oversight

CDBG, Village of Fort Plain, NY

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-01-22.

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

January 22, 1998                              Audit Related Memorandum
                                              No. 98-NY-250-1802


MEMORANDUM FOR:    Michael Merrill, Director, Community Planning and
                                     Development,    Buffalo    Area
Office

FROM:    Alexander C. Malloy, District Inspector General for Audit
                               New York/New Jersey

SUBJECT:    Village of Fort Plain
            CDBG Small Cities Programs
            Village of Fort Plain, New York


We have completed a review of the Community Development Block Grant
(CDBG) Small Cities grants received by the Village of Fort Plain,
New York (Grantee). The Grantee's programs were administered by
Avalon Associates (Consultant) through a Rehabilitation Coordinator
acting as a subcontractor to the Consultant. The primary objectives
of the review were to determine whether written complaints from
citizens to the U.S. Department of Housing and Urban Development
(HUD) had merit and whether the Grantee and Consultant have the
administrative and internal controls needed to safeguard assets and
accomplish program objectives.

During our review, we interviewed Grantee and Consultant personnel,
program participants, and concerned citizens. Also, we examined
records at the Grantee's office. Finally, we performed selected
inspections of properties receiving HUD program assistance.

The review showed that the programs were administered by the
Consultant and its subcontractor without any monitoring or
oversight by the Grantee. This has allowed significant weaknesses
in the system of administrative and internal controls to remain
undetected. Accordingly, certain costs charged to the programs are
not reasonable, eligible, and in conformity with applicable
regulations. Despite the weaknesses in the administration of the
programs, our review found that the books and records maintained by
the Village Clerk/Treasurer were in conformance with HUD
requirements.

These matters are discussed in detail in the subsections that
follow. We are bringing these matters to your attention so that
effective administration actions can be taken to address and
correct the weaknesses.
                               BACKGROUND

The Grantee is governed by a Village Board led by Mayor Thomas
Quackenbush. The programs were administered by Timothy Conrad, the
Rehabilitation Coordinator retained by Avalon Associates. The
rehabilitation office is located at Village Office located at 168
Canal Street. The financial records for the programs are maintained
at the Village Office by Susanne Mahn, Village Clerk/Treasurer.

During the period of our review, the Village received the following
grants.

     1994 Small Cities Grant             $     400,000
     1995 Small Cities Grant                   400,000
     1996 Small Cities Grant                   600,000
               Total            $1,400,000

As of July 1997, $637,382 of the grant funds had been expended. The
funds were used for housing rehabilitation loans and grants.
Program income from loan repayments totaled $89,213 from 31 CDBG
loans.

Since Mayor Quackenbush assumed office in April 1997, the following
actions have been taken:

     1.   Processing of new rehabilitation grants and loans have
          been temporarily suspended.

     2.   Several contractors have been removed from the programs.

     3.   CDBG Advisory Board and Rehabilitation Coordinator have
          resigned.

     4.   Avalon Associates have been terminated as the consultant
          and administrator of the programs.

     5.   Efforts   have  been   initiated   to  correct problems
          associated with rehabilitation work paid for but not
          done, or done in an unacceptable manner.


                           REVIEW RESULTS


     Grantee Has   Not   Monitored       the    Administration   of   Its   HUD
     Programs

     The Grantee has retained the consultant to administer its
     programs since 1990 at a cost of $337,000. The Grantee did not



                                     2
establish effective procedures for monitoring the consultant's
performance. Accordingly, the consultant exercised complete
administrative control over the programs with little or no
oversight by the Grantee.

The consultant's performance during the period has been
inadequate   and  has   resulted   in   the  inefficient   and
uneconomical use of grant funds. The consultant did not
establish effective programmatic and administrative controls
required by Title 24 of the Code of Federal Regulations and
Part 85-Administrative Requirements for Grants and Cooperative
Agreements to State, Local and Federally Recognized Indian
Tribal Governments. The more significant deficiencies are
discussed in detail below.

1.   Improprieties Involving Rehabilitation Work
     The case file reviews and selected property inspections
     disclosed significant deficiencies in the administration
     and performance of rehabilitation work. Documentation
     supporting the propriety, cost reasonableness, and
     inspections of rehabilitation work was not accurate or
     sufficient.

     In ten of the thirteen cases we reviewed, work items
     contained in the contracts were either not done, or were
     poorly   performed.   Despite  this,   the  consultant's
     subcontractor authorized payments to the offending
     contractors. Significant deficiencies in cost estimates,
     work specifications, and inspection reports rendered
     them inadequate in determining the propriety and
     reasonableness of the costs.

     Additionally, we found material weaknesses and possible
     improprieties in the bidding procedures used to select
     contractors performing rehabilitation work. We found a
     procurement process that did not assure free and open
     competition  and   that  did   not  prevent  contractor
     favoritism.

     Examples of the typical improprieties found during the
     review   are   in   the    subsections  below.  Similar
     deficiencies exist in the other rehabilitation cases.
     All of the cases examined are identified in Appendix A
     of this report. Pertinent details concerning all the
     weaknesses will be provided to your staff to aid in the
     resolution of the problems.

