oversight

Congressionally Requested Audit of the Outreach and Technical Assistance Grant Awarded to the Iowa Coalition for Housing and the Homeless, Des Moines, Iowa, Grant Number FFOT98009IA

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-19.

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

                                                              Issue Date
                                                                      September 19, 2002
                                                              Audit Case Number
                                                                           2002-KC-1003




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



FROM: Roger E. Niesen, Regional Inspector General for Audit, 7AGA

SUBJECT: Congressionally Requested Audit of the Outreach and Technical Assistance Grant
         awarded to the Iowa Coalition for Housing and the Homeless, Des Moines, Iowa,
         Grant Number FFOT98009IA


                                      INTRODUCTION

We have completed an audit of the Iowa Coalition for Housing and the Homeless’ Outreach and
Technical Assistance Grant (OTAG). The audit concluded the Coalition is effectively managed
and well run with the exception of the method used to charge salaries to the grant. The audit
identified that the Grantee over charged the grant $4,945 because the method they used to charge
salaries to the grant was not proper. Our report contains two recommendations that when
implemented should correct the overcharge problem.

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 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 Iowa Coalition for Housing and the Homeless’
(Coalition) accounting records, and other documents supporting the expenditures of the OTAG
Section 514 grant funds. We also interviewed staff responsible for the OTAG grant funded
activities at the Coalition. Further we reviewed the requirements in the Multifamily Assisted
Housing Reform Act, 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 costs for nonprofit grantees.

The audit covered the period September 1998 through May 2002. We performed on-site audit
work at the Coalition located at 713 East Locust Street, Des Moines, Iowa 50309. The on-site
audit work was accomplished during June and July 2002. We conducted the audit in accordance
with Generally Accepted Government Auditing Standards.

We appreciate the courtesies and assistance extended to us during our review by the personnel of
the Iowa Coalition for Housing and the Homeless.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please furnish to this office,
for each recommendation without 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 (913) 551-5870.


                                  SUMMARY OF RESULTS

The Iowa Coalition for Housing and the Homeless over charged payroll expenses to its Office of
Multifamily Housing Assistance Restructuring grant. The Coalition charged payroll expenses to
the grant on the basis of a fixed hourly rate when, in fact, the hourly rate varied, since the
Coalition’s employees were paid a salary and did not work the same amount of hours each
month. Although the Coalition believes its method of charging time to the various grants is
reasonable, we determined it does not result in an accurate charge to the grant. Since the
Coalition’s employees are paid a salary, which is static, but the hours worked are variable, the
hourly rate (calculated as salary divided by hours worked) should also be variable. The use of a
fixed hourly rate resulted in the grant being overcharged $4,945 during our audit period. The
Coalition needs to recalculate the hourly rate for each month based on hours worked and use that
figure to charge payroll expenses to the grant.


                                        BACKGROUND

The Multifamily Assisted Housing Reform and Affordability Act of 1997 established the Office
of Multifamily Housing Assistance Restructuring (OMHAR) within HUD. Utilizing the
authority and guidelines under the Act, OMHAR’s responsibilities include the administration of
the Mark-to-Market Program. This included the awarding and oversight of the Outreach and
Technical Assistance Grant, Section 514 of the Act. 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

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insured mortgages and rent subsidies. OMHAR worked with property owners, participating
administrative entities, tenants, lenders, and others to further the objectives of the Act.

Congress recognized, in Section 514 of the Act, that tenants of projects, residents of
neighborhoods, the local government, and other parties would be affected by the Mark-to-Market
Program. Accordingly, Section 514 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 41 grantees (a
total for 83 grants awarded). Section 514 required the Secretary to establish procedures to
provide an opportunity for tenants of projects and other affected parties to participate effectively
and on a timely basis in the restructuring process established by the Act. Section 514 requires
procedures to take into account the need to provide tenants of projects and other affected parties
timely notice of proposed restructuring actions and appropriate access to relevant information
about restructuring activities. Section 512 of the Act defines eligible projects as HUD insured or
held multifamily projects receiving project based rental assistance. However, Congress
specifically prohibits using Section 514 grant funds for lobbying members of Congress.

HUD issued a Notice of Fund 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 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.

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




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The Circular also establishes the unallowability of costs associated with Federal and state
lobbying activates. Simply 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 Iowa Coalition for Housing and the Homeless was formed in 1988 and currently has over
100 dues-paying member organizations and over 1,500 individual members. The Coalition
currently has 3 employees who provide technical assistance in obtaining funding for housing
issues as well as administering three special projects. These projects are the Welfare Reform
Coalition of Iowa, the Interfaith Outreach program, and the Iowa Alliance of Manufactured
Homeowners.

The Iowa Coalition for Housing and the Homeless applied for an OTAG in 1998. The Coalition
received $220,000 in a HUD OTAG grant in October 1998. As of March 18, 2002, the Grantee
had expended $128,776. The Coalition received an annual financial audit of their activities for
the three-year period ending June 30, 2001. The auditor provided an unqualified opinion for
each of the three years.

