U.S. Department of Housing and Urban Development
Wanamaker Building, Suite 1005
100 Penn Square East
Philadelphia, PA 19107-3380
District Inspector General for Audit
August 24, 2001
Audit Memorandum
No. 2001-PH-1802
MEMORANDUM FOR: Joyce Gaskins, Director, Office of Community Planning and
Development, 3AD
FROM: Daniel G. Temme, District Inspector General for Audit, Mid-
Atlantic, 3AGA
SUBJECT: City of Philadelphia
Shelter Plus Care Grant
PA26C960002
Philadelphia, Pennsylvania
As part of a nationwide review of HUD’s Continuum of Care Program, we audited a 1996
Shelter Plus Care Grant awarded to the City of Philadelphia (City) and its Sponsor, the Tenants’
Rental Assistance Corporation (TRAC).
BACKGROUND
Title IV, subtitle F of the Stewart B. McKinney Homeless Assistance Act authorized the Shelter
Plus Care Program. The Program is designed to link rental assistance to supportive services for
hard-to-serve homeless persons with disabilities (primarily those who are seriously mentally ill;
have chronic problems with alcohol, drugs, or both; or have AIDS; and/or a related disease) and
their families. There are only two eligible activities under the grant – rental assistance and grant
administration.
The City of Philadelphia (City) is the grantee for all Shelter Plus Care grants awarded to
Philadelphia. The Shelter Plus Care Grant that we tested was awarded by the City to its Sponsor,
the Tenants’ Rental Assistance Corporation (TRAC), and is known as the Shelter Plus Care IV
Grant. TRAC submitted the original grant application to the City and the City sponsored the
grant and became the actual grantee. The City, through its Office of Housing and Community
Development (OHCD), entered into single year contracts with TRAC to administer the grant over
the course of the grant term.
Visit the Office of Inspector General’s World Wide Web site at http://www.hud.gov/oig/oigindex.html
TRAC works closely with the Tenants’ Action Group (TAG) – another non-profit housing
organization. Together, they are a city-wide coalition of tenant groups committed to improving
rental housing conditions in Philadelphia by giving individuals and families more control over
their housing situation, and equalizing the political, economic, legal, and social relationships
between landlords and tenants. The organizations advance and defend the rights and interests of
tenants and homeless people throughout Philadelphia, and strive to guarantee that all
Philadelphians have access to safe, decent, accessible, and affordable housing. They also provide
rental and other related financial assistance to tenants for transitional housing, emergency
services, and special needs counseling and housing for persons with AIDS.
The Shelter Plus Care IV Grant awarded to the City in 1996 totaled $913,200. The Grant was to
provide rental assistance for 20 single bedroom and 5 multi-bedroom units, or a total of 25 units
(also known as “slots”), for five years from February 1997 through January 2002.
OBJECTIVES, SCOPE, AND METHODOLOGY
Our objectives were to determine whether the City and TRAC:
• Implemented the grant in accordance with their application;
• Expended funds for eligible activities under Federal regulations and applicable cost
principles;
• Maintained evidence of measurable results;
• Ensured a sustainable program; and
• Expended funds timely.
To meet our objectives we interviewed HUD, TRAC, and the City of Philadelphia’s Office of
Housing and Community Development (OHCD) officials; visited a sample of assisted units;
reviewed the grant application, grant agreement and progress reports; and analyzed financial
records and participant files.
As of June 25, 2001, total expenses drawn from the grant were $331,907. We reviewed
$283,794 or 85.5 percent of these expenses.
Our review covered the period February 28, 1997 through June 25, 2001, and was conducted
between September 2000 and June 2001.
SUMMARY
We found that the City did not ensure TRAC implemented its Shelter Plus Care IV Grant
according to its grant agreement and applicable Federal regulations. This occurred because the
City did not provide adequate guidance and oversight in monitoring TRAC’s administration and
implementation of the grant. Specifically, the City did not ensure TRAC (1) actually provided or
documented matching supportive services had been provided to program participants, (2) only
provided assistance to eligible participants, (3) accurately reported the results of its grant
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activities, and (4) maintained full or near full capacity in funding 25 units that were available
under the grant agreement. Due to this lack of oversight, the effectiveness of the grant in
providing rental assistance and supportive services for hard-to-serve homeless persons with
disabilities and their families was dramatically diminished under the grant period. As of June 25,
2001, four and one-quarter years into its five-year grant period, TRAC had used only $352,537 of
its $913,200 grant with $33,468 of these expenditures being used to provide rental assistance to
two participants that we determined to be ineligible. Further, the City/TRAC has not been able
to provide adequate documentation to support its claimed level of supportive services (match)
that it provided to its participants as is required by Federal regulations.
