Review of Contract Compliance Broward County Minority Builders Coalition (MBC)

Transcription

1 Exhibit 1. Review of Contract Compliance Broward County Minority Builders Coalition (MBC) March 6, 2012 Report No Office of the County Auditor Evan A. Lukic, CPA County Auditor

2 Table of Contents Topic Page Executive Summary... 2 Purpose and Scope... 4 Methodology... 4 Background... 4 Findings and Recommendations... 8 APPENDIX A APPENDIX B APPENDIX C Office of the County Auditor 1

3 Executive Summary This report presents the results of our review of the County s agreements with Broward County Minority Builders Coalition (MBC). This review was initiated at the request of the Board of County Commissioners (Board). The objectives of our review were to evaluate MBC s compliance with their County contracts and the effectiveness of contract administration by the Housing Finance and Community Development Division (Division). We reviewed a sample of 30 home repair clients funded by the State Housing Initiative Partnership (SHIP) Program during the period between September 2009 and August 2011, with costs totaling approximately $978,000. Our review disclosed the following issues: 1. MBC and Division practices were inadequate to ensure projects were completed economically and timely, while meeting quality and client satisfaction standards. 2. MBC was noncompliant with key contractual requirements. 3. The Division did not comply with internal procedures and key Local Housing Assistance Plan (LHAP) provisions. 4. Broward County may be subsidizing the administrative costs for the City of Coral Springs and the Town of Davie. We also performed a follow-up review of contract administration and performance findings and recommendations related to MBC cited by the Broward County Office of Internal Audit in their report - Financial and Compliance Review of the Housing Finance Authority and Office of Housing Finance dated March 10, The specifics of each finding and recommendation from the report are detailed at Appendix C. Based on our review little sustained progress has been made in addressing the findings identified in the prior report notwithstanding management s representations of corrective actions taken. In light of management s failure to adequately address significant contract administration and contractor performance issues identified in this and the previous report, it is recommended the Board direct the County Administrator to actively monitor and periodically report to the Board on progress in establishing management control over the SHIP program. Office of the County Auditor 2

4 Recommendations We recommend the Board of County Commissioners direct the County Administrator to immediately: 1. Enforce compliance with the existing contract and LHAP requirements regarding project costs. 2. Ensure projects are completed within 120 days of permit issuance as required by the NTP or develop and track an alternative timeliness performance measure. 3. Require MBC to submit monthly reports to the Division, as required, including an assessment of each project s status in meeting timeliness goals. 4. Ensure final walkthrough inspections are properly conducted and documented, including accurately completing forms containing signatures of all parties. 5. Ensure interim inspections are properly conducted and documented. 6. Ensure subcontractor performance evaluations are completed in accordance with the Purchasing Director s memorandum dated December 2010 and considered in future awards. 7. Develop a comprehensive customer satisfaction survey instrument to evaluate MBC, the Division and subcontractor performance at the conclusion of each project. 8. Require the Division to distribute, collect and process the survey to ensure independent and objective results are obtained. 9. Discontinue the current practice of paying subcontractors directly and instead issue joint checks payable to MBC and the subcontractors, if MBC is incapable of paying its subcontractors timely. 10. Monitor, evaluate and document MBC s performance and take appropriate actions to address noted performance deficiencies timely. 11. Ensure MBC s performance is appropriately considered in connection with any future awards. 12. Establish management control over the home repair program through enforcement of existing LHAP requirements and internal procedures and report progress of these efforts to the Board no later than September 30, Office of the County Auditor 3

5 13. Prepare an analysis of actual costs and fees collected for administering the cities grant funds and report the results to the Board by December 31, Purpose and Scope This review was initiated at the request of the Board. The objectives of our review were to evaluate MBC s compliance with the County s agreements and the effectiveness of contract administration by the Division. We also performed limited follow-up on issues cited in a report issued by the Office of Internal Audit dated March 10, The review covered home repair services provided by MBC between September 20090F0F and August 2011 pursuant to contracts with Broward County dated July 11, 2008 and September 16, Methodology To accomplish our objectives, we: Reviewed: o A sample of 30 SHIP home repair client files with repair costs totaling approximately $978,000 incurred between September 2009 and August 2011, o MBC contracts dated July 11, 2008 and September 16, 2009 (and all amendments) for $2.2 and $2.4 million, respectively, o Local Housing Assistance Plans (LHAP) for Broward County, Town of Davie and the City of Coral Springs, o The 2008 SHIP Program manual as published by the Florida Housing Finance Corporation, o Client eligibility procedures developed by the Division, and o The Office of Internal Audit, Financial and Compliance Review of the Housing Finance Authority and Office of Housing Finance, dated March 10, Interviewed Division and MBC staff Background In July 1992, the Florida Legislature enacted the William E. Sadowski Affordable Housing Act, to provide funding to local governments to create and preserve affordable housing. The SHIP grant program is one of the housing programs funded under the 1 SHIP grants must be encumbered within the first 12 months and expended within the subsequent 24 months; therefore some repairs included in our sample were funded by grant year July 2007 to June Office of the County Auditor 4

