oversight

Congressionally Requested Audit of the Outreach and Training Assistance Grant Awarded to the Anti-Displacement Project Springfield, Massachusetts Grant Numbers FFOT98013 and FFOT00019

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-30.

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

         AUDIT REPORT




 CONGRESSIONALLY REQUESTED AUDIT OF THE
 OUTREACH AND TRAINING ASSISTANCE GRANT
AWARDED TO THE ANTI-DISPLACEMENT PROJECT

     SPRINGFIELD, MASSACHUSETTS
 GRANT NUMBERS FFOT98013 AND FFOT00019


              2002-BO-1004

           SEPTEMBER 30, 2002

      OFFICE OF AUDIT, NEW ENGLAND
         BOSTON, MASSACHUSETTS
                                                                Issue Date
                                                                        September 30, 2002
                                                                Audit Case Number
                                                                        2002-BO-1004




TO: Charles H. Williams, Director, HUD’s Office of Multifamily Housing Assistance
    Restructuring, HY


FROM:     Barry L. Savill, Regional Inspector General, Office of Audit, 1AGA


SUBJECT:       Congressionally Requested Audit of the Outreach and Training Assistance
               Grant awarded to the Anti-Displacement Project in Springfield, Massachusetts
               Grant Numbers: FFOT98013 and FFOT00019

We completed an audit of two Outreach and Training Assistance Grants (OTAG) awarded to the
Anti-Displacement Project (Grantee). The review was performed at the request of Congress.
Our audit objective was to determine if the Grantee used Section 514 grant funds for only eligible
activities as identified in the Multifamily Assisted Housing Reform and Affordability Act
(MAHRA), Notice of Funds Availability (NOFA), and grant agreements between HUD and the
Grantee to further the Mark-to-Market Program. We also determined if the Grantee expended
Section 514 funds for any lobbying activities. Congress specifically identified lobbying as an
ineligible activity under MAHRA.

Section 1303 of the 2002 Defense Appropriation Act (Public Law 107-117) requires the HUD
Office of Inspector General to audit all activities funded by Section 514 of the MAHRA. The
directive would include the OTAG and Intermediary Technical Assistance Grants (ITAG)
administered by the Office of Multifamily Housing Assistance Restructuring (OMHAR).
Consistent with the Congressional directive, we reviewed the eligibility of costs with particular
emphasis on identifying ineligible lobbying activities.

The audit determined that the Grantee: 1) charged ineligible travel and conference costs to OTAG;
2) incurred questionable costs for Consultant Services; and 3) charged unallowable lobbying
activities to the grants.

In accordance with HUD Handbook 2000.06 REV-3, please provide us a status report within 60
days for each recommendation without a management decision identifying: (1) the corrective
action taken; (2) the proposed corrective action and the date to be completed; or (3) why action is
Management Memorandum


considered unnecessary. Additional status reports are required at 90 days and 120 days after
report issuance for any recommendation without a management decision. Also, please furnish us
copies of any correspondence or directives issued because of the audit.

Although the Grantee was given the opportunity to comment on our report, as of September 27,
2002, we have not received their comments on our report. We appreciate the courtesies and
assistance extended by the personnel of the Grantee during our review. Should you or your staff
have questions, please contact us at (617) 994-8380.




2002-BO-1004                            Page ii
Executive Summary
We completed an audit of the Outreach and Training Assistance Grants (OTAG) awarded to the
Anti-Displacement Project (Grantee). Our audit objectives were to: 1) determine if the Grantee
used Section 514 grant funds for only eligible activities as identified in the Multifamily Assisted
Housing Reform and Affordability Act (MAHRA), Notice of Funds Availability (NOFA), and
grant agreements to further the Mark-to-Market Program, and 2) to ensure that the Grantee did
not expend OTAG funds for any lobbying activities.



                                      The audit identified that the Grantee needs to:
 Audit Results
                                      Ø Implement a system to ensure proper allocation of
                                        travel and conference costs and maintain adequate
                                        records to support this allocation.

                                      Ø Ensure that OTAG funds are spent on eligible activities
                                        listed in the NOFAs.

                                      Ø Establish policies and procedures for identifying
                                        lobbying activities and ensure that Federal funds are not
                                        used to support direct or indirect lobbying activities.

                                      Ø Provide justification for its use of OTAG funds to pay
                                        for $37,509 in consultant costs.

                                      Ø Reimburse the grant for $6,835 in ineligible lodging and
                                        transportation costs.

                                      The Grantee charged its OTAGs $6,835 in ineligible costs
                                      for lodging and transportation to three National People’s
                                      Action (NPA) Conferences held in Washington, DC. The
                                      ineligible costs were charged because the Grantee does not
                                      follow an equitable system for allocating conference costs.
                                      Only a portion of the conference activities was eligible for
                                      OTAG funding. In addition to the eligible activities,
                                      conference agendas show unallowable lobbying activities,
                                      such as meetings with legislators, meetings with
                                      government officials, and workshops that encourage
                                      lobbying. We also identified workshops, such as a Youth
                                      Scholarship Program, School Construction Legislation, and
                                      Job Creation Strategies, which are ineligible because they
                                      do not provide outreach, training, and counseling so
                                      residents can participate effectively in the Mark-to-Market
                                      process.

