oversight

County of Orange, Mercy House Coalition, Supportive Housing Program Grant (CA16B802-006), Santa Ana, California

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-05-09.

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

                                                          U.S. Department of Housing and Urban Development
                                                                         Office of Inspector General
                                                                                           Pacific/Hawaii District
                                                                            450 Golden Gate Avenue, Box 36003
                                                                           San Francisco, California 94102-3448



                                                                                        Audit Memorandum
                                                                                            2001-SF-1804

May 9, 2001


MEMORANDUM TO:                  William Barth
                                Director, Office of Community Planning and Development, 9DD


FROM:                           //SIGNED//
                                Mimi Y. Lee
                                District Inspector General for Audit, 9AGA

SUBJECT:                        County of Orange
                                Mercy House Coalition
                                Supportive Housing Program Grant (CA16B802-006)
                                Santa Ana, California


As part of a nationwide review of HUD’s Continuum of Care Program, we audited the subject grant
awarded to the County of Orange, Housing and Community Development Department (Orange
County) for the 1998 Supportive Housing Program (SHP) operated by the Mercy House Coalition
(Coalition). The Coalition carried out all grant activities as a sub-grantee of Orange County. The
purpose of our audit was to determine whether Orange County and the Coalition operated the
Continuum of Care SHP in accordance with the approved application as well as HUD and other federal
requirements.

                                              SUMMARY

We believe both Orange County and the Coalition have been dedicated and responsive to the needs of
the homeless population in Orange County and have worked hard to adhere to SHP requirements, as
they understood them. However, we concluded that Orange County and the Coalition did not operate
some aspects of the SHP in accordance with the approved application and other federal requirements.
Specifically, we identified instances where the Coalition admitted ineligible participants and participants
whose eligibility was not adequately documented, did not accomplish some program goals or did not
maintain adequate evidence of goal accomplishment, and failed to comply with HUD requirements
pertaining to client tracking, habitability inspections, and rent reasonableness determinations. Also, both
Orange County and the Coalition charged unsupported and ineligible salary costs to the grant.
                                                                                        County of Orange
Audit Memorandum                                                                   Mercy House Coalition



We believe these problems occurred because Orange County and the Coalition did not understand the
applicable Federal or contractual requirements. As a result, Orange County and the Coalition have
spent at least $294,987 ($112,524 + $182,463) of HUD funds on costs that did not benefit or may not
have benefited the intended program participants.

As shown in the following chart, the Coalition incurred most of the costs in question. Nevertheless,
according to its grant agreement with HUD, Orange County agreed “to comply with all requirements of
its grant agreements and to accept responsibility for such compliance by any entities to which it makes
grant funds available.” Our recommendations for corrective actions and for reimbursement to HUD are
therefore directed to Orange County.

        Description of Expenditure                          Ineligible              Unsupported
 Orange County
       Administration Salaries                                $3,958                   $27,629
 Mercy House Coalition
       Supportive Service Salaries                            $56,236                 $148,913
       Salary Advance                                          40,072
       Participant Eligibility                                 12,258                   5,921
       Coalition Totals                                      $108,566                 $154,834
 Combined Totals                                             $112,524                 $182,463


                                          BACKGROUND

Title IV of the Stewart B. McKinney Homeless Assistance Act authorized the Supportive Housing
Program (SHP). The program is designed to promote the development of supportive housing and
services, including innovative approaches to assist homeless persons in the transition from homelessness,
and to promote the provision of supportive housing to homeless persons to enable them to live as
independently as possible. Eligible activities include:

        •   Transitional housing,
        •   Permanent housing for homeless persons with disabilities,
        •   Innovative housing that meets the immediate and long-term needs of homeless persons, and
        •   Supportive services for homeless persons not provided in conjunction with supportive
            housing.

The Housing and Community Development Department for the County of Orange is the primary
administrative agency for distributing government funding for Supportive Housing Programs in Orange
County, California. The Mercy House Coalition is a collaboration between four nonprofit organizations
and corporations with the objective of providing much needed housing and supportive services for a



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                                                                                         County of Orange
Audit Memorandum                                                                    Mercy House Coalition

variety of high priority homeless populations. The Coalition, which reportedly represents the oldest
coalition of homeless service providers in Orange County, is comprised of Mercy House Transitional
Living Centers (Lead Agency), FISH-Harbor Area, Inc., Human Options, and Serving People In Need
(SPIN).

