oversight

Congressionally Requested Audit of the Outreach and Training Grant Awarded to the Crossroads Urban Center, Salt Lake City, Utah Grant Numbers FFOT98028UT and FFOT00039UT

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-25.

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

                                                            Issue Date
                                                               September 25, 2002
                                                            Audit Case Number
                                                                   2002-DE-1005




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


FROM:        Robert Gwin, Regional Inspector General for Audit, 8AGA

SUBJECT: Congressionally Requested Audit of the Outreach and Training Grant
         Awarded to the Crossroads Urban Center, Salt Lake City, Utah
         Grant Numbers FFOT98028UT and FFOT00039UT


                                   INTRODUCTION

We completed an audit of the Crossroads Urban Center’s two Outreach and Training
Grants (OTAG) and a Public Entity Grant. Crossroads Urban Center is a nonprofit
organized in the State of Utah. The audit identified that the Crossroads Urban Center did
not adequately document costs of the grant and did not have a Federally approved cost
allocation plan when it charged at least $23,600 of indirect costs to a HUD grant. Also,
the Crossroads Urban Center used at least $14,400 in grant funds for ineligible costs that
consisted of a 20% indirect cost allocation for donated rent. Our report contains four
recommendations to address the issues identified in the report.

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 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 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 (OMB) guidance on the
allowability of cost for nonprofit grantees.

The audit covered the period October 1999 to June 2002. We performed the fieldwork at
the Crossroads Urban Center located at 347 South 400 East, Salt Lake City, Utah 84111
in 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 Crossroads
Urban 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 your staff have any questions, please contact Ernest Kite, Assistant
Regional Inspector General for Audit, at (303) 672-5452 extension 1458.

                                       SUMMARY

Overall the Crossroads Urban Center used its grant funds for eligible activities. The
nonprofit documented its lobbying activities and as a matter of policy did not charge
these costs to the HUD grants. However, the Crossroads Urban Center did not
adequately document costs of the grant and did not have a Federally approved cost
allocation plan when it charged at least $23,600 of indirect costs to a HUD grant. Also,
the Crossroads Urban Center used at least $14,400 in grant funds for ineligible costs that
consisted of a 20% indirect cost allocation for donated rent.

                                    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 OTAG and ITAG. 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



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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 ITAG and the 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.

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 84.27) require that nonprofit grantees utilize the 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 activities. Simply stated, the use of federal funds for any lobby activity is
unallowable. OMB Circular A-122 identifies some example of unallowable activities of



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lobbying. These include any attempt to influence 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, fund raising drive, lobbying campaign or letter writing or
telephone campaign.

The Crossroads Urban Center is a community-based nonprofit incorporated in the State
of Utah in 1970. Its purpose is to assist and organize low income, disabled, and minority
Utahans to meet basic survival needs and to address essential issues affecting quality of
life. The nonprofit operates the Emergency Food Pantry and a free and low cost store
called the Crossroads Thrift Store.

The nonprofit also has four advocacy projects: (1) The Utah HUD Tenants' Association
(UHTA) works with tenants in HUD-assisted housing to preserve low income housing
and to protect the rights of low income renters; (2) The Anti-Hunger project helps people
to obtain food stamp benefits and to address administrative and policy barriers that make
it more difficult to feed their families; (3) The Utility project advocates to keep utility
costs affordable for all Utahans and to secure life line utility programs for Utahans in
need; and (4) The Coalition of Religious Communities (CORC) brings together religious
communities of diverse faiths to address state and national legislators on economic justice
issues.

The Crossroads Urban Center was one of several nonprofit organizations selected to
receive Outreach and Training Grants (OTAG) from HUD, which were available to
resident controlled or community based nonprofit organizations with experience in
resident education and organizing. The nonprofit's UHTA advocacy group is responsible
for running the HUD funded Outreach and Training program.

The Crossroads Urban Center received an OTAG award in October 1998 in the amount
of $100,000 to be used over a three-year period; and received a second award for
$180,000 in January 2001. Also, the Crossroads Urban Center received a $15,000 Public
Entity Grant from the Amador-Tuolumne Community Action Agency in July 2000.
These are the only Federally awarded funds to the nonprofit during the audit period. The
Crossroads Urban 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.

In addition to the OTAG grant, the Crossroads Urban Center received grants from non-
Federal sources. For example, the nonprofit received $85,000 from the Catholic
Campaign for Human Development.




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                                                  FINDING

              The Grantee Needs to Comply with OMB Requirements
The Office of Management and Budget’s (OMB) Circular A-122, Cost Principles for
Non-Profit Organizations, provides a uniform approach to the problem of determining
costs, and promotes efficiency and better understanding between recipients and the
Federal Government. All nonprofits1 receiving Federal awards must follow the cost
principles described in the Circular. Contrary to the principles of the Circular, the
Crossroads Urban Center did not adequately document costs of the grant and did not have
a Federally approved cost allocation plan when it charged at least $23,600 of indirect
costs to a HUD grant. Also, the Crossroads Urban Center used at least $14,400 in grant
funds for ineligible costs that consisted of a 20% indirect cost allocation for donated rent.
The nonprofit was unaware of the OMB Circular A-122 requirements.

The Executive Director told us that these were the nonprofit’s first HUD grants and HUD
never provided them with any guidance. As a result, grant funds were used to reimburse
ineligible and unsupported expenses. We recommend that HUD (1) require the
Crossroads Urban Center to establish procedures to ensure that the expenditures of all
subsequent draws are adequately documented; (2) negotiate and approve the nonprofit’s
indirect cost rate allocable to the HUD grants; (3) require the nonprofit to identify
additional payments for donated rent for all quarters prior to the second quarter of 2001
and require the nonprofit to either repay the funds or substitute an equal amount of
eligible expenditures not already reimbursed; and (4) 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.

