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AUDIT REPORT
Hudson County Division of Community Development
Community Planning and Development Programs
Jersey City, New Jersey
2002-NY-1002
April 15, 2002
OFFICE OF AUDIT
New York/New Jersey District
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Issue Date
April 15, 2002
Audit Case Number
2002-NY-1002
TO: Kathleen Naymola, Director, Community Planning and Development Division, 2FD
FROM: Alexander C. Malloy, District Inspector General for Audit, 2AGA
SUBJECT: Hudson County Division of Community Development
Community Planning and Development Programs
Jersey City, New Jersey
We examined the operations of the Hudson County Division of Community Development
(hereafter referred to as the Grantee) pertaining to its Community Planning and Development
Programs. Specifically, we reviewed its Community Development Block Grant (CDBG),
Emergency Shelter Grant (ESG), and HOME Investment Partnership (HOME) Programs. This
audit report contains six findings with recommendations for corrective action.
Within 60 days please provide 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. Also, please furnish us copies of any issued correspondence or
directives related to this audit.
Should you or you staff have any questions, please contact Edgar Moore, Assistant District
Inspector General for Audit, at (212) 264-8000, extension 3976.
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Management Memorandum
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2002-NY-1002 Page ii
Executive Summary
We have completed an examination of the operations of Hudson County Division of Community
Development (Grantee) pertaining to its administration of its Community Planning and
Development Programs. Specifically, we reviewed its Community Development Block Grant
(CDBG), Emergency Shelter Grant (ESG), and HOME Investment Partnership (HOME) Programs.
The primary objectives were to determine whether the Grantee: (1) carried out its activities in an
economical, efficient, and effective manner; (2) complied with applicable CDBG, ESG, and HOME
Program requirements, laws and regulations; and (3) had adequate controls to ensure compliance
with HUD requirements and Federal regulations. In this regard, our review disclosed that the
Grantee did not always comply with program requirements, laws and regulations; nor did it have
adequate controls to ensure that all activities were carried out in an economical, efficient, and
effective manner. Instances of noncompliance and the incurrence of uneconomical costs are
discussed in the findings and are summarized below.
Contrary to HUD regulations, the Grantee provided $1
Questionable land Million in CDBG funds for the purchase of land, which was
transaction made by a sub-recipient without obtaining the required
approval from HUD for the release of funds, and without
obtaining the applicable environmental clearance from the
New Jersey Department of Environmental Protection
(NJDEP). In addition, the Grantee did not execute a loan
agreement for a $300,000 loan that was included in the
above amount, and did not record the loan on its books. We
attribute this to the Grantee’s unfamiliarity with HUD
regulations, and to inadequate accounting procedures for
recording loans. As a result, $1 million in program cost
may be ineligible because the land transaction was not
approved by HUD, and may not be economically viable
since the land may be contaminated. Consequently, the
purchase of the land and its associated costs are considered
questionable since the Grantee did not obtain the required
HUD approval for the release of funds.
Furthermore, we noted that weaknesses in the Grantee’s
CDBG costs of $63,825 controls over disbursements caused questionable costs of
are being questioned $63,825, to be charged to the CDBG Program. This is
attributable to the Grantee’s failure to properly follow: (a)
its procedures for making disbursements and
reimbursements to sub-recipients; and (b) Federal
regulations, which stipulate that only allowable
expenditures can be charged to federally financed
programs.
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Executive Summary
$126,173 in Emergency In addition, the Grantee did not ensure that its sub-
Shelter Grant funds recipients expended available Emergency Shelter Grant
were not expended (ESG) funds timely. As a result, ESG funds, totaling
timely $126,173, may not have been used for its intended purposes
or effectively reprogrammed to meet other ESG Program
needs. As such, the Grantee was not able to provide
adequate assurance that sub-recipients have provided all the
services to the homeless for which funds were provided.
This can be attributed to the Grantee’s lack of monitoring
to ensure that sub-recipients have expended their funds or
submitted bills for timely reimbursement of ESG expenses.
Our review also disclosed that the Grantee inappropriately
Excessive salary costs allowed sub-recipients to charge excessive salary costs to
were charged to the the Emergency Shelter Grant (ESG) Program. As a result,
ESG Program $17,280 in ESG funds were not used for its intended
purpose and/or for other eligible operating expenses. We
attribute this to the Grantee’s failure to establish controls to
ensure that only allowable salary amounts were charged to
the ESG Program.
Furthermore, the Grantee neither adequately documented
Noncompliance with
its compliance with Federal Labor standards; nor ensured
Federal labor
that contractors complied with the provisions of the Davis
standards/Davis
Bacon Act. As a result, there is inadequate assurance that
Bacon Act
contractors and subcontractors were eligible to perform
work on jobs financed with Federal funds, and that
employees of contractors were paid prevailing wages. We
attribute this to a lack of training of the Grantee’s staff on
Federal Labor standards, especially those pertaining to the
Davis Bacon Act.
Lastly, the Grantee did not perform inspections on
The required HOME completed HOME-assisted rental projects. As a result, the
inspections were not Grantee does not have adequate assurance that assisted
performed projects are meeting HUD’s housing quality standards. This
is due to the Grantee’s lack of controls to: a) identify the
properties that need inspections, b) provide dates when
inspections are required, and c) assign staff to perform the
inspections.
As a result of the above, we recommended that the HUD
Recommendations NJSO determine whether the Grantee should seek post
approval of the request for release of funds for the land
transaction. If not, inform the Grantee that the cost of the
2002-NY-1002 Page iv
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Executive Summary
land, $1 million, is ineligible and should be reimbursed to
the CDBG Program from non-federal funds.
We also recommended that HUD: a) determine the
eligibility of the additional questioned costs of $63,625, b)
recognize a cost savings by recapturing $126,173 in unused
ESG funds, and c) instruct the Grantee to reimburse the
amount of ineligible costs, totaling $17,480, from non-
Federal funds (See Appendix A).
In addition, we provided recommendations that upon
implementation would improve the Grantee’s disbursement
and monitoring controls for ensuring that only eligible
costs, supported by adequate documentation, are charged to
the CDBG and ESG Programs. Furthermore, the
implemented recommendations would ensure that ESG
funds are expended timely, that the Grantee complies with
Federal labor standards, and that inspections of HOME
assisted properties are performed timely.
The results of our audit were discussed with Grantee
Exit conference officials during the audit and at an exit conference held on
February 05, 2002, at the Grantee’s office. On February 13,
2002, we received the Grantee’s written responses to the
findings, which are included in its entirety as Appendix B
to this report. Also, we provided a summary and an
evaluation of the Grantee’s responses at the end of each
finding.
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Executive Summary
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2002-NY-1002 Page vi
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Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1. The Grantee Provided $1 Million In CDBG Funds For A Land 3
Transaction That Is Questionable
2. Questioned Costs Of $63,825 Were Charged To The CDBG 9
Program.
