oversight

Supportive Housing Program Grants Administered by the City of Seattle as Part of the Seattle-King County Continuum of Care Strategy

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-08-15.

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

          AUDIT REPORT




SUPPORTIVE HOUSING PROGRAM GRANTS
        ADMINISTERED BY THE
  CITY OF SEATTLE AS PART OF THE
       SEATTLE-KING COUNTY
   CONTINUUM OF CARE STRATEGY

              2001-SE-251-1001
              AUGUST 15, 2001

     OFFICE OF AUDIT, NORTHWEST/ALASKA
            SEATTLE, WASHINGTON
                                                                 Issue Date
                                                                              August 15, 2001
                                                                 Audit Case Number
                                                                              2001-SE-251-1001




MEMORANDUM FOR:             Jack Peters, Director, Office of Community Planning and
                            Development, 0AD


      (ORIGINAL SIGNED)
FROM: Frank E. Baca, District Inspector General for Audit, 0AGA

SUBJECT:       Audit of Supportive Housing Program grants administered by the
               City of Seattle as part of the Seattle-King County
               Continuum of Care Strategy

This is the final report of our audit of two Supportive Housing Program grants awarded to the
City of Seattle as part of the nationwide review of HUD’s Continuum of Care Program. The
audit resulted in four findings.

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

Should you or your staff have any questions, please call me at (206) 220-5360.
Management Memorandum




                        (This page intentionally left blank)




2001-SE-251-1001                         ii
Executive Summary

As part of a nationwide review of HUD’s Continuum of Care Program, we audited two
Supportive Housing Program grants awarded to the City of Seattle as part of the Seattle-King
County Continuum of Care Strategy. We performed the audit to determine if the City of Seattle
has adequate management controls and is operating its Continuum of Care programs in a manner
that provides reasonable assurance that:

       •   funds are only expended for eligible program activities and participants;
       •   costs are eligible and reasonable;
       •   reported results are accurate and adequately supported; and
       •   program funds are expended in a timely fashion.

Generally, we found that the Seattle Continuum of Care programs are properly administered,
program funds are expended in a timely fashion, and administrative costs did not exceed HUD’s
limits. Also, the City of Seattle and its providers followed up on the progress of participants
after they left the Supportive Housing Programs to measure the program’s success in improving
the immediate and long-term employability of participants.

We also found that the City of Seattle (City) had management control deficiencies and did not
always comply with HUD requirements. Specifically, the City:

       Did not adequately monitor subgrantees. Consequently, project sponsors and providers
       charged the grants $97,038 in ineligible costs that were not related to administering and
       providing supportive services, and $70,367 in other unsupported costs.

       Assisted ineligible participants. City providers were not aware of all HUD requirements
       for participant eligibility and did not always properly document the homeless status of
       program applicants. As a result, the City assisted 33 (out of 129 reviewed) individuals
       that should not have been assisted with program funds.

       Charged questionable administrative funds. The City used $72,523 in administrative
       funds to pay for questionable indirect costs that were not directly related to Supportive
       Housing Program activities. This occurred because the City did not always adhere to
       HUD regulations regarding administrative costs.

       Did not provide adequate evidence of measurable results. The City did not provide
       information on all its performance measures, and did not have support for some of the
       data reported to HUD. This occurred because the City did not adequately review
       progress reports prior to submission.

We are recommending that HUD require the City to reimburse the appropriate Supportive
Housing Program grants for the ineligible amounts, and provide supporting documentation or
reimburse the appropriate grants for the unsupported amounts. Also, the City needs to


                                                iii                              2001-SE-251-1001
Executive Summary


implement management controls to provide reasonable assurance that costs and participants are
eligible and properly accounted for, and reported results are supported.

We provided the City with a draft report on June 14, 2001 and discussed the findings with City
officials at an exit conference on June 21, 2001. The City responded with written comments to
the draft report on July 20, 2001, generally disagreeing with the findings. The Findings section
of this report summarizes and evaluates the City's comments. A copy of the City's full response,
without attachments, is included in Appendix B. The attachments included with the written
comments are available upon request.




2001-SE-251-1001                               iv
Table of Contents

Management Memorandum                                                          i


Executive Summary                                                            iii


Introduction                                                                  1


Findings
1.   Inadequate Monitoring of Subgrantees Results in
     Questionable Costs                                                       7
2.   Supportive Housing Program Providers Did Not Have
     Evidence to Support Homeless Eligibility                                13
3.   The City Charged Questionable Administrative Costs to
     Supportive Housing Program Grants                                       17
4.   The City Needs to Improve Its Reviewing and Reporting of
     Measurable Results                                                      21


Appendices
     A. Schedule of Questioned Costs                                         25

     B. Auditee Comments                                                     27

     C. Distribution                                                         33




                                       v                        2001-SE-251-1001
Table of Contents




Abbreviations
   APRs             Annual Progress Reports
   City             City of Seattle
   CFR              Code of Federal Regulations
   FPA              Freemont Public Association
   HUD              Housing and Urban Development
   NOFA             Notice of Funding Availability
   OIG              Office of Inspector General
   Providers        Non-profit agencies
   SCC              Seattle Conservation Corps
   SHP              Supportive Housing Program
   WDC              Workforce Development Council
   YWCA             Young Women’s Christian Association




2001-SE-251-1001                             vi
Introduction

               Each fiscal year, HUD announces through a Notice of
 Background    Funding Availability (NOFA) competition designed to help
               communities develop a Continuum of Care system to assist
               homeless persons. Such a system should address the
               specific needs of each homeless subpopulation: the jobless,
               veterans, homeless persons with serious mental illnesses,
               persons with substance abuse issues, persons with
               HIV/AIDS, persons with multiple diagnoses, victims of
               domestic violence, runaway youth, and other homeless
               persons.

               Basic components of a Continuum of Care system. The
               primary purpose of the NOFA is to fund projects that will
               fill gaps in locally developed Continuum of Care systems
               to help homeless persons move to self-sufficiency and
               permanent housing. The NOFA further described the
               basic components of a Continuum of Care system as:

               •   Outreach and assessment to identify an individual’s
                   or family’s needs, and make connections to
                   facilities and services.
               •   Immediate (emergency) shelter, and safe, decent
                   alternatives to the streets.
               •   Transitional housing with appropriate supportive
                   services to help people achieve independent living.
               •   Permanent housing or permanent supportive
                   housing arrangements.