Requirements of the Grant

The subject grant agreement (CA16B802-006), including the grant application, specified that the
Coalition would provide transitional housing and supportive services to the target populations identified
as homeless individuals in need of substance abuse treatment, homeless persons in families with children
that are victims of domestic violence, and homeless individuals that are considered chronic substance
abusers. Under the grant agreement, the Coalition would provide all of the SHP services while Orange
County would act as a pass-through entity performing administrative functions. Orange County was
authorized to retain 100% of the $116,856 allocated for program administration. The grant agreement
provided for Orange County and the Coalition to meet the following performance measures:

    •   Ninety five percent (95%) of households served will obtain permanent housing with 90%
        maintaining their housing without subsidy for at least one (1) year upon completion of the
        program, 86% for at least two (2) years upon completion of the program, and 85% for at least
        three (3) years upon completion of the program.
    •   One hundred percent (100%) of all clients will meet with the Job Developer on an as needed
        basis while a program participant.
    •   Ninety five percent (95%) of all clients will receive job counseling, job development and
        tracking for three (3) to six (6) months after employment is secured.
    •   One hundred percent (100%) of all clients funded through the grant will participate in case
        management services for the three (3) year period. As clients move toward self-sufficiency,
        case management services will decrease proportionally.

                         OBJECTIVE, SCOPE, AND METHODOLOGY

The overall objective of our audit was to determine whether Orange County and the Coalition operated
the Supportive Housing Program grant in accordance with the approved application as well as HUD
and other federal requirements. To accomplish our objective, we interviewed HUD, Orange County
and Coalition officials; visited the transitional housing locations; reviewed Orange County’s policies and
procedures manual; and reviewed the grant application, grant agreement, technical submission and the
Coalition’s annual progress report, financial records, and participant files. We also reviewed applicable
criteria including Office of Management and Budget (OMB) Circulars A-87 and A-122.

The audit generally covered the period from grant approval on May 14, 1999 through     October 31,
2000. We conducted the audit in accordance with generally accepted government auditing standards.




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                                                                                                  County of Orange
Audit Memorandum                                                                             Mercy House Coalition



                                             REVIEW RESULTS

Orange County charged unsupported and ineligible administrative salary costs to the grant.

Orange County charged $27,055 to grant administration based on an unallowable budget-based indirect
cost allocation formula and charged another $4,532 to the grant for which there was no verifiable
support. Furthermore, $3,958 of the $27,055 pertained to indirect costs recorded for pay periods
prior to the May 14, 1999 grant approval date. The $3,958 in pre-grant charges are ineligible and
$23,097 ($27,055 - $3,958) plus $4,532, or a total of $27,629 are unsupported.

Office Of Management and Budget (OMB) Circular A-87, Cost Principals for State, Local, and Indian
Tribal Governments, does allow an agency of a governmental unit to claim indirect costs under Federal
awards but only in accordance with a formally developed and certified indirect cost rate proposal or
plan. Circular A-87 also specifies the documentation required to support indirect cost proposals as well
as the submission and approval requirements.

Time sheets for the Orange County Housing and Community Development Department staff
documented their time spent working on this specific grant and indirect time charges not identifiable with
any individual grant. Orange County charged this indirect time to a general SHP job category and then
allocated the related costs to individual SHP grants using a budget-based indirect cost allocation
formula.1 This indirect cost allocation procedure was neither certified nor approved and does not
comply with OMB Circular A-87 documentation or development requirements.

The Coalition charged unsupported and ineligible supportive service salary costs to the grant.

Three of four Coalition members did not maintain time sheets in support of $148,913 charged to the
grant for supportive service salaries. One Coalition member (FISH) did maintain proper time sheets,
but paid staff at higher than normal pay rates or in supplement to the established salary for any time
spent working on SHP activities. This resulted in $14,875 of ineligible overcharges to the grant.
Finally, Mercy House charged the SHP Grant Coordinator’s $41,361 salary as supportive service cost
even though she exclusively performed administrative duties.

OMB Circular A-122, Cost Principals for Non-Profit Organizations, Attachment B, requires
distributions of salaries and wages to awards be supported by appropriate personal activity reports
which reflect an after-the fact determination of the actual activity of each employee. The Circular
specifically states budget estimates do not qualify as support for charges to awards. Compensation to
individual employees is also limited to that which “…is reasonable for the services rendered and


1
  Budgeted administrative costs for this grant ($116,856) divided by budgeted administrative costs for all SHP grants
($281,960).


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                                                                                          County of Orange
Audit Memorandum                                                                     Mercy House Coalition

conforms to the established policy of the organization consistently applied to both Federal and non-
Federal activities.”
The Code of Federal Regulations, 24 CFR 583.120(b) provides supportive service salary costs may
include only those salaries of the actual supportive service providers. Administrative salary costs are
eligible under the SHP but may not be charged as supportive services.

