oversight

HA of New Orleans, New Orleans, LA

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-06-15.

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

                                                                    Issue Date
                                                                            June 15, 1998
                                                                    Audit Case Number
                                                                            98-FW-201-1004




TO:    Elinor R. Bacon
       Deputy Assistant Secretary
       Office of Public Housing Investments, PT


FROM: D. Michael Beard, District Inspector General for Audit, 6AGA

SUBJECT:       Housing Authority of New Orleans
               HOPE VI Grants


As part of a nationwide audit of the HOPE VI Program, we performed an audit of the Housing
Authority of New Orleans’ (Authority) Desire and Fischer HOPE VI grants to determine if the
Authority: (1) properly procured contracts under its HOPE VI grants; (2) only expended
amounts for eligible activities; (3) met the objectives of its Revitalization Plan; and (4)
implemented its community and supportive services components effectively, efficiently, and in a
manner that will allow the activities to be sustained beyond the grant term. The audit found that
the Authority has not satisfactorily administered and monitored its HOPE VI grant activities.

In our opinion the risks and uncertainties involved in the Desire implementation do not justify
such a large investment of federal funds. These risks and uncertainties include: (1) inadequate
planning for funding, costs, and marketability of units; (2) inadequate progress made on the
Desire and Fischer grant activities; (3) a poor location for the implementation site; (4) a lack of
City commitment; and (5) the poor procurement of a program manager. A troubled housing
authority and inadequate HUD oversight add to the project risks. Due to the significance of these
problems, we are reporting the results of our review now rather than waiting until the completion
of the nationwide audit.

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

Please write or call me at (817) 978-9309 if you or your staff have any questions.
Management Memorandum




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98-FW-201-1004                  Page ii
Executive Summary
As part of a nationwide review, we audited the Housing Authority of New Orleans’ (Authority)
Desire and Fischer HOPE VI grants to determine if the Authority: (1) properly procured
contracts under its HOPE VI grants; (2) only expended amounts for eligible activities; (3) met the
objectives of its Revitalization Plan; and (4) implemented its community and supportive services
components effectively, efficiently, and in a manner that will allow the activities to be sustained
beyond the grant term. Overall, the audit found the Authority has not satisfactorily administered
its HOPE VI grants. The Authority did not properly procure services, expend funds, plan its
revitalization activities, or make adequate progress in implementing its revitalization and
community and supportive services activities.

In our opinion the risks and uncertainties involved in trying to carry out the revitalization
of the Desire development do not justify the planned investment of $70 million in federal
funds. These risks and uncertainties include: (1) revitalization activities based on
conceptual plans, with uncertain funding and costs; (2) little progress made on the grant
since its award in February 1995; (3) an isolated site, surrounded by industry and an
environmentally controversial residential area; (4) no evidence of a significant City
commitment; and (5) major problems in the procurement of a program manager. Because
of these concerns, HUD has little assurance that the large federal investment will transform
Desire into a viable neighborhood. A troubled housing authority, and inadequate HUD
oversight add to risk of the planned revitalization. In addition, almost 3 years after
receiving the planning grant for the Fischer development, the Authority has only just
recently obtained a contractor to prepare a Revitalization Plan.



 Authority plans do not               The proposed Desire revitalization will cost $125 million,
 show where funding for               about half of this from federal funds. However, the
 the implementation will              Authority has no commitments or assurances that it can
 come from nor how                    obtain non-federal funding. The Authority plans to use
 much it will cost.                   federal funds mostly for infrastructure and community and
                                      supportive services, and is counting on these expenditures
                                      to attract outside investment. In addition, the estimated
                                      costs are based on conceptual plans, that include many
                                      uncertainties. Further, although the Revitalization Plan
                                      indicates housing costs would fall within HUD guidelines
                                      (Total Development Costs), our analyses show housing
                                      costs would exceed TDC limits by at least 21 percent.

 The Authority has made               The Authority’s lack of progress since being awarded the
 little progress on its               Desire and Fischer HOPE VI grants in February and June
 HOPE VI grants.                      1995, respectively, further raise doubts about its ability to
                                      successfully carry out the grants. Part of the lack of
                                      progress can be attributed to political and other
                                      circumstances     beyond      the    Authority’s    control.
                                      Nevertheless, the Authority could have made significant
                                              Page iii                              98-FW-201-1004
Executive Summary


                            progress over the last 3 years on the Desire grant in the
                            areas of demolition and relocation, self-sufficiency and
                            community       building,   management         plan,     and
                            homeownership. Further, it took the Authority from June
                            1995 until March 1998 to select a contractor for the Fischer
                            planning grant.

 Desire location has        Desire is an isolated peninsula, surrounded by industrial
 serious drawbacks.         areas, railroad tracks, heavily traveled truck routes, a
                            shipping canal, and a controversial EPA Superfund site.
                            The residential area is deteriorated, and there is little
                            commercial base to provide services and jobs. A draft
                            viability report found Desire to be the least viable of the
                            Authority’s developments. These issues regarding the
                            Desire site contribute to the risks in implementing the
                            Authority’s HOPE VI plans.

 The City has not           The City and Authority have provided little evidence to
 demonstrated a             substantiate claims of a substantial investment by the City in
 commitment to Desire.      the Desire area. The City will not be providing $5 million in
                            infrastructure improvements that it told HUD it would.
                            Also, the City does not appear to have made significant
                            efforts to improve the Desire area, does not provide garbage
                            collection services to the Authority’s developments, and has
                            not responded to the Authority’s request for its HOPE VI
                            match.

 The Authority did not      The Authority did not follow procurement requirements in
 properly procure the       selecting the Desire program manager, sole-sourced
 Desire program manager.    significant work items, and duplicated items already
                            contracted for. Further, the Authority proposes to spend 18
                            percent of its grant funds for a program manager who bears
                            little risk and will profit whether or not the implementation
                            succeeds.

 A troubled authority and   A troubled housing authority and inadequate HUD
 inadequate HUD             oversight underlie some of the troubling conditions
 oversight add to risk.     discussed above and further diminish hopes for success of
                            the Desire and Fischer HOPE VI grants. The Authority has
                            a long history of poor performance and has had little
                            success improving housing conditions for public housing
                            residents. And although some of the problems and
                            difficulties, such as Desire being in an isolated location, are
                            largely beyond its control, the Authority has done little to
                            avoid difficulties or mitigate adverse circumstances. HUD

98-FW-201-1004                  Page iv
                                                                     Executive
Summary

                            must also share some responsibility for the high risk
                            venture, in that it has not provided adequate oversight over
                            the Desire grant.

 HUD should seek ways to    In our opinion the planned Desire implementation entails
 reduce Desire risks.       unacceptably high risks. We are recommending you take
                            steps to reduce these risks to an acceptable level (i.e., a
                            level at which you believe the implementation has a
                            reasonable chance of succeeding). At a minimum these
                            steps should include ensuring concrete plans are in place
                            before proceeding, and closely monitoring the
                            implementation. If you cannot reduce the risks to an
                            acceptable level, we recommend you terminate the grant.
                            We also recommend you ensure the Authority adheres to
                            procurement regulations and require the Authority to re-
                            procure parts of the program manager contract.

 The Authority generally    On February 5, 1998, we issued an advance draft finding
 disagreed with the draft   regarding the Authority’s procurement of a program
 report.                    manager (included in this report as Finding 2). The
                            Authority responded to the advance draft finding in a
                            February 25, 1998 letter (Appendix B). On April 10, 1998
                            we issued the overall draft report, to which the Authority
                            responded on April 24, 1998 (Appendix A).            Also,
                            Authority officials and OIG staff discussed issues in the
                            draft report at an exit conference on May 5, 1998. For the
                            most part the Authority disagreed with the findings and
                            main recommendations, although it concurred with some of
                            the draft report. Based on the Authority’s written and
                            verbal comments, we made some changes to the findings
                            and recommendations, although the report’s substance did
                            not change significantly.




                              Page v                            98-FW-201-1004
Executive Summary




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98-FW-201-1004                  Page vi
Table of Contents

Management Memorandum                                                      i


Executive Summary                                                       iii


Introduction                                                              1


Findings

1    Planned Desire Implementation Poses Unacceptably
        High Risks                                                     5

2    Poor Administration of Program Manager Contract Could
       Jeopardize Desire’s Hopes for Success                         37


Management Controls                                                    53


Appendices
      A Authority Written Response to Draft Audit Report             55
      B Authority Written Response to Draft Audit Finding
         Related to its Procurement of Program Manager               85
      C Distribution                                                   97




                                Page vii                     98-FW-201-1004
Table of Contents


Abbreviations
       ACC       Annual Contributions Contract
       CDC       Community Development Corporations
       CGP       Comprehensive Grant Program
       CIAP      Comprehensive Improvement Assistance Program
       EPA       Environmental Protection Agency
       HUD       U.S. Department of Housing and Urban Development
       OIG       Office of Inspector General
       RFP       Request for Proposals
       TDC       Total Development Cost




98-FW-201-1004                           Page viii
Introduction
  Background                                              The HOPE VI Program. HUD established the HOPE VI
                                                          Urban Revitalization Program for the purpose of revitalizing
                                                          severely distressed or obsolete public housing
                                                          developments. Congress provided funding for HOPE VI in
                                                          the Departments of Veterans Affairs and Housing and
                                                          Urban Development, and Independent Agencies 1993
                                                          Appropriations Act. Over 5 fiscal years, 1993 to 1997,
                                                          Congress has appropriated $2.6 billion to fund planning and
                                                          implementation grants under HOPE VI. Congress intended
                                                          HOPE VI to remedy the distress of family developments
                                                          that are too large to be addressed by HUD's conventional
                                                          public housing modernization program. This program
                                                          provides local communities with up to $50 million per City1
                                                          to accomplish the comprehensive revitalization of severely
                                                          distressed developments.       Permitted activities include
                                                          funding of the capital costs of major reconstruction,
                                                          rehabilitation and other physical improvements, the
                                                          provision     of    replacement     housing,    management
                                                          improvements, planning and technical assistance,
                                                          implementation of community service programs and
                                                          supportive services, and the planning for any such activities.

                                                          The Housing Authority of New Orleans. The Housing
                                                          Authority of New Orleans (Authority) was established
                                                          under Louisiana statute in 1937. Currently, the Authority
                                                          administers 12,715 units of public housing in 10
                                                          conventional public housing developments and a number of
                                                          scattered sites throughout the City. The Authority also
                                                          administers over 4,000 Section 8 certificates and vouchers.
                                                          The Authority has been designated by HUD as “troubled”
                                                          since 1979. Because of the Authority’s poor performance,
                                                          the Secretary of HUD found the Authority in default of its
                                                          Annual Contributions Contract (ACC). As a result of the
                                                          breach, the City, the Authority, and HUD entered into a
                                                          Cooperative Endeavor Agreement on February 8, 1996.
                                                          This Agreement forged a management partnership that
                                                          replaced the Board of Commissioners with an Executive
                                                          Monitor, and assigned HUD personnel to work at the
                                                          Authority. The Authority continues to operate under this
                                                          arrangement. Mr. Ronald Mason, as HUD’s designated
                                                          Executive Monitor, acts as the Authority Board. Mr.

1 For Fiscal Year 1997, the amount of funding for which an Authority could apply was reduced to $35 million.




                                                                         Page 1                                98-FW-201-1004
Introduction


                                                            Michael Kelly is the Executive Director, responsible for
                                                            day-to-day Authority operations. Authority administration
                                                            and records are located at 918 Carondelet Street in New
                                                            Orleans, Louisiana.

                                                            The Authority’s HOPE VI Program. HUD awarded the
                                                            Authority three grants: two implementation and one
                                                            planning. Implementation grants were awarded for the
                                                            Desire (1994) and St. Thomas (1996) sites. The grant funds
                                                            awarded amounted to $44.2 million and $25 million for
                                                            Desire and St. Thomas, respectively. In addition, the
                                                            Authority received a $400,000 planning grant for the
                                                            Fischer development (1995). The Authority also applied for
                                                            additional grants for the St. Thomas and C.J. Peete
                                                            developments under the 1997 appropriation; however,
                                                            neither site was funded.

                                                            On February 10, 1995, HUD and the Authority executed an
                                                            implementation grant agreement for $44,255,908 for the
                                                            revitalization of Desire. On June 18, 1995, a planning grant
                                                            agreement was executed for $400,000 for Fischer. As of
                                                            September 30, 19972, the Authority had expended
                                                            $702,8543 of Desire’s and none of Fischer’s grant funds.
                                                            Under Desire’s grant, only one contract had been let4. Our
                                                            review of this one procurement resulted in the issuance of
                                                            an advance draft finding (included in this report as Finding
                                                            2).



  Audit Objectives, Scope,                                  The audit covered the Desire and Fischer HOPE VI grants.
  and Methodology                                           We are presently performing a separate audit of the St.
                                                            Thomas grant. Our audit objectives in reviewing the
                                                            Authority's Desire and Fischer HOPE VI grants were to
                                                            determine if the Authority: (1) properly procured contracts
                                                            under its HOPE VI grants; (2) only expended amounts for
                                                            eligible activities;5 (3) met the objectives of its
                                                            Revitalization Plan; and (4) implemented its community and
                                                            supportive services components effectively, efficiently, and

2 As late as 2/13/98, efforts were made to obtain up-to-date information. However according to Authority officials, information had not been posted to its
   general ledger since 9/30/97.
3 Mostly for Program Management Services ($678,818), relocation, and advertising expenses.
4 A contract was let to Gilbane Building Company on 4/15/96, in the amount of $495,675.00
5 Except for administrative costs, the audit scope generally did not include a detailed review of support for HOPE VI disbursements.