6 Housing Act. Chapter 420, Part VII, of the Florida Statutes, created the SHIP grant program to provide funding as an incentive to create local housing partnerships, to expand and preserve affordable housing. The SHIP program funds home repairs for very low, low and moderate income homeowners. The Florida Housing Finance Corporation administers the SHIP program for the State of Florida and allocates funding to eligible counties and cities on a population based formula. During the period July 2007 to June , the County received SHIP grant awards totaling approximately $4.8 million. Home Repair Services under the SHIP Program Home repair is one of several allowable uses of SHIP funds. This includes: Repairs or replacement of roofs, air conditioning system, windows and doors, Repairs to nonconforming structures built without an approved permit, and Emergency repairs to address threats to life, health and safety issues. To be eligible to receive SHIP program funds, counties and eligible municipalities are required to develop and adopt a Local Housing Assistance Plan (LHAP), which describes the types of housing assistance to be provided, the maximum funding to be distributed for each recipient and the estimated number of households to be served. SHIP guidelines permit local governments to provide assistance in the form of deferred payment loans and provide for repayment of funds if the homeowner receiving assistance ceases to occupy the unit. Broward County s SHIP Program The Florida Housing Finance Corporation allocates SHIP funding to Broward County and requires establishment of a LHAP. The County s LHAP was first adopted in1996 and specifies the types of assistance 1F1F2 available to County residents. The County s LHAP also details the maximum award amounts for each type of housing assistance, the terms of the awards and the selection criteria used to determine client eligibility. The Housing Finance and Community Development Division is the County agency responsible for administration of SHIP programs funds and determining client eligibility. The Division also administers the SHIP home repair program for the Town of Davie (Davie) and City of Coral Springs (Coral Springs). Through Interlocal Agreements2F2F3 with the County, both municipalities participate in a joint local housing program, which authorizes the County to administer their SHIP program. During the period July 2007 to June , the County received SHIP grant awards totaling approximately $3.1 million and $0.7 million for Coral Springs and Davie, respectively. Both municipalities have also established a joint LHAP with the County, which governs the administration 2 Broward County s LHAP provides for various types of housing assistance, also termed housing strategies which includes residential rehabilitation and emergency repairs, special needs/barrier free housing repairs, disaster relief repairs, home purchase assistance, and construction of new homes. 3 The County s current interlocal agreements with Davie and Coral Springs were executed April 13, 2010 and run concurrently with the distribution of SHIP program funds. Office of the County Auditor 5

7 and use of their SHIP program funds. The joint LHAP outlines the housing assistance programs that are available to residents, maximum award amounts, terms of the awards, and selection criteria for eligible homeowners. Client Eligibility Process The 2008 SHIP Program Manual provides guidelines to local governments to select eligible recipients for repair services. The manual also outlines the items that must be included in the application for assistance, including the following: Applicant s household (name, age, and relationship to applicant) Employment information, and Household income. Funding is provided to eligible home owners on a first come, first qualified basis. To begin the eligibility process, homeowners contact the Division and complete an application. The LHAP requires applicants to own and occupy the property in either unincorporated Broward County3F3F4 or the two municipalities discussed earlier. In addition to the requirements outlined in the SHIP program manual and LHAP, as noted previously, procedures established by the Division requires applicants to provide additional documents to determine eligibility, including: Copy of Warranty Deed, Current Mortgage Statements showing proof that mortgages are not delinquent, Tax Returns and W-2, 1099's covering the past two years or a year-to-date profit and loss statements if self-employed, Residency card or other immigration documents, and Proof of full time student status for individuals 18 years or older. Upon receipt of the completed application and required documentation, Division staff meets with the applicant to review documentation. The eligibility process becomes final after the Division confirms the household income and the applicant attends a mandatory counseling workshop and receives a certificate of eligibility. After clients are certified for services, they are placed on a waiting list 4F4F5 until funding becomes available. Once funding is available, clients are referred to MBC to begin home repairs. Maximum Repair Amounts and Terms of Award Assistance Table 1 on the next page lists the maximum assessed home values, funding caps and mortgage terms for Broward County, Davie and Coral Springs. 4 SHIP funding for Broward County also includes allocation for cities that do not qualify to receive their own SHIP funds. 5 During the period reviewed, Division staff advised that when SHIP funding was not available, some clients were placed on waiting lists prior to referral to MBC. Office of the County Auditor 6

