oversight

Congressionally Requested Audit of the Intermediary Technical Assistance Grant awarded to the Amador-Tuolumne Community Action Agency, Sonora, California Grant Number FFIT98001AT and FFIT98002AT

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-26.

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 Region
                                                                       450 Golden Gate Avenue, Box 36003
                                                                      San Francisco, California 94102-3448




                                                                       MEMORANDUM NO:
                                                                         2002-SF-1805



September 26, 2002



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

                             //SIGNED//

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

SUBJECT:                     Congressionally Requested Audit of the Intermediary Technical
                             Assistance Grant awarded to the Amador-Tuolumne Community
                             Action Agency, Sonora, California, Grant Number FFIT98001AT
                             and FFIT98002AT


                                      INTRODUCTION

As directed by Congress, we have completed an audit of the Amador-Tuolumne Community
Action Agency (A-TCAA) Intermediary Technical Assistance Grants (ITAG), Numbers
FFIT98001AT and FFIT98002AT. This was pursuant to a Congressional directive to audit all
grants authorized under Section 514 of the Multifamily Assisted Housing Reform and
Affordability Act of 1997 (MAHRA). The primary purpose of the audit was to determine
whether grant funds were expended in accordance with the requirements of MAHRA and other
applicable regulations and requirements. Consistent with the Congressional directive, we
reviewed the eligibility of costs with particular emphasis on identifying ineligible lobbying
activities. Although sub-recipients used ITAG funds to send tenants and staff to the National
Association of HUD Tenants (NAHT) conferences, which consisted of two days of training and
a third day of lobbying activities, most sub-recipients excluded the last day’s costs or showed
they did not participate in lobbying on the third day. Only one met with Congressional staff
while including the last day’s costs in its reimbursement request. However, there is no evidence
this resulted in additional grant costs that would not have occurred if activity were limited to the
two days of training.

All other grant costs appear to have been incurred in compliance with the applicable regulations
and requirements.

                                         BACKGROUND

The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) established
the Office of Multifamily Housing Assistance Restructuring (OMHAR) within HUD. One of
OMHAR’s responsibilities under MAHRA is the administration of the Mark-to-Market Program,
including the award and oversight of the Section 514 Outreach and Training Assistance Grants
(OTAGs) and Intermediary Technical Assistance Grants (ITAGs). The objective of the Mark-to-
Market Program is 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.

Congress recognized that tenants of the affected projects, as well as residents of the
neighborhoods, the local governments, and other parties would be impacted 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 in the Mark-to-Market
process, for the period 1998 through 2001. The Secretary authorized $40 million and HUD staff
awarded grants of about $26.6 million to 38 nonprofit organization grantees (a total for 81 grants
awarded). The funds were awarded under Notices of Fund Availability (NOFAs) in fiscal years
1998 and 2000 as either OTAG or ITAG grants. The Notices of Fund Availability say the ITAG
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 Notices of Fund Availability say 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. ITAG grantees serve primarily as pass-through
agencies to sub-recipient agencies that carry out the eligible activities whereas OTAG grantees
are directly involved in carrying out the activities. ITAG sub-recipients and OTAG grantees are
primarily involved in organizing and educating tenants of affected properties. However,
Congress specifically prohibited using Section 514 grant funds for lobbing members of
Congress.

On July 9, 1998, the A-TCAA applied for ITAG funds under the Notice of funding Availability
dated April 30, 1998. The A-TCAA applied for all five state groupings HUD established for
ITAG. HUD awarded the A-TCAA two grants covering the Northwest and Midwest areas, each
for $1,800,000. The A-TCAA’s Executive Director signed the grant agreements on September
23, 1998 the Director of OMHAR signed on February 12, 1999.

The A-TCAA awarded a total of $1,072,639 in 34 sub-grants to 14 nonprofit entities under the
Northwest ITAG and $628,244 in 17 sub-grants to ten nonprofits under the Midwest ITAG. As


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of the end of May 2002, the A-TCAA had approved sub-grantee vouchers totaling $382,531 for
Northwest ITAG FFIT98001AT and $261,799 for Midwest ITAG FFIT98002AT. At the end of
July 2002, additional vouchers were approved bringing the totals to $404,953 for Northwest
grants and $277,645 for Midwest grants. The last four audits covering the fiscal years ending
June 30, 1998 through June 30, 2001 have expressed unqualified opinions and no findings.


                               METHODOLOGY AND SCOPE

In conducting the audit, we reviewed the grantee’s accounting records and interviewed
responsible staff. We also reviewed the requirements in MAHRA, the ITAG Notice of Fund
Availability, the ITAG grant agreements, HUD’s requirements for grant agreements for
nonprofit entities, and Office of Management and Budget’s guidance on the allowability of cost
for nonprofit grantees. In planning and performing the audit, we considered the relevant grantee
management controls to determine our audit procedures, not to provide assurance on the
controls. Although the A-TCAA’s management controls appear to be effective for limiting risk,
we placed no reliance on the controls to limit the scope of our review. This was because the
amount of grant activity allowed us to review 100 percent of the expenses charged to the ITAG
program as of June 30, 2002 in a relatively expeditious manner.