               HUD homeless programs. Three of HUD’s six Special
               Needs Assistance Programs (SNAPs) or Homeless
               programs are 100 percent competitively funded through
               the Continuum of Care Program as authorized by the
               Stewart B. McKinney Homeless Assistance Act. The
               HUD Office of Community Planning and Development
               administers these programs, which include the following:

               •   Supportive Housing Program (SHP),
               •   Shelter Plus Care (S+C), and
               •   Section 8 Moderate Rehabilitation for Single Room
                   Occupancy Dwellings (SRO).




                         1                              2001-SE-251-1001
Introduction


                   Supportive Housing Program. The Supportive Housing
                   Program is designed to promote the development of
                   supportive services. The supportive services are designed
                   to address the special needs of the homeless persons served
                   by the project. Services may be provided directly by the
                   project sponsor through an agreement with the grantee,
                   and/or through arrangements with public or private service
                   providers.

                   The Seattle-King County Continuum of Care Strategy.
                   Seattle-King County implemented a Continuum of Care
                   Strategy that provides for a “regional” system of
                   emergency shelters, transitional and permanent housing,
                   and a range of supportive services. The region has enjoyed
                   a strong homeless provider coalition since 1979. The
                   coalition is a group of committees comprised of non-profit
                   organizations, homeless individuals, mainstream services,
                   and various public and private entities that helps to shape
                   and participates in Continuum of Care planning.

                   The City of Seattle’s segment of the Continuum of Care
                   program addresses trends and needs within the City,
                   whereas the King County segment focuses on the suburban
                   and rural areas outside Seattle.

                   Supportive Housing Program grants awarded to the City
                   of Seattle. For fiscal years 1996 through 1998, HUD
                   awarded the City of Seattle $26,016,567 in Supportive
                   Housing Program grants under the Seattle-King County
                   Continuum of Care Strategy:

                                       Number of
                    Grant Year        SHP Grants       Authorized Amount
                       1996               11              $13,439,254
                       1997                7                8,494,777
                       1998                5                4,082,536
                      Totals              23              $26,016,567


                   Description of grants included in our audit. We selected
                   for review, the two largest Supportive Housing Program
                   grants awarded to the City of Seattle for fiscal years 1996
                   and 1997. The City entered into agreements with the
                   Fremont Public Association and the Workforce
                   Development Council to implement two programs called
                   “Solid Ground” and “Homeless Intervention Project,”
                   respectively.
2001-SE-251-1001             2
                                                                                                  Introduction



                                           Solid Ground project, sponsored by the Fremont Public
                                           Association. SHP grant number WA19B96-0801 was a
                                           new grant, with an original term of three years. Including a
                                           one-year extension, the grant period was from May 1, 1997
                                           through April 30, 2001. The grant award was for
                                           $2,298,658 and through the end of the grant period,
                                           $2,050,040 had been spent.

                                           Grant Number WA19B96-0801
                                                 Allocations:   Award                           Expended
                                            Supportive services            $2,189,198           $1,947,892
                                            Administration                    109,460              102,148
                                              Totals                       $2,298,658           $2,050,040

                                           Solid Ground helps the homeless obtain housing. The
                                           program is a coordinated, countywide service delivery
                                           system helping homeless families in obtaining essential
                                           services and transitioning to permanent housing. The
                                           project provides comprehensive case management, housing
                                           search, and a wide range of supportive services such as
                                           assisting clients in dealing with the issues surrounding their
                                           homelessness.

                                           The Fremont Public Association waived the use of
                                           administrative funding, so that all administrative funds
                                           under this grant would be available to the City.

                                           Homeless Intervention Project, sponsored by the
                                           Workforce Development Council.1 SHP grant number
                                           WA19B97-0828 was a two-year renewal grant, with a
                                           grant period, including extension, from November 30,
                                           1998 through January 31, 2001. The grant award was
                                           for $2,125,482 and through the end of the grant period
                                           $1,999,438 had been spent.

                                           Grant Number WA19B97-0828
                                                 Allocations:   Award                           Expended
                                            Supportive services            $2,024,269           $1,899,703
                                            Administration                    101,213               99,735
                                              Totals                       $2,125,482           $1,999,438



1
  The Seattle-King County Private Industry Council (PIC) was the original project sponsor. In 1998, PIC assigned
its rights and obligations to the Workforce Development Council.
                                                        3                                    2001-SE-251-1001
Introduction



                   Homeless Intervention Project assists homeless individuals
                   and families in moving out of homelessness by obtaining
                   the skills necessary to enter and retain employment, and
                   become self-sufficient. Under cost-reimbursable contracts,
                   the Workforce Development Council contracted with four
                   non-profit agencies (providers) to provide supportive
                   services: the Young Women’s Christian Association
                   (YWCA), the Seattle Conservation Corps, the Washington
                   State Employment Security Department, and FareStart.

                   •   The YWCA services are designed to support the
                       participants as they prepare for and enter sustaining
                       employment. Services include case management,
                       training and employment support, housing,
                       counseling and referral, childcare, food and
                       clothing banks. Many of the YWCA’s homeless
                       participants are domestic violence victims, single
                       head of households and/or single women with little
                       or no job skills.

                   •   The Seattle Conservation Corps (SCC) is a
                       comprehensive return to work program for
                       homeless adults. The program provides paid work
                       experience, case management, support services
                       including available mental health counseling and
                       substance abuse treatment, individualized
                       educational opportunities and life skills training in
                       an on-site learning center, and job search and
                       placement assistance with a staff job developer.
                       The majority of SCC participants are single adults
                       with multiple barriers to gaining and/or retaining
                       employment.

                   •   The Washington State Employment Security
                       Department has the Homeless Employment
                       Project that is designed to provide rapid response
                       employment services for work ready homeless
                       adults. Job search activities and employment
                       retention are supported with referrals to other
                       community services and with direct application of
                       program funds for such things as shelter, bus fare,
                       appropriate work clothing or tools, identification
                       documentation, professional licenses, rental
                       assistance, and other services.


