quality Standards (HQS)
            inspections.                                                          10/1/96
     12.    Ensure compliance with local building codes; develop checklist
            of local code issues.                                                  8/1/96
     13.    Request from HUD a modification or an exclusion for
            calculation of this indicator.                                        8/15/96




                                               10
                                                                                            Chapter 3



All the strategies should have been completed by October 1, 1996. The PHA’s December 31,
1996, progress report showed that it had completed 10 strategies (strategies 1, 2, 3, 4, 6, 7, 8, 10,
11, and 13). We found that three of the completed strategies were not fully implemented. The
PHA reported that it had developed a computerized tracking system through modifications in the
property management software (strategy 4), and provided training and technical assistance to
property managers on the new computerized forms (strategy 6) and tracking system (strategy
11). However, our discussions with a PHA official disclosed the property managers were not
submitting computerized tracking system reports to the PHA, training was provided on manual
forms, not computerized forms, and that some management agents continued to submit required
reports in manual form.

When questioned concerning reasons for not timely meeting MOA strategies, a PHA official
explained that lack of adequate planning had resulted in difficulties in meeting established
deadlines. Also, the PHA official indicated the PHA initially may have established goals it could
not achieve.

HUD evaluated the PHA’s inspection program and tracking systems during its confirmatory
review of the PHA’s documentation and certifications for fiscal year ended June 30, 1997. HUD
pointed out the PHA had developed a system to track work orders and plan maintenance
activities. However, the PHA did not properly record all work items, which made the system
ineffective. For example, PHA inspections showed that only 59 percent of the units passed HQS,
thus work orders should have been generated for the 41 percent that failed HQS. HUD found
that the PHA did not provide information concerning work orders generated for the failed units.
HUD also observed deficiencies regarding the quality of inspections for units and systems. For
example, some units failed while others with the same deficiencies were passed. Also,
maintenance plans were not found for some communities, while plans for other communities were
actually preventive maintenance programs. Furthermore, the PHA still had not addressed serious
housing quality issues. For example, the PHA had not addressed the issue of hazardous tenant
supplied water heaters and stoves with gas tanks stored in the units.

Auditee Comments

The PHA believed the inspection program had improved significantly over the past 2 years. New
forms had been developed, monitors had been trained, management agent staff had received
technical assistance and spot checks had improved. It also planned to install a computerized
tracking system during the next fiscal year.

Conclusion

Although the PHA had implemented many strategies, we concluded the PHA still did not have an
effective inspection program and had not addressed serious housing quality issues.
                                                                                           .




                                                 11
                                                                                            Chapter 4




                         Modernization
Previous consultant and HUD reviews disclosed problems with the PHA’s modernization
programs. The PHA lacked appropriate tracking systems for budgets and implementation
schedules for the Comprehensive Improvement Assistance Program (CIAP) and the
Comprehensive Grant Program (CGP). Consequently, funds were not timely obligated, or spent
and planned improvements were not performed.

The MOA pointed out the PHA systems were not sufficiently designed to obtain accurate
information nor were they able to track expenditures properly. To correct these deficiencies, the
PHA proposed 29 strategies with the following due dates:

    1.   Request HUD approval of budget revisions and project
         implementation revisions for all CIAP modernization projects.            6/1/96
    2.   Request HUD approval for modification of modernization
         PHMAP score due to conditions beyond its control.                      8/15/96
    3.   Issue bid for accounting services to reconstruct special
         purpose modernization dollars from the 1992 CGP distributed
         by HUD and the PHA during the transition to private
         management companies.                                                    7/8/96
    4.   Award contract for accounting services to firm with
         modernization experience to reconstruct 1992 CGP special
         purpose dollars.                                                         8/1/96
    5.   Receive report on 1992 CGP.                                             11/1/96
                                                                                 30 days
    6. Make necessary budget revisions based on report.                     after receipt
    7. Make current all expenditures for 1993, 1994, and 1995 CGP.                9/1/96
    8. Develop a computerized financial tracking system for all CGP
       expenditures, including contract amount, obligated funds,
       expended funds, unobligated funds, and unexpended funds.                   7/1/96
    9. Assess budget revision/implementation schedule in order to
       obligate all funds and to transfer unobligated funds for CGP              30 days
       1992.                                                                after receipt
   10. Request HUD approval of budget revisions and project
       implementation schedules for all CIAP. Revise budget and
       project implementation schedules as required.                              7/1/96
   11. Train compliance monitoring unit of Modernization and
       Planning Division.                                                       10/1/96




                                               12
                                                                                      Chapter 4


     12.    Put out to bid project management services for CGP 1995.                 6/15/96
     13.    Award project management services for CGP 1995.                          8/15/96
     14.    Monitor project management services.                                     10/1/96
     15.    Monitor modernization projects managed by the Puerto Rico
            Public Buildings Authority.                                               6/1/96
     16.    Take corrective action on HUD modernization review
            significant findings.                                                     6/15/96
     17.    Prepare budget submission for CGP 1996.                                   7/18/96
     18.    Determine if CGP1996 to be bid or contracts awarded for CGP               30 days
            1995 will be amended to include 1996 award.                        after approval
     19.    If amended contract permissible, then amend contracts and                 30 days
            enter into negotiations.                                           after approval
                                                                                      30 days
     20.    If CGP 1996 to be bid, determine bid schedule.                     after approval
     21.    Take corrective action to ensure that projects are coming in
            under budgets, on time and with quality modernization.                    6/1/96
     22.    Develop work plan for siting modernization monitoring field
            offices for monitoring Public Building Authority projects,
            private management projects, and managing agent projects.                7/15/96
     23.    Deploy modernization monitoring staff to field offices.                   8/1/96
     24.    Review modernization monitoring structure for
            effectiveness.                                                           2/15/97
     25.    Develop master list of HQS related modernization items, i.e.,
            smoke detectors, hot water heaters, and propane storage tanks.            9/1/96
     26.    Submit to HUD for review any project implementation
            schedule revision if needed.                                             10/1/96
     27.    Develop work plan for Fundware implementation of
            modernization module.                                                     8/1/96
     28.    Complete software implementation.                                        9/15/96
     29.    Train staff on software.                                                  8/1/96

