AUDIT REPORT CITY OF WORCESTER WORCESTER, MASSACHUSETTS COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM 2002-BO-1001 MARCH 27, 2002 OFFICE OF AUDIT, NEW ENGLAND BOSTON, MASSACHUSETTS Issue Date March 27, 2002 Audit Case Number 2002-BO-1001 TO: James Barnes, Director, Office of Community Planning and Development, 1AD FROM: Barry L. Savill, District Inspector General, Office of Audit, 1AGA SUBJECT: City of Worcester Community Development Block Grant Program Worcester, Massachusetts We performed an audit of the City of Worcester, Massachusetts (Grantee) Community Development Block Grant (CDBG) Program. Our objective was to determine whether the Grantee’s reorganization of the former Office of Planning and Community Development was effective and allowed the Grantee to fulfill its CDBG Program responsibilities. Specific audit objectives included determining whether the Grantee: (1) carried out its CDBG activities in an economical, efficient, and effective manner; (2) complied with the CDBG Program requirements, laws and regulations; and (3) maintained adequate controls to ensure compliance with HUD regulations. Although the Grantee generally utilized its CDBG funds in an efficient and effective manner, we identified problems with the administration of the Program. The report’s finding indicates that the Grantee improperly allocated salaries and related expenses as direct costs to the CDBG Program resulting in significant unsupported and ineligible costs. Within 60 days, please provide us a status report on: (1) the corrective action taken, (2) the proposed corrective action and the date to be completed, or (3) why action is considered unnecessary. Also, please furnish us with copies of any correspondence or directives issued as a result of this audit. If you have any questions, please contact our office at (617) 994-8380. Management Memorandum THIS PAGE LEFT BLANK INTENTIONALLY 2002-BO-1001 Page ii Executive Summary We conducted an audit of the Community Development Block Grant (CDBG) Program awarded to the City of Worcester, Massachusetts (Grantee). This audit was requested by the HUD Massachusetts State Office, Office of Community Planning and Development (CPD). CPD officials expressed concern with the Grantee’s reorganization of its former Office of Planning and Community Development (OPCD), and OPCD’s responsibility for the administration of the CDBG Program. The primary objective of our audit was to determine whether the reorganization of OPCD was effective, and allowed the Grantee to maintain its ability to follow HUD CDBG requirements. Specifically, our audit determined whether the Grantee: · Carried out its CDBG activities in an economical, efficient, and effective manner; · Complied with the CDBG Program requirements, laws and regulations; and · Maintained adequate controls to ensure compliance with HUD regulations. Through our observation and the interviews conducted Audit Results during our review, we determined that, in general, the reorganization has not negatively affected the Grantee’s ability to efficiently and effectively implement its CDBG Program. At the present time, however, the reorganization is still underway, and a final determination as to any long- term effect on the Grantee’s ability to administer its CDBG Program cannot be made until this process is complete. The reorganization of OPCD was initiated in February 2001. OPCD, which had administered the Grantee’s CDBG Program, was eliminated as a Grantee department. In its place, two new offices were established: the Executive Office of Neighborhood Services (EONS) and the Executive Office of Economic Development (EOED). EONS is currently responsible for administering the Grantee’s CDBG Program. EOED addresses economic development and planning. Grantee personnel in both EONS and EOED indicated that they generally expect the reorganization to enhance the Grantee's ability to effectively and efficiently implement its CDBG Program through increased accountability and monitoring. Through EONS and EOED, the Grantee provides CDBG funds to various City Departments and approximately 40 subrecipients. One of the programs managed by EONS is the Worcester Housing Improvement Program (WHIP). Page iii 2002-BO-1001 Executive Summary EOED manages several programs including the Economic Development (ED) Program. The Grantee does not have a proper allocation plan for staff salaries. The Grantee operates with a Program Year of July 1 to June 30. During its Program Years 25 and 26, (July 1, 1999 to June 30, 2001), the Grantee charged $710,031 in salaries, $113,570 in fringe benefits and $77,746 in operating overhead to its WHIP and ED Program. The WHIP and the ED Program are managed by EOED and EONS. The charges for fringe benefits and operating overhead were based on staff salaries. Because the Grantee does not have a basis for its allocation plan, the entire amount of $901,347 is questionable. Interviews with the WHIP and the ED Program staff and analysis of their job duties showed that some of their duties were administrative in nature. These salaries should have been identified as administrative costs or costs of other programs instead of direct costs to the WHIP and the ED Program. However, there are consequences for charging administrative costs to the program. Salaries and related costs for Planning and Administrative Costs are limited to 20 percent of the CDBG grant awarded plus Program Income, by statute (24 CFR 570.200(g)). Separate from the administrative charges to the WHIP and the ED Program, the Grantee charged other costs of $2,180,161 to CDBG Planning and Administrative Costs. The $2,180,161 represents 18.7 percent of the $11,654,834 CDBG grant awards, plus Program Income for Program Years 25 and 26. Planning and Administrative Costs are limited to 20 percent of the subtotal of the CDBG Grant and Program Income. Proper allocation of the administrative type salaries charged to the WHIP and the ED Program could cause the Grantee to exceed its 20 percent statutory limitation for Planning and Administrative Costs. Salaries in excess of the 20 percent administrative cap would be ineligible. Using criteria defined under: 1) OMB Circular A-87, Attachment B, Section (11)(h)(4) and (h)(5) which requires the distribution of salaries for 2002-BO-1001 Page iv Executive Summary employees working on multiple activities or cost objectives to be supported by personnel activity reports or equivalent documentation, 2) OMB Circular A-87, Attachment A, Section (c)(1) which states costs must be necessary and reasonable for the proper and efficient