oversight

Congressionally Requested Audit of the Outreach and Training Assistance Grant awarded to Legal Aid Bureau, Incorporated, Grant Number FFOT0020MD Baltimore, Maryland

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-30.

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

                                                                Issue Date
                                                                 September 30, 2002
                                                                Audit Case Number
                                                                 2002-PH-1006




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


FROM:          Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic, 3AGA

SUBJECT:       AUDIT MEMORANDUM – Congressionally Requested Audit of the Outreach
               and Training Assistance Grant awarded to Legal Aid Bureau, Incorporated, Grant
               Number FFOT0020MD
               Baltimore, Maryland

                                       INTRODUCTION

We completed an audit of the Legal Aid Bureau, Incorporated $450,000 Outreach and Training
Assistance Grant (OTAG). The objectives of the review were to determine if the Legal Aid
Bureau, Incorporated used Section 514 grant funds for only eligible activities as identified in the
Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA), their
agreements, and/or other requirements to further the Mark-to-Market Program. Also we wanted
to determine if the Legal Aid Bureau, Incorporated expended Section 514 funds for any lobbying
activities. MAHRA specifically identified lobbying as an ineligible activity.

The audit identified that the grantee could not provide adequate support for $90,904 in
disbursements it made for salaries and fringe benefits, and $22,676 in indirect costs. In addition,
the grantee charged $3,198 of ineligible expenditures to the grant. We also noted the grantee did
not comply with other requirements of the Office of Management and Budget’s (OMB) Circular
A-122, Cost Principles for Non-Profit Organizations, which included using grant funds to
participate in lobbying activities. Our report contains eight recommendations to address the
issues identified in the report and to strengthen the grantee’s management controls.

Section 1303 of the 2002 Defense Appropriation Act (Public Law 107-117) requires the HUD
Office of Inspector General to audit all activities funded by Section 514 of the Multifamily
Assisted Housing Reform and Affordability Act of 1997 (MAHRA). The directive would
include the Outreach and Training Assistance Grants (OTAG) and Intermediary Technical
Assistance Grants (ITAG) administered by the Office of Multifamily Housing Assistance
Restructuring (OMHAR). Consistent with the Congressional directive, we reviewed the
eligibility of costs with particular emphasis on identifying ineligible lobbying activities.

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

The audit covered the period January 2001 through June 2002 for the OTAG grant awarded to
Legal Aid Bureau, Inc. We performed the fieldwork at the Office of Legal Aid Bureau, Inc.,
located at 500 East Lexington Street, Baltimore, MD during June and July 2002. We conducted
the audit in accordance with Generally Accepted Government Auditing Standards. We held an
exit conference with the Executive Director of the Legal Aid Bureau on September 6, 2002.

We appreciate the courtesies and assistance extended by the personnel of the Legal Aid Bureau,
Incorporated during our review.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without a management decision, a status report on: (1) the corrective action
taken; (2) the proposed corrective action and the date to be completed; or (3) why action is
considered unnecessary. Additional status reports are required at 90 days and 120 days after report
issuance for any recommendation without a management decision. Also, please furnish us copies
of any correspondence or directives issued because of the audit.

Should you or your staff have any questions please contact Christine Begola at (410) 962-2520.

                                          SUMMARY

We found that Legal Aid Bureau, Incorporated (Legal Aid) did not maintain adequate
accountability over its OTAG funds in accordance with OMB Circular A-122. Specifically,
Legal Aid did not maintain personnel activity reports to support $90,904 in salaries and fringe
benefits charged to the grant and disbursed $3,198 for ineligible expenditures, which included
computers, entertainment and lobbying activities. In addition, the grantee did not prepare a cost
allocation plan per the guidance in OMB Circular A-122, Attachment A, thus causing $22,676 in
unsupported indirect costs to be allocated to the grant.

Also, according to the grantee’s reports to OMHAR, the grantee participated in a number of
teleconferences that included sessions on how the NAHT affiliates were to lobby legislators.
Further, we identified an instance where the OTAG coordinator participated in a letter writing
campaign in an attempt to influence HUD and local elected officials. Under OMB Circular A-
122, these activities are prohibited and any associated costs ineligible. However, since the
grantee did not maintain detailed time records, we could not determine the actual amount of time
and associated costs expended for these ineligible activities.


