Audit Report on the New York City Housing Authority’s Section 3 and Resident Employment Programs

Executive Summary

This audit determined whether the New York City Housing Authority (“NYCHA”) has adequate controls to ensure that contractors meet federal Section 3 and NYCHA’s Resident Employment Program (“REP”) requirements for hiring of NYCHA residents and low-income New Yorkers.

Section 3 of the U.S. Housing and Urban Development (“HUD”) Act of 1968 is designed to provide public housing residents with job opportunities.  Contractors who are awarded capital contracts by NYCHA are required “to the greatest extent feasible” to ensure that 30 percent of new hires are NYCHA residents or low-income New Yorkers.  In addition, under REP, NYCHA requires contractors awarded contracts valued at $500,000 or more to ensure that at least 15 percent of the contracts’ total labor costs are expended on NYCHA residents or low-income New Yorkers.  Contract monitors from NYCHA’s Resident Economic Empowerment and Sustainability (“REES”) Unit and its Capital Projects Division (“CPD”) are responsible for ensuring compliance with Section 3 and REP requirements.

Between 2010 and 2012, NYCHA awarded 224 capital projects contracts valued at $928,910,564, a sum that is not only to be used to improve NYCHA’s physical infrastructure, but is also intended to be leveraged to boost economic opportunity for NYCHA residents.

Audit Findings and Conclusions

NYCHA has failed to institute sufficient controls to ensure that its Section 3 and REP programs are carried out in accordance with its guidelines. Specifically, based on our analysis of 29 sampled contracts (21 of which were closed at the time of our review), we found:

• Compliance and monitoring issues with 83 percent of the contracts reviewed at Capital Projects Division and with 97 percent of the contracts reviewed at Resident Economic Empowerment and Sustainability unit. A breakdown by contract is shown in Appendix I.
• Eight of the 21 sampled closed contracts failed to meet either the applicable Section 3 or REP hiring requirements.  In connection with the six sampled contracts subject to REP hiring requirements, NYCHA residents lost out on over $180,000 in potential wages.
• Nearly half of the required Section 3 hiring summaries and 74 percent of the required REP hiring summaries were either incomplete, blank, or inaccurate.
• For 17 contracts that required compliance with REP, contractors claimed to have expended a total of $1,453,747 on NYCHA residents, whereas our analysis of certified payroll records found that the contractors had expended only $977,154 on NYCHA residents, a difference of $476,593.

These shortcomings resulted from NYCHA’s failure to adequately monitor and enforce Section 3 and REP compliance.  We found that NYCHA had failed to update its guidelines and to ensure that all staff charged with monitoring the programs were both familiar with and operated in accordance with those guidelines.  In addition, NYCHA did not take corrective action in instances of non-compliance.  As a result, it not only failed to address underlying problems, but also sent the message to its contractors that failing to comply with Section 3 and REP would carry no consequences.

Lax controls undermine the effectiveness of programs that are intended to provide NYCHA residents and low-income New Yorkers with job opportunities.  As a result, these individuals are less likely to be able to take advantage of such opportunities.

Audit Recommendations

To address these weaknesses, we make seven recommendations which are discussed in greater detail in the report:

• NYCHA should institute controls to ensure that construction project managers review and verify hiring summaries for accuracy.
• NYCHA should ensure that monitors are familiar with their responsibilities for reviewing and verifying hiring summaries.
• NYCHA should require contractors to submit a list of all permanent staff at the start of a contract.
• NYCHA should ensure that contract monitors document their follow-up efforts with contractors and include all supporting evidence of their efforts in the contract folders.
• NYCHA should take disciplinary action against contractors that fail to comply with hiring guidelines following appropriate warnings.
• NYCHA should update and revise its written procedures to reflect current operations.
• NYCHA should ensure that monitors coordinate their efforts to ensure that all documents required to verify resident employment are transmitted to each unit in a timely manner.

Agency Response

In its response, NYCHA disagreed with all but one of the audit’s findings.  However, the agency provided no evidence to support its arguments.  After careful review and consideration of the arguments in NYCHA’s response, we found that those arguments do not alter our original findings and recommendations.

Further, NYCHA did not specifically address the audit’s seven individual recommendations in its response.  However, based on the arguments NYCHA makes in response to the audit’s findings, it appears that NYCHA agrees with Recommendation 1.  Further, NYCHA appears to contend that it already complies with Recommendations 2, 5 and 7.  Finally, NYCHA’s response indicates that it disagrees with Recommendations 3 and 6. NYCHA’s response does not appear to address Recommendation 4 so it is unclear whether the agency agrees with this recommendation or not.

After the final report for this audit was issued on July 23, 2014, we were informed by HUD that the $100,000 contract threshold identified by NYCHA as applicable to its Section 3 program set forth in the report was incorrect.  This report has been revised to reflect the fact that all capital contracts awarded by NYCHA, regardless of their amount, are subject to Section 3 requirements.  This revision has no impact on any of the audit’s findings or conclusions.

The full texts of NYCHA’s response and HUD’s subsequent letter are included as addenda to this report.