8 Table 1 Broward County, Davie and Coral Springs Maximum assessed home values, repair maximums and mortgage terms Maximum Assessed Maximum Repair Mortgage Jurisdiction Value (Note 1) Amounts Term Broward County $429,619 $40, years Coral Springs $331,579 $35,000 5 years Town of Davie $280,462 $40,000 5 years Source: LHAPs for Broward County, Town of Davie and City of Coral Springs Note 1: According to the County s Property Appraisers records Applicants that receive repair services are required to sign a deferred mortgage and promissory note at zero percent interest rate. The executed mortgage and promissory note are forwarded by MBC to the County, to be recorded in the public records. The mortgages provide for automatic partial reductions5f5f6 on each anniversary date provided the homeowner continues to reside on the premises. However, if the property is sold or transferred during the term of the mortgage, the LHAP requires full repayment of the repair cost incurred under the County program or pro-rated repayment of repairs costs incurred under the Davie or Coral Springs programs. Broward County Minority Builders Coalition (MBC) Since 1994 the County has contracted with MBC to provide home repair services under the SHIP program. Most recently, in 2009, MBC was selected through a Request for Proposal process and awarded a contract for $2.4 million.6f6f7 Under the contract, MBC manages construction repairs and is paid 18% of the cost of repairs as an administrative fee. MBC s contractual obligations include: Development of repair specifications and scope of work for properties of applicants approved by the County, Solicitation of quotations from subcontractors, Awarding repair and renovation agreements to subcontractors, Preparation of the construction Notice to Proceed for County approval, and Inspection of work performed by subcontractors. There are two key phases of the home repair process involving both MBC and Division staff, the planning and execution phases. 6 Mortgages for homeowners funded by Davie and Coral Springs provided for a 20% reduction each year for five years while mortgages for recipients funded by Broward County provided for a 10% reduction each year for ten years. 7 Contract was amended on June 29, 2010 and later on June 28, 2011 and expires June 30, Office of the County Auditor 7

9 Planning Phase: This phase involves an initial joint visit by Division and MBC staff to the client s home, to document the repairs to be completed and develop the repair specifications and scope of work. After the Division staff reviews and approves the repair specifications, MBC advertises to solicit sealed quotations from prequalified subcontractors. MBC then selects the lowest responsive bid and prepares a repair agreement with the selected subcontractor for the award amount plus an 18% administrative fee. A Notice to Proceed (NTP) is prepared by MBC and sent to the Division for approval. Execution Phase: During this phase the NTP is reviewed and approved by Division staff and returned to MBC to begin repairs. The NTP requires work to be completed within 120 days after the receipt of required permits. When home repairs are complete, an inspector from the Division, MBC staff, the subcontractor and home owner, perform a final inspection of the repairs and complete a walkthrough form. Subsequently, the subcontractor provides Phase 1- Planning Perform initial home inspection to document repairs Develop repair specifications with scopes of work Obtain County approval of repair specifications Solicit quotations from subcontractors Select and award subcontracts Phase 2- Execution County approves NTP Subcontractor requests permits to begin repairs Subcontractor complete repairs Perform final walk through inspection Submit invoice to County for payment MBC an invoice for the repair costs and MBC prepares an invoice to the County, which includes the subcontractors costs plus the 18% administrative fee. Findings and Recommendations We reviewed a sample of 30 SHIP home repair client files with repair costs totaling approximately $978,000: 13 Clients with repairs totaling $404,000 funded by Broward County s LHAP, 12 Clients with repairs totaling $393,000 funded by Coral Springs LHAP, and 5 Clients with repairs totaling $180,000 funded by Davie s LHAP. Finding 1 MBC and Division practices were inadequate to ensure projects were completed economically and timely, while meeting quality and client satisfaction standards Our review identified the following deficiencies: Office of the County Auditor 8

10 Repair costs exceeded initial budgets for 20% of the projects in our sample due to noncompliance with existing cost control measures; More than half of the projects in our sample were not completed within 120 days as required by the NTP and MBC did not track project timeliness as required; Monitoring and evaluation activities were insufficient to ensure project quality objectives were met; and Project close-out processes were inadequate to ensure completed projects satisfactorily met customer s needs and expectations. Construction industry literature identifies best practices to ensure successful project completion. Construction Management generally refers to the professional management practice applied to construction projects from project inception to completion. Construction Management activities aim to control the construction project s cost, time, scope and quality, and to enhance the probability of a project s successful outcome. According to the Construction Management Association of America, the most common responsibilities of a Construction Manager 7F7F8 fall into the following seven categories: project management planning, cost management, time management, quality management, contract administration, safety management, and Construction Manager professional practice. To evaluate a construction project s efficiency and effectiveness, the industry typically uses the following four key performance indicators: Controlling construction costs, Attaining project timeliness, Ensuring quality construction work, and Meeting customer needs Although current practices contain elements of sound Construction Management principles, several key deficiencies hinder successful project completion. Noncompliance with current cost control measures resulted in project cost overruns. In light of recent budget cuts and restrictions, it becomes especially crucial to spend grant funds as economically as possible. Ensuring that repairs are done as economically as possible is an important project management function. A review of construction management literature shows that cost predictability is a valuable performance measure. Specifically, the construction manager typically determines whether projects are completed within budget by comparing a project s final cost to its initial budget. 8 In the context of this report, Construction Manager is synonymous with Contract Administrator, which refers to both the Division and MBC as the Division contracts with MBC while MBC contracts with vendors to perform home repair services Office of the County Auditor 9