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                                        BACKGROUND

The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) established
the Office of Multifamily Housing Assistance Restructuring (OMHAR) within HUD. Utilizing
the authority and guidelines under MAHRA, OMHAR’s responsibility included the
administration of the Mark-to-Market Program, which included the awarding, and oversight of
the Section 514 Outreach and Training Assistance and Intermediary Technical Assistance Grants.
The objective of the Mark-to-Market Program was to reduce rents to market levels and
restructure existing debt to levels supportable by these reduced rents for thousands of privately
owned multifamily properties with Federally insured mortgages and rent subsidies. OMHAR
worked with property owners, Participating Administrative Entities, tenants, lenders, and others
to further the objectives of MAHRA.

Congress recognized, in Section 514 of MAHRA, that tenants of the project, residents of the
neighborhood, the local government, and other parties would be affected by the Mark-to-Market
Program. Accordingly, Section 514 of MAHRA authorized the Secretary to provide up to $10
million annually ($40 million total) for resident participation, for the period 1998 through 2001.
The Secretary authorized $40 million and HUD staff awarded about $26.6 million to 40 grantees
(a total for 83 grants awarded). Section 514 of MAHRA required that the Secretary establish
procedures to provide an opportunity for tenants of the project and other affected parties to
participate effectively and on a timely basis in the restructuring process established by MAHRA.
Section 514 required the procedures to take into account the need to provide tenants of the
project and other affected parties timely notice of proposed restructuring actions and appropriate
access to relevant information about restructuring activities. Eligible projects are generally
defined as HUD insured or held multifamily projects receiving project based rental assistance.
Congress specifically prohibited using Section 514 grant funds for lobbying members of
Congress.

HUD issued a Notice of Fund Availability in fiscal year 1998 and a second in fiscal year 2000 to
provide opportunities for nonprofit organizations to participate in the Section 514 programs.
HUD provided two types of grants, the Intermediary Technical Assistance Grant (ITAG) and the
Outreach and Training Assistance Grants (OTAG). The Notice of Fund Availability for the
ITAG states that the program provides technical assistance grants through Intermediaries to sub-
recipients consisting of: (1) resident groups or tenant affiliated community-based nonprofit
organizations in properties that are eligible under the Mark-to-Market Program to help tenants
participate meaningfully in the Mark-to-Market process, and have input into and set priorities for
project repairs; or (2) public entities to carry out Mark-to-Market related activities for Mark-to-
Market-eligible projects throughout its jurisdiction. The OTAG Notices of Fund Availability
state that the purpose of the OTAG program is to provide technical assistance to tenants of
eligible Mark-to-Market properties so that the tenants can (1) participate meaningfully in the
Mark-to-Market Program, and (2) affect decisions about the future of their housing.

OMHAR also issued a December 3, 1999 memorandum authorizing the use of OTAG and ITAG
funds to assist at-risk projects. OMHAR identified these as non-Mark-to-Market projects where
the owners were opting out of the HUD assistance or prepaying the mortgages.

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

The Circular also establishes the unallowability of costs associated with Federal and State
lobbying activities. Simply stated, the use of Federal funds for any lobby activity is unallowable.
OMB Circular A-122 identifies some examples of unallowable activities of lobbying. These
include any attempt to influence an elected official or any Government official or employee
(Direct Lobbying) or any attempt to influence the introduction, enactment or modification of any
pending legislation by propaganda, demonstrations, fundraising drives, letter writing, or urging
members of the general public either for or against the legislation (Grassroots Lobbying).

Legal Aid applied for an OTAG grant in fiscal year 2000 for $450,000, and was authorized
$350,000 in January 2001, however, they did not start expending the grant until July, 2001. As
of June 2002, $116,778 was expended against the grant. Legal Aid received an annual financial
audit for their activities for the period ending December 31, 2001. The auditor provided an
unqualified opinion for that year.

