City of West Palm Beach Internal Auditor s Office

Transcription

1 AUDIT OF HOUSING AND COMMUNITY DEVELOPMENT Audit No August 18, 2016 City of West Palm Beach Internal Auditor s Office Roger A. Strout, City Internal Auditor, CIA, CRMA, CFE, CICA Beverly Mahaso, Deputy City Internal Auditor, JD, CFE Elena Georgiev, Senior Internal Auditor, CPA, CGMA Ellen Misita, Senior Internal Auditor

2 Internal Auditor s Office P.O. Box 3366 West Palm Beach, Florida Tel: Fax: August 18, 2016 Audit Committee City of West Palm Beach 401 Clematis Street West Palm Beach, Florida RE: Audit of Housing and Community Development, Audit Dear Audit Committee Members: Attached is the City of West Palm Beach Internal Auditor s Office report on the City s Housing and Community Development Department. The Housing Department has a new Director who has worked to consistently improve its services. Additional opportunities for improvement are presented in this report. We thank the management and staff of the Housing Department for their cooperation and assistance during this audit. Respectfully submitted, /s/ Roger Strout City Internal Auditor cc: Jeri Muoio, Mayor Jeff Green, City Administrator Dorritt Miller, Deputy City Administrator Kimberly Rothenburg, City Attorney Armando Fana, Director of Housing and Community Development Mark Parks, Director of Finance Frank Hayden, Director of Procurement

3 Table of Contents BACKGROUND... 4 STATEMENT OF SCOPE... 4 STATEMENT OF METHODOLOGY... 4 HCD ORGANIZATIONAL CHART... 5 STATEMENT OF AUDITING STANDARDS... 6 STATEMENT OF OBJECTIVES... 6 AUDIT CONCLUSIONS AND SUMMARY OF FINDINGS... 6 NOTEWORTHY ACCOMPLISHMENTS... 6 OPPORTUNITIES FOR IMPROVEMENT PAYMENT PROCEDURES EVALUATING VENDOR PERFORMANCE STAFFING CAPACITY VENDOR SELECTION PROCESS REQUIRED DOCUMENTATION... 15

4 Background The City of West Palm Beach s (City) Department of Housing and Community Development (HCD) is responsible for planning, administering, implementing, and monitoring Federal and State housing programs. To that end, HCD is charged with administration of the City s federal awards from the United States Department of Housing and Urban Development (HUD). In grant years 2013 and 2014, the City was awarded $6,552,701 and $5,254,517 respectively, which included allowances for reprogrammed funds. The federal grant year runs concurrently with the City s fiscal year, October 1 to September 30 th. The City receives grant funds under the Community Development Block Grant (CDBG), Neighborhood Stabilization (NSP), First Time Homebuyers Program (HOME) and Housing Opportunities for People with Aids (HOPWA). These monies fund a wide variety of programs and services such as residential rehabilitation, social services programs, commercial redevelopment and other programs to assist communities and combat homelessness. In April 2012, management of HCD was outsourced to an outside consulting firm, Community Redevelopment Associates of Florida ( CRA ). The term of the contract was for three years, with pricing established for the first two fiscal years. A total of $1,051,994 was paid to CRA over an approximate 2.5 year period, for management and consulting services. As of June 1, 2014, the services of that firm were terminated and a series of consultants were hired to assist in operations. A permanent Director was hired in November HCD has been re-staffed and at the time of our review it had a staff of 14, including the Director and an Administrator. A Finance Manager was hired in April 2016, thereby completing the restructuring of the management team. Statement of Scope The audit period was from October 1, 2013 through September 30, Statement of Methodology Our objectives were to determine whether HCD was being managed in accordance with HUD regulations with respect to its contract administration, fiscal oversight, and monitoring of sub-recipients. We utilized several audit methodologies to achieve the objectives. These evidence-gathering techniques included, but were not limited to: Reviewing applicable policy and procedures, Reviewing vendor contract compliance, Researching financial data provided by the Finance Department, Conducting interviews, Evaluating project monitoring by testing a sample of projects. Page 4 of 15