11 There are two primary mechanisms to control SHIP home repair project costs: Articles 3.6 and 3.13 of the agreement between the County and MBC requires the County to issue a Notice to Proceed (NTP) prior to project initiation and to approve in advance any charges exceeding the NTP amount. The agreement also specifies that the cost of any work done without prior County approval shall be borne by MBC and not by the County or homeowner. The current Local Housing Assistance Plan (LHAP) establishes maximum amounts the County will pay for individual home repair projects. Total repair costs per project may not exceed $40,000 for homes funded by Broward County and Davie and $35,000 for homes in Coral Springs. Our review of 30 client files disclosed six (20%) projects did not comply with the above mentioned requirements. We found repair costs for two projects exceeded the approved NTP amount by $8,960. These costs were not supported by an authorized change order and NTP; they were paid by the County rather than MBC, contrary to the requirements of the agreement. We also found repair costs for four projects exceeded the maximum amounts allowable under the LHAP. The total amount of these repair projects was $78,123 more than the limit established by the LHAP. Table 2 below shows the details. Table 2 The County paid $78,123 in excess of maximums allowed by the LHAP. Jurisdiction Maximum Cost per LHAP Total Repair Costs Difference Davie (Note 1) $40,000 $45,237 $ 5,237 35,000 44,722 9,722 Coral Springs 35,000 43,260 8,260 Broward 40,000 94,904 54,904 Total Paid in Excess of Limits $78,123 Source: Prepared by County Auditor s Office based on data developed during the review Note 1: Repair cost includes $5,490 paid by the County to remediate homeowner complaints In addition to being noncompliant with contract and LHAP requirements, overspending on these projects reduced available funding to serve additional clients and could result in the County funding the cost of amounts that exceed the grant maximums. Recommendation We noted instances of noncompliance with two major cost control requirements. Therefore, we recommend the Board of County Commissioners direct the County Administrator to: Office of the County Auditor 10

12 1. Enforce compliance with the existing contract and LHAP requirements regarding project costs immediately. Significant project delays occurred and neither MBC nor the Division has tracked project timeliness as required. Another key component of Construction Management is ensuring that projects are completed according to planned schedules. Projects should be completed in a timely manner to minimize disruptions to homeowners and prevent further deterioration of the property, which may lead to increased project costs. Although some delays may be expected, it is considered a construction management best practice to monitor project schedules and minimize the impact of these delays whenever possible. It is a common construction industry performance measure to examine the percentage of projects completed on time. MBC did not track whether projects were completed on time and there are no timeliness goals contained in the agreement between the County and MBC. The only timeliness measure is a requirement in the Notice to Proceed (NTP) that repair projects must be completed within 120 days from the issuance of permits. MBC staff acknowledged they have not tracked this measure, thus MBC is noncompliant with this requirement. We analyzed the number of days from the date the County approved the NTP to the date of the final walkthrough for the 30 clients reviewed. We could not determine whether the construction was completed within 120 days because permit dates were not always available. However, we believe our analysis is a valid proxy measure for the requirement because permit issuance always occurs after NTP approval. We found that 16 (53%) of 30 projects exceeded 120 days from NTP approval to final walkthrough; meaning that at least half of the projects in our sample may have exceeded the NTP requirement, indicating the occurrence of project delays. The 9 completion period for the projects averaged 224 days and ranged from 130 to 4228F8F days. SHIP grants must be encumbered within the first 12 months and expended within the subsequent 24 months; therefore timelines of repairs are critical to grant compliance. Also, Article 3.15 of the agreement requires MBC to submit monthly progress reports to the Division on the first business day of each month which is another potential method for identifying project delays. These reports are to describe the status of all outstanding work authorized, including the planned versus actual progress of individual projects and their related budgets. 9 In addition, for one project the completion period was 860 days. If this project was included, the average would be increased to 263 days. Office of the County Auditor 11

13 MBC staff acknowledged they have not submitted these required monthly reports; instead, they submitted a quarterly report listing clients served under the grant. We noted the quarterly reports do not include status updates for projects and therefore would not be an effective tool for identifying project delays. Recommendations Although timely completion of projects is a valuable performance measure, MBC does not track timeliness. However, our analysis of a timeliness measure disclosed project delays. To enhance MBC s ability to track project timeliness and the County s ability to evaluate MBC s performance, thus reduce potential delays, we recommend the Board of County Commissioners direct the County Administrator to immediately: 2. Ensure projects are completed within 120 days of permit issuance as required by the NTP or develop and track an alternative timeliness performance measure. 3. Require MBC to submit monthly reports to the Division, as required, including an assessment of each project s status in meeting timeliness goals. Current monitoring and evaluation activities are insufficient to ensure project quality objectives are met. Routine and systematic monitoring and periodic evaluation of construction projects are typically performed in the industry to ensure projects meet quality standards. Monitoring refers to the routine, daily assessment of ongoing activities and progress, while evaluation is the periodic assessment of overall achievements. Article 3.14 of the Agreement between the County and MBC states: the County, within its discretion, will carry out periodic monitoring and evaluation activities. The continuation of this Agreement is dependent upon satisfactory evaluations. According to Division and MBC staff, current monitoring and evaluation activities consist of: Division and MBC staff jointly conducting: o Initial site visits to identify needed repairs and develop project specifications and scope of work, o Final walkthrough visits to ascertain whether the repair work was done to specifications and to approve final payment for work performed satisfactorily; and MBC staff conducting interim site visits to monitor progress while the work is being done. We identified the following deficiencies with current monitoring and evaluation activities: MBC staff stated that they conducted interim monitoring site visits; however, they did not provide us with documentation showing such inspections took place. The Division does not conduct interim site visits to monitor progress, except to respond to customer complaints. Office of the County Auditor 12