Also, we noted that the management controls used by both the City and TRAC may not
adequately protect grant funds from fraud, waste, or abuse. Specifically, we found that: (1)
funds were mistakenly drawn from the Shelter Plus Care IV Grant to pay expenses incurred
under a different Shelter Plus Care Grant; (2) the administrative cost rate for the housing
counselor was not supported and time sheets were improperly completed; and (3) key duties at
TRAC were not properly segregated. These management control weaknesses expose grant funds
to a greater risk of fraud, waste, or abuse.
Due to the serious nature of the findings, we recommend HUD suspend payments under this
Shelter Plus Care Grant to the City until such time as the City is able to demonstrate it has taken
appropriate corrective actions to more effectively administer its program and better protect grant
funds from potential fraud, waste, or abuse. Further, we recommend the City repay the $331,907
it drew down for the program as of June 25, 2001 unless it provides adequate documentation to
support its claimed level of supportive services match. However, even if the City is able to
provide such documentation, we recommend HUD require the City to repay the $33,468 that was
used to provide rental assistance to ineligible participants.
Details of our conclusions are contained in Attachment A.
On July 19, 2001, we provided the City with a draft of this memorandum. The City responded to
the draft on August 2, 2001. We also discussed the City’s response in an exit conference held on
August 6, 2001 and considered the City’s comments in preparing our final report.
Within 60 days, please give us, for each recommendation in this memorandum report, a status
report on (1) corrective action taken; (2) proposed corrective action and date to be completed; or
(3) why action is considered unnecessary. Also, please furnish us copies of any correspondence
or directives issued because of this review.
Should you or your staff have any questions, please contact J. Phillip Griffin, Assistant District
Inspector General, at (215) 656-3401, extension 3490.
Attachments:
A. Findings and Recommendations
B. Schedule of Questioned Costs
C. Distribution
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Attachment A
FINDINGS AND RECOMMENDATIONS
Finding 1 – The City Failed to Ensure TRAC Implemented Its Shelter Plus Care Grant in
Compliance with Federal Regulations and the Grant Agreement.
The Shelter Plus Care IV Grant awarded to TRAC from the City was not implemented according
to the grant agreement and applicable Federal regulations. This occurred because the City did
not provide sufficient guidance or oversight in monitoring TRAC’s administration and
implementation of the grant. Specifically, the City did not ensure TRAC (1) actually provided its
supportive services match to eligible participants; (2) restricted grant assistance only to eligible
participants; (3) filed accurate Annual Progress Reports; and (4) maintained full or near full
capacity in its 25 slots. As a result, after four and one-quarter years in its five-year plan, TRAC
had used only $352,537 or 38.6 percent of its $913,200 grant in providing rental assistance for
hard-to-serve homeless persons with disabilities and their families, and provided $33,468 in
rental assistance to two ineligible participants.
Due to the City’s lack of control over the grant usage, HUD cannot rely on the City to properly
administer its Shelter Plus Care grants, and as such, HUD should suspend payments under this
Shelter Plus Care Grant to the City until the City demonstrates its ability and willingness to
properly administer the funds.
City could not provide or document supportive services (match) were provided to eligible
participants.
Although the City claimed in its Annual Progress Report that $178,089 of supportive services
match had been provided to participants as of January 31, 2000, neither the City nor TRAC could
provide any documentation to verify the required supportive services were actually provided to
the participants who received assistance under this grant1.
Title 24 CFR 582.110 requires the City to provide or ensure the provision of supportive services,
even if it has to fund the services itself. Further, the regulations require the supportive services
be at least equal in value to the aggregate amount of rental assistance funded by HUD (the grant
amount of $913,200). The subsequent agreement between OHCD and TRAC states that TRAC
shall ensure the participants receive the supportive services and maintain documentation
concerning the type and value of those services. The City relied on its agreement with TRAC to
ensure that the supportive services were provided and documented. However, the agreement
between OHCD and TRAC does not relieve the City of its obligation to ensure the supportive
services are actually provided in accordance with its agreement with HUD.