5 HCD Organizational Chart Mayor of the City of West Palm Beach Director of Housing Housing & Community Development Housing Finance Manager Community Resources Manager Housing & Community Dev. Administrator Housing & Community Dev. Administrator Program Coordinator Construction Coordinator Community Resources Specialist Housing Construction Specialist Community Resources Specialist Housing Loan Specialist Commmunity Resources Liaison Housing Loan Specialist Commmunity Resources Liaison Clerical Specialist Page 5 of 15

6 Statement of Auditing Standards We conducted this audit in accordance with Generally Accepted Government Auditing Standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Statement of Objectives The objectives of this audit were: 1) To determine whether HCD is managed in accordance with HUD requirements and whether the City Administration exercised reasonable administrative oversight over the consultants brought in to manage the Department. 2) To review fiscal policies and practices to ensure that drawdowns were made correctly, program income was captured, and fiscal information was properly recorded in both the City s financial information system ( Oracle ), and HUD s Integrated Disbursement Information System ( IDIS ). 3) To ensure that grant recipients met the qualifications for assistance and that all files were maintained in accordance with departmental policies. Audit Conclusions and Summary of Findings Based upon interviews, test work performed, and analyses performed, we conclude that: 1. All four consultants hired to provide technical services to HCD, provided some services prior to the execution of their contracts and/or contract amendments. 2. The City did not fully utilize processes to evaluate vendor performance. 3. CRA did not have adequate staff on-site to manage its engagement. 4. The vendor selection process needed improvement. 5. A few files did not contain all required documentation. Noteworthy Accomplishments We found knowledgeable and dedicated employees are now in place that were receptive to our recommendations for improvement. HCD personnel provided data and information in a prompt and courteous manner when requested. The employees interviewed all felt that the Department, under the leadership of the new Director, is on a path that will enable Page 6 of 15

7 HCD to provide services to the neediest citizens of the City in an effective and efficient manner. The remainder of this page left blank intentionally. Page 7 of 15

8 OPPORTUNITIES FOR IMPROVEMENT 1. PAYMENT PROCEDURES Condition It is important to note that this condition occurred prior to the appointment of the current housing director. Community Redevelopment Associates was paid $95,829 prior to the execution of a contract pricing amendment for FY2014. Although management reports that new pricing was communicated and was appropriately budgeted, a contract amendment was not executed until February 20, It is important to note that the vendor submitted invoices for the months of October 2013 through January 2014, without an executed contract amendment in place and was paid. The contractor was subsequently terminated effective June 1, As a result of the termination, there were a series of contractors brought in to assist HCD staff in administering the Department, until a new Director was hired in November Our review identified invoices submitted for services rendered by other HCD vendors prior to the approval of executed contract amendments, including Florida Housing Coalition, Housing Leadership Council and Community Development Services of South Florida. During the period under review, these vendors submitted requests for payments totaling $32,472 for services rendered prior to the approval of executed contract amendments. However, these payments were not made until an executed contract amendment was in place. After reviewing the summary of paid invoices provided by the Finance Department, we determined that CRA was not paid in accordance with their FY2014 contract amendment, in one of their four program areas. The fee for the administration of the NSP3 program was contracted at a total payment of $13,224, which equates to $1,102 per month. Historically, these programs were paid on a straight-line monthly basis. However, in FY2014, the vendor was paid on an accelerated payment schedule of $2,171 per month, nearly double the contractual rate. This resulted in 82% of the payments made in 41% of the contractual period. We did not find any supporting documentation that supported this accelerated payment plan. Criteria Section 4 of the City s contract with CRA provides a methodology for payment of the contractor for FY2012 and FY2013. The original contract, which had a three year term, as well as the February 20, 2014 amendment, clearly states that fees for subsequent fiscal years will be established by an amendment. Prudent business practices recommend that all payments to vendors be supported by contracts or amendments that have been fully executed by both parties. Page 8 of 15

