oversight

Ironbound Community Corporation, Outreach and Technical Assistance, and Public Entity Grants Newark, New Jersey

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-23.

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

                                                       Issue Date:
                                                       September 23, 2002
                                                       Audit Case Number:
                                                       2002-NY-1004




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


FROM: Alexander C. Malloy, Regional Inspector General for Audit, 2AGA

SUBJECT: Ironbound Community Corporation
         Outreach and Technical Assistance1, and Public Entity Grants
         Newark, New Jersey


                                         INTRODUCTION

We completed an audit of the Ironbound Community Corporation’s (herein referred to as
Grantee) Outreach and Technical Assistance Grants (OTAG) and Public Entity Grant
(PEG). We performed the review at the direction of Congress.2 The primary objective of
our review was to determine whether the Grantee expended grant funds for only eligible
activities as identified in the OTAG/PEG agreements and in accordance with U.S.
Department of Housing and Urban Development (HUD) and other Federal requirements
to further the Mark-to-Market Program. Also, the review was conducted to determine
whether the Grantee used grant funds to pay expenses associated with lobbying activities.
Federal regulations specifically prohibit the use of grant funds for lobbying activities.

To accomplish our objectives, we interviewed members of the Grantee’s staff who are
responsible for the administration of OTAG/PEG funded activities. Also, we reviewed
the Grantee’s accounting records, and other documents that support the expenditures of
the OTAG and PEG funds. This included review of the Grantee’s monthly board minutes,
telephone records, and employee timesheets for events that would indicate lobbying

1
 OTAG Nos. FFOT98019NJ and FFOT00027NJ
2
 The 2002 Defense Appropriation Act (Public Law 107-17) Section 1303 requires the U.S. Department of
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).
activities. Additionally, we reviewed the requirements in the Multifamily Assisted
Housing Reform and Affordability Act of 1997 (MAHRA), the Notice of Fund
Availability, the OTAG/PEG agreements, and the Office of Management and Budget’s
(OMB) guidance on allowable cost for nonprofit grantees. We tested six of the Grantee’s
11 OTAG vouchers that were paid by HUD. Those vouchers contain costs of $93,027.27,
and represent 58.26 percent of the Grantee’s total OTAG expenditures of $159,673.26,
that were incurred during the period we reviewed. There were no PEG activities to
review since the Grantee neither incurred any costs nor requisitioned any PEG funds
during the period reviewed.

The audit covered the period between January 1998, and April 2002. The audit fieldwork
was performed during the months of June and July 2002. We conducted the audit in
accordance with Generally Accepted Government Auditing Standards.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us,
for each recommendation without management decisions, 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.

We appreciate the courtesies and assistance extended by the personnel of the Ironbound
Community Corporation during our review. Should you or your staff have any questions,
please contact Edgar Moore, Assistant Regional Inspector General for Audit or me at
(212) 264-8000, extension 3976.


                                        SUMMARY

Our review disclosed that the Grantee did not always comply with HUD and/or Federal
requirements pertaining to support for costs charged to the grant and allocated among
prescribed activities. More specifically, the review disclosed that the Grantee was unable to:
a) provide adequate documentation to support rental expenses of $18,600 that were charged
to the OTAG; and b) support the pre-determined percentages used to allocate total cost of
$159,673.26 among the four HUD prescribed activities of the OTAG. In this regard, the
Grantee did not comply with provisions of OMB Circular A-122, which provide that cost
must be adequately documented and commensurate with the benefits derived when allocated
to benefiting functions. Consequently, the Grantee paid rental expenses with HUD funds
that are unsupported, and reported costs to HUD by activity that may not be accurate. This
occurred because Grantee officials believe that a rental agreement is not necessary and are
apparently unfamiliar with Federal requirements pertaining to selecting a supportable base
to allocate costs among activities benefited. Thus, we recommend that HUD require the
Grantee to obtain and maintain a rental agreement/lease to support the rental expenses
charged to the grant, and to develop and maintain supporting documentation for the




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percentages used to allocate costs among the four HUD prescribed activities (see Appendix
A for total questioned cost).

Regarding lobbying activities, the review did not disclose any instances where the Grantee
expended grant funds on such activities.

On September 4, 2002, we held an exit conference with officials of the Grantee to discuss
the results of our draft finding and recommendations. The officials provided us with a
written response to the finding, which we included in its entirety as Appendix B of this
report. We also provided a summary and an evaluation of the Grantee’s responses at the
end of the finding.