In addition to the OTAG grant, Legal Aid received grants from other Federal and non-Federal
sources. For example, from non-Federal sources, Legal Aid’s operations are funded through
grants from the Maryland Legal Services Corporation. During fiscal year 2001, Maryland Legal
Services Corporation provided Legal Aid $3,808,740 in funding. During that same time period,
an organization funded by a non-profit corporation established by Congress, Legal Services
Corporation, provided Legal Aid with $3,461,370 in funds. Legal Aid’s total funding from all
sources for fiscal year 2001 was $14,367,308.

FINDING: The Grantee Did Not Comply With HUD and OMB Requirements

Contrary to the requirements of OMB Circular A-122, Legal Aid did not maintain adequate time
records to support salary and benefit costs charged to the grant, nor did they maintain adequate
documentation to support the cost allocation method it used to charge indirect costs to the grant.
In addition, we identified a number of ineligible lobbying expenditures were charged to the grant.
This occurred because the grantee simply did not have a full understanding of the requirements
under the grant and related Federal Regulations. As a result, Legal Aid charged the grant $90,904
in unsupported salaries and benefits, $22,676 in unsupported allocated indirect costs, and another
$3,198 in ineligible expenditures, which included computers, entertainment and lobbying
activities. However, we could not determine the complete amount of lobbying activities due to
the lack of adequate time records. When asked why the grantee did not follow OMB Circular A-
122, the Controller stated because they followed OMB Circular A-133, Audits of States, Local

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Governments, and Non-Profit Organizations, they were not required to maintain a cost allocation
plan, as noted in OMB Circular A-122. We could not determine how the Controller came to this
incorrect conclusion.

Compensation for Personal Services

OMB Circular A-122, Attachment B, Paragraph 7, Compensation for Personal Services, states
that reasonable compensation and fringe benefits to employees are grant fundable costs. The
Circular also places specific salary record keeping requirements on the grantee. Specifically, the
grantee must maintain reports that: (1) account for the total activity for which an employee is
compensated for in fulfillment of their obligations to the organization; (2) reflect an after the fact
determination of actual activity for each employee; and (3) reflect the distribution of activity of
each employee (professionals and nonprofessionals) whose compensation is charged, in whole or
in part, directly to awards and requires the employee or a responsible supervisor to sign the
report. Further, the OMB Circular states that budget estimates do not qualify as support for
charges to the grant. In addition, in order to support the allocation of indirect costs, such reports
must also be maintained for other employees whose work involves two or more functions or
activities if a distribution of their compensation between such functions or activities is needed in
the determination of the organization's indirect cost rate.

We found Legal Aid did not maintain detailed supporting employment records reflecting
employees’ activity per OMB Circular A-122 guidance. Instead, all salary charged to the grant
was based upon a percentage rate, calculated by using the number of employees assigned to the
OTAG grant divided by the number of full time employees in the Support Unit Cost Center, in
which the OTAG grant was located. This rate was then applied to all salaries charged to the
Support Unit Cost Center to come up with the total salaries charged to the OTAG grant. The
grantee explained this cost allocation method for salaries was made to provide for increased
efficiency for the entire organization. However, when we tried to verify the allocation rate, the
grantee’s Deputy Director told us the percentage rate used was based upon an educated guess of
the hours charged by the employees working on the grant and not the actual hours.

At the time of our review, five staff members were assigned to work on the grant on a full time
basis. This included a law graduate, three paralegals, and an administrative assistant. The rest of
the staff worked on the grant periodically, thus their time was estimated in order to arrive at an
equivalent number of full time employees assigned to the grant. For example, in February 2002
the number of attorneys charged to work on the grant was 1.75. This represented one full time
attorney and two other attorneys whose combined time accounted for ¾ of a full time employee
equivalent. By using this allocation method, there was no accounting for the actual number of
hours charged to the grant, especially for the lawyers that only worked on the grant periodically.
When we attempted to verify the hours charged by the staff, we were told that the lawyers did not
track their time using the amount of detail needed to support the grant. Also, the time sheets of
the OTAG coordinator provided no detail and only annotated a flat eight hours per day were
charged against the grant. Altogether, the grantee charged $90,904 in salary costs to the grant.
OMB Circular A-122 states that all of the activity and the distribution of that activity must be
documented for both professional and non-professional staff assigned to the grant. Based upon

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the review of the time sheets, Legal Aid did not follow this requirement, and thus we question
the entire $90,904.

