oversight

Cuyahoga County Community Development Block Grant Program Revolving Loan Fund, Cleveland, Ohio

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-01-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                U.S. Department of Housing and Urban Development
                                                Office of Inspector General for Audit, Midwest
                                                Ralph H. Metcalfe Federal Building
                                                77 West Jackson Boulevard, Suite 2646
                                                Chicago, Illinois 60604-3507




                                                                   AUDIT MEMORANDUM
                                                                           2001-CH-1801

January 10, 2001

MEMORANDUM FOR: Lana J. Vacha, Director of Community Planning and
                  Development, Ohio State Office

           /signed/
FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest

SUBJECT: Cuyahoga County
         Community Development Block Grant Program
         Revolving Loan Fund
         Cleveland, Ohio

We completed a review of Cuyahoga County’s Revolving Loan Fund backed by the County’s
Community Development Block Grant Program. We initiated our review based upon an
anonymous complaint to our Hotline. The complainant alleged that the County misused Block
Grant funds for the Loan Fund to pay expenses of the Special Purpose Grant for the Bellefaire
Residential Treatment Center for Children. The objectives of our review were to determine
whether the complainant’s allegations were substantiated and whether HUD’s rules and
regulations for the Revolving Loan Fund were followed.

The County did not follow Federal requirements when it used Community Development Block
Grant funds to pay administration and construction expenses of the Special Purpose Grant for
the Bellefaire Residential Treatment Center for Children. Contrary to the Office of Management
and Budget’s requirement, the County used $308,495 of Block Grant funds to pay the
expenses of the Special Purpose Grant because the County could not draw down the Special
Purpose Grant funds. HUD did not permit the County to draw down the Special Purpose
Grant funds because the County did not submit the required closeout documents. The Business
Services Manager for the County’s Department of Development said she was not aware that
the County’s use of Community Development Block Grant funds to pay the expenses of the
Special Purpose Grant was not in accordance with Office of Management and Budget Circular
A-87. As a result, HUD’s funds were not used efficiently and effectively.




   Exit
                                                                             Audit Memorandum


Subsequent to the completion of our on-site audit work, the County repaid the $308,495 to the
Community Development Block Grant Program.

Cuyahoga County was organized under the laws of the State of Ohio. The County is governed
by a three-member Board of Commissioners. The President of the County’s Board is Jane L.
Campbell.      The Department of Development administers the County’s Community
Development Block Grant Program. Steven Sims is the Department’s Director. The County’s
official records for the Revolving Loan Fund Program are at 112 Hamilton Court, Cleveland,
Ohio.

To determine whether the complainant’s allegations were substantiated and whether HUD’s
rules and regulations for the Revolving Loan Fund were followed, we reviewed the County’s:
Community Development Block Grant Agreements with HUD for the periods between June 1,
1998 and December 31, 2000; Special Purpose Grant Agreement for the Bellefaire Residential
Treatment Center for Children; and Revolving Loan Fund and Special Purpose Grant files. We
also reviewed HUD’s files for the County to obtain an understanding of the County’s
administration of its Revolving Loan Fund and Special Purpose Grant, and Title 24 of the Code
of Federal Regulations Part 85 and Office of Management and Budget Circular A-87 regarding
the use of Block Grant funds to pay expenses of the Special Purpose Grant. We interviewed
HUD’s and the County’s staff to determine the actions taken to closeout the Special Purpose
Grant.

We presented our draft finding to the County’s Director of Development and HUD’s staff
during the review. The County’s Director declined our offer for an exit conference; however,
he did provide written comments to the draft finding. According to those comments, the County
was not aware that it lacked procedures and controls to ensure the use of Federal funds meets
Office of Management and Budget Circular A-87. We included an excerpt of the County’s
comments with the finding. The complete text of the comments are in Appendix A.

A copy of this memorandum was provided to the County’s President of the Board of
Commissioners and the Director of Development.

Within 60 days, please provide us, for each recommendation made in this memorandum, a
status report on: (1) the corrective action taken; (2) the proposed corrective action and the date
to be completed; or (3) why action is considered unnecessary. Also, please furnish us copies of
any correspondence or directives issued because of the review.

Should you or your staff have any questions, please contact me at (312) 353-7832.




                                           Page 2                                    2001-CH-1801
                                                                                     Finding


     The County’s Use Of $308,495 In Block
       Grant Funds Did Not Meet Federal
                 Requirements
Cuyahoga County did not follow Federal requirements when it used Community Development
Block Grant funds to pay administration and construction expenses of the Special Purpose
Grant for the Bellefaire Residential Treatment Center for Children. Contrary to the Office of
Management and Budget’s requirement, the County used $308,495 of Block Grant funds to
pay the expenses of the Special Purpose Grant because the County could not draw down the
Special Purpose Grant funds. HUD did not permit the County to draw down the Special
Purpose Grant funds because the County did not submit the required closeout documents. The
Business Services Manager for the County’s Department of Development said she was not
aware that the County’s use of Community Development Block Grant funds to pay the
expenses of the Special Purpose Grant was not in accordance with Office of Management and
Budget Circular A-87. As a result, HUD’s funds were not used efficiently and effectively.