2001-SE-251-1001             4
                                                                         Introduction



                         •   FareStart prepares men and women for employment
                             in the food service industry. It operates food
                             service businesses that provide the vehicle for
                             FareStart students to learn and practice food service
                             skills. The 16 week, forty hour per week program
                             includes technical skills, job readiness, basic needs,
                             and job placement and retention.

                         Unlike the Fremont Public Association grant, the City and
                         Workforce Development Council shared the administrative
                         funds under this grant. The Workforce Development
                         Council’s contracts with the providers only provide for
                         supportive services costs, except that some administrative
                         costs were granted to the Washington State Employment
                         Security Department.

Objectives, Scope, and   Our objectives were to determine whether the City of
Methodology              Seattle (a) has adequate management controls, and (b) is
                         administering its Supportive Housing Programs in a
                         manner that provides reasonable assurances that:

                         •   funds are only expended for eligible program
                             activities and participants;
                         •   costs are eligible and reasonable;
                         •   reported results are accurate and adequately
                             supported; and
                         •   program funds are expended in a timely fashion.

                         To achieve the audit objectives, we selected two
                         Supportive Housing grants awarded to the City of Seattle.
                         We examined grant files, analyzed the supporting
                         documents for expenses, and reviewed the participant files.
                         We reviewed applicable criteria including the Office of
                         Management Budget Circulars A-87, “Cost Principles for
                         State, Local and Indian Tribal Governments” and A-122,
                         “Cost Principles for Non-Profit Organizations.” We held
                         discussions with staffs of the City, project sponsors, and
                         supportive service providers regarding their methods of
                         accounting for funds and client services. We also held
                         discussions with the local officials from the Office of
                         Community Planning and Development.

                         Our audit of selected Supportive Housing Program grants
                         generally covered the period May 1, 1997 through
                         December 30, 2000, although we extended this period as
                         appropriate. We performed audit fieldwork at offices of
                                   5                                2001-SE-251-1001
Introduction


                   the City of Seattle, project sponsors, and subcontractors
                   from October 2000 to March 2001.

                   We conducted the audit in accordance with the generally
                   accepted government auditing standards.




2001-SE-251-1001             6
                                                                                  Finding 1



             Inadequate Monitoring of Subgrantees Results in
                          Questionable Costs
Project sponsors and providers charged the Supportive Housing Program grants $167,405
in questionable costs, including $97,038 in ineligible costs and $70,367 in unsupported
costs. These questionable costs might have been avoided if the City performed adequate
and timely financial reviews to ensure project sponsors and service providers met
applicable Federal requirements.


 Eligible costs for              HUD regulations governing the Supportive Housing
 Supportive Housing              Program allow for supportive services costs and
 Program grants                  administrative costs.

                                 Supportive services costs: 24 CFR 583.120, Grants for
                                 Supportive Services Costs states:

                                     “HUD will provide grants to pay…for the actual
                                     costs of supportive services for homeless persons
                                     for up to five years. All or part of the supportive
                                     services may be provided directly by the recipient
                                     or by arrangement with public or private service
                                     providers. Costs associated with providing
                                     supportive services include salaries paid to
                                     providers of supportive services and any other costs
                                     directly associated with providing such services.”

                                 Administrative costs: 24 CFR 583.135, Administrative
                                 Costs states:

                                     “Up to five percent of any grant awarded under this
                                     part may be used for the purpose of paying costs of
                                     administering the assistance. Administrative costs
                                     include the costs associated with accounting for the
                                     use of grant funds, preparing reports for submission
                                     to HUD, obtaining program audits, similar costs
                                     related to administering the grant after the award,
                                     and staff salaries associated with these
                                     administrative costs.”

                                 Federal regulations and the grant agreement make the
 City responsible for
                                 City responsible for monitoring grant activities. HUD
 making sure grant activities
                                 regulations at 24 CFR 85.40 state: “Grantees are
 comply with program
                                 responsible for managing the day to day operations of grant
 requirements
                                 and subgrant supported activities. Grantees must monitor
                                 grant and subgrant supported activities to assure
                                           7                               2001-SE-251-1001
Finding 1


                                compliance with applicable Federal requirements…Grantee
                                monitoring must cover each program, function or activity.”
                                The Supportive Housing Program grant agreements
                                between the City and HUD state: “The recipient agrees to
                                comply with all requirements of the Grant Agreement, and
                                to accept responsibility for such compliance by any entities
                                to which it makes grant funds available.”

 Subgrantees charged the        The Fremont Public Association and the Workforce
 grants $97,038 in ineligible   Development Council and two of its providers charged the
 costs                          projects $97,038 for costs that were not related to
                                administering and providing supportive services under the
                                Supportive Housing Program grants.

                                The Fremont Public Association charged the Solid Ground
                                project $74,228 in ineligible costs. The $74,228 included
                                $67,933 in administrative costs. These administrative costs
                                were ineligible because these were charged against
                                supportive service funds of the grant. The charges were
                                also unsupported because they were based on budget
                                estimates rather than actual expenditures. Further, in its
                                agreement with the City, the Fremont Public Association
                                waived the use of administrative funding. The waiver
                                allowed the City to claim the five percent in administration
                                costs that HUD permits under the grant. In addition, the
                                Fremont Public Association charged the project $6,295 in
                                other costs not related to providing supportive services
                                under the grant.

                                The Workforce Development Council and two of its
                                providers charged the Homeless Intervention Project
                                $22,810 in costs unrelated to providing supportive services.
                                The $22,810 included $3,701 charged by the Workforce
                                Development Council for costs not related to administering
                                the project. Further, the Washington State Employment
                                Security Department and the YWCA charged the project
                                $11,098 and $8,011, respectively, for costs not related to
                                administering and providing supportive services.

