Issue Date: September 30, 2002 Audit Case Number: 2002-DE-1002 To: Charles H. Williams, Director, HUD’s Office of Multifamily Housing Assistance Restructuring, HY FROM: Robert C. Gwin, Regional Inspector General for Audit, 8AGA SUBJECT: Congressionally Requested Audit of the Outreach and Training Assistance Grant Awarded to the Affordable Housing and Homeless Alliance, Honolulu, Hawaii, Grant Number FFOT00011HI INTRODUCTION We completed an audit of the Affordable Housing and Homeless Alliance’s (grantee) Outreach and Training Assistance Grant (OTAG) and three Intermediary Technical Assistance Public Entity Grants (PEG) administered by the Amador-Tuolumne Community Action Agency, an Intermediary Technical Assistance Grantee (ITAG). The audit identified that the grantee overcharged the grant at least $12,242.19 for salaries, had questioned costs of $2,650.32, unsupported costs of $1,738.32, duplicate billings of $236.44, and did not comply with Title 24 CFR Part 84 and other requirements under the Office of Management and Budget’s Circular A- 122, Cost Principles for Non-Profit Organizations. We did not identify any instances where grant funds were expended in support of lobbying activities. Our report contains six recommendations to address the issues identified in the report and to strengthen management controls over the grantee. 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 Multifamily Housing Reform and Affordability Act of 1997 (MAHRA). The directive would include the Outreach and Training Assistance Grants (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. In conducting the audit, we reviewed the grantee’s accounting records, documents supporting grant activities, and interviewed responsible staff. We also reviewed the requirements in MAHRA, the Notices of Funding Availability, the grant agreements, HUD requirements for nonprofit entities, and the Office of Management and Budget’s (OMB) guidance on allowable costs for nonprofit grantees. The audit period covered HUD funded activities between April 2000 and September 2001. Where necessary, the audit period was expanded to facilitate the completion of the review. We performed the fieldwork at the Affordable Housing and Homeless Alliance, located at 810 N. Vineyard Blvd., Suite 212, Honolulu, HI 96817 during August 2002. We conducted the audit in accordance with Generally Accepted Government Auditing Standards. We appreciate the courtesies and assistance extended by the personnel of the Affordable Housing and Homeless Alliance during our review. In accordance with HUD Handbook 2000.06 REV-3, within 60 days please give us, for each recommendation in this report, 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. 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. Should you or your staff have any questions, please contact me at (303) 672-5452. SUMMARY The Affordable Housing and Homeless Alliance (grantee) submitted a grant application for an Outreach and Training Assistance Grant (OTAG) and grant applications for three Intermediary Technical Assistance Public Entity Grants (PEG). Our audit identified that the grantee over charged the OTAG at least $12,242.19 for project supervision and administration. The grantee did not maintain salary records in accordance with OMB Circular A-122 Attachment B, paragraph 7. The grantee had questioned costs of at least $2,650.32 for telephone and fax, and supplies, $1,738.32 in unsupported costs and had duplicated billings of $236.44. The grantee also did not prepare a cost allocation plan per the guidance in OMB Circular A-122, Attachment A. Instead, the grantee either charged the entire cost or used a percentage for the allocation of the cost. Due to the lack of adequate records for salary, telephone and fax, and supplies, we could not determine the appropriateness of these allocated charges. Our report contains recommendations to address the issues identified in the report and other recommendations to strengthen management controls over the grant. BACKGROUND The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) established the Office of Multifamily Housing Assistance Restructuring (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 Page 2 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 projects, 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 40 grantees (a total for 83 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. 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 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 Funding Availability in fiscal year 1998 and a second 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 Notice of Fund Availability 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 Notices of Funding Availability 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. The HUD 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 Part 84.27) require that nonprofit grantees utilize the Office of Management and Budget (OMB) Circular A-122, Cost Principles for Non-Profit Organization, in determining the allowability of cost 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 Page 3 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). The Affordable Housing and Homeless Alliance (grantee) was established as a domestic nonprofit organization in the State of Hawaii on October 14, 1988. The grantee’s primary mission is “…to promote housing which is decent, affordable and appropriate. The [grantee]… is a statewide coalition of organizations, concerned individuals, and people who are homeless, have low incomes or special housing needs.” The grantee received its 501(c)(3) status