In our review, we tested the entire amount of salaries and benefits charged against the grant up to
June 2002. Since the grantee didn’t maintain detailed time records, we reviewed the grantee’s
quarterly reports to OMHAR to determine the types of activities the grantee was charging against
the grant and if the work was completed only on eligible properties. While reviewing these
reports we noted all properties listed were eligible properties. However, we also noted the
OTAG coordinator charged time against the grant for activities that appeared to be completed in
previous quarters. For example, in the September 2001 Mark-to-Market Activity Report, the
coordinator documented under the “Analysis of Properties” section of the report she “visually
assessed” seven properties for their “likelihood of Mark-to-Market participation”, charging 15
hours per property. Three of the properties listed, Foxwell Memorial, Fairfax Gardens and
Glenarden I, are also listed on the December 2001 report under the same activity, with 15 hours
being charged to the grant. In fact, two of the properties continue to be listed in the March 2002
report.1

The grantee disagreed with our interpretation of the information presented in the quarterly
reports. The grantee said the OTAG coordinator performed different activities for the properties
listed in successive reports under the category of “Analysis of Properties” and subcategory
“visual assessment”. However, since these reports show evidence the assisted properties are
receiving “direct outreach services”, in all three quarterly reports for this grant, we question why
the OTAG coordinator would need to document that she was still trying to make a determination
as to the properties likelihood to participate in the Mark-to-Market Program. Based on the
OMHAR quarterly reports it appears this determination had already been made by the OTAG
coordinator.

Allocating Indirect Costs to the Grant

The grantee also allocated certain costs to the grant that included travel, training, telephone,
facilities cost and consumable supplies. OMB Circular A-122 Attachment A, provides guidance
on the basic considerations for grant fundable costs and allocation of indirect costs. The
guidance provides that the grantee must support a cost allocation that takes into account all
activities of the organization. Unless different arrangements are agreed to by the agencies
concerned, the Federal agency with the largest dollar value of awards with an organization will
be designated as the cognizant agency for the negotiation and approval of the indirect cost rates.
A non-profit organization that does not have an approved cost allocation plan must submit an
initial cost allocation plan within three months of receiving the award.




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  These same properties are also noted in the “initial assessment” phase of the Quarterly reports under the first
OTAG grant received by Legal Aid. A review of the prior grant reports note that Foxwell Memorial was originally
“initially assessed” in September 2000, Glenarden I in March 2000 and Fairfax Gardens in July 2001. These reports
also show that “direct outreach services” were being provided during the same time period.

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When we requested a copy of the cost allocation plan, the grantee’s Controller simply provided
the rates used to calculate indirect costs. The grantee explained these rates are based upon the
number of staff assigned to a particular job category, made up of similar projects sharing in the
same expenses. For example, in the first quarter of 2000, all of the project coordinator’s time
and .21 full time equivalent attorney’s time was charged to the OTAG project. At the time there
was 8.8 legal staff sharing costs in the support unit. Therefore, 1.21/8.8 of the costs or the unit
were allocated to the OTAG grant. Although this plan appears to be reasonable, the rate is based
upon the assumption the number of full time staff assigned to work on the OTAG grant is
accurate. As we previously discussed, the grantee calculates the number of full time employee
equivalents working on and charged to the grant, based on an educated guess. Since both the part
time and full time staff do not maintain their time in accordance with OMB Circular A-122, we
question the accuracy of any of the calculated salaries charged to the grant.