3. Emergency Shelter Grant Funds Were Not Timely Expended 15
4. Excessive Salary Costs Were Charged To The Emergency 19
Shelter Grant Program
5. The Grantee Needs To Improve Compliance With Federal Labor 21
Standards And Ensure That Contractors Comply With Provisions
Of The Davis-Bacon Act
6. The Grantee Did Not Perform Inspections On Completed 27
Home-Assisted Rental Projects
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Table of Contents
Management Controls 31
Follow Up On Prior Audits 33
Appendices
A Schedule of Questioned Costs and Cost Efficiencies 35
B Auditee Comments 37
C Distribution 41
Abbreviations
CCS Catholic Community Services
CDBG Community Development Block Grant
ESG Emergency Shelter Grant
HOME HOME Investment Partnership Program
HUD U.S. Department of Housing and Urban Development
NJDEP New Jersey Department of Environmental Protection
NJSO New Jersey State Office
OIG Office of the Inspector General
PERC Palisades Emergency Residence Corp.
RROF Request for release of funds
2002-NY-1002 Page viii
Introduction
Title I of the Housing and Community Development Act of 1974 as amended, established the
Community Development Block Grant (CDBG) Program, which provides grants to States and
units of local governments to aid in development of viable urban communities. Projects or
activities under the CDBG Program must meet one of the program’s three national objectives,
which are to: (1) benefit low and moderate-income persons; (2) aid in the prevention of slums
and blight; or (3) address an urgent need (an existing condition that poses a serious or immediate
threat to the health or welfare of the community).
The Emergency Shelter Grant (ESG) Program is designed to help improve the quality of existing
emergency shelters for the homeless, make available additional emergency shelters, and meet the
costs of operating emergency shelters. The program helps to provide essential social services to
homeless individuals so that these persons have access not only to safe and sanitary shelters for
the homeless, but also to the supportive services and other kinds of assistance they need to
improve their situations. The program is also intended to restrict the increase of homelessness
through the funding of preventive programs and activities (24 CFR section 576.1).
Title II of the Cranston-Gonzales National Affordable Housing Act of 1990, created the HOME
Investment Partnerships (HOME) Program. HOME funds are made available to certain
participating jurisdictions on a formula basis. HOME was designed to strengthen public-private
partnerships to expand the supply of decent, safe, sanitary and affordable housing to low and very
low-income families.
Hudson County’s CDBG Program includes the New Jersey municipalities of East Newark,
Guttenberg, Harrison, Hoboken, Kearny, Secaucus, Weehawken, and West New York. Hudson
County’s Emergency Shelter Grant Program includes all municipalities with regard to homeless
programs under the Jersey City-Hudson County Continuum of Care Strategy. The Hudson
County Consortium for the HOME Program includes eight communities in the Urban County and
the Entitlement Cities of Bayonne, Union City and the Township of North Bergen. Hudson
County is the HOME Participating Jurisdiction.
A nine member Board of Chosen Freeholders governs Hudson County. The Hudson County
Division of Community Development (the Grantee) administers Hudson County’s CDBG, ESG
and HOME Programs. The Grantee is located in the Brennan Court House, Jersey City, New
Jersey. Ms. Susan Mearns is the Acting Housing and Community Development Division Chief.
The books and records are located at the Grantee’s Office.
Total disbursements for the year ended December 31, 2000, for each of the above programs was
as follows:
Community Development Block Grant Program $7,232,227
HOME Investment Partnerships Program $6,558,424
Emergency Shelter Grant Program $ 213,985
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Introduction
The objectives for this audit were to determine whether the
Audit Objectives Grantee: (1) carried out its activities in an economical,
efficient, and effective manner; (2) complied with the
CDBG, ESG and HOME Program requirements, laws and
regulations; and (3) has adequate controls to ensure
compliance with HUD regulations.
The audit covered the period from January 1, 2000, through
Audit Scope and December 31, 2000. However, we reviewed activities prior
Methodology and subsequent to the audit period as necessary. The audit
site work was performed between February 28, 2001, and
February 5, 2002.
In order to accomplish the audit objectives we performed the
following audit procedures:
• Examined records and files of the Grantee and
interviewed staff.
• Reviewed records and files of sub-recipients and
interviewed staff.
• Reviewed the Grantee’s policies and procedures for
managing its operations, and
• Tested selected transactions.
This audit was conducted in accordance with generally
accepted government auditing standards.
We provided a copy of this report to the Grantee.
2002-NY-1002 Page 2
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Finding 1
The Grantee Provided $1 Million In CDBG Funds For A Land
Transaction That Is Questionable
Contrary to HUD regulations, the Grantee provided $1 Million in CDBG funds for the purchase
of land, which was made by a sub-recipient without obtaining the required approval from HUD
for the release of funds, and without obtaining the applicable environmental clearance from the
New Jersey Department of Environmental Protection (NJDEP). In addition, the Grantee did not
execute a loan agreement for a $300,000 loan that was included in the above amount, and did not
record the loan on its books. We attribute this to the Grantee’s unfamiliarity with HUD
requirements and Federal regulations, and to its inadequate accounting procedures for recording
loans. As a result, $1 million in program cost may be ineligible because the land transaction was
not approved by HUD, and may not be economically viable since the land may be contaminated.
Furthermore, a $300,000 loan receivable was not reflected on the Grantee’s books.
Consequently, the purchase of the land and its associated cost, $1 million, are considered
questionable since the Grantee did not obtain the required HUD approval for the release of funds.
Therefore, we recommend that the HUD NJSO evaluate the validity of the transaction and
determine the eligibility of the associated cost of $1 million.
Our review disclosed that a transaction for the purchase of
The Grantee provided land was initiated on December 23, 2000, and finalized
$1 million in CDBG with payments from the Grantee to the Harrison
funds without HUD’s Redevelopment Agency in the amount of $250,000 on
approval of the RROF December 28, 2000, and another $750,000 on May 2, 2001.
However, the required Request for Release of Funds
(RROF) was not submitted and approved by HUD, as per
24 CFR Section 58.22. Consequently, we consider the
purchase of the land and its associated cost of $1 million
questionable since the Grantee did not obtain the required
HUD approval.
24 CFR Section 58.22 entitled “Environmental Review
Procedures for Entities Assuming HUD Environmental
Responsibilities” provides that: “a recipient may not
commit HUD assistance funds…on an activity or project
until HUD or the State has approved the recipient's Request
for Release of Funds (RROF) and the related certification
of the responsible entity. In addition, until the RROF and
related certification has been approved, the recipient may
not commit non-HUD funds on an activity or project… if
the activity or project would have an adverse environmental
impact or limit the choice of reasonable alternatives.”
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Finding 1
The certification of the responsible entity refers to the
entity’s certification of compliance with related Federal
Laws and authorities (24 CFR Section 58.5).
Without obtaining the above HUD approval, we found that
in January 2001, the Harrison Redevelopment Agency
entered into a Subgrantee Agreement with the Grantee to
purchase vacant land owned by the Town of Harrison
(another sub-recipient) for one million dollars without
proper approval. The Subgrantee Agreement indicates that
the Harrison Redevelopment Agency shall develop the land
for economic development activities and shall include in
any agreements with developers that 51% of the new jobs
created shall be made available to low and moderate-
income persons.
The Grantee reallocates The Subgrantee Agreement also indicates that the Grantee
CDBG funds to cover the was going to provide the Harrison Redevelopment Agency
cost of the purchase funding by reallocating CDBG funds as follows.