on June 27, 1994, retroactive to October 14, 1988. The grantee was awarded an Outreach and Training Assistance Grant (OTAG), number FFOT00011HI, for $300,000 in January 2001. The grantee expended $34,562.01 of the $300,000 grant during the period January through September 2001. The grantee was also the subrecipient to the Legal Aid Society of Hawaii’s OTAG, number FFOT98006HI, during the period October 1998 through December 2000. The grantee received a total of $22,157.08 in reimbursement for expenditures incurred relating to the Legal Aid Society of Hawaii’s OTAG. A report based on review of the Legal Aid Society of Hawaii’s OTAG will be issued under separate cover by the OIG. The grantee also applied for three Intermediary Technical Assistance Public Entity Grants (PEG) administered by Amador-Tuolumne Community Action Agency, an Intermediary Technical Assistance Grant (ITAG) recipient. The grantee was awarded the following PEGs: (1) grant number MTMHIPEG00018 for $19,997 in July 2000; (2) grant number MTMHIPEG00024 for $19,473 in December 2000; and (3) grant number MTMHIPEG01026 for $19,627 in September 2001. The grantee requested $12,250 from PEG MTMHIPEG00018, but was approved to expend only $9,911.52 of the $19,997 grant covering the period January 2000 through December 2000. The grantee has yet to request reimbursement for expenditures relating to the PEGs awarded in December 2000 and September 2001. The grantee assisted a total of 19 projects using Section 514 grant funds. The grantee did not receive a financial audit, nor was one required. In addition to the OTAG and three PEGs, the grantee received funds from other Federal and non- Federal sources. The grantee was awarded a HUD Community Planning and Development Technical Assistance Award for Homeless Assistance in FY 2000 totaling $10,000. They also assisted a subrecipient of a HUD grant to perform a housing discrimination study in Hawaii. The grantee received at total of $112,603.59 from March 2001 to December 2001 for work performed Page 4 in association with the housing discrimination study. As for non-Federal grants, the grantee received a total of $110,300 from various foundations between 1998 and 2002. FINDING The Grantee Did Not Comply With HUD and OMB Requirements The Affordable Housing and Homeless Alliance (grantee) charged project supervision and administration in excess of actual costs, did not maintain adequate salary records, and did not adequately support the cost allocation method for charging indirect costs. As a result, the grantee charged at least $12,242.19 in excessive project supervision and administration expenses, charged $2,650.32 in questioned costs for telephone and fax charges, and supplies, charged $1,738.32 in unsupported costs and had duplicate billings of $236.44. The grantee neither read nor had a copy of the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) and relied on HUD to provide detailed guidance on program requirements. The grantee believed that the activities and records maintained for OTAG and ITAG related activities complied with HUD’s requirements. Compensation for Personal Services OMB Circular A-122, Attachment B, Paragraph 7 Compensation for Personal Services states that reasonable compensation and fringe benefits to employees are grant fundable costs. The Circular also places specific salary record keeping requirements on the grantee. The grantee must maintain reports that account for the total activity for which an employee is compensated for in fulfillment of their obligations to the organization. The reports must reflect an after the fact determination of actual activity for each employee. Budget estimates do not qualify as support for charges to the grant. Grantees must also maintain reports reflecting the distribution of activity of each employee (professionals and nonprofessionals) whose compensation is charged, in whole or in part, directly to awards. OMB also requires that the report be signed by the employee or a reasonable supervisor. In addition, in order to support the allocation of indirect costs, such reports must also be maintained for other employees whose work involves two or more functions or activities if a distribution of their compensation between such functions or activities is needed in the determination of the organization's indirect cost rate. The grantee did not maintain supporting employment records per the OMB Guidance. Instead, employees prepared time sheets of only the hours chargeable to the grant. For example, a grantee employee who charged time for project supervision and administration to the OTAG prepared a time sheet of day and hours chargeable to the grant. The time sheet did not account for the total activities of the employee on a daily basis. Therefore, we could not determine what other activities the employee performed or which grant to charge for those activities. The grantee compensated its employees based on a salary basis but charged the OTAG based on an hourly wage. The grantee used the time sheets to determine the number of hours to charge the grant. We reviewed the hourly wage charged to the grant to the employee’s hourly wage. Since the employee received a flat monthly salary, we estimated the hourly wage based on a 160 hours Page 5 per month. Based on the estimate, we determined that the grantee charged the grant hourly wages in excess of the amount actually paid. For example, we estimated that the employee received an hourly wage of $18.751 . However, the grantee charged $50 per hour to the grant. The grantee charged the overage to the HUD funded OTAG