9 Cause Internal controls were not operating to ensure vendors did not perform services or obtain payment prior to the execution of a contract or contract amendment. In addition, the methodology for ensuring that invoice pricing was compared against the amended contract s pricing prior to authorizing payment, was not effective. Effect The impact of permitting contractors to continue to work for the City without a fully executed contract or contract amendment in place could result in improper payments and/or work performed that does not meet the City s requirements. Recommendation Management should establish business processes which will ensure that vendors are not providing services without fully executed contracts. There should be a process both in the Department and in Accounts Payable to ensure invoices are properly matched against prices established in the contracts prior to approval for payment. We wish to acknowledge that the Director, with the assistance of the City s Administration, has taken corrective action and put in place a system of internal controls to ensure contracts and contract amendments are processed timely. The addition of the new Finance Manager completes the restructuring of the senior management of the Department, and further strengthens the internal control structure. Management Response: The Department of Housing and Community Development concurs with the concerns. Under current management and leadership, the Department has designated a key staff member to serve as the Contract Administrator for all Departmental contracts. Utilizing the City s Contract Database, the Contract Administrator is responsible for ensuring that contracts and/or contract amendments are fully executed by both parties prior to work commencing and/or continuing. As the improved database now provides reminders to project managers, the Contract Administrator is informed of any contract expirations and addresses the matters accordingly. In addition, the Department has hired a Housing Finance Manager who is responsible for the fiscal compliance operations of HCD. Management Response (Finance Department): We concur with this recommendation. The Finance Department will continue to work with the Departments in establishing procedures to ensure that invoices are properly matched against fully executed contracts or purchase orders prior to payment. Target Implementation Date: October 1, 2016 Page 9 of 15

10 2. EVALUATING VENDOR PERFORMANCE Condition It is important to note that this condition occurred prior to the appointment of the current housing director. We reviewed CRA s contract and found that there were no performance measures defined in the contract, whereby the City Administration could evaluate vendor performance. Monthly invoices submitted by CRA contained numerous activities that could have been measured and quantified. However, many activities were simply marked as on-going with no further detail offered. We reviewed an invoice prior to the FY2014 rate change and another invoice after the rate change and found no discernible difference in tasks even though the fees were decreased by approximately 36 percent. Criteria Consulting contracts should have a clearly defined and measurable Scope of Services that can be used to evaluate vendor performance and provide support for expenditures. Cause A Scope of Services with applicable performance measures was not made part of the contract documents. Effect Without quantifiable performance measures it is difficult to determine what services were provided or to evaluate performance. Recommendation Management should ensure that consultant contracts contain clearly defined responsibilities for both the City and the contractor, including a Scope of Services that states performance measures that can be utilized to evaluate vendor performance. Management Response: The Department of Housing and Community Development concurs with this concern. Under current management and leadership, the Department requires that all contracts provide a clearly defined and measurable scope of work. Target Implementation Date: Implemented Page 10 of 15

11 3. STAFFING CAPACITY Condition It is important to note that this condition occurred prior to the appointment of the current housing director. CRA did not have adequate staff on-site available to manage HCD. Under CRA s management, there were only four full-time City employees assigned to the Department. On CRA s side, there were two on-site partners who worked alternating days, and at most, one or two subordinate staff. Therefore, there were generally only six to seven people, including management, available to run most aspects of the Department s operations. This compares with 14 staff at the time of our review. Based on staff interviews, on occasion, there was no one from CRA on-site. It is important to note that the Finance Department handled the finance operations until the addition of the Fiscal Manager in April Criteria The Department should be managed in accordance with HUD requirements, in a manner that promotes governance and sound business practices. Cause We could not determine the reason why CRA was unable to staff the Department adequately. Their experience, expertise, and references indicated that CRA operated primarily in Broward County. Effect HCD employees stated that they frequently had to multi-task in areas that were not their primary area of work responsibility, including reviewing invoices, speaking and coordinating with contractors, ordering inspections and other tasks that were outside the normal scope of their duties. These tasks are now handled by the Construction Team. Further, this weakened segregation of duties, as personnel were handling most aspects of a particular project. Recommendation Although the HCD Operations have been brought in-house, management should always ensure that consultants provide assurance that they have an adequate level of staffing and resources to commit to a project. This should be determined as part of the RFP process, with periodic follow up and verification processes. Page 11 of 15