                                     BACKGROUND

The 2002 Defense Appropriation Act (Public Law 107-17) Section 1303 requires the U.S.
Department of Housing and Urban Development, Office of Inspector General to audit all
activities funded by Section 514 of the Multifamily Assisted Housing Reform and
Affordability Act of 1997. The directive includes the Outreach and Technical Assistance
Grants (OTAG) and Intermediary Technical Assistance Grants (ITAG) administered by the
Office of Multifamily Housing Assistance Restructuring.

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 the MAHRA, OMHAR’s responsibility
include the administration of the Mark-to-Market Program, which include the awarding and
oversight of the Section 514 Outreach and Technical Assistance and Intermediary Technical
Assistance Grants. The objective of the Mark-to-Market Program is to reduce rents to
market levels and restructure existing debt to levels supportable by the reduced rents for
thousands of privately owned multifamily properties with federally insured mortgages and
rent subsidies. Congress recognized, in Section 514 of the MAHRA, that the Mark-to-
Market Program would affect tenants of the project, residents of the neighborhood, the local
government, and other parties; accordingly, Section 514 of the MAHRA authorized the
Secretary to provide up to $10 million annually ($40 million total) for resident participation,
for the period 1998 through 2001.

HUD issued NOFAs in Fiscal Years 1998 and 2000, to provide opportunities for nonprofit
organizations to participate in the Section 514 programs. Through NOFAs, HUD provided
two types of grants, the Intermediary Technical Assistance Grant (ITAG) and the Outreach
and Technical Assistance Grants (OTAG). The ITAG program provides technical
assistance grants through intermediaries to sub-recipients to include 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.
These ITAG grantees use Section 514 funds to provide Public Entity Grants (PEG) to sub-
recipients, including OTAG grantees, and other public entities. The OTAG program
provides technical assistance to tenants of eligible Mark-to-Market properties so that the



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tenants can participate meaningfully in the Mark-to-Market Program, and affect decisions
about the future of their housing.

Ironbound Community Corporation

The Ironbound Community Corporation (Grantee) is a resident controlled coalition of
tenant groups from 22 privately owned government assisted complexes, representing
approximately 25,000 residents, and is one of the oldest resident coalitions in the country.

The Grantee received two OTAGs, as follows:

Fiscal
Year           Grant No.              Amount
1998           FFOT98019NJ            $210,000
2000           FFOT00027NJ            $400,000

The Grantee expended $159,673.26 of the $210,000 Fiscal Year 1998 grant during the
period between January 1998, and April 2002; and is currently carrying out grant
activities related to Mark-to-Market eligible properties throughout the state of New
Jersey.

For the period reviewed, we noted that an Independent Public Accountant (IPA) audited the
Grantee in accordance with OMB Circular A-133. The IPA’s audit report does not contain
any findings. We also noted that the Grantee did not receive any on-site monitoring from
HUD’s Office of Multifamily Housing Assistance Restructuring. Nevertheless, the Grantee
identified 22 and assisted 8 projects that qualified for assistance under the OTAG during
our audit period. Regarding Fiscal Year 2000’s OTAG in the amount of $400,000, the
Grantee had not incurred any costs; therefore, no funds had been requisitioned during the
period we reviewed.

Additionally, we noted that the Grantee has been approved to receive a Public Entity
Grant (PEG) in the amount of $20,000, from the Intermediary Technical Assistance
Grantee (ITAG) “Georgetown University” doing business as the “National Center for
Tenant Ownership”. However, the Grantee has not incurred any costs or requisitioned for
any PEG funds during the period we reviewed.

In addition to the OTAG/PEG funds, the Grantee received funds from non-Federal
sources. During calendar year 2001, the Grantee received over $1.7 million from non-
Federal sources.

The Grantee has a separate accounting and reporting system for each OTAG/PEG. The
Grantee maintains it’s accounting records at its office, which is located at 51 McWhorter
Street, Newark, New Jersey.