                                          Page iii                                      2002-BO-1004
Executive Summary


                    Because of these expenditures, fewer residents had the
                    opportunity to receive important guidance and training
                    about the Mark-to-Market program and its impact on the
                    future of their housing.

                    The Grantee paid $37,509 to consultants for: 1) project
                    management, 2) financial services, and 3) legal services.
                    The Grantee hired the three Consultants to assist them in
                    their efforts to acquire and rehabilitate Cathedral Hill
                    Apartments, a Section 8 Project located in Springfield,
                    Massachusetts. The Grantee was acting on behalf of a
                    tenant non-profit group who will assume ownership of
                    Cathedral Hill. We are questioning these costs because the
                    services provided by the Consultants are not allowable
                    under OTAG.

                    The Grantee charged OTAG for staff involved in lobbying
                    activities. The lobbying includes meetings with
                    Congressional staff from the Senate, and other lobbying
                    activities. We could not determine the exact cost of
                    lobbying due to lack of detailed records. The Grantee did
                    not separate lobbying from other activities performed by its
                    staff. When we attempted to trace the activities from the
                    time sheets to the Expense Voucher Forms, the Grantee
                    could not provide the supporting documentation such as the
                    hours and actual dollar amounts charged to OTAG. Federal
                    regulations require that Grantees must maintain reports
                    reflecting the distribution of activities performed by each
                    employee whose compensation is charged, in whole or in
                    part, to the Federal grant.        Lobbying activities are
                    prohibited by MAHRA and OMB guidance. Because of
                    this concern, fewer funds were available for eligible OTAG
                    activities.

                    Our report contains recommendations to address the three
 Recommendations    issues identified in the report. The Grantee needs to:

                    Ø Repay $6,835 in ineligible costs associated with lodging
                      and transportation for the NPA Conferences.

                    Ø Implement a system in accordance with OMB Circular
                      A-122 for allocating costs between eligible and
                      ineligible activities and maintain adequate records to
                      support the allocation.

2002-BO-1004            Page iv
                                       Executive Summary


Ø Provide justification for its use of OTAG funds for
  Consultant Services.

Ø If adequate justification is not provided for use of
  OTAG funds for Consultant Services, repay $37,509 to
  the grant in ineligible costs.

Ø Discontinue charging the grant for activities related to
  lobbying as defined by MAHRA and OMB Circular A-
  122.

Ø Establish policies and procedures for identifying
  lobbying activities and ensure that Federal funds are not
  used to support direct or indirect lobbying activities.

Ø Maintain time records according to OMB Circular A-122
  which require Grantees to maintain reports showing the
  distribution of activities performed by each employee
  whose compensation is charged, in whole or in part, to
  the Federal grant.

OMHAR needs to evaluate the Grantee’s lobbying
activities in comparison with Section 1303 of Public Law
107-17 and Title II of Public Law 107-73 and take
appropriate action.

The findings were discussed with the Grantee’s Executive
Director during the course of the audit. We held an exit
conference on July 25, 2002. On August 30, 2002, we
provided the Grantee a copy of the draft report for comment.
We granted the Grantee an extension to September 18, 2002
to respond and we made several attempts to obtain
comments. However, as of September 27, 2002, the Grantee
has not provided their response.




     Page   v                                  2002-BO-1004
Executive Summary




                THIS PAGE LEFT BLANK INTENTIONALLY




2002-BO-1004                Page vi
Table of Contents
Management Memorandum                                                       i



Executive Summary                                                         iii



Introduction                                                               1



Findings

1.     Grantee Charged Ineligible Travel and Conference
       Costs to OTAG                                                      5

2.     Grantee Incurred Questionable Costs for Consultant Services        9


3.     Grantee Charged Unallowable Lobbying Activities to OTAG           13



Management Controls                                                      17



Follow Up On Prior Audits                                                19



Appendices
     A. Schedule of Ineligible Costs                                     21


     B. Distribution Outside of HUD                                      23




                                Page vii                        2002-BO-1004
Table of Contents


Abbreviations

HUD             Housing and Urban Development
ITAG            Intermediary Technical Assistance Grant
MAHRA           Multifamily Assisted Housing Reform and Affordability Act
NOFA            Notice of Funds Availability
NPA             National People’s Action Conference
OIG             Office of Inspector General
OMB             Office of Management and Budget
OMHAR           Office of Multifamily Housing Assistance Restructuring
OTAG            Outreach and Training Assistance Grant




2002-BO-1004                            Page viii
Introduction
The Anti-Displacement Project (Grantee) is a non-profit corporation of tenant organizations
throughout Central and Western Massachusetts. The Grantee is concerned with the preservation
and improvement of privately owned, multifamily housing. The Grantee’s Board of Directors is
made up of nine members. The Executive Director is responsible for the administration of daily
operations. The Grantee is located at 57 School Street in Springfield, Massachusetts. Grantee
regularly works with fifteen HUD-assisted projects in Central and Western Massachusetts.

The Grantee received two Outreach and Training Assistance Grants (OTAG) from the Office of
Multifamily Housing Assistance Restructuring (OMHAR):

    Grant Number           Amount Awarded               Amount Disbursed as of May 2002
     FFOT98013               $250,000                             $196,028
     FFOT00019               $250,000                              $ 41,691 1/

       1/     The Grantee’s Executive Director advised that OMHAR authorized their use of
              fiscal year 2000 funds before drawing down all of fiscal year 1998 funds.