grant. We estimated that the grantee over charged about $12,242.19. When preparing the budget for the OTAG, the grantee was not aware of indirect costs or formulas used for determining an hourly rate. The grantee sought advice from other OTAG program directors and the National Alliance of HUD Tenants (NAHT) members on how to determine an hourly rate for project supervision and administration. The other OTAG program directors and NAHT members had been charging between $50 to $57 an hour for project supervision and administration. The grantee thought the $50 hourly rate to be reasonable. Therefore, the grantee submitted a budget reflecting the $50 hourly rate, which was approved by OMHAR. During a NAHT conference call, the grantee realized that they had been over billing project supervision and administration. The grantee had not received any instructions on how to amend a budget or how to make corrections to prior billings from OMHAR staff. The grantee left voicemails, sent emails, and other correspondence to various staff of OMHAR requesting assistance. After receiving no response from OMHAR staff, the grantee contacted the Director of NAHT. The Director of NAHT advised the grantee to hire a local CPA firm to assist with amending the budget and prior billings for the over billing of project supervision and administration. The grantee enlisted the services of a local CPA firm to perform a pre-audit in preparation for the HUD OIG review. The local CPA firm determined the total amount of the over billing for project supervision and administration to be $10,411.75. In addition to determining the amount of over billing, the local CPA firm amended prior billings and the budget submitted to OMHAR for the grant. We were unable to determine the accuracy of the local CPA firm’s calculation of the amount of over billing of project supervision and administration given the supporting records maintained by the grantee. The grantee adjusted its last Line of Credit Control System (LOCCS) request covering the period October through December 2001 for the over billing to $482.25, which represents total expenses for the period ($10,894) less the amount of over billing ($10,411.75) determined by the local CPA firm. The grantee advised an OMHAR staff member of the over billing and the process used to amend the prior billings and the budget for the OTAG. According to the grantee, the OMHAR staff member agreed with the grantee’s amendment process, but did not specifically request that the grant be reimbursed for the over billing. At the close of our on-site review, August 21, 2002, the grantee had yet to be approved to draw down the $482.25 from LOCCS. The grantee advised that they were not aware of the requirements nor did HUD notify them of the personnel and compensation requirements of OMB Circular A-122. The grantee advised that the OMHAR had not provided any training on administering the grant. For example, the grantee 1 Given the condition of the grantee’s accounting records, we used the Board approved salary of $36,000 per year to calculate the hourly wage rate of $18.75. Page 6 did not know how to draw down funds from LOCCS as they had not received instructions from OMHAR on how the system operates. Again, the grantee made repeated attempts to contact OMHAR staff for instructions on how to draw down funds from LOCCS, with no response. The grantee eventually received instructions from another OTAG program director and was able to draw down funds. Allocation of Direct and Indirect Costs to the Grant The grantee also allocated certain costs to the grant to include telephone and fax charges, and supplies. OMB Circular A-122 Attachment A provides guidance on the basic considerations for grant fundable costs and allocation of indirect cost. The guidance provides that the grantee shall support a cost allocation taking into account all activities of the organization. If the grantee does not have an approved cost allocation plan, the grantee shall submit an initial cost allocation plan within three months of receiving the award. The grantee neither prepared nor submitted to OMHAR a cost allocation plan after receiving the grant. Instead, the grantee either charged the entire cost or used a percentage for the allocation of the cost. In some cases, the grantee records indicated a split of costs between the OTAG and other activities. However, the entire cost was either charged to the OTAG, or the allocation of the cost was changed when entered into the grantee’s accounting system. Based on available records, we could not determine the appropriateness or reasonableness of the cost allocations. The grantee has prepared subsequent billings using the same techniques, where funds requests have yet to be submitted and/or approved. We identified that the grantee charged the grant at least $2,650.32 in questioned costs for telephone and fax charges, and supplies, without a cost allocation plan. The grantee advised that they were not aware of the requirements nor did OMHAR notify them of the requirements of OMB Circular A-122. The grantee also advised that OMHAR had not performed an onsite review of their activities or methods for charging the grant. Unsupported Costs and Duplicate Billings Our audit identified unsupported costs and duplicate billings that were reimbursed to the grantee from OTAG and PEG funds. Title 24 CFR 84.21 requires grantees to maintain records that adequately identify the source and application of funds, and maintain accounting records that are supported by source documentation. Per Title 24 CFR 84.85, financial records, supporting