98-FW-201-1004                                                 Page 2
Introduction

               in a manner that will allow the activities to be sustained
               beyond the grant term.

               To achieve the audit objectives we: (1) reviewed HOPE VI
               regulations and guidelines, Authority procurement policy,
               contract files, and any related documentation; (2)
               interviewed Authority, HUD, and contractor officials; and
               (3) made site visits to the HOPE VI developments. Our
               audit procedures included reviewing:

               ♦   The selection and award process for the procurement of
                   a program manager to implement the Desire HOPE VI
                   Revitalization Plan.

               ♦   The Authority's Revitalization Plan for Desire to
                   determine if: (1) it met HOPE VI requirements; (2) the
                   Authority will be able to complete the program
                   successfully and timely; and (3) the Authority has
                   adequate procedures to monitor the progress and
                   performance of the grant.

               ♦   Community and supportive services (self-sufficiency and
                   community building) programs for the Desire grant.
                   The review included determining what progress the
                   Authority has made, whether it has plans to sustain the
                   programs after HOPE VI funding ends, and whether the
                   City has provided required matching contributions.

               ♦   Progress the Authority has made under the Fischer
                   planning grant.

               We performed field work at the Authority offices and
               HOPE VI sites from October 1997 to January 1998. The
               audit generally covered the period February 1995 to January
               1998, although the period was extended as appropriate. We
               performed the audit in accordance with generally accepted
               government auditing standards.




                         Page 3                            98-FW-201-1004
Introduction




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98-FW-201-1004             Page 4
                                                                                    Finding 1


          Planned Desire Implementation Poses
               Unacceptably High Risks
The Authority’s planned implementation of the revitalization of the Desire public housing
development has many risks and uncertainties. Specifically, the planned implementation:
(1) is largely based on conceptual plans, with uncertain funding and costs; (2) has made
little progress since its award in February 1995; (3) is located in an isolated site,
surrounded by industry and an environmentally controversial residential area; (4) has not
been backed by significant City commitment; and (5) already has experienced major
problems in the procurement of a program manager. In addition, almost 3 years after
receiving the planning grant for the Fischer development, the Authority has only just
recently obtained a contractor to prepare a Revitalization Plan. A troubled housing
authority, and inadequate HUD oversight underlie some of these conditions, and further
diminish hopes for success of the Desire and Fischer HOPE VI grants. As a result, HUD
has little assurance that the Authority’s planned use of up to $70 million in federal funds
will result in viable communities for residents of the Desire and Fischer developments.


                                  The master site plan demolishes all of the existing units at
 Overview of Desire               the Desire Housing Development, and reduces the number
 Revitalization Plan              of units to 800 (down from 1,832 units). The physical
                                  implementation of the revitalization plan is subdivided into
                                  seven areas, including single family, multifamily, and
                                  congregate care units. In addition, the master site plan
                                  provides for the construction or rehabilitation of 100-200
                                  single family homes in adjoining neighborhoods, the
                                  renovation of the existing community center, and
                                  construction of on-site commercial facilities.

                                  ♦   425 units of multifamily townhouses on-site
                                  ♦   200 units of single family detached homes on-site
                                  ♦   100-200 units of new or renovated single family homes
                                      in the adjoining neighborhood
                                  ♦   175 units of congregate care housing on-site
                                  ♦   Renovated community center
                                  ♦   Commercial core on-site
                                  ♦   New Infrastructure
                                  ♦   Resident designed Community and Supportive Service
                                      programs.

                                  The Revitalization Plan spans a 5-year period.          The
                                  Authority estimates the revitalization will cost about $125
                                  million, with approximately $70 million funded by HUD

                                           Page 5                              98-FW-201-1004
Finding 1


                                                       HOPE VI and Comprehensive Grant Program funds. The
                                                       master plan expects outside investment and tax credits to
                                                       generate the remaining $55 million.

  Planned implementation                               The Authority's implementation of a conceptual
  based on uncertain                                   revitalization plan based largely on uncertain funding and
  funding and                                          indeterminable costs contribute to Desire being a high risk
  indeterminable costs                                 venture.

                                                       Uncertain funding. The Authority is embarking on an
                                                       estimated $125 million revitalization plan with only half of
                                                       the funding in place. Presently, actual funding for Desire
                                                       totals $62.2 million6. The Authority has used, or plans to
                                                       use approximately $16 million of the $62.2 million for self
                                                       sufficiency and community building, a program manager,
                                                       and settlement of litigation with a former contractor,7
                                                       leaving about $47 million for administration, relocation,
                                                       demolition, construction, and other expenses. Funding for
                                                       the remaining $62.8 million can only be considered
                                                       speculative.

                                                       According to the Revitalization Plan, the Authority's ability
                                                       to deliver the vision largely hinges on leveraging federal
                                                       funds with other sources of public and private funds. HOPE
                                                       VI funds will cover most non-building costs of the program
                                                       (fees, community and supportive services, management
                                                       improvements, etc.), as well as development of the site,
                                                       including utilities and roads. The hope is that this will draw
                                                       leveraged funding for the buildings, and attract private
                                                       investment. However, the Authority has no commitments
                                                       for leveraged funding and private investment, only letters of
                                                       support and interest. Further, although the Authority had
                                                       initially looked to the program manager to bring in outside
                                                       funding, the proposed program management services
                                                       contract does not hold anyone responsible for this
                                                       leveraging.




6 The $62,190,142 includes $17,934,234 in Comprehensive Grant Program (CGP) funds ($16,146,000 from the Authority's 5-year CGP plan for 1997-
  2001 plus $1,788,234 in converted Major Reconstruction of Obsolete Projects (MROP) funds) plus $44,255,908 in HOPE VI funds.
7 Rex K. Johnson


98-FW-201-1004                                            Page 6
Finding 1
            In addition to not having funding commitments, the
            Authority does not have details showing how it will attract
            private developers and find eligible residents to successfully
            carry out its single family homeownership plans. The
            Revitalization Plan provides for building 200 single family
            homes on the Desire site, and building or substantially
            rehabilitating 100-200 homes in the adjoining
            neighborhoods. These homes, at an average price of
            $65,000, would be offered to eligible families for
            homeownership (some on-site units will be rental housing).
            In order to purchase a $65,000 home, including a soft
            second mortgage of up to $28,000, the purchaser must have
            an annual income of $17,376. However, Andersen's March
            1997 viability report states that only about 200 Authority
            residents (the entire Authority, not just Desire) would be
            income-eligible to purchase a $55,000 home with a $10,000
            soft second mortgage.

            The Revitalization Plan also anticipates $6 million in tax
            credits. Louisiana annually allocates about $220 million in 4
            percent, and $5.3 million in 9 percent Low Income Housing
            Credits. According to the Louisiana Housing Finance
            Agency, 4 percent tax credits are for activities relating to
            building acquisition, minor rehabilitation, and federal
            subsidy. However, all awards are based upon a stringent
            application and review process of the following required
            elements: Total Development Costs, sources of funding,
            commitment letters, and the feasibility and viability of the
            project. Total Development Costs is given the most weight
            and must fall within strict limitations. Given the Desire
            shortcomings in the required element areas (as discussed in
            this report), it is questionable whether the Authority will be
            able to obtain 4 percent tax credits.

            The State grants 9 percent tax credits for new construction
            and rehabilitation activities. It is unlikely the Authority will
            get all or most of the State’s $5.3 million tax allocation in
            any 1 or 2 years. According to Andersen's viability
            assessment: "The State reports that the program is
            oversubscribed and highly competitive. The 1996 credit
            allocation and forward commitments of some of the
            anticipated 1997 allocation have been awarded already.
            Therefore, it is unrealistic for HANO to expect to obtain
            credit allocations for more than two HANO projects over


                       Page 7                               98-FW-201-1004
Finding 1


                 the next 5 years, and will require the full support of the
                 City."

                 Indeterminable costs. Because of the uncertainty of future
                 federal funding, it is important the Authority have full
                 knowledge of the costs involved, including unforeseen
                 costs. As it is, the costs are strictly estimates based on a
                 revitalization plan that Authority officials admit is
                 conceptual. For example:

                 ♦    During implementation the units will be redesigned to
                      accommodate contemporary housing standards by first
                      understanding furniture placement and behavior
                      patterns, and assigning square footage afterwards.

                 ♦     Authority officials do not have a clear idea of what the
                      congregate care housing units will be.

                 ♦    Regarding infrastructure, the Revitalization Plan states:
                      "Assuming the main lines are in good condition, new
                      sewer work will be primarily in the interior of the
                      neighborhoods." If this assumption is wrong, then initial
                      costs will increase.

                 In addition, to reduce the risk of losing a large investment of
                 federal funds, the Authority plans to implement the
                 revitalization on a staged basis.           According to an
                 October 11, 1996 letter by a HUD official: “…we and
                 Gilbane have reworked the plan so that implementation
                 occurs in phases, each of which would end at a logical
                 place. If performance milestones are not met and further
                 expenditures cease, viable housing will be left, no
                 unnecessary physical work will be left, no unnecessary
                 physical work will have been done, and unused land can be
                 disposed of. While I do not suggest that any withdrawal
                 from the plan would not result in the loss of sunk costs,
                 primarily planning and organizational costs, these risks are
                 minimized in this plan.”

                 This staged approach, intended to minimize losses should
                 the project not be completed, may not work as smoothly as
                 intended. Although the HUD official indicates each phase
                 would end at a logical place and the implementation could
                 cease with no unnecessary work having been done, this does
                 not appear to be the case. Phase I, for example, provides

98-FW-201-1004       Page 8
Finding 1
                                                              for preparing the infrastructure (roads and utilities) for
                                                              multifamily units to be built on-site in Phase III. Therefore,
                                                              if work ceased after Phase I or II, the Authority would have
                                                              incurred unnecessary infrastructure costs. Also, while a
                                                              premature termination of the plan may leave some viable
                                                              housing, what assurances are there that this would leave a
                                                              viable neighborhood and community? According to the
                                                              Grant Agreement: “HOPE VI is intended to address the
                                                              condition of people in public housing developments, and not
                                                              merely of the bricks and mortar themselves.” Given the
                                                              high risks and large dollar amounts involved, the
                                                              Authority’s staged approach should have more detailed
                                                              contingency plans to deal with worst case scenarios.

                                                              In addition, the Revitalization Plan indicates that housing
                                                              unit projected costs are in line with HUD’s Total
                                                              Development Cost limits. However, calculations by OIG
                                                              staff show that, based on budgeted costs, the average unit
                                                              cost will exceed the TDC limit by 21 percent:

                                                                 Average TDC per unit per Revitalization
                                                                      Plan                                                      $ 88,7778
                                                                 Average TDC per unit allowable                                 $ 88,898
                                                                 Average TDC per unit per Authority’s
                                                                      budget                                                    $107,341
                                                                 Excess budget over allowable                                   $ 18,443

                                                              The reason why the Revitalization Plan’s figure differs
                                                              significantly from the OIG’s amount is because Gilbane did
                                                              not perform the calculations in accordance with HOPE VI
                                                              guidelines. HOPE VI guidelines require such costs as
                                                              administration,     relocation,   demolition,    and    site
                                                              improvements be included in determining Total
                                                              Development Cost amounts. The Revitalization Plan’s
                                                              calculations are based only on hard construction costs.




    The Authority has made                                 The Authority’s lack of progress since being awarded the
    little progress on its
8   HOPE       VI grants
    The Total Development Costs calculations include the 825 single family and multifamily dwellings. The calculations do not include the 175 congregate
    care units because the Authority could not provide specific information as to what these units will be.


                                                                                Page 9                                           98-FW-201-1004
Finding 1


                 Desire and Fischer HOPE VI grants in February and June
                 1995, respectively, further raise doubts about its ability to
                 carry out the grants successfully. Part of the lack of
                 progress can be attributed to political and other
                 circumstances beyond the Authority’s control. However,
                 the Authority could have made significant progress over the
                 last 3 years on the Desire grant in the areas of demolition
                 and relocation, self-sufficiency and community building,
                 management plan, and homeownership. Further, it took the
                 Authority from June 1995 until March 1998 to select a
                 contractor for the Fischer planning grant.

                 Demolition and relocation. From August 1995 to March
                 1998 the Authority did not demolish any units at Desire, and
                 only relocated a few families. As a result, the HOPE VI
                 project is stalled. Authority officials said they wanted to do
                 relocation and demolition as close to the signing of a
                 Developer (Program Manager) contract as possible so as to
                 not lose operating subsidy (as discussed in Finding 2, the
                 Program Manager amendment for implementing the Desire
                 revitalization has not been approved). Nevertheless, the
                 Authority could have pursued plans and options to get its
                 demolition and relocation activities, necessary preliminary
                 implementation steps, further advanced.