In addition to the OTAG grants, the Grantee received grants from non-Federal sources. The
Grantee received $35,000 from the United States Catholic Conference, $50,000 from the
National Training and Information Center, and $70,000 from the Needmor Fund. The Grantee
did not receive a financial audit, nor was one required. Under OMB Circular A-133, Subpart B,
Paragraph 200(d) grantees that expend less than $300,000 in Federal awards are exempt from the
Federal requirement of an annual audit.

The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) established
the OMHAR within HUD. Utilizing the authority and guidelines under MAHRA, OMHAR’s
responsibility included the administration of the Mark-to-Market Program, which included the
awarding, and oversight of the Section 514 Outreach and Training Assistance and Intermediary
Technical Assistance Grants. The objective of the Mark-to-Market Program was to reduce rents
to market levels and restructure existing debt to levels supportable by these reduced rents for
thousands of privately owned multifamily properties with federally insured mortgages and rent
subsidies. OMHAR worked with property owners, Participating Administrative Entities, tenants,
lenders, and others to further the objectives of MAHRA.

Congress recognized, in Section 514 of MAHRA, that tenants of the project, residents of the
neighborhood, the local government, and other parties would be affected by the Mark-to-Market
Program. Accordingly, Section 514 of MAHRA authorized the Secretary to provide up to $10
million annually ($40 million total) for resident participation for the period 1998 through 2001.
The Secretary authorized $40 million and HUD staff awarded about $26.6 million to 38 Grantees
(a total for 81 grants awarded). Section 514 of MAHRA required that the Secretary establish
procedures to provide an opportunity for tenants of the project and other affected parties to
participate effectively and on a timely basis in the restructuring process established by MAHRA.


                                         Page 1                                     2002-BO-1004
Introduction


Section 514 required the procedures to take into account the need to provide tenants of the
project and other affected parties timely notice of proposed restructuring actions and appropriate
access to relevant information about restructuring activities. Eligible projects are generally
defined as HUD-insured or HUD-held multifamily projects receiving project based rental
assistance. Congress specifically prohibited using Section 514 grant funds for lobbying members
of Congress.

HUD issued a Notice of Funds Availability (NOFA) in fiscal year 1998 and a second NOFA in
fiscal year 2000 to provide opportunities for nonprofit organizations to participate in the Section
514 programs. HUD provided two types of grants: the Intermediary Technical Assistance Grant
(ITAG); and the Outreach and Training Assistance Grant (OTAG). The NOFA for the ITAG
states that the program provides technical assistance grants through Intermediaries to sub-
recipients consisting of: (1) resident groups or tenant affiliated community-based nonprofit
organizations in properties that are eligible under the Mark-to-Market program to help tenants
participate meaningfully in the Mark-to-Market process, and have input into and set priorities for
project repairs; or (2) public entities to carry out Mark-to-Market related activities for Mark-to-
Market eligible projects throughout its jurisdiction. The OTAG NOFA states that the purpose of
the OTAG program is to provide technical assistance to tenants of eligible Mark-to-Market
properties so that the tenants can: (1) participate meaningfully in the Mark-to-Market program;
and (2) affect decisions about the future of their housing.

OMHAR also issued a December 3, 1999 memorandum authorizing the use of OTAG and ITAG
funds to assist at-risk projects. OMHAR identified these as non-Mark-to-Market projects where
the owners were opting out of the HUD assistance or prepaying the mortgages.

HUD’s regulations at 24 Code of Federal Regulation Part 84 contain the uniform administrative
requirements for grants between HUD and nonprofit organizations. The regulations (24 CFR
84.27) require that nonprofit Grantees utilize the Office of Management and Budget (OMB)
Circular A-122, Cost Principles for Non-Profit Organizations, in determining the allowability of
costs incurred to the grant. OMB Circular A-122 outlines specific guidelines for allowability of
charging salaries and related benefits to the grants and the records needed to support those
salaries. For indirect costs charged to the grant, the Circular establishes restrictions for indirect
costs, and specific methods and record keeping to support the allocation of costs.

The Circular also establishes the unallowability of costs associated with Federal and state
lobbying activities. Simply stated, the use of federal funds for any lobbying activity is
unallowable. OMB Circular A-122 identifies some examples of unallowable activities of
lobbying. These include any attempt to influence an elected official or any Government official
or employee (Direct Lobbying) or any attempt to influence the enactment or modification of any
actual or pending legislation by propaganda, demonstrations, fundraising drives, letter writing, or
urging members of the general public either for or against the legislation (Grassroots Lobbying).




2002-BO-1004                               Page 2
                                                                 Introduction




                   The purpose of our audit was to determine whether the
Audit Objectives   Grantee:

                   §   Expended Section 514 grant funds for only eligible
                       activities as identified in MAHRA, the NOFAs, their
                       grant agreements, or other requirements to further the
                       Mark-to-Market Program.

                   §   Expended Section 514 funds for any lobbying activities.
                       Congress specifically identified lobbying as an
                       ineligible activity under MAHRA.

                   In conducting the audit, we:
Audit Scope and
Methodology        Ø Reviewed the requirements in MAHRA, the OTAG
                     NOFA, the OTAG grant agreement, HUD’s
                     requirements for grant agreements for nonprofit entities,
                     and OMB guidance on the allowability of cost for
                     nonprofit Grantees.