performance and administration of Federal awards, and adequately documented, and 3) 24 CFR 570.206(a)(1) which defines administrative costs; we believe $331,386 in costs to be ineligible as direct costs to the CDBG Program. The remaining $569,961 ($901,347- $331,386) we believe to be unsupported. Description Unsupported Ineligible Total Salaries $424,073 $285,958 $710,031 Fringe Benefits 68,142 45,428 113,570 Ordinary Maintenance 77,746 0 77,746 Total $569,961 $331,386 $901,347 The Grantee believes it will be able to support the majority of the questioned costs. The Grantee disagrees with our interpretation of what constitutes an administrative function and what constitutes a direct cost. Nonetheless, the Grantee acknowledged the need to update its current allocation, but is awaiting the final determination from CPD identifying what constitutes Planning and Administrative Costs. Once resolved, the Grantee intends to perform an analysis of their operations and revise their allocation. We are recommending that the Grantee establish and submit for Recommendations HUD approval an appropriate method for allocating direct and indirect costs in accordance with Federal Cost Principles for implementation retroactive to July 1, 2001. In addition, we recommend that the Grantee provide sufficient documentation to support the eligibility and amount of its costs, or reimburse the CDBG Program with non-Federal funds. We recommend that the Grantee reimburse the CDBG Program from non-Federal funds for any amounts in excess of the 20 percent statutory imitation imposed on CDBG Planning and Administrative Costs. CPD should continue to monitor the Grantee through its regularly scheduled monitoring reviews, as the Grantee progresses with the implementation and adjustment of its reorganization. Page v 2002-B0-1001 Executive Summary We discussed the finding with the Grantee during the Findings and course of the audit. An exit conference was held at the Recommendations Grantee on January 11, 2002. On February 15, 2002, we Discussed provided the Grantee a copy of the draft audit report. The Grantee provided comments on March 8, 2002 and generally disagreed with the contents of the report. Due to its voluminous content, the Grantee’s entire response was forwarded to CPD under a separate letter. We included pertinent comments of the Grantee’s response in the Finding section of this report and Appendix C. 2002-BO-1001 Page vi Table of Contents Management Memorandum i Executive Summary iii Introduction 1 Findings 1. Costs Improperly Allocated to the Community Development Block Grant Program 7 Management Controls 21 Appendices A Schedule of Ineligible and Unsupported Costs 23 B Post-Reorganization Charts 25 C Auditee Comments 27 D Distribution 41 Page vii 2002-BO-1001 Table of Contents Abbreviations CDBG Community Development Block Grant CFR Code of Federal Regulations CPD Community Planning and Development ED Economic Development EOED Executive Office of Economic Development EONS Executive Office of Neighborhood Services Grantee City of Worcester, Massachusetts HUD U. S. Department of Housing and Urban Development OIG Office of Inspector General OMB Office of Management and Budget OPCD Office of Planning and Community Development WHIP Worcester Housing Improvement Program 2002-BO-1001 Page viii Introduction The Community Development Block Grant (CDBG) Program was established by Title I of the Housing and Community Development Act of 1974 to assist entitlement grantees in the development of viable urban communities. Grantees use CDBG funds to develop decent housing, suitable living environment, and economic opportunity principally for low- and moderate-income individuals. HUD provides grants to states and local governments as determined by a statutory formula. HUD regulations require that CDBG funds be used for eligible activities with the goal of accomplishing at least one of the following national objectives of the Program: (1) to benefit low- and moderate-income individuals; (2) to aid in the prevention or elimination of slums and blight; or (3) to meet other community development needs having particular urgency. The City of Worcester, Massachusetts (Grantee) is an entitlement recipient of the CDBG Program and operates under a City Manager form of government. The current City Manager, Thomas Hoover, is the official responsible for the Grantee’s CDBG Program. Until February 2001, the Grantee’s former Office of Planning and Community Development (OPCD) administered the CDBG Program. As of February 2001, the Worcester City Council adopted a comprehensive reorganization plan involving the various city agencies responsible for economic development and neighborhood services. The plan identified that its primary purpose was to focus the Grantee’s existing resources to achieve a higher level of performance in the areas of economic development, neighborhood services and geographic information systems. This plan divided the duties and responsibilities of the OPCD among three city agencies: (1) a new office entitled the Executive Office of Economic Development (EOED); (2) a new office entitled the Executive Office of Neighborhood Services (EONS); and (3) the Information Services Department. The EOED is a combination of the economic development and planning sections of the former OPCD and the Development Office from the City Manager’s Office. The EONS consists of the Public Services, Housing, Grants and Office Management sections of OPCD. The Geographic Information System, previously handled by OPCD, became the responsibility of the Information Services Department hereby enabling all City Departments and the public to gain on-line access to public geographic data. The EONS is currently responsible for administering the CDBG Program and is headed by the Assistant City Manager, Paul LaCava. Page 1 2002-BO-1001 Introduction The chart below depicts the current organizational set-up of the Grantee: City Manager Executive Office of Executive Office of Various Other Neighborhood Services - Economic Development - Departments Assistant City Manager Chief Development Officer Director of Economic Various Other Neighborhood Development Departments Services Grants Office Housing Public Services Administration Management For a detailed delineation of the EONS and EOED staff, see Appendix B. The Grantee provided CDBG funds to various City departments and to approximately 40 subrecipients to carryout eligible CDBG activities and provide services to the community. HUD awards CDBG funds each Program Year. A Program Year is defined as a twelve-month period beginning