oversight

Congressionally Requested Audit of the Outreach and Training Assistance Grant Awarded to the Housing Advocacy Coalition, Colorado Springs, Colorado, Grant Number FFOT00008CO

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-08-26.

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

                                             Issue Date: August 26, 2002
                                             Audit Case Number: 2002-DE-1004




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 Housing Advocacy Coalition, Colorado Springs, Colorado, Grant
         Number FFOT00008CO


                                      INTRODUCTION

We completed an audit of the Housing Advocacy Coalition and the Community Resource
Center’s Outreach and Training Assistance Grant. The Housing Advocacy Coalition and the
Community Resource Center jointly submitted a grant application. The two non-profits share the
grant as co-recipients, even though the HUD grant agreement identifies the Housing Advocacy
Coalition as the grantee. The audit identified that the grantees over charged the grant at least
$3,827 for salaries and did not comply with other requirements under the Office of Management
and Budget’s Circular A-122, Cost Principles for Non-Profit Organizations. In addition, the
grantees participated in lobbying activities, contrary to the enabling legislation and OMB
Circular A-122. Our report contains seven recommendations to address the issues identified in
the report and other recommendations to strengthen management controls over the grantees.

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
Assisted 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 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 grantees accounting records and interviewed
responsible staff. We also reviewed the requirements in MAHRA, the OTAG Notice of Fund
Availability, the OTAG grant agreement, HUD’s requirements for grant agreements for
nonprofit entities, and Office of Management and Budget’s guidance on the allowability of cost
for nonprofit grantees.

The audit covered the period January 2001 through April 2002 for the OTAG grant and the
period May 2000 through April 2001 for the Public Entity Grant (a Section 514 grant received
from an Intermediary Technical Assistance Grant), awarded to the Community Resource Center.
We performed the fieldwork at the Housing Advocacy Coalition located at 2023 East Bijou
Street, Colorado Springs, CO 80909 and the Community Resource Center located at 655 S.
Broadway, Suite 300, Denver, CO 80203 during April through June 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 Housing Advocacy
Coalition and Community Resource Center during our review.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without a management decision, 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 you staff have any questions please contact me at (303) 672-5452.


                                          SUMMARY

The Housing Advocacy Coalition and the Community Resource Center jointly submitted a grant
application. The two non-profits share the grant as co-recipients, even though the HUD grant
agreement identifies the Housing Advocacy Coalition as the grantee. Our audit identified that
the grantees over charged the grant at least $3,827 for salaries and fringe benefits. The grantees
also did not maintain salary records in accordance with OMB Circular A-122 Attachment B,
paragraph 7. The grantees did not prepare a cost allocation plan per the guidance in OMB
Circular A-122, Attachment A. Instead, the grantees charged costs based on a predetermined
percentage or budget amount. Due to the lack of adequate salary records for the grantees, we
could not determine the appropriateness of these allocated charges. According to the grantee’s
reports to OMHAR, the grantees participated and organized activities directly lobbying staff
members of Congress and the local government. Again, due to the lack of adequate time
records, we could not make a determination of the total time expended for these activities. Our
report contains recommendations to address the issues identified in the report and other
recommendations to strengthen management controls over the grant.




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                                        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
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 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 lobbing members of
Congress.

HUD issued a Notice of Fund Availability in fiscal year 1998 and a second in fiscal year 2000 to
provided 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 Grants (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 Fund 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.


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HUD’s regulations at 24 Code of Federal Regulation Part 84 contain the uniform administrative
requirements for grants between HUD and nonprofit organizations. The Regulation 24 CFR
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
cots 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 cost 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 activates. Simple stated the use of Federal funds for any lobby activity is unallowable.
OMB Circular A-122 identifies some example of unallowable activates 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 Housing Advocacy Coalition and the Community Resource Center jointly applied for an
OTAG grant in fiscal year 2000. The Housing Advocacy Coalition received a HUD OTAG
grant for $310,000 in February 2001. The Housing Advocacy Coalition and the Community
Resource Center share the OTAG grant as co-recipients. The Housing Advocacy Coalition and
the Community Resource Center expended $169,132 of the $310,000 grant during the period
January 2001 through April 2002. We also reviewed a $20,000 Public Entity Grant; received by
the Community Resource Center from Amador-Tuolumne of Sonora, California, a Section 514
Intermediary Technical Assist Grantee, for the period May 2000 through April 2001. The
Community Resource Center received an annual financial audit of their activities for the two-
year period ending December 31, 2001. The auditor provided an unqualified opinion for each of
the two years. The auditor did not identify a cost allocation method used for the Federal and
non-Federal activities sponsored by the Community Resource Center. The Housing Advocacy
Coalition did not receive a financial audit, nor was one required.

