oversight

Congressionally Requested Audit of the Intermediary Technical Assistance Grant Awarded to the National Center for Tenants Ownership, Grant No. FFIT98005NT

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-12-03.

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

                                                  Issue Date: December 3, 2002
                                                  Audit Case Number: 2003-AO-1001




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

              [Signed]
FROM: Saundra G. Elion, Director, Headquarters Audits Division, GAH


SUBJECT: Congressionally Requested Audit of the Intermediary Technical Assistance Grant
          Awarded to the National Center for Tenants Ownership, Grant No. FFIT98005NT


                                      INTRODUCTION

We completed a review of the Intermediary Technical Assistance Grant (ITAG) awarded to the
National Center for Tenants Ownership (NCTO). The audit identified that NCTO’s subgrantees
charged $45,212 for employees’ salaries and fringe benefits in excess of actual cost, did not
submit adequate supporting documentation for expenditures, and did not adequately support the
cost allocation method for charging indirect costs. In addition, NCTO received $35,781 in
duplicate payments. However, we did not find any activity that related to lobbying. Our report
contains nine recommendations to address the issues identified in the report and other
recommendations to strengthen management controls over the grantees.

Section 1303 of the FY 2002 Defense Appropriations 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 included the
Intermediary Technical Assistance and Outreach and Training Assistance Grants 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.

Our objective was to determine whether NCTO expended Section 514 grant funds for only
eligible activities as prescribed in MAHRA, the Notice of Funding Availability (NOFA), the
grant agreement, and other HUD requirements to further the Mark-to-Market Program. Because
Section 514 specifically prohibits the use of grant funds for lobbying Congress, we also wanted
to determine whether NCTO expended funds for any 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 NOFA; the ITAG grant
agreement; HUD’s requirements for grant agreements for nonprofit entities; Office of
Management and Budget’s (OMB) guidance on the allowability of cost for nonprofit grantees;
IRS Publication 557, “Tax-Exempt Status for Your Organization;” NCTO’s application; and
subgrantees’ project activities, grant agreements, and quarterly and financial reports. We
reviewed each of the Predevelopment Grants (9) and Resident Capacity Grants (4) awarded.
However, we selected a nonrepresentative sample (14 of 33 or 42 percent) of the Public Entity
Grants. The grants included in our review totaled $952,877.

The audit covered the period October 1998 through May 2002. We performed our fieldwork at
Georgetown University Law Center and the Office of Sponsored Accounting from June through
August 2002. We conducted the audit in accordance with Generally Accepted Government
Auditing Standards. We discussed our results with Georgetown University and NCTO officials
at an exit conference on September 4, 2002.

We appreciate the courtesies and assistance extended by Georgetown and NCTO’s personnel
during our review.

We provided our draft report to NCTO for their comments on October 30, 2002. On
November 13, 2002, NCTO provided their written comments. NCTO stated that the auditors
may have underestimated hourly rates given that OMB Circular A-122 allows wages, fringe and
indirect costs recovery, but indicates that they have taken some corrective actions and are
currently reviewing supporting documentation for its subgrantees. Additionally, NCTO
specifically requested that OMHAR provide more extensive training on cost requirements. We
summarized NCTO’s written comments to our draft report after each finding and included the
complete text in Appendix B.

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 me at (202) 708-1342.

                                         SUMMARY

NCTO was awarded $1.8 million of ITAG funds and subsequently awarded 46 grants to 21
subgrantees. Our audit identified that: (1) six of NCTO’s subgrantees charged a total of $45,212
for employees’ salaries and fringe benefits in excess of actual costs; (2) NCTO received $35,781
in duplicate payments; and (3) NCTO and one subgrantee did not comply with OMB
requirements for maintaining adequate documentation. However, we did not find any activity or
costs related to lobbying.




                                               2
                                       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 NOFA 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 NOFA 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 their jurisdictions. The OTAG NOFAs 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.

HUD regulations at 24 Code of Federal Regulations Part 84 contain the uniform administrative
requirements for grants between HUD and nonprofit organizations. The regulations (24 CFR

                                                3
84.27) require that nonprofit grantees utilize 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 cost charged
to the grant, the Circular establishes restrictions for indirect costs, and specific methods and
recordkeeping 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 lobbying 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 enactment or modification of any
actual or pending legislation by propaganda, demonstrations, fundraising drives, letter writing, or
urging members of the general public either for or against the legislation (Grassroots Lobbying).

On October 2, 1998, OMHAR awarded $1.8 million of ITAG funds to NCTO as the
intermediary for the Northeast State Grouping. The intermediaries’ requirements were defined
in the NOFA. Basically, the intermediaries are responsible for awarding and administering
grants to sub-recipients. In order to effectively perform these responsibilities, the intermediaries
must:

   ·   Review, approve, or reject grant applications and execute grant agreements;
   ·   Voucher and disburse grant funds;
   ·   Monitor grant activities for compliance with the grant agreement throughout the term of
       the grant;
   ·   Report to Mark-to-Market staff at least quarterly on the status of grant awards, grantee
       activities, and funds expended; and
   ·   Maintain documentation for HUD monitoring and audits in accordance with 24 CFR part
       84.

NCTO, a clinical program of the Harrison Institute for Public Law at Georgetown University,
awarded 46 subgrants totaling $1,299,664 to 21 grantees during the period October 19, 1999,
through September 24, 2001. Of the 46 subgrants that were awarded, 33 were for Public Entity
Grants, 9 for Predevelopment Grants, and 4 for Resident Capacity Grants.

