The U.S. Department of Housing and Urban Development, Office of Inspector General audited the Pontiac Housing Commission’s Public Housing Capital Fund Stimulus (formula) Recovery Act Funded grant. The audit was part of the activities in our fiscal year 2010 annual audit plan. We selected the Commission for review as part of the Office of Inspector’s General’s commitment to ensure the proper use of Recovery Act funds. Our objective was to determine whether the Commission properly obligated and expended its formula grant and related procurements complied with U.S. Department of Housing and Urban Development (HUD) and Recovery Act requirements.

The Commission’s Recovery Act obligations and expenses were not properly supported, and its related procurements did not comply with HUD’s and its own requirements. Specifically, the Commission did not (1) ensure that its contractors complied with the Davis-Bacon Act, (2) comply with Federal and its contract administration requirements, and (3) properly administer and account for vacant unit turnovers by its force account.

Further, the Commission created a conflict-of-interest relationship when it awarded a carpet installation contract to an employee. This condition occurred because the Commission lacked adequate procedures and controls to ensure that it complied with HUD’s and its own procurement and contract administration requirements. As a result, the Commission used more than $148,000 in Recovery Act grant funds contrary to its annual contributions contract with HUD and its own procurement requirements, and HUD lacked assurance that the Commission effectively managed its grant.

We recommend that the Director of HUD’s Detroit Office of Public Housing require the Commission to obtain certified weekly payrolls from the 8 contractors identified and determine whether the contractors paid the correct wage rates to their employees. If the contractors failed to pay the correct wages owed to their employees, the Commission should pay wage restitution to these employees. HUD should also require the Commission to (1) pay wage restitution of $4,357 to its two contractors’ employees and submit proof that the employees received the wage restitution, (2) develop written procedures for the enforcement of labor standards to ensure compliance with its own requirements regarding the enforcement of labor standards, (3) maintain a system of contract administration to ensure that its contractors perform in accordance with their contracts, (4) obtain missing contract administration documents and retain them in the contract files, (5) pay wage restitution of $66,210 to its force account staff and provide proof that the payments were made, (6) identify the specific units assigned to each maintenance staff member for phase II unit turnover work and to the contractor for phase III unit turnover work and provide support, and (7) reimburse HUD $38,027 from non-Federal funds for transmission to the U.S. Treasury for the inappropriate use of grant funds.

We also recommend that the Director of HUD’s Detroit Office of Public Housing (1) prohibit the use of force account labor for any future unit turnover work until the Commission can demonstrate that it has the capacity to perform the work (2) follow established procedures for addressing public housing authorities designated as substandard physical, including but not limited to, amending the Commission’s existing memorandum of agreement with HUD to incorporate the recommendations cited in this audit report, and (3) recapture all funds that the Commission obligated for unit turnovers by its force account. This amount includes the work item for cycle painting and carpet removal work by its force account for $24,149, the $15,933 of improper obligations due to the Commission’s conflict-of-interest relationship that has not been spent and repairs to its sidewalk, driveway, and brickwork for transmission to the U.S Treasury.