                   Ø Interviewed the Grantee’s Executive Director and
                     Independent Public Accountant to determine how the
                     Grantee records and segregates OTAG funds.

                   Ø Interviewed the Grantee’s staff to determine their roles
                     and responsibilities in regards to OTAG activities.

                   Ø Traced the Line of Credit Control System (LOCCS)
                     drawdowns to bank statements verifying that all grant
                     funds disbursed during the audit period by HUD were
                     deposited into the Grantee’s bank account.

                   Ø Reviewed 100 percent of the OTAG funds disbursed
                     through LOCCS for October 1998 through June 2002 to
                     determine if the funds are supported by documentation
                     and were used for eligible OTAG activities.

                   Ø Reviewed travel expenditures paid with OTAG funds to
                     determine if the costs were segregated between OTAG
                     and non-OTAG activities.

                   Ø Reviewed OTAG Consultant contracts to determine if
                     OTAG activities were related to lobbying activities.
                       Page 3                                    2002-BO-1004
Introduction



               Ø Reviewed the Grantee’s organizational chart, key
                 position descriptions, board minutes, and Grantee’s
                 mission statement to identify inconsistencies.

               Ø Reviewed the Grantee’s cost allocation plan to
                 determine if expenses were allocated properly and
                 consistently.

               Ø Reviewed 100 percent of the Grantee’s staff time sheets
                 for October 1998 through June 2002 to determine if the
                 time sheets contain a detailed accounting of the daily
                 routines for both OTAG and non-OTAG activities.

               Ø Reviewed telephone charges for the period October
                 1998 through June 2002 to determine if the charges
                 related specifically to any lobbying activities.

               Ø   Reviewed the OTAG Quarterly Performance Reports
                   submitted to OMHAR to determine eligibility of
                   activities.

               The audit covered the period October 1998 through June
               2002. During June and July 2002, we performed the
               fieldwork at 57 School Street, Springfield, MA 01105. We
               conducted the audit in accordance with Generally Accepted
               Government Auditing Standards.




2002-BO-1004       Page 4
                                                                                      Finding 1


         Grantee Charged Ineligible Travel and
          Conference Costs to OTAG Grants
The Grantee charged its Outreach and Training Assistance Grants (OTAG) at least $6,835 in
ineligible costs for lodging and transportation to three conferences. These overcharges occurred
because the Grantee does not follow an equitable system for allocating conference costs. Only a
portion of these conferences dealt with outreach and training related to the Mark-to-Market
Program; therefore, only a portion of the costs is eligible for OTAG funding. As a result, fewer
residents had the opportunity to receive important guidance and training about the Mark-to-
Market program and its impact on the future of their housing.



                                    The Grantee staff and tenants from projects assisted by the
 Conferences Include                Grantee attended three National People’s Action (NPA)
 Lobbying                           Conferences in Washington, DC held in April 1999, April
                                    2000, and March 2001. In its website, NPA describes itself
                                    as a tool for neighborhoods to deal with Washington
                                    Politicians. NPA’s website also states that tenant groups
                                    use time during the conferences to meet with legislators and
                                    government officials.       Conference agendas include
                                    lobbying activities, such as meetings with various
                                    Congressmen and their staff, and workshops that encourage
                                    lobbying.      For example, one workshop, School
                                    Construction Legislation addresses how tenant groups can
                                    work together to push for and win national legislation that
                                    would provide money to build and rehabilitate old school
                                    buildings. This workshop focused on specific bills that
                                    need Congressional support and discussed the politicians
                                    who disagreed with the bill. Another workshop on Loan
                                    Sharks discusses how the NPA Conference used its
                                    workshop to discuss strategies for stopping loan sharks by
                                    pressuring legislators. The final day of each conference
                                    does not include any workshops; instead, the day is devoted
                                    exclusively to lobbying activities. The activities on that
                                    day include site visits to Capitol Hill and meetings with
                                    legislators. The conference agenda states:

                                        See the Monday Meetings list in your conference
                                        packet. Don’t forget to stop by your Congressperson’s
                                        or Senator’s office(s) with NPA’s Lobby Sheet.



                                         Page 5                                    2002-BO-1004
Finding 1


                          A number of NPA workshops are not eligible OTAG
 Conference Workshops     activities. For example, we identified workshops for a
 Ineligible               Youth Scholarship Program, School Construction
                          Legislation, and Job Creation Strategies, which are not
                          eligible under the OTAG Grant Agreement. The Executive
                          Director agrees that NPA workshops on scholarship
                          programs, school construction, and jobs are not eligible
                          under OTAG.

                          The April 1998 Notice of Funds Availability (NOFA)
 Eligible Activities      defines eligible activities as those activities that provide
                          opportunities by means of technical assistance to residents
                          of eligible projects to participate effectively in the Mark-to-
                          Market process. The eligible activities include:

                          Ø Identifying residents living in eligible Mark-to-Market
                            properties;

                          Ø Providing outreach and training to tenants to explain the
                            Mark-to-Market program;

                          Ø Organizing tenants so they can participate in the Mark-
                            to-Market process;

                          Ø Educating and counseling            tenants    on   housing
                            management; and

                          Ø Delivering  training          programs        on    resident
                            homeownership options.