$250,000 Town of Harrison’s CDBG funds
$250,000 Advance of Town of Harrison’s
future CDBG funds
$300,000 Loan of CDBG funds to be repaid
to the Grantee within one year of
the transfer of funds
$200,000 Additional CDBG grant to the
Town of Harrison
$1,000,000 Total
Based on the above schedule, it appears that the Grantee
reallocated funds originally ear marked for the Town of
Harrison so that another sub-recipient, the Harrison
Redevelopment Agency, could purchase land already owned
by the Town of Harrison. Since the Harrison Redevelopment
The necessity and Agency is a municipal agency within the Town of Harrison,
reasonableness of the we believe that the land transaction is questionable. There is
purchase is questioned a question as to whether it was necessary to use CDBG funds
of a municipal agency within the Town of Harrison (the
Harrison Redevelopment Agency) to acquire land that was
already owned by the Town.
Town purchased In 1977 the Town of Harrison purchased the land for a total
land for $246,843 of $246,843. The Town owned the land for 23 years, and
in 1999, the land was appraised at $1,920,000, almost twice
2002-NY-1002 Page 4
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Finding 1
the price of what the Harrison Redevelopment Agency paid
the Town of Harrison for it. We believe that the Town of
Harrison could have easily donated this land to the Harrison
Redevelopment Agency and/or sold the land in the open
market for the appraised value without the use of CDBG
funds.
In addition to the above, we learned that the vacant land,
which is in Harrison, New Jersey, is listed as being located
on a Brownfield site. The United States Environmental
Protection Agency defines Brownfields as abandoned, idled,
or under-used industrial and commercial facilities where
The land is located on a expansion or redevelopment is complicated by real or
Brownfield site perceived environmental contamination. Accordingly, we
believe that if the land is environmentally contaminated it
may hamper any attempts for development.
On September 26, 2000, the Harrison Redevelopment
Agency obtained an environmental assessment or site
investigation report on the land. The report, which was
prepared by the an environmental/engineering consultant
indicates that the results of testing of the soil identified
areas of contamination in excess of the most stringent
NJDEP soil clean up criteria, including excessive
concentrations of PCBs and metals. The recommendations
contained in the site investigation report include the
installation of three monitoring wells and subsequent
monitoring of ground water. This report also recommended
a remedial investigation because the soil contamination
exceeded the clean up criteria. A remedial investigation
report was issued August 1, 2001, which provided specific
recommendations for addressing the soil contamination that
was present through out the site. However, although the
NJDEP approved the site investigation work plan on June
The environmental 13, 2000, and has reviewed the site investigation report, it
clearance was not has not confirmed that all environmental issues have been
obtained adequately addressed.
Since neither the Grantee nor the Harrison Redevelopment
Agency obtained HUD’s approval to use CDBG funds to
purchase the land, and did not obtain the required
environmental clearance from the NJDEP, or submit a
certification of compliance with Federal regulations, this
transaction is not in compliance with CDBG regulations.
Furthermore, if the land is environmentally contaminated,
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Finding 1
the land transaction may not be economically viable. If the
land has to be cleared of all environmental contaminants,
prior to development, this could result in thousands of
dollars of additional funds being disbursed. Consequently,
we believe that this land transaction should be evaluated by
the HUD NJSO as to its validity and the eligibility of the
associated costs of $1 million.
Discussions with officials of the HUD NJSO revealed that
they were concerned that the Grantee did not request
HUD’s approval. Accordingly, they believe that the cost
associated with the transaction should be disallowed, and
the funds should be repaid to the CDBG Program. In this
regard, we recommended that a final decision regarding a
post approval of the land transaction be made by the HUD
NJSO, and that the decision be provided to the Grantee
subsequent to the issuance of this report.
Regarding the loan, the Grantee informed us that $300,000 of
The $300,000 loan the $1 million that was provided to the Harrison
was not properly Redevelopment Agency is a loan, which was to be repaid
documented within one year of the transfer of the funds by the Grantee.
However, the terms and conditions of the loan were not
adequately documented.
24 CFR Section 85.20(2) provides that Grantees and sub-
recipients must maintain records, which adequately identify
the source and application of funds, provided for financially
assisted activities. These records must contain information
pertaining to grant or sub-grant awards and authorizations,
obligations, un-obligated balances, assets, liabilities,
outlays or expenditures, and income.
24 CFR Section 85.20(3) provides that effective control and
accountability must be maintained for all grant and sub-
grant cash, real and personal property, and other assets.
Accordingly, we believe that the Grantee should have drafted
an enforceable loan agreement that states the terms and
conditions of the loan, the parties bound, and the collateral
involved, along with proper signatures of the parties
involved.
The Chairman of the Redevelopment Agency told us that the
$300,000 loan between the Grantee and the Redevelopment
2002-NY-1002 Page 6
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Finding 1
Agency would be repaid as soon as the property is sold to a
developer. The Chairman also told us that the loan is
documented in correspondence between his office and the
Grantee; however, our review of the correspondence between
the Redevelopment Agency and the Grantee did not reveal
the existence of a legally enforceable loan agreement. As a
result, we believe that to properly preserve the rights of the
Grantee in the $300,000 provided to the sub-recipient, a loan
agreement should be executed. Moreover, we believe that
this loan should be recorded as a loan receivable on the
books of the Grantee.
Auditee comments The Grantee’s comments provide that actions have been
taken to address the environmental clearance of the site in
question. The land is located on a “Brownfields” site,
(former industrial sites that contain contaminants), that is
part of the Hudson County Brownfields Assessment
Demonstration Pilot Program (the “Program”), an initiative
financed by the U.S. Environmental Protection Agency. The
intent of the Program is to provide the resources necessary to
identify, assess and redevelop fallow properties throughout
the County. The Program is administered by the Hudson
County Economic Development Corporation (HCEDC). The
HCEDC has provided the professional services to identify
the surface contaminants and develop a plan of action for
remediation of the site. During a period of approximately
eighteen months, various reports including the Remedial
Action Work Plan on the land were prepared and submitted
to the New Jersey Department of Environmental Protection
(NJDEP), who has provided verbal approval. As a result,
upon receipt of written confirmation of the NJDEP’s
approval, the Grantee will provide documents to HUD
formally requesting a release of funds and submit a
certification of compliance with Federal laws for HUD
approval.
The Grantee has also provided the sub-recipient with a
Mortgage and Mortgage Note that has been executed and is
in the process of being recorded.
OIG evaluation of This finding and the recommendations have been modified
Auditee comments from its draft to include the results of conversations with
Community Planning and Development officials of the
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Finding 1
HUD NJSO. Accordingly, although the Grantee’s
comments indicate that they are attempting to obtain the
environmental clearances from the NJDEP and plan to
formally request approval of the release of funds, as well as
submit a certification of compliance with Federal
regulations. As mentioned above, we learned that officials
of the HUD NJSO believe that the cost associated with the
land transaction should be disallowed because the Grantee
did not obtain the required approval of the release of funds
from HUD. Accordingly, OIG reiterates that the HUD
NJSO will make the final decision to either consider
granting a post approval of a RROF for the land transaction
or declaring the cost of the land disallowed.
