oversight

HA of the City of Dallas, Dallas, TX

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-10-09.

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

                                                                      Issue Date
                                                                              October 9, 1998
                                                                      Audit Case Number
                                                                              99-FW-201-1001




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 the City of Dallas
               HOPE VI Grants


As part of a nationwide audit of the HOPE VI Program, we performed an audit of the Housing
Authority of the City of Dallas’ (Authority) HOPE VI grants to determine if the Authority: (1)
effectively, efficiently, and economically used its HOPE VI funds; (2) properly procured contracts
under its HOPE VI grants; (3) only expended amounts for eligible activities; (4) met the
objectives of its Revitalization Plan; and (5) implemented its community and supportive services
components in accordance with applicable rules and regulations, and in a manner that will allow
the activities to be sustained beyond the grant term.

The Authority has made some progress on its revitalization, despite being seriously hampered by
lawsuits. However, the audit disclosed significant concerns relating to Authority HOPE VI
activities. These concerns include: (1) improper procurements and misallocated costs; (2) a
questionable land purchase; and (3) the need for improved planning and management of its
community and supportive services activities.

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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99-FW-201-1001                  Page ii
Executive Summary
As part of a nationwide review, we audited the Housing Authority of the City of Dallas’
(Authority) HOPE VI grants to determine if the Authority: (1) effectively, efficiently, and
economically used its HOPE VI funds; (2) properly procured contracts under its HOPE VI
grants; (3) only expended amounts for eligible activities; (4) met the objectives of its
Revitalization Plan; and (5) implemented its community and supportive services
components in accordance with applicable rules and regulations, and in a manner that will
allow the activities to be sustained beyond the grant term. We found the Authority needs
to make improvements in each of these areas.

The Authority’s HOPE VI Program stems from a Court mandate to the Authority to
provide replacement units in non-minority areas of the City. The Authority has faced
serious difficulties trying to meet the Court’s requirements. These difficulties include
trying to buy scarce and expensive land in north Dallas, and legal delays and costs due to
homeowner opposition. Given these difficulties, the Authority overall is satisfactorily
carrying out its HOPE VI grant activities. However, the audit disclosed significant
concerns relating to Authority HOPE VI activities, which may hinder the Authority’s
successful completion of its revitalization plan. These concerns include: (1) improper
procurements and misallocated costs; (2) a questionable land purchase; and (3) the need
for improved planning and management of its community and supportive services
activities. Despite the legal delays and costs, the Authority could have largely avoided these
concerns had it followed procurement requirements, had property appraised before making
a purchase offer, and properly planned and managed its community and supportive
services activities.


 Improper procurements              A review of charges for 12 contractors found numerous
 and misallocated costs.            instances of procurement improprieties. These
                                    improprieties included sole source contracts and purchase
                                    orders, purchases made without cost analyses, and contracts
                                    awarded with no basis for final selection of contractors. As
                                    a result, the Authority and HUD have no assurance the
                                    Authority received the best services at reasonable prices.
                                    Also, the Authority’s selection process appears arbitrary,
                                    and open to criticism of favoritism.

                                    The Authority misallocated about $788,482 in costs to its
                                    HOPE VI Program, including $102,501 in public relations
                                    costs, and $685,981 in community and supportive services
                                    costs. The misallocated costs represented charges for
                                    products and services that did not relate to HOPE VI
                                    activities, or related to the entire Authority but were
                                    charged only to HOPE VI. These misallocated funds could
                                    impair the Authority’s ability to successfully complete the


                                             Page iii                            99-FW-201-1001
Executive Summary


                            revitalization, which already appears to have insufficient
                            funds.

 Questionable land          The Authority paid $1.3 million in HOPE VI funds for land
 purchase.                  that was worth about $1 million. Further, the Authority did
                            not make the best use of the land, and paid $27,000 in
                            commissions to an agent even though their agreement with
                            the agent stated the seller would pay the commissions.

 Need for improved          The Authority has made no plans or efforts for sustaining its
 planning and               community and supportive services programs after HOPE
 management of              VI funding ends. Also, the Authority: (1) spent $126,364
 community and              for a youth training program that it canceled before any
 supportive services        participants completed training and (2) charged HOPE VI
 programs.                  with the costs of two programs that did not relate, or only
                            related in part, to HOPE VI activities.

 Audit recommendations.     We are recommending you require the Authority to follow
                            federal and Authority procurements requirements, and
                            HOPE VI requirements. We are also recommending the
                            Authority repay the HOPE VI Program for ineligible and
                            questionable costs, and properly plan and manage its
                            community and supportive services activities.

 The Authority generally    We discussed the findings and recommendations at an exit
 disagreed with the draft   conference with Authority officials on August 13, 1998.
 report.                    Authority officials responded in writing to the draft report
                            on September 24, 1998. Although concurring with some of
                            the findings and recommendations, the Authority generally
                            disagreed with the draft report. We have summarized and
                            evaluated the Authority’s response in the findings and
                            included it without the attached documents as Appendix B.




99-FW-201-1001                        Page iv
Table of Contents

Management Memorandum                                                            i


Executive Summary                                                            iii


Introduction
1


Findings

1    Improper Procurements and Questionable Costs Impair the                 9
     Authority’s HOPE VI Program


2    Authority Makes Questionable Purchase and Use of Land                 21


3    The Authority’s Community and Supportive Services Programs            35
     Need Better Planning and Management



Management Controls
41



Issues Needing Further Consideration                                        43



Appendices
      A Schedule of Questioned Costs                                        47

      B Authority’s Written Response to Draft Audit Report                  49

      C Distribution
83

                                          Page v                  99-FW-201-1001
Table of Contents




Abbreviations
       CFR       Code of Federal Regulations
       DHA       Dallas Housing Authority
       DYS       Dallas Youth Services
       FSS       Family Self-Sufficiency Program
       HUD       U.S. Department of Housing and Urban Development
       OIG       Office of Inspector General
       OMB       Office of Management and Budget
       VNA       Visiting Nurse Association




99-FW-201-1001                               Page vi
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 6 fiscal years, 1993 to 1998,
                                                 Congress has appropriated over $3.1 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
                                                 programs. 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 Dallas Housing Authority. The City of Dallas created
                                                 the Dallas Housing Authority (Authority) in 1938 to
                                                 provide safe, decent, sanitary, and affordable housing to
                                                 low-income and elderly families. The Authority administers
                                                 about 4,700 units of public housing and 10,800 Section 8
                                                 certificates and vouchers. A five-person Board of
                                                 Commissioners, appointed by the Dallas mayor, provides
                                                 general oversight over the Authority. Ms. Lori Moon, the
                                                 Executive Director, is in charge of day-to-day operations.
                                                 Authority administration and records are located at its
                                                 offices at 3939 North Hampton Road in Dallas, Texas.

                                                 The Authority's HOPE VI Program. HUD awarded the
                                                 Authority $27 million in HOPE VI funds, including one
                                                 implementation grant and one planning grant.

                                                 In August 1994, HUD awarded the Authority a $26.6
                                                 million HOPE VI implementation grant to provide

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


                                                           Page 1                                          99-FW-201-1001
Introduction


                                                  replacement units for the Lakewest public housing
                                                  developments (also known as West Dallas). The HOPE VI
                                                  funds are to address court requirements resulting from the
                                                  Walker v. HUD lawsuit.

                                                  The 3,500 Lakewest public housing units were built in the
                                                  1950’s as racially segregated developments, divided into
                                                  African-American, White, and Hispanic areas. Civil rights
                                                  laws passed in the 1960’s outlawed this segregative
                                                  practice. In 1985 minority plaintiffs filed a segregation
                                                  lawsuit (Walker v. HUD). Defendants in the lawsuit
                                                  included the Authority and HUD. To correct vestiges of
                                                  segregative practices, the Court issued a Remedial Order
                                                  Affecting DHA in February 1995.2 The Remedial Order
                                                  required the Authority to demolish at least 2,630 Lakewest
                                                  units and provide replacement units on a one-for-one basis.
                                                  Lakewest would be reconfigured so that no more than 950
                                                  units would remain. To implement the Court’s
                                                  requirements, the Authority decided to demolish all
                                                  remaining Lakewest units and construct 950 units at the site
                                                  using Comprehensive Improvements Assistance Program
                                                  (CIAP) and Comprehensive Grant Program (CGP) funds.
                                                  Off-site replacement units would consist of 474 new public
                                                  housing units, including 335 units funded under the HOPE
                                                  VI program, and the rest Section 8 certificates and
                                                  vouchers. Consistent with the Court Orders, the Authority
                                                  plans to develop the new public housing units in
                                                  predominantly white areas of Dallas.3

                                                  Other than the 335 replacement units, the Authority is using
                                                  HOPE VI funds for community and supportive services.4
                                                  The Authority’s program is unique in that HOPE VI funds
                                                  comprise only a small part of the entire revitalization, and
                                                  are only being used for replacement housing and community
                                                  and supportive services. No HOPE VI funds are being used
                                                  for construction at Lakewest, the revitalization site.

                                                  To date the Authority has purchased three parcels of land in
                                                  north Dallas with HOPE VI funds on which to build 146
                                                  units. Of the 146 units, 76 units at the Frankford/Marsh site

2
    The Remedial Order supersedes a 1987 Consent Decree and 1990 Supplemental Consent Decree.
3
    The Remedial Order also states the Authority will construct or acquire an additional 3,205 public housing units in
    predominantly white areas. The development of these units is dependent upon future HUD funding.
4
    The HOPE VI grant initially was to include funding for 165 Section 8 certificates for replacement units; however, in
    September 1995 HUD provided the Authority with separate funding for 167 Section 8 vouchers.