14 MBC has developed a final walkthrough form that is to be signed by the client as well as Division, MBC and subcontractor representatives; however, we were not provided properly completed forms for 6 (20%) of 30 client files reviewed. Neither Division nor MBC staff provided requested documentation of evaluations of subcontractor performance. In a memorandum dated December 9, 2010, the Purchasing Director recommended that contract administrators complete a vendor evaluation for contracts valued between $15,000 and $29,999, and required they be done for contracts exceeding $30,000. Division and MBC staff did not submit evidence showing vendor evaluations had been conducted for any of the four repair projects falling within our sample that were completed after issuance of the Purchasing Director s memo. Recommendations Successful project completion depends to a great extent upon effective project monitoring and evaluation practices. To improve current project monitoring and evaluation activities, we recommend the Board of County Commissioners direct the County Administrator to immediately ensure: 4. Final walkthrough inspections are properly conducted and documented, including accurately completing forms containing signatures of all parties. 5. Interim inspections are properly conducted and documented. 6. Subcontractor performance evaluations are completed in accordance with the Purchasing Director s memorandum dated December 2010 and considered in future awards. Current project close-out processes are inadequate to ensure completed projects meet customer s needs and expectations. Another key element of a successful project is the extent to which it meets the customer s needs and expectations. The construction industry typically uses surveys to ascertain customer satisfaction with completed projects. Customer satisfaction surveys generally measure the customer s perceptions and opinions regarding the contractor s knowledge, skill level and courteousness, as well as whether the job site met cleanliness and safety expectations, and whether the completed project met functional objectives. Surveys are normally administered as close to the project completion date as possible. The Division performs a customer satisfaction survey on the quality of service received from the Division; however, the survey does not include items relative to MBC and the subcontractors performance. During the final walkthrough, as described on the previous page, some subcontractors obtained signatures from clients asserting they were satisfied with the completed project. For example, files for 15 (50%) of 30 clients reviewed contained a vendor form showing client signatures that indicated satisfaction with the job. But, we also found a lack of uniformity in these forms; some asked the Office of the County Auditor 13

15 client to check a box if the worker was courteous, others asked the client to affirm if the final work site was clean to the client s satisfaction, and others asked the client to certify that the work was completed per contract specifications.9f9f10 None of the forms in our sample included all of the questions commonly asked in customer satisfaction surveys. Recommendations To ensure customer s needs and expectations are met to the greatest extent possible, we recommend the Board of County Commissioners direct the County Administrator to: 7. Develop a comprehensive customer satisfaction survey instrument to evaluate MBC, the Division, and subcontractor performances at the conclusion of each project. 8. Require the Division to distribute, collect and process the survey to ensure independent and objective results are obtained. Finding 2 MBC was noncompliant with key contractual requirements. Since 1994, the County has contracted with MBC to provide SHIP home repair services. This review focused on two contracts with MBC: one contract for approximately $2.2 million approved by the Board in July 2008 and expired June 2011 and later a contract for approximately $2.4 million approved by the Board September 16, 2009, through June 30, The contracts are bilateral agreements in that both the Division and MBC must fulfill contractual obligations. During our review, we examined the extent to which MBC adhered to its contractual obligations. Specifically, we analyzed whether MBC complied with 13 contract provisions. Contract compliance is a salient contract management tool to maximize financial and operational performance and minimize risk. We found that MBC did not comply with key contractual requirements. Among the key noncompliance issues we identified are: MBC failed to comply with the subcontractor bid solicitation and award requirements of the contract. Article of the contract with MBC states All awards shall be solicited using sealed quotations which shall be requested from a minimum of three (3) prequalified contractors for each project. Our review found MBC solicited quotations from one contractor for three (10%) of the 30 clients sampled. This issue was previously cited in our review dated March 10, Failure to obtain a minimum of three quotes subverted the competitive process and may have 10 The walkthrough form also certifies that that the items included in the repair specification has been provided. Office of the County Auditor 14