All but one of the strategies should have been completed by November 1, 1996. The PHA’s
December 31, 1996, progress report showed that it had completed 13 strategies (strategies 1, 2,
3, 4, 12, 13, 14, 15, 16, 17, 18, 19, and 20).




                                              13
                                                                                         Chapter 4

We discussed the status of the remaining strategies with PHA officials. The officials said they had
not completed the strategies due to various reasons. For example, they could not complete
strategies 5, 6, 7, 9, and 26 until they awarded an accounting service contract and received the
report. They could not complete strategies 8, 21, 28, and 29 due to technical problems, such as
electrical and communication line connections, and computer viruses. Strategy 27 could not be
implemented because there was no module available. They could not complete strategies 11, 22,
23, 24, and 25 due to problems in hiring licensed engineers.

HUD evaluated the PHA’s modernization program during its confirmatory review of the PHA’s
documentation and certification for fiscal year ended June 30, 1997. HUD found many problems
and concluded the PHA lacked the ability to obligate and use funds timely. For example, CIAP
grants 1987-1990 were not expended until the end of August 31, 1997. Also, CGP 1992 and
1993 grants had unexpended funds at September 30, 1997. Therefore the funds were not spent
within the 3 year time period. Also, funds were not obligated within the latest approved
implementation deadlines. For example, the PHA received two Lead-Based Paint (LBP) Testing
grants, one in 1993 and the second in 1995. The PHA did not meet its implementation schedule
deadline of spending the funds within 18 months as funds remained unexpended at June 30, 1997.
Furthermore, both grants did not meet the newly approved HUD revised implementation deadline.
HUD also found that modernization records were poorly organized, not readily available, and
substantially incomplete. The PHA failed to provide copies of revised implementation schedules,
current budgets, recent reports, and quarterly obligation data and back-up in a timely fashion.
Program reporting and management was split between two departments with poor coordination
between them. For example, one department requested an extension to spend the LBP 1993
grant, only to discover the funds were already spent. No technical or management staff appeared
to assume any responsibility for the payment process, HUD draws, budget monitoring and
revisions, implementation schedule compliance, and reporting. HUD designated the PHA as
“Modernization Troubled.”

Auditee Comments

The PHA said it hired a private company in January 1998 to assist and train PHA staff in the day
to day operations of the modernization department. Over the next 18 to 24 months, this firm will
develop systems to ensure programmatic and regulatory compliance.

Conclusion

Although the PHA had made some progress, we concluded the PHA still did not have a reliable
tracking system supported by reliable and accurate data. The PHA needed to continue efforts to
develop an automated system to produce reliable and accurate data, obligate and use funds timely,
and improve overall documentation.




                                                14
                                                                                           Chapter 5




     Rent Collection and Tenant
        Accounts Receivable
Previous HUD and consultant reviews disclosed that the PHA had been deficient in collecting
rents and maintaining accurate and reliable data. Also, account receivable balances maintained at
the central office did not reconcile with information maintained at the projects. The 1996 MOA
contained strategies targeted to implement an aggressive rent collection program and improve the
data record keeping.

Rent Collection

The PHA’s goal was to collect 90 percent of total rent. The MOA showed that in 1994, the PHA
collected 82 percent of the rent, for an “F” score. The MOA included 10 strategies to improve
PHA performance in collecting rents:

      1.   Implement a write-off policy to ensure regular and timely
           accounting of uncollected rents.                                       7/1/96
      2.   Modify property management software to track rent collection
           activity; and to separate current rents, back rent, tenant charges,
           and late charges.                                                     9/30/96
      3.   Assess data collection systems and modify as needed.                  12/1/96
      4.   Develop a rent collection policy that includes eviction procedures.
                                                                                  7/1/96
      5.   Reduce monthly management fee for management agents who
           have collected less than required rent collection and who have not       On-
           taken action to collect back rent due.                                  going
      6.   Develop action plans for areas identified as “hard to collect.”        7/1/96
      7.   Develop centralized repayment agreements data base from
           information tracked through property management software.              9/1/96
      8.   Track evictions through centralized data bank.                         2/1/97
      9.   Develop internal controls to track rent collection in order to
           reconcile on-site rent collection data (rents charged, rents
           collected, rent collection reports submitted by agents, manager’s
           financial ledgers, rent deposits and HUD form 52295).                 10/1/96
     10.   Amend property management contracts or design policy to ensure
           management agents reconcile bank statements monthly.                  12/1/96




                                               15
                                                                                          Chapter 5

Nine of the 10 strategies were due by December 1, 1996. The PHA reported in its December 31,
1996 progress report that it had completed two strategies (strategies 2 and 5). The PHA reported
that it had modified the property management software and provided training to all property
managers (strategy 2). However, in March 1997, the PHA determined the software did not
provide for the computation of the dwelling rent uncollected. Therefore the system would have
to be modified to identify, track, and report on uncollected dwelling rent. A PHA official said a
new version of the software would not be released until late 1997. The PHA reported that it did
not have to reduce monthly management fees because all management agents were in compliance
(strategy 5). Our review disclosed that this was not true. We found 8 agents had uncollected rent
that exceeded 10 percent. The uncollected rent ranged from 37 to 11 percent. PHA officials did
not provide any reason why HUD was given incorrect information, and why there was no need to
enforce any penalty to reduce management fees.