The audit covered the period from February 1999 through June 2002, and the fieldwork was
performed at the A-TCAA offices located in Sonora and Jackson, California, between July and
August 2002. We conducted the audit in accordance with Generally Accepted Government
Auditing Standards.


                                    RESULTS OF AUDIT

For the most part, the A-TCAA carried out the grant program and expended grant funds in full
accord with the requirements of Section 514 of the MAHRA and other applicable regulations and
requirements. Overall, it appeared the A-TCAA did a good job of monitoring the sub-grantees'
use of ITAG funds. Most payments were also fully supported or they were disallowed by the A-
TCAA. The A-TCAA required time records to support payroll costs, receipts or invoices for
other direct costs, and support for sub-grantees allocation methods. In addition, the A-TCAA
compared reimbursement requests to the approved activities and budgets to ensure consistency,
confirmed the eligibility of sub-grantees, and provided activity reports corresponding to all
activities charged to the grants.

Nevertheless, there were a few exceptions noted, including one sub-grantee not providing
appropriate time records and support for its allocation method, and one sub-recipient’s possible
use of grant funds for lobbying related activity. These issues were isolated problems and were
not reflective of the A-TCAA’s overall monitoring efforts. We have discussed the payroll issue
with the A-TCAA and believe the matter will be adequately resolved. We also believe the
lobbying related issue would be resolved through additional HUD guidance.




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Lack of Payroll Support

The Office of Management and Budget (OMB) Circular A-122, Cost Principles for Non-Profit
Organizations, Attachment A, prescribes cost allocation methods including direct and indirect.
The Circular also places specific salary record keeping requirements on the grantee. In order to
charge an employee’s compensation to a Federal grant, the grantee must maintain reports that
account for the total activity an employee is compensated for in fulfillment of their obligations to
the organization. The reports must reflect an after the fact determination of actual activity for
each employee. Grantees must maintain reports reflecting the distribution of activity of each
employee (professionals and nonprofessionals) whose compensation is charged, in whole or in
part, directly to awards. The Circular also requires the report to be signed by the employee or a
reasonable supervisor. 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.

The A-TCAA awarded the National Housing Law Project (NHLP) with two Public Entity Grants
(PEG) under the Northwest ITAG, grant numbers MTMNWPEG00022 and
MTMNWPEG00023, and another under the Midwest ITAG, grant number
MTMMWIPEG00020. NHLP provided inadequate support for direct salaries and allocated
expenses for salaries and other costs. Although NHLP provided biweekly time reports showing
the hours an attorney (who was the primary person working on grant activities) spent working on
each of the PEGs each day, the reports did not meet the requirements of OMB Circular A-122.
The attorney or a supervisor did not sign the reports and the reports did not include the time the
attorney spent on non-PEG activities for NHLP. Since the percentage of time the attorney spent
on the PEGs was the basis for allocated costs, support should have been provided for all of his
time.

This problem occurred because the A-TCAA was not fully knowledgeable of the program
requirements, believing Federal Agencies did not required this level of support. However, the A-
TCAA was receptive to the issue, and agreed additional procedures would be developed to
ensure sub-grantees submit appropriate documentation in support of salary and allocated costs.
There was no information to suggest costs charged to the grant were inappropriate, and review of
other sub-grantees’ records did not identify similar problems.

Possible Lobbying Activity

MAHRA specifically prohibits the use of Section 514 funds to lobby members of Congress or
their staff. HUD's Director of OMHAR issued a December 3, 1999 letter, which stated expenses
related to any days in which lobbying occurred at national conventions, are not eligible to be
charged to the grant.

There was one case where a sub-grantee was reimbursed for the entire cost of sending tenants to
an annual NAHT conference in Washington DC, giving the appearance of lobbying charges to
the grant. The NAHT conferences consisted of two days of training relating to the Mark-to-
Market program, and a final day devoted to participants lobbying members of Congress. As a
result, additional costs associated with the last day of the conference would be ineligible under
the ITAG.


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Most of the A-TCAA’s sub-grantees that attended the conference excluded additional expenses
associated with the last day from their reimbursement requests. However, we noted there was no
consistency in the number of days grantees included in NAHT costs. The stays ranged from two
nights and three days, to four nights and five days. The length of the stay was not necessarily
tied to the distance traveled.

In the case of the Cleveland Tenants Organization (Midwest ITAG grant MTMOHPEG01014),
the 24 participants sent to the NAHT conference flew back the day of the lobbying activity. In a
report submitted to the A-TCAA, the organization stated attendees met with Congressional
staffers for a total of 45 minutes. Although the costs associated with the lobby day were charged
to the grants, in contrast to OMHAR’s December 3, 1999 letter, the sub-recipient believed it had
ensured no additional costs had been charged to the grant in relation to lobbying activity. The
Cleveland Tenants Organization believed it was acceptable to incur costs for the additional
night’s stay since prior day conference activity concluded after a full day of training, thus
reasonably allowing for travel on the subsequent day. The prior year, the same sub-grantee had
allowed tenants to remain in the hotel the night of the lobby day and fly home the following day.
The extra day was excluded from the ITAG reimbursement request. This time, by reducing the
stay by one day, the grantee ensured they charged the same effective costs to the grant as the
prior year. The A-TCAA did not question the last day of the second year, because there was no
clear guidance on the matter.

