Lowell Housing Authority, Lowell, MA Public Housing and ...

1 OFFICE OF AUDIT Region 1 Boston, MA Lowell Housing authority , Lowell , MA Public Housing and Recovery Act Capital Fund Programs 2013-BO-1003 SEPTEMBER 04, 2013 Issue Date: September 04, 2013 Audit Report Number: 2013-BO-1003 TO: Marilyn B. O Sullivan, Director, Office of Public Housing , Boston Hub, 1 APH //SIGNED// FROM: Edgar Moore Regional Inspector General for Audit, Boston Region, 1 AGA SUBJECT: The Housing authority of the City of Lowell , MA, Did Not Always Operate Its Public Housing and Recovery Act Capital Fund Programs in Compliance With HUD Regulations and Its Own Policies Attached is the Department of Housing and Urban Development (HUD), Office of Inspector General s (OIG) final results of our review of the Lowell Housing authority , Lowell , MA s Public Housing and Recovery Act Capital Fund programs, including the force account program.

2 HUD Handbook , 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 If you have any questions or comments about this report, please do not hesitate to call me at (212) 264-4174.

3 Highlights September 04, 2013 f The Housing authority of the City of Lowell , MA, Did Not Always Operate Its Public Housing and Recovery Act Capital Fund Programs in Compliance With HUD Regulations and Its Own Policies Audit Report 2013-BO-1003 What We Audited and Why What We Found We audited the Lowell Housing authority s Public Housing and Recovery Act Capital Fund programs, including its force account activities. We initiated this audit based on news articles identifying concerns with the authority s use of force account labor. Our overall audit objective was to determine whether the authority (1) administered its force account modernization program in accordance with Department of Housing and Urban Development (HUD) rules and regulations and (2) followed HUD procurement regulations and its own procurement policy.

4 What We Recommend We recommend that the Director of HUD s Boston Office of Public Housing require authority officials to conduct an independent cost analysis for each of the 14 force account activities for which the authority failed to perform initial cost estimates and maintain construction records and modernization files to ensure that more than $ million in capital funds and $ million in Recovery Act funds charged to Federal programs were reasonable and supported. In addition, we recommend that authority officials conduct a review to determine whether more than $ million in procurement costs charged to the Federal capital fund and Recovery Act programs were reasonable and supported.

5 Any costs determined to be unreasonable or ineligible should be reimbursed from non-Federal funds to HUD or the Treasury in accordance with the appropriate capital fund regulations. The authority did not always operate its force account modernization program in compliance with HUD regulations. This condition occurred because authority officials failed to establish adequate management controls for the force account program to ensure that funds were used in an economical and efficient manner. As a result, more than $ million in Federal capital funds and $ million in Federal American Recovery and Reinvestment Act funds expended for the force account program were unsupported.

6 In addition, authority officials did not always follow proper procurement procedures. This condition occurred because of ineffective management controls over the procurement process. As a result, officials could not assure HUD that their procurement process was fair and equitable and that they obtained the most favorable prices or best quality for items totaling more than $ million, including $262,513 in American Recovery and Reinvestment Act funds that were charged to Federal programs. 2 TABLE OF CONTENTS Background and Objective 3 Results of Audit Finding 1: The authority Did Not Operate Its In-House Force Account 4 Program In Compliance With HUD Regulations Finding 2: The authority Did Not Always Follow Proper Procurement 12 Procedures Scope and Methodology 16 Internal Controls 19 Appendixes A.

7 Schedule of Questioned Costs 21 B. Auditee Comments and OIG s Evaluation 22 C. Cost of Labor and Materials for Force Account Capital Funds 32 D. Cost of Labor and Materials for Force Account Recovery Act Funds 33 E. Unsupported Procurement Costs Capital Funds 34 F. Unsupported Procurement Costs Recovery Act Funds 35 3 BACKGROUND AND OBJECTIVE The United States Housing Act of 1937 established the Federal framework for government- owned affordable Housing and was amended by the Quality Housing and Work Responsibility Act of 1998. The Office of Capital Improvement is under the Department of Housing and Urban Development s (HUD) Deputy Assistant Secretary for Public Housing Investments.

8 The office administers the Public Housing Capital Fund program, which provides funds annually via a formula to Public Housing agencies across the country. Public Housing agencies may use Capital Fund grants for development, financing, modernization, and management improvements. The Lowell Housing authority was founded in 1937 as part of President Franklin Delano Roosevelt s New Deal to provide safe, sanitary, and affordable Housing for moderate- and low- income persons. The authority is a municipal corporation located in Lowell , MA, and was established under chapter 121B of Massachusetts General Law. The mission of the authority is to provide decent, safe, and sanitary Housing , thereby improving the quality of life of low-income families, elderly, and disabled individuals.

9 The authority s portfolio consists of 1,698 units of Federal Public Housing and 198 units of State Public Housing . The authority also administers 1,246 Section 8 vouchers, 50 Department of Mental Health rental subsidies, 50 Lowell Rental Assistance Fund Program subsidies, and 43 Massachusetts Rental Voucher Program units. The authority was authorized $ million in capital funds from 2008 through 2012, and $ million in American Recovery and Reinvestment Act of 2009 (Recovery Act) funds. During the period October 1, 2008, through September 30, 2012, authority officials used capital funds and Recovery Act funds for force account activities at 14 projects.

10 Force account labor consisted of unionized laborers, plumbers, carpenters, and masons. Some of the force account activities included rehabilitation of units; kitchen and bathroom modernization, including handicap conversions; replacement of siding and windows; and site work, such as landscaping. The total costs were $ million, with approximately 60 percent of those costs used for unit renovations at North Common Village. authority officials decision to use the force account program was based on their judgment that the scope of work was not complex or repetitive in nature. The overall benefit to the local community in employing the local labor force was also taken into consideration as an important factor when determining to use the force account program.