Purpose

To determine whether Linden Plaza was procuring goods, supplies, and services at competitive prices and in accordance with applicable requirements. Our audit covered the period January 1, 2016 through August 31, 2017.

Background

The Mitchell-Lama Housing Program, created in 1955, provides affordable rental and cooperative housing to moderate- and middle-income families. The New York City Department of Housing Preservation and Development (HPD) is the nation’s largest municipal housing preservation and development agency. In New York City, there are 94 HPD-supervised Mitchell-Lama rental and limited-equity cooperative developments with approximately 47,000 total units (apartments).

Linden Plaza, a Mitchell-Lama rental development in Brooklyn, is owned by Linden Plaza Housing Company, Inc. and managed by RY Management. It was built in 1971 and has 1,525 apartments. In April 2014, Linden Plaza’s management obtained HPD approval for a 10.5 percent rent increase at Linden Plaza to be phased in over a three-year period. On June 29, 2018, management informed tenants of its intent to request HPD approval for an increase in the development’s maximum permissible rents. The proposed rent increase, which would be phased in over a three-year period, is reportedly needed due to increases in payroll costs and related union benefits, insurance, security costs, and general operating and maintenance expenses, including utilities and legal fees.

Between January 1, 2016 and August 31, 2017, Linden Plaza made total vendor payments of approximately $33 million; $22.3 million was for services such as mortgage payments, insurance, and utilities. Our audit focused on the remaining $10.7 million, consisting of approximately $6.1 million in contract payments to 11 vendors and $4.6 million in non-contract payments to 163 vendors.

The Rules of the City of New York (Rules) require that contracts valued at over $100,000 for building services, repairs, replacements, redecorating or improvements, and supplies be competitively bid and approved by HPD. If these types of contracts are renewed, they require HPD’s approval but are not required to be re-bid. However, the Rules only cover certain kinds of contracts over $100,000 and provide no guidance for contracts under $100,000 or for purchases made without a contract.

Key Findings

• HPD’s Rules are limited in scope and do not encourage Linden Plaza officials to make purchases at competitive prices. The Rules do not require competitive bidding for contracts that are less than $100,000 or for purchases made without a contract, regardless of dollar amount. As a result, none of the $10.7 million in purchases made by Linden Plaza were subject to the Rules requiring competitive bidding.
• $6.1 million was paid to 11 vendors with contracts for services not covered by the Rules (i.e., for contracts under $100,000, for renewals of previously-entered-into contracts, and/or for contracts without a stated contract value).
• $4.6 million of the $10.7 million was paid to vendors that did not have contracts with Linden Plaza. The Rules only pertain to contracts over $100,000. Further, the Rules do not specify when a contract is required (i.e., total amount to be paid or amount paid per year). With limited exception, there was no documentation indicating that Linden Plaza had conducted price analyses or taken any other steps to determine the reasonableness of prices.
• While the Rules require HPD approval for contract renewals, HPD approval was only obtained for one of the three contracts renewed during our scope period.
• Linden Plaza did not have sufficient documentation to support payments made to one vendor we examined. We sampled 50 invoices totaling $87,914 (out of 204 invoices totaling $577,822) for plumbing work. We found 20 invoices totaling $45,710 that did not match purchase/work orders and/or lacked evidence that the work was completed. After our audit fieldwork, Linden Plaza officials obtained work orders from the vendor for five of the payments, totaling $8,923, which contained sign-offs indicating the work was complete.
• Linden Plaza has not established an adequate inventory system. We judgmentally selected two invoices, one for ten refrigerators and another for eight stoves to account for these items. Linden Plaza officials were unable to account for any of the requested items due to poor record keeping.
• While they showed us several refrigerators and stoves in a warehouse, they were unable to identify whether the sampled items were in the warehouse or had been placed in apartments.

Key Recommendations

• Expand requirements for bidding and/or HPD approval and ensure that the Rules are enforced.
• Establish dollar thresholds above which a purchase for goods or services requires a contract.
• Require that invoices only be paid when supported by adequate documentation.
• Require Linden Plaza to establish and maintain an inventory control system to properly account for assets.

Other Related Audit/Report of Interest

New York City Department of Housing Preservation and Development: Vacancies at the Clinton Towers Mitchell-Lama Housing Development (2017-N-1)