     Case File No. 94-006

     The homeowner was approved for a grant in the amount of



                            3
$17,800. The contractor's "Notice to Proceed" was dated
November 6, 1995, but the work was not completed until
October 16, 1996.

Problems Noted:

a.   Coordinator's cost estimate was not prepared until
     four days after the contractor bids were due.

b.   Contractor bids were altered and were submitted
     after the bid deadline of October 27, 1995. The
     winning bid was dated October 30, 1995.

c.   Coordinator    accepted  winning   bid    without
     reconciling significant cost differences between
     the Coordinator's cost estimate and the bid line
     items. Examples include:

     Work Item                 Estimate        Bid Amount

     Side Walks        $   600.00         $ 1,200.00
     Roof Repair              4,800.00           3,600.00

     Gutter Repair               300.00            850.00

     The lack of work item reconciliations not only
     prevent cost reasonableness evaluations, but also
     allow contractors to receive significant portions
     of the grant funds for completing minor work items.

d.   Initial   property  inspection   shows   no  major
     deficiencies with the buildings insulation or with
     the surrounding sidewalks. However, the work items
     are included in the work specifications and
     contract.

e.   Insulation work amounting to $1,600 was billed and
     paid for but not done. The purported work was
     supported by an inspection report signed by the
     Coordinator and an itemized contractor invoice.

     In September 1997, almost a year after being paid,
     the contractor reimbursed the program.

Case File No. 94-015

Homeowner was approved for $16,100 in rehabilitation
work, which was paid with funds from a grant of
$12,847.50 and a CDBG loan of $3,252.50. The work was
purported to have been completed on October 16, 1996.




                           4
Problems Noted:

a.   Bids were altered and written in pencil.


b.   Winning   bid     items were   not reconciled with
     Coordinator's     cost estimates. Examples are as
     follows:

     Work Item               Estimate                Bid Amount

     Roof Repairs            $ 3,200.00       $ 1,400.00

     Furnace                  2,200.00          3,500.00

c.   Contractor subcontracted the furnace installation
     to a competing bidder. The competing bidder had
     submitted a bid on the furnace work in the amount
     of $1,900.00, as opposed to the winning bid of
     $3,500. We found that the amount paid to the
     subcontractor was $1,900, resulting in a windfall
     profit of $1,600 to the contractor.

d.   Roofing work totaling $600 and the installation of
     storm windows and doors at $2,400 was billed and
     paid for, but not done. The purported work was
     supported by contractor invoices and an inspection
     report signed by the Coordinator.

Case File No. 94-016
Rehabilitation work totaling $23,300 was completed on
April 16, 1997, and was paid with funds from a grant and
a CDBG loan.

Problems Noted:

a.   Homeowner advised that only one of the three
     contractors who submitted bids inspected his
     residence. The contractor that inspected the
     residence was not the winning bidder.

b.   Winning   bid     was    in   pencil      and    contained
     alterations.

c.   Bids were received        after    the   established   bid
     submission deadline.

d.   Winning bid contained line item costs that were not
     reconciled with Coordinator's estimate.




                         5
     Work Item                Estimate           Bid Amount

     Roof Repairs             $ 4,500.00 $ 2,300.00

     Electrical            3,000.00   4,900.00

e.   Work items including the installation of a furnace,
     roofing repairs, and deck work were apparently not
     performed in an acceptable manner. The Grantee is
     currently paying other contractors to improve the
     quality of the work.

Case File No. 95-008

Rehabilitation work totaling $15,325 was completed in
September 1996. The rehabilitation work was paid for
through a grant and a CDBG loan.

Problems Noted:

a.   Coordinator's cost estimate was prepared after bids
     were received.

b.   Bids contained alterations, erasures, and amounts
     were changed.

c.   Major electrical repairs identified in the initial
     inspection were not included in the specifications
     or bids. The work was to be performed by the home
     owner without any follow-up by the Grantee.

d.   Installation of a boiler and gas hot water heater
     was not proper. While the water heater problems
     have been corrected, the boiler installation cannot
     easily be resolved.

     The Grantee has hired another contractor to
     evaluate   the   problems.   The  contractor   has
     recommended the installation of a new boiler since
     the one originally installed is too small for the
     residence. To resolve the problems, an additional
     $2,850 in cost will be necessary.

Case File No. 95-021
Rehabilitation work totaling $17,150 begun on October
10,   1996,   and  remains   incomplete.   The  original
contractor was terminated from the job in August 1997,
after receiving $12,015 in funds for work either not
done or done in a less than workmanlike manner.




                       6
     Problems Noted:

     a.   Winning bid contained altered amounts for various
          work items.

     b.   Files contained inspection reports signed by the
          Coordinator that authorized payments for work that
          was not done. For example, the contractor received
          a payment of $2,100 for storm windows that were
          never installed. The contractor billed for and was
          paid in November 1996.

     c.   Work items were not properly performed, but were
          approved for payment by the Coordinator. Examples
          of   the   work   items   included roof  repairs,
          installation of entry doors, painting, and repair
          of gutters and downspouts.

     d.   Purported contractor negligence resulted in damage
          to the homeowner's property. The damage included
          cracked windows, spilled roofing material on deck
          and on carpets.