Contrary to OMB Circular A-122 and 24 CFR 583, Mercy House, SPIN and Human Options charges
for supportive service salary costs were not based on personal activity reports (time sheets) reflecting
after-the–fact determinations of employee time spend providing supportive services under this grant.
Time sheets for some of these individuals did not identify time spent on supportive services versus other
activities although their position descriptions indicated they performed a variety of functions. Time
sheets for others of these individuals actually reflect time spent on activities other than the provision of
supportive services, yet their entire salaries were charged to the grant as supportive services.

Several of the FISH employees received compensation at higher than their normal pay rates for any time
spent providing supportive services under this grant. The FISH Executive Director was paid an hourly
rate for time spent on SHP activities in addition to her fixed annual salary rate even when work on the
SHP activities was during normal working hours. In effect, she received extra pay for any time charged
to this grant. The FISH Executive Director said their accountant had reviewed and approved this
procedure.

Mercy House charged the Grant Coordinator’s $41,631 salary as a supportive service cost because
they were not aware that administrative salaries may not be charged as supportive services and/or
because Orange County did not pass any of the authorized administrative funding on to the Coalition.
The Grant Coordinator position is clearly administrative and many of the activities of other senior
Coalition staff appear to be administrative in nature. Subsequent to the award of this grant, HUD
recognized the need for administrative funding at the sub-grantee level and required State and local
governmental units to pass on at least 50 percent of the administrative funds.

Orange County made an unallowable advance of grant funds to the Coalition

Orange County approved and paid an initial advance to the Coalition totaling $40,072 ostensibly for
start up salaries for various Coalition member staff positions. The funds for this advance were included
in a $40,072 Letter Of Credit Control System (LOCCS) payment to Orange County made on
September 1, 1999. Orange County provided the advance with the understanding that documentation
supporting the advance would be included in the final Coalition billing under the contract.

Administrative Requirements for Grants and Cooperative Agreements to State, Local and Federally
Recognized Indian Tribal Governments specified at 24 CFR 85.20(7) provide that grantees must make
LOCCS drawdowns as close as possible to the time of making actual disbursement and must assure
that sub-grantees conform substantially to the same standards.



                                                     5
                                                                                            County of Orange
Audit Memorandum                                                                       Mercy House Coalition

The $40,072 advance to the Coalition, with the expectation of incurring the related costs at the end of
the grant period some three years later, therefore, is apparently a clear violation of the applicable
regulation.

The Coalition admitted ineligible participants and participants whose eligibility was not
adequately documented into the Supportive Housing Program.

All four Coalition members failed to properly determine and/or document the homelessness eligibility of
prospective participants. We reviewed 16 participant files and concluded that six participants were
ineligible and the eligibility of six more was not adequately documented. For the 16 files reviewed, the
Coalition spent $12,258 in direct supportive service costs for ineligible participants and $5,921 for
participants who may not have been eligible. These figures do not include supportive service salary
costs relating to the ineligible or questionable participants.

HUD’s Supportive Housing Program (SHP) Desk Guide requires the grantees to maintain adequate
written documentation to demonstrate the eligibility of the participants. Orange County and all of its
sub-recipients received HUD training on SHP requirements including participant eligibility and
documentation of eligibility. However, Coalition staff were either unfamiliar with the requirements or did
not realize the importance of compliance. As a result, the Coalition admitted ineligible participants into
the program thereby limiting the funding which would have been available for truly qualified applicants.

We could not determine the eligibility of six participants primarily because the Coalition failed to
adequately document their prior living situations. For the other six participants we classified as ineligible,
the Coalition did not adequately determine or document their homelessness eligibility and we concluded
that they did not qualify as homeless. The bases for our conclusions were:

         •   FISH Participant 1 - Documentation in the file showed the family was previously living in
             motels and had signed a lease to rent a townhouse two weeks prior to the earliest intake
             document date. HUD’s Supportive Housing Desk Guide specifically classifies persons
             who are already in housing as ineligible “even though they are paying an excessive amount
             for their housing.” This family was earning annual wages totaling $73,514 when they were
             accepted into the SHP program. The types of supportive services funded for this family
             would technically have been eligible if the family had been eligible. However, grant funds
             were effectively substituted for their own funds which were used to pay for delinquent
             Federal and State tax bills, traffic fines, payments on two automobiles, airline tickets, credit
             card bills, cable TV, internet service, and regular as well as cell phone service.