99-FW-201-1001                                                 Page 2
                                                      Introduction


       have been completed. Construction of 70 of the 146 units
       (40 units at Hillcrest and 30 units at Meandering Way) has
       been delayed due to homeowner litigation. The Authority
       purchased the Hillcrest and Meandering Way properties in
       April 1996. Future plans for the remaining 189 units have
       been put on hold pending resolution of the litigation and
       alternative plans are being investigated.




           Page 3                                    99-FW-201-
1001
Introduction




                                                Dallas map here




According to the Remedial Order, the Authority must provide replacement units located in predominantly white
areas of Dallas. Specifically, the units must be located in areas of the City where the poverty rate does not exceed
13 percent, and minorities make up less than 37 percent of the population - the non-shaded areas of the map.

99-FW-201-1001                                          Page 4
                                                                                    Introduction




                                    The “Frankford Townhomes” public housing development
                                    at the Frankford Road and Marsh Lane site.

In June 1995 HUD awarded the Authority a $400,000 planning grant to plan the comprehensive
revitalization of the Roseland Homes public housing development. The Authority applied for an
implementation grant in September 1996 and July 1997; however, it was not funded. In June
1998 the Authority again submitted an application for an implementation grant. On September 2,
1998, HUD announced that the Authority had been awarded a $34.9 million HOPE VI grant to
renovate Roseland Homes.


 Audit Objectives, Scope,           Our audit objectives in reviewing the Authority's HOPE VI
 and Methodology                    grants were to determine if the Authority: (1) effectively,
                                    efficiently, and economically used its HOPE VI funds; (2)
                                    properly procured contracts under its HOPE VI grants; (3)
                                    only expended amounts for eligible activities; (4) met the
                                    objectives of its Revitalization Plan; and (5) implemented its
                                    community and supportive services components in
                                    accordance with applicable rules and regulations, and 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)
                                         Page 5                                     99-FW-201-
1001
Introduction


                 interviewed Authority, HUD, and contractor officials; (3)
                 made site visits to the HOPE VI developments; and (4)
                 reviewed appraisals of a land acquisition. Our audit
                 procedures included:

                 •   Reviewing purchases made under the HOPE VI grants
                     to determine if the Authority properly procured
                     products and services.

                     The Authority did not maintain a contract log or other
                     record of contracts let under the HOPE VI grants.
                     Therefore, we reviewed HOPE VI procurements based
                     on expenditure listings and our knowledge of work
                     completed.

                     As of June 1998 the Authority had spent $9,957,871 of
                     the $26,600,000 implementation grant. We reviewed
                     contracts and purchase orders for 11 vendors totaling
                     $6,006,506.

                     As of June 1998, the Authority had spent $187,382 of
                     the $400,000 planning grant. We reviewed one contract
                     for $125,000. The Authority has completed planning
                     grant activities and does not expect to draw down the
                     remaining $212,618 (i.e., HUD will retain the unused
                     balance).

                 •   Reviewing support for travel and administrative costs
                     the Authority charged to its HOPE VI grants.

                     As of June 1998, the Authority had spent $350,783 for
                     administrative costs. We reviewed 19 payments totaling
                     $254,322. In addition, we reviewed four travel
                     payments totaling $12,080 (of $22,671 total travel
                     expenditures).

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




99-FW-201-1001            Page 6
                                                       Introduction


       •   Determining if the Authority is using its HOPE VI
           construction and modernization funds effectively,
           efficiently, and economically by: (1) visiting the three
           sites acquired by the Authority to build replacement
           housing; (2) comparing actual construction costs to the
           Authority’s budget, HUD’s Total Development Costs
           limits, and industry standards; (3) reviewing the City’s
           commitment to the revitalization; and (4) reviewing
           Authority reports for monies previously spent on the
           development.

       •   Interviewing personnel and reviewing Authority records
           regarding the community and supportive services
           programs for the implementation grant. The review
           included determining whether the programs: (1) are
           eligible; (2) have clear and measurable results; (3) are
           being adequately monitored; (4) will be sustainable after
           the grant term; and (5) are receiving required matching
           contributions from the City.

       We performed most of the field work at the Authority
       offices during December 1996, May and June 1997, and
       January 1998. The audit generally covered the period
       August 1994 to June 1997, although the period was
       extended, as appropriate. We performed the audit in
       accordance with generally accepted government auditing
       standards.

       We provided a copy of this report to the Executive Director
       of the Housing Authority of the City of Dallas.




            Page 7                                     99-FW-201-
1001
Introduction




                 THIS PAGE LEFT BLANK INTENTIONALLY




99-FW-201-1001                  Page 8
                                                                                     Finding 1


   Improper Procurements and Questionable
        Costs Impair the Authority’s
             HOPE VI Program
The Authority needs to strengthen controls over procurements and costs charged to its
HOPE VI Programs. Improper procurements included sole-source contracts and purchase
orders, purchases made without cost analyses, and contracts awarded with no basis for
final selection of contractors. Further, the Authority misallocated about $788,000 in public
relations and community and supportive services costs. As a result: (1) the Authority and
HUD do not have assurance the Authority received the best services at reasonable prices;
(2) the Authority’s selection process appears arbitrary and open to criticism of favoritism;
and (3) the improper use of funds may impair the Authority’s ability to successfully
implement its revitalization activities.


                                   The Grant Agreement requires the Authority to comply with
 Federal and Authority
                                   procurement guidelines contained in the Code of Federal
 procurement
                                   Regulations (24 CFR §85.36). In addition, the Authority
 requirements
                                   has its own procurement policy. The federal regulations
                                   and Authority procurement policy state that:

                                   •   Competition and price reasonableness:

                                       - All procurement transactions must be conducted in a
                                         manner providing full and open competition (24 CFR
                                         §85.36 (c)).

                                       - Purchases exceeding $15,000 must go through a
                                         formal contracting process using sealed bids or
                                         competitive/noncompetitive proposals (Section III, A.
                                         of Authority procurement policy).

                                       - For small purchases between $2,500 and $15,000,
                                         price quotes will be solicited from at least three
                                         businesses. The names, addresses, and/or telephone
                                         numbers of the businesses and persons contacted, and
                                         the date and amount of each quotation shall be
                                         recorded and maintained as a public record (Section
                                         III, 1.b. of Authority procurement policy).



                                          Page 9                                99-FW-201-1001
Finding 1


                                - The Authority must perform a cost or price analysis
                                  for every procurement action. A cost analysis will be
                                  necessary when adequate price competition is lacking,
                                  and for sole-source procurements, including contract
                                  modifications or change orders (24 CFR §85.36(f)). If
                                  only one bid is received from a responsible bidder,
                                  award shall not be made unless a cost or price analysis
                                  verifies the reasonableness of the price (Section III,
                                  A.2. of Authority procurement policy).

                                - Each procurement based on noncompetitive proposals
                                  shall be supported by a written justification for using
                                  such procedures (Section III,A.4. of Authority policy).

                            •   Procurement records and basis of selection:

                                - Grantees and subgrantees will maintain sufficient
                                  records to detail the significant history of a
                                  procurement. These records must at least include the
                                  following: rationale for method of procurement,
                                  selection of contract type, contractor selection or
                                  rejection, and the basis for the contract price (24 CFR
                                  §85.36 (b)(9)).

 Improper procurements      The audit procedures included reviewing charges to 12
 raise concerns about       contractors to determine if the Authority properly procured
 whether the Authority is   products and services. The charges reviewed totaled
 getting the best product   $6,131,506 (23 percent of the $27 million planning and
 at a reasonable price,     implementation grants). A review of charges for 12
 and whether contractor     contractors found numerous instances of procurement
 selection is impartial.    improprieties. These improprieties included sole-source
                            contracts and purchase orders, purchases made without cost
                            analyses, and contracts awarded with no basis for final
                            selection of contractors. As a result, the Authority and
                            HUD have no assurance the Authority received the best
                            services at reasonable prices. Also, the Authority’s
                            selection process appears arbitrary and open to criticism of
                            favoritism.

                            Sole-source contracts and purchase orders. For 8 of the 12
                            contractors reviewed, the Authority’s procurement policy
                            required competition either via a formal procurement
                            process (over $15,000) or by soliciting price quotes




99-FW-201-1001                        Page 10
                                                                                                                    Finding 1


                                                  ($2,500-$15,000).5 However, for three of these eight
                                                  contractors (E&K Home Health, GAF Advertising, and
                                                  Accent Printing) the Authority made 12 sole-source
                                                  purchases without soliciting competition, and did not
                                                  document the necessity for doing so. In addition, for five
                                                  purchases over $15,000 involving GAF Advertising and
                                                  Accent Printing, the Authority issued purchase orders
                                                  instead of using a formal procurement process:

                                                                      Sole Source Purchases
                                                                             E&K GAF        Accent                Totals
                                                    # purchases reviewed      1       8       3                    12
                                                    # purchases over          1       3       2                     6
                                                    $15,000
                                                    # purchases $2,500-        -      5       1                      6
                                                    $15,000

                                                  For E&K Home Health, the Authority awarded a $44,000
                                                  sole-source contract. The Authority stated it thought E&K
                                                  Home Health was a nonprofit organization, for which no
                                                  competition was required. For GAF Advertising and
                                                  Accent Printing, the Authority issued purchase orders
                                                  totaling $171,090 without advertising or obtaining price
                                                  quotes.