2.   Procurement of Consultant Services Was Inadequate
     Documentation   supporting  the   procurement  of   the
     consultant's contracts showed very little evidence that
     the Grantee actively solicited proposals from other
     consultants. In fact, the Grantee advised that the
     consultant controlled most aspects of the procurement
     process including:

     $    The preparation of the Request For Proposal (RFP)
           detailing the requirements necessary to be
          considered for the contract.

     $    Determining the consultants who would receive the
          RFP.

     $    Mailing the RFPs to the selected consultants.

     Apart from the above, our review of the consultant's
     contracts showed that the Grantee was required to pay
     substantial amounts for grant "set up" at the beginning
     of each grant year. The amounts ranged from $10,000 to
     $15,000 per grant year.

     The Grantee did not maintain the documentation necessary
     to determine whether the payments were reasonable or



                           7
      necessary. In evaluating the reasonableness of the
      costs, HUD will need to take into consideration that the
      Grantee's programs remained essentially the same from
      year to year. Moreover, the consultant was also being
      reimbursed for an on-site Coordinator and had cost
      pertaining to the services of a part time clerk also
      charged to the grants. The Grantee's Clerk/Treasurer
      maintained the books and records of the grants and
      disbursed approved checks.

3.    Other Weaknesses and Deficiencies

      $    Case File No. 95-024 - All of the homeowner's
           income may not have been considered in the program
           eligibility determination.

      $    Grantee is not adequately enforcing the five year
           restriction   on   the   sale    of   rehabilitated
           properties. Appropriate liens have not always been
           filed.

      $    Contractors may not be         obtaining   appropriate
           insurance for employees.

      $    Case File No. 90-026 - Documentation indicates that
           the recipient may not have been an owner occupant
           and   therefore   was   not   eligible   for   full
           reimbursement of the rehabilitation work. The over
           reimbursement would amount to $6,000.


             Conclusions and Recommendations

The Grantee is currently implementing corrective actions to
ensure that they succeed in improving the administration of
the program. In connection with this effort, they have
received your approval to rectify all deficiencies in cited
rehabilitation cases by using the funds contained in program
income accounts. You have stipulated that funds used will be
repaid to the program from Non-Federal funds, once the total
amounts have been determined.

1A.   Regarding the collection attempts, you should require
      the Grantee to seek recovery from the contractors
      responsible for the work not done, or poorly done, as
      well as the Consultant and the prior Rehabilitation
      Coordinator.

1B.   We further recommend that you review the consultant's
      charges  and   determine  their  appropriateness  and



                            8
      reasonableness to the programs. The Grantee should be
      advised of your determination.

1C.   Finally, we believe that your staff should monitor the
      Grantee's implementation of the corrective actions to
      ensure that they succeed. The Grantee should be reminded
      that it is responsible for implementing procedures to
      ensure that its programs are administered in accordance
      with HUD regulations.




Within 60 days please give us a status report on: (1) the
corrective action taken: (2) the proposed corrective action
taken and the date to be completed; or (3) why action is
considered unnecessary. Also, please furnish us copies of any
correspondence or directives issued because of this review.

Please contact William H. Rooney, Assistant District Inspector
General for Audit, at 212-264-8000 extension 3976, if you or
your staff have any questions, or require copies of pertinent
working papers. Also, please furnish us with copies of any
correspondence issued related to this review.




                            9
                                                Appendix A


         VILLAGE OF FORT PLAIN CDBG

LISTING OF REHABILITATION CASE FILES REVIEWED


      REHABILITATION CASE FILE NUMBER
                   95-008
                   94-016
                   94-010
                   95-021
                   95-022
                   94-020
                   94-015
                   94-006
                   94-002
                   95-024
                   90-026
                   95-025
                  96-0161




                     10
                                                                                    Appendix B


Distribution
Secretary's Representative, New York/New Jersey, 2AS
Director, Office of Community Planning and Development, 2C (2)
Field Comptroller, Midwest Field Office, 5AF
Mid-Atlantic Office of Comptroller
Buffalo Area Coordinator, 2CS (2)
Assistant to the Deputy Secretary for Field Management, SDF
  (Room 7106)
Acquisitions Librarian, Library, AS (Room 8141)
(Acting) Chief Financial Officer, F (Room 10164) (2)
Office of the Deputy Assistant Secretary for Grant Programs, D.C. (Attention: Audit Liaison Officer
- Room 7214) (5)
Director, Participation & Compliance Division, HSLP, Room 9164
Associate General Counsel, Office of Assisted Housing and
  Community Development, GC (Room 8162)
Director, Housing and Community Development Issue Area, U.S.
 GAO, 441 G Street, NW, Room 274, Washington, DC 20548 (2)
Subcommittee on General Oversight and Investigations, Room 212
  O'Neill House Office Building, Washington, DC 20515 (Attention: Cindy Sprunger)
Inspector General, G, Room 8256
Counsel to IG, GC, Room 8260
Mayor, 168 Canal St., Fort Plain, New York 13339




                                               11