We discussed the status of the remaining strategies with PHA officials. They said the write-off
and rent collection policies (strategies 1 and 4) and action plans (strategy 6) were being drafted.
They said strategies 3, 7, 8, and 9 could not be completed because the computer system was not
fully operational. They said they requested bank reconciliations from management agents
(strategy 10). However, a sample letter showed the management agent had not provided the bank
reconciliations for 6 months.

Tenant Accounts Receivable

HUD also uses information concerning tenant accounts receivable to evaluate the PHA’s
collection practices. The PHA goal was to have outstanding tenant accounts receivable balances,
excluding amounts covered by formal up-to-date repayment agreements, of less than 10 percent
of the total rent charges for the reporting month. The MOA disclosed that in 1994, tenant
accounts receivable for tenants in possession was 55 percent of total rent charges resulting in an
“F” score. To improve the performance in this area the PHA proposed 9 strategies:

       1.   Ensure management agents provide monthly rental income
            information.                                                             7/1/96
       2.   Analyze monthly reports.                                                Monthly
       3.   Ensure management agents are sending out rent arrears letters and
            entering into payment plans.                                            Monthly
       4.   Maintain centralized repayment agreement inventory and ensure
            for monthly update.                                                     Monthly
       5.   Computerize notification system, rent information and repayment
            information systems.                                                     10/1/96
       6.   Develop and implement internal control policy that adequately
            distinguishes between rents and other charges.                            8/1/96
       7.   Make necessary adjustments to software to ensure implementation
            of internal control policy.                                               8/1/96




                                                16
                                                                                       Chapter 5


       8.   Design and implement tenant account receivable write-off policy for
            residents not in possession to distinguish between rents and other
            charges written off.                                                    8/1/96
       9.   Reconcile the accounts of each management agent to account for
            amounts owed the companies by the PHA for receivables other than
            rents that were collected.                                            10/1/96

All the strategies were to be completed by October 1, 1996. The PHA’s December 31, 1996,
progress report showed that the PHA had completed four strategies (strategies 1, 5, 6, and 7).
However, the PHA did not have supporting documentation to show that they had completed
strategies 5, 6, and 7. A PHA official said the PHA would not complete the remaining strategies
because they were not applicable to the new PHMAP requirements.

HUD reviewed rent collection during its confirmatory review of the PHA’s documentation and
certifications for fiscal year ended June 30, 1997. HUD determined rent collection had improved
but noted some discrepancies between various documents. For example, the beginning balance of
tenants in possession reported on form HUD-50072 did not agree with the ending balance at June
30, 1996. There was a 821 unit discrepancy in the total units reported on form HUD 52295 and
the Statement of Operating Receipts and Expenditures. Also, tenant accounts receivable per the
consolidated balance sheet did not agree with the amounts reported on form HUD 52295 for June
30, 1997. Furthermore, HUD could not identify the tenants who vacated units during the year
that were reported in the $498,293 for vacated tenants accounts.

Auditee Comments

The PHA said it contracted with an accounting firm in January 1998 to assist in the management
of the Finance and Administration Area. The firm will provide resources and expertise to ensure
the efficient administration of fiscal systems, establish internal controls and safeguards, and
provide appropriate training to PHA finance staff.

Conclusion

The PHA should continue efforts to establish controls and procedures to improve its rent
collection practices and ensure the accuracy and reliability of tenant accounts receivable data.




                                               17
                                                                                         Chapter 6




                            Development
Previous consultant and HUD reviews disclosed the PHA lacked a system to track development
program expenditures and failed to timely close out completed development projects. Also, the
PHA lacked budgets, and obligation and expenditure data; therefore, it could not assure program
obligations and expenditures were within program budgets.

The MOA showed that the PHA received an “F” score (0 points) for 1994 in both components -
Timeliness of Development, and Budget Control. The MOA expected that within 1 year, all
outstanding development budgets would be closed out and that all appropriate budget revisions
would be made where necessary. The PHA established six strategies to enhance its tracking
ability and close out completed projects:

      1.   Close out existing development projects from previous
           years.                                                            3/30/97
      2.   Create system to track development, including development
           close-out.                                                       11/30/96
      3.   Staff compliance monitoring unit in the Modernization and
           Planning Division.                                                9/30/96
      4.   Meet quarterly with Caribbean Office of Public Housing to
           develop regular update list of development status.                  7/1/96
      5.   Computerize project management and case tracking system
           for all development deals.                                        11/1/96
      6.   Submit Actual Development Cost Certificates (ADCC) for
           all open development projects for which construction
           activities were completed and are currently under
           management.                                                       8/30/96

Five of the six strategies were due by December 31, 1996. The PHA reported in its December 31,
1996 progress report that it had completed one strategy (strategy 4).

The PHA reported in its September 30, 1996, progress report that arrangements were in process
to award the single audit and close out existing development projects (strategy 1). We found that
was not correct. A May 9, 1997, memorandum showed the PHA had not started the procurement
process. On January 27, 1997, the PHA submitted ADCCs for four projects that were completed
(strategy 6). However on July 9, 1997, HUD returned the documents to the PHA because they
contained inaccurate information. During our review, the PHA completed strategy 3 by staffing
the monitoring unit.