on the first calendar day of a month established by the jurisdiction. During Program Years 25 and 26, the Grantee was awarded the following CDBG funds: Grant Program Program Year Program Fiscal Year Grant Award B-99-MC-25-0026 25 07/01/99-06/30/00 $5,754,000 B-00-MC-25-0026 26 07/01/00-06/30/01 $5,737,000 In addition to the grants awarded, the CDBG Program can generate Program Income. Because grantees do not have to expend the funds in a single year, CDBG grant awards may be carried forward from one year to the next. The Grantee expended a total of $6,117,701 during Program Year 25 and $6,307,300 during Program Year 26, as of June 30, 2001. The use of all CDBG grant funds is approved by the Grantee’s City Council. The following table displays the types of activities funded through the CDBG Program and the amount expended during Program Years 25 and 26: 2002-BO-1001 Page 2 Introduction Funds Expended Program Program Year 25 Program Year 26 Public/Human Services $763,583 $835,746 Affordable Housing $2,036,831 $1,845,304 Economic Development $495,559 $540,473 Parks $ 699,271 $552,911 Neighborhood Revitalization Fund $665,898 $710,592 Webster Square Fire Station $142,502 $434,221 Demolition $22,869 $142,350 Urban Renewal/Worcester Redevelopment Authority $197,931 $28,712 Public Facilities $0 $75,000 South Worcester Industrial Park $0 $44,337 Northern Gateway $0 $10,750 Planning and Administrative Costs $1,093,257 $1,086,904 Total $6,117,701 $6,307,300 The overall objective of our audit was to determine whether Audit Objectives the reorganization was effective and allowed the Grantee to fulfill its CDBG Program responsibilities. Specific audit objectives included determining that the Grantee: Ø Carried out its CDBG activities in an economical, efficient and effective manner; Ø Complied with the CDBG Program requirements, laws and regulations; and Ø Maintained adequate controls to ensure compliance with HUD regulations. The audit was conducted between March 2001 and Audit Scope and September 2001, and covered the period July 1, 1999 Methodology through June 30, 2001. The audit period was extended, where necessary, to meet our audit objectives. To accomplish the audit objectives, we performed the following: Ø Reviewed Federal requirements, including Code of Federal Regulations, OMB Circulars, and HUD Handbooks. Ø Reviewed files maintained by the HUD Massachusetts State Office, Office of Community Planning and Page 3 2002-BO-1001 Introduction Development (CPD) relating to the Grantee’s CDBG Program. Ø Reviewed Audited Financial Statements of the Grantee, both the City's general purpose statements and those required by OMB Circular A-133, for the periods ended June 30, 1999 and June 30, 2000. Ø Reviewed the Grantee’s system of internal controls by completing an internal control questionnaire, observation, and testing of transactions. Ø Reviewed the Grantee’s former and present organization and administrative structure to determine the extent of any change in the total number of job positions applicable to the CDBG Program, and to assess the effect of these changes on the Grantee’s ability to carry out its CDBG Programs. Ø Interviewed Grantee employees in key management and staff positions within the EONS, the EOED, and the Finance (Budget) Office to ensure that the reorganization of the Grantee's OPCD was effective and allowed the Grantee to fulfill its CDBG Program responsibilities. Ø Identified the Programs being administered by the Grantee with CDBG funds during Program Years 25 and 26, and selected three Programs for limited review to ensure compliance with HUD regulations: 1) Public/Human Services, 2) Affordable Housing and 3) Economic Development. Our selection was based on the total dollars per Program and we selected three of the largest Programs. Ø From the three Programs selected, we examined the three highest funded CDBG related activities within each Program, and performed a limited review to determine if those activities were in compliance with HUD regulations and whether those activities met at least one of the three CDBG national objectives. The activities reviewed were: 2002-BO-1001 Page 4 Introduction Affordable Public/Human Economic Program Housing Services Development 1. Worcester 1. Friendly House 1. Black Housing 2. South Fighting Back Activities Improvement Worcester with Intellect Reviewed Program Neighborhood 2. Centro Las 2. Lead Paint Center Americas Program 3. Henry Lee 3. Economic 3. Code Willis Development Enforcement Community Program Program Center Ø Determined whether Grantee procedures are in place to adequately monitor subrecipient activities. Ø Determined whether the Grantee exceeded the 20 percent limitation on CDBG Planning and Administrative Costs during Program Years 24, 25 and 26. Ø Interviewed Grantee management and staff to determine the basis for the support and related costs allocated directly to the CDBG Program through the Worcester Housing Improvement Program (WHIP) and the Economic Development (ED) Program. Ø Reviewed the Grantee’s weekly summary time reports for the period July 24, 1999 to June 30, 2001, and Expenditure Transaction Reports for Program Years 25 and 26 to determine whether salary and related costs allocated directly to the CDBG Program through the WHIP and the ED Program were supported and eligible. Ø Interviewed the Grantee’s staff and the staff from CPD, as necessary. Page 5 2002-BO-1001 Introduction 2002-BO-1001 Page 6 Finding 1 Costs Improperly Allocated to the Community Development Block Grant Program The City of Worcester (Grantee) allocated salaries, ($710,031) related fringe benefits ($113,570) and ordinary maintenance ($77,746) for a total of $901,347 as direct costs to the Community Development Block Grant (CDBG) Program when the costs were either unsupported or ineligible. The Grantee used an unsupported allocation method that, according to key personnel, was based on the available funding resources rather than the actual time spent on each Program contrary to Federal regulations. As a result, there has been a reduction of funds for eligible CDBG activities including benefits to low- and moderate-income individuals. Title 24, Code of Federal Regulations (CFR), Section Costs Must be Necessary, 570.200(a)(5) prescribes that costs incurred, whether Reasonable and charged on a direct or an indirect basis, must be in Adequately Documented conformance with OMB Circular A-87. OMB Circular A- 87, Attachment A, Section (C)(1) stipulates that eligible costs must be necessary and reasonable for the proper and efficient performance and administration