documents, statistical records, and all other records pertinent to an award shall be retained for a period of three years from the date of submission of the final expenditure report. We identified a total of $1,738.32 in unsupported costs and $236.44 of duplicate billings by the grantee to its OTAG and PEG. The grantee acknowledged that at one point in time they had the support for all OTAG and PEG expenditures. However, due to multiple bookkeepers and the adjustments made to prior billings by a local CPA firm, the supporting documentation may have been misfiled and/or misplaced. In Page 7 regards to the duplicate billings, the grantee advised the duplicate billings of the OTAG and PEG funds was not intentional, but an error. The grantee has applied for a non-Federal grant from a local nonprofit agency whose purpose is to assist other nonprofits in capacity building. If awarded the grant, the grantee plans to use the funds to hire a grants manager. AUDITEE COMMENTS AND OIG EVALUATION OF AUDITEE COMMENTS We provided a copy of our draft report to the grantee for their comments on September 4, 2002. The grantee provided comments on September 15, 2002 that indicated they agreed with the facts presented in the report. The grantee provided an update on their progress of locating support for unsupported costs as well as presenting their cost allocation plan. The grantee approved the inclusion of these comments as their response to our draft report. On September 17, 2002, we communicated the addition of recommendation 1F. to the grantee. On September 20, 2002, the grantee requested that we: (1) place a temporary hold on our report and other materials, (2) provide an extension for an another reply, and (3) exclude the grantee's previous comments from the report. On September 23, 2002, we granted the grantee an extension to September 25, 2002 for submitting another response to the draft report. We received the grantee’s September 22, 2002 response on September 25, 2002. The grantee’s formal response, even though it has not been signed by a grantee official, is included in Appendix B. The grantee does not agree with the report and our finding. Our review and evaluation of the grantee’s formal response is broken down into the following points of discussion: • Objectivity of the OIG Auditors, • Costs charged to Section 514 Funded Grants, • Direct Cost System, • Under Billing of Section 514 Funded Grants, • Adjustments Made to Billings, • Lack of Training and Information provided by OMHAR, and • Freezing of Section 514 Funds. Objectivity of the OIG Auditors The grantee's formal response to the draft report inferred the auditors were not objective in their review of the grantee's Section 514 grant activities. Specifically, "...the Office of Inspector General was looking for some way to discredit the…[grantee] rather than to do an objective review of...[the grantee’s] work and…compliance with the overall program as funded by the OTAG and ITAG grants." The grantee's assertion is incorrect. The objectives of our review were to (1) determine whether the grantee used Section 514 grant funds for only eligible activities as identified in MAHRA, the Notices of Funding Availability, their grant agreements, or other requirements to further the Mark-to-Market Program, and (2) determine if the grantee expended Section 514 funds for any lobbying activities. Page 8 Congress specifically directed the OIG to review the eligibility of costs with particular emphasis on identifying ineligible lobbying activities. We were not directed to review the performance of the grantee’s Section 514 activities. The objectives were communicated to the grantee in our engagement letter dated July 22, 2002 as well as during the entrance conference on August 5, 2002. The facts presented in the report were based on sufficient, competent and relevant evidential matter obtained during the review of the grantee's accounting records, documents supporting grant activities, and interviews with responsible staff. Costs Charged to Grants The grantee does not agree with statements made in the report and the finding concerning the costs charged to their Section 514 grants. The grantee states that they charged indirect costs under “Salaries and Administration (aka Project Supervision)” without a cost formula. The grantee further defines the costs as rent, bookkeeping, printing, and equipment, etc. were charged to the “Salaries and Administration.” In addition the grantee states, “The agency at no time considered the amount to be a $50 per hour wage as direct compensation for personal services but as a billing rate for professional services by the Alliance, which incorporated administrative overhead and salary costs.” At the time of our onsite review the grantee had no basis to support the $50 hourly rate. As explained to us by the grantee and discussed in the report, the grantee chose to charge their OTAG the $50 hourly rate based on advice from other OTAG program directors and NAHT members. Advice from other OTAG program directors and NAHT members does not suffice as support for the $50 hourly rate. As such, the $50 hourly rate was based on an arbitrary amount and not supported by actual costs. The formal response also includes a statement that the auditor did not ask the Executive Director for an explanation as to how funds in question were allocated. Contrary to this statement, the auditors held an entrance conference with the Executive Director and inquired whether a cost allocation plan had been established. The Executive Director informed the auditors they did not have a cost allocation