1
In the April 30, 2001 APR, the City claimed that $178,809 of supportive services had been provided and that
additional supportive service totals for the period of February 1, 2000 to January 31, 2001 were not yet available.
The $720 difference between the 2000 APR and the 2001 APR supportive services appeared to be a typographical
error.
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Since the City and TRAC were not able to provide documentation to support their claim of the
supportive service match they provided to program participants, the City needs to repay the entire
amount drawn down for the program ($331,907 as of June 25, 2001).
However, in its response to our draft audit memorandum, the City stated it had assembled the
required information from the start of the Grant through June 30, 2001, and attached a sample of
the information to the response. HUD will need to examine the documentation to determine if it
adequately supports the City’s claim.
Ineligible Participants Received Housing Assistance Under the Grant.
As of May 2001, TRAC had spent $33,468 from the grant funds to provide housing assistance to
two ineligible participants. According to documentation in the tenants’ files and interviews with
their landlords, the tenants were not living on the streets, in temporary shelters, or in danger of
imminent eviction from their homes immediately prior to receiving assistance through the Shelter
Plus Care IV Grant.
Title 24 CFR 582.5 states homeless or homeless individual has the meaning given in Section 103
of the McKinney Act (42 U.S.C. 11302). According to 42 U.S.C. Section 11302, a homeless
individual is an individual who lacks a fixed, regular and adequate nighttime residence, and an
individual who has a primary nighttime residence that is a public or private shelter, institution, or
a place not designed for or ordinarily used as a regular sleeping accommodation for human
beings.
The two participants in question did not meet the definition of homeless persons. Therefore, they
were not qualified to receive assistance from the Shelter Plus Care Grant, although they may
have been qualified for other Federal housing assistance programs.
The City maintains the two participants meet HUD’s definition of homeless and submitted
information to support that position in its response to our draft audit memorandum. However,
we determined the information was not sufficient to change our opinion.
Grant Results were Incorrectly Reported in the Annual Progress Reports.
TRAC overstated the number of participants who received assistance under its Shelter Plus Care
Grant in the Annual Progress Reports (APRs) it submitted to the City and HUD. This occurred
because TRAC’s Program Director mistakenly counted applicants as participants when reporting
the yearly program results to OHCD. Further, OHCD did not detect the error because it did not
monitor nor verify the results reported by TRAC.
According to the Annual Progress Report instructions, a participant is a person who actually
received assistance during the operating year. The APR instructs that participants be reported,
not applicants.
The following table contains the number of participants actually assisted compared to the number
of participants claimed.
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Number of Participants – Number of Participants –
Reporting Period Reported on APR Actual
1998 20 12 *
1999 18 17 *
2000 24 22 **
*- Includes one ineligible participant.
** - Includes two ineligible participants.
Overstating the number of participants that were actually assisted not only distorts the success of
the program, but masks TRAC’s inability to maintain full or near-full capacity of slots (units)
under the grant agreement.
TRAC did not Maintain Full or Near Full Capacity of its Available Slots.
Thus far, TRAC has not been able to maintain full or near full capacity of the 25 slots available
under the Shelter Plus Care IV Grant. We found TRAC had incurred total expenses of $352,537
(38.6 percent) against the grant as of May 2001. If full capacity had been maintained in all 25
slots, TRAC should have incurred expenses of $791,440 as listed in the budget for that date.
Since the City did not expend funds as quickly as it had anticipated in its request, it will not
likely be able to expend all of its grant funds by the end of the five-year term in January 2002.
The following graph shows TRAC has consistently failed to meet its yearly expenditures budget,
meaning that full or near-full capacity is not being met on an annual basis. For example, during
year 4 of the grant, TRAC spent only $105,934, while it had budgeted $182,640. At the current
rate of expenditures, we estimate that TRAC will only have spent approximately 47 percent of
the total $913,200 grant funds by the time that the grant expires in January 2002.