                 In January 1994, prior to the Desire HOPE VI grant, HUD
                 approved the Authority’s request to demolish 660 of
                 Desire’s 1,832 units. HUD also provided the Authority
                 with nearly $10 million to fund 660 Section 8 certificates to
                 be used as replacement housing. In August 1995 the
                 Authority demolished 252 of the 660 units. From August
                 1995 until March 1998 the Authority did not demolish any
                 more units, and only relocated a few families. The
                 Authority provided us records showing that 16 families
                 were relocated in March 1998, and it appears that some
                 demolition activity is underway again.

                 The Authority cannot satisfactorily explain this lack of
                 progress. In February 1996, a HUD official toured the
                 Desire site. He concluded that: “What is evident, though, is
                 the fact that further demolition is possible, and should
                 proceed as quickly as possible.”          Further, Authority
                 relocation and Section 8 staff assured the HUD official that,
                 with the 660 Section 8 certificates, relocation should
                 progress well. However, the Authority did not progress

98-FW-201-1004    Page 10
Finding 1
            with demolition, relocation, or use of its Section 8
            certificates. Instead, the Authority requested additional
            HUD funds to rehabilitate units at Desire to use as
            temporary relocation . . . units which themselves would be
            subsequently demolished.

            The Revitalization Plan gives first priority to relocating
            families whose apartments are in buildings that are in the
            path of proposed new streets. The Authority gave these
            Desire residents the following options for relocation: be
            relocated within Desire; be permanently or temporarily
            transferred to another conventional development; or move
            permanently or temporarily to Section 8 housing. Most
            Desire residents opted to relocate within Desire. To
            accommodate these residents, the Authority will rehabilitate
            Desire units that are scheduled for later demolition, and
            temporarily relocate the residents to the rehabilitated units.

            HUD allowed the Authority up to $1,000 per unit to repair
            units for temporary occupancy. However, the Authority
            estimated it would cost $5,500 to rehabilitate the units at
            Desire for temporary relocation. Therefore, the Authority
            obtained HUD’s approval to rehabilitate up to 70 units at
            Desire. An analysis the Authority submitted with the
            request for approval showed the rehabilitation would cost
            slightly more than using Section 8. When questioned about
            the Section 8 certificates that HUD had provided, Authority
            officials said there was a shortage of Section 8 housing.
            However, as discussed above, Authority staff had
            previously assured a HUD official that the Section 8
            Program would do well.

            The Authority therefore plans to spend up to $385,000 (70
            units X $5,500) to rehabilitate units that are scheduled for
            demolition. The Authority’s attempt to accommodate
            residents’ first preferences is laudable. However, given that
            the Authority has other funding (Section 8) and housing
            (other housing developments), rehabilitating Desire units
            does not appear to be the best alternative.




            Self-sufficiency and community building. The Authority’s
            self-sufficiency and community building program has no

                     Page 11                              98-FW-201-1004
Finding 1


                 detailed plans for implementing or sustaining services for
                 Desire residents.

                 The Desire Revitalization Plan included a Community and
                 Support Service Plan designed to address resident needs.
                 The Community and Support Service Plan had a 5-year
                 budget of about $8.5 million. The Authority included the
                 original Community and Support Service Plan with the
                 grant application in 1993. Subsequently, HUD changed its
                 focus from supportive services to self-sufficiency. In
                 October 1997 HUD conducted a workshop in New Orleans.
                 HUD instructed the Authority to prepare another plan under
                 the re-titled Self Sufficiency and Community Building
                 program. As a result, in November 1997 the Authority
                 submitted to HUD a Self Sufficiency/Support Service
                 Workplan. However, the Self Sufficiency/Support Service
                 Workplan is a conceptual document. The Workplan does
                 not include a description of programs or contracts, eligible
                 participants, or any basis for estimated costs. In addition,
                 neither the original plan nor the revised plan include any
                 concrete provisions for sustaining these services after the
                 grant period ends. Also, as discussed below, the Authority
                 has not received any contributions from the City towards its
                 15 percent match of supportive service costs.

                 Management and Homeownership Plans. Similar to the
                 Authority’s Self Sufficiency and Community Building, both
                 of these plans are incomplete, and in need of more work.
                 The Revitalization Plan indicates the final management
                 program for the new Desire will be a “work in progress”
                 until all of the elements of the master site plan are in place
                 and the final configuration of the management entity or
                 entities is known. The plan envisions management of
                 Desire being turned over to a separate entity which will
                 include residents. According to the Interim Management
                 Plan, the exact management model has not been determined
                 yet.      Although HUD conditionally approved the
                 Management Plan, it noted that the plans for post-
                 revitalization management were incomplete and needed
                 considerably more work.



                 Fischer planning grant. It has taken the Authority almost 3
                 years to hire a contractor to prepare a Revitalization Plan

98-FW-201-1004    Page 12
Finding 1
                         for the Fischer development. The $400,000 planning grant
                         agreement, executed on June 18, 1995, states that “The
                         Grantee will carry out the Revitalization Planning strategy in
                         accordance with its provisions and in compliance with this
                         Grant Agreement, the HOPE VI application, the HOPE VI
                         requirements, and any other applicable state and local laws,
                         regulations, and requirements, in order to complete a
                         Revitalization Concept for the Development within 18
                         months from the effective date of this Grant Agreement.”
                         The Authority was granted two extensions to complete its
                         Revitalization Plan, the first to September 30, 1997, and the
                         second to March 31, 1998.

                         The Authority put out its first Request For Proposals (RFP)
                         on November 18, 1997, but received no responses. On
                         January 21, 1998, the Authority reissued the RFP and
                         received three responses. On March 18, 1998 an Authority
                         employee informed us that a contractor had been selected
                         and the award would soon be made. Therefore, after two
                         extensions and almost 3 years, the Authority has just begun
                         the planning process for the revitalization of the Fischer
                         development.

   Desire location has   Desire’s isolation and proximity to an Environmental
   serious drawbacks     Protection Agency (EPA) Superfund Site are significant
                         barriers to the creation of the type of viable community
                         envisioned by HOPE VI. These barriers increase the risk of
                         the Authority’s planned revitalization efforts.

                         Desire is an isolated peninsula. Desire is isolated from
                         New Orleans. According to a March 1992 case study of
                         Desire by the National Commission on Severely Distressed
                         Public Housing:

                            “Desire suffers from its location on the edge of an
                            industrial area. It is adjacent to the Industrial Canal and
                            the Almonaster-Michoud Industrial District. Heavy
                            truck traffic on Alvar Street and Florida Avenue, serving
                            the industrial area, creates noise and dangerous
                            conditions. Two railroad tracks on the eastern and
                            southern edge of the site are within 500 feet of Desire’s
                            property line. One of the lines runs as many as 20 diesel
                            trains a day; the trains average 15-20 mph and disrupt
                            vehicular traffic at selected intersections. A major
                            elevated expressway, Interstate 10, is several blocks to

                                  Page 13                              98-FW-201-1004
Finding 1


                    the north and west of the development. To the south,
                    the Florida public housing development is visible across
                    the railroad tracks. Only to the west does Desire
                    border, across a relatively wide street, a conventional
                    residential neighborhood, although it too is somewhat
                    deteriorated. Accordingly, the development has a sense
                    of isolation and separateness from the abutting
                    residential community of New Orleans which may
                    induce a sense of alienation on the part of residents and
                    engender a neglect by municipal officials.”

                 In addition, the isolated, distressed area may offer its
                 residents few job opportunities. The current Revitalization
                 Plan provides an optimistic picture: “Numerous businesses
                 occupy the nearby commercial corridor to the north of the
                 study area, Chef Menteur Highway, while the nearby
                 residential core of postwar development occupies the
                 southern and western edges of the site. A small portion of
                 the Port of New Orleans property occupies the eastern edge
                 of the site. With these surrounding uses, the area is a prime
                 location for future residential growth. Adjacent businesses
                 provide job opportunities while adjacent residential
                 neighborhoods        reflect     a      stable    community
                 atmosphere.…Within this planning district there are five
                 major industrial zones….These industrial areas provide job
                 opportunities for residents of the St. Claude/Desire Planning
                 District.” However, this contrasts with the 1992 Master
                 Plan, which concluded: “When compared to the adjacent
                 neighborhood, Desire appears as an isolated enclave.
                 Unemployment in Desire was three times the City average,
                 and three times as many persons lived below the poverty
                 level. The level of education among Desire residents was
                 also low, with a high school graduation rate of less than half
                 the city rate.…In general, there are limited opportunities for
                 employment. Many of the businesses are small with very
                 few employees. The industrial type establishments most
                 likely will draw their employees from a wide area.”




                 Environmental concerns in the Desire vicinity persist.
                 Desire is located on a former swamp and dump. Further,
                 the nearby Gordon Plaza and Press Park residential areas,
                 also located on a former dump (the Agriculture Street

98-FW-201-1004    Page 14
Finding 1
            Landfill), experienced problems with surfacing trash which
            contain hazardous toxins. On August 23, 1994, the
            Environmental Protection Agency (EPA) proposed
            including the Agriculture Street Landfill on the National
            Priorities List (Superfund Site). As a result, the New
            Orleans School Board closed the Moton Elementary School
            on August 24, 1994. EPA formally added the site to its
            Superfund list on December 16, 1994. After further studies
            and meetings with local residents, EPA issued its Record of
            Decision on September 2, 1997. The Record of Decision
            calls for removing 2 feet of contaminated topsoil in the
            residential areas and replacing it with clean fill. In addition,
            an adjoining 48-acre undeveloped property will be capped
            with 1 foot of soil, graded, and compacted.

            EPA’s decision has not gone unopposed. Concerned about
            health risks and property values, many local residents and
            political leaders have fought to give residents the option of
            being relocated. Also, Congress attached a rider to EPA’s
            1998 budget, strongly urging the Agency to “…stay the
            remediation of the site…” based on health risk concerns. In
            January 1998, the Concerned Citizens of Agriculture Street
            Landfill, Inc. filed suit to halt the project. However, in
            March 1998 a judge dismissed the residents’ lawsuit,
            apparently clearing the way for EPA to proceed with the
            cleanup. Even assuming there are no more legal and other
            delays, an EPA official estimated it would take a year to
            complete the cleanup.

            Even though the Desire development is not included in the
            EPA’s Superfund designation, the very close proximity of
            the cleanup site cannot help but impact Desire and the
            Authority’s plan to revitalize the neighborhood. A Baseline
            Assessment of Desire as of May 1995, performed by Abt
            Associates, stated that “The fact that there is a Superfund
            site nearby and industrial land uses all around reduces the
            area’s residential value.” However, the Revitalization Plan
            only comments that the Desire site is not contaminated, but
            does not address the environmental issues surrounding
            Desire.

            Congressional concerns about the Desire site. A June 18,
            1996 Report by the Congressional Appropriation
            Committee expressed concern regarding Desire, “The
            Committee is extremely troubled by ongoing attempts to

                      Page 15                               98-FW-201-1004
Finding 1


                 rebuild on the site of Desire Homes in New Orleans,
                 Louisiana, without an unbiased recommendation that the
                 site is safe and viable, and the surrounding neighborhood
                 provides adequate services for families who remain on the
                 Desire site. Therefore, the Committee is withholding the
                 HOPE VI grant made to HANO for the Desire Homes
                 project until the Committee has reviewed an independent
                 recommendation that the units can be rebuilt cost-
                 effectively, that the site is suitable for low-income housing
                 and the quality of life for residents will be improved.” This
                 resulted in Congressional language added to the 1997
                 Appropriations Act, which provided that “...the funds made
                 available to the Housing Authority of New Orleans under
                 HOPE VI for purposes of Desire Homes, shall not be
                 obligated or expended for on-site construction until an
                 independent third party has determined whether the site is
                 appropriate.”




98-FW-201-1004    Page 16
Finding 1




Note:   The HOPE VI Target Area encompasses more than the Desire public housing development. The Desire
        development includes most of the white area that lies above the railroad tracks that parallel Florida
        Avenue. The railroad tracks and Florida Avenue effectively isolate Desire from the bottom portion of the
        white area.

                                          To satisfy the Congressional requirement for a third-party
                                          assessment, HUD hired Andersen Consulting to perform a
                                          Viability Assessment of the Authority’s portfolio. In an
                                          October 7, 1996 letter to HUD, Andersen Consulting stated
                                          that “… the existing buildings and improvements at Desire


                                                     Page 17                                   98-FW-201-1004
Finding 1


                                                           were non-viable and should be demolished but as to its
                                                           location, the site is viable and appropriate for residential
                                                           redevelopment.” Although the letter may not have been
                                                           technically incorrect, Andersen's studies actually found
                                                           Desire marginally viable and more appropriate for
                                                           commercial and industrial use. In a draft report, Andersen
                                                           Consulting had said the following about Desire after a
                                                           viability assessment conducted in April 1996:9

                                                                  “Desire is the least viable of HANO’s developments and
                                                                  HANO has planned to used (sic) the greatest amount of
                                                                  resources on its revitalization.

                                                                      Issues effecting Desire’s Viability

                                                                      Desire was ranked the lowest by HANO staff, city
                                                                          housing officials and the assessment team.
                                                                      Buildings are obsolete and should be demolished.
                                                                      Site is more appropriate for industrial and
                                                                          commercial use.
                                                                      Neighborhood is isolated by highways, railroads,
                                                                          canals, and the port.
                                                                      Neighborhood is a marginally viable residential
                                                                          location.
                                                                      Site is on the flight path of the Lake Front Airport.
                                                                      Area surrounding the neighborhood is primarily
                                                                          industrial.
                                                                      Neighborhood is in serious need of revitalization.
                                                                      There are numerous deteriorated, vacant homes and
                                                                          vacant lots in the neighborhood.
                                                                      There are few commercial and service
                                                                          establishments in the neighborhood.
                                                                      A portion of the neighborhood is designated a Super
                                                                          Fund site.”