plan. The auditors then inquired how OTAG and PEG expenditures are isolated in the grantee’s accounting system. Per the Executive Director they assign a class to the activities in their accounting system. Due to the lack of a cost allocation plan, we focused our review efforts on the costs the grantee had received reimbursement from Section 514 funds. We reviewed the eligibility of the costs with regards to HUD and OMB requirements and verified whether the costs were supported. Direct Cost System The grantee disputes the finding that they did not have a cost allocation plan. The grantee believes they are in compliance with OMB Circular A-122, Attachment A, Section D, Paragraph 4 Direct Allocation Method. According to the grantee, they prorated telephone, Page 9 fax and supplies individually using “a base most appropriate to the particular cost being prorated.” At the time of our review the grantee did not have a cost allocation plan in place as required that explained their usage of the direct allocation method. A cost allocation method would have been needed since the grantee was also administering several other Federal and non- Federal programs. As such, the grantee would have needed an allocation system to allocate direct and joint costs. We noted in the report the grantee either charged the entire cost or used a percentage for the allocation of the cost. In some cases, the grantee records indicated a split of costs between the OTAG and other activities. However, our review disclosed the entire cost was charged as an expense to the OTAG program in the grantee’s accounting system. We could not determine the appropriateness of the telephone and fax charges, and supplies charged to the OTAG grant without a cost allocation plan. As a result, we are questioning as eligible program costs the $2,650.32 identified in our review. Under Billing of Grants The grantee takes “strong issue” with the conclusions made in the report that they over billed their OTAG, as they feel they have under billed the grant. Again to reiterate, our objectives were to review the eligibility of costs with particular emphasis on identifying ineligible lobbying activities as mandated by Congress. Therefore, we focused on those costs that had been reimbursed with Section 514 funds. The fact still remains the same, the grantee over billed its OTAG grant and had unsupported costs and duplicate billings of both its OTAG and PEG grants. Any under billing of the OTAG program by the grantee stems from the fact that the grantee has not requested reimbursement from HUD for such costs nor clearly reflected such amounts as OTAG costs in its accounting records. Accordingly, these unreimbursed costs were not reviewed. Adjustments Made to Billings The grantee made the assertion that the auditors failed to give credit for adjustments made to an OTAG billing for overcharging the OTAG grant for project supervision and administration. Specifically, the grantee makes the following statements: "The auditor is aware that the Alliance deducted $12,017.59 from the Oct- Dec.2001 [sic] to clear up any confusion about the method of billing. The auditor is also aware that this deduction was made prior to the audit. No mention of the repayment, or that it was made before the inspection by the auditor or of intent in the way the bills were charged, was made in the Introduction or the Summary. The omission of these facts and intentions in the Summary and Introduction is very misleading and leaves the motivation of the Alliance unfairly in question." We disagree with the assertions made by the grantee. First of all, the grantee fails to acknowledge that the reported $12,017.59 was offset by the reallocation and addition of Page 10 expenditures (direct and indirect) resulting in an over billing of $10,411.75. The grantee continued to identify and resolve the over billing subsequent to our site review. We were unable to determine the validity of the calculation of the amount of over billing of project supervision and administration given the supporting records maintained by the grantee. Secondly, upon completion of our site work on August 21, 2002, the grantee did not have evidence (e.g., LOCCS draw down form, bank statements) that supported the grant had been made whole for the over billing that occurred. Finally, our report includes a discussion on the grantee's enlistment of the services of a local CPA firm to perform a pre-audit and assist with the amendment of their budget and prior billings for the over billing of project supervision and administration. Lack of Training and Information provided by OMHAR The grantee attributes the lack of training and information provided by OMHAR as a cause for their noncompliance with HUD and OMB requirements. We have acknowledged in the report the lack of training and oversight provided by OMHAR. However, the grant agreements executed by the grantee with OMHAR and the Amador-Tuolumne Community Action Agency included references to applicable Federal Laws and Regulations. These included MAHRA, 24 CFR Parts 84 and 85, various OMB Circulars, and the Notices of Funding Availability. Accordingly, the grantee was obligated to comply with these Federal requirements. Freezing of Section 514 Funds The grantee believes the intention of the finding and recommendations is to freeze Section 514 funds, which would result in the grantee going out of business. Contrary to the grantee’s belief, our finding identifies areas of noncompliance with HUD and OMB requirements. The recommendations are made within the report to assist the grantee in establishing proper procedures