                          OMB Circular A-122, Attachment B, Paragraph 25,
 Definition of Lobbying   Lobbying, specifically precludes:

                          Ø Any attempt to influence the introduction of legislation
                            or the modification of any pending Federal or State
                            legislation through communication with any member or
                            employee of the Congressional or State legislature;

                          Ø Any attempt to influence the introduction of legislation;
                            or the enactment or modification of any pending
                            legislation by preparing, distributing or using publicity or
                            propaganda, or by urging members of the general public
                            or any segment thereof to contribute to or participate in
                            any mass demonstration, march, rally, fundraising drive,
                            lobbying campaign, letter writing or telephone campaign.
2002-BO-1004                  Page 6
                                                                                 Finding 1



                          Ø Legislative liaison activities, including attendance at
                            legislative sessions or committee hearings, gathering
                            information regarding legislation, and analyzing the
                            effect of legislation, when such activities are carried on in
                            support of or in knowing preparation for an effort to
                            engage in unallowable lobbying.

                          The Grantee allocates conference costs to OTAG and other
No Basis for Allocation   cost centers. The Executive Director could not explain her
Method                    basis for allocating lodging and transportation costs. The
                          Executive Director advised that she allocates costs to
                          OTAG and non-OTAG activities based entirely on
                          estimates; but the Grantee did not have any documentation
                          supporting its estimates. Additionally, the Grantee did not
                          maintain registration lists or certificates of completion to
                          document attendance at the conference for the eligible
                          workshops.

                          The three conferences encompassed 57.5 hours in total.
                          Our review of the three Conference agendas determined
                          that 23.5 hours were devoted to eligible activities and 34
                          hours were devoted to ineligible activities. We multiplied
                          the eligible cost percentage by total costs for lodging and
                          transportation to arrive at our estimated eligible costs.

                                                       1999         2000          2001
                                Description          Conference   Conference    Conference
                          Eligible hours                8.25          8            7.25
                          Total hours for
                                                       16.25        22.75         18.50
                          Conference

                          Eligible cost percentage    50.77%       35.16%        39.19%

                          Total Expenditures for
                          lodging and                 $5,090       $9,673        $15,235
                          transportation
                          Estimated eligible costs    $2,584        $3,401        $5,971


                          The Grantee charged only a portion of the lodging and
                          transportation costs to OTAG; however, these charges
                          exceeded our estimates of eligible costs. Based on these
                          calculations, OTAG overcharged $6,835 in lodging and
                          transportation costs.


                               Page 7                                          2002-BO-1004
Finding 1


                                                      1999         2000         2001
                               Description                                                 Subtotals
                                                    Conference   Conference   Conference

                         Grantee charges to
                                                     $3,830       $8,573       $6,388      $18,791
                         OTAG
                         Estimated Eligible Costs    $2,584       $3,401       $5,971      $11,956

                         Amount Overcharged          $1,246       $5,172        $417        $6,835


                             The Executive Director stated that the purpose of NPA
 Tenants Meet With           Conferences is to bring tenant leaders together for a variety
 Congressional Members       of workshops on leadership development, safety and
                             housing issues, youth education, and training. Furthermore,
                             the Executive Director stated that the individuals who
                             attend these workshops are always tenants who reside at
                             projects assisted by the Grantee. During these conferences,
                             tenants have an opportunity to meet with HUD Officials,
                             Senators, and Congressman. The Executive Director
                             explained that the purpose of meeting with Senators and
                             Representatives is to help win legislation on important
                             issues. Since only a portion of the conferences were
                             charged to OTAG, the Executive Director believes they can
                             participate in lobbying. While the Grantee can organize
                             and participate in lobbying not allowed under OMB
                             guidance, these activities should not be supported, in whole
                             or in part, with federal funds.



Recommendations              We recommend that the Director of OMHAR:

                             1A.     Require the Grantee to repay $6,835 in ineligible
                                     costs.

                             1B.     Require the Grantee to discontinue charging the grant
                                     for activities related to lobbying as defined by
                                     MAHRA and OMB Circular A-122.

                             1C.     Require the Grantee to implement a system, in
                                     accordance with OMB Circular A-122, separating
                                     the costs for eligible and ineligible activities and
                                     maintain adequate records to support the allocation.




2002-BO-1004                       Page 8
                                                     Finding 1


1D.     Consider suspending grant funding until the Grantee
        develops and implements appropriate management
        controls to ensure that only eligible activities receive
        funding and that the documentation for the
        expenditure complies with OMB Circular A-122.




      Page 9                                      2002-BO-1004
Finding 1




               (THIS PAGE LEFT BLANK INTENTIONALLY)




2002-BO-1004               Page 10
                                                                                     Finding 2


                 Grantee Incurred Questionable
                 Costs for Consultant Services
The Grantee paid $37,509 to three consultants to assist tenants for the acquisition and
rehabilitation of Cathedral Hill Apartments, a Section 8 project located in Springfield,
Massachusetts. These consultants provided: 1) project management; 2) financial services; and 3)
legal services. The Executive Director stated that the Office of Multifamily Housing Assistance
Restructuring authorized the expenditures, but could not provide documented approval. The
Outreach and Training Assistance Grant’s (OTAG) Notice of Funds Availability (NOFA) defines
eligible activities as those that provide outreach, training, and counseling so residents can
participate effectively in the Mark-to-Market process. As a result, the Grantee had fewer funds
available for eligible OTAG activities.