We discussed the status of the remaining strategies. PHA officials told us that strategies 1 and 6
would be included in the single audit of the housing department. At the end of our audit field
work, the PHA still had not contracted for the single audit. PHA officials told us the
computerized system for strategies 2 and 5 would be completed by May 31, 1997. However, at
July 8, 1997, the computerized tracking system did not meet its intended purpose because the

                                               18
                                                                                        Chapter 6

system did not include development projects that had been closed or were in the process of being
closed. The system showed only the status of the development projects from the date of fund
reservation until the project was physically completed. It did not show whether the projects were
closed or in what stage of closing they were in. Also the system did not provide information on
budget and expenditures.

Auditee Comments

The PHA said the private firm contracted to provide assistance in the modernization area would
also establish a coordinated plan for development funds. The plan includes the development of
close out procedures to track outstanding funds, and creation of a computerized tracking system
to ensure regulatory compliance and provide regular status updates.

Conclusion

We concluded the PHA did not have an adequate system to track development expenditures and
budgets. The PHA needed to continue efforts to develop an automated system to produce
reliable and accurate data and timely close out completed projects.




                                               19
                                                                                         Chapter 7




            Financial Management
                 Functions

Previous consultant and HUD reviews disclosed serious financial management and record keeping
issues. The reports pointed out that poor organization, limited data processing capability, staff
capacity limitations, and the lack of a coordinated and effective budget planning and monitoring
function all impeded the PHA’s operations. As a result, financial reports were not reliable or
timely prepared.

The MOA did not provide any short term strategies. However, it included a 2 year improvement
plan to address the financial management problems. The PHA established two primary objectives
- rebuilding the financial structure, and creation of a financial monitoring and tracking system.
The 2 year plan listed 10 tasks with 54 steps to accomplish the objectives. We selected and
evaluated the PHA’s implementation of 3 tasks containing the following 17 steps:

Task 2 - Develop a fiscal monitoring system and establish internal controls:

      1.   Establish a uniform accounting system for the private
           management areas and Central Office.                                 7/1/96
      2.   Establish an electronic communication system with
           administrative agents' offices, projects, and central office.       7/15/96
      3.   Provide access to all the administrative agents and central office
           staff.                                                               7/1/96
      4.   Train users of system: Use the provider resources of the
           accounting system, and perform tests of the operating system.      10/30/96
      5.   Discontinue actual accounting system and establish the new
           official system.                                                     7/1/96
      6.   Establish internal controls as prepared by financial consultants.      5/96

The PHA completed only 2 (steps 2.4 and 2.5) of the 6 tasks. The PHA discontinued the use of
its old accounting system and started using a new system referred to as “FUNDWARE."
However, we noted the system did not provide for an accounts payable subsidiary ledger or other
similar record from which a history of contract payments could be easily determined. The
computerized system was not able to produce a list of all payments made to a specific supplier.
PHA officials said the system would not be fully implemented until late 1997.




                                                20
                                                                                       Chapter 7

We noted the PHA still lacked adequate internal controls. During our review, the PHA
improperly disbursed four payments totaling over $1 million. PHA staff had not properly
reviewed the documents because the vouchers were supported by copies instead of original
documents.
A previous Office of Inspector General audit (96-AT-201-1821, dated June 26, 1996) disclosed a
management agent charged duplicate costs of $433,736 for a comprehensive grant program, and
we recommended the PHA recover the funds. During our review, we found the PHA recovered
the funds but deposited the funds to the operating account instead of the comprehensive grant
program. Our audit also disclosed the PHA had not remitted unspent 1990 Drug Elimination
Grant funds. We recommended the PHA remit $1.1 million of unused funds to HUD. The
amount was later reduced to $970,812, and the PHA sent a check to HUD in December 1996.
HUD advised the PHA in January 1997 to remit the funds by wire transfer. The PHA did not
correctly follow the wire transfer process and, at our audit completion date, had not reimbursed
HUD.

Task 3 - Reconcile accounts for FY1992, FY1993, and FY1994:

        1.   Request from HUD funds for financial management services to
             reconcile accounts in FY1992, FY1993, and FY1994.                    7/1/96
        2.   Prepare an inventory of accounts and documents to facilitate
             the reconciliation.                                                8/15/96
        3.   Create a reconciliation task force to expedite process.             8/1/96
        4.   Compile all expense reports from the managing agents.              9/15/96
        5.   Complete the reconciliation of accounts for the years 1994-
             1995.                                                              1/15/97
        6.   Complete the reconciliation of accounts for the years 1992-
             1993 and 1993-1994.                                                5/15/97

The PHA had not completed any of the six tasks. The PHA awarded a contract for the
reconstruction and reconciliation of the financial data for the 1987 through 1991 Comprehensive
Improvement Program, and the 1992 and 1993 Comprehensive Grant Programs. The auditor
identified $21 million of unobligated CIAP funds and $31 million of unobligated CGP funds. The
audit contract was initially awarded to reconstruct and reconcile the CGP funds but was amended
twice to include the CIAP funds for a total price of $991,000. The PHA did not contract any
financial services to reconcile the other accounts. The PHA needed to reconcile all accounts so
the auditors can perform the annual financial audit.