                                                  The payments to GAF Advertising and Accent Printing
                                                  represent public relations costs. According to the
                                                  Authority, the law firm of Haynes and Boone handled all
                                                  public relations matters so the Authority could use
                                                  Attorney/Client privilege to protect it from having to release
                                                  sensitive information. In the case of GAF Advertising,
                                                  Authority officials said Haynes and Boone contracted with a
                                                  public relations consultant, EB Harrison, who in turn
                                                  subcontracted with GAF Advertising. Authority officials
                                                  further stated they did not believe Haynes and Boone or EB
                                                  Harrision was required to follow federal procurement
                                                  regulations. However, the Authority made payments
                                                  directly to GAF Advertising, which indicates the firm was
                                                  not a subcontractor. The Authority maintains GAF
                                                  Advertising was a subcontractor of EB Harrison, and the
                                                  direct payments were made in error. Regardless of any
                                                  error, the Authority had to follow federal and its own

5
    The Grant Agreement allows housing authorities to contract non-competitively with certain nonprofit providers for
    community and supportive service activities. Three of the 12 contractors were nonprofit entities. For one of the nine profit-
    making firms, Video Monitoring, there were no charges exceeding $2,500, so the Authority did not have to obtain
    competitive quotes.
                                                         Page 11                                                99-FW-201-
1001
Finding 1


                                procurement requirements and ensure that the public
                                relations costs were obtained competitively. Authority
                                officials state a former Authority staff member contracted
                                with Accent Printing.

                                Purchases made without cost analyses. For 5 of the 12
                                vendors reviewed, including the 3 vendors that were
                                awarded contracts and purchase orders non-competitively,
                                the Authority did not perform cost analyses. As a result, the
                                Authority and HUD do not have adequate assurance that
                                the Authority paid reasonable prices for the goods and
                                services provided.

                                Contracts awarded with no basis for the final selection of
                                contractors. For contracts awarded to 4 of the 12 vendors,
                                the Authority did not document the basis for the final
                                selection of the contractor. In these four instances, the
                                Authority evaluated and ranked the contractors based on
                                their proposals submitted. After this initial evaluation, the
                                Authority had the finalists make presentations, then awarded
                                the contract to one of the finalists. However, although the
                                Authority documented its rankings after the initial
                                evaluations, it did not document its rankings or basis of
                                selection of the vendor that was awarded the contract. In
                                two of the four instances, the Authority selected a
                                contractor that was not the highest ranked applicant after
                                the initial evaluation. One of the contractors received the
                                second lowest (of 6) ratings, 17 points less than the highest
                                rated contractor.

                                Regarding Authority procurements, it should be noted that
                                the more serious deficiencies (sole source, no contracts, no
                                cost analyses) were from purchases made by the Authority’s
                                Client Services (community and supportive services
                                purchases) and Executive Offices (public relations
                                purchases) departments. Purchases made by the Planning
                                and Development department (construction, architectural,
                                and engineering contracts) did not document the basis for
                                final contractor selection, but otherwise were clean. The
                                Authority does not have a central procurement department.

 Improper use of funds may      The Authority misallocated about $788,482 in costs to its
 impair the Authority’s         HOPE VI Program. The $788,482 includes $102,501 in
 ability to successfully        public relations costs, and $685,981 in community and
 implement its revitalization   supportive services costs. These misallocated funds could
 activities.
99-FW-201-1001                           Page 12
                                                          Finding 1


       impair the Authority’s ability to successfully complete the
       revitalization, which already appears to have insufficient
       funds (see Issues Needing Further Consideration).

       Misallocated public relations costs. A review of 19
       payments for administrative costs totaling $254,322 found
       $102,501 in questionable payments to 3 vendors, all relating
       to public relations. These included:

       •   Unsupported charges for two firms, GAF Advertising
           and Accent Printing, totaling $97,695. These charges
           related to the printing of the Authority’s Development
           Profiles booklet. Although some of these booklets may
           have been used at public meetings related to HOPE VI,
           the Authority printed the booklets for general
           distribution. If the Authority wanted to charge part of
           these costs to HOPE VI, it would have to come up with
           a reasonable basis for doing so.

       •   An ineligible payment of $3,500 to GAF Advertising for
           photography work for the Authority’s 1994 Annual
           Report. These services do not relate to HOPE VI.

       •   An unsupported payment of $1,306 to Video
           Monitoring Services for videocassettes covering the
           resignation of the former Executive Director.

       Misallocated community and supportive services costs.
       The Authority charged the HOPE VI grant $139,802 for a
       community and supportive services program that did not
       relate to HOPE VI. In addition, the Authority charged the
       entire cost of another program to HOPE VI, even though
       the program was for all Authority residents, not just HOPE
       VI residents. This resulted in an estimated $546,000 in
       misallocated charges to the HOPE VI Program.

       The Authority contracted with the Visiting Nurse
       Association of North Texas for a wellness program that
       related to non-HOPE VI sites. From February 1995 to
       May 1996, the Authority paid the VNA from Turnkey Sales
       Proceeds. However, in June 1996 the Authority reclassified
       the payments to HOPE VI, and subsequently charged
       HOPE VI for the wellness program. The wellness program
       relates to the Audelia Manor, Cliff Manor, Forest Green
       Manor, and Park Manor sites, which are not part of the
            Page 13                                    99-FW-201-
1001
Finding 1


                      Authority’s HOPE VI Program. Total charges from
                      February 1995 to April 1997 amounted to $139,802.

                      The Family Self-Sufficiency Program (FSS) is open to all
                      Authority residents. At the time of the audit, 1,499
                      Authority families participated in the program, including
                      101 Lakewest families (6.7 percent). However, the
                      Authority charged the HOPE VI Program with the entire
                      cost of the program, which totaled $585,401 as of April 30,
                      1997. Based on this number of participants, the HOPE VI
                      program’s share of the FSS program should be $39,222 (6.7
                      percent X $585,401) and $546,179 charged to non-HOPE
                      VI activities. However, given that the number of FSS
                      participants varies over time, the $546,179 is only an
                      estimate of the misallocated costs through April 1997.

                      Authority officials stated they charged the costs to HOPE
                      VI because all Authority residents were potential residents
                      for the newly constructed HOPE VI units. However, the
                      Authority’s application and revised Revitalization Plan only
                      provide for 250 participants under the HOPE VI Program.
                      Authority officials said they have started to charge the
                      Family Self-Sufficiency Program costs to other sources
                      besides HOPE VI. As of June 1998, the Authority has
                      charged over $800,000 in FSS costs to HOPE VI.


                      Although the Authority acknowledged some of the reported
 Auditee Comments     procurement problems, it generally disagreed with the
 and OIG Evaluation   finding and recommendations. The comments indicate the
                      Authority either believes the OIG is mistaken, or that the
                      results reflect relatively minor oversights or rare exceptions.
                      However, although the Authority appears to be a well-run
                      organization, the audit results raise significant concerns
                      regarding the need for the Authority to pay closer attention
                      to its procurement practices and the charging of costs to
                      federal programs.

                      The following are highlights and excerpts of the Authority’s
                      written comments regarding Finding 1 of the draft report,
                      and OIG’s evaluation of the Authority’s comments.
                      Appendix B includes the full text of the Authority’s written
                      comments, excluding attachments which were too
                      voluminous to include in this report.


99-FW-201-1001                  Page 14
                                                          Finding 1


       Authority Comments (page 2): Need to strengthen
       procurement controls and costs.

       The Authority has procedures and control mechanisms in
       place to ensure it adheres to federal and Authority
       procurement requirements and monitoring of the HOPE VI
       Program. The Authority has a budget exceeding $100
       million, and annual audits have revealed minimal operational
       deficiencies for the past 10 years.

       OIG Evaluation: Need to strengthen procurement controls
       and costs.

       The audit results show the Authority did not always follow
       federal and Authority procurement requirements. For
       example, as noted in the finding, the Authority did not
       perform cost analyses for 5 of 12 vendors reviewed. The
       relative frequency of procurement exceptions indicates a
       significant issue the Authority needs to address.

       Authority Comments (page 3): Sole-source contracts and
       purchase orders.

       The Authority incorrectly assumed the firm was a non-profit
       organization. HUD allows grantees to contract with
       nonprofit organizations for community services. The
       Authority properly procured the services of Haynes and
       Boone. EB Harrison was a subcontractor of Haynes and
       Boone and the Authority cannot find, nor did the OIG
       provide, regulations showing that contractors must follow
       regulations in the selection of subcontractors.

       OIG Evaluation: Sole-source contracts and purchase
       orders.

       The Authority needs to ensure subgrantees for community
       services are nonprofit organizations. Regarding the GAF
       Advertising and Accent Printing procurements, the
       Authority should have obtained competitive bids. The
       Authority is correct in stating that its contractors do not
       have to follow federal procurement regulations in selecting
       subcontractors. However, the Authority issued purchase
       orders, and received and paid billings directly with both
       firms. This indicates the firms directly contracted with the
       Authority, and are not subcontractors as the Authority
           Page 15                                     99-FW-201-
1001
Finding 1


                 claims. Therefore the firms are subject to federal
                 procurement regulations at 24 CFR §85.36, and the
                 Authority’s procurement policy. In the case of Accent
                 Printing, Authority officials stated that former Authority
                 staff members contracted with the firm, which is further
                 evidence the firm is not a subcontractor. Whatever role
                 Haynes and Boone played in obtaining services from GAF
                 Advertising does not absolve the Authority from ensuring
                 the services were obtained in accordance with federal
                 procurement requirements.