Recommendations We recommend that the HUD NJSO:
1A. Determine whether, based on the information
provided in this finding, the Grantee should seek
post approval for a RROF for the land transaction. If
not, inform the Grantee that the cost of the land, $1
million, is ineligible and should be repaid to the
CDBG Program from non-Federal funds.
1B. Require the Grantee, if post approval is considered,
to submit all documentation required to evaluate the
validity of the land transaction. In addition, if the
transaction is subsequently approved, the Grantee
should be required to execute an enforceable loan
agreement with the sub-recipient for the $300,000
loan that was made, and record the amount of the
loan on its books as a loan receivable.
1C. Instruct the Grantee to develop procedures to ensure
that, for future transactions, the required request for
release of funds and certification of compliance with
Federal regulations are submitted to and approved by
HUD prior to releasing any CDBG funds to sub-
recipients.
1D. Instruct the Grantee to develop procedures to ensure
that future loans to sub-recipients are adequately
documented and that the documentation is
maintained. In addition, all loans should be properly
recorded on the Grantee’s books.
2002-NY-1002 Page 8
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Finding 2
Questioned Costs Of $63,825 Were Charged To The
CDBG Program
Weaknesses in the Grantee’s controls over disbursements have caused questionable costs of
$63,825, to be charged to the CDBG Program. We attribute this to the Grantee’s failure to properly
follow: (a) its procedures for making disbursements and reimbursing sub-recipients, and (b) Federal
regulations that require only allowable expenditures to be charged to Federal programs.
Consequently, the Grantee’s program costs contained certain questionable costs, which we
identified and recommended that HUD make an eligibility determination on those costs. We also
recommended that HUD instruct the Grantee to develop procedures that will ensure that its controls
over disbursements are properly followed. If any of the questioned costs is determined to be
ineligible by HUD, the Grantee will be instructed to reimburse that amount to the CDBG Program
from Non-Federal funds.
OMB Circular A-87, Cost Principles for State and Local
Criteria
Governments provides the guidelines as to the allowability
of costs. It provides that to be allowable cost must be:
necessary and reasonable for the proper and efficient
performance and administration of Federal awards;
adequately documented; and accorded consistent treatment
through the application of generally accepted accounting
principles.
24 CFR Part 85.20, the Standards for Financial
Management Systems, provide that Accounting records
must be supported by source documentation as cancelled
checks, paid bills, payrolls, time and attendance records,
contract and sub-grant award documents, etc.
During our review we tested three months of CDBG
disbursements made by the Grantee to its sub-recipients.
We noted that while controls over disbursements were
generally adequate, we believe that improvements are
needed. We learned that the Grantee did not always require
Improvements sub-recipients to submit vendor invoices and/or payroll
needed in the records with requests for reimbursement. Some sub-
Grantee’s controls recipients obtained reimbursement with vouchers that were
certified by the sub-recipient, but were not supported with
attached invoices. We believe that weaknesses in the
Grantee’s controls have caused sub-recipients to be
reimbursed for items that were not adequately supported.
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Finding 2
In connection with the above, we performed site visits
and/or requested additional documentation from four sub-
recipients to ensure that amounts reimbursed to them were
adequately supported. The four sub-recipients chosen were
the Town of West New York, The Town of Kearny, The
Town of Harrison, and The Hudson County Economic
Development Corporation. Our review of documents from
the Town of West New York revealed that all items tested
were supported with appropriate source documents and
canceled checks. However, our test results at the other sub-
recipients disclosed deficiencies, which are discussed in the
following paragraphs.
During our visit to the Town of Kearny, we found that this
The Town of Kearny was sub-recipient was reimbursed $53,625, for costs that were
reimbursed $53,625 for not adequately supported. This amount relates to six
unsupported costs invoices for expenses pertaining to a Senior Citizen Health
Program, legal services, title fees, engineering cost and the
purchase of asphalt. As support for these items, the sub-
recipient submitted a voucher requesting payment and
reports/memo’s explaining what was done instead of
vendor invoices. We attribute this to the Grantee’s failure
to adequately review sub-recipient vouchers for supporting
documentation. As a result, we consider costs, totaling
$53,625, associated with these items as unsupported and
questioned.
Sub-recipient’s financial Additionally, we found that the Town of Kearny did not
management system is maintain its financial management system in accordance
not in accordance with with the requirements of 24 CFR 85.20. Its accounting
Federal regulations records were not maintained in a manner that would
adequately identify the source and application of funds.
Also, the Town did not properly maintain and obtain source
documents such as paid bills and contracts to support all
disbursements. We believe that this lead to the Town of
Kearny being reimbursed twice for various invoices
amounting to $62,073.48. In this case, the sub-recipient had
failed to mark its invoices as paid when submitting
vouchers to the Grantee for reimbursement. Although this
Improvement needed amount was repaid during our review, we believe that
in Grantee monitoring proper Grantee monitoring would have prevented it from
occurring and detected that the sub-recipient’s financial
system was not being maintained properly. Therefore, we
recommend that the Grantee monitor and assist this sub-
recipient in ensuring that its accounting system and records
2002-NY-1002 Page 10
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Finding 2
are maintained in accordance with Federal regulations (24
CFR 85.20).
Our review at the Town of Harrison revealed that the Grantee
Town of Harrison reimbursed $10,000 to this sub-recipient for salary costs paid
reimbursed $10,000 to the Senior Citizens' Health Educator, which were not
for costs that is adequately supported. Officials of the Township claimed that
unsupported. Town vouchers supported these expenses. Officials of the
Town provided a workload report and statistical information,
which indicated that the services stipulated in the scope of
services section of an agreement executed with the Grantee
were being provided. However, we were not provided with
the contract/agreement, payroll records, or vendor invoices,
which would support the voucher. We attribute this to the
Grantee’s failure to review the sub-recipient’s reimbursement
vouchers for adequate supporting documents. Thus, we
believe that the reimbursement is unsupported and as such is
being questioned. Accordingly, we recommend that the HUD
NJSO determine the eligibility of the costs associated with
the $10,000 reimbursement. If any costs are ineligible, the
Grantee should be instructed to reimburse the CDBG
Program the amount of the ineligible costs from non-Federal
funds.
Our review of the Hudson County Economic Development
Hudson County Economic Corporation (HCEDC) revealed that the Grantee reimbursed
Development Corporation this sub-recipient $200 for expenses associated with
was reimbursed $200 for entertainment and charitable activities, which are ineligible.
ineligible costs Specifically, we noted that the Grantee reimbursed the
HCEDC $100 for the cost of a Chamber of Commerce
Christmas Party, and $100 for a Taste of Hudson benefit, for
the Hudson Cradle Charity. However, costs associated with
entertainment and charitable donations are generally not
allowable expenses under OMB Circular A-87. As a result,
we have questioned the $200 since we believe that the
amount is ineligible and should be reimbursed to the CDBG
Program from non-Federal funds.