  The evidence does not                                    The audit showed little evidence to substantiate claims by
  show a significant City                                  the City and Authority of a substantial investment by the
  commitment to Desire.                                    City in the Desire area. The City: (1) will not be providing
                                                           $5 million in infrastructure improvements that it told HUD
                                                           it would; (2) does not appear to have made any significant
                                                           efforts to improve the Desire area; (3) does not provide
                                                           garbage collection services to the Authority’s developments;

9 Andersen Consulting issued the draft viability report in July 1996. The final report, issued in March 1997, stated that Desire “…is a marginally viable
  residential location. It is not HANO’s most viable location.”


98-FW-201-1004                                                Page 18
Finding 1
                                                        and (4) had not responded to the Authority’s request for its
                                                        HOPE VI match.

                                                        Promised infrastructure improvements will not be
                                                        forthcoming. In April 1995 the Mayor sent a letter to
                                                        HUD’s Acting Assistant Secretary for Public and Indian
                                                        Housing committing the City to provide $5 million in
                                                        matching funds in the form of infrastructure improvements
                                                        for the HOPE VI housing development. When OIG staff
                                                        recently asked about the letter, Authority officials said they
                                                        were not aware of the letter’s existence. Accordingly, the
                                                        Director of Development spoke with the Mayor’s Office
                                                        about the letter and was told the $5 million would be in the
                                                        form of in-kind services and not infrastructure
                                                        improvements.

                                                        No evidence of significant City efforts in Desire area.
                                                        According to the Revitalization Plan “…the City has already
                                                        made a substantial investment in the school systems, streets
                                                        and sidewalks, and utilities; and currently CDBG funds are
                                                        being invested in numerous redevelopment projects.”

                                                        During a recent meeting with City officials, the Mayor
                                                        through his Executive Assistant informed OIG staff of the
                                                        City’s continued commitment to the Desire Development
                                                        even though it is at a standstill. During that meeting, the
                                                        following were cited as evidence of that commitment:
                                                        $100,000 annually for a Health Clinic; $60,000 annually for
                                                        Sampson & Desire playgrounds including a pool at
                                                        Sampson Playground10; Community Policing, now funded
                                                        out of the City’s General Fund; Multi-service Center at
                                                        Louisa and Florida; Economic Summer Youth Opportunity
                                                        program; Community Public Safety funds including street
                                                        lighting, better locks on housing; a substantial renovation of
                                                        the economic zone behind the Multi-service Center;
                                                        $1,000,000 in infrastructure improvements (i.e., curbs,
                                                        gutters, signal lights, and signs in the area); $1,000,000 in
                                                        street improvements in the immediate area around Desire;
                                                        and $2,500,000 in occupied rehabilitation around Desire.

                                                        Several visits to the area disclosed some recent street work
                                                        had been performed: Sampson Playground was well
                                                        maintained; perhaps some new street lighting had been

10 Renovations to the pool at Sampson Playground were done in 1992.


                                                                      Page 19                         98-FW-201-1004
Finding 1


                                                           installed; a handful of homes have been renovated.
                                                           However, the site visits and a review of City records11 did
                                                           not disclose any extraordinary City efforts at Desire, nor
                                                           substantiate claims of substantial investment in the area.

                                                           The City does not provide garbage collection at Authority
                                                           developments. The City does not collect garbage at the
                                                           Authority’s developments, including Desire. A Cooperative
                                                           Agreement between the City and the Authority contractually
                                                           obligates the City to provide public services such as garbage
                                                           pickup to its residents. According to the Executive
                                                           Director, the Authority still operates an in-house garbage
                                                           collection service. Presently two of the Authority’s three
                                                           trucks are not in service. As a result, the Authority
                                                           contracts out for garbage collection.

                                                           In July 1996 the OIG issued an audit-related memorandum
                                                           regarding garbage collection at the Authority.        The
                                                           memorandum recommended the Authority negotiate with
                                                           the City regarding garbage collection services. After 1 ½
                                                           years and 2 written responses from the Authority regarding
                                                           the recommendation, the Authority has yet to provide
                                                           satisfactory evidence that they have made efforts to
                                                           negotiate with the City. The recommendation remains
                                                           unresolved.

                                                           No response from the City regarding its HOPE VI match.
                                                           In February 1997 the Authority requested the City’s
                                                           contribution of 15 percent of the HOPE VI supportive
                                                           services budget in accordance with the Grant Agreement12.
                                                           Authority staff said the City never responded to the
                                                           Authority’s request.

  The Authority has                                        The Housing Authority of New Orleans’ (Authority)
  already experienced                                      inadequate procurement of a program manager for the
  major problems in the                                    implementation phase of the Desire development could
  procurement of a                                         adversely affect the already high risk project’s chances of
  program manager.                                         success. Finding 2 discusses this issue in more detail.




11 City records reviewed included the 1994-96 Grantee Performance Reports and the 1996-97 Consolidated Annual Plans.
12 The Authority requested $499,453 in funding initiatives such as housing counseling and job training.


98-FW-201-1004                                                Page 20
Finding 1

     Troubled housing                                    A troubled housing authority and inadequate HUD
     authority, poor HUD                                 oversight underlie some of the troubling conditions
     oversight lay behind                                discussed above, and further diminish hopes for success of
     much of the risk.                                   the Desire and Fischer HOPE VI grants. The Authority has
                                                         a long history of poor performance, and has had little
                                                         success improving housing conditions for public housing
                                                         residents. And although some of the problems and
                                                         difficulties, such as Desire being in an isolated location, are
                                                         largely beyond its control, the Authority has done little to
                                                         avoid difficulties or mitigate adverse circumstances.
                                                         However, HUD must also share some responsibility for the
                                                         high risk venture, in that it has not provided adequate
                                                         oversight over the Desire grant.

                                                         The Authority's troubled history. HUD has designated the
                                                         Authority as “troubled” since 1979.13 Over the last decade,
                                                         HUD has taken many actions to stimulate management
                                                         improvements at the Authority, including: withholding
                                                         funding from the Authority; twice requiring the Authority to
                                                         be managed by a commercial property management firm;
                                                         sanctioning the Board of commissioners; and negotiating
                                                         directly with the Mayor in 1994 to establish a partnership
                                                         between HUD and the City of New Orleans to avoid
                                                         declaring the Authority in breach of its contract. These
                                                         actions had little impact on housing conditions and
                                                         operational performance. It became incumbent upon the
                                                         Secretary of HUD to find the Authority in default of its
                                                         Annual Contributions Contract (ACC). As a result of the
                                                         breach, the City, the Authority and HUD entered into a
                                                         Cooperative Endeavor Agreement on February 8, 1996.
                                                         This Agreement forged a management partnership that
                                                         replaced the Board of commissioners with an Executive
                                                         Monitor, and assigned HUD personnel to work at the
                                                         Authority.

                                                         The Authority has made progress in a few areas. The
                                                         Authority reported a 1997 PHMAP score of 59.25, a 22
                                                         percent improvement over the previous year’s score.14 A
                                                         recent OIG report found improvement in the evictions
                                                         process. The Authority has hired some top level managers
                                                         who appear competent and hard working. However, overall

13    Under the Public Housing Management Assessment Program (PHMAP), a housing authority is considered "troubled" if it scores less than 60 on a 100-
      point scale.
14    HUD has not yet confirmed the score.


                                                                        Page 21                                                98-FW-201-1004
Finding 1


                 the Authority does not operate effectively. The Desire
                 revitalization would be a high risk endeavor even for a well
                 managed housing authority.

                 Poor housing conditions persist. In June 1994 the OIG
                 issued an audit report relating to Authority management and
                 operations. The report disclosed that none of 150 units
                 inspected met HUD's Housing Quality Standards, and
                 concluded the Authority did not provide its tenants with
                 decent, safe, and sanitary housing. Also, the report stated
                 that conditions at the Authority had not improved since the
                 previous audit report, issued in 1983.

                 In a May 1996 report to Congress, the General Accounting
                 Office (GAO) found two operational problems that have
                 stood out as significant and continuing obstacles to
                 improving the Authority's performance. The two problems
                 were the Authority's inability to perform: (1) routine
                 maintenance and repairs and (2) major modernization and
                 rehabilitation work.

                 Over the past 2 decades the Authority has prepared
                 numerous written plans and reports, and has spent millions
                 of dollars on consultants, architects, planners, and
                 management teams. However, despite all this time and
                 money spent the tenants continue to live in squalor.

                 Authority has done little to avoid difficulties or mitigate
                 adverse circumstances. Some of the conditions described in
                 this finding are to a large extent beyond the Authority's
                 control. However, the Authority could have either avoided
                 or mitigated these adverse conditions. For example:

                 ♦    Desire's bad location cannot be attributed to anything
                      the Authority has done. However, the Authority could
                      have used its resources to construct or rehabilitate
                      housing at other locations, rather than choosing to
                      implement a large revitalization effort at its least viable
                      development.

                 ♦    The Authority cannot be blamed for delays imposed on
                      it by Congress or HUD. Nevertheless, as stated above
                      the Authority could have made progress in such areas as
                      demolition and relocation to help lessen the effects of
                      the delays.

98-FW-201-1004       Page 22
Finding 1
                            ♦   The Authority points out that HUD approved Authority
                                actions and documents that the OIG is now criticizing.
                                While HUD does share responsibility for some of the
                                reported conditions, the Authority’s poor performance
                                has resulted in HUD, including the OIG, having to
                                spend an inordinate amount of time and resources in
                                trying to oversee the Authority’s actions. For example,
                                although HUD approved the Authority’s improper
                                procurement of a program manager (see Finding 2), the
                                Authority should have done the procurement properly in
                                the first place.

                            ♦   The Authority has needlessly wasted HUD funds on
                                Desire in the past. In January 1994, after paying almost
                                $1 million to consultants for planning, the Authority
                                entered into a $12.3 million contract with Rex K.
                                Johnson (Contractor) to perform Phase I of a nearly
                                $100 million rehabilitation of Desire. In February 1995,
                                after paying the Contractor $885,718, the Authority
                                terminated the contract for convenience. Rex K.
                                Johnson sued. The Authority recently settled the suit.
                                The Authority will pay the Contractor $620,000 out of
                                Comprehensive Improvement Assistance Program
                                (CIAP) and Comprehensive Grant Program (CGP)
                                funds. The end result was that the Authority spent
                                about $2.5 million without rehabilitating a single unit.

                            Inadequate HUD oversight. As previously stated, HUD
                            must share part of the responsibility for the Desire dilemma.
                            The HUD HOPE VI staff appear to be understaffed and
                            lack the expertise to manage its large HOPE VI portfolio.
                            This has resulted in HUD not always adequately reviewing
                            documents the Authority submits. Also, HUD’s contacts
                            with contractor personnel appear to have somewhat
                            undermined the Authority’s bargaining position. The issue
                            of HUD oversight is discussed in more detail in Finding 2.

 The Desire endeavor        The Desire implementation risks up to $70 million in federal
 risks huge amounts of      monies with little guarantee of providing viable communities
 money with little          for residents of the Desire and Fischer developments.
 assurance its goals will

                            According to the Revitalization         Plan,     the   Desire
                            implementation has four goals:


                                     Page 23                                98-FW-201-1004
Finding 1


                                                          1. Provide safe, decent, and diversified housing
                                                             opportunities, including homeownership, within a viable
                                                             neighborhood setting;

                                                          2. Dissolve existing neighborhood barriers, and eliminate a
                                                             sense of isolation from the New Orleans community;

                                                          3. Provide for resident training, employment,                               and
                                                             economic development opportunities; and

                                                          4. Maximize the use of HOPE VI funds through leveraging
                                                             of other public and private funding needed to complete
                                                             the project.

                                                          The Authority’s goals are noble and desirable. However, to
                                                          achieve these goals the Authority is counting on using
                                                          federal funds to attract a large influx of non-federal
                                                          investment and financing into an isolated, deteriorated area
                                                          that has little commercial base and very low income
                                                          residents. Further, the Authority has no commitments for
                                                          this outside funding, does not have concrete plans on how it
                                                          will perform the implementation, and has not shown any
                                                          indication it has the capability to successfully carry out a
                                                          large modernization project. In our opinion the risks for the
                                                          proposed Desire implementation are too high to justify
                                                          using such a huge amount of precious federal resources.
                                                          The Authority and HUD should seek ways to reduce these
                                                          risks; otherwise, the funds should be used for other, more
                                                          viable developments.


    Auditee Comments                                      Authority officials responded in writing to the draft finding
    and OIG Evaluation                                    in an April 24, 1998 letter15 (Appendix A), and verbally at
                                                          an exit conference held on May 5, 1998. The Authority
                                                          generally disagreed with the finding and main
                                                          recommendations regarding the future of the Desire and
                                                          Fischer grants.