Costs Must Be Adequately Documented

OMB Circular A-122 states that to be allowable under an award, costs must be
adequately documented. The nonprofit adequately accounted for program costs in its
accounting system, however, the nonprofit did not maintain adequate documentation to
identify which expenses were paid with each draw request. Due to this lack of
documentation we were unable to review the costs associated with the OTAG awarded in
1998. However, based on our review of management controls and the expenditures from
the Public Entity Grant and the identifiable expenses of the OTAG awarded in 2001 we
were able to review sufficient documentation to base our conclusions.

We were able to identify the expenses allocable to the Public Entity Grant and found that
the expenses were eligible. The nonprofit provided us with schedules identifying the
expenses for most of the draws against the OTAG awarded in 2001, except for expenses
incurred in the first quarter of 2001. Thus, we did not review any expenses from the
OTAG awarded in 1998 or the first quarter of the OTAG awarded in 2001. The nonprofit

1
    Except for nonprofits on the exemption list in Attachment C of the Circular.


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was unable to fully support the draws that it researched but the difference was
immaterial.

Allocating Indirect Costs to the Grant

OMB Circular A-122 stipulates that the nonprofit needs to prepare a cost allocation plan
to support the determination of indirect cost rates that can be charged to a grant. The
Federal agency with the largest dollar value of awards with an organization will be
designated the cognizant agency for the negotiation and approval of indirect cost rates.
The Crossroads Urban Center determined that a reasonable allocation of indirect costs to
the HUD grants was twenty percent, however, HUD2 has not approved the rate. The
nonprofit charged at least $23,600 of indirect costs3 to the OTAG awarded in 2001.
These costs are unsupported because an indirect cost allocation plan has not been
approved.

Ineligible Expenditures

OMB Circular A-122 also states that donated rent is not a reimbursable direct or indirect
cost. The nonprofit occupies donated space. The cost of the donated space was included
in the nonprofits indirect costs, of which 20% was charged to the HUD grant. The cost is
unallowable because the nonprofit did not pay funds to a third party to utilize the space.
The nonprofit charged the grant at least $14,400 for the reimbursement of donated rent.

Lack of HUD Guidance

The staff of the nonprofit was unaware of the requirements of OMB Circular A-122. The
Executive Director told us that this was the nonprofit’s first HUD grants and HUD never
provided them with any guidance. As a result, grant funds were used to reimburse
ineligible and unsupported expenses.

                                       AUDITEE COMMENTS

We provided our draft report to the grantees for their comments on September 4, 2002.
The grantee provided their comments on September 17, 2002. We included the grantees’
comments in Appendix B of the report.

                      OIG EVALUATION OF AUDITEE COMMENTS

The Crossroads generally agreed with the finding and plan to develop and implement
appropriate management controls to ensure that only eligible activities receive funding
and that the documentation for the expenditure complies with OMB Circular A-122.


2
  HUD is the Federal agency with the largest dollar value of awards during the audit period.
3
 Typical indirect costs included: office, building and ground supplies; telephone; utilities; security; repairs
and maintenance; general insurance; professional fees; depreciation; and salaries and benefits of Executive
Director and Bookkeeper.


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                              RECOMMENDATIONS

We recommend that the Director of OMHAR:

1A.   Require the Crossroads Urban Center to establish procedures to ensure that the
      expenditures of all subsequent draws are adequately documented.

1B.   Negotiate and approve the nonprofit’s indirect cost rate allocable to the HUD
      grants and determine whether the indirect cost allocation of $23,600 is adequately
      supported.

1C.   Require the nonprofit to identify additional payments for donated rent for all
      quarters prior to the second quarter of 2001 and require the nonprofit to either
      repay the funds (at least $14,400) or substitute an equal amount of eligible
      expenditures not already reimbursed.

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.




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                            MANAGEMENT CONTROLS

In planning and performing our audit, we considered the management controls of the
Crossroads Urban Center’s Section 514 program to determine our auditing 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 the following management controls were relevant to our audit objectives:

·      Program Operations – Policies and procedures that management has implemented
       to reasonably ensure that a program meet its objectives.

·      Validity and Reliability of Data – Policies and procedures that management has
       implemented to reasonably ensure that valid and reliable data are obtained,
       maintained, and fairly disclosed in reports.

·      Safeguarding Resources – Policies and procedures that management has
       implemented to reasonably ensure that resources are safeguarded against waste,
       loss and misuse.

We assessed the relevant controls identified above.

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:

·      Safeguarding Resources

       Crossroads Urban Center was unfamiliar with the principles for determining the
       costs of grants, which are communicated in OMB Circular A-122. As a result,
       Crossroads inadequately documented costs, did not have a cost allocation plan to
       support its allocation of indirect costs and charged ineligible costs to the grant.

These weaknesses are more fully discussed in the finding above.

                          FOLLOW-UP ON PRIOR AUDITS

This is the first audit of the Crossroads Urban Center by the Office of Inspector General.




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                                                                              Appendix A

     SCHEDULE OF QUESTIONED COSTS AND FUNDS PUT TO BETTER USE



Recommendation                       Type of Questioned Cost
   Number                     Ineligible 1/         Unsupported 2/

       1B                                            $23,600
       1C                     $14,400


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

                    DISTRIBUTION OUTSIDE OF HUD

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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