oversight

                                                       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-1808


September 30, 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 Outreach and Training
                             Assistance Grants awarded to the Los Angeles Center for
                             Affordable Tenant Housing, Los Angeles, California, Grant
                             Numbers FFOT98003CA and FFOT00007CA


                                      INTRODUCTION

As directed by Congress, we have completed an audit of the Los Angeles Center for Affordable
Tenant Housing (LACATH) Outreach and Training Assistance Grant (OTAG) Numbers
FFOT98003CA and FFOT00007CA. The primary purpose of the audit was to determine
whether grant funds were expended in accordance with the requirements of Section 514 of the
Multifamily Assisted Housing Reform and Affordability Act of 1997 (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 LACATH staff participated in conference calls and attended conferences,
both of which included topics that could be construed as lobbying, there was no objective way to
identify or separate costs associated with the possible lobbying activities from other eligible
OTAG business conducted during the conference calls or at the conferences. Most of the other
grant costs appear to have been incurred in compliance with the applicable regulations and
requirements. However, LACATH did fail to properly allocate employee salary costs in
accordance with Office of Management and Budget (OMB) 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 June 29, 1998, the LACATH applied for an OTAG in the amount of $400,000. On
September 29,1998, LACATH accepted HUD’s award of an OTAG for $180,000 pursuant to the
fiscal year 1998 HUD Appropriations Act, under Section 514 of the MAHRA. On May 24,
2000, LACATH applied for an additional OTAG in the amount of $450,000. On January 9,
2001, LACATH accepted HUD’s award of an OTAG for $450,000 pursuant to Section 534 of
the fiscal years 2000 Appropriations Act. At the time of our review, LACATH had received
twenty-nine draws from LOCCS on the 1998 OTAG totaling $180,000 and one draw on the 2000
OTAG in the amount of $7,148. Grant administration for both OTAGs has been provided under
written agreement with the Coalition for Economic Survival (CES). CES is a collocated
nonprofit organization but has a completely separate board of directors. LACATH obtained
audited financial statements for the fiscal years ending December 31, 1998 and 1999 that
expressed unqualified opinions and no findings. For fiscal years ending December 31, 2000, and
2001, LACATH obtained an opinion from their Independent Auditor that annual audits in
accordance with OMB Circular A-133 were not required because they did not receive $300,000


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in funding for either year. The OTAG has not been previously monitored onsite by anyone from
HUD.


                              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 OTAG Notices of Fund
Availability, the OTAG grant agreements, HUD’s requirements for grant agreements for
nonprofit entities, and OMB Circular A-122’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
LACATH’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 we were able to review 100
percent of the expenses charged to the OTAGs in a relatively expeditious manner.

The audit covered the period from June 1999 through May 2002 and the fieldwork was
performed at the LACATH offices in Los Angeles, California. We conducted the audit in
accordance with Generally Accepted Government Auditing Standards.


                                    RESULTS OF AUDIT

For the most part, the LACATH 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. However, LACATH incurred telephone and travel costs relating to activities that
could possibly be construed as lobbying. They also did not properly allocate employee salary
costs in accordance with Office of Management and Budget (OMB) requirements.

Possible Lobbying Activity

LACATH staff participated in numerous telephone conference calls sponsored by the National
Alliance of HUD Tenants (NAHT) that may have included discussions of lobbying activity.
They also attended two NAHT sponsored national “Save Our Homes” conference in
Washington, DC and a “Housing California” conference in Sacramento, California both of which
included sessions that could be construed as relating to lobbying. However, there was no
objective way to identify or separate costs associated with the possible lobbying activities from
other eligible OTAG business conducted during the conference calls or at the conferences.
Furthermore, although the costs associated with any potential lobbying activity during the
conference calls or conferences cannot be specifically identified, they would not have been
material in relation to the total $187,149 drawn on the two OTAGs. We believe LACATH and
other grantees should be provided with clarification as to the Department’s position on the
eligibility of costs associated with NAHT conference calls, NAHT annual conferences and other
conferences that include activities that could be construed as lobbying.




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Improper Salary Charges

LACATH did not properly allocate Tenant Organizer staff salaries to the OTAG in accordance
with the requirements of OMB Circular A-122. The Tenant Organizers maintained biweekly
activity reports or time sheets reflecting the amount of time they spent on various OTAG
activities and also some (minimal) time spent on activities relating to a State grant or CES work.
The activity reports conform to the standard prescribed in Attachment B, Paragraph 7 of OMB
Circular A-122. However, the entire salary costs for these positions were charged to the OTAGs
rather than the allocable portion supported by the activity reports. The CES Executive Director
responsible for grant administration assumed the OTAGs could be charged for the total salary
costs of the Tenant Organizers since they spent at least eighty hours working on the OTAGs each
biweekly pay period as supported by their time sheets.

HUD should determine the amount of overcharges resulting from the failure to properly allocate
the Tenant Organizers salaries and consider requiring LACATH to reimburse the overcharges or
offset them on future LOCCS draws. In making this determination, HUD should consider the
fact that LACATH incurred significantly reduced grant administrative costs than may have been
allowable under the applicable agreement between LACATH and CES. The written agreement
specified monthly payments of $2,400, but LACATH and CES informally agreed to a payment
structure resulting in monthly payments averaging only $700 to $800.


                    AUDITEE COMMENTS AND OIG EVALUATION

The results of our review were discussed with LACATH and CES staff onsite during our review,
and the draft report was discussed by telephone with the CES Supervisor on September 17, 2002.
LACATH’s written response to the draft report (Attachment A) expresses full agreement with
the draft report.


                                   RECOMMENDATIONS

No recommendations will be controlled under this report relative to possible lobbying activity
since the need for clarification as to the Department’s position on NAHT conference calls,
NAHT national conferences and other conferences impacts most if not all OTAG and ITAG
grantees, not just the LACATH. We do recommend that you:

   1A.     Determine the amount of overcharges resulting from the failure to properly allocate
           the Tenant Organizers salaries and consider: (1) requiring LACATH to reimburse the
           overcharges; (2) offsetting the overcharges on future LOCCS draws; or (3) waiving
           reimbursement of the overcharges in consideration of CES administrative cost
           savings.

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




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    Attachment A (Cont)




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                                                                            Attachment B


                       DISTRIBUTION OUTSIDE OF HUD


Board of Directors, Los Angeles Center for Affordable Tenant Housing, 1296 North Fairfax
    Avenue, Los Angeles, CA 90046
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, Suite 709 Hart 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 Committee on Appropriations
      (jennifer.miller2@mail.house.gov)




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