                                                          At the exit conference, Authority officials and outside
                                                          counsel reiterated objections included in their written
                                                          response. Their principal objections concerned: (1)
                                                          inclusion of the Desire site in the finding and (2) the report
                                                          not placing more of the responsibility for conditions

15 The Authority also responded to issues regarding the procurement of a program manager (Finding 2) in a February 25, 1998 letter.


98-FW-201-1004                                               Page 24
Finding 1
            reported on HUD. This section more fully addresses
            concerns regarding the Desire site. Regarding the issue of
            HUD responsibility, the report reflects conclusions reached
            from interviews and a review of available documentation.

            Authority response: general comments

            OIG staff lacks necessary experience in community/public
            revitalization to make the subjective decisions contained in
            the Draft Report.

            The continued refusal by OIG to accept the Revitalization
            Plan and viability of the Desire site, even after
            Congressional review and HUD approval, raises doubts
            regarding their independence and objectivity.

            The audit finding exceeds its defined scope. The auditors
            did not look at the Authority’s compliance with its
            Revitalization Plan, since it was approved only recently.

            OIG evaluation: general comments

            The OIG staff that performed the audit were fully
            competent to provide the opinions, conclusions, and
            recommendations included in the draft report. In areas
            where expertise was required, such as the site feasibility,
            OIG staff relied on studies and correspondence of
            knowledgeable individuals and organizations.

            The OIG expresses its own opinions, separate from HUD
            and Congress, which is why it is independent and objective.
            OIG’s continued concerns and doubts regarding Desire over
            the last 2 decades reflect consistency, not obstinacy,
            justified by facts. Congress approved the Desire site;
            however, this report covers much more than the site, and
            the OIG has an obligation to keep Congress informed.
            HUD approved the Revitalization Plan; however, the audit
            work was in part performed because of HUD’s concerns
            regarding the Desire grant.

            The audit was performed within the scope of the stated
            audit objectives. The OIG’s review of HOPE VI grants is a
            performance audit, which goes beyond a compliance review.
            Performance audits, as discussed in paragraphs 2.6 through
            2.9 of the Government Auditing Standards, may include

                     Page 25                             98-FW-201-1004
Finding 1


                 reviews of economy, efficiency, and program results and
                 effectiveness, in addition to compliance. Objective 2 states
                 the audit would determine if the Authority met the
                 objectives of its Revitalization Plan. The Audit Objectives,
                 Scope, and Methodology section of the report expands on
                 this objective, stating that audit procedures included
                 reviewing “The Authority’s Revitalization Plan to determine
                 if: (1) it met HOPE VI requirements; (2) the Authority will
                 be able to complete the program successfully and timely;
                 and (3) the Authority has adequate procedures to monitor
                 the progress and performance of the grant.”

                 Authority response: Recommendation 1A.

                 The recommendation is moot because Congress, HUD and
                 the City of New Orleans have considered the risks and
                 feasibility of the Desire HOPE VI Project, and approved a
                 Revitalization Plan.

                 The Authority and its City partners, along with HUD when
                 it made the grant award, made a commitment to both the
                 site and its residents . . . HUD cannot come back years later
                 and revoke its commitment to Desire and the residents of
                 that community.

                 Despite Andersen Consulting’s conclusion that the site is
                 viable, the OIG is apparently impervious to any notion that
                 the Desire neighborhood is worthy of investment.

                 Desire is exactly the type of housing development that
                 Congress designed the HOPE VI Program to address.

                 OIG Evaluation: Recommendation 1A

                 In light of the Authority’s comments, we re-worded
                 Recommendation 1A to emphasize seeking alternatives to
                 reduce the project’s risk, but also recommended HUD
                 consider terminating the grant if the risks cannot be reduced
                 to an acceptable level.


                 As previously mentioned, the audit report discusses more
                 than the physical site itself. Also, Andersen Consulting’s
                 studies regarding Desire raised doubts about the site and did


98-FW-201-1004    Page 26
Finding 1
            not speak to the viability of the Authority’s revitalization
            plan.

            The OIG believes the Authority’s current plans are
            insufficient to give the revitalization efforts a reasonable
            chance for success. An unsuccessful implementation would
            erode the residents’ trust in the Authority and HUD.

            The OIG agrees that Desire is the type of development
            HOPE VI is to address. There is general consensus that the
            Desire units should be demolished; however, there are
            alternatives to redeveloping the Desire site. The OIG wants
            the Authority to be successful in its modernization efforts.
            However, these efforts should be well planned and have a
            reasonable chance to succeed and not be implemented
            irrespective of cost or risk.

            Authority response: Recommendation 1B.

            The Desire project has been repeatedly studied by HANO
            consultants, HUD staff, HUD consultants, and Congress.
            HANO does not believe another review of the entire project
            would be helpful but is receptive to assistance from HUD
            and others on ways to improve the plan.

            OIG evaluation: Recommendation 1B.

            To our knowledge Congress has not studied the Authority’s
            current Revitalization Plan. Also, HUD has not adequately
            monitored the Desire grant and remains skeptical of the
            Authority’s ability to implement the project.               The
            Authority’s receptiveness to assistance is a positive sign.

            Authority response: Recommendation 1C.

            The Authority submits that termination of the Fischer
            planning grant is not warranted because considerable delays
            resulted from conditions imposed by the HUD Target Team
            subsequent to execution of the Cooperative Endeavor
            Agreement. The Authority has no objection to the
            remaining recommendations.

            OIG evaluation: Recommendation 1C.




                     Page 27                               98-FW-201-1004
Finding 1


                 The Target Team restrictions on revitalization activities
                 should not have applied to a planning grant. However, even
                 if the restrictions had applied to the planning grant the
                 Authority did not show any progress before the Cooperative
                 Endeavor Agreement (June 1995 to February 1996), and
                 was slow in issuing the Request for Proposal after March
                 1997. The report does not recommend HUD terminate the
                 grant because of prior delays, but that HUD terminate the
                 grant if the Authority does not make progress from this time
                 forward.

                 Authority response: Desire is a poor choice for a massive
                 infusion of federal funds.

                 The Authority protested the finding regarding the Desire
                 location at the exit conference more vigorously than any
                 other issue. Their principal bases for protesting the finding
                 were that: (1) OIG staff were not qualified to make
                 conclusions regarding the viability of the site and (2)
                 Congress had approved the site based on a third-party
                 assessment.

                 Highlights of written comments:

                 The finding is redundant and ignores and minimizes
                 Congressional deliberation on this issue.

                 The conclusion that the proposed Agriculture Street site
                 “cannot help but impact Desire,” is unsupported by any
                 scientific evidence or studies. On the contrary, the Desire
                 site was environmentally assessed by Environmental
                 Auditors of America, Inc. and they determined that the
                 Desire site contained no environmental concerns.”

                 With regard to the viability of this location, this issue has
                 been satisfied with the Authority’s and Andersen’s
                 responses to HUD (Revitalization Plan) and Congress
                 (Andersen Third Party Assessment) as to Desire’s viability.




                 OIG evaluation: Desire is a poor choice for a massive
                 infusion of federal funds.


98-FW-201-1004    Page 28
Finding 1
                                                           Based on the Authority’s verbal and written comments, we
                                                           made some modifications to the report.                These
                                                           modifications included: (1) reporting that the Desire site
                                                           was one (of several) factors that made the project a high
                                                           risk endeavor, as opposed to saying the site was not viable
                                                           and (2) moving a discussion of the site to the middle of the
                                                           finding, rather than at the beginning where it was more
                                                           prominent.

                                                           As previously discussed, OIG staff have the qualifications
                                                           and support for the findings and opinions presented in this
                                                           report.

                                                           Although Congress approved the site, it is nevertheless
                                                           appropriate for the OIG to report the questionable location
                                                           as one of several factors that make the Desire
                                                           implementation a high risk endeavor. In addition, as
                                                           indicated in this report, Andersen’s letter to HUD (which
                                                           HUD relayed to Congress) did not provide a complete
                                                           picture of the results of Andersen’s studies. The OIG is
                                                           obligated to make sure Congress and HUD remain fully
                                                           informed of this important issue.

                                                           We revised the report to add support from an “expert” to
                                                           lend credence to the statement that an EPA Superfund site
                                                           cannot help but impact the Desire project, even though we
                                                           believe common sense should make this clear. Also, the
                                                           OIG did not make an issue of environmental concerns on
                                                           the Desire site. Our concerns related to the proximity of the
                                                           Superfund site to Desire, how this proximity might impact
                                                           the Desire project, and the fact that the Revitalization Plan
                                                           did not address the issue.

                                                           Authority response: Planned implementation based on
                                                           uncertain funding and indeterminable costs.

                                                           The Authority will look to developers, with the Authority’s
                                                           input and oversight, to leverage funds and attract private
                                                           investors. It is premature to require commitments for
                                                           funding, especially considering that tax credits are awarded
                                                           on a competitive basis in Louisiana.16


16 In its response, the Authority states the OIG incorrectly refers to 9% tax credits, while the Revitalization Plan refers to 4% tax credits. However, the
    Revitalization Plan does not indicate which tax credits it is referring to. The OIG had referred to the 9% tax credits in the draft report because these


                                                                          Page 29                                                   98-FW-201-1004
Finding 1



                                                       By design, the HOPE VI program involves a certain amount
                                                       of risk, which is common in large scale developments and
                                                       public works projects, until all of the elements required to
                                                       complete the program are finalized and in place.

                                                       Regarding the “phasing” of the project, the OIG assumes
                                                       that phases will be done in numerical order, but the
                                                       approved approach allows HANO to start phases
                                                       simultaneously. HANO however is revisiting the phasing
                                                       approach and may propose alternatives to HUD.

                                                       The OIG’s comments on TDC limitations are inaccurate,
                                                       irrelevant, and premature.

                                                       OIG evaluation:      Planned implementation based on
                                                       uncertain funding and indeterminable costs.

                                                       The Authority cannot be expected to have commitments for
                                                       all its leveraged funding, but it should at least have a more
                                                       clear idea of how it will attract outside financing. The
                                                       Revitalization Plan is so conceptual that it does not answer
                                                       basic questions, such as: What kind of deals will the
                                                       Authority offer to developers so they will invest in the
                                                       project? What fallback plan does the Authority have in case
                                                       it does not get the funding? What is the design of the units
                                                       the Authority plans to build? Is there a market for what it
                                                       plans to build? These uncertainties carry over to the cost
                                                       side of the equation. For example, how can the Authority
                                                       accurately estimate costs when it does not know what
                                                       design or square footage the units will be?

                                                       Regarding the phased approach, correspondence from the
                                                       Secretary and HUD officials clearly indicate it was their
                                                       understanding the phased approach was a sequential process
                                                       that would be a safeguard in the event the project was not
                                                       successful. The OIG’s purpose in reporting the matter was
                                                       to point out that the simultaneous implementation of
                                                       different phases does not provide this safeguard.

                                                       The OIG’s comments regarding Total Development Costs
                                                       accurately portray the issue being reported: that the

  were the tax credits discussed in the March 1997 Viability Assessment report prepared by Andersen Consulting. This report discusses both 9% and 4%
  tax credits.


98-FW-201-1004                                            Page 30
Finding 1
            Authority’s projected costs significantly exceed HUD’s
            TDC limits, even though the Revitalization Plan indicates
            otherwise. The average cost figures were only used to
            illustrate the excess costs. The same excess results when
            total costs are used:

               Projected costs per budgeted revitalization $88,556,000
               HUD TDC limits                               73,341,050
               Excess budget over allowable (21%)          $15,214,950

            The Authority’s comments regarding confusion, ambiguity,
            mixed finance developments, and HUD waivers cloud,
            rather than address the issue being reported.

            Authority response: The Authority has made little progress
            on its HOPE VI grants.

            Demolition and relocation. The Chronology demonstrates
            that timely review and approval of key planning documents
            was the exception, rather than the rule, and has also
            contributed to the Authority’s inability to proceed with this
            HOPE VI Project.

            The relocation of residents could not occur until the actual
            demolition plan was approved, which occurred on April 17,
            1998.

            HANO received a letter from HUD instructing HANO not
            to proceed with any development activity or expend any
            funds, on any project until HUD’s Target Team completed
            its overall assessment of HANO’s modernization needs.
            Demolition activity was temporarily halted pursuant to the
            letter.

            It was more cost effective to temporarily repair existing
            units than to pay Section 8 costs for 2 years.

            Self-sufficiency and community building. It appears the
            OIG’s findings are applicable to HANO’s entire community
            and supportive services program, when in fact their review
            only covered Phase I of the plan. Any findings within the
            scope of the review should be limited to only Phase I of the
            plan, as Phases II through IV have not yet been developed.




                     Page 31                              98-FW-201-1004
Finding 1


                 Homeownership program. The current program anticipates
                 completion of the project over 4 years. The pace of
                 delivery of new homes on the market will be related to the
                 ability of the market to absorb the units.

                 Fischer planning grant. The Fischer Chronology references
                 the restrictions imposed by the HUD Target Team. Current
                 HANO staff have performed competently and reasonably
                 and criticism is not justified.

                 OIG evaluation: The Authority has made little progress on
                 its HOPE VI grants.