                                              21
                                                                                        Chapter 7

Task 7 - Ensure that the financial audits are current:

         1.   Expand the contract scope of the PHA external auditors, Price
              Waterhouse, to complete the single audits for 1993-94 and
              1994-95.                                                               8/1/96
         2.   Complete the process of reorganizing, creating, and contracting
              for an internal auditor for the PHA.                                  12/5/96
         3.   Compile the manuals and guides for the internal auditors.             12/1/96
         4.   Develop a plan for the internal audits to maximize the
              accounting of the private management contracts and central
              office.                                                             On-going
         5.   Receive audits.                                                      12/1/97



At the time of our review, the PHA had not contracted for the single audits for fiscal years 1994,
1995, and 1996 that were past due. The last single audit report was for the year ended June 30,
1993. The independent auditor issued his report October 31, 1995, but was not able to and did
not express an opinion on the financial statements. He concluded the PHA’s internal controls and
procedures were inadequate and the records did not provide sufficient evidence supporting
transactions and balances on the financial statements.

During its 1997 confirmatory review, HUD observed that the PHA financial reports were not fully
reliable or timely. HUD noted numerous instances of poor documentation and unexplained
variances in reports. For example, there was a $494,845 difference between the amount of
investments shown on the balance sheet and the amount reported to HUD for the year ended June
30, 1997. Also, there was a $ 323,860 difference for the amount of total routine expenses. HUD
pointed out that the lack of computerization was having an impact on data collection, data
consolidation, and timely reports. The lack of a computer system required many manual steps to
complete reports for projects managed by 18 different management agents and 12 self-managed
resident corporations.

Auditee Comments

The PHA said it had recently reconciled various accounts, and is in the process of establishing
property ledgers. The auditee commented that it had recently reviewed, revised and strengthened
many procedures, and purchased new computer hardware and software. An accounting firm
began the single audit in April 1998.

Conclusion

Although the PHA had made some improvements, it still did not have an adequate financial
system, had not reconciled all accounts, and lacked adequate controls and procedures to
safeguard HUD funds.



                                                 22
                                                                                                                          APPENDIX A
                                                      AUDITEE COMMENTS


                                               GOVERNMENT OF PUERTO RICO
                                                 DEPARTMENT OF HOUSING
                                                       VIVIENDA


ANA CARMEN ALEMANY
SECRETARY

          May 7, 1998

          Ms. Nancy Cooper
          District Inspector General
          for .Audit - Southeast/Caribbean
          Urban Development
          Richard B. Russell Federal Building
          75 Spring Street, SW, Room 330
          Atlanta, GA 30303-3388

          Dear Ms. Cooper:

          Enclosed for your review is the Department of Housing Public Housing Administration (PRPHA)
          response to the limited review of the PRPHA (Report 98-AT-201-18 IX) by the office of the
          Inspector General.

          The purpose of the review was to assess the PHA's progress in correcting its long-standing
          operational problems,

          We include the following documents:

               1. PRPHA Comments to the Report of the HUD Inspector General "Assessment of
          Progress made on Agreements with HUD"

                 2. PRPHA OIG Action Action Plan Results

                 3. PRPHA 1998 Improvement Plan

          We look forward to your comments on the aforementioned, and if you have any questions please
          contact us.


          Sincerely,


          Ana Carmen Alemany
          Secretary

          c: Mr. John Blakeman
          Ms. Hildamar Ortiz

P.O. Box 21365 -San Juan -Puerto Rico-00928-1365 - 606Barbosa Ave. -Hato Rey - Puerto Rico - 00918 -Tel. (787) 274-2000 -Fax. (787) 758-
9263




                                                                    23
                            PRPHA COMMENTS TO THE REPORT OF THE
                                   HUD INSPECTOR GENERAL
                   "ASSESSMENT OF PROGRESS MADE ON AGREEMENTS WITH HUD"

                The March 26, 1998 Draft Report from the District Inspector General for Audit,
    Southeast/Caribbean, 4AGA has noted PRPHA's non-compliance with time schedules for
    completing various tasks related to individual PHMAP Indicators. However, the 1995
    Action Plan, the 1996 MOA, and the 1998 Improvement Plan all have two objectives in
    common: to get the PRPHA off of HUD's list of troubled agencies and to create an
    efficient administration of Public Housing in Puerto Rico. The first of these objectives
    was achieved by June 30, 1996. With this objective in hand, tasks and time schedules
    changed. They changed once again after the 1997 PHMAP as noted in the 1998
     Improvement Plan - see enclosed copy of revised strategies and time schedules. The
     achievement of the second objective is on going and will ensure that the PRPHA will
     remain off HUD's list of troubled agencies. The following is a brief executive summary
     of the actions taken by the PHPHA to improve its administration of public housing.

     Executive Summary

               In October of 1994, the Puerto Rico Public Housing Administration (PRPHA)
    requested technical assistance from HUD to develop proper operating systems and ensure
    an efficiently managed public housing agency. In January 1995 HUD responded by
    providing such assistance. The first document produced from this technical assistance
     was the February 6, 1995 Action Plan (AP) between the Puerto Rico Department of
    Housing, the PRPHA and HUD.

                The AP served as a strategic planning document to ensure that the PRPHA was
    focused on the creation of systems and the institutionalization of changes. The goal of
    the technical assistance and of the AP was to ensure the PRPHA's removal from HUD's
    list of troubled agencies. The first PHMAP submitted by the PPPHA for the fiscal year
    ending June 30, 1995 resulted in HUD not issuing a score and instead, entering into an
    agreement for long-term improvement. This Memorandum of Agreement (MOA), which
    was signed on June 21, 1996, was to be in effect until June 1998 irregardless of whether
    or not PRPHA qualified as a "standard performer" under PHMAP.

