oversight

City of Pomona Community Development Block Grant Pomona, CA

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-04-24.

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

                                                      U.S. Department of Housing and Urban Development
                                                                    Office of Inspector General
                                                                                     Pacific/Hawaii District
                                                                      450 Golden Gate Avenue, Box 36003
                                                                     San Francisco, California 94102-3448




                                                                          MEMORANDUM NO:
                                                                             2002-SF-1803


April 24, 2002


MEMORANDUM FOR:              William K. Barth, Director
                             Office of Community Planning and Development, 9DD


FROM:                        Mimi Y. Lee
                             District Inspector General for Audit, 9AGA

SUBJECT:                     City of Pomona
                             Community Development Block Grant Program
                             Pomona, CA


                                      INTRODUCTION

We performed a limited review of the use of HUD Community Development Block Grant
(CDBG) program funds by the Latino Chamber of Commerce (LCC), a subgrantee of the City of
Pomona. The review was initiated in response to a request by the Los Angeles Office’s Acting
Senior Community Builder/Coordinator. The Acting Senior Community Builder, after
discussion with you and your staff, requested we evaluate a complaint alleging the LCC had used
its CDBG subgrantee allocation from the City of Pomona for ineligible activities. Although we
did not find evidence to support the complaint allegation, we did note concerns with the City of
Pomona’s oversight of its subgrantee as well as problems with the LCC’s management controls
and documentation supporting program activities.

                              METHODOLOGY AND SCOPE

We interviewed HUD staff; reviewed Los Angeles HUD office Community Planning and
Development (CPD) files; reviewed the City of Pomona’s files relative to the LCC; and
conducted an on-site review at the LCC to determine if CDBG funds were used for eligible
activities. Our review was conducted during the period November 2001 to December 2001 and
generally covered the LCC’s program expenditures and activities during the period July 1, 1999
to June 30, 2000.
Audit Memorandum 2002-SF-1803                                                       City of Pomona




                                       BACKGROUND

The LCC used its allocated CDBG funds to operate its Small Business Assistance Program
intended to provide technical assistance to local businesses and assist low to moderate income
individuals with job placement. The amounts allocated to the LCC represented approximately
two percent of the city’s total CDBG funds. Recent CDBG program funding amounts to the
LCC were as follows:

               Program Year     Amount
           •   1998 – 1999 à    $80,000
           •   1999 – 2000 à    $62,000
           •   2000 – 2001 à    $54,000


                                   RESULTS OF REVIEW

Summary

The complaint alleged Pomona City Council members sat on the board of directors for the LCC
(subgrantee), and these individuals received campaign contributions from the LCC’s CDBG
funds allocated from the City of Pomona (grantee). The complaint noted “questionable”
payments associated with an advance account set up for the LCC’s CDBG program and indicated
these payments may have been deposits into political campaign accounts of Pomona City
Council members. The payments noted in the complaint occurred between January 1, 2000 and
June 30, 2000. Our review found these transactions, involving the LCC’s CDBG advance
account, were actually funds transfers between the LCC’s main operating bank account and their
CDBG program bank account and did not involve payments to other parties as alleged in the
complaint. The LCC staff explained these payments, and the associated advance account, were
used to cover program costs incurred prior to the receipt of CDBG program funds. We further
found that Pomona City Council members did not sit on the LCC’s board of directors, nor did
they hold any leadership positions within the LCC during the period in which CDBG funds were
used .

City of Pomona’s Monitoring of Subgrantees

Although we did not find evidence to support the complaint allegation, our review found the City
of Pomona failed to adequately monitor its subgrantee, the LCC. The city did not take
appropriate and timely follow-up action when the LCC failed to produce records requested as
part of a monitoring review started at the LCC on August 14, 2001. This failure is particularly
significant considering the City was aware of allegations that CDBG funds were being misused
by the LCC. City of Pomona staff responsible for the monitoring review stated they had not
pursued the matter further because they did not have sufficient staffing to adequately oversee the
City’s large number of CDBG subgrantees (A Pomona City Council report indicates the City of
Pomona has over three times the average number of CDBG funded activities as four other




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Audit Memorandum 2002-SF-1803                                                      City of Pomona


federal entitlement cities within the San Gabriel Valley). The City of Pomona had only one
project monitor responsible for reviewing the City’s housing department subgrantees.