                 Demolition and relocation. The Authority’s contention that
                 progress was delayed because HUD did not approve
                 demolition activity until April 1998, and because HUD’s
                 May 16, 1996 letter brought its progress to a temporary halt
                 does not portray an accurate picture. The April 1998
                 approval relates to demolition of the 1,164 units in Phase II,
                 not the initial 660 Phase I units. After demolishing 252 of
                 the 660 units in August 1995, the Authority did not address
                 demolition of the other 408 units until March 1998. As
                 stated in the report, a HUD official visited the Authority in
                 February 1996 and found that the Authority was not making
                 progress.

                 The Authority had already been funded with 660 Section 8
                 certificates to use for relocation of the displaced residents.
                 Therefore, there was no need to rehabilitate Desire units
                 scheduled for demolition.

                 Self-sufficiency and community building.
                 Management and homeownership plans.

                 The Authority’s comments regarding these activities do not
                 address the issue reported: that plans for these activities are
                 incomplete, and in need of more work.

                 Fischer planning grant. See OIG evaluation of authority
                 response to Recommendation 1C.

                 Authority response: The evidence does not show a
                 significant City commitment to Desire.




98-FW-201-1004    Page 32
Finding 1
            The Authority states the City has committed substantial
            resources to the effort.

            Subsequent to the exit conference, the Mayor sent a letter
            to the Secretary dated May 26, 1998. In the letter, the
            Mayor listed committed projects totaling almost $104
            million.

            OIG evaluation: The evidence does not show a significant
            City commitment to Desire.

            The Authority did not provide the OIG with the Mayor’s
            letter in time for the OIG to confirm the additional
            information prior to this report’s issuance. However, the
            letter is not consistent with information the City provided
            and records obtained from HUD.

            Authority response: The Authority has already experienced
            major problems in the procurement of a program manager.

            The Authority references the February 25, 1998 response
            from the Executive Monitor to the OIG (Appendix B). The
            Authority’s major problem with the procurement is that
            HUD severely impacted its ability to negotiate with Gilbane.

            OIG evaluation: The Authority has already experienced
            major problems in the procurement of a program manager.

            The OIG maintains the validity of the conclusions reported
            in Finding 2. Although HUD shares some responsibility for
            the problems encountered in procuring a program manager,
            the Authority must be held principally accountable for not
            adhering to procurement requirements.

            Authority response: Weak housing authority, poor HUD
            oversight lay behind much of the risk.

            It is inappropriate to criticize HANO for its troubled status,
            when that initially made it eligible for HOPE VI funds. This
            observation is unfounded, as the facts demonstrate that
            HANO has made significant management improvements,
            physical improvements, and system improvements since
            February 1996.




                     Page 33                              98-FW-201-1004
Finding 1


                   OIG evaluation: Weak housing authority, poor HUD
                   oversight lay behind much of the risk.

                   The report cites several factors that add to the project’s
                   risk, and it is appropriate to include the Authority’s
                   performance as one of these risk factors. The Authority
                   may have made some improvements, but OIG audit work
                   continues to disclose serious problems with Authority
                   operations.



 Recommendations   We recommend you:

                   1A.    Take steps to reduce the risks of the Desire
                          implementation to an acceptable level (i.e., a level at
                          which you believe the implementation has a
                          reasonable chance of succeeding). At a minimum,
                          these steps should include the items listed in
                          Recommendation 1B. If you cannot reduce the risks
                          to an acceptable level, we recommend you use
                          applicable provisions of the Grant Agreement to
                          terminate the grant, recapture unused funds, and
                          determine if the funds can be used for a more viable
                          revitalization.

                   1B.    Should you proceed with the Desire implementation,
                          we recommend you:

                          a. Determine whether the Authority’s plans are
                             realistic in terms of funding, costs, and
                             marketability. If not, ensure realistic plans are in
                             place      before     proceeding       with      the
                             implementation, including strategies for reducing
                             the risk to the government if the project cannot
                             be completed as planned.

                          b. Ensure all phases of the implementation are
                             closely monitored, and effective corrective
                             action is promptly taken for any problems or
                             delays encountered.

                          c. Implement Recommendations 2C, 2D, 2E, and
                             2F regarding the program manager.



98-FW-201-1004      Page 34
Finding 1
            1C.   Ensure the Authority makes timely and satisfactory
                  progress on the Fischer planning grant; if not,
                  terminate the grant and recapture the funds.




                   Page 35                            98-FW-201-1004
Finding 1




                 THIS PAGE LEFT BLANK INTENTIONALLY




98-FW-201-1004             Page 36
                                                                                    Finding 2


              Poor Administration of
     Program Manager Contract Could Jeopardize
             Desire’s Hopes for Success
The Housing Authority of New Orleans’ (Authority) inadequate procurement of a program
manager for the implementation phase of the Desire development could adversely affect the
already high risk project’s chances of success. The Authority:

♦    Did not adhere to procurement requirements or provisions in the Request for Proposal
     when selecting the Gilbane Building Company (Gilbane) as program manager;

♦    Issued two contract extensions to Gilbane after the planning phase for items that were
     already included in the original contract;

♦    Issued a $100,000 contract amendment to Gilbane to address deficiencies found with
     main deliverables under the contract;

♦    Under a proposed $7.5 million amendment to the contract, sole-sourced significant
     work items, and duplicated other items previously contracted for ; and

♦    Did not perform an adequate cost analysis of the $7.5 million amendment.

Further, with the proposed $7.5 million amendment, the Authority proposes to spend 18
percent of its grant funds for a program manager who bears little risk and will profit
whether or not the project succeeds. Finally, HUD shares some responsibility for the
procurement problems. HUD’s contacts with Gilbane may be weakening the Authority’s
ability to negotiate a reasonable contract. Also, HUD approved a deficient Request for
Proposal and did not adequately review the $7.5 million amendment to the contract or the
Authority’s cost estimates of the amendment. This occurred because neither the Authority
nor HUD exercised proper oversight over the Desire HOPE VI grant.


                                   ♦   February 10, 1995: $44 million HOPE VI grant
    Chronology of the Desire
                                       agreement was executed.
    HOPE VI project.
                                   ♦   September 5, 1995: The Authority issues a Request for
                                       Proposal for program management services.
                                   ♦   December 1995: The Authority reviews applicant
                                       proposals and selects Gilbane.
                                   ♦   April 15, 1996: The Authority awards a contract to
                                       Gilbane for program management services under the
                                       planning phase ($495,675).


                                           Page 37                              98-FW-201-1004
Finding 2


                             ♦    July-September 1996: The Authority grants Gilbane
                                  two 30-day extensions to the contract not to exceed
                                  $95,000 each.
                             ♦    August 12, 1996: The Authority submits the Revised
                                  Revitalization Plan (main deliverable under the planning
                                  phase) to HUD for review and approval.
                             ♦    September 1996: Congress prohibits the Authority from
                                  building at Desire pending a third-party viability
                                  assessment of the site.
                             ♦    October 7, 1996: Andersen Consulting letter to HUD
                                  to meet Congressional requirement for a viability
                                  assessment.
                             ♦    November 27, 1996: HUD Secretary informs Congress
                                  that the viability assessment has been performed and
                                  implementation would proceed.
                             ♦    July 14, 1997: HUD gives the Authority approval to
                                  proceed with implementation conditioned on correcting
                                  items in the Revised Revitalization Plan.
                             ♦    August 14, 1997: Amendment 1 to Gilbane contract
                                  (not to exceed $100,000), primarily to address items in
                                  HUD’s July 14, 1997 letter.
                             ♦    September 25, 1997: Gilbane submits proposal to the
                                  Authority for program management and other services
                                  for the implementation phase (initial proposal was for
                                  $12.3 million).
                             ♦    November 10, 1997:          Authority Board approves
                                  Amendment 2 making Gilbane the program manager for
                                  the implementation phase at a 4-year cost of
                                  $7,571,000.

 Procurement of the          The Authority did not adhere to procurement requirements
 program manager did not     or provisions in the Request for Proposal when selecting the
 provide for fair and open   Gilbane Building Company (Gilbane) as program manager
 competition.                for the implementation phase. More specifically, the
                             Authority did not adequately describe the scope of work for
                             the implementation phase in the Request for Proposal, or
                             follow the selection process set forth in the Request for
                             Proposal. As a result, the Authority deprived other
                             contractors of a fair opportunity to receive the program
                             manager contract. Also, the Authority may have been able
                             to procure the program manager for a lower cost. Federal
                             procurement regulations state that “All procurement
                             transactions will be conducted in a manner providing full
                             and open competition . . . .” (24 CFR 85.36(c)(1)).


98-FW-201-1004                   Page 38
                                                         Finding
2
    The Request for Proposal did not have an adequate scope
    of work for the implementation phase.

    Federal procurement regulations require grantees to have
    written selection procedures for procurement transactions.
    These procedures will ensure that all solicitations
    “Incorporate a clear and accurate description of the
    technical requirements of the material, product, or service to
    be procured . . . . ” (24 CFR 85.36(c)(3)(i)).

    The Authority’s Request for Proposal did not meet
    procurement requirements in its scope of work for the
    implementation phase. Although the Statement of Work
    section of the Request for Proposal included a detailed four
    page long statement of work for the planning phase, the
    scope of work for the implementation phase consisted of 18
    “bullets” which took up less than one page. Even the
    wording in the Request for Proposal clearly shows that the
    Authority would not know the scope of work for the
    implementation phase until the planning phase was
    completed:

       “After completion of Phase I, the Program Manager will
       submit a proposal including price for Phase II
       Implementation. HANO and DARC (Desire Area
       Resident Council) will review the proposal based on
       work completed during the Planning Phase existing and
       contemplated funding levels, and other needs and
       priorities of HANO and DARC. If HANO, DARC and
       the Program Manager agree on two (sic) The Statement
       of Work for the Implementation Phase, HANO and
       DARC will review the Program Manager proposal price
       for reasonableness. After HANO, DARC and the
       Program Manager agree on prices, they will execute a
       firm fixed price contract for the Implementation Phase,
       and Phase II.”

    The range of the bids for the implementation phase of the
    contract is further evidence that the scope of work was not
    well understood by the bidders. The bids ranged from $1.1
    million to $25 million. In its response, one of the
    contractors stated “We present these numbers with the
    caveat it is very difficult to estimate architectural and
    construction management expenses at this point . . . The
    actual numbers will be negotiated at the appropriate time.”

             Page 39                              98-FW-201-1004
Finding 2



                 Given that the Authority did not know the implementation
                 scope of work prior to completion of the planning phase, it
                 should have procured the planning and implementation
                 phases separately in order to comply with procurement
                 regulations and provide other contractors with a fair
                 opportunity to bid on the implementation phase.

                 The Authority did not follow the selection process set forth
                 in the Request for Proposal.

                 Although the Authority had written selection procedures in
                 its Request for Proposal, it did not adhere to these
                 procedures.

                 According to the selection process as stated in the Request
                 for Proposal, the proposals received would be reviewed by a
                 selection panel. The selection panel was to be appointed by
                 the Authority’s executive director and include Desire
                 residents. Based on the selection criteria, the Authority
                 would prepare a short list of those program management
                 firms who had a reasonable chance of being selected.
                 Separate negotiations to discuss technical, organizational,
                 and cost issues would then be conducted with each firm on
                 the short list. At the conclusion of these negotiations, the
                 Authority would establish a deadline for final and best
                 offers. The Authority, in partnership with the Desire Area
                 Resident Council, would then select the program manager
                 based on their final and best proposal and the established
                 selection criteria.

                 Six firms responded to the Request for Proposal. A three-
                 member panel consisting of the Mayor’s Executive
                 Assistant, a Baltimore Housing Authority official, and the
                 Authority’s Director of Development reviewed the six
                 proposals using the selection factors set forth in the Request
                 for Proposal. Based on the panel’s review, the two highest
                 rated firms made the short list. These two highest rated
                 proposals were then evaluated a second time by a two-
                 person panel consisting of the Director of Development and
                 the Deputy Executive Director of Administration. Based on
                 this second evaluation, the Authority selected Gilbane
                 Building Company as the program manager.




98-FW-201-1004    Page 40
                                                                                Finding
2
                          The Authority did not follow the selection process as stated
                          in the Request for Proposal in that it did not:

                          ♦   Include Desire residents or the Desire Area Resident
                              Council in the selection process;

                          ♦   Negotiate with the firms that made the short list; or

                          ♦   Give the short list firms an opportunity to submit best
                              and final offers.

                          By not negotiating with the short list firms or providing the
                          firms with the opportunity to submit best and final offers,
                          the Authority further created the appearance that the
                          contract was not fairly procured using full and open
                          competition. Moreover, the two firms that made the short
                          list were very closely rated by the panels, and the Authority
                          may have been able to obtain a lower price and higher
                          quality service had it negotiated with the two firms. In the
                          first evaluation of proposals, Gilbane and the second firm
                          received 385 and 371 points, respectively, out of a possible
                          total of 390 points.

                          In the second panel’s evaluation, Gilbane and the other
                          short list firm received 236 and 226 points, respectively, a
                          difference of 10 points. The Director of Development’s
                          evaluation accounted for 9 of the 10 point difference (121
                          Gilbane v. 112 for the second firm). Both evaluations
                          contained the same rating criteria. However, in the first
                          evaluation, the Director of Development had given both
                          Gilbane and the other firm 130 points. Since the second
                          evaluation took place after the first without any negotiation
                          or best and final offers, there should have been no reason
                          for any change in the Director’s ratings. Further, the
                          Director should not have even been on both panels given the
                          Authority did not negotiate with the firms. Regardless, the
                          ratings were so close that the Authority should have
                          negotiated with the two firms.