Auditee comments The Grantee will request instructions from HUD for the
treatment of furniture purchases, and for the proper
accounting treatment under the CDBG Program. The
Grantee contends that a refund from the Town of Kearny in
the amount of $62,116.20 has been received. The sub-
recipient, the Town of Harrison, has provided the Grantee
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Finding 2
with the Professional Services Contract of the Senior
Citizen’s Health Educator and quarterly reports for the
periods that these services were paid. The Grantee has also
met with officials of the Town of Kearny and has offered
technical assistance in establishing files for new activities
that will be undertaken. In addition, the Town of Kearny
has commissioned an independent audit and terminated its
Chief Financial Officer. Furthermore, the Grantee has met
with and instructed its sub-recipients as to the forms and
appropriate documentation required to request funds. The
Grantee has instituted an internal muti-level review process
were sub-recipient’s requests for reimbursement and
supporting documentation is reviewed for compliance and
accuracy prior to making payment. Sub-recipients must
now track all contract amounts and reconcile all voucher
requests.
OIG evaluation of Based on discussions with officials of the HUD NJSO, we
Auditee comments learned that the $12,520.60 of furniture purchased by the
Grantee for program administration is an eligible CDBG
costs; therefore, we eliminated the issue from the finding.
The $62,116.20 reimbursed by the Town of Kearny was not
questioned because it was repaid during our audit.
However, HUD has to make an eligibility determination on
the question costs discussed in this finding. If any costs are
determined to be ineligible, the amount of those costs
should be reimbursed to the CDBG Program from non-
Federal funds. Lastly, we believe that the Grantee’s actions
regarding assisting the Town of Kearny to maintain its
records in accordance with Federal regulations and
establishing procedures for the review of vouchers prior to
payment is responsive to our recommendations.
Recommendations: We recommend that the HUD NJSO:
2A. Determine the eligibility of all questioned costs,
totaling $63,825, discussed in this finding, and
instruct the Grantee to reimburse the CDBG
Program the amount of any ineligible costs from
non-Federal funds.
2002-NY-1002 Page 12
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Finding 2
2B. Monitor and assist the Grantee in ensuring that the
Town of Kearny maintains its financial records in
accordance with Federal regulations (24 CFR
85.20).
2C. Instruct the Grantee to develop procedures to ensure
that all vouchers submitted for reimbursement by
sub-recipients are adequately reviewed for proper
supporting documentation prior to payment.
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Finding 2
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Finding 3
Emergency Shelter Grant Funds Were Not Timely Expended
Contrary to Federal regulations, the Grantee did not ensure that sub-recipients expended
available Emergency Shelter Grant (ESG) funds timely. As a result, $126,173 in ESG funds may
not have been used for their intended purpose, or effectively reprogrammed to meet other ESG
Program needs. In addition, the Grantee was unable to provide us with adequate assurance that
sub-recipients have provided all funded services to the homeless in a timely manner. We attribute
this to the Grantee’s lack of monitoring to ensure that sub-recipients expend the amount of ESG
funds allocated to them timely, and submitted bills for timely reimbursement. Accordingly, we
recommend that the Grantee be instructed by HUD to determine whether sub-recipients spent or
reprogrammed the amount of ESG funds allocated to them. If not, HUD should recapture those
funds and recognize a cost savings.
Criteria 24 CFR 576.35 (b), provides that each formula city, county,
territory, and Indian tribe must spend all of the grant
amounts it was allocated or awarded under §576.5 or
§576.31 within 24 months of the date of the grant award by
HUD.
We reviewed the amount of Emergency Shelter Grant
(ESG) funds that the Grantee disbursed to four shelters.
The review disclosed that for each activity allocated ESG
funds, from 1995 through 1998, there was some funding
that were not utilized within 24 months of the grant award,
as required. In 1995 the ESG budget allocation for the
Hudson County Housing Resource Center was $45,000,
however, none of the funds have been used. The Palisades
Emergency Residence Corp. (PERC) has not drawn down
$51,759 of ESG funds awarded for the years 1996 through
1998. The Hoboken Clergy Coalition's shelter has not used
funds totaling $28,765 from its 1998 grant. Additionally,
$126,173 in ESG although Catholic Community Services (CCS) had its 1995
funds were not ESG funds that were allotted to the St Lucy’s and the
utilized within 24 Anthony House shelter reprogrammed to other activities;
months the CCS left a balance of $549 and $100, respectively in the
accounts of these two shelters. As a result, $126,173 in the
Grantee’s ESG funds were not utilized or reprogrammed in
a timely manner.
We attribute the above to a lack of adequate monitoring by
the Grantee to ensure that sub-recipients spent the allotted
funds within 24 months of the grant award. We believe that
adequate Grantee monitoring would have ensured that all
Page 15 2002-NY-1002
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Finding 3
sub-recipients had the capacity to provide the services and
spend the funds in a timely manner. Accordingly, the
Grantee did not have adequate assurance that sub-recipients
have provided all funded emergency shelter services to the
homeless.
A Grantee official, the former Housing and Community
Development Division Chief, explained that he was not
aware that Hudson County Housing Resource Center was
allocated $45,000 in 1995, that has not been utilized. He
agreed that the books show an outstanding balance for the
1995 grants; however, he stated that since HUD’s Line of
Credit Control System (LOCCS), takes out the funding in a
first in, first out manner, all of the 1995 grant funds are
considered expended; therefore, this finding does not apply.
Contrary to the above, we believe that this finding is valid; in
fact, discussions with HUD New Jersey State Office (NJSO)
officials revealed that the regulations of the ESG Program
require the Grantee to disburse grant monies timely and in
accordance with the Consolidated Plan and/or activities for
which the grant was allotted. Therefore, if disbursed funds
ESG funds should were not timely spent on the activities for which they were
be repaid or allotted, and if HUD has not approved a reallocation of the
recaptured funds, then the ESG Program should be reimbursed the
amount of these funds. Furthermore, if the funds have not
been used, then HUD should recapture them and recognize a
cost savings.
Auditee comments The Grantee’s comments indicate that its Housing and
Community Development Deputy Chief has been directed to
oversee all ESG Projects. The expenditure of funds within 24
months as established by the regulations has been identified
as a high priority. The Grantee has met with sub-recipients
and identified eligible expenses for drawing down prior years
funds. They will continue to assist the sub-recipients in
identifying a schedule of drawdowns based on the budget for
activities. Furthermore, the Grantee has developed an in-
depth monitoring system to monitor its ESG Program. Sub-
recipients are required to submit detailed budgets, including
sources and expenses, quarterly and annual reports, adhering
to the information requested by HUD. In addition, other
required information such as job descriptions for the staff
2002-NY-1002 Page 16
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Finding 3
funded by the ESG Program must be submitted. The
Grantee’s comments indicate that it is committed to
maintaining an increased monitoring effort of its ESG sub-
recipients to ensure that funds are spent in a timely manner
and that reporting documents and other information is
submitted as required.
OIG evaluation of The Grantee generally concurs with this finding, as its
Auditee comments comments are responsive to our recommendations.
Recommendations We recommend that the HUD NJSO:
3A. Instruct the Grantee to determine whether its sub-
recipients spent or reprogrammed the amount of ESG
funds discussed in the finding, which totaled $126,173
for the years 1995 to 1998. If not, HUD should
recapture any amounts not expended within the 24
months after the date of the grant award.
If it is determined that funds were expended on
ineligible activities, the ESG Program should be
reimbursed the amount of the ineligible activities from
non-Federal funds.
3B. Instruct the Grantee to develop procedures that will
ensure that sub-recipients spend Emergency Shelter
Grant funds, within 24 months of the grant award, as
required. Procedures should also allow excess funds to
be recaptured by HUD.
