Northwest Indiana Discussion

[url]http://www.hudoig.gov/Audit_Reports/2012-CH-1009.pdf[/url]
Issue Date: August 3, 2012
Audit Report Number: 2012-CH-1009

TO: Forrest Jones, Program Center Coordinator, Office of Public Housing, 5HPH
//signed//

FROM: Kelly Anderson, Regional Inspector General for Audit, 5AGA

SUBJECT: The Hammond Housing Authority, Hammond, IN, Did Not Administer Its Recovery Act Grants in Accordance With Recovery Act, HUD’s, and Its Own Requirements

Enclosed are the U.S. Department of Housing and Urban Development (HUD) Office of Inspector General’s (OIG) final results of the audit of the Hammond Housing Authority’s American Recovery and Reinvestment Act Public Housing Capital Fund stimulus formula and competitive grants.

HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on recommended corrective actions. For each recommendation without a management decision, please respond and provide status reports in accordance with the HUD Handbook. Please furnish us copies of any correspondence or directives issued because of the audit.

The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its publicly available reports on the OIG Web site. Accordingly, this report will be posted at http://www.hudoig.gov.

If you have any questions or comments about this report, please do not hesitate to call me at (312) 913-8684.

OMB Circular A-133 Section .300(b) states:
"The auditee shall:
Maintain internal control over Federal programs that provides reasonable assurance that
the auditee is managing Federal awards in compliance with laws, regulations, and the
provisions of contracts or grant agreements that could have a material effect on each of its
Federal programs."

24 CFR 85.36(b) states in part:
"Procurement standards. (1) Grantees and subgrantees will use their own procurement
procedures which reflect applicable State and local laws and regulations, provided that the
procurements conform to applicable Federal law and the standards identified in this section."
Indiana Code 36-1-12-18 states:

"(a) If, in the course of the construction, reconstruction, or repair of a public work project, it
becomes necessary to change or alter the original specifications, a change order may be issued
to add, delete, or change an item or items in the original contract. The change order becomes
an addendum to the contract and must be approved and signed by the board and the
contractor.
(b) If a licensed architect or engineer is assigned to the public work project, the change order
must be prepared by that person.
(c) A change order may not be issued before commencement of the actual construction,
reconstruction, or repairs except in the case of an emergency. In that case, the board must
make a declaration, and the board's minutes must show the nature of the emergency.
(d) The total of all change orders issued that increase the scope of the project may not exceed
twenty percent (20%) of the amount of the original contract. A change order issued as a result
of circumstances that could not have been reasonably foreseen does not increase the scope of
the project.
(e) All change orders must be directly related to the original public work project.
(f) If additional units of materials included in the original contract are needed, the cost of these
units in the change order must be the same as those shown in the original contract."

page -85-
CITY OF HAMMOND
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Planning and Development Department employees working on the NSP grant (NSP Manager or NSP
Specialists) did not verify whether or not the contractors that were awarded bids for the rehabilitation services
were suspended or debarred from federal contracts.
24 CFR 85.35 states in part:

"Subawards to debarred and suspended parties. Grantees and subgrantees must not make any
award or permit any award (subgrant or contract) at any tier to any party that is debarred or
suspended or is otherwise excluded from or ineligible for participation in federal assistance
programs subject to 2 CFR part 2424."



The Hammond Redevelopment Commission adopted Resolution 2-2012 on April 3, 2012, as a
response to the same finding for 2010. The Resolution is a change order policy for federally funded projects
and includes the following wording: "1. All change orders on a federally funded project that exceed twenty
percent of the current approved project budget will be presented before the Commission for approval." This
wording conflicts with Indiana Code 36-1-12-18(d).
Indiana Code 36-1-12-18(d) states:
"The total of all change orders issued that increase the scope of the project may not exceed
twenty percent (20%) of the amount of the original contract. A change order issued as a result
of circumstances that could not have been reasonably foreseen does not increase the scope of
the project."

The following weakness in internal controls over suspension and debarment procedures and
noncompliance with suspension and debarment requirements was noted for CDBG Entitlement Grants:
Written evidence was not provided that the Community Development Planner or Community
Development Finance Manager verified that vendors were not suspended or debarred from
federal transactions when those vendors had payments in excess of $25,000. Some testing for
suspension and debarment was performed by the Community Development Planner but only on
the CDBG public projects. Verification that vendors are not suspended or debarred should also
be performed by the Community Development Planner or by the Community Development
Finance Manager on all subrecipients and payments to vendors with written contracts.

24 CFR 85.35 states in part:
"Subawards to debarred and suspended parties. Grantees and subgrantees must not make any
award or permit any award (subgrant or contract) at any tier to any party that is debarred or
suspended or is otherwise excluded from or ineligible for participation in federal assistance
programs subject to 2 CFR part 2424."

2 CFR 2424.220 states in part:
"In addition to the contracts covered under 2 CFR 180.220(b) of the OMB guidance, this part
applies to any contract, regardless of tier, that is awarded by a contractor, subcontractor,
supplier, consultant, or its agent or representative in any transaction, if the contract is to be
funded or provided by HUD under a covered nonprocurement transaction and the amount of the
contract is expected to equal or exceed $25,000. This extends the coverage of the HUD
nonprocurement suspension and debarment requirements to all lower tiers of subcontracts
under covered nonprocurement transactions, as permitted under the OMB guidance at 2 CFR
180.220(c)."

page -86-
CITY OF HAMMOND
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
The deficiencies in the control over procurement, suspension and debarment are considered a
material weakness.
Failure to follow state and federal procurement guidelines and failure to verify that vendors have not
been debarred or suspended may jeopardize the City's ability to obtain future federal funding.
We recommended that officials establish better controls to ensure compliance with federal and state
guidelines concerning procurement, suspension and debarment and to establish procedures to retain verification
that vendors were not suspended or debarred from federal transactions. We also recommended that
all change orders be approved by the Redevelopment Commission at a public meeting.