                                      24 CFR Part 85.22(b) requires that State, local, and
 Federal Requirements                 Indian tribal governments follow Office of Management
                                      and Budget Circular A-87, Cost Principles for State,
                                      Local, and Indian Tribal Governments.

                                      Office of Management and Budget Circular A-87,
                                      Section C of Attachment A, paragraph 3c, requires that
                                      costs allocable to a particular Federal award may not
                                      be charged to other Federal awards to overcome fund
                                      deficiencies, to avoid restrictions imposed by law or
                                      terms of the Federal awards, or for other reasons.

                                      Contrary to the requirement of Office of Management
 The County Misspent Block            and Budget Circular A-87, Cuyahoga County used
 Grant Funds                          Community Development Block Grant funds to pay
                                      administration and construction expenses of the Special
                                      Purpose Grant for the Bellefaire Residential Treatment
                                      Center for Children.

                                      In 1993, HUD awarded a $2 million Special Purpose
                                      Grant for the Bellefaire Residential Treatment Center.
                                      The Treatment Center is a non-profit mental health and
                                      child development agency that provides services to

                                         Page 3                                  2001-CH-1801
                                                Finding


children suffering from emotional, physical, and/or
substance abuse.      The Special Purpose Grant
Agreement required the County to act as the Grant
administrator to ensure the Grant funds were used
properly.

The Special Purpose Grant for the Bellefaire Residential
Treatment Center for Children incurred $1,986,741 of
administration and construction expenses. The County
used its own funds to pay the expenses. This is the
County’s standard procedure for its Department of
Development activities. The County Treasurer is then
reimbursed by the Department of Development using
the appropriate grant funds. The County drew down
$1,678,246 of Special Purpose Grant funds from HUD
and reimbursed the County Treasurer. In April 1996,
the County’s attempt to draw down funds from the
Special Purpose Grant was rejected by HUD’s
automated funds control system. HUD rejected the
County’s request because the amount of funds drawn
down plus the funds requested by the County would
have exceeded 80 percent of the funds awarded under
the Special Purpose Grant. In order to receive the
requested funds, the County was required to submit
progress reports and closeout documents to HUD.

The County contacted HUD’s Special Purpose Grant
Coordinator for the Cleveland Multifamily Program
Center to determine the required documents for
submission so the Special Purpose Grant funds could
be drawn down. The County submitted documentation
to HUD in July 1996 and December 1996 to closeout
the Special Purpose Grant. However, the County
provided inaccurate information regarding the balance
of the Special Purpose Grant funds and did not submit
to HUD a cost schedule for the Grant which HUD had
requested.

The County’s Director of Development said his Office
spent too much time and effort trying to closeout the
Special Purpose Grant. Therefore, the Director
authorized the transfer of $308,495 in Community
Development Block Grant funds to reimburse the

  Page 4                                   2001-CH-1801
                                                                     Finding


                   County Treasurer for the administration               and
                   construction expenses already paid.

                   HUD’s regulation requires the County to follow Office
                   of Management and Budget Circular A-87. The
                   Circular prohibits costs allocable to a particular Federal
                   grant from being charged to other Federal grants to
                   overcome fund deficiencies.

                   According to the County’s Business Services Manager
                   for the Department of Development, she was not aware
                   that the County’s use of Community Development
                   Block Grant funds to pay the expenses of the Special
                   Purpose Grant was not in accordance with Office of
                   Management and Budget Circular A-87. As a result,
                   HUD’s funds were not used efficiently and effectively.

                   After we began our review in August 2000, the County
                   prepared documentation to closeout the Special
                   Purpose Grant. The County presented the closeout
                   documentation to HUD on October 31, 2000.


Auditee Comments   Excerpts paraphrased from the County’s comments on
                   our draft finding follow. Appendix B, pages 8 and 9,
                   contains the complete text of the comments.

                   The last sentence of Office of Budget and Management
                   Circular A-87, Section C of Attachment A, paragraph
                   3c is not referenced or included in the draft finding. The
                   entire paragraph states that any cost allocable to a
                   particular Federal award or cost objective under the
                   principles provided for in this Circular may not be
                   charged to other Federal awards to overcome fund
                   deficiencies, to avoid restrictions imposed by law or
                   terms of the Federal awards, or for other reasons.
                   However, this prohibition would not preclude
                   governmental units from shifting costs that are allowable
                   under two or more awards in accordance with existing
                   program agreements.

                   The County believes that the last sentence can be
                   interpreted to provide support for its use of Block

                     Page 5                                     2001-CH-1801
                                                                  Finding


                    Grant funds. The administration and construction costs
                    were allowable under the Community Development
                    Block Grant Program and arguably an existing program
                    agreement was established in the County’s
                    Consolidated Plan.