of Federal awards, and eligible costs must be adequately documented. OMB Circular A-87, Attachment B, Sections (11)(h)(4) and (11)(h)(5) stipulate that: . . . where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation. Personnel activity reports or their equivalent must: (1) reflect an after-the-fact distribution of the actual activity for each employee and (2) be prepared at least monthly and signed by each employee. Budget estimates or other distribution percentages determined before the services are performed do not qualify as adequate supporting documentation. Page 7 2002-BO-1001 Finding 1 The Grantee expended $901,347 in unsupported and Total Unsupported and ineligible costs from two of its CDBG-funded Programs Ineligible Costs (Worcester Housing Improvement Program (WHIP) and Economic Development (ED) Program) for Program Years 25 and 26, as follows: Description Unsupported Ineligible Total Salaries $424,073 $285,958 $710,031 Fringe Benefits 68,142 45,428 113,570 Ordinary Maintenance 77,746 0 77,746 Total $569,961 $331,386 $901,347 The Grantee does not require personnel who work on Allocation Not Properly multiple activities to prepare activity reports that reflect Supported actual work performed and does not maintain the necessary documentation to support the cost of salaries, related fringe benefits and ordinary maintenance allocated directly to the CDBG Program. The Assistant City Manager stated that the Grantee did not have a formal payroll allocation, but instead required personnel to submit weekly time sheets reflecting the actual time worked on each Program. Interviews with Grantee personnel contradicted the Assistant City Manager. According to Grantee personnel, the Finance Department requested the staff to track their time for a short period of time. They advised that the Finance Department then generated an allocation for each staff member identifying the number of hours to charge each week per Program. Grantee personnel advised that this allocation was not reflective of their actual time and they were unsure how the Finance Department determined the allocation. The Director of the Executive Office of Neighborhood Services (EONS), which administers the Grantee’s CDBG Program, also confirmed that a formal payroll allocation existed. He advised that the former Financial Management Coordinator developed the allocation, but he was unsure of the basis for the allocation. The former Financial Management Coordinator advised that personnel costs were allocated based on the available revenue sources. He advised that he knew which Program or Programs each staff person worked on, and he allocated their costs accordingly. For instance, if a staff member worked 100 percent of the time on a specific Program, the related costs would be allocated 100 percent to that particular Program. He further stated that the indirect costs 2002-BO-1001 Page 8 Finding 1 used the same allocation formula. He provided no explanation on how he knew which staff were working 100 percent of their time on a specific Program or any portion therein. He acknowledged that no documentation was available to support the allocation because it was based on the revenue available. Our review of the weekly summary payroll sheets from July 24, 1999 through June 30, 2001 revealed little change to the Grantee’s overall payroll allocation since August 1999. Using the Grantee’s weekly summary payroll sheets, we $424,073 in Unsupported determined that the Grantee charged $424,073 in Salaries unsupported salaries to the WHIP and the ED Program. The Grantee could not correlate the hours charged to the WHIP and the ED Program to the output produced by their personnel. Although we believe that some of these hours may legitimately be direct costs, the Grantee did not provide a basis to adequately support its allocation. The Grantee charged the following salaries: Total Salaries Program Year 25 Program Year 26 Total Housing $176,075 $109,138 $285,213 Department Economic Development $62,950 $75,910 $138,860 Department Total Unsupported $239,025 $185,048 $424,073 Salaries The Housing Department administers the WHIP and the Economic Development Department administers the ED Program. Grantee personnel stated that they worked fewer hours on Allocation not Reflective the WHIP than were actually allocated to the Program. We of Actual Costs interviewed the four current employees allocated to the WHIP. The first individual stated that he spent minimal time working on the Program. The second stated that approximately five percent of his time was related to the WHIP, and the third stated that she basically provides technical assistance on the WHIP such as fielding phone calls from local residents regarding housing issues. The fourth, the current Housing Coordinator, stated that he works one hour per week on the WHIP. Our review of the Housing Department time sheets disclosed that, during Page 9 2002-BO-1001 Finding 1 Program Years 25 and 26, all four of these personnel are allocated to the WHIP for 70 to 75 percent of their time. The former Director of the Housing Department also allocated 70 to 75 percent of his time to the WHIP during Program Year 25. The current Housing Coordinator is unsure why his personnel are allocated mostly to the WHIP. He speculated that, if the Housing Department's salaries were allocated to CDBG Planning and Administrative Costs instead of the WHIP, the Grantee may exceed the 20 percent cap imposed on Planning and Administrative Costs. ED personnel believe that their salary allocation is accurate; however, our analysis shows that: (1) the Grantee is allocating salaries to a Program where it is not expending appropriated funds and (2) the allocation changed for certain personnel. As of June 30, 2001, the Grantee appropriated $157,700 and $198,619 to its ED Environmental Remediation funds and ED Loan Pool, respectively for Program Years 24, 25, and 26. As of June 30, 2001, the Grantee had expended $2,200 from the ED Environmental Remediation fund and no funds from the ED Loan Pool. As a result, we believe the salaries allocated directly to the ED Program are excessive. Additionally our review of the ED time sheets showed that personnel used two different percentages to allocate their time during Program Year 25. For the first nine months of Program Year 25, three personnel allocated 20 to 45 percent of their time directly to the ED Program. For the last three months, these three personnel allocated 80 to 90 percent of their time directly to the ED Program each week. During Program Year 26, the four personnel who allocated time to