Yearly Grant Expenditures
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
Year 1 Year 2 Year 3 Year 4
B udgeted Expended
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There were two factors that contributed to TRAC’s failure to maintain full or near-full capacity
of the 25 slots available under the Shelter Plus Care IV Grant. First, the City did not sign an
agreement with TRAC to provide the housing assistance until five months after the grant was
awarded. Secondly, TRAC did not adequately manage the process of getting candidates into the
slots. TRAC must verify each candidate’s income, eligibility, and disability. After the candidate
is selected, he/she must find a suitable unit and TRAC must ensure each unit passes a Housing
Quality Standards (HQS) inspection. Of these three processes, finding a unit and obtaining the
HQS inspection are the most time consuming. Additionally, prior to final approval, some
candidates decided they do not want to participate in the program and the lengthy process had to
begin again.
Title 24 CFR 582.410 allows HUD to deobligate all or a portion of the approved grant amount if
such amount is not expended in a timely manner.
The City’s Director of Special Needs Assistance indicated her intention to seek an extension of
the grant until the funds are fully expended. She also indicated that timely expenditure of grant
funds was a common problem with all Shelter Plus Care grants.
In its response, the City stated it has difficulty understanding the auditor’s attempt to simply
equate program spending with program performance. Also, the City cited various difficulties and
obstacles encountered in the implementation of this Grant. We feel that not only the slow rate of
expenditures but the low number of participants discussed in the previous section of this finding
indicate the City’s lack of success in achieving and fully utilizing the Grant funds.
Recommendations:
We recommend that HUD:
1A. Suspend payments under this Shelter Plus Care Grant for the City until such time as the
City demonstrates its ability and willingness to administer the Grant appropriately,
including: monitoring its subgrantees to ensure that supportive services are provided and
documented; ensuring participants are eligible; accurately reporting results; and
maintaining full or near full capacity in the slots assisted under the Shelter Plus Care
Grants.
1B. Ensure the City provides adequate documentation to support its supportive services
match. If the City does not provide adequate documentation, require the City to repay the
$331,907 that it drew for the program as of June 25, 2001. Similarly, if the City does not
provide adequate documentation, require the City to repay the $33,468 of misspent Grant
funds for ineligible participants.
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Finding 2 – Management Controls May Not Adequately Protect Grant Funds from Fraud, Waste
or Abuse.
The management controls used by both the City and by TRAC may not adequately protect grant
funds. As noted in Finding 1, the lack of monitoring by the City could allow funds to be misused
and not be detected in a reasonable time. During our review, we also identified a number of
other management control weaknesses that included a lack of: (1) proper controls over draw
down procedures; (2) supporting documentation for TRAC’s administrative cost rate of its
housing counselor and accurate time sheets supporting the housing counselor’s work; and (3)
segregation of TRAC’s bookkeeping duties. As a result, the City drew down $84,638 from the
Shelter Plus Care IV Grant to pay expenses incurred for another Shelter Plus Care Grant. Also,
TRAC could not support the amount billed for its housing counselor and the time sheets
supporting the housing counselor’s time were inaccurate.
City drew down $84,638 from the Shelter Plus Care IV Grant to pay the expenses of another
Shelter Plus Care Grant.
During our review of the draw downs for this grant, we noted that the City drew funds from this
grant for expenses related to another grant. To illustrate, as of September 12, 2000, a total of
$283,794 was drawn by OHCD from the grant. However, TRAC’s records indicated that it had
requested and received only $199,156 of that amount. The $84,638 difference was mistakenly
drawn from this grant to pay expenses incurred under a different Shelter Plus Care Grant.
Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local, and
Indian Tribal Governments, Attachment A, paragraph C.3.c. states the costs of one award may
not be charged to another award unless in accordance with existing program agreements.
The OHCD Accounting Supervisor believed that the error occurred because an incorrect grant
number may have been placed on the request prior to batch processing.
TRAC’s administrative cost rate for its housing counselor could not be supported and time sheets
supporting the housing counselor’s time were inaccurate.
TRAC claimed a reimbursement rate of $17 per hour for its housing counselor, even though the
actual salary rate for the counselor never exceeded $13.64 per hour. Neither TRAC nor OHCD
officials were able to provide any written support for the $17 per hour rate.