         •   SPIN Participant 1 – Most of the intake documents appear to have been prepared
             coincident with or subsequent to the individual taking up occupancy in SPIN’s facility,
             which he listed as his current address. However, one intake document listed a different
             current address. Through Internet reverse directory research; we determined that address
             to be a relative’s address.


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                                                                                            County of Orange
Audit Memorandum                                                                       Mercy House Coalition

         •   SPIN Participant 2 – Participant file documents indicated this individual was living with
             family or friends at the time of acceptance into the SHP.

         •   Mercy House Participant 1 – Intake documents indicated the prior living situation for this
             individual was a shelter but the required verification was not obtained from the shelter as to
             his occupancy or their determination of his homelessness. The intake documents included
             an “Exit Plan” wherein the participant stated he was earning $1,362 per month and would
             need $1,500 per month to live on his own. The participant file also included pay stubs
             evidencing his employment at two jobs (prior to his January 31, 2000 approval for SHP
             funding), one of which was paying him $1,733 per month. Therefore, by his own account,
             this individual possessed the financial resources to live on his own when he was approved
             for the SHP.

         •   Mercy House Participant 2 – There was no documentation in the participant file of this
             individual’s homelessness eligibility. In fact, the intake documents stated her prior living
             situation was in a motel and she was in possession of a HUD voucher prior to her approval
             for SHP funding. Living in a motel does not qualify as homeless and since this individual
             had a housing voucher from HUD, she also possessed the resources to obtain housing
             independent of any SHP assistance.

         •   Mercy House Participant 3 – There was no documentation in the participant file showing
             that this individual was homeless. Intake documents indicated his prior living situation was
             renting in a shared housing arrangement.

Since 12 of 16 files (75%) we reviewed did not include adequate documentation of homelessness
eligibility, and 6 of 16 participants (38%) apparently were not eligible, it is clear that the Coalition needs
to improve their procedures for determining and documenting client eligibility for the SHP.

The Coalition did not accomplish program goals and/or could not support reported
accomplishments.

HUD requires grantees to submit annual progress reports (APRs) on the goals listed in their
applications. HUD uses this information to evaluate the successfulness of the programs. Although the
required report submitted by the Coalition to Orange County and HUD claimed accomplishment or
near accomplishment of three first year program goals, they did not maintain verifiable support for the
accomplishment of one of the goals and erroneously overstated the accomplishment relating to another
goal. Moreover, the Coalition will not likely be able to provide accurate reporting on any of the long-
term goals specified in the grant application.

The Coalition did not maintain participant files or other summary records in a manner which facilitated
confirmation of the APR accomplishments. Although the Coalition reported that 100 percent of the
clients met with a job developer and received employment training, no records were maintained


                                                      7
                                                                                        County of Orange
Audit Memorandum                                                                   Mercy House Coalition

tabulating or summarizing this accomplishment. It would apparently be necessary to review every
participant file in order to verify the reported accomplishment.

Another first year goal was that 95% of households served would obtain permanent housing. The
Coalition reported 92% obtained permanent housing but could not support this assertion. Actually,
statistical data the Coalition provided elsewhere in the APR indicates only 79 of 183 participants (43%)
who left the program obtained permanent housing.

The APR did not address other permanent housing goals because sufficient time had not elapsed to
measure the results. The long-term permanent housing goals are for 90% to maintain the permanent
housing without subsidy for at least one year, 86% for two years, and 85% for three years. Due to the
transient nature of much of the homeless population, we believe the Coalition will experience
considerable difficulty obtaining the information necessary to accurately report on these goals.

The Coalition did not maintain adequate documentation of client tracking, habitability
inspections, and rent reasonableness determinations.

Apart from the difficulty the Coalition can expect tracking participants in order to report on long-term
permanent housing goals, the Coalition did not maintain adequate documentation of exited participant
tracking even for the short-term. Neither did the Coalition maintain adequate documentation of the
requirements for rent reasonableness determinations nor habitability inspections.

Appropriate documentation of participant tracking is necessary for the accurate reporting on program
goals. Rent reasonableness determinations are required under 24 CFR 583.115(b)(2) to ensure that
grant funds are used efficiently, and habitability inspections are required under 24 CFR 583.300(b) to
assure compliance with minimum housing quality standards.

Many of the participants whose files we reviewed were provided housing in facilities owned by
Coalition members. Habitability inspections and rent reasonableness determinations were not required
in these participant files since the requirements were already met in conjunction with the grant
application technical submission. Similarly, documentation of participant tracking was not applicable for
all 16 participant files we reviewed since some had not yet left or had only very recently left the SHP.
However, as shown in the following table, the Coalition did not comply with these requirements in many
cases where they were applicable.