the ED Program allocated 60 to 90 percent of their time directly to the ED Program each week. 2002-BO-1001 Page 10 Finding 1 In addition to the Grantee’s unsupported allocation, our Responsibilities are not review of the tasks performed by the Housing and ED Programmatic Department personnel disclosed that their duties were generally administrative in nature. Duties included: Ø Providing information to citizens; Ø Developing interagency agreements and agreements with subrecipients and contractors to carry out Program activities; Ø Monitoring Program activities for progress and compliance with Program requirements; and Ø Preparing reports and other documents related to the Program for submission to HUD. While some of the tasks performed by the Housing and ED personnel may be eligible, we cannot determine what percentage of their time is administrative and what percentage is direct. Therefore, we consider the $424,073 for salaries to be unsupported. The Director of the EONS agreed that it appeared too many hours were being allocated to the WHIP and welcomed our assessment so that corrections could be made. OMB Circular A-87, Attachment A, Section (C)(1) Regulations Define stipulates, that to be eligible under Federal awards, costs Allowable Direct and must be necessary and reasonable for the proper and Administrative Costs efficient performance and administration of Federal awards and costs must also be adequately documented. Attachment A, Section (E) of the circular defines direct costs as those that can be identified specifically with a particular final cost objective. Employee compensation is chargeable to Federal awards as a direct cost only to the extent of the time devoted and identified specifically to the performance of those awards. Title 24 CFR Section 570.206(a)(1) states that salaries, wages and related costs of the CDBG recipients’ staff, the staff of local public agencies, or other staff engaged in program administration may be charged as Planning and Administrative Costs to the CDBG Program. This includes reasonable costs of overall program management, oversight, coordination, monitoring and evaluation of the Page 11 2002-BO-1001 Finding 1 CDBG Program. Program administration includes the following types of assignments: (i) Providing local officials and citizens with information about the CDBG Program; (ii) Preparing program budgets and schedules, and amendments thereto; (iii) Developing systems for assuring compliance with program requirements; (iv) Developing interagency assignments and agreements with subrecipients and contractors to carry out program activities; (v) Monitoring program activities for progress and compliance with program requirements; (vi) Preparing reports and other documents related to the program for submission to HUD; (vii) Coordinating the resolution of audit and monitoring findings; (viii) Evaluating program results against stated objectives; and (ix) Managing or supervising persons whose primary responsibilities with regard to the program include such assignments as those described in (i) to (viii) above. Although the Housing and ED Departments are responsible Several Grantee for administering the Grantee’s WHIP and ED Program, Departments Allocate Costs our review disclosed that several other Grantee Directly to the WHIP and Departments were charging a portion of their salaries as the ED Program direct costs to the WHIP and the ED Program as well. These Departments included City Management, Finance (Budget) Office, Office Management and Public Service Department. The duties performed by these other Grantee Departments did not provide a direct benefit to the WHIP and the ED Program. Therefore, the costs should have been allocated to the Grantee’s CDBG Planning and Administrative Costs or another City, State or Federal 2002-BO-1001 Page 12 Finding 1 Program, as applicable. The Grantee has job descriptions to differentiate pay grades, but these did not identify specific duties and responsibilities. Based on the Grantee’s weekly summary payroll sheets $285,958 in Ineligible from July 24, 1999 to June 30, 2001, we determined that Salaries these other Departments charged $285,958 in ineligible salaries to the WHIP and the ED Program, as follows: Program Program Year 25 Year 26 Total WHIP $108,775 $105,091 $213,866 ED $46,943 $25,149 $72,092 Total Ineligible Salaries $155,718 $130,240 $285,958 The questioned costs are in either managerial or administrative support positions that, by their very nature, do not ordinarily provide direct services to any one particular program, but instead to a number of programs and initiatives. In addition to the regular salaries allocated directly to the Questionable Fringe Grantee’s WHIP and ED Program, the fringe benefits Benefit Costs of $113,570 directly related to those salaries were also allocated. According to the Grantee’s Expenditure Transaction Analysis Reports provided for the WHIP and the ED Program, fringe benefits including health insurance and retirement funds were allocated to the WHIP and the ED Program during Program Years 25 and 26. As the fringe benefits charged to the WHIP and the ED Program were in direct relation to the Grantee’s salaries, which we determined to be unsupported or ineligible, the associated fringe benefits are also considered unsupported or ineligible. We determined that 60 percent of the total allocated salaries were unsupported and the remaining 40 percent were ineligible. Therefore, we consider 60 percent of the fringe benefits to be unsupported and the remaining 40 percent to be ineligible. Page 13 2002-BO-1001 Finding 1 The table displays the total fringe benefits allocated to the WHIP and the ED Program during Program Years 25 and 26, and the amounts considered unsupported and ineligible: Total Unsupported Ineligible Program Charged (60%) (40%) WHIP $ 80,458 $48,275 $32,183 ED 33,112 19,867 13,245 Total $113,570 $68,142 $45,428 The Grantee also allocated ordinary maintenance costs to the Ordinary Maintenance WHIP during Program Years 25 and 26 without adequate Costs of $77,746 support for its allocation. No ordinary maintenance costs Questionable were allocated to the ED Program during this timeframe. The ordinary maintenance costs consisted of leases, equipment rentals, postage, and telephone charges. According to the former Financial Management Coordinator, the amount charged was based on the staff allocated to the WHIP. Since the Grantee could not adequately support the allocation of its staff to the WHIP, we also consider the allocation of ordinary maintenance to be unsupported. The Housing