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2002-NY-1002 Page 18
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Finding 4
Excessive Salary Costs Were Charged To The Emergency
Shelter Grant Program
Contrary to Federal regulations, the Grantee allowed sub-recipients to charge excessive salary costs
to the Emergency Shelter Grant (ESG) Program. As a result, $17,280 in ESG funds was not used
for its intended purpose or for eligible operating expenses. We attribute this to the Grantee’s lack of
controls to ensure that only allowable salary amounts were charged to the ESG Program.
Consequently, we recommend that the Grantee reimburse the ESG Program the amount of these
funds from non-Federal funds and seek reimbursement from its sub-recipients.
Criteria Title 24 of the CFR, part 576.21(a)(3) indicates that
Emergency Shelter Grants can be expended for shelter
maintenance, operation, rent, repairs, insurance, security,
fuel, equipment, utilities, food, and furnishings. However,
not more than 10 percent of the grant amount may be used
for costs of staff.
We reviewed the Grantee’s reimbursements of Emergency
Shelter Grant (ESG) funds to its sub-recipients. Specifically,
we reviewed all payment vouchers for the period between
January 1, 2000 and April 30, 2001, which documented the
personnel costs reimbursed to three ESG sub-recipients: the
Hoboken Clergy, the Palisades Emergency Rescue
Corporation (PERC), and the Catholic Community Services.
Our review revealed that the Grantee reimbursed these sub-
recipients over $17,280 in unsupported salary costs as
follows:
Grant Total Salary 10% Excess
Year Grant Charged Allowed Salary
Hoboken
Clergy
Coalition 98 $38,000 $10,967.33 $3,800 $7,167.33
“
00 38,000 7,880.53 $3,800 4,080.53
Palisades
Emergency
Rescue 00 50,000 5,192.58 5,000 192.58
Corp.
Catholic
Community
Services–St 99 60,000 11,840.00 6,000 5,840.00
Lucy
Total $17,280.44
Page 19 2002-NY-1002
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Finding 4
We attribute the reimbursements of excess payroll cost to the
sub-recipients to the Grantee’s lack of adequate controls to
Excess salary ensure that sub-recipients are not exceeding the ten percent
charges should limit on salary costs. As a result, three sub-recipients
be reimbursed improperly allocated excessive salary costs to the program,
and improperly received ESG funds. Thus, we recommend
that the Grantee be instructed to reimburse the ESG Program
the amount of the excess salary charges, totaling $17,280,
from non-Federal funds, and seek reimbursement from the
sub-recipients.
Auditee comments The Grantee’s comments indicate that their former Housing
and Community Development Division Chief required the
sub-recipients to voucher ESG funds using a percentage
calculation for each line item, (salary, supplies, professional
contracts, etc.), based upon the dollar amount of various
funding sources. As a result of this method of accounting,
capped line items were not accounted for properly. The
Grantee has advised its sub-recipients that salaries will not
be reimbursed to avoid this situation in the future.
OIG evaluation of The Grantee generally agrees with this finding, as their
Auditee comments actions are responsive to the recommendations. However,
since salary costs are an allowable program expense, we
believe that the establishment of adequate accounting and
budgetary controls could ensure that the 10 percent ceiling
is not exceeded.
Recommendations We recommend that the HUD NJSO:
4A. Instruct the Grantee to reimburse the $17,280 in
excess salary cost to the ESG Program from non-
Federal funds, and seek reimbursement from the
sub-recipients.
4B. Instruct the Grantee to inform its sub-recipients of
the ten percent limitation for salary costs and
establish procedures to ensure that salary costs in
excess of ten percent of the total grant amount are
not reimbursed from ESG Funds.
2002-NY-1002 Page 20
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Finding 5
The Grantee Needs To Improve Compliance With Federal Labor
Standards And Ensure That Contractors Comply With Provisions Of
The Davis-Bacon Act
The Grantee neither adequately documented its compliance with Federal Labor Standards, nor
ensured that contractors complied with the provisions of the Davis Bacon Act that pertain to the
payment of prevailing wages. As a result, there is inadequate assurance that
contractors/subcontractors were eligible to perform work on jobs paid for with Federal funds, and
that employees of contractors were paid prevailing wages. According to a Grantee official, the
deficiencies occurred because certain staff members need training on Federal Labor standards. In
this regard, we recommend that the HUD NJSO assist the Grantee in obtaining training and provide
technical assistance to them on the requirements of Federal Labor Standards, especially those
pertaining to the Davis Bacon Act.
HUD Handbook 1344.1, paragraph 1-3 provides that the
Criteria Davis Bacon Act requires that Federal construction
contracts in excess of $2,000 contain provisions for the
payment of prevailing wages and have a monitoring
mechanism to ensure compliance with its requirements.
In addition, HUD Handbook 1344.1 Paragraph 1-6 provides
that Community Development Agencies are responsible to
HUD for ensuring compliance with Federal labor standards;
some of those requirements are as follows:
• Ensuring that all bid documents, contracts, and
subcontracts contain Federal labor standards
provisions and the applicable Department of Labor
wage determinations. Also, Agencies are to ensure
that contractors are eligible for Federally assisted
work.
• Conducting on-site project inspections, which
include employee interviews and checking for
posting of Federal wage determinations, as well as,
the review of weekly payrolls of contractors.
• Correcting all violations of labor standards
promptly.
• Maintaining full documentation attesting to all
administrative and enforcement activities with
Page 21 2002-NY-1002
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Finding 5
respect to Federal labor standard requirements;
such documentation to be made freely available for
HUD review. Such documentation shall include all
weekly payrolls, copies of wage determinations
and any applicable changes or modifications,
notices of start of construction, on-site inspection
reports and employee interviews, and any other
records utilized in enforcement administration –
including records of wage restitution made, and
pre-construction conference minutes.
Our review of the Grantee’s FY1999 Independent Public
Noncompliance Accountant’s (IPA) Report, revealed indications that the
with Davis Bacon Grantee may not be complying with provisions of the Davis
reported in prior Bacon Act pertaining to prevailing wages; we noted that this
IPA report was a prior year 1998 finding, which was not corrected. The
IPA report also reported that the Grantee’s construction
contracts omitted required documents including Davis Bacon
payroll certifications. As a result, we selected three of the
Grantee’s six largest construction projects that had
disbursements in our audit period for Program Years 1999
and 2000, and performed detailed file reviews to evaluate the
Grantee’s compliance with Federal labor standards and/or the
Davis Bacon Act. The three projects reviewed are:
The St. Joseph School for the Blind - a contract for building
alterations. The contract amount was $117,900. The CDBG
funding for this project was $105,000.
The Boys and Girls Club - a contract for building
rehabilitation. The contract amount and CDBG funding was
$250,000.
The Meadowview Handicap Project – a contract for
handicap access ramps. The contract amount was
$1,075,001. The CDBG funding for this project was
$300,000.
The Grantee’s files on the above projects did not contain
Inadequate monitoring
documentation showing that the Grantee adequately
still present
monitored the contractors’ payrolls to ensure that prevailing
wages were paid, as required by the Davis Bacon Act. The
files were not properly maintained and did not always
include executed contracts and wage rate determinations.