16 resulted in the County paying higher prices. MBC also solicited quotations from subcontractors who were not prequalified and in at least one case awarded a contract to a non- prequalified subcontractor. Client files did not include the required building permits for some repairs performed by subcontractors. Article 2.5 of the agreement requires MBC to comply with applicable County codes and regulations relating to the work/services to be provided under the agreement. However, we found two (7%) of 30 files did not contain the permits required by Broward County for drain field and septic tank installation and required by Davie for installation of exterior and sliding glass doors. The repairs violated the building codes, potentially subjecting the homeowner to penalties and/or fines. Late payments to subcontractors. Article 2.5 of the agreement requires MBC to comply with Florida Statutes relating to the work/services to be provided under the agreement. Section , Florida Statutes, states that when a contractor receives payment from a local governmental entity for labor, services, or materials furnished by subcontractors and suppliers hired by the contractor, the contractor shall remit payment due to those subcontractors and suppliers within 10 days after the contractor's receipt of payment. We found that 8 (26%) of 30 client files reviewed did not meet this timeliness requirement under Florida law. Payments to the 8 contractors were processed an average of 139 days after receipt of the County s check, potentially impeding subcontractors ability to continue to operate. Untimely filing of financial statements. Article 7.4 of the agreement requires MBC to submit audited financial statements no later than March 31 of each year.10f10f11 We found that the 2009 statement was submitted more than nine months late (in January 2011) and the 2010 statement was submitted on February 21, 2012, also more ten months past due. Article 7.7 specifies that failure to submit timely audited financial statements shall result in suspension of payment to MBC; however, despite MBC s noncompliance the Division did not withhold payments. Appendix A on page 19 provides a summary of additional contract requirements and the extent to which MBC complied with each of them. Recommendations To ensure compliance with contractual and regulatory requirements, we recommend the Board of County Commissioners direct the County Administrator to: days after the end of the fiscal year. Office of the County Auditor 15

17 9. Discontinue the current practice of paying subcontractors directly and instead issue joint checks payable to MBC and the subcontractors, if MBC is incapable of paying its subcontractors timely. 10. Monitor, evaluate and document MBC s performance and take appropriate actions to address noted performance deficiencies timely. 11. Ensure MBC s performance is appropriately considered in connection with any future awards. Finding 3 The Division did not comply with internal procedures and key LHAP provisions. As discussed in the Background Section, Housing Finance and Community Development Division staff administers the SHIP home repair program. Pursuant to Chapter 420, Part VII, Florida Statutes, the County established a Local Housing Assistance Program (LHAP) to govern the administration and expenditure of SHIP grant funds. The current LHAP, in effect through June 30, 2012, establishes requirements the Division must meet in order to receive SHIP grant funds. In addition to the LHAP the Division implemented procedures for determining client eligibility. We reviewed the Division s compliance with internal procedures, the 2008 SHIP program manual, and nine LHAP provisions. Our review found the Division did not comply with internal procedures and key LHAP provisions. Among the deficiencies we found are: Faulty client eligibility process. As specified in the current LHAP, 2008 SHIP Program Manual, and internal procedures, Division staff conducts assessments to determine client eligibility for SHIP home repair services. Our review found the clients were determined to be income eligible; however, all 30 client files reviewed had insufficient evidence of required documentation including: Current/delinquent status of home mortgages, Citizenship/immigration status of each household member, IRS documents such as tax returns, W-2 s, 1099 s, and profit and loss statements, Certificate showing client completion of counseling workshop, Proof of owner occupancy. Without adequate documentation for these requirements the Division is in violation of the LHAP, Program Manual and the procedures. Flawed mortgage and promissory note documentation. The current LHAP also specifies how mortgages and promissory notes are to be written. We found that all 30 client files reviewed either had erroneous and/or missing documentation related to mortgages and promissory notes including: o Mortgages and promissory notes that did not include all cost of repairs, Office of the County Auditor 16

18 o Inaccurately stated property sale and title transfer provisions, o Failure to include joint owner signatures, and o Erroneously stated mortgage terms. In addition to being noncompliant with LHAP requirements, some deficiencies reduce the payoff amount in the event of a sale or title change during the term of the mortgage. Failure to comply with LHAP requirements violates the terms of the SHIP grant and may subject the County to payback funds to the State of Florida. Untimely recording of mortgages and promissory notes. To protect the County s interests, the lien and claim against the property should be recorded in Broward County Public Records as soon as the mortgage and promissory note is executed. We found extensive recording delays for the 30 files we reviewed. For example, it took the Division an average of 229 days from the date the mortgages and promissory notes were executed until the date they were officially recorded. Public recording for nine (30%) of the 30 mortgages ranged from 301 to 476 days. Failure to timely record these documents may result in inadvertent property sale and transfer of title hindering the County s ability to recover repair costs. Appendix B on page 21 provides a summary of additional procedures and LHAP requirements and the extent to which the Division complied with each of them. Recommendation To ensure compliance with internal procedures, and LHAP requirements, we recommend the Board of County Commissioners direct the County Administrator to: 12. Establish management control over the home repair program through enforcement of existing LHAP requirements and internal procedures and report progress of these efforts to the Board no later than September 30, Finding 4 Broward County may be subsidizing participating municipalities administrative costs On April 30, 2010 the Town of Davie and City of Coral Springs entered into inter-local agreements (ILA) with the County to provide SHIP home repair services to eligible residents. Under the terms of the ILA the County receives the SHIP administrative cost as a fee to administer SHIP grant funds. The municipalities LHAPs for fiscal years 2008 through 2010 projected administrative costs totaling $287,958 (see Table 3 on the next page). Office of the County Auditor 17