In addition to the OTAG grant, the Housing Advocacy Coalition and Community Resource
Center received grants from non-Federal sources. For example, the Housing Advocacy Coalition
received a $30,000 from the Catholic Conference and the Community Resource Center received
$373,000 from earned income and an additional $142,000 from corporate and private
foundations.




                                                                                              Page 4
                                      FINDING
             The Grantees Did Not Comply With HUD and OMB Requirements

The Housing Advocacy Coalition and Community Resource Center assisted ineligible projects,
charged salaries and fringe benefits in excess of actual costs, did not maintain adequate salary
records, and did not adequately support the cost allocation method for charging indirect costs. In
addition, the grantees charged prohibited and unallowable lobby activities to the grant. As a
result, the grantees assisted ineligible projects, charged at least $3,827 in excessive salaries and
benefit expenses, charged $9,070 in questioned accounting and auditing fees. We could not
determine the actual amount of lobbying activities due to the lack of adequate salary records.
The grantees 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 grantees believed that the activities and records maintained
complied with HUD’s requirements and that the lobbying activities were appropriate under HUD
and Internal Revenue Service (IRS) guidelines.


Project Eligibility

The Section 514 (f) of the Multifamily Housing Assistance and Restructuring Act of 1997
provided funds to assist and provide an opportunity for tenants of the project, residents of the
neighborhood, the local government, and other affected parties to participate effectively and on a
timely basis in the restructuring process established by MAHRA. Section 512 of MAHRA
defines the term eligible multifamily housing project to generally mean a property consisting of
more than four dwelling units with rents that, on an average per unit or per room basis, exceed
the rent of comparable properties in the same market area. Section 512 also requires that the
project be covered in whole or in part by a contract for HUD project-based assistance under one
of a number of HUD programs and be financed by a mortgage insured or held by the Secretary
under the National Housing Act. MAHRA specifically excluded certain HUD projects, for
example Section 202 projects.

Given the Section 512 definition of eligible projects, we obtained a listing from HUD of the
possible eligible projects. According to HUD’s records, 24,525 projects receive project-based
assistance and are HUD insured or held by the Department. Of those projects, 389, or 1.59
percent are located in Colorado.

The grantees did not maintain a listing of projects assisted with the OTAG and Public Entity
Grant grants. We reviewed the grantees quarterly reports to OMHAR on assistance provided and
the grantees limited time records. Based on those documents, we identified that the grantees
assisted forty projects in Colorado. Both the Housing Advocacy Coalition and the Community
Resource Center assisted 20 projects each for a total of forty projects. We compared the
identified assisted projects to the list provided by HUD and identified that six of the 40 projects
or 15 percent were not eligible for assistance under MAHRA. Due to the lack of summary salary
records, we did not attempt to determine the amount of Section 514 assistance provided to these
ineligible projects.


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The grantees advised us that the list of eligible projects provided by HUD was not complete.
Therefore, they relied on lists provided by the National Housing Law Project, or other sources.
The grantees advised that they had not read MAHRA, nor were they aware of MAHRA’s
definition for eligible projects. The grantees stated that they relied on HUD’s December 3, 1999
memorandum advising them they could assist at risk projects. The grantees interpreted this
language to allow assistance to all HUD assisted projects and residents, especially if the owner
plans to opt-out of the HUD project based assistance. The grantees advised that the focus of
their activated was to organize the tenants to publicize and obtain public awareness of the loss of
HUD assisted housing in the greater Denver and Colorado Springs area. The grantees also
advised that if HUD tenants came to them for assistance, they provided assistance, based on the
December 3, 1999 instructions.

Compensation for Personnel 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 grantees. The grantees must
maintain reports that accounts 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 total actual activities performed by 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 Housing Advocacy Coalition and the Community Resource Center did not maintain
supporting employment records per the OMB Guidance. Instead, the employees prepared time
sheet of only the hours chargeable to the grant. For example, a Community Resource Center
employee working on the OTAG grant prepared a time sheet of day and hours chargeable to the
grant. The employee also prepared a separate time sheet for hours charged to the Public Entity
Grant received from the Intermediary Technical Assistance Grantee. 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.