Also, there was a lack of documentation showing that the
2002-NY-1002 Page 22
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Finding 5
Grantee performed on-site job interviews with workers, and
reviewed contractors’ payrolls.
The specifics regarding each project is as follows:
A review of the contract file for the St. Joseph School for
St. Joseph School the Blind project revealed that the contract did not contain
for the Blind the applicable wage rate determinations even though the
project manual, which is incorporated into the contract,
states that the bidder agrees to comply with The Prevailing
Wage Act [Davis Bacon]. Although the contract files
contained payrolls certified by the contractor, they did not
contain documentation of on-site employee interviews by
the Grantee verifying the amount of wages paid and job
classifications. Also, the contract files did not contain
documentation showing that the Grantee verified that
contractors were eligible to participate in HUD's programs.
A review of the contract file for the Boys and Girls Club
Boys and Girls Club contract file revealed that weekly Payrolls on a U.S.
Department of Labor Form WH347, were on file for the
weeks ended March 29, 2000 through April 25, 2001.
However, the President of another Construction Company
certified them. There was no explanation in the files on why
one contractor certified the payroll of another contractor.
However, we learned that the person that made the
certification was the President of both companies. The
payrolls of the construction companies for the weeks ended
August 23, 2000 through September 27, 2000 were available,
but were not certified. Furthermore, there were no payrolls
on file for subcontractors.
Initially, the Grantee’s Community Development Division
did not have a copy of the contract. However, the Director
was able to obtain an unexecuted copy of the contract from
the Boys and Girls Club, which did mention that contractors
must comply with the provisions of the Davis Bacon Act; but
it did not contain wage rate determinations.
Furthermore, the file contained minutes of a pre-construction
meeting held with the general contractor, architects, and
representatives of the Hoboken Boys & Girls Club, but there
was no evidence that a representative of the Grantee attended
the pre-construction meeting. Also, there was no
documentation showing that the Grantee verified that
Page 23 2002-NY-1002
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Finding 5
contractors were eligible to participate in HUD's programs
(that the contractor was not on the Federal Debarred List).
A review of the contract files for the County Meadowview
County Meadowview Handicap Access ramp project revealed that the contract had
a provision for the payment of prevailing wage rates as
promulgated by the New Jersey State Department of Labor.
However, our review of the State of New Jersey's
Department of Labor website revealed that New Jersey
prevailing wages are not necessarily the same as Davis
Bacon prevailing wages, and that if both were applicable to a
project, the more stringent requirements and higher wages
would apply.
The Affirmative Action Compliance Officer for the
Grantee’s Office of Engineers, who is in charge of
monitoring the Meadowview project, stated that he compared
the certified payrolls with New Jersey prevailing wage rates
to ensure compliance. However, the Compliance Officer
stated that he did not perform on-site employee interviews or
examine pay stubs. He stated that he was not aware that he
was required to examine payroll records and perform on-site
employee interviews. The Compliance Officer stated that the
former Community Development Division Chief never told
him that the CDBG Program was also funding the project.
He said had he known that CDBG funds were involved; he
would have ensured full compliance with Federal
regulations, regarding Davis-Bacon wages. He stated that he
verified that the contractor chosen for the ramp project was
not on the State of New Jersey Debarred Contractors List;
however, he did not check the Federal Debarred Contractors
List because he was not aware that it was required.
Also, we noted that the contract files contained certified
payrolls from each of the subcontractors that worked on the
construction job. However, the files did not contain
documentation showing that the onsite employee interviews
were conducted. These interviews are performed to
determine whether employees are being paid as stated in
contractor’s payroll records and are working as classified.
We believe that adequate Grantee monitoring would have
Better documentation ensured that contract files contained the proper
of monitoring is needed documentation to attest to compliance with provisions of
the Davis Bacon Act. By not adequately documenting wage
2002-NY-1002 Page 24
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Finding 5
rate determinations, employee interviews, contractor payroll
reviews, and checking the Federal Debarred List, etc., the
Grantee did not have documented evidence that employees of
contractors were in the proper occupational classifications,
and received the mandated pay and benefits. Accordingly, we
believe that this leaves the Grantee/sub-recipients exposed to
potential litigation and claims from employees who may not
have received the benefits they were entitled, and/or to
possible penalties from the Department of Labor.
Furthermore, we believe that pre-construction conferences
and wage rate determinations should be properly documented
in the contract files to document the Grantee’s compliance
with Federal Labor Standards and that contractors and sub-
contractors were informed of the various requirements for
compliance with provisions of the Davis Bacon Act.
The Grantee’s Acting Chief of the Division of Community
Adequate training
Development informed us that the monitoring for
is needed
compliance with provisions of the Davis Bacon Act was not
performed because the Division’s staff lacked the training to
do the monitoring required. The Acting Chief indicated that
HUD was contacted and attempts were made to obtain
training on monitoring compliance with provisions of the
Davis Bacon Act.
Auditee comments The Grantee’s comments provide that an office staffed with
trained and knowledgeable employees has been created to
institute a system to ensure compliance with the provisions
of the Davis Bacon Act. The Grantee has requested and
received, on December 19, 2001, training by the HUD
NJSO on the provisions of the Davis Bacon Act. Grantee
employees as well as municipal sub-recipients attended the
training. The Grantee has also developed a construction file
checklist, to be used to ensure that construction files
adequately document compliance with Federal Labor
standards and compliance with provisions of the Davis
Bacon Act, prior to advancing construction funds.
OIG evaluation of The Grantee generally agreed with this finding, as its
Auditee comments comments are responsive to the recommendations. We
Page 25 2002-NY-1002
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Finding 5
confirmed that the HUD NJSO has provided training to the
Grantee on monitoring compliance with provisions of the
Davis Bacon Act.
Recommendations: We recommend that the HUD NJSO:
5A. Continue to assist the Grantee in obtaining training
and technical assistance on compliance with Federal
labor standards, including ensuring that contractors
comply with provisions of the Davis Bacon Act.
5B. Instruct the Grantee to implement a monitoring
system that will ensure that all Federal Labor
Standards are complied with and that the files of
construction projects contain adequate
documentation evidencing all compliances.
2002-NY-1002 Page 26
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Finding 6
The Grantee Did Not Perform Inspections On Completed
HOME-Assisted Rental Projects
Contrary to Federal regulations, the Grantee did not perform inspections on completed HOME-
assisted rental projects. As a result, the Grantee does not have adequate assurance that assisted
projects are meeting HUD’s housing quality standards. We attribute this to the Grantee’s lack of
controls to: a) identify the properties that need inspections, b) provide the dates when the
inspections are required, and c) assign staff to perform the inspections. Therefore, we recommended
that the Grantee develop procedures that will ensure that inspections of HOME-assisted properties
are timely performed and documented.
24 CFR Part 92.504(d) provides that for HOME assisted
Criteria rental housing, during the period of affordability (i.e., the
period for which the non-Federal entity must maintain
subsidized housing), the participating jurisdiction must
perform on-site inspections to determine compliance with
property standards of Sec. 92.251 and verify the information
submitted by the owners in accordance with the requirements
of Sec. 92.252 no less than: (a) every three years for projects
containing 1 to 4 units, (b) every two years for projects
containing 5 to 25 units, and (c) every year for projects
containing 26 or more units. Inspections must be based on a
sufficient sample of units.
