Northwest Indiana Discussion

We recommend that the program coordinator of the Office of Public Housing require the Authority to (1) provide documentation or reimburse HUD $174,471 from non-Federal funds for transmission to the U.S. Treasury for inappropriate change orders, (2) support or reimburse HUD more than $106,000 from non-Federal funds for transmission to the U.S. Treasury, (3) pursue collection of $7,000 from its mixed finance development partner from non-Federal funds, and (4) implement adequate procedures and controls to address the findings cited in this audit report.

The Authority did not administer its grants in accordance with Recovery Act, HUD’s, and its own requirements. While the Authority generally obligated and expended its Recovery Act funds in accordance with Recovery Act rules and regulations, it did not ensure small purchases or contracts above its small purchase threshold were properly procured and executed in accordance with HUD’s requirements and its own procurement policies. Further, it did not ensure Federal and its own procurement requirements were followed when change orders were approved for work items that were outside the scope of work for the construction contracts.

The Authority also did not ensure that Recovery Act grant funds were (1) disbursed within HUD’s required timeframe, (2) properly allocated and drawn from appropriate budget line items, and (3) spent on eligible items.

The Authority did not ensure that its contractors complied with buy-American requirements of the Recovery Act, the Davis-Bacon Act, and HUD’s Section 3 Act of 1968. It also did not accurately report its Recovery Act information for all three Recovery Act grants in FederalReporting.gov.

These deficiencies resulted in $1,625 in ineligible costs, $281,049 in unsupported costs, and $7,000 in funds to be put to better use. Additionally, the public did not have access to accurate information relating to the Authority’s expenditures of the Recovery Act funds.

http://www.hudoig.gov/Audit_Reports/2012-CH-1009.pdf page 5




Finding 1: The Authority Did Not Comply With HUD’s and Its Own Procurement Requirements

The Authority procured and executed small purchases or contracts above its small purchase threshold contrary to HUD’s and its own procurement requirements. Additionally, it (1) incorrectly disposed of housing units for less than the assessed values and (2) inappropriately approved change orders. This condition occurred because the Authority lacked an understanding of Federal and its own procurement requirements. It also lacked adequate controls to ensure compliance with HUD’s and its own requirements. As a result, HUD and the Authority lacked assurance that services were procured at the best price and competition was open.

http://www.hudoig.gov/Audit_Reports/2012-CH-1009.pdf page 5


The Authority’s small purchase threshold was $75,000 for the purchase of goods and construction contracts. It used small purchase contracts to procure services using funds from its Recovery Act competitive transformation grant. For both of the work items we reviewed, the Authority failed to ensure that required documentation was obtained and maintained in accordance with HUD’s requirements and its own policies and procedures. The two items reviewed totaling more than $39,000 were for (1) phase I environmental site assessment with liability insurance clause and (2) asbestos air clearance testing. Documentation was not maintained to support

ï‚· Quotes were solicited for both of the work items, and
ï‚· Independent cost estimates were completed for one work item.

For the procurement of the environmental assessment, the Authority’s modernization director stated, review of available time and cost constraints led to a determination that it would be advantageous to negotiate a contract with the company, Amereco to prepare a new phase I report with the required insurance clauses as opposed to reprocuring.

The environmental site assessment was completed three times in total by two companies and was paid for accordingly. Also, the need for a company conducting the review to have specific insurance clauses and the time period of having the report completed constituted as a new scope, for which the small purchases requirements should have been followed. Further, HUD’s regulations require solicitation of quotes from at least three companies even by telephone. However, there was no documentation to support quotes were solicited for the environmental site assessment. Recovery Act funds totaling $12,300 were paid for the environmental site assessment.


For the removal of asbestos, the Authority contracted with a company that it had used previously instead of following its procurement policies and Federal requirements. Recovery Act transformation grant funds totaling $26,875 were paid for the inappropriately procured service.

http://www.hudoig.gov/Audit_Reports/2012-CH-1009.pdf page 6
The Authority executed three contracts above its small purchase threshold for its formula and competitive senior grants. In addition, the Authority’s nonprofit or for-profit entity executed four contracts above its small purchase threshold for the competitive transformation grant. We reviewed the contract files and procurement documentation for all three contracts for the formula and senior grants and two contracts for the transformation grant. The Authority failed to ensure that


ï‚· A public notice was issued in accordance with its procurement policy for all five contracts reviewed,
ï‚· A public bid opening was identified for two sealed bid contracts,
ï‚· The statement of award was included in the public notice and the solicitation for two sealed bid contracts,
ï‚· Accurate bid tabulation was conducted or bid forms were maintained on file to match the bid tabulation for two contracts,
ï‚· An addendum was issued to the request for proposal for one contract,
ï‚· The effective date of two contracts was accurate,
ï‚· An independent cost estimate was prepared before the issuance of the solicitation for one contract, and
ï‚· Board approval was obtained before the contract award was made for one contract[/b].