                 Authority Comments (page 4): No cost analyses or basis
                 for final selection of contractors.

                 The Board approved the contracts reviewed the evaluations
                 and rationale for final selection. The Authority developed a
                 form to ensure it has adequate documentation to support
                 the final selection.

                 OIG Evaluation: No cost analyses or basis for final
                 selection of contractors.

                 The Director of Planning and Development told OIG staff
                 the system of ranking finalists was informal and based on
                 discussions between Authority panelists after contractor
                 presentations; however, the final rankings were not
                 documented. The Authority needs to ensure final selections
                 are documented.

                 The Authority’s response does not adequately address the
                 issue of cost analyses. Board review and approval of
                 contracts does not constitute cost analyses of procurement
                 transactions.

                 Authority Comments (pages 5-7): Misallocated costs -
                 general and public relations.

                 The OIG needs to be more specific as to which
                 revitalization activities they believe the Authority will not be
                 able to successfully implement. The remaining activity is
                 the development of the remaining 259 public housing units.
                 The Authority cannot proceed with this activity until there is
                 a ruling by the Fifth Circuit Court of Appeals.




99-FW-201-1001             Page 16
                                                           Finding 1


       Only $22,296 (Accent Printing) and $3,500 (GAF
       Advertising) may possibly be construed as not being directly
       related to the HOPE VI Program. Booklets and
       information packets relate to public meetings and
       information for the new HOPE VI sites. The video
       cassettes primarily related to video broadcasts on June 13
       and 14, and June 19 and 20, on the development of public
       housing in north Dallas.

       The Authority incurred mail, staff, and legal costs not
       charged to HOPE VI.

       OIG Evaluation: Misallocated costs - general and public
       relations.

       As reported in the Issues Needing Future Consideration
       section, Authority officials have stated they would not be
       able to build all of the 335 HOPE VI units with available
       funding. The misallocated costs make the situation worse.

       The OIG maintains the booklets and information packets did
       not solely relate to HOPE VI and the Authority would need
       a reasonable basis for allocating part of the costs to the
       program. The report only questions the June 13-14 video
       cassette costs, not the broadcasts for June 19-20.
       Documentation provided by the Authority identify the June
       13-14 cassettes as pertaining to the former Executive
       Director’s resignation. However, based on the Authority’s
       comments, the $1,306 has been changed from ineligible to
       unsupported.

       If the Authority has legitimate costs relating to HOPE VI
       that have not been charged to the program, it may seek
       reimbursement for these costs. However, the OIG has an
       obligation to identify costs misallocated to the program.

       Authority Comments (pages 7-9): Misallocated community
       and supportive services costs.

       The Authority incorrectly charged the wellness program to
       HOPE VI and will remove the expenses from the program.

       Regarding the Family Self-Sufficiency program, the Dallas
       Housing Authority has a unique situation in that the units in
       question have been demolished, and due to the federal court
            Page 17                                    99-FW-201-
1001
Finding 1


                   order requiring families transferring to the Frankford-Marsh
                   site to be enrolled in the program. A HUD HOPE VI staff
                   member agreed with the Authority’s approach. HOPE VI is
                   not the only source of funding for the Family Self-
                   Sufficiency program. Although the Authority’s revised
                   Revitalization Plan only provided for 250 participants, it
                   would be an exercise in futility to submit a revised plan
                   when court documentation has mandated the changes.

                   OIG Evaluation: Misallocated community and supportive
                   services costs.

                   The OIG commends the Authority for correcting the
                   wellness program charges.

                   The Authority’s Family Self-Sufficiency program is an
                   Authority-wide program. As such, the OIG maintains that
                   HOPE VI should only pay for its share of the program costs
                   (i.e., only costs for participating families in Lakewest and
                   the new HOPE VI properties). This does not conflict with
                   the Court Order which states that “DHA shall require every
                   resident of the Frankford/Marsh Development to participate
                   in the Family Self-Sufficiency Program…” The OIG
                   cannot rely on verbal comments that HUD officials allegedly
                   made to the Authority. As stated in the finding, the
                   Authority had charged all Family Self-Sufficiency program
                   costs to HOPE VI through at least April 1997, but informed
                   OIG staff that they have begun to charge costs to other
                   programs besides HOPE VI. The OIG does not object to
                   the Authority exceeding 250 participants for the Family
                   Self-Sufficiency Program, as long as costs relate to residents
                   of HOPE VI sites.



 Recommendations   We recommend you require the Authority to:

                   1A.    Take steps to ensure it will adhere to federal and
                          Authority procurement requirements, including: (1)
                          soliciting competition; (2) determining price
                          reasonableness; (3) documenting its basis for
                          contractor selection; and (4) following its
                          procurement policy regarding formal contracting
                          procedures;



99-FW-201-1001              Page 18
                                                         Finding 1


       1B.     Implement controls to ensure its HOPE VI Program
               is allocated and charged for only those costs that
               relate to HOPE VI activities;

       1C.     Repay the HOPE VI Program $3,500 for ineligible
               public relations costs and $139,802 for ineligible
               community and supportive services costs;

       1D.     Repay the HOPE VI Program for that portion of the
               $99,001 in questionable public relations costs not
               related to the program based on an allocation basis
               that is reasonable and supported; and

       1E.     Review participant records of the Family Self-
               Sufficiency Program and determine how much of the
               costs are allocable to the HOPE VI Program. Repay
               the HOPE VI Program for amounts unrelated to
               HOPE VI participants.




             Page 19                                  99-FW-201-
1001
Finding 1




                 THIS PAGE LEFT BLANK INTENTIONALLY




99-FW-201-1001                  Page 20
                                                                                      Finding 2


    Authority Makes Questionable Purchase
               and Use of Land
The Authority paid $1.3 million in HOPE VI funds for land that was worth about $1
million. Further, the Authority did not make the best use of the land, and paid $27,000 in
commissions to an agent even though their agreement with the agent stated the seller would
pay the commissions. As a result, the Authority did not make the best use of scarce federal
funds that could have been used for other HOPE VI activities.


 Federal cost principles           Office of Management and Budget (OMB) Circular A-87,
                                   Cost Principles for State, Local, and Indian Tribal
                                   Governments, establishes standards for determining costs.
                                   The basic guidelines state that to be allowable costs must be
                                   necessary and reasonable for proper and efficient
                                   performance and administration of federal awards. A cost is
                                   reasonable if, in its nature and amount, it does not exceed
                                   that which would be incurred by a prudent person under the
                                   circumstances prevailing at the time the decision was made
                                   to incur the cost. The question of reasonableness is
                                   particularly important when governmental units or
                                   components are predominately federally-funded
                                   (Attachment A, C. 1. and 2.).

 Chronology of the land            In order to comply with the court requirement to provide
 purchase.                         replacement housing in non-minority areas of the City, the
                                   Authority, through a real estate agent has tried to purchase
                                   properties in north Dallas. The Authority used a real estate
                                   agent, DFW Advisors, to act on its behalf to keep hidden
                                   the fact that the Authority was the buyer (due to concerns
                                   about homeowner opposition). The Authority purchased
                                   three properties: Frankford-Marsh, to build 76 housing
                                   units; Hillcrest - 40 units; and Meandering Way - 30 units.
                                   This finding relates to the purchase of the Frankford-Marsh
                                   property.

                                   •   January 24, 1995: The Authority enters into an
                                       agreement with DFW Advisors authorizing DFW
                                       Advisors to act as trustee in the acquisition of the
                                       Frankford Road - Marsh Lane property. The agreement
                                       states the commission is to be paid by the seller, and that
                                       the Authority “…shall have no duty, obligation or


                                         Page 21                                  99-FW-201-1001
Finding 2


                     liability to pay you a commission or other fee in
                     connection with this transaction or the property.”

                 •   January 25, 1995: Acting on behalf of the Authority, a
                     DFW Advisors official made an offer of $750,000 to
                     Northern Trust Bank of Texas for the Frankford-Marsh
                     property.

                 •   February 1, 1995: Northern Trust Bank of Texas sold
                     the Frankford-Marsh property to Michael D. Hoffman
                     for $887,500, including commissions and closing costs.

                 •   March 24, 1995: Marfrank, LP, a Texas limited
                     partnership (Michael D. Hoffman is president of
                     Harland, LLC - Marfrank’s General Partner), and DFW
                     Advisors entered into an earnest money contract where
                     DFW Advisors obtained a 45-day option to purchase the
                     property for $1.3 million. Under the contract, DFW
                     Advisors agreed to pay half of the sales commissions.

                 • April 10, 1995: Mark Donoho Company submitted an
                     appraisal assignment to the Authority, estimating the
                     market value of Frankford-Marsh property at $1.3
                     million as of April 7, 1995.

                 •   May 2, 1995: The Authority purchased the property
                     from Marfrank, LP for $1.3 million. In connection with
                     the purchase, the Authority paid DFW Advisors
                     $27,000, half of the sales commissions.

                 •   July 5, 1995: Crosson Dannis, Inc. submitted to the
                     Dallas Morning News a report on its review of the Mark
                     Donoho appraisal. The report estimated the Frankford-
                     Marsh property’s market value at between $945,000 to
                     $1,015,000 as of April 7, 1995.

                 •   August 24, 1995: The Board of Commissioners
                     approved the Frankford-Marsh purchase.

                 •   August 28, 1995: The Authority requested HUD’s
                     approval of the land purchase for the development of
                     about 75 HOPE VI housing units.