                                    Acting on behalf of a tenant nonprofit group, the Grantee
 Tenant Group Purchases a
                                    made an agreement on December 20, 2001 to purchase the
 Section 8 Property
                                    Cathedral Hill property from the Catholic Diocese of
                                    Springfield, Massachusetts. This tenant nonprofit group
                                    will assume ownership and day-to-day responsibility for the
                                    Cathedral Hill property.

                                    The Grantee paid a consultant $25,801 to act as the project
 Consultant Fee Paid for
                                    manager for the transactions related to the tenant purchase
 Project Management
                                    of Cathedral Hill. A Letter of Agreement dated July 15,
                                    2001 discusses the Consultant’s responsibilities. These
                                    specific responsibilities included:

                                    Ø Developing and writing a project concept, if necessary,
                                      for OMHAR;

                                    Ø Developing a rehabilitation plan with assistance from
                                      the Grantee;

                                    Ø Performing a market appraisal and rent study if and
                                      when applicable;

                                    Ø Assisting Grantee in securing soft debt;

                                    Ø Reviewing the underwriting performed by another
                                      Consultant retained by the Grantee;


                                        Page 11                                   2002-BO-1004
Finding 2


                              Ø Assisting in review of budgets and cash flow
                                assumptions; and

                              Ø Assisting in hiring an architect.

                              The Grantee paid another consultant $4,325 for financial
 Consultant Fee Paid          services also associated with the acquisition of Cathedral
 Financial Services           Hill Apartments. The Grantee entered into a Business
                              Agreement with this consultant on May 18, 2001. The
                              Financial Services Consultant worked closely with the
                              Project Manager in providing the following services:

                              Ø Underwriting;

                              Ø Developing budgets and cash flow assumptions;

                              Ø Conducting negotiations with lenders; and

                              Ø Preparing a project feasibility study.

                              Even though the Financial Services Consultant worked with
                              the Project Manager in certain areas, there is no indication
                              of duplication of effort.

                              The Grantee paid $7,383 to a law firm. A Letter of
  Consultant Fee Paid Legal   Agreement dated September 6, 2001 between the Grantee
  Services                    and firm confirmed terms under which the attorneys will
                              represent the Grantee. The terms dictate that the law firm
                              will assist the Grantee with:

                              Ø Forming a subordinate affiliate nonprofit corporation
                                for Cathedral Hill Apartments;

                              Ø Obtaining recognition by the Internal Revenue Service
                                of the affiliate’s Section 501 (c)(3) tax-exempt status;

                              Ø Negotiating a purchase agreement for the property; and

                              Ø Preparing and submitting to HUD an application for the
                                transfer of physical assets.

                              The Executive Director stated that the Grantee       received
 Grant Funds Authorized       authorization from the Office of Multifamily         Housing
                              Assistance Restructuring (OMHAR) to use OTAG         funds to
                              pay for the consultant services, but the Executive   Director

2002-BO-1004                      Page 12
                                                                              Finding 2

                          was unable to provide any evidence of written approval for its
                          use of OTAG funds for this purpose. Article II, Section c of
                          the Grant Agreement stipulates that only the Grant Officer
                          may authorize deviations from the Grant Agreement. In the
                          event that the Grantee deviates without written approval of
                          the Grant Officer, such deviations shall be at the risk of the
                          Grantee. Furthermore, any costs related to the deviations
                          from the grant shall be borne by the Grantee. The Executive
                          Director signed the Grant Agreement on January 10, 2001.

                          Intermediary Technical Assistance Grants (ITAG) may be
Consultant Services are   used to cover consultant costs. The specific services provided
ITAG Related              by the consultants match the eligible ITAG activities listed in
                          the ITAG NOFA. The Grantee does not have an ITAG.
                          Activities eligible under ITAG include:

                          Ø Estimating costs of rehabilitation in anticipation of
                            purchasing a property;

                          Ø Preparing offers including contracts and other documents
                            to purchase the property;

                          Ø Legal services to organize a purchasing entity, to
                            incorporate an organization, and to establish nonprofit
                            status;

                          Ø Developing and negotiating management contracts,
                            related contract monitoring and management procedures;

                          Ø Securing financing and preparation of mortgage
                            documents, transfer documents, and other documentation
                            incident to closing a purchase offer;

                          Ø Preparing feasibility analysis, market studies, and
                            management plans;

                          Ø Accounting services for budgeting and planning; and

                          Ø Hiring an architect.




                              Page 13                                      2002-BO-1004
Finding 2


                  The Executive Director could not provide documentation to
                  show that the Grantee was authorized to use OTAG funds
                  to pay the consultants. OTAG funds cannot be expended
                  for activities other than those listed in the OTAG NOFA
                  unless the Grantee receives written approval from the Grant
                  Officer at OMHAR.


Recommendations   We recommend that the Director of OMHAR:

                  2A.      Require the Grantee to provide justification for its
                           use of OTAG funds for Consultant Services.

                  2B.      Consider suspending grant funding until the Grantee
                           develops and implements appropriate management
                           controls to ensure that only eligible activities
                           receive funding and that the documentation for the
                           expenditure complies with OMB Circular A-122.

                  2C.      Evaluate the Grantee’s use of OTAG for Consultant
                           Services and determine if any of the $37,509 is
                           eligible.

                  2D.       Require the Grantee to repay ineligible costs.