                                                           Rent Reasonableness
Coalition Member                Habitability Inspection       Determination        Tracking Documented
                                Yes      No        N/A     Yes     No     N/A      Yes      No    N/A
FISH (3 Files)                   1        2          0      0       3        0      0        1      2
SPIN (4 Files)                   3        1          0      0       1        3      1        1      2
Human Options (4 Files)          0        2          2      0       2        2      0        2      2
Mercy House (5 Files)            0        0          5      0       0        5      0        0      5
Totals (16 Files)                4        5          7      0       6       10      1        4     11



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                                                                                         County of Orange
Audit Memorandum                                                                    Mercy House Coalition



Coalition staff told us that they do inspect leased or rental units and are familiar with the going rental
rates. They said they would document habitability inspections and rent reasonableness determinations in
the participant files in the future.

                               AUDITEE COMMENTS AND
                        OIG EVALUATION OF AUDITEE COMMENTS

Advance copies of the audit memorandum were provided to Orange County and the Coalition for their
comments, and our proposed recommendations were discussed with officials of both the County and
the Coalition at an exit conference on April 20, 2001. The March 23, 2001, consolidated written
response from the County and Coalition expressed disagreement with every issue addressed in the draft
audit memorandum. Their written response is included as Attachment A to this audit memorandum and
our evaluations of the response comments are as follows:

Orange County charged unsupported and ineligible administrative salary costs to the grant.

Comment Synopsis
The County contended the budget based indirect cost allocation procedure is reasonable and in
compliance with OMB Circular A-87. They said HUD does not require formal certification of the
indirect cost allocation procedure. They said the support for $4,532 reallocated to this grant is a
correction memo from the section supervisor. They said the $3,958 in pre-grant charges is allowable
under A-87 as pre-award costs.

OIG Evaluation
In our opinion, Orange County’s budget based indirect cost allocation procedure is neither reasonable
nor approvable under A-87. The dollar amounts of federal grants often bare little if any direct
relationship to the time required for administering the grants. For example, some grants might include
significant dollar amounts for capital expenditures that would not require proportionately larger amounts
of time to administer. Also, the administrative time required for comparable dollar amount grants can
vary significantly depending on the experience and expertise of sub-recipients.

We are not aware of any exemption granted to HUD relative to compliance with A-87 requirements for
indirect cost rate certifications or approvals.

The memo from the section supervisor directing the reallocation of $4,532 in administrative salary costs
does not constitute adequate verifiable support for the charges. The time sheets supporting the charges
(but where employees supposedly used the wrong job codes) cover pay periods ranging from March
1999 through November 1999. We do not accept the notion that in September 2000 (when the costs
were reallocated), a supervisor could have somehow determined that his people did not know what
they were working on when they recorded their time upwards of a year prior. Furthermore, some of



                                                    9
                                                                                          County of Orange
Audit Memorandum                                                                     Mercy House Coalition

the reallocated costs covered pay periods prior to the May 14, 1999 grant approval and are clearly
ineligible.

We agree that A-87 does provide for the eligibility of pre-award costs. The County provided the
proper citation, however only in part. A-87 does state “Pre-award costs are those incurred prior to the
effective date of the award directly pursuant to the negotiation and in anticipation of the award where
such costs are necessary to comply with the proposed delivery schedule or period of performance.
Such costs are allowable only to the extent that they would have been allowable if incurred after the
date of the award….” The citation goes on to say “…and only with the written approval of the
awarding agency.” The County did not request or obtain HUD’s approval to incur pre-award costs.

The Coalition charged unsupported and ineligible supportive service salary costs to the grant.

Comment Synopsis
The County and Coalition did not agree that timesheets were not maintained to support $148,913
charged to supportive service salaries and cited the number of clients served as evidence the salaries
were supported. They said the SHP Coordinator’s salary was appropriate and eligible as a supportive
service cost since the position description was included in the grant application approved by HUD.
They said the FISH Executive Director and other FISH employees were working outside their regular
job descriptions when working on activities relating to this grant, and therefore were entitled to the extra
and incrementally higher pay. They also took exception to some of the phraseology in the draft and to
the “cause” statement.

OIG Evaluation
It is entirely possible that actual staff time spent by the Coalition for the direct benefit of the homeless
population far exceeds expenditures charged to the grant, but the required time sheets supporting this
possibility were not maintained. The fact that they may have gotten the job done (and more) does not
constitute valid support for supportive service salary charges from an audit or accounting standpoint.