We also noted the grantee never received approval from their cognizant agency to use this plan nor
had they provided a copy of the cost allocation plan to HUD. The Controller stated Legal Aid did
not have to complete a cost allocation plan in accordance with OMB Circular A-122 because they
received an unqualified opinion on their audit under OMB Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations, and, as such, were in full compliance with all Federal
requirements. We found no sound basis as to how the Controller formulated this opinion since no
provision under either Circular states a grantee is exempt from completing a cost allocation plan if
they receive an unqualified opinion on their audit under the Single Audit Act.

The grantee expended $25,874 in indirect expenditures charged to the grant from July 2001 to
June 2002. The majority of these expenditures were accounted for in the categories of travel,
equipment, training, management, and general type expenditures.           The Notice of Fund
Availability dated February 24, 2000 Section III C & D provides guidance on what types of
expenditures are considered eligible and ineligible under this grant. For example, computer
purchases are eligible with a reimbursement limit of $1,000 while entertainment, including food
and beverages are ineligible expenses.

In our review, we noted Legal Aid purchased six computers valued at $8,970 in December 2001
and allocated $3,356 to the OTAG grant. Per the Notice of Fund Availability only $1,000 can
be allocated to the grant, thus $2,356 of the equipment is an ineligible expense.

Also, we noted the grantee allocated entertainment costs (food, beverages and flowers) for the
office coffee fund, OTAG resident meetings, and annual holiday parties to the grant. We also
questioned telephone costs associated with an employee that did not work on the OTAG grant.
In total, ineligible entertainment and telephone costs totaled $362.

Since the grantee did not maintain detailed time records as required under OMB Circular A-122,
we could not determine if the cost allocations applied by the grantee were reasonable. Thus,
excluding the $2,718 in ineligible computer, phone and entertainment expenses, the remaining
$22,676 of indirect expenditures is unsupported ($25,874 less $2,718).




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Lobbying

MAHRA specifically prohibited the use of Section 514 funds to lobby members of Congress or
their staff. OMB Circular A-122, Attachment B, Paragraph 25, Lobbying, places additional
limitations on the grantee’s use of Federal funds for lobbying. As identified in the background
section, Legal Aid also receives non-Federal funds from a number of other sources. The
allowability and use of these funds for lobbying activities would not be restricted by the guidance
of OMB Circular A-122.

We reviewed the grantee’s quarterly reports to OMHAR, travel vouchers, and staff time sheets to
identify meetings with legislative members or their staff. We also reviewed these reports to
determine if the grantee worked on activities that did not meet the requirements of MAHRA and
to determine if these activities were considered Grassroots lobbying.

We identified one instance where the OTAG coordinator participated in a Tenant Association
meeting to begin a letter campaign to owners, the local housing authority, HUD, and the City’s
Mayor to stop the prepayment and garner support for the preservation of the property. In
addition, the grantee paid membership dues to, and participated in teleconferences, sponsored by
the National Alliance of HUD Tenants (NAHT), which included ineligible lobbying activities.
For example, the grantee provided examples of four different conference agendas identified as
the teleconferences they had participated in. Specifically, these sessions included discussions on
how the NAHT affiliates are to lobby both Democratic and Republican Senators to co-sponsor
Preservation Matching.

On average the teleconferences were scheduled to last one hour and thirty minutes with a
substantial amount of time devoted to discussing lobbying issues, while only five minutes related
to the Mark-to-Market Program. Based upon OMB’s guidance, only the portion of the activity
related to the purpose of the grant can be charged to the grant and lobbying is not considered an
allowable activity. However, the grantee charged the full amount to the OTAG grant. While
reviewing the expenditures we noted a charge of $480 in association with the teleconference.
The grantee explained that each grantee is requested to pick up the expenditure for the cost of the
conference call; this charge represents the time Legal Aid picked up the charge. The grantee
contends its staff did not engage in prohibited lobbying activities.

We attempted to verify the grantee’s claim and determine the amount of unallowable lobbying
activities being charged to the grant; however, since Legal Aid does not maintain adequate travel
and time records, with the exception of the charge noted above, we could not determine the
actual costs associated with these expenditures. We consider the teleconference cost to be
ineligible because it involved lobbying activities.