In addition to the OTAG grant, the Iowa Coalition for Housing and the Homeless received
funding from various other sources totaling $427,643. Their $220,000 OTAG grant,
(#FFOT98009IA), comprises 51 percent of that total.


                                          FINDING
                 The Iowa Coalition for Housing and the Homeless Overcharged
                                Payroll Expenses To The Grant

The Iowa Coalition for Housing and the Homeless over charged payroll expenses to its Office of
Multifamily Housing and Restructuring grant. The Coalition charged payroll expenses to the
grant on the basis of a fixed hourly rate when, in fact, the hourly rate varied since the Coalition’s
employees were paid a salary and did not work the same amount of hours each month. Although
the Coalition believes its method of charging time to the various grants is reasonable, we
determined it does not result in an accurate charge to the grant. Since the Coalition’s employees
are paid a salary that is static, but the hours worked are variable, the hourly rate (calculated as
salary divided by hours worked) should also be variable. The use of a fixed hourly rate has
resulted in the grant being overcharged $4,945 during our audit period.

Office of Management and Budget Circular A-122, Attachment A, Section A.4.a. says "a cost is
allocable to a Federal award if it is treated consistently with other costs incurred for the same
purpose in like circumstances..."




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Attachment B, Section 7.d.(1) of the Circular states that when applying "compensation to
members of non-profit organizations...”, "determination should be made that such compensation
is reasonable for the actual personal services rendered rather than a distribution of earnings in
excess of costs.

The Iowa Coalition for Housing and the Homeless believes that it is acceptable to charge time to
its OTAG grant based on the number of hours worked on the grant multiplied by a standard
salary rate. We determined the method the Coalition uses is not acceptable since it does not
result in an accurate charge to the grant. Because the salary is static, but the hours worked are
variable, the hourly rate (calculated as salary divided by hours worked) should also be variable.

For example, if employee X is paid a monthly salary of $3,200, his/her time is currently charged
to the grant by taking his/her monthly salary and dividing by 177.33 hours. For employee X, this
would be $18.46 per hour. However, if employee X worked 200 hours in one month, at $18.46
per hour, the grant would be charged $3,692, while the Coalition has only expended $3,200. The
situation would be the opposite (undercharge) in a month when employee X worked less then
177.33 hours. The Coalition said they never draw down more funds than they expend in salaries
because any excess reduces the amount of salary expense charged to the general fund. However,
since various grant funds are included in the general fund, there is no assurance the OTAG grant
is properly charged for payroll expenses. We determined the OTAG grant was overcharged
$4,945 from September 1998 through May 2002.


    AUDITEE COMMENTS AND OIG EVALUATION OF AUDITEE COMMENTS

We provided our draft report to the Iowa Coalition for Housing and the Homeless for their
comments on August 29, 2002. The Grantee provided their comments dated September 6, 2002.
We included the Grantee’s complete comments in Appendix B. Excerpts from the Grantee’s
comments are included below:

The Iowa Coalition for Housing and the Homeless said they agree that the method used to
allocate salary expense to the grant was not the most accurate method available to them. To
correct the oversight they said they have modified the worksheets used in their indirect cost
allocation system. They will now track the percent of time each person works on a particular
grant, and charge that percent of the staff persons monthly salary to the respective grant.
However, the Coalition disagreed with the amount we determined was overcharged to the grant
because their average monthly hours charged to the grant is 173.33 as opposed to the 160 hours
we used in developing the finding. We concur with the Coalition’s calculations that the total
amount overcharged is $4,945 and have adjusted the finding accordingly.




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                                   RECOMMENDATIONS

We recommend that the Director of Office of Multifamily Housing and Restructuring require the
Iowa Coalition for Housing and the Homeless to:

1A. Develop a reasonable cost allocation plan for accurately charging salaries to the grant.

1B. Reduce future draw down requests to repay the $4,945 overcharged, and recalculate the
    amounts charged to the grant for salaries since May 31, 2002 and make appropriate
    adjustments.




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                               MANAGEMENT CONTROLS

In planning and performing out audit, we considered the management controls relevant to the
Iowa Coalition for Housing and the Homeless’ 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:

   ·   Receipt of grant funds.
   ·   Disbursement of grant funds.
   ·   Allocation of common costs.
   ·   Financial recording and reporting for grant funds.
   ·   Selection and award of consulting and other service contracts.
   ·   Administrative (HUD) reporting of grant uses and results.

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 did not find any significant weaknesses.


                             FOLLOW-UP ON PRIOR AUDITS

The Office of Inspector General performed no previous audit of the Iowa Coalition for Housing
and the Homeless.




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                                                                                Appendix A


                        SCHEDULE OF QUESTIONED COSTS


       Recommendation                      Type of Questioned Costs
           Number                                Ineligible 1/
             1A                                     $4,945


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.




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                   Appendix B


AUDITEE COMMENTS




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Appendix B




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Appendix B




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Appendix B




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Appendix B




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Appendix B




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Appendix B




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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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