                 •   August 30, 1995: HUD approves the land purchase.
                     Because of the controversy caused by the land purchase,

99-FW-201-1001            Page 22
                                                                               Finding 2


                               HUD had planned to perform its own appraisal of the
                               property, but then decided to accept the Authority’s
                               appraisal “In order to avoid micro-management and
                               expedite public housing development . . .”.

                           •   July-September 1995: The Dallas Morning News
                               published 3 articles (July 23rd, September 16th, and
                               September 19th) criticizing the Authority’s purchase of
                               the Frankford-Marsh property and HUD’s approval of
                               the purchase.

 The Authority paid        A review of the Frankford-Marsh land purchase by an OIG
 significantly more than   Appraisal Specialist found the Authority paid at least
 the property was worth.   $300,000 too much for the property. Authority officials
                           argued that the land value is a matter of differing opinions.
                           In our opinion the Authority used a flawed appraisal.

                           An OIG specialist concludes the Authority paid at least
                           $300,000 too much. Based on a request by OIG audit staff,
                           an Office of Inspector General Appraisal Specialist
                           performed a field review of the Frankford-Marsh purchase
                           and reviewed the Donoho appraisal and Crosson appraisal
                           review. The OIG specialist found significant deficiencies
                           with the Donoho appraisal, and concluded that the value of
                           the property at that time of the sale should have been no
                           more than $1 million, and possibly substantially less:

                               “(Donoho’s comparable No. 5 is)….in the City of
                               Irving. The parcel is many miles southwest of the
                               subject property. The extreme distance and dissimilarity
                               of the locations make this a very poor comparable and
                               the data from this sale is totally irrelevant… .

                               None of the Donoho comparables are in the area
                               immediately around the subject property. Crosson’s
                               Comparables No. 7 and 8 and the HUD/OIG
                               Comparable No. 1 are all within a few blocks of the
                               subject property and are; therefore, the most accurate
                               indicators of value. Crosson’s Comparables No. 7 and 8
                               both sold after the date of the Donoho appraisal and
                               were; therefore, unavailable to Mr. Donoho as sales
                               data. However, they do show relative land trends in the
                               area and Mr. Donoho should have researched the
                               possible asking prices of these parcels when he was
                               developing data for his appraisal. These three
                                Page 23                                    99-FW-201-
1001
Finding 2


                                comparables indicate that the subject property should
                                have sold for between $1.50 and $2.25 per square feet.
                                Donoho’s Comparables No. 1, 2, and 3 and Crosson’s
                                Comparables No. 2, 4, and 5 are in the same general
                                area, although in better locations and, with reasonable
                                adjustments would seem to support a value of between
                                $2.00 and $2.50 for the subject property.

                                The lack of an adequate number of sales of really
                                comparable properties in the proper time frame make
                                any truly accurate analysis impossible. Given all the
                                limitations noted herein, it appears that a reasonable
                                value for the subject property as of April 1995 should
                                have been at between $2.00 to $2.50 per square foot or
                                between $732,940 and $916,175 for the entire parcel.

                                This indicates that the purchase price of $1,300,000 is
                                as least $300,000 excessive.”

                            Also, according to a news article by the Dallas Morning
                            News, the Denton and Dallas Central Appraisal Districts
                            valued the land at $936,443 and $916,176, respectively.

                            Authority states the land value is a matter of opinion.
                            Authority officials have argued that the Crosson review was
                            not an appraisal, and was therefore outside the guidelines of
                            standard appraisal practices. Also, the former Executive
                            Director stated that appraisal districts often carry raw land
                            at low values. Regarding the OIG review, the Authority
                            stated such values are a matter of differing opinions. In our
                            opinion the Authority used a flawed appraisal that appears
                            to have valued the land at the purchase price. An after-the-
                            fact appraisal that exactly equals the price offered gives the
                            appearance that the appraisal may have been an exercise in
                            justifying the offer price, rather than an objective estimate of
                            the land’s market value.

 The Authority did not      Although the Authority overpaid for the Frankford-Marsh
 make the best use of the   property, it could have mitigated the high land cost by
 land.                      building more units on the property, or selling part of the
                            land. Instead, the Authority built 76 units on a property
                            zoned for approximately 200 units, and used a part of the
                            property to build a $1.3 million learning center.




99-FW-201-1001                        Page 24
                                                            Finding 2


       The Authority could have built more units. Authority
       officials state the $1.3 million offer to purchase the land was
       based on multiplying the number of units allowable for the
       land (200) times the selling price per unit ($6,500) for that
       area. However, the Authority purchased the property to
       build 76 units. The OIG specialist’s report states:

          “A survey of raw land purchased for the construction of
          apartment complexes in this area (gleaned from the
          Donoho appraisal and the Crosson appraisal review)
          indicates that such complexes usually have a density of
          between 18 and 30 units per acre. Based on this range,
          it appears that the Housing Authority would need a site
          for their 76 units of between 2.53 acres and 4.2 acres.
          Thus, it would appear that they purchased a parcel that
          is somewhere between twice and three times as large as
          needed.”

       Authority officials stated they have made a commitment not
       to build more than 100 units per site. However, in light of
       the difficulty the Authority has had trying to find scarce and
       high priced land in north Dallas, and the high legal costs it
       has incurred related to these purchases, it seems the
       Authority should have constructed more units on the
       Frankford-Marsh site. The Authority could have been
       significantly closer to completing its plan of building 335
       replacement units had it constructed more units on the
       property.

       Authority could have sold part of the land. Although the
       Authority bought more land than needed to build 76 units, it
       could have recovered some of the excess funds paid by
       selling part of the land. The OIG specialist’s report states:

          “The subject property is located on the corner of an
          intersection which potentially has great value as a
          commercial site. If Frankford Road is cut through to
          the west, this intersection will probably develop as the
          intersection of two very busy streets. Thus, the site
          probably has a higher value as a commercial site based
          on the potential development of this intersection.
          Currently a lawsuit is pending to force the extension of
          Frankford Road west. All of this does not preclude the
          use of the site as a residential apartment complex, but it
          does indicate that a premium price might have been paid
            Page 25                                     99-FW-201-
1001
Finding 2


                     to purchase a site which has a possible highest and best
                     use as a future commercial development rather than that
                     of residential use. The purchase of land with value
                     above and beyond that of normal residential use is
                     typically a factor in the development of such a site for a
                     luxury development. The use of federal funds to pay
                     such a location premium is generally not acceptable.”

                 The report cites a recent illustration where a piece of
                 property was subdivided and sold for a large sum of money:

                     “…a 15.556 acre site was purchased for $1,525,000 just
                     one month prior to the purchase of the subject property.
                     This parcel is located along Frankford Road between
                     Vail Street (the next street east of Marsh Lane) and
                     Midway Road, the nearest major street east of Vail
                     Street. The site is just a short distance (less than one-
                     half mile) east of the subject property. This sales price
                     represents a per square foot cost of $2.15.

                     Just 15 months later, a 1.77 acre site directly on the
                     corner of Frankford Road and Midway Road was
                     subdivided out of the 15.556 acre parcel and sold to a
                     commercial entity, Walgreens Drug Stores, for
                     $1,000,000. This sales price represents a per square
                     foot cost of $12.99. This much higher per square foot
                     selling price may be partially attributable to land
                     appreciation over the 15 months, but the bulk of the
                     increase is due to the prime commercial location on the
                     corner of two very busy streets. All indications are that
                     this site, although very similar to the subject, is
                     somewhat superior due to its proximity to shopping and
                     bus routes.”

                 Authority officials stated they initially intended to sell part
                 of the land. In an August 5, 1995 letter to Texas Senator
                 Hutchison, defending the Authority because of negative
                 press coverage of the land purchase, the former Executive
                 Director wrote: “I might add that we have hopes of selling
                 a portion of the land, and which will allow us to recoup
                 some of the dollars we spent. Indeed, it is entirely possible
                 that we could wind up paying less than $1 million the paper
                 says is the rightful value.” However, instead of selling part
                 of the land to reduce the land acquisition costs, the
                 Authority built a Learning Center on the property.

99-FW-201-1001             Page 26
                                                          Finding 2



       Authority’s decision to build a Learning Center
       questionable. As of June 1998, the Authority had paid
       $556,681 of a budgeted $1,281,000 in HOPE VI funds for
       the Learning Center, which was completed around the end
       of August 1998. In a November 14, 1995 letter to the
       HUD Secretary, the (then) Executive Director stated that
       the Authority and Brookhaven College proposed the
       satellite campus to provide college preparatory and degree
       and certificate support courses, and professional
       development. The Learning Center would be open to
       “Residents in the Marsh/Frankford Road area, including
       Housing Authority clients, middle school and high school
       students, retirees, employees, and employers.” The former
       Executive Director requested funding assistance from HUD
       for the endeavor. A HUD Assistant Secretary responded to
       the letter, stating that the Department could not act on the
       funding request, but encouraged the Authority to work
       toward its goal of establishing a Learning Center.




                            picture of learning center here




       Learning Center at the northeast corner of Frankford Road
       and Marsh Lane.

       In May 1997, and again in January 1998 the Authority
       submitted revised budgets to HUD, requesting $1,281,000
           Page 27                                    99-FW-201-
1001
Finding 2


                             in construction and architectural and engineering costs for
                             the Learning Center. Authority officials said HUD has not
                             approved the revised budgets, but that the former Authority
                             Executive Director had obtained verbal approval from the
                             former HUD Assistant Secretary. Although the Authority
                             cannot be faulted for HUD’s non-responsiveness, it would
                             seem incumbent upon the Authority to have HUD’s written
                             approval for such a significant revision to their
                             Revitalization Plan. The Grant Agreement (Article XI,
                             paragraph 1) requires the Authority to obtain HUD’s
                             approval to any revision to the scope or objectives of the
                             Revitalization Plan. The Learning Center constitutes a
                             significant revision to the Authority’s Revitalization Plan.