AUDITEE COMMENTS

We provided our draft report to the grantees for their comments on September 9, 2002. The
grantee provided their comments on September 20, 2002. A copy of the narrative portion of the


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grantee’s response is attached in Appendix B. However, due to the overall volume of the
grantee’s response, the attachments were not included in this audit memorandum.

Except for Legal Aid’s concurrence that it was not permitted to charge $2,718 in computer and
food costs to the grant, which it has agreed to reimburse HUD, Legal Aid strongly disagrees with
the findings of our review. Specifically, they believe they are in full compliance with all Federal
regulations relating to their accounting for the compensation of personal services, indirect costs
and lobbying type activities.

Legal Aid stated they maintain appropriate and adequate documentation to support the
compensation for personal services and it meets the requirements of OMB Circular A-122. They
believe since the auditors did not find any evidence to support that the work completed on the
OTAG project was used for any other purpose, the time is supported. Legal Aid also noted they
offered to provide the documentation to the auditors after the discussion draft was issued in order
to clear up the finding, before the final report was issued.

Further, Legal Aid stated their method of allocating costs to the grant is in compliance with OMB
Circular A-122. However, they acknowledge their plan had not been submitted to their
Cognizant agency or HUD for approval.

Finally, Legal Aid strongly disagrees with our finding pertaining to lobbying activities. They
state although their staff did attend NAHT conferences, they did not participate in any lobbying
activities and used that time to meet with other OTAG project grantees to discuss their
experiences. The grantee also contends that NAHT conference calls provide a further
opportunity for the grantees to share their experiences and NAHT requested all grantees to share
in the cost of the calls so everyone has the opportunity to gain from the information. Legal Aid
also states that their employees did not participate in the discussions about lobbying on these
calls and noted that their quarterly reports to OMHAR reflect these calls and HUD has never
questioned the expense. As for the letter writing campaign in which the OTAG coordinator
assisted, they assert it was an attempt to bring to their representative’s attention the fact that the
district was in danger of losing affordable housing.

OIG EVALUATION OF AUDITEE COMMENTS

Except for our agreement on the ineligible computer and food expenses, we disagree with the
grantee’s assessment of the review. However, based on our review of their comments and
attachments, we made changes to the report where it was deemed necessary.

We disagree with Legal Aid’s conclusion that they maintained their salary documentation in
accordance with OMB Circular A-122 and that the records were available at the time of our
review. As defined in the findings, we noted the grantee did not follow OMB Circular A-122
when accounting for staff compensation and we questioned several of the activities they
performed. We do acknowledge after the discussion draft was issued the grantee offered to
provide us the documentation they felt would clear the finding. However, this offer entailed the
grantee estimating the time by reviewing emails, calendars, correspondence, etc. to satisfy the

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audit issue over a two-week period. In our opinion, this estimate would still not satisfy the
requirements of OMB Circular A-122.

We are encouraged that the grantee has submitted their allocation plan to OMHAR for approval,
and even did so prior to OMHAR making the request. However, as noted in the report we have
concerns over how the calculation of full time equivalents is being calculated. Since the
grantee’s full time equivalent calculation is based upon an educated guess and is used in
determining the allocation of salaries and indirect costs to the grant, we believe there is a flaw in
their methodology.

Finally, based on the requirements of OMB Circular A-122 and grantee’s records, we believe our
conclusions concerning the lobbying issues are fully supported and were presented in a balanced
fashion in the report.

RECOMMENDATIONS

We recommended that the Director of OMHAR require Legal Aid Bureau, Incorporated to:

1A. Repay to HUD from non-Federal funds the $3,198 in ineligible computer, food, phone and
    lobbying expenditures that were charged to the grant.
1B. Maintain detailed time records in accordance with OMB Circular A-122.
1C. Provide proper support for all unsupported salary and benefit costs totaling $90,904, and repay
    to HUD from non-Federal funds amounts it cannot adequately support.
1D. Prepare and submit an acceptable cost allocation plan that fairly allocates indirect costs
    among funding sources, and based on the plan make appropriate adjustments to the $22,676
    in indirect costs and repay to HUD from non-Federal funds any overcharges.
1E. Stop charging the grant for activities related to lobbying as defined by MAHRA and OMB
    Circular A-122.
1F. Establish policies and procedures for identifying grantees engaged in housing advocacy, to
    ensure Federal funds are not used to support direct or indirect lobbying activities.