               This second agreement (MOA) signed on June 21, 1996, was prepared in
    the midst of preparing the data for the.1996 PHMAP. The purpose of this MOA was to
    ensure the PRPHA's removal from HUD's list of troubled agencies. However, the next
    PHMAP submitted was for the fiscal year ending June 30, 1996 just nine (9) days after
     signing the MOA. Nonetheless, after the Confirmatory Review, HUD certified a score of
     67% thereby qualifying the PRPHA for "standard performer" status under PHMAP
     regulations. Thus prior to completing the implementation of the MOA, the PRPHA was
     removed from the troubled list. Therefore, it can be concluded that although all the goals
     and strategies were not specifically met within the time schedule agreed upon, the overall goal
     of the MOA was reached.



•   Page 1 of 10




                                                     24
                 For the fiscal year ending. June 30, 1997, the. HUD Caribbean field office
        confirmed a passing PHMAP score for a second consecutive Year. The organization
        building process, which began with the signing of the Action Plan in 1995, and the MOA
        in 1996, had made demonstrable progress. Based on the results of the 1997 PHMAP and
        in line with CFR requirements, the PRPHA set the MOA aside and prepared an
        Improvement Plan that received HUD approval on April 8, 1998.

                 Through the continuing implementation of the MOA's and Improvement Plan's
        strategies and the revision of tasks and sub-tasks originally outlined, the maturation of the
        agency staff, the technical assistance received and continuing, the PR.PHA is well on its
        way to re-building an organization that in 1995 was functionally deficient.

                 The PRPHA continues to concentrate its efforts on correcting aspects in its
        agency that need focused attention - particularly those stated in this report. One of the
        major deficiencies depicted in the report was the PRPHA's lack of a functional
        computerized system. The delay in establishing this system has been in large part out of
        the control of the PRPHA. All government agencies are required to receive approval
        from the Office of Management and Budget for their Mechanization Plan. It was not
        until February 1998, that the PRPHA finally received approval of its mechanization plan.
        With the approval in hand, the PRPHA is moving forward with all possible haste to
        complete the installation of the equipment, update software, and train personnel. In
        January 1998, the PRPHA took aggressive action to restore the financial and
        modernization programs of the agency by contracting with two private firms to assist and
        train PRPHA staff to properly manage the day to day operations of the finance and
        modernization departments. The two contracted firms are responsible for ensuring
        regulatory compliance in their respective areas and for developing systems to ensure the
        accuracy of data, timeliness of transactions and efficiency of systems. This aggressive
        step has already provided results that will institutionalize systems and operations at the
        PRPHA and, over the long term, create an efficiently administered agency,




•   Page 2 of 10




                                                         25
        Chapter 1:       Vacancy Reduction and Unit Turnaround

        Vacancy Number and Percentage

                   In the confirmatory review for the fiscal year ending June 30, 1997, the PPPHA
                   received a score of "A" in this indicator. In HUD's comments, they found that the
                   tracking system was adequate and that the information reported could be easily
                   tracked. HUD recommended that this function be computerized to limit the
                   number of errors associated with manual transcription of data from the site, to the
                   central management agent office, to the PRPHA central office. The agency, as
                   part of a larger correction to its property management software is currently in
                   discussions with the software vendor to effect such changes.

        Unit Turnaround
                The MOA was signed in June 1996. This MOA was to be in effect for two years.
                The MOA was designed to coincide with the PHMAP rules then in effect. In
                December 1996, HUD published final rules that substantially altered the
                calculation of the PHMAP score.

                   Although the new rules did not take effect until December 31, 1996, the PRPHA,
                   in conjunction with the HUD Caribbean field office, commenced planning and
                   training sessions as early as the summer of 1996. The revised PHMAP rules
                   forced the housing authority to redirect its efforts on the implementation of new
                   PHMAP rules and less on the corrective actions envisioned under the MOA. '

                   Under the new PHMAP rules, the amendments made to this indicator were
                   substantial. Thus, as a result of receiving a grade higher than "C" in vacancy
                   percentage, the PPPHA is neither required to track unit turn around data nor
                   report this information as part of the PHMAP certification. Therefore, strategies
                   developed in 1995 and 1996 to address the then outlined deficiencies are no
                   longer required.




•   Page 3 of 10




                                                        26
        Chapter 2: Maintenance

                  Since January 1998, together with the assistance of the HUD Caribbean field
                  office, all inspection forms have been corrected to capture the missing
                  information pointed out in the confirmatory review related to the inspection of
                  propane gas tanks, stoves and water heaters. this is a manual tracking system
                  that is used by all the companies. In addition, starting in January 1998, all the
                  management agents were trained in the use of these forms, and the monitors of the
                  asset management division have conducted regular audits to ensure compliance
                  with the use of the inspection forms.

                  In March 1998, the PRPHA issued an RFP to purchase approximately 12,000
                  electric stoves for those units in developments that are in violation of HUD
                  housing quality standards. That is, the stoves will be provided to those units that
                  do not have exterior gas shelters and where the units are in violation of the fire
                  and safety code. It is the policy of the housing authority that it is the
                  responsibility of each resident to maintain their appliance in proper working order
                  and to repair any violation that the property manager may detect during the annual
                  inspections. The housing authority is also amending the lease to ensure that no
                  tenant can have propane tanks inside their units during the life of their tenancy.
                  These measures will resolve many of the outstanding inspection issues identified
                  in the confirmatory review and, in the future, lead to the establishment of safe
                  living environments for our residents and to a substantially improved PHMAP
                  score.