    Contract extensions   The Authority paid Gilbane $182,209 for two contract
    appear duplicative,   extensions that largely duplicated items Gilbane was already
    unnecessary.          required to perform under the original, fixed price contract.
                          Further, it appears the Authority granted the extensions not
                          because it needed the services, but rather because it wanted


                                   Page 41                               98-FW-201-1004
Finding 2


                 to keep Gilbane on board while awaiting HUD’s approval to
                 move forward on the implementation phase.

                 Contract extensions include items that should already have
                 been paid for in the original contract.

                 The two extensions covered six areas: relocation,
                 demolition, identification of blighted neighborhoods,
                 developer interest, documentation, and meetings. The
                 original contract addressed four of these six areas:
                 relocation,    demolition,      identification   of  blighted
                 neighborhoods, and meetings. To use the relocation area as
                 an example, the contract in part states “The Program
                 Manager shall incorporate in the Plan a resident relocation
                 plan which addresses both the temporary and permanent
                 relocation requirements and plans.” The first extension
                 states in part: “Identify the relocation requirements and
                 availability of units for on site relocation.” A matrix citing
                 specific areas of duplication between the contract and
                 extensions is included at the end of this finding.

                 The extensions appear to be more a retainer for Gilbane
                 than for needed services.

                 The duplicative work indicates the Authority did not need
                 the services that the extensions required. In addition,
                 correspondence and the manner in which the Authority
                 granted the extensions to Gilbane indicate the Authority
                 simply wanted to keep Gilbane on board while awaiting
                 Congressional and HUD approval to proceed with the
                 implementation phase.

                 In an August 9, 1996 letter to the Authority, Gilbane states
                 “. . . . I am submitting the following proposal to continue
                 the services of the Gilbane Building Company for the next
                 60 days or until such time as a definitive direction is
                 established for the HOPE VI Grant Funds. . . Since we are
                 unable to proceed with the Implementation Phase as
                 anticipated at this time, we are prepared to provide you with
                 a reduced staff so as to be responsive to the changes which
                 will be considered (or Congress may require) and other
                 services which we can provide at this time such as
                 relocation planning.” An August 30, 1996 letter from
                 Gilbane to HUD stated “Thank you for speaking with . . . .
                 this morning and for your assistance in expediting the

98-FW-201-1004    Page 42
                                                                                     Finding
2
                                extension of our contract with Housing Authority of New
                                Orleans while we await the outcome of Congressman
                                Baker’s involvement . . . The proposal which you are
                                reviewing allows Gilbane to continue to work on these
                                types of activities on a month to month basis until HANO is
                                authorized to proceed with the total implementation phase.”

                                The loose procurement and open ended scope of work of
                                the extensions also show that the extensions were primarily
                                meant to keep Gilbane on board while waiting for approval
                                to start the implementation phase. To begin with, the
                                extensions were granted after the first extension period was
                                half over. The first 30 day extension began on July 25,
                                1996, two weeks before Gilbane’s August 9, 1996 letter to
                                the Authority in which Gilbane submitted its proposal.
                                Also, the Authority did not prepare procurement documents
                                showing a specific scope of work, including deliverables and
                                timelines. Gilbane described the six extension activities in
                                its August 30, 1996 letter to HUD. The letter describes
                                mostly open ended activities, with no concrete deliverables
                                or time frames for completion; for example:

                                   “Our staff will be working . . . to identify the relocation
                                   requirements . . .”
                                   “We will begin assembling the data necessary for the
                                   completing the individual
                                   demolition plans . . .”
                                   “We will be surveying the adjoining neighborhood . . .”
                                   “We will be attending meetings . . . to advance the
                                   approval of the Desire Revitalization Plan.”

    The Authority issued a      Section 8.1 of the original contract states: “Program
    $100,000 amendment to       Manager shall, without additional compensation, correct or
    correct items included in   revise any errors or deficiencies Program designs, drawings,
    the original contract and   specifications, and other services.”
    extensions.
                                As a result of work that HUD requested in its July 14, 1997
                                letter, the Authority issued an amendment (Amendment 1)
                                to the Gilbane contract. The work HUD requested was to
                                correct areas the Revised Revitalization Plan did not
                                adequately address. Seven of the eight items included in
                                Amendment 1 were part of the contract scope of work for
                                the planning phase or extensions. The remaining item, a
                                general “miscellaneous” category, only said Gilbane shall
                                provide continuing services relating to the implementation

                                         Page 43                              98-FW-201-1004
Finding 2


                            phase.    For example, the contract, extensions, and
                            Amendment 1 stated the following regarding demolition
                            (see Appendix A for more detailed information):

                            Contract (planning phase):
                            “Revised Revitalization Plan shall include the intended plans
                            for renovating the site and physical structures at the
                            Development and/or demolition and replacement housing
                            plans . . . .”

                            “The Final Master site Plan shall specifically include the
                            following: . . . b. Buildings to be demolished . . . .”

                            First Extension:
                            “A specific building demolition sequence has been
                            developed and is integrated with the relocation data base
                            outlined under item 1 above. During the next thirty days,
                            we will begin to develop the data necessary to complete the
                            forms for HUD approval of the building demolition.”

                            Second Extension:
                            “The Demolition Plan for Desire has been written and
                            submitted to HANO for review prior to forwarding the
                            document to HUD.      All supporting data has been
                            compiled.”

                            Amendment 1:
                            “Gilbane shall submit an application for the demolition of
                            housing units as described in the RRP. Relocation from
                            units in excess of the 660 units already approved by HUD
                            cannot begin until HANO has received approval of its
                            Demolition Application for those units.”

 The scope of work and      In Amendment 2 of the original contract submitted for
 cost of the $7.5 million   HUD’s approval, the Authority proposed paying Gilbane
 contract amendment for     $7,571,000 over 4 years to be the program manager for the
 the implementation phase   Implementation Phase.
 need further examining.




98-FW-201-1004               Page 44
                                                                                             Finding
2
           Activity          Year 1       Year 2        Year 3       Year 4       Totals
    Program Mgmt           $ 958,750    $ 758,750     $ 758,750    $ 758,750    $3,235,000
    Site Planning/Design    1,483,000            -            -            -     1,483,000
    Construction Mgmt         299,000      552,000       552,000      552,000    1,955,000
    Single Family             274,500      174,500       224,500      224,500      898,000
    Homes
            Totals         $3,015,250   $1,485,250    $1,535,250   $1,535,250   $7,571,000

                                  A review of the above table indicates that the amendment
                                  activities encompass much more than program management.
                                  The amendment includes two significant activities, site
                                  planning/design and single family homes, that go beyond the
                                  scope of the Request for Proposal. Further, the Authority
                                  cannot provide adequate support for its cost analysis of the
                                  amendment. Amendment 2 also duplicates work previously
                                  contracted for in the planning phase, extensions, and
                                  Amendment 1. Given that the amendment represents a
                                  significant portion of the HOPE VI grant, the Authority
                                  needs to more closely examine the scope of work and costs
                                  included in the amendment.

                                  The amendment includes significant activities that were not
                                  in the Request for Proposal.

                                  As previously stated, Federal procurement regulations
                                  require grantees to conduct all procurement transactions in
                                  a manner providing full and open competition, and have
                                  written selection procedures that “. . . Incorporate a clear
                                  and accurate description of the technical requirements for
                                  the material, product, or service to be procured. . .” (24
                                  CFR 85.36(c).

                                  The Authority did not include Site Planning/Design and
                                  Development of Single Family Homes, two of the four
                                  major activities to be carried out in the implementation
                                  phase per Amendment 2, in the Request for Proposal. By
                                  awarding these activities to Gilbane under the amendment,
                                  the Authority is essentially sole sourcing the procurement.
                                  Therefore, regarding these two significant activities, with a
                                  combined cost of $2,381,000, the Authority violates the
                                  aforementioned regulations by procuring without
                                  competition items that were not included in the Request for
                                  Proposal. By not negotiating or obtaining competitive
                                  proposals for these items, the Authority may not receive
                                  the best services at the lowest price.


                                            Page 45                                 98-FW-201-1004
Finding 2


                           Money spent for duplicate work could have been used for
                           other revitalization efforts.

                           As was the case with the two extensions and Amendment 1,
                           the scope of work for Amendment 2 duplicates items
                           covered in previous contract stages. Determining the cost
                           of the duplicate work went beyond the scope of the audit,
                           and probably would be difficult to ascertain. However,
                           given the number of occurrences (as shown in Appendix B),
                           the money spent would be significant . . . money that could
                           have been used for other revitalization efforts.

                           Without an adequate cost analysis, the Authority has no
                           assurance it is paying a reasonable price.

                           Procurement regulations require grantees to perform a cost
                           or price analysis in connection with every procurement
                           action including contract modifications (24 CFR
                           85.36(f)(1)). Although the Authority prepared an internal
                           cost estimate for the implementation phase, the estimate
                           was not adequately supported. The cost estimate consisted
                           of projected hours and hourly rates, and applied overhead,
                           profit, and “other” rates. The Authority could not support
                           the projected hours upon which the rest of the estimate was
                           based. The Authority contacted other housing authorities
                           with HOPE VI sites to find out what program manager fees
                           were, but this information cannot be relied upon considering
                           the differences in the scope of work at the various sites.

                           The Authority included in the original contract reimbursable
                           expenses incurred in the interest of the project (Article
                           11.3). The reimbursable expenses include long distance
                           telephone and fax, courier and overnight delivery,
                           reproduction and postage, and other expenses. However,
                           Amendment 2 gives Gilbane a 5 percent allowance for
                           “other” costs. The Authority could not provide support for
                           what the 5 percent “other” rate includes. It appears the
                           Authority may be incurring excessive and duplicate costs,
                           given the negotiated 98.5 percent overhead rate, the
                           reimbursable expenses, and the 5 percent “other” rate.

 A significant amount of   Despite a contract, two extensions, and two amendments
 grant funds may go to a   totaling over $8.3 million, Gilbane appears to bear little risk
 program manager who       in the success or failure of the revitalization. Rather, HUD
 bears little risk.        stands to lose the most should the project not succeed.

98-FW-201-1004              Page 46
                                                                                  Finding
2


                            Both Authority and HUD officials acknowledge that the
                            Gilbane contract may be a little high but feel this “premium”
                            is justified due to the inherent risk of dealing with Desire.
                            However, it is difficult to see where Gilbane bears any
                            significant risk. Gilbane’s role is that of a “master
                            developer” who oversees the work of other developers but
                            does not itself do the actual construction or subcontract
                            with firms performing construction work. As such, Gilbane
                            appears to have little risk, and stands to profit from the
                            contract regardless of the revitalization’s success or failure.

                            Further, Gilbane stands to earn more money in the first 2
                            years of the implementation phase, which lessens its
                            financial risk should the project be terminated prior to
                            completion. Although the amended contract states that the
                            Authority may choose not to extend the contract after 2
                            years (Article X), Gilbane will have been paid $4.5 million
                            by then (59.4 percent), including over $3 million in the first
                            year.

                            It is HUD who bears the lion’s share of the risk. As a HUD
                            official stated in a July 1997 letter: “ . . . HUD has
                            expressed concern that the plan risked a large upfront
                            federal investment in demolition, infrastructure and initial
                            construction that might be completely wasted if private and
                            local investment did not follow, leaving a half-constructed
                            site.”

    HUD shares              HUD’s contacts with Gilbane appear to have “muddied the
    responsibility for      waters” regarding HUD’s and the Authority’s roles and
    program manager         responsibilities relating to the Desire project, and weakened
    procurement problems.   the Authority’s negotiating power with Gilbane. Further,
                            HUD approved a deficient Request for Proposal. In
                            addition HUD did not review, or adequately review, the
                            $7.5 million amendment to the contract for the
                            implementation phase and the Authority’s cost analysis of
                            the amendment. This weakened controls that would ensure
                            the Authority obtained needed services at a reasonable
                            price.

                            HUD’s contacts with Gilbane may be complicating the
                            Authority’s ability to negotiate.




                                     Page 47                               98-FW-201-1004
Finding 2


                 HUD has dealt directly with Gilbane on several occasions.
                 This has made HUD’s role unclear with respect to the
                 Authority and Gilbane, and may have hindered the
                 Authority’s ability to negotiate effectively with Gilbane. A
                 review of correspondence evidences HUD’s dealings with
                 Gilbane:

                 ♦    April 14, 1996 memo between HUD officials: “Our
                      purpose in going down last week was to ‘empower’
                      Gilbane to do its job, in the face of presumed resistance
                      . . . Through the course of the meeting it became
                      increasingly clear that the City/HANO had not accepted
                      the basic premise of our visit or of the Gilbane contract .
                      . . My staff . . . and the Gilbane team are unanimous that
                      this is the right course . . . We have charged Gilbane
                      with marshalling an effort to examine these questions . .
                      .”

                 ♦    August 30, 1996 Gilbane letter to HUD: “Thank you
                      for speaking with (Gilbane official) this morning and for
                      your assistance in expediting the extension of our
                      contract . . .”