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                                          FINDING

The Grantee Did Not Always Comply With HUD and Federal OTAG Requirements

Our review disclosed that the Grantee did not always comply with HUD and/or Federal
requirements pertaining to support for costs charged to the grant and allocated among
prescribed activities. More specifically, the review disclosed that the Grantee was unable to:
a) provide adequate documentation to support rental expenses of $18,600 that were charged
to the OTAG; and b) support the pre-determined percentages used to allocate total cost of
$159,673.26 among the four HUD prescribed activities of the OTAG. In this regard, the
Grantee did not comply with provisions of OMB Circular A-122, which provide that cost
must be adequately documented and commensurate with the benefits derived when allocated
to benefiting functions. Consequently, the Grantee paid rental expenses with HUD funds
that are unsupported, and reported costs to HUD by activity that may not be accurate. This
occurred because Grantee officials believe that a rental agreement is not necessary and are
apparently unfamiliar with Federal requirements pertaining to selecting a supportable base
to allocate costs among activities benefited. Thus, we recommend that HUD require the
Grantee to obtain and maintain a rental agreement/lease to support the rental expenses
charged to the grant, and to develop and maintain supporting documentation for the
percentages used to allocate costs among the four HUD prescribed activities.

OMB Circular A-122, Attachment A, Paragraph 2(g) provides that costs “must be
adequately documented”. In addition, OMB Circular A-122, Attachment A, Paragraph D
(3)(c), entitled “Allocation Bases” provides that “actual conditions shall be taken into
account in selecting the base to be used in allocating the expenses in each grouping of
benefiting functions. The essential consideration in selecting a method or base is that it is the
one best suited for assigning the pool of costs to cost objectives in accordance with benefits
derived…”

A.     Unsupported Rental Expenses

Our review disclosed that the Grantee included expenses for rental space on vouchers
submitted to HUD under the OTAG without adequate documentation to support those
expenses. The Grantee provided cancelled checks in the amount of $600.00 a month to
an organization, as part of the support for rental expenses vouchered; however, no rental
agreement was provided. Grantee officials told us that they do not have a written rental
agreement and that the charges for rent were based on a “handshake”. Accordingly,
Grantee officials do not consider it necessary to obtain a rental agreement. However, we
believe that a written rental agreement or lease is needed to support the amount of the
monthly rental payments. The document will also ensure that the Grantee is in
compliance with OMB Circular A-122, Attachment A, Paragraph 2(g), which requires
costs to be adequately documented.

The total rent charged to the OTAG during the period we reviewed was $18,600.
Accordingly, we consider the $18,600 as unsupported rental expenses pending HUD’s
determination of the reasonableness and allowability of these costs.



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B.    Unsupported Pre-Determined Percentages

HUD requires Grantees to classify eligible costs incurred with grant funds into four
activities as shown on the payment voucher (HUD form 50080-OTA) that is used to draw
down OTAG funds from HUD. Our review disclosed that the Grantee submitted
vouchers to HUD using pre-determined percentages to allocate costs to the four HUD
prescribed activities, which are: Regional OTAG and Clearing House Activities (Account
6010), Project Specific Activities (Account 6020), Administrative Expenses (Account
6030), and Audit Costs (Account 6040). According to Grantee officials, total cost, as
submitted on the voucher, were allocated as follows: 45 percent to Regional OTAG and
Clearinghouse Activities; 50 percent to Project Specific Activities; and 5 percent to
Administrative Activities. In this regard, the Grantee allocated the costs incurred, which
totaled $159,673.26, with OTAG funds as follows:


        Activity                                  Percentage               Amount__
Regional OTAG & Clearinghouse Activities              45%                  $71,852.97
Project Specific Activities                           50%                   79,836.64
Administrative Activities                             05%                    7,983.65
Audit Costs                                            0%                        0.00
                                             Total 100%                   $159,673.26
                                                    ======                =========

Except for rental expenses, the Grantee was able to support that the total cost is
chargeable against the OTAG. However, Grantee officials were unable to provide
documentary support showing how the percentages that were used to allocate costs to the
various HUD prescribed activities were determined. As a consequence, the Grantee was
unable to support that costs allocated to the various activities are commensurate with the
time and efforts Grantee employees spent performing the HUD described work under
each activity. Since the allocated amounts were reported to HUD, HUD may not have
accurate amounts by each activity to evaluate the effectiveness of the OTAG on the
Mark-to-Market Program. In connection with the above, we attempted to determine how
employees of the Grantee allocated their time to various activities; however, we were
unable to make the determination because the records showing the time each employee
worked do not reflect the activities to which an employee charged his/her time. Thus, the
Grantee failed to develop documentation to support an allocation base, as required by
OMB Circular A-122 that could have been used for allocating eligible OTAG costs
among the four HUD prescribed activities.