                             An Authority official said that the Authority will provide the
                             land and facilities for the Learning Center, and Brookhaven
                             College would pay for operating costs, although the
                             Authority would share part of the first year’s operating
                             costs. However, Authority officials said they do not yet
                             have a written agreement with Brookhaven College.

                             The Learning Center will help Authority residents.
                             However, given that: (1) the Authority has already
                             indicated it will not have enough funds to build all its HOPE
                             VI units (see Issues Needing Further Consideration); (2) the
                             Center may largely be used for non-public housing
                             residents; (3) the Authority has not received HUD’s written
                             approval for the Learning Center, which constitutes a major
                             revision to its Revitalization Plan; and (4) the Authority
                             does not yet have a written agreement with Brookhaven
                             College, the Authority’s decision to build a Learning Center
                             appears questionable.

 The Authority should        As cited in the chronology section above, the Authority paid
 not have paid real estate   DFW Advisors a $27,000 commission for the Frankford-
 commissions.                Marsh land purchase even though its agreement with the
                             real estate agent stated the seller should pay the
                             commission.



  The Authority needs to     The questionable land acquisition shows a need for
  more closely adhere to     Authority management to more closely adhere to federal
  federal guidelines         cost principles. Federal cost principles require allowable
  regarding what is          costs to be necessary and reasonable for proper and
  necessary and
  reasonable.
99-FW-201-1001                        Page 28
                                                                         Finding 2


                      efficient administration of federal awards. Authority
                      officials have had difficulty trying to buy property in non-
                      minority areas and have met with homeowner opposition,
                      and the OIG is sympathetic to their plight. However, the
                      Authority could have avoided paying an unreasonable
                      amount for the property by obtaining an appraisal prior to
                      making an offer. Further, the Authority could have avoided
                      an unnecessary loss of HOPE VI funds by: (1) not buying
                      more land than necessary; (2) building more units on the
                      land; or (3) recouping some of the costs by selling part of
                      the land.


 Auditee Comments     The Authority disagreed with the finding and
 and OIG Evaluation   recommendations. Excerpts from the Authority’s written
                      comments, and OIG’s evaluation of the comments follow
                      (see Appendix B for the full text of the Authority’s
                      comments).

                      Authority Comments (pages 12-13) and OIG Evaluation:
                      The Authority paid significantly more than the property
                      was worth.

                      Authority. The OIG Appraisal Report was conducted more
                      than 2 years after DHA purchased the property and cannot
                      accurately reflect 1995 property values.
                          OIG. The Authority did not state its basis for making
                          this determination.

                      Authority. Property values listed by Central Appraisal
                      Districts are known to be below actual market value.
                         OIG. This appears to be the opinion of the Authority’s
                         appraiser.

                      Authority. The court determined the fair market value to be
                      $1.3 million and ordered HUD to reimburse the Authority
                      for all costs associated with the purchase. The court found
                      the Crosson Dannis, Inc. appraisal review performed for the
                      Dallas Morning News to be invalid.
                           OIG. Authority officials told us the court did not even
                           review the appraisal but made its determination based on
                           testimony by the seller and an Authority official.




                           Page 29                                   99-FW-201-
1001
Finding 2


                 Authority. Possible asking and sales prices vary greatly. In
                 conducting appraisals, the actual sales price is accepted as
                 the value to determine the market value of the property.
                    OIG. The Authority appraiser reportedly considered the
                    contract price in preparing his appraisal. However, using
                    this logic, any contract price may be accepted as the
                    market value.

                 Authority. The Authority obtained an appraisal from a
                 State Certified Appraiser even though not required by
                 HUD. HUD accepted the appraisal.
                    OIG. The Authority used a flawed appraisal that
                    supported the contract price. Unfortunately, HUD did
                    not perform its own appraisal.

                 Authority. Mar-Frank testified in Court that he had a
                 subsequent offer for $1.15 million after the contract was
                 executed with Authority.
                    OIG. According to court testimony documents
                    provided by the Authority, the seller claimed to have
                    received a written offer for $1.05 million, not $1.15
                    million. In any event, this supports the OIG’s
                    conclusion that the Authority significantly overpaid for
                    the property.

                 Authority. It appears the OIG chooses to ignore data,
                 material, legal documents, and contracts which will support
                 and confirm that the Authority paid an appropriate amount
                 for the land.
                     OIG. The OIG has evaluated and considered all
                     available information. The highly irregular events and
                     circumstances surrounding the Authority’s purchase of
                     the Frankford-Marsh property, as stated in the
                     Chronology section of this finding, justified further
                     review by OIG staff. The OIG bases its conclusion that
                     the Authority overpaid for the property on the OIG
                     Appraisal Specialist’s report.

                 Authority Comments (pages 14-15): The Authority could
                 have built more units.

                 The Authority agrees it could have built more units, but
                 doing so would not meet the goals of the HOPE VI
                 Program or the Walker et al. lawsuit to integrate public
                 housing families into the neighborhood. The Authority’s

99-FW-201-1001            Page 30
                                                            Finding 2


       method is to build no more than 100 public housing units
       per site. Additional units at the site would only strengthen
       the negative response of the existing homeowners. The
       Authority is under court restrictions to provide housing
       opportunities for low-income African American families in
       areas that are not black or predominantly black or minority
       concentrated. Increasing the number of public housing units
       at Frankford-Marsh would be contrary to the Court’s intent.
       Finally, the court ordered the Authority to proceed with the
       development of 75 family units at the site.

       OIG Evaluation: The Authority could have built more
       units.

       There’s nothing wrong with the Authority’s method of
       building no more than 100 units per site. But if this is the
       case, the Authority should buy properties that are more or
       less commensurate in size with the number of units it plans
       to build (or sell part of the land). In the case of Frankford-
       Marsh, the Authority bought 2-3 times more land than it
       needed. Even with this much land the Authority built 24
       units less than its 100-unit limit. The issue reported in the
       finding does not conflict with HOPE VI goals, or the
       court’s intent. The issue has to do with being resourceful
       with limited HOPE VI funds.

       Authority Comments (page 15): Authority could have sold
       part of the land.

       The Authority had considered selling part of the property;
       however, HUD strongly encouraged the Authority to
       develop a Campus of Learners Program at its HOPE VI
       sites. The Authority presented the proposed learning center
       to HUD and was encouraged by (then) Assistant Secretary
       Marchman to proceed with the development.

       Another reason why the Authority decided not to sell the
       property was to control development next to Authority
       families - it did not want a service station or convenience
       store located next to the development.




            Page 31                                     99-FW-201-
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Finding 2


                 OIG Evaluation: Authority could have sold part of the
                 land.

                 In a November 14, 1995 letter to the (then) HUD Secretary,
                 the former Executive Director outlined his proposal to
                 develop a Learning Center at the Frankford-Marsh site.
                 The letter concluded by saying “To incorporate this
                 concept into our design, we are in need of additional
                 funding. I would greatly appreciate exploring our options
                 to obtain adequate funding to bring this project to fruition.”

                 In a December 15, 1995 response to the Authority on the
                 Secretary’s behalf, Mr. Marchman stated “At the present
                 time, Campus of Learners is not a separately funded
                 program. The Secretary’s announcement in August was a
                 challenge to public housing authorities (PHAs) to make
                 linkages with educational and private sector institutions in
                 order to institute a Campus of Learners concept without the
                 benefit of additional funding from the Department….While
                 the Department cannot yet act on your funding request, we
                 still encourage the DHA to work towards its goal of
                 establishing a Learning Center.”

                 Therefore, it appears that HUD’s encouragement was
                 nothing more than a polite reply to the Authority’s request
                 for additional funds.

                 The Authority uses after-the-fact reasoning regarding its
                 desire to control adjacent development. The Authority
                 buys more land than needed, then justifies not selling the
                 excess because of a desire to control adjacent development.

                 Authority Comments (pages 16-17): Authority’s decision
                 to build a Learning Center questionable.

                 The possible shortage of funds may be caused by a variety
                 of reasons.

                 The Learning Center would provide classes for both
                 Authority residents and the surrounding neighborhood. The
                 development of the Learning Center would accomplish
                 several objectives of the court and the HOPE VI Program
                 including integrating the public housing site, providing self-
                 sufficiency and other skills training to assist public housing


99-FW-201-1001            Page 32
                                                           Finding 2


       residents to move off of government welfare assistance, and
       provide activities for youth at the public housing site.

       The Authority has included the Learning Center in its
       budget revisions and quarterly reports.

       The Authority proceeded with developing the Learning
       Center with HUD’s encouragement.

       The Authority does not believe the Learning Center
       constitutes a major revision to its Revitalization Plan. The
       Center is a means to accomplish the supportive services and
       community services components of the HOPE VI Program.

       The Authority has had to work around the shortage of HUD
       staff. It has reviewed the Learning Center with HOPE VI
       officials, and assumes if there was an objection, HUD would
       have noted it by now.

       OIG Evaluation: Authority’s decision to build a Learning
       Center questionable.

       The OIG recognizes the shortage of funds may be in part
       due to factors beyond the Authority’s control. However,
       some of the Authority’s decisions, such as building the
       Learning Center instead of selling off part of the land, add
       to the funds shortage problem.