2002-BO-1004            Page 14
                                                                                        Finding 3


                  Grantee Charged Unallowable
                  Lobbying Activities to OTAG
The Grantee charged its Outreach and Training Assistance Grant (OTAG) for staff involved in
lobbying activities. We could not determine the exact cost of lobbying activities due to lack of
detailed records. The Grantee does not segregate lobbying from eligible OTAG activities for
salaries charged. Federal regulations require that grantees must maintain reports reflecting the
distribution of activity of each employee whose compensation is charged, in whole or in part, to
the Federal grant. As a result, fewer funds were available for eligible OTAG activities.



                                    Office of Management and Budget Circular A-122,
 Lobbying not Allowed               Attachment B, Paragraph 25, Lobbying specifically
                                    precludes:

                                    Ø Any attempt to influence the introduction of legislation
                                      or the modification of any pending Federal or State
                                      legislation through communication with any member or
                                      employee of the Congress or State legislature;

                                    Ø Any attempt to influence the introduction of legislation;
                                      or the enactment or modification of any pending
                                      legislation by preparing, distributing or using publicity or
                                      propaganda, or by urging members of the general public
                                      or any segment thereof to contribute to or participate in
                                      any mass demonstration, march, rally, fundraising drive,
                                      lobbying campaign or letter writing or telephone
                                      campaign; or

                                    Ø Legislative liaison activities, including attendance at
                                      legislative sessions or committee hearings, gathering
                                      information regarding legislation, and analyzing the
                                      effect of legislation, when such activities are carried on in
                                      support of or in knowing preparation for an effort to
                                      engage in unallowable lobbying.

                                    Section 514 (f)(3)(C) of MAHRA states none of the funds
                                    made available under subparagraph (A) may be used
                                    directly or indirectly to pay for any personal service,
                                    advertisement, telegram, telephone, letter, printed or written
                                    matter, or other device, intended or designated to influence
                                    in any manner a Member of Congress, to favor or oppose,
                                         Page 15                                     2002-BO-1004
Finding 3


                             by vote or otherwise, any legislation or appropriation by
                             Congress, whether before or after the introduction of any
                             bill or resolution proposing such legislation or
                             appropriation.

                             We reviewed the employee time sheets to identify meetings
 Time Sheets Show            with legislative members or their staff. Each staff person
 Meetings With Legislators   maintains a personal time sheet, which lists their hours on
                             the front and their activities on the back. These time sheets
                             do not identify the total hours for each activity. We found
                             lobbying among the activities that the staff lists on their
                             time sheets. One employee with the job title of Community
                             Organizer charged time to the OTAG grant for: 1) meetings
                             with Congressional staff from the Senate, 2) preparation of
                             information to be distributed to Senators, and 3)
                             preparations for various testimonies, demands and floor
                             teams scheduled for conferences held in Washington, DC.
                             For example, the time sheets identify:

                             Ø Meetings with the Congressional Representative of the
                               Second District of Massachusetts, the Junior Senator of
                               Massachusetts and with the staff of the Massachusetts
                               Senior Senator.

                             Ø Staff involved with preparation of postcards to be
                               distributed to the Junior Senator of Massachusetts and
                               the Senior Senator of Montana.

                             Ø National People’s Action (NPA) Conference follow-ups
                               with the Senators of Massachusetts and the Senior
                               Senator of Iowa.

                             Ø Discussions for preparing tenant leaders for the June
                               2002 National People’s Action Conference as it relates
                               to various testimonies, demands and floor team.

                             The Executive Director stated they have the right as local
 Grantee Staff Meet With     constituents to meet with Senators who represent their own
 Representatives and         state; however, the Grantee had meetings with the Senior
 Senators                    Senator of Montana and the Senior Senator of Iowa. The
                             Grantee’s operation is located in Massachusetts. In
                             addition, the Grantee prepared postcards to be distributed to
                             the Junior Senator of Massachusetts and the Senior Senator
                             of Montana; which could be construed as an attempt to
                             influence the introduction of legislation or modification of
2002-BO-1004                     Page 16
                                                                             Finding 3


                          pending legislation. Also, preparing tenant leaders for
                          testimonies, demands and floor team at the NPA
                          conference are examples of lobbying.

                          The Executive Director could not identify and document
Time Sheets Unsupported   the purpose of the questioned activities performed by the
                          Community Organizer. The Executive Director disagreed
                          with our conclusion that meetings with Congressional
                          Members and their staff are lobbying. The Executive
                          Director contends that sharing experiences is a form of
                          education and the OTAG grant is designed to foster
                          education. The Executive Director also stated that details
                          listed on the Expense Voucher Forms supporting Line of
                          Credit Control System (LOCCS) Drawdowns would show
                          the hours and actual charges to OTAG for salaries.
                          However, the Executive Director stated that they do not
                          segregate lobbying from other activities performed by staff.
                          When we attempted to trace the activities identified for this
                          employee from the time sheets to the Expense Voucher
                          Form, the Grantee could not provide supporting
                          documentation such as the hours and actual dollar amounts
                          charged to OTAG.

                          We could not determine the actual amount of time this
Lobbying Activities       employee spent lobbying because of the lack of details
Prohibited by MAHRA and   supporting the time sheets. The Executive Director advised
OMB                       us that the costs involved are minimal. Even though the
                          Grantee considers the charges minimal, they must maintain
                          documentation to show: 1) that activities charged to the
                          OTAG grant are eligible; 2) how they segregate lobbying
                          activities from the eligible OTAG activities. Lobbying
                          activities are prohibited by the Multifamily Assisted
                          Housing Reform and Affordability Act (MAHRA) and
                          OMB guidance.