Both grantees compensated their employees based on a salary basis but charged the grants based
on an hourly wage. The grantees used the time sheet to determine the number of hours to charge
the grant. We reviewed the hourly wage charged to the grant to the employees’ hourly wage.
Since the employee received a flat monthly salary, we estimated the hourly wage based on a 160
hours per month (one part time employee was calculated at 96 hours per month). Based on those
estimate, we determined that the grantees charged the grants hourly wages in excess of the
amount actually paid. For example, we estimated that two employees received an hourly wage


                                                                                              Page 6
of $21.70 and $29.86, respectively. However, the grantee charged $25.00 and $35.00 per hour to
the grant. The grantee charged the overages to both the HUD funded OTAG and Public Entity
Grant grants. We estimated that between the two grants the grantee over charged about $1,709.

The grantee used a flat rate of 23 percent of wages to calculate fringe benefits. The application
of a flat rate estimate should not have been used, per the requirements of OMB Circular A-122.
Moreover, due to the excess wage being charged to the grant, fringe benefits were also over
charged. We estimated that due to the excessive wages alone the grantee over charged the grant
$1,116. In addition, the grantee charged $1,001 for fringe benefits of an employee that did not
receive compensation from the grant. We estimated the minimum over charges for fringe
benefits to be $2,117. For these three areas, we identified that the grantee over charged the two
HUD funded grants $3,827 for salaries and benefits.

The grantees 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.

Allocating Direct and Indirect Costs to the Grant

The grantees also allocated certain costs to the grant to include telephone charges, accounting
services, and audit costs. 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 grantees shall support a cost allocation taking into account all activities of the
organization. If the grantees do not have an approved cost allocation plan, the grantee shall
summit an initial cost allocation plan within three months of receiving the award.

The grantees neither prepared nor submitted to HUD a cost allocation plan after receiving the
grant. Instead, the grantees used predetermined percentages or the amount budgeted in the grant
application for the allocation of cost. As stated above the grantees did not maintain detailed time
records for all employees and activities. Therefore, we could not determine if the cost
allocations were reasonable or justified. For example, the grantees charged $302 per month for
accounting services. The grantees based this amount on its grant application budget. Based on
available records, we could not determine the appropriateness or reasonableness for this monthly
charge. The grantees also charged a percentage of the total telephone bill to the grants. Again
based on available records, we could not determine if the cost allocations were reasonable or
justified.

We identified that the grantees charged the grant at least $9,070 in questioned costs for
accounting, auditing services and telephone charges, without a cost allocation plan.

The grantees advised that they were not aware of the requirements nor did HUD notify them of
the requirements of OMB Circular A-122.

Lobbying

MAHRA specifically prohibited the used of Section 514 funds to lobby members of Congress or
their staff. OMB Circular A-122, Attachment B, Paragraph 25, Lobbying places additional


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limitations on the grantee’s use of Federal funds for lobbying. Circular A-122 states that
grantees may not use Federal funds to:
   · Attempt to influence any Federal or state legislation through an effort to affect the
        opinions of the general public or any segment thereof. This includes the introduction of
        Federal or State legislation; or the enactment or modification of any pending Federal or
        State 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. (Grassroots lobbying)
   · Any attempt to influence any legislation through communication with any member or
        employee of a legislative body or with any government official or employee who may
        participate in the formulation of legislation (Direct lobbying).
   · Providing a technical and factual presentation of information on a topic directly related to
        the performance of a grant, contract or other agreement through hearing testimony,
        statements or letters to the Congress or a State legislature, or subdivision, member, or
        cognizant staff member thereof, except in response to a documented request made by the
        recipient member, legislative body or subdivision.

As identified in the background section, the Housing Advocacy Coalition and the Community
Resource Center receive non-Federal funds. The allowability and use of these funds for
lobbying activities would not be restricted by the guidance in OMB Circular A-122. We fully
support the grantee's ability to organize and participate in activities not allowed for under OMB’s
guidance. However, these activities, if supported directly or indirectly in either part or whole
with Federal funds, must be allowable by OMB’s guidance to be grant fundable from the HUD
OTAG or Public Entity Grant grants.

We reviewed the grantees monthly activity reports and employees time sheet to identify meeting
with legislative member or their staff. We also reviewed these reports for activities that did not
meet the requirements of MAHRA and which may be considered Grassroots lobbying.