We recommend that the Director of OMHAR:

1G. Restrict all remaining grant distributions to the Legal Aid Bureau, for this grant and any
    future grants, until the grantee demonstrates they have established the necessary policies
    and procedures to ensure they can administer the grant in accordance with OMB Circulars
    A-122 and the MAHRA.
1H. Make a determination on the lobby issues presented to determine if sanctions should be
    imposed as provided for in the 2002 Defense Appropriations Act.

                                 MANAGEMENT CONTROLS

In planning and performing our audit, we considered the management controls relevant to the
Legal Aid Bureau’s Section 514 program to determine our audit procedures, not to provide
assurance on the controls. Management controls include the plan of organization, methods, and

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procedures adopted by management to ensure that its goals are met. Management controls
include the processes for planning, organizing, directing, and controlling program operations.
They include the systems for measuring, reporting, and monitoring program performance.

We determined that the following management controls were relevant to our audit objectives:

    ·   Identification of projects and activities eligible for assistance,
    ·   Controls and documents to support costs of assistance provided, and
    ·   Controls and procedures over the reporting of activities and cost.

It is a significant weakness if management controls do not provide reasonable assurance that the
process for planning, organizing, directing, and controlling program operations will meet an
organization’s objectives.
Based on our review, we believe the following items are significant weaknesses:

·       Lack of policies and procedures to ensure that allocation rates meet the standards of OMB
        Circular A-122,
·       Lack of policies and procedures to ensure that salaries and time records meet the
        standards of OMB Circular A-122,
·       Lack of policies and procedures to ensure that lobbying activities are not directly or
        indirectly funded by Federal sources.

                             FOLLOW-UP ON PRIOR AUDITS

This was the first audit the Office of Inspector General completed on the Legal Aid Bureau,
Incorporated.




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                                                                           Appendix A

                 SCHEDULE OF QUESTIONED COSTS


 Recommendation                         Type of Questioned Costs
     Number                     Ineligible 1/              Unsupported 2/
       1A                          $3,198
       1C                                                       $90,904
       1D                                                       $22,676
      Total                        $3,198                      $113,580


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or
     activity that the auditor believes are not allowable by law, contract or Federal,
     State or local policies or regulations.

2/   Unsupported costs are costs charged to a HUD-financed or HUD-insured program
     or activity and eligibility cannot be determined at the time of audit. The costs are
     not supported by adequate documentation or there is a need for a legal or
     administrative determination on the eligibility of the costs. Unsupported costs
     require a future decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or
     clarification of Departmental policies and procedures.




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                   Appendix B

AUDITEE COMMENTS




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                                                                           Appendix C

                       DISTRIBUTION OUTSIDE OF HUD

Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human
    Resources, B373 Rayburn House Office Bldg., Washington, DC 20515
Stanley Czerwinski, Director, Housing and Telecommunications Issues, U.S. General
    Accounting Office, 441 G Street, NW, Room 2T23, Washington, DC 20548
Steve Redburn, Chief Housing Branch, Office of Management and Budget, 725 17th Street,
    NW, Room 9226, New Executive Office Bldg., Washington, DC 20503
The Honorable Joseph Lieberman, Chairman, Committee on Government Affairs, 706 Hart
    Senate Office Bldg., United States Senate, Washington, DC 20510
The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs, 340
    Dirksen Senate Office Bldg., United States Senate, Washington, DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
    Bldg., House of Representatives, Washington, DC 20515
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
    2204 Rayburn Bldg., House of Representatives, Washington, DC 20515
Andy Cochran, House Committee on Financial Services, 2129 Rayburn H.O.B., Washington,
    DC 20515
Clinton C. Jones, Senior Counsel, Committee on Financial Services, U.S. House of
    Representatives, B303 Rayburn H.O.B., Washington, DC 20515




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