       The OIG does not dispute the many benefits a Learning
       Center can provide. Nevertheless, we question the
       Authority’s decision to spend such a significant amount of
       money, without HUD’s written approval or a written
       agreement with Brookhaven, for a Center that may be to a
       significant degree for non-public housing residents.

       Authority Comments (pages 17-18): The Authority should
       not have paid real estate commissions.

       It was the Authority’s objective to have the real estate
       commissions be paid by the seller, but the seller was not
       willing, through negotiations, to absorb the total cost of the
       commissions. Since the Authority and the seller contracted
       to split the payment of the commissions, the initial
       arrangement to pay all of the commission was superseded in

            Page 33                                    99-FW-201-
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Finding 2


                   the final Contract of Sale. The $27,000 is part of the
                   $1,332,949 the court ordered HUD to pay the Authority.

                   OIG Evaluation: The Authority should not have paid real
                   estate commissions.

                   The Authority never modified the original trustee
                   agreement. DFW Advisors superseded the trustee
                   agreement when they entered into the earnest money
                   contract. The OIG doubts the court would be aware of the
                   trustee agreement between the Authority and DFW
                   Advisors.



 Recommendations   We recommend you require the Authority to:

                   2A.    Take steps to ensure that significant purchases,
                          including land acquisitions, are reasonable and
                          necessary for proper and efficient performance and
                          administration of federal awards;

                   2B.    Repay the HOPE VI Program $300,000 for the
                          improper and unreasonable purchase of the
                          Frankford-Marsh property; and

                   2C.    Repay the HOPE VI Program $27,000 for the
                          commission improperly paid DFW Advisors in
                          connection with the Frankford-Marsh land
                          acquisition.




99-FW-201-1001              Page 34
                                                                                                             Finding
3


        The Authority’s Community and Supportive
             Services Programs Need Better
               Planning and Management
The Authority has no plans to show how it will sustain its community and supportive
service activities when HOPE VI funding ends. In addition, the Authority has not always
efficiently managed community and supportive services funds. The Authority spent funds
for a program that had no contract and that did not benefit residents, and misallocated
costs for two other programs.


    The Authority’s                            The Family Self-Sufficiency Program, run by Authority
    community and                              staff, is the supportive services component of the
    supportive services                        Authority’s community and supportive services programs.
    program                                    The goal of the Family Self-Sufficiency Program is to help
                                               families become self-sufficient within 5 years. The program
                                               requires participants to develop a personal plan with a case
                                               manager that includes goals for self-sufficiency and how to
                                               meet them. Participants must sign an agreement with the
                                               Authority that they will work to meet these goals. The case
                                               manager will refer residents to available service providers,
                                               and follow up with them monthly. Some of the supportive
                                               services available to residents include remedial education,
                                               job training, child care, transportation, and parenting skills.

                                               The Authority submitted to HUD its Community Service
                                               Implementation Plan in November 1994, and a revised Plan
                                               in June 1995. HUD, through the Corporation for National
                                               Service,6 approved the Plan on April 30, 1996. The Plan
                                               includes training and service opportunities for residents in
                                               community maintenance and beautification (roof installation,
                                               grass cutting, property maintenance), teaching and child
                                               care, and home health care for the elderly and homebound.
                                               The Authority contracted with outside providers to provide
                                               community service training.

                                               The Authority’s Department of Client Services, Family Self-
                                               Sufficiency Program, oversees the community and
                                               supportive services programs. According to the

6
    The Corporation for National Service is a congressionally-established organization that administers national service
    programs that provide community services.

                                                      Page 35                                         99-FW-201-1001
Finding 3


                                               Community Service Implementation Plan: “The supportive
                                               services provided equip the participants with the skills to
                                               conduct meaningful community service…” The Authority
                                               budgeted $1,406,428 for supportive services, 7 most of it for
                                               staff salaries, and $1,767,200 for community services,
                                               including staff salaries and program contracts.

    The Authority has no                       HOPE VI provides funding for community and supportive
    plans for sustaining                       services and encourages grantees to continue community
    community and                              service plan activities beyond the term of the revitalization
    supportive services.                       period. The Authority’s Community Service
                                               Implementation Plan states that the program Coordinator
                                               will work to obtain commitments from foundations and the
                                               private business sector to continue the program beyond the
                                               term of the revitalization period. However, the Authority
                                               has made no plans or efforts for sustaining these services
                                               after HOPE VI funding ends.

                                               Without plans for sustaining its Community Service
                                               Implementation Plan activities, the Authority may not be
                                               able to achieve one of the key overall objectives of the
                                               HOPE VI Program, as stated in 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. The parties will
                                                   emphasize community and supportive services, as well
                                                   as other means appropriate to each community, so as to
                                                   have the broadest possible effect in meeting the social
                                                   and economic needs of the residents and the
                                                   surrounding community.”

    Terminated program did                     The Authority canceled a youth training program before any
    not benefit residents and                  participants completed training and after spending
    results in questionable                    $126,364 in HOPE VI funds. Authority officials terminated
    costs.                                     services provided by the Dallas Youth Services Corps
                                               because the services did not exclusively benefit Authority
                                               residents. However, the Authority never had a contract
                                               with the Dallas Youth Services Corps, which would have
                                               spelled out the scope of services.

                                               In its May 1993 HOPE VI application, the Authority
                                               described the Dallas Youth Services Corps’ role as the

7
    The $1,406,428 includes $180,000 in City matching contributions. The City has assigned a case manager to work at the
    Authority as an in-kind matching contribution.

99-FW-201-1001                                            Page 36
                                                          Finding 3


       provider for its community service program. The DYS
       Corps would provide training for two ten-person crews of
       young people in basic skills including tool handling, project
       planning, basic carpentry and landscaping. The trainees
       would also perform volunteer work and receive instruction
       leading to a high school diploma or G.E.D. certificate.
       After 6-12 months, the corpsmember was expected to
       translate newly acquired job skills into permanent
       employment, or to pursue advanced vocational training or
       education. The proposed budget for the program amounted
       to $1,767,204 over 5 years.

       The Dallas Youth Services Corps started implementing the
       program in September 1994, and training began in
       November 1994. For September through December 1994
       the DYS Corps submitted $126,364 in billings to the
       Authority. Start up costs totaled $65,718, including
       $45,588 for two vans purchased by DYS Corps to be used
       for transportation, and $4,000 for uniforms. The remaining
       start up and other costs were for salaries, overhead,
       operational costs, and stipends. In December 1994, the
       Authority removed DYS Corps from its community service
       program.

       In a December 20, 1994 letter to the Dallas Youth Services
       Corps, the former Executive Director stated that it was
       terminating DYS Corps from the HOPE VI Program
       because DYS Corps’ services did not exclusively benefit
       Authority residents. Also, an Authority official said the
       Dallas Youth Services Corps was removed because it
       wanted to broaden the services, based on recommendations
       by HUD and the Corporation for National Service.
       However, it appears the Authority did not have a clear idea
       what services it wanted. For one thing, the Authority paid
       DYS Corps $126,364 without a contract. A contract would
       have included an agreed upon scope of work and budget.
       Also, the Authority did not obtain approval of its
       Community Service Plan before implementing the program,
       as required by law. The Corporation for National Service
       did not approve the Authority’s Community Service Plan
       until April 30, 1996.

       In January 1995 the Authority notified DYS Corps it would
       continue to work as a HOPE VI subgrantee in a redefined
       role based on recommendations from the Corporation for
           Page 37                                    99-FW-201-
1001
Finding 3


                           National Service and the Lakewest residents. However,
                           according to a chronology of events prepared by the DYS
                           Corps, from January to June 1995 the Authority reduced the
                           program scope and funding to the point that the DYS Corps
                           was unable to perform the services. The Authority asked
                           the DYS Corps to return the two vans the Authority paid
                           for; however, Authority officials said the DYS Corps
                           ignored their request. On June 7, 1995, the Authority
                           submitted a revised Community Service Plan to the
                           Corporation for National Service, replacing the DYS Corps
                           with the West Dallas Neighborhood Development
                           Corporation.

 Unrelated community       The Authority charged the HOPE VI grant $139,802 for a
 and supportive services   wellness program provided by the Visiting Nurse
 costs charged to the      Association of North Texas. This community and
 HOPE VI Program.          supportive services program did not relate to HOPE VI
                           residents but to residents of other Authority developments.
                           In addition, the Authority charged the entire cost of its
                           supportive services, the Family Self-Sufficiency program to
                           HOPE VI, even though the program was for all Authority
                           residents, not just HOPE VI residents. This resulted in an
                           estimated $546,000 in misallocated charges to the HOPE VI
                           Program. Finding 1 discusses the misallocated charges for
                           these two programs in more detail.


 Auditee Comments          Authority Comments (pages 20-23): The Authority has no
 and OIG Evaluation        plans for sustaining community and supportive services.

                           The Authority is unclear how the OIG derived this
                           conclusion since they have failed to provide no specific
                           examples of non-compliance. The Authority has a long
                           history of forming community partnerships with community
                           service and business entities to meet the needs of it
                           residents. With the considerable efforts made by the
                           Authority, both prior to receipt of HOPE VI funding and
                           after, to ensure that the self-sufficiency and community
                           service programs are available to its residents, and
                           commitment of the Authority to provide these programs, it
                           is difficult to understand how the OIG can draw the
                           conclusion that the Authority has made no plans or efforts
                           for sustaining the services after HOPE VI funding ends.