  Over $70,000 in               Two providers, YWCA and the Seattle Conservation
  questionable salary and       Corps, could not support approximately $70,367 in
  occupancy costs charged       administrative salary and occupancy expenses allocated
  to the Homeless               to the Homeless Intervention Project.
  Intervention Project
                                The YWCA charged about $62,205 in salary and
                                occupancy charges that were not directly related to the
                                project. The $62,205 included an estimated $58,724 in
2001-SE-251-1001                          8
                                                                             Finding 1


                          salary costs for eight administrative staff and the Associate
                          Director of Employment, and $3,481 in office space costs.
                          The YWCA charged the entire salary and occupancy costs
                          for the eight administrative staff to the project. However,
                          the Associate Director of Employment Services said that
                          about 85 percent of these employees time (amounting to
                          $51,968) related to administrative activities and not direct
                          supportive services activities. The estimated office space
                          charges related to the eight staff for 85 percent of their time
                          totaled $3,481. The YWCA’s contract with the Workforce
                          Development Council did not allow administrative costs.
                          In addition, the Associate Director of Employment said that
                          about 10 percent of his own time did not relate to
                          supportive services activities, which amounted to $6,756.

                          The Seattle Conservation Corps charged the entire salary
                          of the Lead Case Counselor/Manager to the project.
                          However, the Lead Case Counselor/Manager said she spent
                          about 10 percent of her time working on administrative
                          duties not directly related to providing supportive services.
                          The estimated $8,162 in costs associated with these
                          administrative activities (representing 10 percent of the
                          Lead Case Counselor/Manager’s salary) are not eligible
                          supportive services costs under the grant.

Timely and adequate       The project sponsors and providers could not adequately
financial reviews could   explain why they incurred the questionable costs.
have prevented            Nevertheless, it was the City’s responsibility to properly
questionable costs        oversee grant expenditures of the sponsors and providers.
                          We found that the City did not perform financial
                          monitoring reviews adequately or often enough to ensure
                          that activities and costs charged to the grants met Federal
                          requirements.

                          City officials said they perform programmatic as well as
                          comprehensive reviews of project sponsors:

                          •   A programmatic review is to be done annually.
                              This review looks at whether the project is
                              operating as proposed in the application and as
                              reported in the Annual Performance Reports. The
                              review includes target population, people served,
                              services provided, and level of capacity. Also, the
                              reviewer must examine the participant’s progress
                              toward the program objectives for each of the three
                              HUD goals: residential stability, increased skills or
                              income, and greater self-determination.
                                     9                                2001-SE-251-1001
Finding 1



                     •   A comprehensive review is to be performed every
                         three years, and includes reviewing the financial
                         management of an agency or a project sponsor.

                     We found that the City performed one comprehensive
                     review of the Fremont Public Association grant more
                     than two years into the grant period, and performed no
                     comprehensive reviews of the Workforce Development
                     Council grant. Further, the City’s comprehensive review of
                     the Fremont Public Association grant noted no questionable
                     expenditures.

                     Based on the audit results, we concluded that the City does
                     not perform financial reviews of its Supportive Housing
                     Program grants adequately or often enough to ensure
                     compliance with program requirements. As such, the City
                     did not perform its post award responsibility, which is to
                     adequately monitor the Supportive Housing Programs
                     activities or functions to provide reasonable assurance that
                     these were carried out in accordance with Federal rules and
                     regulations.

                     Given that our audit only covered two of 23 Supportive
                     Housing grants awarded to the City of Seattle for fiscal
                     years 1996, 1997, and 1998, similar problems may exist
                     in its other grants.

  Auditee Comments   The City does not agree with the finding that its monitoring
                     of grantees is inadequate. The City took very specific steps
                     well before the Office of Inspector General (OIG) visit to
                     strengthen this aspect of its programming. The City
                     believes it has a thorough compliance monitoring policy
                     regarding the Supporting Housing Program that is
                     implemented consistently and works to assure grant
                     activities comply with program requirements.

                     Many of the costs listed by the OIG as ineligible,
                     particularly staff training for the YWCA and some
                     elements in the Workforce Development Council
                     (WDC) cost allocation plan, had already been resolved
                     and reimbursed as the result of a regularly scheduled
                     HUD monitoring of the WDC on September 27, 2000.

                     Further, the unsupported costs attributed to the Workforce
                     Development Council partner agencies seem to be based
                     on brief conversations with program staff.
2001-SE-251-1001               10
                                                                                     Finding 1



 OIG Evaluation of Auditee         The audit results found that the City neither adequately
 Comments                          implemented its comprehensive review policy nor
                                   performed timely monitoring. This is clearly shown where
                                   the City's comprehensive review of the Fremont Public
                                   Association chose not to test eligibility of program costs
                                   and participants. Additionally, we found that the City
                                   performed a comprehensive review of the Fremont Public
                                   Association grant more than two years into the grant
                                   period, and performed no comprehensive review of
                                   Workforce Development Council grant. Further, the City
                                   did not conduct yearly onsite monitoring as required.

                                   We confirmed that the City of Seattle resolved HUD’s
                                   finding on $1,502 of the ineligible costs. In May 2001,
                                   HUD took corrective action by reducing the City’s May
                                   2001 drawdown of Supportive Housing Program funds
                                   from grant WA19B97-0828 to compensate for $1,502 in
                                   ineligible grant expenditures. The draft report did not
                                   discuss this because HUD’s corrective action was taken
                                   after our audit fieldwork. We revised our report to decrease
                                   the ineligible costs by $1,502.

                                   OIG staff performed adequate audit work, including
                                   reviewing accounting records and interviewing auditee and
                                   provider staff, to determine whether costs were ineligible or
                                   unsupported, and unallowable under the grant and Federal
                                   rules and regulations.


Recommendations:
We recommend that HUD require the City to:

1A.   Reimburse the appropriate Supportive Housing Program grants $97,038 from non-federal
      funds for ineligible costs paid from grant funds.

1B.   Provide supporting documentation or reimburse the appropriate Supportive Housing
      Program grants $70,367 from non-federal funds for questionable costs paid from grant
      funds.

1C.   Develop and implement an adequate financial monitoring plan that will ensure that grant
      expenditures, including expenditures by project sponsors and supportive service
      providers, are eligible and supported.

1D.   Perform at least annual financial reviews of all Supportive Housing Program
      expenditures.