Neither the A-TCAA nor the sub-grantees were aware OMHAR obtained a June 24, 1999
response to its request for a legal opinion regarding the use of OTAG funds for NAHT
conference attendance. In the response, an Associate General Counsel noted NAHT’s proposal
that grantees should only charge two days and two nights to the grants, and exclude one-third of
the registration cost. The Associate General Counsel believed NAHT’s proposal was a
reasonable way of ensuring Federal funds would not be used for lobbying. If OMHAR had set
this as a policy for grantees, there would have been no confusion. Instead, OMHAR's December
3, 1999 letter to grantees merely reminded them that they could not use grant funds for lobbying,
leaving grantees to come up with various interpretations.

We believe the A-TCAA adequately monitored sub-grantee activity for possible lobbying costs
associated with the NAHT conference, based on the guidance provided. In addition, the A-
TCAA did not charge the grants for any material additional lobbying costs, incurred by the sub-
grantees, which would violate program requirements. However, given the appearance that grant
funds are being used to fund possible lobbying activity, OMHAR should provide more specific
guidance to grantees concerning participation in NAHT activities, to prevent future problems of
this nature.



                    AUDITEE COMMENTS AND OIG EVALUATION

We had an exit conference with grantee officials on September 24, 2002 and the A-TCAA
provided a written response to the draft memorandum, which is included as Appendix A.




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The A-TCAA agreed with the facts presented in this report. In response to recommendation 1A,
the Executive Director said the A-TCAA would obtain a copy of the June 24, 1999 memo from
the office of General Counsel to OHMAR. The A-TCAA will use the legal advice contained in
the memo to develop new guidelines for use by both the A-TCAA and subrecipients for any
activities that include a potential for lobbying. The A-TCAA will also require that subrecipient
progress reports provide greater detail regarding time and activities where lobbying might have
occurred.

OIG is gratified with the A-TCAA’s proactive response to the audit memorandum. We
appreciate the courtesies and cooperation the A-TCAA extended to audit staff during this review.




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                                   RECOMMENDATIONS

No recommendation will be controlled under this report in relation to the payroll and allocation
support, since there is no indication inappropriate amounts were charged to the ITAG and the A-
TCAA appears to be taking steps to deal with the matter. We recommend that you:

    1A.        Take appropriate action under Section 1303 of the fiscal year 2002 Defense
               appropriations Act for the instance where ITAG funds were used for lobbying
               activity.

Within 60 days please provide us, for the above recommendation, 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 correspondence or
directives issued because of the audit.

Should you or your staff have any questions, please contact me at (415) 436-8101.




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                   Attachment A

AUDITEE COMMENTS




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                                                                          Attachment B

                       DISTRIBUTION OUTSIDE OF HUD

The Honorable Christopher S. Bond, Ranking Member, Subcommittee on Veterans Affairs,
    HUD and Independent Agencies, United States Senate, 274 Russell Senate Office
    Building, Washington, DC 20510
The Honorable Barbara A. Mikulski, Chairwoman, Subcommittee on Veterans Affairs, HUD
    and Independent Agencies, United States Senate, 274 Russell Senate Office Building,
    Washington, DC 20510
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 Government Reform,
    2204 Rayburn Building, House of Representatives, Washington, DC 20515
The Honorable Joseph Lieberman, Chairman, Committee on Government Affairs,
    (senator_lieberman@lieberman.senate.gov)
The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs,
    (senator_thompson@thompson.senate.gov)
Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human
    Resources, (Sharon.Pinkerton@mail.house.gov)
Andy Cochran, House Committee on Financial Services, (Andy.Cochran@mail.house.gov)
Clinton C. Jones, Senior Counsel, Committee on Financial Services,
    (Clinton.Jones@mail.house.gov)
Kay Gibbs, Committee on Financial Services, (Kay.Gibbs@mail.house.gov)
Stanley Czerwinski, Director, Housing and Telecommunications Issues, U.S. GAO,
    (CzerwinskiS@GAO.GOV)
Steve Redburn, Chief Housing Branch, Office of Management and Budget,
    (Fredburn@omb.eop.gov)
Linda Halliday, Department of Veterans Affairs, Office of Inspector General,
    (Linda.Halliday@mail.va.gov)
William Withrow, Department of Veterans Affairs, OIG Audit Operations Division,
    (William.Withrow@med.va.gov)
George Reeb, Assistant Inspector General for Health Care Financing Audits,
    (rneddo@os.dhhs.gov)
Jennifer Miller, Professional Staff, House Appropriations Committee,
    (Jennifer.miller2@mail.house.gov)
Shelly Hance, Executive Director, Amador-Tuolumne Community Action Agency,
    (shance@atcaa.org)




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