We identified that the employees of the Housing Advocacy Coalition reported and charged time
to the grants for meeting with Congressional staff from the House of Representatives and the
Senate. For example, in the January – March 2001 quarterly report, the Housing Advocacy
Coalition reported that they organized tenants to ask questions about housing in the city and state
at a town meeting with the Honorable Joel Hefley of Colorado. The report also identifies
another meeting with the Congressmen’s staff. The April, May, and June report identifies an
April meeting with a member of Congressman’s staff at the Housing Advocacy Coalition offices
to learn more about housing issues. The Housing Advocacy Coalition also reported in their July
2001 quarterly report a meeting with a housing aide to Senator Wayne Allard of Colorado.
According to the Housing Advocacy Coalition, the purpose of the meeting was to present
regional activities, specifically, the need for additional funding for the preservation of Section 8
project based assistance, and the need for additional project based assisted units. We identified
that the time charged for these meeting was minimal. The grantees believed that these activities
were eligible as regional activities, under the guidance in the December 3, 1999 instructions from
OMHAR. However, these activities are specifically prohibited by MAHRA and OMB’s
guidance.


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We also identified that the Housing Advocacy Coalition and the Community Resource Center
provided support for the Save Our Section 8 Coalition. The Coalition is a residents tenant-based
group with the support of several non-profit organizations and community groups with a mission
to preserve Section 8 housing and to develop plans and solutions to create more low-income
housing and accessible housing through State and City legislation and policy. The support was
in the form of staff time charged to the OTAG grant to assist the resident group in further the
mission of the Save Our Section 8 Coalition. According to the guidance in OMB Circular A-
122, these activities represent Grassroots lobbying activities and are not grant fundable with
Federal funds. These activities could be charged to the non-Federal sources of the grantees. For
example, the July 2001 quarterly report that the Housing Advocacy Coalition continued its
efforts to create a citywide coalition of HUD tenants to network and empower them to slow the
loss of HUD housing through understanding national policy and acting together on pertinent
Federal issues.

We could not make a determination of the actual amount of time spent performing Grassroots
lobbying, because of the lack of details in the employee’s time sheets. However, we noted that
the resident groups of the projects assisted are the same resident groups that comprise the Save
Our Section 8 Coalition. In addition, while performing our site work we overheard the staff
planning strategies for the various projects assisted to participate in fundraising and letter writing
campaigns related to Save Our Section 8 Coalition.

The grantees also participated in teleconferences, conferences and paid membership dues to the
National Alliance of HUD Tenants. According to the Alliance’s teleconference and conference
agenda, activities consisted of items grant fundable under the grant and OMB’s guidance. The
activities also consisted of unallowable lobbying activities. For example, part of the Alliance’s
conference in October 2001 contained sessions of local and statewide strategy to cope with
prepayment of the property. According to the conference information the session informing
participant how to use state and local legislation to save Section 8 projects. Another session
provided participants with information on creating local and citywide tenant coalition.
Teleconference agenda identified that of the one hour and thirty minute planed for the
teleconference only 5 minute related to the Mark-to-Market program. Based on OMB’s
guidance, only that portion of the activity related to the purpose of the grant can be charged to
the grant. In these examples, the grantees charged the full amount to the OTAG grant.

Again, due to the lack of detailed records we could not determine the amount of unallowable
lobbying activities being charged to the grant.

We identified a total of $3,827 of ineligible salaries and fringe charges and questioned $9,070 of
telephone, accounting and auditing charges. We could not determine the amount of funds
expended for unallowable lobbying activities.

The grantees advised that they did not read MAHRA nor were they aware of the specific
requirements of OMB Circular A-122. The grantees believed that they complied with the
requirements of the grant and OMHAR’s additional guidance in the December 3, 1999
memorandum. Specifically, those regional activities were allowed to preserve Section 8


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housing. Moreover, neither HUD officials at OMHAR nor the officials of the ITAG grantee
questioned the funding requests. The grantees also advised that neither HUD nor the ITAG
grantees performed an onsite review of their activities or methods for charging the grant.