Department, which administers the WHIP, occupied one floor of one of the Grantee’s buildings; however, the Grantee expended $35,200 to cover lease payments for four floors of this building for a four-month period during Program Year 25 and another four-month period during Program Year 26. Grantee staff from other Departments occupied the other three floors. The total ordinary maintenance expended from the WHIP during Program Years 25 and 26 is: Program Program Total Program Year 25 Year 26 Unsupported Costs WHIP $39,363 $38,383 $77,746 Title 24 CFR Section 570.200(g) states that Planning and Administrative Costs Administrative Costs cannot exceed 20 percent of the sum Limited to 20% of Grant of the CDBG entitlement grant awarded for that Program Year plus Program Income received by the recipient and its subrecipients during that Program Year. Proper allocation of costs currently charged to the WHIP or the ED Program for Program Years 25 and 26 could result in the Grantee exceeding the statutory 20 percent limitation. During Program Year 25, the Grantee spent 18.7 percent for CDBG Planning and Administrative Costs. During Program Year 2002-BO-1001 Page 14 Finding 1 26, the Grantee also spent 18.7 percent for CDBG Planning and Administrative Costs prior to any adjustment. Program Program Category Totals Year 25 Year 26 CDBG Grant $5,754,000 $5,737,000 $11,491,000 Program Income Generated $103,467 $60,367 $163,834 Subtotal $5,857,467 $5,797,367 $11,654,834 20 percent of the Subtotal $1,171,493 $1,159,473 $2,330,967 Planning and Administrative $1,093,257 $1,086,904 $2,180,161 Costs Planning & Admin. Costs as 18.7% 18.7% 18.7% a percentage of the subtotal The Grantee will be required to use non-Federal funds to reimburse the CDBG Program for any amount exceeding the 20 percent cap. As of the beginning of Program Year 27 (July 1, 2001), the Grantee Willing to Update Grantee implemented a new administrative allocation that Allocation reduces the costs allocated to the WHIP and the ED Program. The allocation has since been updated—further reducing the costs allocated to the WHIP and the ED Program. The newest allocation has been sent to the Grantee’s City Manager for his review and approval. Although the proposed allocation submitted to the City Manager attempts to correct the situation, the Grantee still does not have a valid basis for its allocation. The allocation implemented is still based on the Grantee’s available budget rather than the actual work performed by the Grantee’s employees as required by OMB Circular A-87, Attachment B, Section (11)(h)(4) and (11)(h)(5). As a result, the Grantee may still be improperly allocating its salaries and related expenses. The Grantee’s Assistant City Manager agreed that the old allocation to the WHIP and the ED Program required correction. He also stated that the Grantee would like to discuss a work plan with HUD Massachusetts State Office, Office of Community Planning and Development (CPD) to correct the issue within an agreed upon timeframe. The Director of EONS also expressed the desire to take our recommendations and revise the current allocation. The Grantee disagrees with our monetary analysis and is awaiting a decision from CPD. Once that determination is made, the Grantee intends to prepare a more thorough analysis and update their allocation accordingly. Page 15 2002-BO-1001 Finding 1 Auditee Comments The Grantee disagreed that costs were improperly allocated to its CDBG Program. The Grantee contends that we did not consider the full scope of the Programs that the Grantee conducted using CDBG funds. The Grantee believes its activities and outcomes during this time period demonstrated that it upheld the letter and intent of the national objectives of the CDBG Program. The Grantee used the Annual Assessment Reports prepared by CPD as a source of guidance and management direction in the administration of the Grantee's CDBG Program. These reports cited the Grantee for administrative excellence and outstanding leveraging of other resources. In support of these contentions, the Grantee provided performance based activity reports for the period July 1999 to June 2000. The Grantee advised that the City Manager initiated a Performance Based Management System whereby each Department developed written projected performance goals and objectives for the twelve-month fiscal year. The Grantee provided numerous spreadsheets detailing performance based budgets and housing performance goals. The Grantee did not implement performance based reporting during its Program Year 26 and stated that the Year 26 documentation is admittedly lacking due to changes in high-level administrative personnel during this period. The Grantee did provide, however, a schedule of Economic Development Staff Responsibilities as of January 16, 2001 to support their contention that Grantee personnel performed direct services during Program Year 26. The Grantee advised they pro-rated time to arrive at a twelve-month average. The Grantee also provided examples of other performance based budget activity reports for its Management and Support Staff for periods prior to our audit period. The Grantee stated that: Time sheets in addition to documented field reports are currently being maintained by staff personnel to determine administrative and direct service activities provided by the 2002-BO-1001 Page 16 Finding 1 staff. These time sheets and documented field reports are submitted to program directors for review and approval. Both the time sheet and the field reports are forwarded to the Assistant Grantee Manager for approval. The time sheets will be forwarded to the budget office with the intention of allocating employees time towards the appropriate funding sources. All Grantee department's financed under the Block Grants will be required to follow this same process in the future. The Grantee believes that the costs cited will be deemed supported and eligible and, if required, an amended reallocation process will show that administrative and direct service allocations were properly expended. Due to its voluminous content, the Grantee’s entire response was forwarded to CPD under a separate letter. We included the narrative to the Grantee’s response in Appendix C. OIG Evaluation of Our review determined that the Grantee lacked an approved Auditee Comments allocation compliant with OMB Circular A-87 Cost Principles for State and Local Governments that reflects actual hours worked on each program signed by each employee. In interviews, the Grantee acknowledged its lack of an approved plan. Without an approved