Grantee Comments
The Grantee agreed with the finding in that a written lease for the use of the office space
at 944 Broad Street, Newark, New Jersey is needed. The Grantee also stated that it is
anticipated that a written lease would be obtained within two weeks, as well as a request
from the lessor of a written verification of the rent amount and past payments. The


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Grantee also stated that the rent that has been paid ($600 per month) is reasonable and
below the market value for rent in the Newark area. The Grantee did not make any
comments on the unsupported pre-determined percentages.

OIG Evaluation of Grantee Comments
We agree with the Grantee decision of obtaining a written lease for the office space at
944 Broad Street, Newark, NJ, as well as obtaining written verification from the lessor of
the rent amount and past rent payments.

RECOMMENDATIONS
We recommended that the HUD, OMHAR:

1A.    Instruct the Grantee to develop procedures to ensure compliance with OMB
       Circular A-122 as it pertains to maintaining adequate supporting documentation
       for all costs charged against the grant and allocated among the grant activities.

1B.    Instruct the Grantee to obtain and provide to HUD a rental agreement or lease that
       supports the rental expenses charged to the Grant of $18,600. If such an
       agreement is not provided, the Grantee should be instructed to reimburse the total
       amount of the expenses to HUD from non-Federal funds, and discontinue
       charging rental expenses to the Grant.

1C.    Instruct the Grantee to develop and submit, for HUD’s review and/or approval,
       adequate documentation showing that the predetermined percentages used to
       allocate costs among the HUD prescribed activities of the OTAG produced
       allocated amounts to each activity that were commensurate with the benefits
       derived. If the Grantee is unable to support the percentages used, the Grantee is
       to be instructed to develop a supportable allocation plan in accordance with the
       requirements of OMB Circular A-122.




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                               MANAGEMENT CONTROLS

In planning and performing our audit, we considered the management controls relevant to
the Grantee’s Section 514 programs 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:

   •   Controls Over Allocating of Costs and Reporting of Activities
   •   Controls over Cash Receipts and Cash Disbursements
   •   Controls over Payroll

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 the results of our review, we determined that management control weaknesses
exist in the following areas:

Controls over Cash Disbursements

The Grantee did not provide adequate supporting documentation for rental expenses charged
to the grant. (See Finding Part A).

Controls over Allocating Costs

The Grantee was unable to provide adequate documentation to support pre-determined
percentages used to allocate costs among the four activities of the OTAG. (See Finding
Part B).


                         FOLLOW-UP ON PRIOR AUDITS

This is the initial HUD-OIG audit performed on the Ironbound Community Corporation.




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                                                                    Appendix A



               SCHEDULE OF QUESTIONED COSTS


     FINDING                      TYPE OF QUESTIONED COSTS
     NUMBER
                                                          Unsupported
        1                                                 $18,600.00



1/     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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Grantee Comments        Appendix B




                   10
                                                                      Appendix C

Distribution
                                  OUTSIDE OF HUD

Executive Director, Ironbound Community Corporation

The Honorable Joseph Lieberman
Chairman, Committee on Governmental Affairs

The Honorable Fred Thompson
Ranking Member, Committee on Governmental Affairs

Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice,
Drug Policy & Human Resources

Andy Cochran
House Committee on Financial Services

Clinton C. Jones, Senior Counsel
Committee on Financial Services, U.S. House of Representatives

Kay Gibbs
Committee on Financial Services

Stanley Czerwinski, Director
Housing and Telecommunications Issues, US General Accounting Office

Steve Redburn, Chief Housing Branch
Office of Management and Budget

Linda Halliday
Department of Veterans Affairs, Office of Inspector General

William Withrow
Department of Veteran Affairs, OIG Audit Operations Division

George Reeb
Assistant Inspector General for Health Care Financing Audits

The Honorable Dan Burton
Chairman, Committee on Government Reform, U.S. House of Representatives




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                                                                     Appendix C

Distribution
The Honorable Henry A. Waxman
Ranking Member, Committee on Governmental Reform, U.S. House of Representatives

The Honorable Barbara A. Mikulski
Chairperson, Subcommittee on Veterans, Housing and Urban Development and
Independent Agencies




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