The grantees believes that the activities we identified as lobbying are in fact out reach activities
to ensure that the tenant have a voice in the further of Section 8 housing and attempts to secure
funding to allow tenants to purchase the projects. Furthermore, the grantees insists that assisting
the tenants to have a voice in the future of HUD assisted housing and securing funding to
purchase, the projects are within the scope of the grant. The grantees advised that they were not
aware of the specific requirements on Lobbying in OMB Circular A-122 and were relying on the
IRS’s publication 557 to define eligible lobbying activities. We advised the grantees that the IRS
requirements only related to the non-profit entity maintaining its non-profit status. The OMB
guidance applied to the allowability of using Federal funds for activities. The grantees also
believed Grassroots activates directed to the local government to preserve Section 8 housing
were fundable under the grant terms.


    AUDITEE COMMENTS AND OIG EVALUATION OF AUDITEE COMMENTS

The grantees did not fully concur with the conclusions in the audit report. The grantees stated
that they continue to be frustrated by information provided by OMHAR. The grantees also
pointed out that OMHAR approved and accepted all voucher requests over the 16 months in
question.

The grantees believed that they provided assistance to only eligible projects, based on the
December 3, 1999 memorandum from Ira Peppercorn, Director of OMHAR. The grantees
specifically cited and highlighted the following paragraphs in that memorandum (Page 1,
paragraphs 3,4, 5 and 6, Page 2, Paragraphs 1 and 2, Page 3, paragraphs 1, 2, 3 and the last
paragraph of page 3 and first paragraph of page 4). The grantees believe and we concur that
HUD did not provide clear guidance in determining the eligibility of the projects or providing a
clear listing of eligible projects. We changed the recommendations to incorporate the grantee’s
response.

The grantees concurred that they over charged the grant for salaries and benefits, and that they
lacked an approved cost allocation method. However, they disagree with the amount of the
salary and benefit over charges. The grantees calculated that the over charges amounted to
$2,311.87 not the $3,827 identified in the report. The grantees also provided a cost allocation
method for the indirect costs. We plan to let HUD review the information and make a final
determination related to the salary and benefit overcharges and the cost allocation plan.

The grantees strongly disagreed that any of their OTAG funded activities constitute lobbying.
The grantees state that the activities were eligible as regional OTAG activities or informational
activities. As identified in the finding, we concluded that some of the funded activities constitute
lobbying, as defined in OMB Circular A-122, and therefore, should not have been funded with
Federal funds. We based our conclusions on OMB Circular A-122, the funded activities, records



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reviewed, and interviews with the grantee’s staff and tenants involved. However, we did modify
recommendation 1G to take into account the grantees comments.


                                     RECOMMENDATIONS

We recommended that the Director of OMHAR:

       1A. Require the Housing Advocacy Coalition and the Community Resource Center to
           support the assistance to the ineligible projects and refund the grant the cost associated
           with assistance to the ineligible projects.
       1B. Require the Housing Advocacy Coalition and the Community Resource Center to
           repay the $3,827 in excess salaries and benefit charges.
       1C. Require the Housing Advocacy Coalition and the Community Resource Center to
           maintain time records according to OMB Circular A-122.
       1D. Require the Housing Advocacy Coalition and the Community Resource Center to
           submit a cost allocation plan and based on the plan adjust the $9,070 for telephone,
           accounting and auditing charges and repay any overcharges.
       1E. Require the Housing Advocacy Coalition and the Community Resource Center to stop
           charging the grant for activities related to lobbying as defined by MAHARA and
           OMB Circular A-122.
       1F. To establish policies and procedures for identifying eligible projects to ensure only
           eligible projects receive assistance from grantees.
       1G. To establish policies and procedures for identifying grantees engaged in housing
           advocacy, to ensure Federal funds are not used to support direct or indirect lobbying
           activities.


                                  MANAGEMENT CONTROLS

In planning and performing our audit, we considered the management controls relevant to the
Housing Advocacy Coalition and the Community Resource Center’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.


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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.
Based on our review, we believe the following items are significant weaknesses:
    · Lack of a system to fully support that only eligible projects were assisted with Section
          514 funds,
    · 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 polices and procedures to ensure that lobbying activities are not directly or
          indirectly funded by Federal sources.


                             FOLLOW-UP ON PRIOR AUDITS

The Office of Inspector General performed no previous audit of the Housing Advocacy Coalition
or the Community Resource Center.




                                                                                        Page 12
                                                                            Appendix A
                 SCHEDULE OF QUESTIONED COSTS


Recommendation                      Type of Questioned Costs
    Number                 Ineligible 1/            Unsupported 2/
      1B                      $3,827
      1D                                                $9,070

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.




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                   Appendix B
AUDITEE COMMENTS




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                                                                           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




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