                          OMB Circular A-122, Cost Principles for Non-Profit
OMB Regulations           Organizations Attachment B, Paragraph 7, Compensation
                          for Personal Services, require that grantees must maintain
                          reports reflecting the distribution of activity of each
                          employee whose compensation is charged, in whole or in
                          part, to the Federal grant.

                          Section 1303 of Public Law 107-17 requires that, to the
                          extent the HUD OIG determines that the use of any OTAG
                          funding does not meet the requirements of Section 514 of
                              Page 17                                     2002-BO-1004
Finding 3


                  the MAHRA, the HUD Secretary shall take specific
                  actions; which includes recapturing funds. This Act further
                  states that no funds appropriated under Title II of Public
                  Law 107-73 and subsequent appropriations for HUD shall
                  be made available for four years to any entity that has been
                  identified as having violated the requirements of Section
                  514 by the HUD Inspector General.


Recommendations   We recommend that the Director of OMHAR:

                  3A.      Require the Grantee to maintain time records
                           according to OMB Circular A-122.

                  3B.      Require the Grantee to establish policies and
                           procedures for identifying lobbying activities to
                           ensure that Federal funds are not used to support
                           direct or indirect lobbying activities.

                  3C.      Require the Grantee to discontinue charging the
                           grant for activities related to lobbying as defined by
                           MAHRA and OMB Circular A-122.

                  3D.      Consider taking sanctions against the Grantee in
                           accordance with Section 1303 of the Defense
                           Appropriations Act (Public Law 107-117).




2002-BO-1004            Page 18
Management Controls
In planning and performing our audit, we considered the management controls relevant to the Anti-
Displacement Project’s Section 514 program to determine our audit procedures, not to provide
assurance on the controls. Management controls include the plan of organization, methods, and
procedures adopted by management to ensure that its goals are met. Management controls include
the processes for planning, organizing, directing and controlling program operations. This includes
the systems for measuring, reporting, and monitoring program performance.



                                      We determined the following management controls were
 Relevant Management                  relevant to our audit objectives:

                                      Ø Identification of projects and activities eligible for
                                        assistance,

                                      Ø Controls and documents to support costs of assistance
                                        provided, and

                                      Ø Controls and procedures over the reporting of activities
                                        and cost.

                                      A significant weakness exists if management controls do
                                      not provide reasonable assurance that the process for
                                      planning, organizing, directing, and controlling program
                                      operations will meet an organization’s objectives.

                                      Based on our review, we believe the following items are
 Significant Weaknesses               significant weaknesses:

                                      Ø Lack of an equitable system for allocating costs to the
                                        grants and other programs.

                                      Ø Lack of policies and procedures to ensure that funds are
                                        spent in accordance with Multifamily Assisted Housing
                                        Reform and Affordability Act, Notice of Funds
                                        Availability, and grant agreements.

                                      Ø Lack of policies and procedures to ensure that time
                                        records meet the standards of Office of Management
                                        and Budget Circular A-122.




                                          Page 19                                     2002-BO-1004
Management Controls


                      Ø Lack of policies and procedures to ensure that lobbying
                        activities are not directly or indirectly funded by Federal
                        sources.




2002-BO-1004              Page 20
Follow Up On Prior Audits
The Office of Inspector General has not performed any previous audits of the Anti-Displacement
Project.




                                        Page 21                                   2002-BO-1004
Follow Up On Prior Audits




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2002-BO-1004                     Page 22
                                                                                     Appendix A

Schedule of Ineligible Costs



                                   Findings                                  Ineligible Costs 1/
     1     Ineligible Travel and Conference Costs Charged to the OTAG
                                                                                  $ 6,835
           Grants

     2     Incurred Questionable Costs for Consultant Services                    $37,509




1/       Ineligible costs are those 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.




                                          Page 23                                    2002-BO-1004
Appendix A




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2002-BO-1004               Page 24
                                                                                 Appendix B

Distribution Outside of HUD
The Honorable Joseph Lieberman, Chairman, Committee on Government Affairs

The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs

Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human
Resources

Andy Cochran, House Committee on Financial Services

Clinton C. Jones, Senior Counsel, Committee on Financial Services

Kay Gibbs, Committee on Financial Services

Stanley Czerwinski, Director, Housing and Telecommunications Issues, U.S. GAO

Steve Redburn, Chief Housing Branch, Office of Management and Budget

Linda Halliday, Department of Veterans Affairs, Office of Inspector General

William Withrow, Department of Veterans Affairs, OIG Audit Operations Division

George Reeb, Assistant Inspector General for Health Care Financing Audits

Jennifer Miller, Professional Staff, House Committee on Appropriations

The Honorable Christopher S. Bond, Ranking Member,
Subcommittee on Veterans Affairs, HUD and Independent Agencies, 274 Russell Building,
United States Senate, Washington, DC 20510

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

The Honorable Barbara A. Mikulski, Chair
Subcommittee on Veterans, Housing and Urban Development and Independent Agencies,
Suite 709, Hart Senate Office Building, United States Senate, Washington, DC 20510

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




                                        Page 25                                  2002-BO-1004
Appendix B




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2002-BO-1004               Page 26