12 Management Response (HCD Department): The Department of Housing and Community Development concurs with this concern. Unfilled positions and large turnovers in staff have greatly affected the Department s ability to build capacity, maintain consistency in the development and implementation of programs, and continue to expand and grow in its efforts to address the needs of the community and its residents. With the support of City Administration and under current management and leadership, the Department has filled several vacant positions which included a Program Administrator, a Construction Coordinator, and a Housing Finance Manager. The new staffing resources and Departmental reorganization have vastly helped in the Department s efforts to ensure that community needs are met and that compliance with all program requirements is achieved. Target Implementation Date: Implemented Management Response (Procurement Department): We concur with this recommendation. Contract Management checks and balances and safeguards are in place in the competitive solicitation process. Periodic follow up and verification will be done to ensure the consultant is adhering to the terms of the contract. Target Implementation Date: Implemented and on-going. The remainder of this page left blank intentionally. Page 12 of 15

13 4. VENDOR SELECTION PROCESS Condition It is important to note that this condition occurred prior to the appointment of the current housing director. CRA s contract states that they were selected as a result of an RFP process. Based on files provided by the Procurement Department, the Attendance Roster for the Selection Committee meeting held on March 16, 2012, indicated one attendee, the former Procurement Official. We also found that the Responder Evaluation matrix was incomplete. After further review, we noted that a memorandum requesting an award recommendation was sent by the Procurement Official and returned by the Deputy City Administrator authorizing the selection of CRA on March 16, In reviewing the proposal submitted by CRA, they only provided an hourly rate and did not indicate how many hours or full time equivalent they planned to devote to HCD. When the contract was issued, CRA was granted a two year contract at a flat rate of $365,000 for FY2012, and an 18% increase to $430,000 for FY2013 with no Scope of Services defined in the contract. Therefore, it cannot be confirmed if CRA offered the best value to the City. A total of $1,051,994 was paid to CRA for nearly 2 ½ years while they were the vendor. Criteria The City of West Palm Beach s Code of Ordinances, Section states that the selection of a respondent shall be based on the best value to the City, and that Procurement shall select the bid proposal that meets the criteria. Cause Some elements of the vendor selection process were not adequately documented. Effect The City s selection of the vendor CRA was inconsistent with Procurement Best Practices due to the following: The evaluation factors were not adequately documented for the respondents. The documentation provided did not contain support for a comparative analysis of each respondent. Recommendation The Procurement Department should take steps to ensure that all procedures related to vendor selection are completed and documented in a manner that ensures transparency Page 13 of 15

14 and offers a clear understanding of the methodology used in vendor selection. All price increases and decreases should contain documented support for such changes. Management Response (Procurement Department): We concur with this recommendation. The procurement process has checks and balances and safeguards in place in all formal solicitations to comply with the report s recommendations. The Procurement Department will ensure that the proper procedures are followed. The vendor selection process will be documented to ensure transparency and changes to contracts will be approved through the proper channels. Target Implementation Date: Implemented and on-going The remainder of this page left blank intentionally. Page 14 of 15

15 5. REQUIRED DOCUMENTATION Condition We reviewed 5 files associated with the HOME Program, 3 files for the Residential Rehabilitation Program and 3 files for the Public Service Program and noted only 4 exceptions. Two of the files tested in the HOME program and 2 files reviewed for the Public Service Program did not have a current Certificate of Insurance on file. Criteria Typically housing agreements provide that a Certificate of Insurance be on file for both the New Home Ownership program and for the vendors receiving Public Service Program funds. Cause The Department did not have a procedure in place to periodically review files to ensure that all required documentation was obtained, updated, and placed in the file. Effect Without the updated insurance information, the City may be at risk of a monetary loss in the event of an insurable event occurring. Recommendation Management should update its procedure to require updated Certificates of Insurance as necessary. We have been advised that corrective action has already been taken. Management Response: The Department of Housing and Community Development concurs with this concern. At the time of on-site review, HCD staff took immediate actions to address this concern. On January 1, 2016, the Department began implementing a project management tool designed to track all of its housing and community development projects. Among the many features specifically designed to address the complexity of HCD s operations, Community Development Management (CDM) software organizes and provides important notices on all projects and vendors. Complete utilization of CDM will be implemented by no later than October 1, Furthermore, the City has made numerous updates to its Contract Database. The improved database now provides reminders to project managers on matters that include contract and insurance expiration dates. For additional training purposes, on Friday June 17 th, 2016, HCD staff attended a Contract Database training conducted by the City s Purchasing Department. Target Implementation Date: Implemented Page 15 of 15