Accordingly, the participating jurisdiction must perform on-
site inspections of rental housing occupied by tenants
receiving HOME-assisted tenant-based rental assistance, to
determine compliance with housing quality standards.
During our review of fifteen subsidized housing projects that
Grantee inspections were rehabilitated through the HOME Program, we found
not performed that the Grantee did not perform inspections of ten completed
projects. Specifically, one project should have been inspected
every three years, five should have been inspected every two
years, and four should have been inspected annually. Each
project had from one to six inspections that had not been
performed. Without these inspections, the Grantee does not
obtain adequate assurance that the properties are being
maintained in accordance with HUD’s housing quality
standards. As such, the Grantee is not assured that tenants are
living in decent safe and sanitary housing.
Page 27 2002-NY-1002
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Finding 6
During the course of the audit, the Grantee’s HOME
Program Coordinator conceded that there are no controls or
monitoring systems in place to identify when HOME-
assisted projects should be inspected. Also, the Grantee does
not have staff assigned to perform these inspections.
Grantee officials indicated that they had contracted with
Contracted third party two Public Housing Authorities (PHA’s) to perform some
inspections not of the inspections. However, we noted that the contracts
performed had not been fully executed and that the contractors have
not performed any inspections. We were also informed that
other parties such as the State of New Jersey might have
inspected some projects; however, the HOME Program
Coordinator stated that inspections performed by the other
parties have not always been provided to the Grantee. We
noted that, the Grantee recently hired a monitor for the
HOME Program inspections. However, the HOME monitor
is also responsible for lead-based paint compliance and has
spent most of his time on that program; therefore, the
required HOME inspections had not been scheduled and
conducted at the time of our review.
We believe that the deficiencies discussed in this Finding
have diminished the Grantee’s ability to administer its
HOME-assisted program in an efficient and effective
manner, and represent a noncompliance with program
regulations. Unless controls are implemented to ensure that
Procedures are needed to the required housing quality inspections are performed, the
ensure that housing Grantee cannot be assured that HOME funds are being
quality inspections are effectively used. Furthermore, the deficiencies cited in this
performed finding will continue to recur, and HUD will not be assured
that tenants assisted with Federal funds are living in housing
that is decent safe and sanitary.
Auditee comments Grantees officials indicated that they have received
approval to enter into a contract with the Housing
Authorities of Secaucus and West New York to provide
inspections of completed HOME Assisted rental projects.
2002-NY-1002 Page 28
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Finding 6
OIG evaluation of The Grantee generally agrees with this finding, as their
Auditee comments actions are responsive to our recommendations.
Recommendations We recommend that the HUD NJSO require the Grantee to:
6A. Immediately perform the housing quality
inspections on all completed HOME-assisted
projects that are past due.
6B. Develop procedures that will ensure that all
completed HOME-assisted projects are timely
inspected, as required, and that all deficiencies
noted are timely corrected.
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Finding 6
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Management Controls
In planning and performing our audit, we considered the management controls of the Hudson
County Division of Community Development 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 management relevant to our audit objectives:
controls
• Controls over cash receipts and disbursements.
• Controls over monitoring of HUD programs.
• Controls over supporting documentation for costs.
• Controls over the timeliness of expending funds.
We assessed all 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.
Our review found significant weaknesses in all
Significant weaknesses management controls tested. The controls weaknesses are
detailed in the six findings contained in this report.
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Management Controls
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Follow Up On Prior Audits
An Independent Public Accountant performed an audit of the County of Hudson for the year
ended December 31, 1999. The report contained two finding that were applicable to the HUD
programs. The first finding pertained to timely expenditure of CDBG funds, which was corrected
during our audit period. The other finding required the Grantee to develop and implement
procedures to ensure compliance with all fiscal and program requirements and maintain written
sub-recipient agreements with all sub-recipients. We found that the Grantee has maintained
written sub-recipient agreements with all sub-recipients.
The IPA audit report also indicates that a prior finding from a 1997 Compliance Review
performed by HUD, remains unresolved. This finding pertains to maintaining documentation for
construction contracts that show compliance with the Davis Bacon Act. We found that this issue
is still occurring, as we noted that the Grantee did not adequately monitor to determine whether
construction contractors complied with applicable provisions of the Davis Bacon Act (see
Finding 5).
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Follow Up On Prior Audits
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Appendix A
Schedule of Questioned Costs and Cost Efficiencies
Finding Type of Questioned Cost
Number Ineligible 1/ Unsupported 2/ Cost Efficiency 3/
1 $1,000,000.00
2 $200.00 63,625.00
3 $126,173.00
4 17,280.00
5 - - -
6 - - -
$17,480.00 $1,063,625.00 $126,173.00
1/ Ineligible costs are costs that are charged to a HUD-financed 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 activity, for which the eligibility
could not be determined at the time of the audit. The costs were 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.
3/ Cost efficiencies are actions by management to prevent or avoid an improper or
unnecessary obligation or expenditure. In this case, HUD would realize a cost savings if
the Grantee/sub-recipient’s unused Emergency Shelter Grant funds are recaptured.
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Appendix A
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2002-NY-1002 Page 36
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Appendix B
Auditee Comments
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Appendix B
2002-NY-1002 Page 38
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Appendix B
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Appendix B
2002-NY-1002 Page 40
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Appendix C
Distribution
Acting Chief, Hudson County Division of Community Development, Hudson County, NJ
Principal Staff
Regional Director, New York/New Jersey, 2AS
Director, Community Planning and Development, New Jersey State Office, 2FD
Acting State Coordinator, New Jersey State Office, 2FS
Assistant General Counsel, New York/New Jersey, 2AC
CFO, Field Audit Liaison Officer Eastern USA, 3AFI
CPD - Special Advisor/Comptroller, DOTM
CPD – Alternate Audit Liaison Officer, DOT
Acquisitions Librarian, Library, AS, Room 8141
Sharon Pinkerton Senior Advisor
Subcommittee on Criminal Justice
Drug Policy & Human Resources
B373 Rayburn House Office Bldg.
Washington, DC 20515
Stanley Czerwinski, Associate Director,
Housing and Telecommunications Issues
United States 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 Building
Washington, DC 20503
The Honorable Joseph Lieberman, Chairman
Committee on Governmental Affairs
706 Hart Senate Office Building
United States Senate
Washington, DC 20510
The Honorable Fred Thompson
Ranking Member
Committee on Governmental Affairs
340 Dirksen Senate Office Building
United States Senate
Washington, DC 20510
Page 41 2002-NY-1002
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Appendix C
The Honorable Dan Burton, Chairman
Committee on Government Reform
2185 Rayburn Building
House of Representatives
Washington, DC 20515
The Honorable Henry A. Waxman
Ranking Member
Committee on Governmental Reform
2204 Rayburn Building
House of Representatives
Washington, DC 20515
Andy Cochran
House Committee on Financial Services
2129 Rayburn Building
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
2002-NY-1002 Page 42
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Hudson County Division of Community Development Community Planning and Development Programs, New Jersey, New Jersey
Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-04-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)