The job description for the SHP Coordinator submitted with the grant application included both
administrative and supportive service (case management) duties and was budgeted for 75 percent of the
employee time to be spent on supportive service activities. There was no reason for HUD to take
exception to the grant application for this position. Contrary to representations in the grant application,
the SHP Gant Coordinator spends 100 percent of her time on administrative functions albeit in
furtherance of the provision of actual supportive services by other Coalition staff. In fact, case
management responsibilities were officially removed from the SHP Grant Coordinator’s job description
as of September 1, 1999.

Case management responsibilities are included in the job descriptions for all five of the FISH employees
(including the Executive Director) who were paid at higher than normal rates or in addition to the fixed
annual salary for any time charged to this grant.



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                                                                                         County of Orange
Audit Memorandum                                                                    Mercy House Coalition

We made some minor wording changes to the report in recognition of the County and Coalition
concerns.

Orange County made an unallowable advance of grant funds to the Coalition

Comment Synopsis
The County denied the $40,072 advance was made with the expectation of incurring the related costs at
the end of the grant period some three years later. They claimed the advance represented funds paid to
the sub-grantee as reimbursement for their estimated expenditures incurred during the preceding 30
days.

OIG Evaluation
On page CA2 of the September 1, 1999 Memorandum of Contract between the County and the
Coalition, it is stated:

                “This cash advance to the SUBRECIPIENT shall be
                deducted from the following reimbursement request(s): from
                the last reimbursement request(s).”


The Coalition admitted ineligible participants and participants whose eligibility was not
adequately documented into the Supportive Housing Program.

Comment Synopsis
The County and Coalition disagreed with the statement that the Coalition admitted ineligible participants
and then they said they have taken corrective action to ensure that client’s homeless status is verified
and documented. For each of the participants we classified as ineligible, the Coalition provided
explanations of their rationale for accepting them into the SHP and/or they described additional
information or documentation that was not in the file confirming their homelessness eligibility. Details of
the County and Coalition positions on the eligibility of each of the six participants are included in
Attachment A.

OIG Evaluation
Any new documentation supporting the eligibility of the participant should be provided to HUD in
conjunction with the audit resolution process. Regarding participants where no new documentation was
alluded to:

FISH Participant 1 – There was one document in the file indicating possible assistance the family may
have received from one (not various) agency. This document was faxed to FISH or the Coalition on
October 19, 2000, after we had requested the participant file. It indicated that a payment of $200 was
made to or on behalf of the family for their apparent stay at a motel on May 24 and 25, 2000. Another
document in the file indicated the family stayed at a different motel from May 12th through June 3rd. In


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                                                                                         County of Orange
Audit Memorandum                                                                    Mercy House Coalition

any event, the payment from the other agency does not constitute documentation of homelessness
eligibility.
The wife’s lost time due to illness was taken into consideration in our calculation of her annual income at
$39,137. She had earned $15,053 in 2000 through the twenty weeks ended May 20, 2000, including
the period of her illness. We projected the average earnings of $752.65 ($39,137 ÷ 20) per week over
the 52 weeks in a year ($752.65 X 52) to arrive at the $39,137 annual income figure. In calculating her
income in this manner, we actually annualized the lost time she may have experienced for only a short
time. The participant file includes a pay stub from the other non-profit for the husband reflecting
earnings through June 2, 2000. For purposes of explaining the undocumented, unofficial acceptance
into the SHP prior to the June 1, 2000, earliest actual intake document, the Coalition would have us
consider the families’ eligibility sometime prior to June 1, 2000. For purposes of determining the
husband’s income, the Coalition would have us use some date after June 2, 2000. The family income of
$75,514 cited in the draft report was based on the husband’s employment at the time the family was
accepted into the SHP on June 1, 2000. In July 2000, the husband obtained other employment which
when combined with the very conservative calculation of the wife’s income would result in an annual
income for the family of $65,137.

It is doubtful that Congress contemplated the use of SHP funding for individuals or families with such
considerable financial means. Similarly, millions of taxpayers of lesser (or even greater) means would
not likely appreciate the use of their tax dollars for the support of a delinquent taxpayer.

Mercy House Participant 1 – Pay stubs in the participant file indicated this individual had two jobs,
one of which produced the $1,733 monthly income we cited. The second job produced an additional
$854 of monthly income. This individual was actually earning $2,587 per month or $31,044 annually.

The Coalition did not accomplish program goals and/or could not support reported
accomplishments.