allocation plan, all salaries, related fringe benefits and any overhead costs using the same methodology are questionable. We also reached our conclusion based upon existing HUD regulations and Federal Cost Principles coupled with an analysis of employee time allocation sheets, interviews with employees, and discussions with Grantee management. The Grantee contends that our conclusions were based on a limited understanding of its overall revitalization strategy, as well as the level of staff involvement on those activities. The Grantee also believes that the interviews we conducted, along with our review of the employee time allocation sheets for the audit period, formed the basis of our conclusions. Our understanding of the Grantee’s overall revitalization strategy and level of staff involvement was limited only to the extent in which the Grantee provided information and documentation to support its revitalization strategy and level Page 17 2002-BO-1001 Finding 1 of staff involvement. The Grantee’s revitalization strategy is not relevant to our conclusions. Although the Grantee provided additional documentation for our review and consideration, this documentation was limited generally to the Grantee's Program Year 25, contained some data input errors, and did not correlate the performance based reports and the allocation in place during the audit period. The Grantee provided some aspect of direct services through its WHIP and ED Program, but was unable to produce a valid basis for the allocation of salaries. The Grantee’s allocation was based on the available funding resources, rather than the actual time spent by its employees on each Program, which is contrary to Federal Cost Principles. The Grantee also referred to the HUD Annual CDBG Assessments for the Grantee’s Program Years 23, 24, and 25. With the exception of Program Year 25, these Assessments covered years prior to our audit period. The Assessments covering the Grantee's Program Years 23 and 24 recognized the Grantee for administrative excellence and its leveraging capacity. The Assessments provided do not constitute monitoring reports and are not meant to be a comprehensive evaluation of specific programs. Further, the Assessment for Program Year 24 cited a concern with the overall decrease in the level of housing productivity while, at the same time, the number of staff assigned increased. The Assessment stated that, based on conversations with the Grantee staff, personnel worked on other projects including demolition and tax title properties that may have contributed to a decrease in productivity. More importantly, the Assessment stated, The employee's time is not being charged appropriately. A review should be conducted in order to determine if the program staff is charging their time to the appropriate categories. Our review concluded that the Grantee's employees were, in fact, charging their time incorrectly as direct service costs to the WHIP and the ED Program. 2002-BO-1001 Page 18 Finding 1 Recommendations We recommend that you: 1A. Instruct the Grantee to establish, and submit for HUD approval, an appropriate method for allocating direct and indirect costs to the WHIP and the ED Program, in accordance with Federal Cost Principles, for implementation retroactive to July 1, 2001, and for use subsequent to Program Year 26. 1B. Instruct the Grantee to provide sufficient documentation to support the $569,961 ($424,073 – Salaries; $68,142 – Fringe; and $77,746 – Ordinary Maintenance) in unsupported costs; or reimburse the CDBG Program from non-Federal funds accordingly. As the questioned costs relate to the number of hours specific individuals allocated to the Grantee’s WHIP and ED Program, the supporting documentation should clearly identify the number of hours attributed to each specific individual and the methodology used to determine those hours. 1C. Require the Grantee to reimburse the ineligible costs of $331,386 to the CDBG Program from non-Federal funds ($285,958 – Salaries and $45,428 – Fringe) or provide documentation to support the reallocation of those costs to Planning and Administrative Costs. 1D. Require the Grantee to use non-Federal funds to reimburse the CDBG Program any amount in excess of the 20 percent statutory limitation on CDBG Planning and Administrative Costs. This reimbursement should include any excess costs identified after proper allocation of the administrative costs currently charged to the WHIP and the ED Program. Page 19 2002-BO-1001 Finding 1 2002-BO-1001 Page 20 Management Controls In planning and performing our audit, we obtained an understanding of the management controls that were relevant to our audit objectives. We considered the management control systems of the City of Worcester (Grantee), specifically as they related to the Community Development Block Grant (CDBG) Program in order to determine our audit procedures and not to provide assurance on management controls. Management controls consist of a plan, organization, methods, and/or procedures adopted by management to ensure that resource use is consistent with laws, regulations, and policies; that resources are safeguarded against waste, loss, and misuse; and that reliable data is obtained, maintained, and fairly disclosed in reports. We determined the following management controls were Relevant Management relevant to our audit objectives: Controls Ø Controls over the administration of the CDBG Program; Ø Controls over program receipts and disbursements to ensure that costs charged were eligible, reasonable, and met at least one national objective; Ø Controls to ensure adequate documentation supporting program expenditures was maintained; Ø Controls to ensure that the Grantee was adequately monitoring subrecipient activities; and Ø Controls over monitoring overall program performance. A significant weakness exists if management controls do not give reasonable assurance that resource use is consistent with laws, regulations and policies; that resources are safeguarded against waste, loss, and misuse; and that reliable data is obtained, maintained and fairly disclosed in reports. Our review identified a significant weakness in the Significant Weaknesses allocation method used by the Grantee for the costs of salaries, related fringe benefits, and ordinary maintenance costs. The Grantee lacked the necessary controls to ensure that these costs were properly allocated to the CDBG Program for those employees who worked on multiple programs. These weaknesses are discussed in the finding section of this report. Page 21 2001-BO-1002 Management Controls 2002-BO-1001 