                                             11                               2001-SE-251-1001
Finding 1


1E.    Require project sponsors and providers to revise their cost allocation practices and
       procedures to prevent future allocations of ineligible costs to the grants.

We also recommend you:

1F.    Periodically review City grant expenditures, including expenditures by project sponsors
       and providers, to ensure costs are eligible and supported.




2001-SE-251-1001                               12
                                                                                       Finding 2



         Supportive Housing Program Providers Did Not Have
              Evidence to Support Homeless Eligibility
Supportive Housing Program providers did not always have evidence to support the
homeless status of individuals who were living with relatives and friends when they entered
the program. Consequently, the Supportive Housing Program projects may not have
served the intended population and may have used grant funds to assist ineligible
participants. This occurred because the City of Seattle and providers were not fully aware
of HUD requirements related to participant eligibility and documentation.


                                   For purposes of the McKinney Act (Section 103), the term
  HUD homeless eligibility
                                   “homeless” or “homeless individual or homeless person”
  requirements
                                   includes:

                                   •   an individual who lacks a fixed, regular, and
                                       adequate nighttime residence; and
                                   •   an individual who has a primary nighttime
                                       residence that is –

                                       (a) a supervised publicly or privately operated
                                           shelter designed to provide temporary living
                                           accommodations (including welfare hotels,
                                           congregate shelters, and transitional housing
                                           for the mentally ill);
                                       (b) an institution that provides a temporary
                                           residence for individuals intended to be
                                           institutionalized; or
                                       (c) a public or private place not designed for,
                                           or ordinarily used as, a regular sleeping
                                           accommodation for human beings.

                                   Comments to the Final Rule (24 CFR 583) published in the
                                   July 19, 1994, Federal Register, demonstrates HUD’s clear
                                   intent that individuals staying with family and friends are
                                   not part of the population to be served. In responding to
                                   commenters that felt HUD should expand the definition of
                                   homelessness, including a commenter who recommended
                                   that the definition include individuals living with family
                                   and friends, HUD responded that it “…does not believe
                                   that the current interpretation of homelessness need be
                                   expanded as suggested. The Department’s focus remains
                                   on serving the most needy. This is most readily determined
                                   by the test that a person is homeless if, without HUD



                                             13                               2001-SE-251-1001
Finding 2


                                            assistance, she or he would have to spend the night in a
                                            shelter or in a place not meant for human habitation.”

    The SHP grants may have                 We reviewed 129 of 1,427 participant files maintained by
    paid for ineligible                     the supportive service providers to determine (a) whether
    participants                            participants qualified as homeless and, if applicable,
                                            disabled, and (b) whether the providers were tracking
                                            individuals who had left the program. We found that the
                                            providers kept track of participants who left the program.
                                            However, the participant files did not always show that the
                                            individuals qualified as homeless; specifically, we found
                                            that of the 129 participants reviewed:

                                            •    96 were eligible. The files of these participants
                                                 contained adequate documentation to support their
                                                 eligibility to participate in the program; and

                                            •    33 were ineligible. The files of these participants
                                                 contained documentation showing they were living
                                                 with friends and relatives at the time they entered
                                                 the program.2

                                                                  SHP Grant
                               Providers                           Numbers             Participants         Total
                                                                                    Eligible Ineligible
          Fremont Public Association                           WA19B96-0801            27         23          50
          Washington State Employment Security Department      WA19B97-0828            17          2         19
          Seattle Conservation Corps                           WA19B97-0828            20          0          20
          FareStart                                            WA19B97-0828            15          5          20
          YWCA                                                 WA19B97-0828            17          3         20
                                                                                       96         33         129



    The City and providers                  Based on the interview results, it appeared that the City and
    were not fully aware of                 supportive service providers were not fully aware of
    homeless eligibility                    HUD’s eligibility requirements. The City thought that
    requirements                            providers could simply accept an individual’s statement
                                            that they were being evicted from a relative’s or friend’s
                                            residence without obtaining any confirming documentation.
                                            Fremont Public Association staff said they believed that
                                            clients staying with friends and families were eligible for
                                            the program. They said they had served this population

2
  HUD’s Policy Guide or Supportive Housing Program Desk Guide states that, for persons being evicted by their
family, there should be a statement describing the reason for eviction signed by the family member. In other cases
where there is no formal eviction process and for circumstances beyond the person’s control, the grantee must obtain
a signed statement from the participant and also make efforts to confirm that the circumstances are true.

2001-SE-251-1001                                        14
                                                                             Finding 2


                            since the beginning of the program, and were aware of
                            other McKinney Act’s Supportive Housing Program
                            providers that served this same population. Washington
                            State Employment Security Department staff stated it has
                            been using the Department of Labor requirements for
                            homelessness.

Auditee Comments            The City states it follows reasonable and sound practices
                            to document homelessness based on its years of experience
                            and using the information received from HUD. The City
                            is confident that both programs were administered in
                            compliance with all HUD guidelines on the subject of
                            participant eligibility available to it for the time period
                            under review by the OIG.

                            The City stated that in October 2000, the local HUD office
                            conducted a one-day Operations Workshop where they
                            introduced a HUD Supportive Housing Program Desk
                            Guide, which the City had never seen before. The Desk
                            Guide made clear for the first time the type of
                            documentation the City needed to maintain for persons
                            with no fixed regular nighttime residence, but able to
                            stay with friends and family. Both programs immediately
                            implemented the clarification received from HUD and the
                            City continues to work with all of its project sponsors on
                            this issue.

OIG Evaluation of Auditee   The City generally concurs with our finding but contends
Comments                    that the type of documentation of homelessness needed was
                            not clear until HUD introduced the Supportive Housing
                            Program Desk Guide in October 2000. HUD has provided
                            the City and subgrantees enough information during and
                            after executing the grant agreements. Such information
                            included the SHP grant agreements, Supportive Housing
                            Program rules and regulations, memoranda and notification
                            letters that describe homeless eligibility requirements and
                            how to document the eligibility of prospective homeless
                            program participants. Additionally, the McKinney Act or
                            the 24 CFR 583 is clear on the SHP eligibility requirements
                            on homeless individuals. The City, as the grantee of the
                            SHP grants, has the responsibility to ensure that project
                            sponsors and providers maintain adequate source
                            documentation for program participant costs charged
                            to grants.