                  With regard to the water heaters, the agency has also issued an RFP to purchase
                  water heaters for those units where showerhead heaters are currently in use. The
                  purchase and installation of the water heaters will ensure that the units meet the
                  local building code and are in compliance with HQS -




•   Page 4of l0




                                                      27
        Chapter 3:     Annual Inspections


                   The inspection program at the PR-PHA has improved significantly over the past
                   two years. New forms have been developed, monitors have been trained,
                   management agent staff has received technical assistance and spot checks have
                   improved. As a result of increased staff capacity, the monitors have been more
                   diligent in reviewing forms and providing technical assistance to the property
                   managers.

                   Although the work orders are still tracked manually, our software vendor has
                   assured us that the computerization of this system is due to be installed at the
                   agency during the next fiscal year. The new version of the software will include
                   tracking modules that correspond to information requested in the new PHMAP
                   rules. We realize that the computerization of our tracking systems will enhance
                   our ability to monitor the performance of the property managers.

                   In part, the lengthy delay in the installation of the software is attributable to a state
                   law that requires all government agencies to have an approved MIS plan prior to
                   installing software or purchasing new hardware. This additional local
                   requirement created a one-year delay in the purchase and installation of necessary
                   computer equipment. It was not until February 2, 1998 that the PRPHA received
                   approval for its computerization plan. With the approved plan, the PRPHA was
                   able to pursue an aggressive agenda with the software and hardware vendors to
                   ensure installation of the new software, equipment and the training of the
                   management agents and PRPHA staff during this year. The new software will
                   ensure that a more accurate tracking program is instituted at the agency.




•   Page 5 of 10




                                                            28
        Chapter 4:     Modernization ---

                   Since 1992, the modernization program at the PRPHA has been administered by a
                   quasi-public entity, the Puerto Rico Public Buildings Authority (PBA). Through
                   a contractual agreement, it was the responsibility of this agency to ensure timely
                   obligation and expenditure of the PRPHA modernization funds. In 1996, reacting
                   to the failure of the PBA to meet CIAP and CGP program rules, the Puerto Rico
                   Housing Secretary concluded that a new approach was required in the
                   modernization area. A decision was made to retain the services of 3 private
                   program management firms whose responsibilities were to ensure regulatory and
                   programmatic compliance in the modernization program. Simultaneously, the
                   PRPHA restructured its modernization department to emphasize the need for an
                   improved contract monitoring division

                   Working off the success of the privatization of the modernization program, the
                   agency has issued an RFP for additional program management firms to manage
                   the 1997 and 1998 CGP allocations. The use of program managers is producing
                   more timely programmatic and regulatory compliance and an overall
                   improvement in the administration of the modernization program.

                   Analyzing that many of the agency's modernization problems were still
                   attributable to the continuing role of the PBA, the Housing Secretary decided to
                   commence the process of transferring all modernization projects still under PBA
                   control and supervision to the existing program management firms. This process
                   was concluded in February 1998.

                   Given the agency's inability to recruit and hire qualified staff prepared to monitor
                   the program management contracts, strategies previously outlined in the MOA
                   had to be changed. In January 1998, the PRPHA retained the services of a private
                   company to assist and train PRPHA staff in the day to day operations of the
                   modernization department. Over the next 18 to 24 months, this firm is
                   responsible for developing systems that will ensure programmatic and regulatory
                   compliance with program rules. The firm will automate many of the processes
                   that are currently handled manually, produce reliable and accurate reports, prepare
                   timely responses to HUD requests, improve and track timely obligation and
                   expenditure of funds, establish monitoring systems for the program management
                   contracts, and improve the documentation of the modernization area.

                   The above outlined steps carne about as a result of the PRPHA's constant analysis
                   of its performance and taking aggressive and decisive action to ensure compliance
                   with HUD program rules and regulations. Over the next two years, significant
                   progress will be seen both by the elimination of the PBA as a program manager,
                   and the development of a monitoring function in the modernization division.




•   Page 6 of 10




                                                        29
        Chapter 5:       Rent collection and- tenant account receivable

                   The monitoring and reporting of rent collection activity at the agency has
                   gradually improved over the course-of the past three fiscal years. For the past two
                   consecutive years, the PRPHA has received a score of "C" in the indicator that
                   racks rent collection activity. The HUD Caribbean office outlined a number of
                   deficient areas that are currently being addressed. Primary among these is the
                   need for a computerized data collection system that will eliminate inconsistent
                   reporting.

                   In January 1998, the PRPHA contracted with an accounting firm to assist in the
                   management of the Finance and Administration Area. The firm is to provide the
                    resources and expertise to ensure the efficient administration of fiscal systems,
                   and to establish internal controls and safeguards. The firm will also provide
                   appropriate training to PRPHA finance staff, to ensure continuity of efficient
                   management.

                   Currently, rent collection reports are being reviewed monthly. Tenant accounts
                   receivable balances have been confirmed and reconciled with subsidiary ledgers.
                   Rent collection bank accounts have been reconciled and are current. Areas with
                   collection problems have been identified and an action plan is being developed to
                   address and monitor activity, and, as per the property management contracts,
                   impose penalties.

                   We are confident that the steps that we have commenced will ensure !he
                   establishment of efficient and effective controls, and improve the accurate
                   reporting of rent collection data.