After OIG’s visit to the City in November 2001, the City notified the LCC they would withhold
future CDBG funds as a result of the LCC’s failure to produce program records. In February
2002, the Pomona City council adopted a plan to streamline its CDBG allocation process, reduce
the number of sub grantees, focus CDBG money on areas with the greatest need, grant more
money to larger organizations and focus on past performance and compliance prior to granting
additional funding. Although these steps represent improvements to the City's allocation process
and should reduce the number of subgrantees that will require monitoring, the steps do not
include new policies or plans necessary to ensure adequate monitoring reviews are conducted on
all of the City’s subgrantees.

LCC’s Inadequate Management Controls and Lack of Documentation Supporting
Program Activities.

We identified a number of concerns with LCC’s management controls and documentation of
program activities and accomplishments that should have been addressed and resolved as part of
the City of Pomona’s monitoring review. We found:

           •   For the 1999-2000 CDBG funding year, the LCC incurred consulting costs that
               far exceeded budgeted amounts and then submitted inaccurate and misleading
               reports to the grantee as part of its requests to draw down CDBG funds. In these
               reports the LCC claimed its Small Business Assistance Program Director was
               paid the budgeted amount of $8,770 in consulting fees, however, he was actually
               paid over $30,000.

           •   For years after 1997, the LCC did not have a written contract in effect for
               consulting services that accounted for a large portion of its CDBG program
               expenditures.

           •   Available information indicates the LCC apparently did not file Internal Revenue
               Service (IRS) form 1099’s for payments made to the Program Director for
               consulting services.

           •   The LCC failed to establish and implement basic internal controls associated with
               payments for payroll and consulting services such as requiring second signature
               approvals on time cards and checks.

           •   The LCC’s CDBG advance account had a negative balance of $4,617.00 as of
               June 30, 2000 indicating CDBG funds may have used to provide cash advances to
               the LCC’s general operating account.

           •   The LCC did not maintain adequate documentation supporting its CDBG funded
               program accomplishments in the areas of job creation, job placement and small
               business assistance loan processing. Additionally, it appears the LCC may have


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Audit Memorandum 2002-SF-1803                                                    City of Pomona


               overstated its accomplishments in quarterly reports to the City of Pomona by
               including initial contacts with potential clients as completed activities.

           •   The LCC claimed some of the problems noted above were the result of intentional
               actions of a disgruntled former employee (treasurer). In this regard, we found
               LCC management did not have the capacity to adequately oversee its employees
               and operations to ensure compliance with CDBG program requirements.


                                  RECOMMENDATIONS

Although we are not tracking this memorandum under the Automated Audits Management
System, we are recommending your office take actions to address the concerns noted during our
limited review of this matter. This would include requiring the City of Pomona to:

1A.    Develop and implement a plan to ensure monitoring of CDBG subgrantees is conducted
       in accordance with HUD requirements and appropriate follow-up action is taken when
       potential problems with subgrantees are identified.

1B.    Ensure the LCC has filed appropriate IRS form 1099’s for all contract employees paid
       with CDBG funds during the period 1997 through the present.

1C.    Verify, prior to providing any additional CDBG allocations to the LCC, it has developed
       and implemented appropriate administrative policies and procedures which will ensure
       accurate financial and program accomplishment reporting, adherence to appropriate tax
       reporting requirements and adequate internal controls over payroll and consulting
       services.

If you have any questions regarding these matters, please contact Auditors David Torre or
Charles Johnson at (602) 379-4675.




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Audit Memorandum 2002-SF-1803                                                 City of Pomona


                           DISTRIBUTION OUTSIDE OF HUD

Noelia Chapa, Assistant City Manager/Housing Director, City of Pomona, 505 S. Garey Ave.,
Box 660, Pomona, CA 91769
Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Hum
Resources, B373, Rayburn House Office Bldg., Washington, DC 20515
Stanley Czerwinski, 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 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 Representative, 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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