                                      15                              2001-SE-251-1001
Finding 2




Recommendations:
We recommend that HUD require the City to:

2A.    Ensure that providers maintain adequate documentation to support homeless eligibility,
       especially as regards to individuals living with relatives and friends.

2B.    Require its project sponsors to provide technical assistance to providers and ensure the
       providers maintain adequate documentation on homeless eligibility, especially as regards
       to individuals living with relatives and friends.




2001-SE-251-1001                              16
                                                                                    Finding 3




        The City Charged Questionable Administrative Costs to
                 Supportive Housing Program Grants
The City used grant funds to pay for questionable administrative costs that are not directly
related to Supportive Housing Program activities. For the two Supportive Housing
Program grants reviewed, the City had charged $72,523 in questionable costs at the time of
our review. In our opinion, this occurred because the City did not always adhere to HUD
regulations regarding eligible administrative costs.


                                   HUD regulations, 24 CFR 583.135, Administrative Costs
 Eligible administrative           state:
 costs
                                      “Up to five percent of any grant awarded under this
                                      part may be used for the purpose of paying costs of
                                      administering the assistance. Administrative costs
                                      include the costs associated with accounting for the
                                      use of grant funds, preparing reports for submission
                                      to HUD, obtaining program audits, similar costs
                                      related to administering the grant after the award,
                                      and staff salaries associated with these
                                      administrative costs.”

 The City’s share and use of       Under the Solid Ground project (SHP grant WA19B96-
 administrative funds              0801), the Fremont Public Association waived the use of
                                   administrative funds, thus making these funds available to
                                   the City. As of December 2000, the City had drawn down
                                   $95,052 of these funds. Of the $95,052, the City spent
                                   $45,625 for administrative costs directly related to the
                                   project and $49,427 for questionable administrative costs.

                                   For the Homeless Intervention Project (SHP grant
                                   WA19B97-0828), the City agreed to share administrative
                                   funds with the Workforce Development Council (WDC).
                                   As of October 2000, the grant had been charged $62,436
                                   for administrative costs. Of the $62,436, the City’s and
                                   WDC’s share was $23,096 and $39,340, respectively.
                                   The City used its share to pay for questionable costs
                                   associated with administering grants.

                                   The $49,427 and $23,096 in indirect cost that the City
 Indirect costs may not be
                                   allocated to the Solid Ground and Homeless Intervention
 eligible administrative
                                   Project grants, respectively do not directly relate to
 costs
                                   administration of the Supportive Housing Program grants.
                                   The indirect costs are general operating costs of the City
                                             17                              2001-SE-251-1001
Finding 3


                     and as such HUD has no assurance that these are
                     administrative costs related to the Supportive Housing
                     Program activities. The City indicated it has always
                     followed this practice. The regulations regarding
                     administrative costs are clear. We therefore concluded
                     that the City did not always adhere to HUD requirements
                     regarding eligibility of administrative costs.

                     The City of Seattle does not concur with the finding that it
  Auditee Comments
                     used $72,523 in administrative funds to pay for ineligible
                     costs not directly related to the Supportive Housing
                     Program. It further believes that it is misleading to say
                     that the City disregarded HUD requirements regarding the
                     eligibility of administrative costs.

                     The administrative costs charged to the Supportive Housing
                     Program are expenditures directly related to staff and
                     operating costs required to administer the McKinney
                     (homeless) grants. Because of this large volume of
                     transactions and small dollar amount, it is more practical
                     and efficient to record all McKinney administration costs
                     in a single cost center for distribution to active grants. The
                     regulations set forth in 24 CFR 85.20 (b)(5), 24 CFR 85.22
                     (b) and OMB Circular A-87 allow the establishment of cost
                     pools for distributing costs when it is practical to do so.
                     Based on these regulations, the City established a single
                     cost center designated specifically for the collection of the
                     direct McKinney grant administration costs. Although the
                     administrative costs lose their line item identity in the
                     individual grant projects, the individual transactions are
                     still traceable to their sources and the accompanying
                     documentation.

                     The administrative costs charged by the City to the
                     homeless grants are directly related to the administrative
                     duties outlined in the technical submissions for both grants.
                     The expenditures in the McKinney grant administrative
                     cost center consist of the salary and benefit costs of the
                     City staff who administer the McKinney grants plus
                     operating costs that are associated with administering the
                     grant. All of these costs are directly associated with the
                     performance of the duties listed in the technical
                     submission.




2001-SE-251-1001               18
                                                                                      Finding 3



                                   Based on the City's response we revised the report to state
  OIG Evaluation of
                                   that the costs are questionable instead of ineligible, and the
  Auditee Comments
                                   City did not always adhere to HUD regulations.

                                   It is a common practice for accounting systems to distribute
                                   costs to appropriate cost centers, and the City should only
                                   charge for costs that are eligible under specific grants. The
                                   Federal regulations regarding Supportive Housing Program
                                   administrative costs are clear. Although the City’s
                                   administrative costs in its Allocation Plan were allowable
                                   under OMB Circular A-87, some of these costs were not
                                   eligible administrative costs but met the definition of
                                   operating costs under the McKinney Act or 24 CFR 583.

                                   Also, based on our review results, we determined that the
                                   City’s administrative costs charged to the SHP grants
                                   could neither be traced nor associated with the City’s
                                   performance of the administrative activities set forth in its
                                   Technical Submissions. Further, our review indicated that
                                   the City did not maintain documentation to support the
                                   specific administrative costs charged to a specific SHP
                                   grant. For example, the staff timesheets did not show the
                                   actual hours spent on a specific SHP grant but rather
                                   showed actual hours spent for all grants.

                                   HUD officials told us that they have in the past verbally
                                   notified the City that indirect costs are not allowable
                                   administrative costs. Further, the grants we reviewed are
                                   specific in what are allowable administrative costs, which
                                   normally should be direct administrative costs. The City
                                   should not be charging indirect costs to grants unless the
                                   grant provisions specifically permit this.

                                   Based on the City’s comments, we revised the
                                   recommendations to reflect the costs as questionable
                                   instead of ineligible.