Page 22 Appendix A Ineligible and Unsupported Costs Ineligible Unsupported Finding 1 Costs 1/ Costs 2/ Salaries, fringe and ordinary maintenance costs allocated directly to the CDBG Program without adequate documentation $569,961 Salaries and fringe benefits allocated directly to the CDBG Program, when they were ineligible as direct costs to the CDBG Program $331,386 1/ Ineligible costs are those costs that are questioned because of an alleged violation of a provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds. 2/ Unsupported costs are those costs whose eligibility cannot be clearly determined during the audit since such costs were not supported by adequate documentation. Page 23 2002-BO-1001 Appendix A 2002-BO-1001 Page 24 Appendix B Post-Reorganization Charts EXECUTIVE OFFICE OF NEIGHBORHOOD SERVICES Assistant City Manager - Neighborhood Services/ Legislative Affairs Director - Neighborhood Services Housing Public Services Grants Administration Office Management Coordinator of Coordinator of Associate Planner Administrative Housing Public Services Assistant Principal Staff Assistant (2) Principal Staff Assistant Staff Assistant III Principal Clerk (2) Staff Assistant III (3) Senior Staff Assistant Principal Clerk Clerk/Typist Staff Assistant III Staff Assistant I Staff Assistant Note: (2) or (3) is the number of positions for each title Page 25 2002-BO-1001 Appendix B EXECUTIVE OFFICE OF ECONOMIC DEVELOPMENT Chief Development Officer Regulatory Services Division Worcester Code Redevelopment Enforcement Authority Board Code & Director of Zoning Project Enforcement Board & Management Office Management Commissions Administrative Project Services Assistant Engineer Principal Staff Principal Staff Staff Assistant II (3) Assistant Principal Staff Assistant I (2) Clerk Cultural Economic Chief Staff Planning Marketing Development Development Assistant Officer Director of Coordinator of Marketing Cultural Economic BVHCC Planning Director Development Development Client Server Chief Staff Programmer/ Assistant Analyst Principal Staff Principal Staff Assistant Staff Assistant Senior Staff III Assistant Staff Assistant Staff Assistant II (3) III Staff Assistant I Note: (2) or (3) is the number of positions for each title 2002-BO-1001 Page 26 Appendix C Auditee Comments Page 27 2002-BO-XXXX Appendix C 2002-BO-1001 Page 28 Appendix C Page 29 2002-BO-1001 Appendix C 2002-BO-1001 Page 30 Appendix C Page 31 2002-BO-1001 Appendix C 2002-BO-1001 Page 32 Appendix C Page 33 2002-BO-1001 Appendix C 2002-BO-1001 Page 34 Appendix C Page 35 2002-BO-1001 Appendix C 2002-BO-1001 Page 36 Appendix C Page 37 2002-BO-1001 Appendix C 2002-BO-1001 Page 38 Appendix C Page 39 2002-BO-1001 Appendix C 2002-BO-1001 Page 40 Appendix D Distribution Inspector General, G Deputy Assistant Inspector General for Audit, GA Assistant Inspector General for Audit, GA Assistant Inspector General for Investigation, GI Acting Director, Program Research and Planning Division, GAP Director, Information Systems Audit Division, GAA Counsel to the Inspector General, GC Central Records, GF Semi-Annual Report Coordinator, GF Assistant Inspector General, Office of Management & Policy, GF Director of Internal Affairs, GF Secretary, S Deputy Secretary, S Chief of Staff, S Deputy Chief of Staff for Policy & Programs, S Deputy Chief of Staff for Intergovernmental Affairs, S Senior Advisor to Deputy Secretary, S Assistant to the Secretary for White House Liaison, F Press Secretary/Senior Communications Advisor to the Secretary, W Chief Executive Officer for Administrative Operations and Management, S Assistant Deputy Secretary for Field Policy and Management, SFD Chief Information Officer, Q Chief Financial Officer, F General Counsel, C Special Counsel, C Ronald A. Rosenfield, President, Ginnie Mae, T Assistant Secretary for Congressional and Intergovernmental Relations, J. Assistant Secretary for Housing/Federal Housing Commissioner, H Assistant Secretary for Community Planning and Development, 1AHMLAP Assistant Secretary for Public and Indian Housing, P Deputy Director, Center for Faith-Based and Community Initiatives, AK Director, Office of Departmental Equal Employment Opportunity, U Director, Office of Departmental Operations and Coordination, I Director, Office of Federal Housing Enterprise Oversight, L Director, Office of Healthy Homes and Lead Hazard Control, L General Deputy Assistant Secretary for Policy Development and Research, H General Deputy Assistant Secretary for Fair Housing and Equal Opportunity, E General Deputy Assistant Secretary for Administration, AA Special Agent-In-Charge, 1AGI Primary Field Audit Liaison Officer, 3AFI Departmental Audit Liaison Officer, FMA Auditee Acquisitions Librarian, Library, AS District Inspector General (2-11) Page 41 2002-BO-1001 Appendix D Regional Directors Stanely Czerwinski, Associate Director, Resources, Community, and Economic Development Division, United States General Accounting Office, 441 G Street, NW, Room 2723, Washington, DC 20548 Steve Redburn, Chief, Housing Brach, Office of Management & Budget, 725 17th Street, NW, Room 9226, New Executive Office Building, Washington, DC 20503 The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs, 340 Dirksen Senate Office Building, United States Senate, Washington, DC 20510 The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706 Hart Senate Office Bldg., United States Senate, Washington, DC 20510 The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn Bldg., 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 Andy Cochran, House Committee on Financial Services, 2129 Rayburn H.O.B., Washington, DC 20515 Clinton C. Jones, Senior Counsel, Committee on Financial Services, U.S. House of Representatives, B303 Rayburn H.O.B., Washington, DC 20515 2002-BO-1001 Page 42 Filename: ig211001.pdf Directory: C: Template: C:\WINNT\Profiles\caroliv\Application Data\Microsoft\Templates\Normal.dot Title: The following audit report content requirements are presented herein to better illustrate the required audit report format Subject: Author: HUDware IIa Test User Keywords: Comments: Creation Date: 3/27/02 10:27 AM Change Number: 6 Last Saved On: 3/27/02 12:10 PM Last Saved By: Vincenta Carolina Total Editing Time: 26 Minutes Last Printed On: 3/27/02 12:11 PM As of Last Complete Printing Number of Pages: 52 Number of Words: 7,161 (approx.) Number of Characters: 40,819 (approx.)
City of Worcester, Worcester, Massachusetts Community Development Block Grant Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-03-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)