                 ♦    July 14, 1997 HUD letter to Authority: “HUD and
                      Gilbane have been engaged in discussions about how
                      these competing concerns can be reconciled . . .”

                 ♦    November 27, 1996 HUD Secretary letter to Congress:
                      “Gilbane is a nationally recognized firm retained by
                      HANO at HUD’s insistence to manage activities under
                      the Desire HOPE VI grant. While Gilbane’s contractual
                      relationship is with HANO and not HUD, the
                      Department nevertheless believes that Gilbane’s
                      sponsorship of this proposal is entitled to considerable
                      respect. When Gilbane was retained, HUD officials
                      traveled to New Orleans to charge Gilbane in HANO’s
                      presence with developing a plan which would meet the
                      long-term viability standards of HOPE VI . . .”

                 Although HUD has the authority and duty to take firm
                 action if it believes the Authority is not making satisfactory
                 progress on the HOPE VI grant, it should nonetheless
                 recognize the pitfalls of creating a HUD-Authority-Gilbane
                 “triangle” that confuses roles and responsibilities and


98-FW-201-1004       Page 48
                                                                                        Finding
2
                                 hampers the Authority’s ability to negotiate effectively with
                                 Gilbane.

                                 HUD needs to improve its oversight of the Authority’s
                                 HOPE VI procurements.

                                 Previous sections discussed concerns relating to the Request
                                 for Proposal, and the scope of work and cost analysis of
                                 the $7.5 million amendment to the original contract
                                 (Amendment 2). HUD approved the Request for Proposal
                                 even though there were clear indications that the scope of
                                 work for the implementation phase was not known at that
                                 time. Also, despite the Authority’s history of problems,
                                 HUD staff did not review, or adequately review, the $7.5
                                 million amendment or the costs. Therefore, questions and
                                 deficiencies which should have come to light by proper
                                 HUD oversight remained unanswered and unresolved.
                                 HUD officials indicated they did not have the staff and/or
                                 expertise to conduct the reviews. However, HUD cannot
                                 afford to approve significant procurement documents and
                                 transactions without adequate review, and needs to resolve
                                 its staff shortages or seek alternative resolutions.

    Difficulties and pressures   The Authority and HUD face huge difficulties and pressures
    surround procurement of      in trying to carry out what they admit is a high risk
    a Desire program             endeavor. A troubled housing authority and an understaffed
    manager.                     HUD office are attempting to revitalize a large, severely
                                 distressed development, and are counting on uncertain
                                 private and local investment to make the endeavor a
                                 success. Congress and the OIG are justified in being
                                 skeptical and closely scrutinizing the project, given the huge
                                 amount of the grant.

                                 It appears that HUD officials, realizing that neither the
                                 Authority nor HUD has the capability or resources to
                                 administer the Desire HOPE VI grant, have looked to
                                 Gilbane to successfully carry out the project. It is not the
                                 intent of this report to cast a negative light on Gilbane, or to
                                 suggest that Gilbane is indifferent to the success of the
                                 Desire project. The point is that Gilbane is a profit making
                                 business, and it is unrealistic for HUD to act as if Gilbane
                                 shares the same goals and priorities as the Authority and
                                 HUD. HUD should treat Gilbane as it would any other
                                 government contractor.


                                           Page 49                               98-FW-201-1004
Finding 2


                     Based on our review of the program manager procurement,
                     the OIG continues to have serious concerns about the
                     Authority’s capability to administer the Desire HOPE VI
                     grant. Further, the HUD HOPE VI staff does not appear to
                     have the resources or expertise to closely monitor the
                     project’s implementation.          However, turning the
                     revitalization over to a private developer, without effective
                     oversight from either the Authority or HUD, cannot be an
                     acceptable resolution of the dilemma. HUD needs to ensure
                     close monitoring of the Desire implementation.


 Auditee Comments    The Authority generally agreed with the draft report
                     recommendations (Appendix A, page 55), although it
                     disagreed with the findings (Appendix B). In disagreeing
                     with the findings, the Authority contended: (1) HUD
                     directed the Authority to hire a Program Manager or lose its
                     HOPE VI grant funds; (2) the Request for Proposal
                     adequately covered implementation services and contract
                     amendments; (3) HUD reviewed and approved all
                     contracting decisions regarding the Program Manager; and
                     (4) the selection process the Authority employed was within
                     its discretion.


                     The OIG maintains the accuracy of the report findings and
 OIG Evaluation of   the validity of the conclusions drawn. Although HUD
 Auditee Comments    required the Authority to obtain a program manager, the
                     procurement process and amendments were primarily under
                     the Authority’s control. Further, while HUD may have
                     reviewed and approved Authority actions, this did not
                     absolve the Authority from its responsibility to adhere to
                     procurement requirements.


 Recommendations     We recommend you:

                     2A.    Require the Authority to ensure that it adheres to
                            Federal    procurement      regulations,    especially
                            regarding: (1) including an adequate scope of work
                            in requests for bids and proposals; (2) following the
                            selection process stated in requests for proposals;
                            (3) making sure contracts and contract extensions,
                            amendments, and change orders are necessary, do
                            not duplicate or correct deficiencies covered by
98-FW-201-1004        Page 50
                                                                                        Finding
2
                                           other contract work, and are within the scope of the
                                           request for bids or proposals; and (4) performs
                                           adequate cost analyses that are supported.

                                   2B.     Clarify HUD’s appropriate role and responsibilities
                                           relating to the Authority and HOPE VI contractors.

                                           Should you proceed with the Desire HOPE VI
                                           implementation (see Recommendation 1A in Finding
                                           1), we further recommend you:

                                   2C.     Require the Authority to separately procure the
                                           parts of the implementation phase related to site
                                           planning/design and development of single family
                                           homes.

                                   2D.     Require the Authority to prepare an adequate cost
                                           analysis of the implementation phase procurement
                                           for program manager and construction management
                                           services.

                                   2E.     Prior to approving any contract, obtain the resources
                                           and expertise needed to exercise adequate oversight
                                           and monitoring of the Desire implementation.

                                   2F.     Prior to approving any contract, perform a thorough
                                           review of the scope of work and costs.




             GILBANE CONTRACT - DUPLICATE ACTIVITIES

Note: Numbers in boxes represent contract sections or numbered extension items.

                                             Page 51                              98-FW-201-1004
Finding 2



CONTRACT             PLANNING        EXTENSIONS    AMENDMENT   AMENDMENT
ACTIVITY             PHASE                         #1          #2
Relocation              2.3.3.5      1             1.1.2.d.    2.4.1.i
Demolition           2.3.3.2         2             1.1.2.c.
                     2.3.4.2.b
Identification of    2.3.4.h         3
Blighted             2.3.4.i
Properties           2.3.4.j
Documentation        2.3.4.f                                   2.4.2.d, e
for Zoning
Meetings             2.3.4.3         6
Management           2.3.2.1.i                     1.1.2.a.
Plan                 2.3.3.6
Plan for             2.3.2.1.k, p                  1.1.2.b.    2.4.1.q
Implementation       2.3.3.3
Procurement                          5             1.1.2.e.    2.4.1.r, s
Contract
Documentation
Generate                             4                         2.4.1.r
Developer Interest
Development          2.3.2.1.1                     1.1.2.f.
Budget               2.3.3.7
Master Site          2.3.4.b, e, g                             2.4.2.a, b, c, f
Plan/Design




98-FW-201-1004                           Page 52
Management Controls
In planning and performing our audit, we obtained an understanding of the management
controls that were relevant to our audit. Management is responsible for establishing
effective management controls. Management controls, in the broadest sense, include the
plan of organization, methods, and procedures adopted by management to ensure that its
goals are met. Management controls include the processes for planning, organizing,
directing, and controlling program operations. They include the systems for measuring,
reporting, and monitoring program performance.


                                 We determined that the following internal controls were
 Significant Controls
                                 relevant to our audit objectives:

 Administrative Controls         Selection and award of contracts
                                 Eligibility of grant activities
                                 Monitoring of programs
                                 Progress made on grant activities
                                 Sustainability of community and supportive services

                                 We assessed all of the relevant controls identified above.

                                 It is a significant weakness if internal controls do not give
 Significant Weaknesses
                                 reasonable assurance that resource use is consistent with
                                 laws, regulations, and policies; that resources are
                                 safeguarded against waste, loss, and misuse; and that
                                 reliable data are obtained, maintained, and fairly disclosed in
                                 reports. Based on our review, we believe the following
                                 items are significant weaknesses:

                                 ♦   The Authority lacks administrative controls to ensure its
                                     HOPE VI activities are adequately planned and timely
                                     and efficiently implemented (Finding 1).

                                 ♦   The Authority lacks internal administrative controls to
                                     ensure major procurements are properly awarded and
                                     adequately reviewed for price reasonableness (Finding
                                     2).




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                                  Appendix A


Authority Written Response to
Draft Audit Report




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                                            Appendix B


Authority Written Response to
Draft Audit Related to its Procurement of
Program Manager




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98-FW-201-1004             Page 96
                                                                                    Appendix
C


Distribution
Secretary's Representative, 6AS
State Coordinator, 6HS
Comptroller, 6AF
Director, Accounting, 6AAF
Deputy Assistant Secretary, Office of Public Housing Investments, PT (Room 4138) (4)
Director, Public Housing, 6HPH
Saul N. Ramirez, Jr., Acting Deputy Secretary, SD (Room 10100)
Hal C. DeCell III, A/S for Congressional and Intergovernmental Relations, J (Room 10120)
Karen Hinton, A/S for Public Affairs, W (Room 10132)
Jon Cowan, Chief of Staff, S (Room 10000)
Jacquie Lawing, Deputy Chief of Staff for Programs & Policy, S (Room 10226)
Robert Hickmott, Counselor to the Secretary, S (Room 10234)
Patricia Enright, Sr Advisor to the Secretary for Communication Policy, S (Room 10222)
Gail W. Laster, General Counsel, C (Room 10214)
Saul N. Ramirez, Jr., Assistant Secretary for CPD, D (Room 7100)
Willie Gilmore, Acting Assistant Secretary for Administration, A (Room 10110)
David Gibbons, Director, Office of Budget, ARB (Room 3270)
Art Agnos, Acting Assistant Secretary for Housing, H (Room 9100)
Deborah Vincent, Acting General A/S for Public & Indian Housing, P (Room 4100)
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Assistant to the Secretary for Labor Relations (Acting), SL (Room 7118)
Public Housing ALO, PF (Room 5156) (3)
Acquisitions Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10164) (2)
Deputy Chief Financial Officer for Operations, FF (Room 10166) (2)
Director, Hsg. & Comm. Devel. Issues, US GAO, 441 G St. NW, Room 2474
 Washington, DC 20548 Attn: Judy England-Joseph
Mr. Pete Sessions, Govt Reform & Oversight Comm., U.S. Congress,
 House of Rep., Washington, D.C. 20515-4305
The Honorable Fred Thompson, Chairman, Comm. on Govt Affairs,
 U.S. Senate, Washington, D.C. 20510-6250
The Honorable John Glenn, Ranking Member, Comm. on Govt Affairs,
       U.S. Senate, Washington, D.C. 20510-6250
Cindy Sprunger, Subcomm. on Gen. Oversight & Invest., Room 212,
       O'Neill House Ofc. Bldg., Washington, D.C. 20515
The Honorable Dan Burton, Chairman, Comm. on Govt Reform & Oversight,
       House of Representatives, Washington, D.C. 20515-6143
Inspector General, G
Executive Monitor, Housing Authority of New Orleans
Executive Director, Housing Authority of New Orleans



                                            Page 97                            98-FW-201-1004
98-FW-201-1004   Page 98
Public Affairs Officer, G
AIGA, GA
Deputy AIGA, GA
Director, Program Research & Planning Division, GAP
Director, Financial Audits Division, GAF
Semi-Annual Report Coord., GF               (Not cost audits)
Central Files, GF (4) - 3 bound

ADIGA -       BACA
AIC - Carter
If findings: NEW ORLNS OIG - OKC OIG - SAN ANTONIO OIG - HOUSTON OIG
          Management Analyst - Control file
File
Day File
Extra Copies (3)
Reference
DIGA - Southwest District
Grissom (by cc:Mail)
Saul N. Ramirez, Jr., ActingDeputy Secretary, SD (Room 10100)
Hal C. DeCell III, Assistant Secretary for Congressional and
  Intergovernmental Relations, J (Room 10120)
Karen Hinton, A/S for Public Affairs, W (Room 10132)
Jon Cowan, Chief of Staff, S (Room 10000)
Jacquie Lawing, Deputy Chief of Staff for Programs & Policy, S (Room 10226)
Robert Hickmott, Counselor to the Secretary, S (Room 10234)
Patricia Enright, Sr. Advisor to the Secretary for Communication
  Policy, S (Room 10222)
Gail W. Laster, General Counsel, C (Room 10214)
Saul N. Ramirez, Jr., Assistant Secretary for CPD, D (Room 7100)
Willie Gilmore, Acting Assistant Secretary for Administration, A (Room 10110)
David Gibbons, Director, Office of Budget, ARB (Room 3270)
Art Agnos, Acting Assistant Secretary for Housing, H (Room 9100)
Deborah Vincent, Acting General A/S for Public & Indian Housing, P (Room 4100)
Richard S. Allen, Asst to the Secretary for Labor Relations (Acting),
   SL (Room 7118)