Recommendations:
We recommend that HUD:

3A.   Determine if the City’s method of charging administrative costs to Supportive Housing
      Program grants complies with HUD requirements.


                                             19                                2001-SE-251-1001
Finding 3


If the City’s method of charging administrative costs does not meet HUD requirements, then we
further recommend HUD require the City to:

3B     Reimburse from non-federal funds part or all of the $49,427 administrative costs charged
       to SHP grant number WA19B96-0801 as of December 2000, that HUD determines are
       ineligible as well as any other ineligible administrative costs charged subsequently.

3C.    Reimburse from non-federal funds part or all of the $23,096 administrative costs charged
       to SHP grant number WA19B97-0828 as of October 2000, that HUD determines are
       ineligible as well as any other ineligible administrative costs charged subsequently.

3D.    Comply with HUD requirements regarding eligible administrative costs for all its
       Supportive Housing Program grants.




2001-SE-251-1001                              20
                                                                                    Finding 4



              The City Needs to Improve Its Reviewing and
                   Reporting of Measurable Results
The City did not ensure that it reported complete and accurate information to HUD
regarding measurable results of its homeless grants. Without reliable information, HUD
and the City may incorrectly assess program progress and accomplishments. The City
needs to improve its monitoring and review of Annual Progress Reports prior to
submitting the reports to HUD.


 Monitoring and reporting         Federal regulations at 24 CFR 85.40 state that:
 requirements
                                      “Grantees must monitor grant and subgrant
                                      supported activities to assure compliance
                                      with applicable Federal requirements and that
                                      performance goals are being achieved. Grantee
                                      monitoring must cover each program, function
                                      or activity….Performance reports will contain …
                                      information on comparison of actual
                                      accomplishments to the objectives established
                                      for the period….”

                                  The Agency Contracts executed between the City and
                                  its project sponsors (Fremont Public Association and
                                  Workforce Development Council) include the following
                                  provisions:

                                      Section II (Reports and Information) states: “The
                                      Agencies shall furnish periodic reports …including
                                      assessments of the effectiveness of the services
                                      provided, in meeting the goals and objectives….”

                                      Exhibit A-3 (Reporting Requirements) states: “The
                                      Agency and the Subcontractors will coordinate the
                                      preparation of the Annual Performance Report to
                                      HUD, collecting the necessary information from
                                      subcontractors, and will submit a completed annual
                                      report to the City which in turn will be responsible
                                      for final review of the report and submission to
                                      HUD.”

                                  The City gave the Fremont Public Association and the
                                  Workforce Development Council the administrative
                                  responsibility to prepare and complete the Annual Progress
                                  Reports (APRs) for SHP grant numbers WA19B96-0801
                                  and WA19B97-0828, respectively. The City had the
                                            21                              2001-SE-251-1001
Finding 4


                               responsibility to review what FPA and WDC prepared and
                               reported.

   The City did not meet all   In its most recent (1998) Annual Progress Report under
   its planned performance     Supportive Housing Program grant number WA19B97-
   measures or goals           0828 (the Homeless Intervention Project), the City did
                               not implement or report on the progress of the “Customer
                               Satisfaction” performance measure. For this measure,
                               the City had planned to but did not survey participants
                               contacted at follow-up regarding their satisfaction with the
                               program, and ask the program participants how the strategy
                               could be improved. In its most recent (1999) Annual
                               Progress Report under Supportive Housing Program grant
                               number WA19B96-0801 (the Solid Ground Project), the
                               City did not implement a goal to set up a countywide
                               housing resource database. It appears this goal was
                               unrealistic for the program due to the nature of available
                               housing; and the high cost of setting up such a database.
                               However, the City did not notify HUD that this goal would
                               not be implemented.

  The City did not             The backup documents did not accurately support some
  adequately support what it   of the data the City reported to HUD under the Supportive
  reported to HUD              Housing Program grant for the Homeless Intervention
                               Project.

                                                                               Data from
                                                                      Data     supporting
                                           Referrals                reported   documents
                               Number who did not enter the program    560        519
                               Number who entered the program          381        422
                               Number who refused to participate        91         50

                               In addition, the backup documents did not support the
                               progress reported on the “Housing Upgrades” performance
                               measure of this grant. The supporting document showed
                               44 percent progress, while the progress reported was
                               55 percent.

                               Neither were the measurable results for the Solid Ground
                               Project grant always adequately supported. Only two of
                               nine measurable results reported in the 1999 Annual
                               Progress Report for this grant were adequately supported.

  The City needs to improve    The City is responsible for reviewing the Annual Progress
  its grant administration     Reports before submitting them to HUD. According to the
                               City’s Human Services Department Program Specialist,
2001-SE-251-1001                         22
                                                                     Finding 4


                   City staff reviews the APRs prior to submission, but does
                   not document their review. The City’s McKinney Grant
                   Management official said staff reviews Annual Progress
                   Reports for completeness, compliance, accuracy, and to
                   determine if the program is accomplishing its goals, and
                   the right population is being served. She said the review
                   is generally not documented however, the City notifies
                   providers if the review discloses major deficiencies.
                   However, based on the audit results, we believe the City
                   needs to improve its review of Annual Progress Reports
                   and supporting documents to ensure that the data and
                   progress reported are accurate and adequately supported.

                   Because the City did not provide adequate evidence of
                   measurable results, HUD might incorrectly assess the
                   programs’ progress and accomplishments as well as the
                   City’s performance under the two SHP grants. The
                   Annual Progress Report is one of the instruments HUD
                   uses annually when (1) assessing a program’s progress
                   and accomplishments as well as a grantee’s performance;
                   and (2) selecting which grantees to monitor.

                   The City of Seattle accepts the finding as presented in the
Auditee Comments   draft audit report. However, it does not agree with some
                   of the conclusions drawn from the finding.