19 Table 3 The County will receive $287,958 to administer Davie and Coral Springs SHIP funds for the five year period ending June 30, 2012 Municipality Administrative Fee Town of Davie $113,714 City of Coral Springs 174,714 Total Administrative fee to be paid to the County $287,958 Source: Prepared by County Auditor s Office based on the LHAP provisions We found that the fees are based on estimated rather than actual costs to administer the program. As of February 2012, Division staff had not performed a cost analysis to ascertain whether payments received were sufficient to cover the County s actual administrative costs. Without such analysis, the County may be subsidizing the municipalities. Recommendation To ensure the County recoups the actual costs to administer SHIP grant funds for Davie and Coral Springs, we recommend the Board of County Commissioners direct the County Administrator to: 13. Prepare an analysis of actual costs and fees collected for administering the cities grant funds and report the results to the Board by December 31, Office of the County Auditor 18

20 Contract Requirements APPENDIX A MBC s Non-compliance with Contract Requirements Findings/Significance Article Quotations shall be received by MBC and shall be publicly opened in the presence of one or more witnesses. Lack of documentation for witnesses present at opening of quotations. No evidence of documentation of witnesses for 27 (90%) of 30 client files sampled. Public opening of quotations ensure that the evaluation process is fair and objective and includes contractors that complied with the submission deadline. Otherwise, lower bids could be ignored or eliminated from the quotation summary, ultimately increasing the cost to the County. Article 3.4 The specifications and plans for repairs (scope of work) shall be reviewed by County and approved for compliance with the LHAP prior to advertisement. Article 3.8 All individual project scope of work shall be submitted to the County for approval prior to advertisement or implementation. Article Quotations shall be unconditionally accepted without alteration or correction. Client files did not contain County approval of the scope of work prior to advertisement. We found ten (33%) of the 30 client files did not contain County approval of the scope of work prior to advertisement. The approval process provides County personnel the opportunity to ensure compliance with the LHAP and confirms repair items documented during the initial visit. Failure to obtain County approval of the scope of work prior to advertisement could result in procurement of unauthorized services. Bid alterations occurred after bid opening. We found additional repair items were added by MBC after the bids were opened that increased the quotes for four (13%) of the 30 clients: For three clients, only the quotes submitted by the subcontractor awarded the repair contract were increased. Allowing only the awarded contractor to submit quotes on the additional repair items may have resulted in higher prices to the County. For one client, the quotes submitted by all contractors were increased. The changes amended the scope of work previously approved by the County and may have resulted in unauthorized repair items. Office of the County Auditor 19

21 APPENDIX A Continued Contract Requirements Findings/Significance Article All awards shall be solicited using sealed quotations which shall be requested from a minimum of three (3) prequalified subcontractors... Article MBC will ensure requests for quotations are sent to subcontractors on the MBC pre-qualified list and the prequalified list provided by the County's Purchasing Division.., Vendors placed on the County s prequalified list have been determined to be responsible, qualified, and licensed to perform services for the County. Article 8.2 MBC shall maintain comprehensive general liability insurance coverage for the term of the agreement evidenced by a certificate of insurance which provides the County with a thirty days prior written notice of non-renewal. Article 8.4 Insurance required herein shall be evidenced by certificate of insurance which provides COUNTY with a thirty (30) day prior written notice of cancellation or nonrenewal. MBC requested solicitations from less than three contractors. The review found MBC solicited quotations from one contractor for three (10%) of the 30 clients sampled. This issue was cited in our review dated March 10, Failure to obtain a minimum of three quotes subverted the competitive process and may have resulted in the County paying higher prices. MBC accepted quotations from vendors that were not prequalified. MBC accepted quotations from subcontractors that were not included on the County s or MBC s prequalified vendor list for three of the repairs sampled. One repair was awarded to a subcontractor that was not on the County s or MBC s prequalified vendor lists. The acceptance of the quotes and award of the repair contract violated the terms of the agreement and may have resulted in an award to a non-responsible subcontractor. Insurance certificate does not provide for a 30 days prior written notice of non-renewal. We found the certificate of insurance does not require 30 days prior written notification to the County, of non-renewal. Failure to require 30 days prior written notice of non-renewal could delay the County s ability to take action against MBC Office of the County Auditor 20