•   Page 7 of 10




                                                          30
       Chapter 6:   Development

              The PR.PHA has taken additional steps to ensure the establishment of adequate
              tracking systems over expenditures and budgets. The private firm that the agency
              contracted with to provide assistance with the day to day management of the
              modernization area has among its duties to establish a coordinated plan for
              PRPHA development funds. This plan included the development of close out
              procedures to track outstanding funds, creation of a computerized tracking
              system, to ensure regulatory compliance for expenditure of development funds,
              and to provide regular status updates to the PR-HA administrator.

              We believe that this step will permit the agency to establish full control over its
              current and any future development funds.




•   Page 8                                          05/07/98                                        DRAFT




                                                      31
       Chapter 7:   Financial management functions

              The financial management systems-of the PRPHA have undergone many changes
              during the past three years. When originally created, the PRPHA inherited an
              accounting system from the failed corporation (CRUV). Without having received
              accurate beginning balances, the PRPHA finances were in a constant state of disarray.

              The PRPHA received technical assistance that permitted it to reconcile its
              accounts for fiscal year ending June 30, 1995. Although the general ledger was
              constructed having many assumptions and estimated data, it served as a basis for
              permitting the housing authority to closeout subsequent fiscal years.

              When the MOA was originally developed, the intent was to reconcile all the
              PRPHA accounts dating back to fiscal year 1993. After further discussion with
              the agency's external auditors, this process was abandoned for a process that
              would permit the Single Audit to make determinations as to. previous year..
              accounting records.

              Since the completion of the fieldwork performed for the period assessed in this IG
              report, major improvements have occurred in the fiscal division to ensure the
              long-term health and fiscal stability of the agency. General ledger, fund account,
              and investment account balances have been reconciled. Capital grant accounting,
              for CIAP and CGP has been brought current, as well as corresponding reporting
              requirements. We are in the process of establishing property ledgers. New
              computer hardware and software is being purchased for installation at the Home
              Office and Projects, ensuring more uniform and efficient data collection. Many
              procedures have been reviewed, revised, and strengthened.

              In April 1998, the accounting firm of Price Waterhouse began the Single Audit
              for the housing agency. The results of this audit will permit the agency to confirm
              the financial health of this agency. Coupled with the technical assistance for the
              management of the day-to-day operations of the Finance Area, the PRPHA within
              the next fiscal year will have a computerized financial department, supported by
              current accounts and reliable balances, disciplined through internal controls, and
              written policies and procedures. In addition, the PRPHA and the accounting firm
              will develop a monitoring system that will permit the agency to have better fiscal
              controls over its contractual obligations and the property managers.

              Finally, we make note that the FY 92, 93, and 94 accounts to be reconciled (Task
              3) were the Operating accounts, and not CIAP and CGP, as referred to.
              Nonetheless, they have all been reconciled.

              The $433,736 from the previous OIG audit was recovered from the Management
              Agent and deposited in the Comprehensive Grant Program account.


              The $970,812 was reimbursed to HUD from state funds.



•   Page 9                                      05/07/98                                         DRAFT




                                                    32
        CONCLUSION

                Since the signing of the Action Plan in 1995 and the MOA in 1996 the PRPHA
                has become a substantially different agency and strategies have changed since first
                adopted. However, throughout this time period, the mission of the agency has remained
                the same: to ensure continued improvement, remain off of HUD's list of troubled
                agencies, and become an efficiently administered public housing agency. Although some
                targets have not been met and not all sub-tasks have not been completed, with the major
                building blocks in place the PRPHA is well on its way to becoming a sound and
                efficiently administered public housing agency.




•   Page 10 of 10




                                                     33
                                                                             APPENDIX B
                                    DISTRIBUTION

Acting Assistant Secretary for Public and Indian Housing, P
Secretary’s Representative, 4AS
Director, Office of Public Housing, 4NPH
Director, Administrative Service Center, 4AA
Audit Liaison Officer, 3AFI
Director, Accounting Division, 4AFF
Area Coordinator, Caribbean Office, 4NS
Director, Office of Budget, ARB (Room 3270)
Acquisitions Librarian, Library, AS (Room 8141)
Associate General Counsel, Office of Assisted Housing and Community Development, CD
Chief Financial Officer, F
Chief Financial Officer for Finances, FF (Room 10166)
Director, Housing and Community Development, Issue Area, U.S. GAO, 441 G Street, NW,
  Room 2474 Washington, DC 20548 Attention: Judy England-Joseph
Counsel to the IG, GC (Room 8260)
HUD OIG Webmaster-Electronic format via Email Morris_F._Grissom@hud.gov
Public Affairs Officer, G (Room 8256)
Comptroller’s Office, PF (Room P8202)
Director, General Management Division, PMG (Room 4216)
Director, Office of Capitol Improvements, PTC (Room 4130)
Assistant to the Deputy Secretary for Field Management, SDF (Room7106)
Assistant to the Secretary for Labor Relations (Acting), SL (Room 7118)
The Honorable Fred Thompson, Chairman, Committee on Governmental
       Affairs, United States Senate, Washington, DC 20510-6250
The Honorable John Glenn, Ranking Member, Committee on Governmental
       Affairs, United States Senate, Washington, DC 20510-6250
Mr. Pete Sessions, Government Reform and Oversight Committee,
       Congress of the United States, House of Representatives,
       Washington, DC 20515-4305
Ms. Cindy Sprunger, Subcommittee on General Oversight and
       Investigations, Room 212, O’Neill House Office Building,
       Washington, DC 20515
Secretary, Puerto Rico Housing Department
Administrator, Puerto Rico Public Housing Administration




                                           34