that will ensure the grantee is operating in accordance with HUD and OMB requirements. The grantee has acknowledged while onsite and in its various responses that they were not aware of the personnel and compensation requirements and grant fundable costs and allocation of indirect costs of OMB Circular A-122. The grantee has also acknowledged that it had overcharged their OTAG for project supervision and administration as validated by the local CPA firm and the OIG's review. The grantee even remarked to the auditor that the process of locating missing records for unsupported costs identified by the OIG, made her realize how important it is to have a system in place. We agree that the grantee has undertaken action to help bring its operation into compliance with HUD and OMB requirements. We commend the grantee for its prompt response and efforts to resolve the concerns of noncompliance with HUD and OMB requirements. The grantee has gathered additional supporting documentation for unsupported costs and has retained the services of a local CPA firm to assist in the development and implementation of a cost allocation plan. These steps will aid the grantee in improving its administrative procedures and to bring them into harmony with the necessary Federal requirements. Page 11 In addition to the original comments received, the grantee provided various supplemental documents. The supplemental documents are being provided separately to the Director of OMHAR. RECOMMENDATIONS We recommend that the Director of OMHAR: 1A. Require the Affordable Housing and Homeless Alliance to repay the $12,478.63 in excess salary for project supervision and administration ($12,242.19) and duplicate billings ($236.44). 1B. Require the Affordable Housing and Homeless Alliance to maintain time records according to OMB Circular A-122. 1C. Require the Affordable Housing and Homeless Alliance to submit a cost allocation plan and based on the plan adjust the $2,650.32 for telephone and fax charges, and supplies and repay any overcharges. 1D. Require the Affordable Housing and Homeless Alliance to adjust subsequent billings for OTAG and PEG expenditures, which have yet to be submitted for approval and reimbursement, in accordance with the cost allocation plan. 1E. Require the Affordable Housing and Homeless Alliance to support or repay the $1,738.32 in unsupported costs. 1F. 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. MANAGEMENT CONTROLS In planning and performing our audit, we considered the management controls relevant to the Affordable Housing and Homeless Alliance’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. They include the systems for measuring, reporting, and monitoring program performance. We determined that the following management controls were relevant to our audit objectives: • Identification of projects and activities eligible for assistance, • Controls and documents to support costs of assistance provided, and • Controls and procedures over the reporting of activities and cost. It is a significant weakness 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. Page 12 Based on our review, we believe the following items are significant weaknesses: • Lack of polices and procedures to ensure that salaries and time records met the standards of OMB Circular A-122, • Lack of a cost allocation plan to charge shared costs, and • Lack of a system to ensure costs incurred and reimbursed with Section 514 funds are fully supported and not duplicated when reimbursed. FOLLOW-UP ON PRIOR AUDITS The Office of Inspector General has not performed any previous audits of the Affordable Housing and Homeless Alliance. Page 13 Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Type of Questioned Costs Number Ineligible 1/ Unsupported 2/ 1A $12,478.63 1C & 1E $4,388.64 1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that the auditor believes are not allowable by law, contract or Federal, State or local policies or regulations. 2/ Unsupported costs are costs charged to a HUD-financed or HUD-insured program or activity and eligibility cannot be determined at the time of audit. The costs are not supported by adequate documentation or there is a need for a legal or administrative determination on the eligibility of the costs. Unsupported costs require a future decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of Departmental policies and procedures. Page 14 Appendix B AUDITEE COMMENTS Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Appendix C EXTERNAL REPORT DISTRIBUTION Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human Resources, B373 Rayburn House Office Bldg., Washington, DC 20515 Stanley Czerwinski, Director, Housing and Telecommunications Issues, U.S. General Accounting Office, 441 G Street, NW, Room 2T23, Washington, DC 20548 Steve Redburn, Chief Housing Branch, Office of Management and Budget, 725 17th Street, NW, Room 9226, New Executive Office Bldg., Washington, DC 20503 Linda Halliday (52P), Department of Veterans Affairs, Office of Inspector General, 810 Vermont Ave., NW, Washington, DC 20420 William Withrow (52KC), Department of Veterans Affairs, OIG Audit Operations Division, 1100 Main, Rm 1330, Kansas City, Missouri 64105-2112 The Honorable Joseph Lieberman, Chairman, Committee on Government Affairs, 706 Hart Senate Office Bldg., United States Senate, Washington, DC 20510 The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs, 340 Dirksen 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 Page 23
Affordable Housing and Homeless Alliance, Honolulu, HI
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)