22 APPENDIX B Division s Non-compliance with Procedures, Contract, and LHAP Contract Requirements Findings/Significance LHAP requires a mortgage and promissory note for the repair costs. Mortgages and promissory notes did not include all cost of repairs. We found the mortgages for the 13 Broward County clients excluded repair cost and administrative fee totaling approximately $79,400 and mortgages for three clients excluded repair cost totaling approximately $40,000. Failure to include all costs, including the administrative fee when applicable, understates the mortgage and promissory notes, violates the LHAP requirements, and reduces the payoff amount in the event of a sale or title change during the term of the mortgage. The Broward LHAP requires the mortgage and promissory note to provide for full repayment if the home is sold, assigned, or if there is transfer of title during the ten year term. The Coral Springs and Davie LHAP require prorated repayment if the home is sold, assigned, or if there is transfer of title during the five year term. Inaccurately stated property sale and title transfer provisions. We found the following inconsistencies: The promissory notes for the 13 Broward clients were inconsistent with the LHAP by requiring prorated forgiveness over the ten year period instead of full repayment. Mortgages for the 17 Coral Springs and Davie clients were inconsistent with the LHAP by requiring payment in full instead of prorated repayment. The inconsistencies create confusion in determining a payoff amount during the term of the mortgage. The LHAPs require a mortgage and promissory note for the repair costs. Failure to obtain joint owners signatures. The mortgages and promissory notes for two properties that had joint ownership were not signed by all owners. Failure to include all owners in the mortgage and promissory notes and obtain their signatures could result in a legal challenge by the excluded owner. Office of the County Auditor 21

23 APPENDIX B Continued Contract Requirements Findings/Significance The Broward LHAP requires a ten year term for mortgages and promissory notes. The Coral Springs LHAP requires a 5 year term for mortgages and promissory notes. Erroneous mortgage/promissory note terms. A promissory note for a Broward client erroneously stated a term of five years while the mortgage reflected a ten year term. Inconsistent terms create confusion and could prevent accurate calculation of payoff if a sale or title transfer occurs during the mortgage term. The error could also result in full write off and premature settlement of the mortgage in five years. A mortgage and promissory note for a Coral Springs client erroneously stated a term of ten years instead of five years. The incorrect term violates the LHAP and encumbers the client s property for five additional years. The LHAP for Davie, states that disaster relief assistance is designed to provide home repairs to eligible applicants who suffered damage as a result of natural disaster. The natural disaster shall be declared by Executive Order from the President of the United States, Governor of the State of Florida or by the Broward County Board of County Commissioners, and the applicant either did not receive sufficient funds for repair of all or did not have insurance to provide for all repairs. The LHAP for Coral Springs states that applicants that received home repair assistance from the city cannot re-apply for five years. Also, applicants for barrier free repairs will not be eligible for Disaster Relief Assistance did not comply with the requirements of the LHAP. One client received disaster relief repairs totaling $19,996. However, the client s file did not document a declared natural disaster, as required. The expenditure could result in unauthorized disbursement of grant funds and may require the County to pay back grant funds. Repair and barrier free1f1f12 assistance did not comply with requirements of the LHAP. We found two clients received both home repair and barrier free assistance within a five year period: One client received repair assistance totaling $37,900 on November 6, 2009 and later received barrier free assistance totaling $16,163 on March 30, 2010, and 12 Per the FY LHAP - Barrier free repairs are designed to remove barriers, improve accessibility to the elderly (62 years or older) and disabled persons, and to provide for health and safety repairs as needed by older and disabled persons to maintain their independence. Office of the County Auditor 22

24 APPENDIX B Continued Contract Requirements additional repairs for a period of five years from the date of the mortgage. Findings/Significance Another client received repair assistance totaling $29,600 on September 30, 2009 and later received barrier free assistance totaling $19,950 on November 3, In order to determine eligibility for repair assistance Division procedures require applicants to provide documents that include the following: Mortgage Statement(s) showing that mortgage is not delinquent. Residency card or other immigration documents. Tax Returns, W-2 or 1099's (2 years). If selfemployed, provide a signed Year to date P&L statement. Copy of Warranty Deed Proof of full time student, status. The LHAP is ambiguous, and can be interpreted to mean clients cannot receive additional repair assistance within five years regardless of the strategy. Providing multiple repair assistance to the same individual within five years violates the terms of the LHAP and reduces available funding for additional clients. The Division did not perform proper eligibility assessments. Twenty client files did not document mortgage statements. Failure to confirm the mortgages are current could result in repairs to properties that have delinquent mortgages and are subject to foreclosure. Thereby renovating bank owned property if the bank later forecloses on the mortgage. Fifteen client files did not contain documentation of citizenship/immigration status. Failure to obtain poof of immigration status could result in awards to undocumented aliens. Seven client files did not contain complete IRS tax returns, W-2s, and 1099's for two years prior to the application. This issue was cited in a review dated March 10, Also, one client s file did not contain a year-todate profit and loss statement for a self-employed household member. Failure to obtain the tax returns, W-2, 1099 s, and profit and loss statements could result in understatement of income. Two applications did not list all owners on the warranty deeds and did not provide explanations why they were excluded. Failure to ensure completeness of the application could result in understatement of household income and awards to clients who would not otherwise qualify for assistance. Two files did not contain proof of full time student, status. This issue was cited in a review dated March 10, Failure to ensure completeness of the client s application could result in understatement of household income. Office of the County Auditor 23