TRAC’s housing counselors also completed their time sheets improperly when they worked on
more than one grant during the day. The time sheets showed that the housing counselors spent
more time working on some of the grants than was actually worked. As an example, time sheets
for one individual indicated total time charges of 12 hours per day. However, we were informed
the time actually worked was 4 hours per day on each grant (total of 8 hours per day). Neither
TRAC nor OHCD officials were able to explain why the time sheets were filled out this way.
8
OMB Circular A-87 Attachment B, paragraphs11.h. (4) and (5), requires that when employees
work on multiple activities, they must charge their times based on the time actually spent for
each activity.
In both cases, the higher reimbursement rates and inflated time sheets had no effect in the amount
of administrative funds that were reimbursed to TRAC from the grant because Shelter Plus Care
regulations limited administrative charges to eight percent of the grant. The eight percent limit
prevented TRAC from being fully reimbursed from the Shelter Plus Care Grant for either the $17
per hour rate or for the time that the counselor actually spent on the grant. Although there did not
appear to be any financial impact on Shelter Plus Care IV Grant funds, the existence of
unsupported rates and inaccurate time sheets is a weakness that could effect other non-Shelter
Plus Care grants administered by TRAC.
Key Duties were not Segregated at TRAC.
During an interview with TRAC’s Finance Director, we determined that one of TRAC’s
bookkeepers had several incompatible duties, including: receiving invoices for landlord
payments; preparing the checks; entering the information into the checking system; signing the
checks with two rubber stamps; and mailing out the checks. The lack of separation of duties
makes the grant funds more susceptible to misappropriation.
Title 24 CFR 85.20(b)(3) and Title 24 CFR 84.21(b)(3) requires, for the City and the Sponsor
(Recipient), respectively, that effective control and accountability must be maintained for all
grant and subgrant cash, real and personal property, and other assets. Grantees and recipients
must adequately safeguard all such property and must assure that it is used solely for authorized
purposes.
TRAC has no written policies or procedures to prevent such incompatible duties, although the
Finance Director said that she is in the process of creating them.
Recommendations:
We recommend HUD require the City to:
2A. Conduct periodic reconciliations of expenditures to draw downs and review support for
the expenditures, including time sheets;
2B. Correct the improper draw down of $84,638;
2C. Maintain documentation supporting reimbursement rates; and
2D. Require Sponsors to develop and implement written policies and procedures that prevent
incompatible duties being assigned to staff members.
9
Attachment B
SCHEDULE OF QUESTIONED COSTS
Recommendation
Number Unsupported 2/
1B $331,907
2/ Unsupported amounts are those whose eligibility or reasonableness cannot be clearly
determined during the audit since they were not supported by adequate documentation or
due to other circumstances. Under Federal cost principles, a cost must be adequately
supported to be eligible.
10
Attachment C
DISTRIBUTION
Director, Office of Community Planning and Development, Mid-Atlantic, 3AD
Secretary’s Representative, Mid-Atlantic, 3AS
Special Agent in Charge, 3AGI
DIGA’s
Audit Liaison Officer, 3AFI
Principal Staff
Departmental Audit Liaison Officer, FM (Room 2206)
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director, Office of Budget, FO (Room 3270)
Acquisitions Librarian Library, AS (Room 8141)
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen
Senate Office Building, US Senate, Washington, DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, House of
Representatives, 2185 Rayburn Building, Washington, DC 20515
The Honorable Henry Waxman, Ranking Member, Committee on Government Reform, House of
Representatives, 2204 Rayburn Building, Washington, DC 20515
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neil House
Office Building, Washington, DC 20515
Director, Housing & Community Development Issue Area, US General Accounting Office, 441
G Street, NW, Room 2474, Washington, DC 20548, Attn: Stanley Czerwinski
Mr. Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street,
NW, Room 9226, New Executive Office Building, Washington, DC 20515
Ms. Sharon Pinkerton, Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug
Policy and Human Resources, B373 Rayburn House Office Building, Washington, DC
20515
Mr. Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, 1700 G Street,
NW, Room 4011, Washington, DC 20552
Director for Special Needs Housing, Office of Housing and Community Development, 1234
Market Street, 17th Floor, Philadelphia, PA 19107
11
City of Philadelphia, Shelter Plus Care Grant, PA26C960002, Philadelphia, Pennsylvania
Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-08-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)