99-FW-201-1001                      Page 38
                                                           Finding 3


       A HUD contractor and others have spoken positively about
       the Authority’s services and resources. The Authority has
       concluded that the OIG staff assigned to perform this audit
       lacks necessary experience in community/public
       revitalization to make the subjective decisions contained in
       the Draft Report.

       OIG Evaluation: The Authority has no plans for sustaining
       community and supportive services.

       The OIG regrets the Authority appears to have taken
       offense where none was intended. The draft report made no
       criticism of the quality of the Authority’s community and
       supportive services. As part of the audit, OIG staff
       reviewed the Authority’s HOPE VI community and
       supportive services (specifically, the Family Self-Sufficiency
       program and its community service programs as stated in
       Community Service Implementation Plan) and inquired how
       the Authority planned to sustain these services once HOPE
       VI funds were exhausted. This particularly concerned OIG
       staff since the Authority had been charging the entire cost of
       the Family Self-Sufficiency program to HOPE VI.
       Authority officials indicated they did not have plans in place
       for sustaining the programs. The finding recommends the
       Authority develop concrete plans for sustaining the
       programs.

       Authority Comments (pages 23-25): Terminated program
       did not benefit residents and results in questionable costs.

       The Authority and the Dallas Youth Services Corps (Youth
       Corps) had worked together to develop the plan which
       included the scope of services and budget. The Authority
       canceled the program because the Youth Corps had no
       intention of limiting the program to primarily public housing
       residents. The Authority subsequently revised the
       Community Services Plan, replacing the Youth Corps with
       the West Dallas Neighborhood Development Corporation.
       The WDNDC program was terminated due to poor resident
       participation, not through any fault of the Authority.

       Because of pressure from the Youth Corps to start the
       program, the Authority received verbal approval from the
       former HUD Assistant Secretary, and was informed there

            Page 39                                    99-FW-201-
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Finding 3


                   would be no written authorization since approval had come
                   from the Assistant Secretary.

                   The Authority did not pursue recovery of the vans because
                   the legal costs would exceed the value of the vans.

                   OIG Evaluation: Terminated program did not benefit
                   residents and results in questionable costs.

                   Whatever plans or informal agreements the Authority and
                   the Dallas Youth Services Corps had, these could not take
                   the place of a legally binding and enforceable contract. The
                   Authority should repay the HOPE VI Program for these
                   costs.

                   Authority Comments (pages 25 and 26) and OIG
                   Evaluation: Unrelated community and supportive service
                   costs charged to the HOPE VI Program.

                   See Finding 1 for a discussion of this issue.



 Recommendations   We recommend you require the Authority to:

                   3A.    Develop concrete plans on how it will sustain its
                          community and supportive services activities when
                          HOPE VI funding ends and

                   3B.    Repay the program $126,364 for the terminated
                          Dallas Youth Services Corps program.




99-FW-201-1001               Page 40
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.


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

                                 Administrative Controls

                                 ♦   Selection and award of contracts
                                 ♦   Eligibility of grant activities
                                 ♦   Procedures for land acquisitions
                                 ♦   Sustainability of community and supportive services
                                 ♦   Monitoring of programs
                                 ♦   Ability to timely complete the program

                                 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, in that the Authority lacks
                                 internal administrative controls to ensure:

                                 ♦   Major procurements are: (1) awarded using full and
                                     open competition; (2) processed using formal
                                     contracting procedures, as required; (3) adequately
                                     reviewed for price reasonableness; (4) evidenced by
                                     written, supported selection procedures; and (5)
                                     consistent with HOPE VI requirements (Findings 1 and
                                     3).

                                 ♦   Costs are allocated to appropriate programs (Findings 1
                                     and 3).



                                       Page 41                                  99-FW-201-1001
Management Controls


                      ♦   Land purchases are made in accordance with federal
                          cost principles (Finding 2).

                      ♦   Adequate planning for community and supportive
                          services under its HOPE VI Program so that these
                          services can be sustained after the grant term (Finding
                          3).




99-FW-201-1001                 Page 42
Issues Needing Further Consideration
In addition to the findings, the audit identified issues needing further consideration.
Although important, we did not think these issues warranted being reported as audit
findings. However, these issues could become significant if not timely addressed.


 Lack of funds will make            An Authority official said he did not think they would be
 completing the planned             able to build all of the 335 units with available funding. The
 revitalization difficult.          official could not even guess how many units they would be
                                    able to build since the biggest variable - the cost of land -
                                    was unknown.

                                    A HUD official also does not believe the Authority will be
                                    able to construct the 335 units and stressed the high legal
                                    fees due to the lawsuits. The Authority had previously paid
                                    for these fees from its operating reserves. However, the
                                    Authority has begun paying for legal fees from HOPE VI
                                    funds. As of June 1998 the Authority had charged $55,345
                                    in legal fees to HOPE VI. According to information
                                    provided by the Authority, legal costs charged or chargeable
                                    to the HOPE VI Program total $388,701.

                                    The OIG’s evaluation of costs incurred at the Frankford-
                                    Marsh development found that the Authority exceeded its
                                    budget by 38 percent. Therefore, the audit results also
                                    indicate the Authority will not be able to complete their
                                    HOPE VI Program with available funding.

                                    The Authority is pursuing alternative approaches, such as
                                    partnering with developers to purchase units within their
                                    developments that will be used as public housing units. The
                                    Authority conducted negotiations with a developer to
                                    purchase 88 units of a 306-unit development for use as
                                    public housing. However, the developer backed off because
                                    the Authority would not put up hard cash to hold the units
                                    while waiting for a decision on the homeowner lawsuit.

                                    A baseline assessment of the Dallas HOPE VI Program,
                                    prepared by a HUD consultant and citing the legal and
                                    financial problems the Authority has encountered, offers the
                                    following “Observations”:

                                    •   Given the legal environment and the barriers they have
                                        presented thus far, the DHA should invest its time and

                                          Page 43                                  99-FW-201-1001
Issues Needing Further Consideration


                                       resources into identifying alternative approaches to
                                       acquisition such as partnering with private developers.
                                       This would enable the PHA to acquire the units it
                                       requires while deferring the risk and responsibility for
                                       the project to the developer.

                                   •   The housing authority must do an analysis of legal fees
                                       incurred to date to project the potential financial burden
                                       on the HOPE VI Program. These fees have not been
                                       previously budgeted and would have a real impact on
                                       the amount of funds available for construction under this
                                       grant.

                                   •   A new budget should be constructed that accurately
                                       reflects the status to date and realigns line items to
                                       reflect current plans. A revised Revitalization Plan that
                                       accurately reflects any new projections with regard to
                                       units being produced or schedule changes should be
                                       submitted to HUD.

                                   We believe these are sound observations that should help
                                   the Authority address its problems with timeliness and
                                   funding.

 HOPE VI Program will              The Authority will not be able to timely complete the HOPE
 not be timely completed.          VI revitalization due to the difficulty in finding land sites in
                                   north Dallas on which to build housing, and because of
                                   homeowner lawsuits. The Authority has only purchased 3
                                   properties to date on which to build 146 of the 335 units
                                   included in the revitalization plan. The Authority has
                                   completed 76 units at the Frankford-Marsh property.
                                   However, due to lawsuits by area homeowners, the
                                   Authority has thusfar been unable to construct any units at
                                   the other two properties, purchased in April 1996.




                                   HUD did not establish a specific time frame for the
                                   Authority to complete its grant activities. According to a
                                   HUD official, grantees are generally given 54 months from

99-FW-201-1001                               Page 44
                             Issues Needing Further Consideration


       the date of the signing of the Assistance Award
       Amendment. The Authority’s Assistance Award
       Amendment was signed in August 1994. This would mean
       that the Authority would have until January 1999 to
       complete its plan in a timely manner. With less than a
       quarter of its planned units completed, the Authority will
       not be able to timely complete its HOPE VI revitalization.




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99-FW-201-1001                         Page 46
                                                                                                                  Appendix A


Schedule of Questioned Costs



                         Recommendation
                             Number                         Ineligible 1            Unsupported 2

                                   1C                        $143,302

                                   1D                                                  $    99,001

                                   1E                                                      546,179

                                   2B                                                      300,000

                                   2C                                                       27,000

                                   3B                                                      126,364

                     TOTALS                                  $143,302                 $1,098,544




1
    Ineligible costs are costs charged to a HUD-financed or insured program or activity that the auditor believes are not
    allowable by law, contract, or federal, state, or local policies or regulations.
2
    Unsupported costs are costs charged to a HUD-financed or insured program or activity and eligibility cannot be determined
    at the time of audit. The costs are not supported by adequate documentation or there is a need for a legal or administrative
    determination on the eligibility of the cost. Unsupported costs require a future decision by HUD program officials. This
    decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of
    Departmental policies and procedures.

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                               Appendix B


Auditee Comments




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                                                                                  Appendix C

Distribution
Secretary's Representative, 6AS
Dallas Area Coordinator, 6CS
Comptroller, 6AF
Director, Accounting, 6AAF
Deputy Assistant Secretary, Office of Public Housing Investments, PT (4)
Saul N. Ramirez, Jr., 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., Acting Assistant Secretary for CPD, D (Room 7100)
Joseph Smith, 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)
Director, HUD Enforcement Center, 1240 Maryland Ave., Ste. 200, Wash.D.C. 20024
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. 20510-6250
The Honorable Fred Thompson, Chairman, Comm. on Govt Affairs,
 U.S. Senate, Washington, D.C. 20515-4305
The Honorable John Glenn, Ranking Member, Comm. on Govt Affairs,
        U.S. Senate, Washington, D.C. 20515-4305
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
Housing Authority of the City of Dallas




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