Comment Synopsis
The County and Coalition did not agree that goals were erroneously overstated. They took exception
to our statements in the draft report regarding incentives for the clients and the Coalition to maintain
contact after the clients leave the SHP. They described the automated tracking system used by SPIN.

OIG Evaluation
The County/Coalition response provided no information describing why they disagreed with our
statement that they erroneously overstated the accomplishment relating to one goal.

We removed the draft report references to client and Coalition incentives to maintain post SHP contact.

The discussion relating to SPIN’s tracking system is misplaced since this finding section deals with goal
accomplishment, not with tracking which is covered in the subsequent section. However, the



                                                    12
                                                                                        County of Orange
Audit Memorandum                                                                   Mercy House Coalition

description of SPIN’s tracking system pertains to tracking while clients are in the SHP. The problems
we describe in the next finding section deal with post SHP tracking.

The Coalition did not maintain adequate documentation of client tracking, habitability
inspections, and rent reasonableness determinations.

Comment Synopsis
The County and Coalition disagreed with this finding section title statement in its entirety. They said
SPIN maintains housing inspections on file in their office and claimed that no client rents exceeded $580
per month. They strongly disagreed that any participants may have been provided housing in facilities
owned by Coalition members and disagreed the Coalition did not maintain adequate documentation of
participant tracking even for the short-term. They again described the automated tracking system used
by SPIN.

OIG Evaluation
The draft report cited one incidence where SPIN did not document the required habitability inspection.
In that case, there was evidence in the file that SPIN inspected an apartment the participant hoped to
occupy but not the apartment the participant eventually occupied.

The participants referenced in the finding without documented rent reasonableness determinations were
accommodated in units charging rents as follows:

        FISH Participant 1                      $1,200
        FISH Participant 2                        900
        FISH Participant 3                        850
        SPIN Participant 1                        727
        Human Options Participant 2               795
        Human Options Participant 3               610

The grant application indicated two facilities (Joseph House and Regina House) are owned by the
nonprofit entity, Mercy House. Similarly, the grant application suggested that the Human Options
nonprofit entity owns the domestic violence victim shelter they operate. The County and Coalition (may
have) misinterpreted our comment as suggesting individual Coalition board members owned the
facilities.

The lack of adequate documentation for client tracking discussed in this finding section pertains to post
SHP tracking, not the tracking SPIN or any of the other Coalition members do while clients are in the
program.




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                                                                                       County of Orange
Audit Memorandum                                                                  Mercy House Coalition

                                     RECOMMENDATIONS

We recommend that you require Orange County to:

1A.    Submit documentation and justification for your review and approval, in accordance with OMB
       Circular A-87, pertaining to the indirect costs allocation procedure. If the procedure is not
       approvable under OMB Circular A-87, the related $27,629 in unsupported costs should be
       reimbursed to HUD.

1B.    Reimburse HUD for the $3,958 of ineligible Orange County administrative salary costs.

1C.    Require the Coalition to provide you with reasonable estimates (together with explanation and
       justification) of salary costs directly associated with the provision of supportive services under
       this grant. Based on your review of such materials, determine the allowability of $148,913 in
       unsupported Coalition supportive service salaries.

1D.    Reclassify the $41,361 of SHP Grant Coordinator salary as administrative costs or reimburse
       HUD in that amount.

1E.    Reimburse HUD for the $14,875 of ineligible salary overcharges by FISH.

1F.    Reimburse HUD for the $40,072 of unallowable salary advance to the Coalition.

1G.    Require the Coalition to make a reasonable effort to obtain and provide the missing
       documentation supporting the homelessness eligibility of the six participants included in our
       testing. Any of the $5,921 in unsupported supportive service costs pertaining to participants
       determined to be ineligible should be reimbursed to HUD.

1H.    Reimburse HUD for the $12,258 of supportive service costs applicable to the six ineligible
       participants.

1I.    Ensure the Coalition maintains time sheets and related supporting documentation showing that
       future supportive service salary charges pertain only to the provision of supportive services.

1J     Allocate sufficient portions of grant administrative funding to cover ongoing expenses for the
       SHP Grant Coordinator salary and other administrative functions as may be necessary for other
       Coalition staff, or be prepared to reimburse HUD for those expenses.

1K.    Ensure the Coalition obtains and verifies the necessary documentation to support future
       participant homelessness eligibility.




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                                                                                        County of Orange
Audit Memorandum                                                                   Mercy House Coalition

1L.     Assist the Coalition in developing and implementing the necessary procedures and systems to
        collect relevant data and accurately report on its performance.
1M.     Ensure the Coalition maintains adequate documentation of habitability inspections, rent
        reasonableness determinations, and client tracking in the future.