According to the Authority’s procurement policy, purchases over $75,000 must be approved by the board of commissioners. For one contract, involving the procurement of a consultant for the mixed-finance development, the board approved the contract on October 22, 2008, and the award notification was issued on October 23, 2008. However, the rejection letters to the unsuccessful firms were dated August 26, 2008, which was before the board’s approval.

http://www.hudoig.gov/Audit_Reports/2012-CH-1009.pdf page 6 & 7



For the mixed-finance development, the Authority was required to sell a portion of its existing project to the for-profit entity. HUD’s Special Applications Center approved the Authority’s request to dispose of 112 units. According to the warranty deed, the Authority sold 112 housing units for $940,000. However as of May 1, 2010, the appraiser determined that the assessed value was $940,000 for 110 units, instead of 112 units. Regulations at 24 CFR (Code of Federal Regulations)

Units Were Sold at Less Than the Assessed Value
Procurement Documents for Above Small Purchase Threshold Contracts Were Not Consistently Maintained

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970.19(a) state that when HUD approves the disposition of real property of a development, in whole or in part, the Authority must dispose of the property promptly for not less than fair market value.

Using the methodology applied by the appraiser, we determined that the two additional units, for which the Authority did not obtain cash or which it did not include under the terms of the promissory note, would be assessed at approximately $7,000.




Now I wonder who the attorney and/or agent acting on behalf of the Redevelopment Commission is? Would that be Phill?

Now, HUD's Inspector General is not the same as the State Board of Accounts. HUD has their own assigned FBI Unit. And for $14,000, we have seen Pabely and his side kick wind up with federal indictments.

One of Tom's photographic side kicks has said to me, Tom can't be held responsible for what someone did, he was not aware of..... (unless the bread crumbs leads back to Mayor Tom). Do you think anyone is going to do jail time for Mr. Personality?

Bye Bye!.

http://www.hudoig.gov/Audit_Reports/2012-CH-1009.pdf page 7

The Approval of Change Orders Limited Competition

The Authority approved change orders that were outside the general scope of work for two of its Recovery Act-funded contracts. Specifically, for the construction contract for its highrise project, the Authority inappropriately approved 6 of the 17 change orders totaling $24,950 ($6,859 from the Recovery Act formula grant + $8,753 from the Recovery Act competitive senior grant + $9,338 from the annual Capital Fund grant).

For the townhomes project, the Authority inappropriately approved three change orders totaling $6,529 ($5,542 from the Recovery Act formula grant + $987 from the annual Capital Fund grant). Further, the Authority’s for-profit entity approved change orders that were outside the general scope of work for one construction contract. Specifically, for the Authority’s American Heartland Homes One project, the Authority’s nonprofit or for-profit entity inappropriately approved seven change orders totaling $265,882 ($153,318 from the Recovery Act competitive transformation grant + $112,564 from the annual Capital Fund grant). The inappropriate change orders totaled $297,361, of which $174,471 was from the Recovery Act grants.


HUD’s regulations provide that the contracting officer may at any time, without notice to the sureties, by written order designated or indicated to be a change order, make changes in the work within the general scope of the contract, including changes in (1) the specifications (including drawings and designs); (2) the method or manner of performance of the work; (3) Authority-furnished facilities, equipment, materials, services, or site; or (4) directing the acceleration in the performance of the work. All three of these contracts were procured using either sealed bidding or a request for proposal.

However, since the Authority approved 16 change orders that were outside the general scope of the original contracts, it should have procured the services competitively in accordance with HUD’s requirements.

The Authority or its for-profit entity lacked documentation to support that the installation of remote readers and water meters was denied by the city’s water department, causing the for-profit entity to install the readers and meters using Recovery Act funds totaling $20,575.

The Authority Lacked an Understanding of Federal and Its Own Procurement Requirements

The Authority lacked an understanding of Federal and its own procurement requirements. It also lacked adequate controls to ensure compliance with HUD’s requirements. According to the Authority, the changes to the scope of work for the three contracts were for the betterment of the projects and were the result of time and cost constraints. Therefore, it believed that these modifications were necessary.

Conclusion


The Authority procured and executed small purchases or contracts above its small purchase threshold contrary to HUD’s and its own procurement requirements. Additionally, it (1) incorrectly disposed of housing units for less than the assessed values and (2) inappropriately approved change orders. As a result, HUD and the Authority lacked assurance that contracts were properly procured and executed.