OIG Evaluation Of   The County’s use of Community Development Block
Auditee Comments    Grant funds to pay for administration and construction
                    expenses like those incurred for the Special Purpose
                    Grant could have been an eligible use of Block Grant
                    funds. However, HUD restricted the County’s use of
                    the Special Purpose grant funds, pending the County’s
                    submission to HUD of required documentation. Thus,
                    Section C of Attachment A, paragraph 3c of Circular
                    A-87 prohibited the County from charging costs
                    allocable to the Special Purpose Grant to the
                    Community Development Block Grant Program.


Auditee Comments    The Inspector General’s review afforded HUD and the
                    County an opportunity to reopen conversations on the
                    Special Purpose Grant for the Bellefaire Residential
                    Treatment Center. The County learned that Special
                    Purpose Grant funds remained available for it’s use.
                    The County’s staff worked with HUD’s staff to
                    complete the Grant closeout report. HUD approved
                    the Grant closeout report and allowed the County to
                    draw down $308,495 on November 2, 2000 from the
                    Special Purpose Grant. The Special Purpose Grant
                    funds were deposited with the County Treasurer and
                    the Block Grant funds were reimbursed.

OIG Evaluation Of   Based upon the documentation provided by the
Auditee Comments    County, we removed the recommendation that required
                    the County to reimburse the $308,495 to it’s
                    Community Development Block Grant Program.


Auditee Comments    The County was unaware that the Inspector General’s
                    review revealed any evidence that the County lacked
                    the necessary procedures and controls to ensure that
                    regulations are followed regarding the use of Federal
                    funds.

                      Page 6                                  2001-CH-1801
                                                                    Finding

OIG Evaluation Of   According to the County’s Business Services Manager
Auditee Comments    for the Department of Development, she was not aware
                    that the County’s use of Community Development
                    Block Grant funds to pay the administration and
                    construction expenses of the Special Purpose Grant
                    was not in accordance with Office of Management and
                    Budget Circular A-87. Therefore, the County needs to
                    establish the necessary procedures and controls to
                    follow Office of Management and Budget Circular A-
                    87.



Recommendation      We recommend that the Director of Community
                    Planning and Development, Ohio State Office, assures
                    that Cuyahoga County:

                    A.        Establishes procedures and controls to ensure
                              that it follows Office of Management and
                              Budget Circular A-87 regarding the use of
                              Federal funds.




                         Page 7                                2001-CH-1801
                                                                                       Appendix A

Auditee Comments
                                       November 13, 2000

Mr. Heath Wolfe
Assistant District Inspector General for Audit, Midwest
U.S. Department of Housing and Urban Development
Office of the Inspector General, Midwest
Ralph H. Metcalfe Federal Building
77 West Jackson Boulevard, Suite 2646
Chicago, Illinois 60604-3507


        Re: Cuyahoga County use of Block Grant Funds – Bellefaire Project

Dear Mr. Wolfe:

We offer the following response to the draft audit finding that the County’s use of $308,495 in
Block Grant Funds did not meet federal requirements.

        The last sentence of Circular A-87, Section C of Attachment A, paragraph 3c is not
        referenced or included in the draft Inspector General’s report, but is important to a full
        understanding of the County’s actions and rationale. Therefore, the entirety of the section
        is included for reference as follows:
             “any cost allocable to a particular Federal Award or cost objective under the
                principles provided for in this circular may not be charged to other Federal
                Awards to overcome fund deficiencies, to avoid restrictions imposed by
                law, or terms of the Federal awards, or for other reasons. However, this
                prohibition would not preclude governmental units from shifting costs that
                are allowable under two or more awards in accordance with existing
                program agreements.”

        We believe that the last sentence can be interpreted to provide support for our use of
        Block Grant Funds, as the subject costs were allowable under the Community
        Development Block Grant program and arguably an “existing program agreement” was
        established through disclosure at public meetings and providing in our Consolidated Plan
        for the potential to use Block Grant Funds for this purpose.

        The complete and accurate explanation given by the County’s Director of Development to
        the Inspector General’s review team for using Block Grant Funds, is that staff turned its
        attention from efforts to recover the costs under the Special Purpose grant after the
        closeout report was not accepted and no explanation was provided by HUD as to why the
        report was unacceptable. HUD never responded to repeated requests for technical
        assistance to complete the report, and County staff was given the impression the funds
        were no longer available. This being the case, staff undertook a review of the project
        expenditures and determined that the costs were eligible under CDBG regulations. As
        such, Block Grant was considered an appropriate resource to apply to the project.



                                            Page 8                                     2001-CH-1801
                                                                                Appendix A

November 13, 2000
Mr. Heath Wolfe
Re: Cuyahoga County use of Block Grant Funds
Page 2


       The Inspector General’s review afforded HUD and the County the opportunity to reopen
       conversations on the Bellefaire Project. We learned that unspent funds under the Special
       Purpose Grant remained available for our use, and County staff worked cooperatively
       with local HUD officials to satisfactorily complete the closeoTD ( ) Tj 18 0 TD -0.141 Tc 0.2708 Tw ire30




                                        Page 9                                  2001-CH-1801