                                            *   * * * *

Within 60 days, please give us a status report on the recommendations stating (1) the corrective action
taken, (2) the proposed corrective action and the date to be completed, or (3) why action is considered
unnecessary. Also, please furnish us copies of any correspondence or directives related to this review.

If you have any questions concerning this report, please call Ruben Velasco, Assistant District Inspector
General for Audit, at (213) 894-8016.




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                             County of Orange
Audit Memorandum        Mercy House Coalition

                        ATTACHMENT A




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                             County of Orange
Audit Memorandum        Mercy House Coalition




                   17
                             County of Orange
Audit Memorandum        Mercy House Coalition




                   18
                             County of Orange
Audit Memorandum        Mercy House Coalition




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                             County of Orange
Audit Memorandum        Mercy House Coalition




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                             County of Orange
Audit Memorandum        Mercy House Coalition




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                                                                                    County of Orange
Audit Memorandum                                                               Mercy House Coalition

                                                                               ATTACHMENT B

                                        DISTRIBUTION

Secretary’s Representative, California State Office, 9AS
Senior Community Builder, Los Angeles Office, 9HS
Director, Community Planning and Development, 9DD
Primary Field Audit Liaison Officer, 6AF (2)
Deputy Secretary, SD (Rm. 10100)
Acting, Chief of Staff, S (Rm. 1000)
Office of Administration, AA (Rm. 10110)
Assistant Secretary for Congressional & Intergovernmental Relations, J (Rm. 10120)
Office of Public Affairs, W (Rm. 10132)
Deputy Assistant Secretary for Administrative Services, Office of the Executive
        Secretariat, AX (Rm. 10139)
Deputy Assistant Secretary for Intergovernmental Relations, JI (Rm. 10234)
Deputy Chief of Staff, S (Rm. 10222)
Deputy Chief of Staff for Policy, S (Rm. 10226)
Deputy Chief of Staff for Programs, S (Rm. 10226
Senior Advisor to the Secretary, S (Rm. 10222)
Special Assistant for Inter-Faith Community Outreach, S (Rm. 10222)
Executive Officer for Administrative Operations and Management, S (Rm. 10220)
General Counsel, C (Rm. 10214)
Assistant Secretary for Community Planning and Development, D (Rm. 7100)
Assistant Secretary for Field Policy and Management (Rm. 7106) (2)
Assistant Secretary for Policy Development and Research, R (Rm. 8100)
Assistant Secretary for Housing/Federal Housing Commissioner, H (rm. 9100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Rm. 5100)
Director, Office of Departmental Equal Employment Opportunity, U (Rm. 5130)
Chief Procurement Officer, N. (Rm. 5280)
Assistant Secretary for Public and Indian Housing
Director, Office of Departmental Operations and Coordination, I (Rm. 2124)
Office of the Chief Financial Officer, (Rm. 2202)
Chief Information Officer, Q (Rm. P8206)
Acting Director, Enforcement Center, V, Portals Building
Acting Director, Real Estate Assessment Center, X 2180 Maryland Avenue, SW,
        Suite 800
Director, Office of Multifamily Assistance Restructuring
Deputy Chief Financial Officer for Finance, FF (Rm. 2202)
Director, Office of Budget, FO (Rm. 3270)
Headquarters Audit Liaison Officer, Helen M. Stackhouse, HQC (Rm. 6232) (2)
Departmental Audit Liaison Officer, FM (Rm. 2206) (2)


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                                                                                  County of Orange
Audit Memorandum                                                             Mercy House Coalition

Acquisitions Librarian, Library, AS (Rm. 8141)
Director, Office of Federal Housing Enterprise Oversight, 1700 G. Street, NW,
        Room 4011 Washington, DC 20552
Frank Edrington, Deputy Staff Director, Counsel, Subcommittee on Criminal Justice,
        Drug Policy & Human Resources, B 373 Rayburn House Office Building,
        Washington, DC 20515
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, US 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
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
        706 Hart Senate Office Building, United States Senate, Washington, DC 20501
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 Bldg., House of Representatives, Washington, DC 20515
Paula Burrier-Lund, Director, Housing and Community Development, County of Orange
        1770 N. Broadway, Santa Ana, CA 92706-2642
Lisa A. Mastropietro, Administrative Director, Mercy House Transitional Living Centers
        Post Office Box 1905, Santa Ana, CA 92702 (4)




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