                   The City agrees that the Workforce Development Council
                   identified the collection of customer satisfaction surveys as
                   a performance measure in its Supportive Housing Program
                   grant application. As agreed, it also consistently collected
                   and maintained the survey information for every individual
                   contacted at follow-up. However, in reviewing its records,
                   the City believes this measure was not viewed as a true
                   measure of performance when negotiating the City’s
                   contract with the WDC. As a result, it was not included in
                   the City's contract with WDC as a reportable item to HUD.
                   Thus, it was not set-up to be tracked in the WDC
                   management information system. A similar situation
                   existed with the Solid Ground program. The regional
                   housing database was an ambitious goal complimenting
                   Solid Ground’s regional vision for serving families. In the
                   early stages of implementation it became clear that such a
                   database was cost prohibitive and beyond the scope of the
                   project. In hindsight, HUD should have been formally
                   advised of these changes and the items should have been
                   removed.

                             23                               2001-SE-251-1001
Finding 4


                                    The Workforce Development Council underwent a major
                                    organizational change during the first operating year of this
                                    grant. The reporting errors cited in the OIG report are
                                    attributable to new staff not being familiar with either
                                    reporting on the Annual Performance Report (this error
                                    was caught and changed prior to approval of the APR) or
                                    the database (staff resorted to hand calculations, resulting
                                    in mathematical error). The City does not anticipate these
                                    types of errors will be repeated.

                                    The OIG audit observed that the measurable results for
                                    the Solid Ground program were not always adequately
                                    supported. The City noted in its site visit conducted in
                                    January 2000 that information in the database was difficult
                                    to retrieve. The City recommended that the client files be
                                    tied directly to the database so that information can be
                                    easily accessed and tied to participant activities and
                                    achievements. It is the City's understanding that FPA was
                                    in the process of refining its database and adding additional
                                    fields to assure this.

                                    Our review results indicated that the City could not
  OIG Evaluation of Auditee
                                    adequately support its reporting of measurable results.
  Comments
                                    This was due to its lack of adequate monitoring and
                                    review of Annual Progress Reports prior to submitting
                                    these to HUD. As required, the City must report to HUD
                                    its progress on performance measures or goals set forth in
                                    its Technical Submissions, and its reasons why a planned
                                    performance measure or a goal would not be implemented.
                                    The City must also ensure that what it claimed in its reports
                                    is complete, accurate and adequately supported.


Recommendations:
We recommend that HUD require the City to implement procedures to:

4A.    Ensure that Annual Progress Reports include all performance measures and goals.

4B.    Ensure that information reported in Annual Progress Reports is complete, accurate and
       adequately supported.

4C.    Require its project sponsors to maintain adequate documentation and only
       report information that is supported.



2001-SE-251-1001                              24
                                                                                      Appendix A




                            Schedule of Questioned Costs

          Recommendation Number                 Ineligible Costs          Unsupported

                     1A                              $97,038
                     1B                                                      $ 70,367
                     3B                                                      $ 49,427
                     3C                                                      $ 23,096
                       Totals                        $97,038                 $142,890


Ineligible costs are costs that are clearly not allowed by law, contract, or HUD regulations or
requirements.

Unsupported amounts are not clearly eligible or ineligible, but warrant being contested for
various reasons, such as lack of satisfactory documentation to support eligibility.




                                                25                               2001-SE-251-1001
Appendix A




                   (This page intentionally left blank)




2001-SE-251-1001                   26
         Appendix B




27   2001-SE-251-1001
Appendix B




2001-SE-251-1001   28
         Appendix B




29   2001-SE-251-1001
Appendix B




2001-SE-251-1001   30
         Appendix B




31   2001-SE-251-1001
Appendix B




2001-SE-251-1001   32
                                                                                 Appendix C



Distribution
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Assistant Secretary for Administration, A (Room 10110)
Assistant Secretary for Congressional & Intergovernmental Relations, J (Room 10120)
DAS, Office of Public Affairs, W (Room 10222)
DAS for Administrative Services, Office of the Executive Secretariat, AX (Room 10139)
Deputy Chief of Staff, S (Room 10226)
Deputy Chief of Staff for Program and Policy, S (Room 10226)
Special Counsel to the Secretary, S (Room 10226)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
General Counsel, C (Room 10214)
Assistant Secretary for Housing-Federal Housing Commissioner, H (Room 9100)
Assistant Secretary for Policy Development and Research, R (Room 8100)
Assistant Secretary for Community Planning and Development, C (Room 7100)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Director, Office of Departmental Equal Employment Opportunity, U (Room 5128)
Chief Procurement Officer, N (Room 5184)
Chief Financial Officer, F (Room 2202)
Chief Information Officer, Q (P-8206 L’Enfant)
Acting Director, Enforcement Center F (Portal Building)
Director, Real Estate Assessment Center, X (Portal Building)
Audit Liaison Officer, A (Room 10110)
Audit Liaison Officer, CFO (Room 2206)
Acquisitions Librarian, AS (Room 8141)
Inspector General, G (Room 8256)
Assistant Inspector General for Audit, GA (Room 8286)
Deputy Assistant Inspector General for Audit, GA (Room 8286)
Public Affairs Officer, G (Room 8256)
Counsel to the Inspector General, GS (Room 8260)
Assistant Inspector General for Investigation, GI1 (Room 8274)

The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen
  Senate Office Building, United States Senate, Washington, DC 20510

The Honorable Joseph Lieberman, Ranking Member, Committee on Government Affairs,
  706 Hart Senate Office Building, United States Senate, Washington, DC 20510

The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
  Building, House of Representatives, Washington, DC 20515

The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
  2204 Rayburn Building, House of Representatives, Washington, DC 20515


                                             33                            2001-SE-251-1001
Appendix C



Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, 1700 G Street,
  NW, Room 4011, Washington, DC 20552

Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neil House Office
  Building, Washington, DC 20515

Stanley Czerwinski, Associate Director, Resources, Community, and Economic Development
  Division, United States General Accounting Office, 441 G Street, NW, Room 2T23,
  Washington, DC 20548

Steve Redburn, Chief Housing Branch, Office of Management and Budget, 725 17th Street, NW,
  Room 9226, New Executive Office Building, Washington, DC 20503

Andrew R. Cochran, Senior Counsel, Committee on Financial Services, U.S. House of
 Representatives, 2129 Rayburn House Office Building, Washington, DC 20515




2001-SE-251-1001                               34