NCTO/Georgetown University received an annual financial audit of their activities for the 4
years ending June 30, 1998, through 2001. The auditor rendered an unqualified opinion for each
of the 4 years.

In addition to the ITAG, NCTO received resources estimated at $4,111,760 from other Federal
and non-Federal sources. Some of the non-Federal sources included $200,000 from the
Rockefeller Brothers Fund and $46,000 from the DC Housing Authority.




                                                 4
                              FINDING 1
         NCTO’S SUBGRANTEES RECEIVED EXCESSIVE COMPENSATION

NCTO’s subgrantees charged $45,212 for employee services in excess of actual costs. This
condition occurred because NCTO did not receive the subgrantees’ actual wages or question the
reasonableness of the proposed wages. As a result, ITAG funds were improperly used.

In accordance with OMB Circular A-122, Attachment B, Paragraph 7, Compensation for
Personal Services, reasonable compensation and fringe benefits to employees are grant fundable
costs. Compensation for employees on federally sponsored work will be considered reasonable
to the extent that it is consistent with that paid for similar work in the organization's other
activities. OMB Circular A-122 also places specific salary recordkeeping requirements on the
grantee.

Six of NCTO’s subgrantees overcharged the grants by charging an inflated hourly rate for their
employees. The subgrantees were Delaware Housing Coalition (DHC), Housing Development
Corporation, Action Housing, Foundation for Political Management, Pennsylvania Low Income
Housing Corporation, and Fenway Community Development Corporation. The inflated rates
were proposed in the subgrantees’ application budgets, approved by NCTO, and later
incorporated into the grant agreements. The excessive compensation is presented in Table 1.




                                              5
                            Table 1: Excessive Compensation Paid to Subgrantees
                                                                           Rate
                                                                          Billed
                                                 Annual          Hourly     to     Excess   Hours    Excess Cost
      Subgrantee                   Employee   Compensation        Rate    ITAG      Rate    Billed

      Housing Development
      Corporation                     1        $115,000.00       $55.29   $70.00   $14.71    242     $ 3,559.82
                                      2          62,088.00        29.85    35.00     5.15    198       1,019.70
                                      3          43,505.00        20.92    25.00     4.08    120         489.60
      Action Housing *                4         101,336.00        55.68    88.00    32.32    146       4,718.72
                                      5          67,317.00        36.99    54.00    17.01    189       3,214.89
                                      6          65,116.00        35.78    38.00     2.22    28           62.16
                                      7          35,746.00        19.64    30.50    10.86    86         933.96
                                      4         101,386.00       55.68    88.00    32.32     89        2,876.48
                                      5          67,317.00       36.99    54.00    17.01     130      2,211.30
                                      7          35,746.00       19.64    30.50    10.86     21         228.06
      Foundation for Political
      Management                      8          50,000.00        24.04   40.00    15.96     245      3,910.20
      Pennsylvania Low Income
      Housing Corporation              9         38,000.00        18.27   50.00    31.73     138      4,378.74
      Fenway Community                10         73,500.00        37.69   75.00    37.31    70.75     2639.68
      Development Corporation         11         57,000.00        29.23   65.00    35.77    156.50    5,598.01
                                      12         35,000.00        17.95   30.00    12.05      99      1192.95
      Delaware Housing Coalition      13         38,324.98        21.06   60.00    38.94     210      8,177.40

      Total                                                                                          $45,211.67

      *2 grants – Quemahoning Towers Predevelopment Grant; Greenway Park Predevelopment Grant

      Note: Annual compensation information was obtained from the subgrantees and included fringe benefits for
      Action Housing and DHC.
      The rates billed to ITAG were based on multiple vouchers submitted from January 1999 through May 2002.




The subgrantees billed the grant based on the number of hours shown on the employees’
timesheets. We compared the hourly wages charged to the grant with the employees’ actual
hourly wages. Since the employees received a flat monthly salary, we calculated the hourly rate
based on their normal workweek (40 hours for 5 employees; 37.5 hours for Fenway; and 35
hours for DHC and Action Housing employees).1 Based on those calculations, we determined
that the subgrantees charged the grants hourly rates in excess of the amount actually earned. For
example, we determined that two employees from Fenway received an hourly rate of $29.23 and
$37.69, respectively. However, Fenway charged the grant $65 and $75 per hour, respectively,
for these two employees.

In addition to the six subgrantees, we could not determine the reasonableness of the salary
expenses charged by the National Housing Trust (NHT), another subgrantee. NHT received
three subgrants from NCTO. However, NHT’s billing rates were calculated using a combination
of actual and budgeted costs. The actual costs included annual salary, benefits and payroll taxes,
and annual office rental. NHT’s overhead costs and administrative support fee of 20 percent
were budgeted costs. OMB Circular A-122 states that budget estimates do not qualify as support
for charges to the grant. In addition, NHT charged different hourly rates for services performed
by the same employees on the different subgrants.


1
 The number of hours Fenway and Action Housing employees worked was provided by NCTO subsequent to our
draft report. These changes resulted in a reduction of excessive costs from $49,145 to $45,212.

                                                             6
NHT’s benefits and overhead cost pools also included unallowable and questionable cost.
Specifically, monthly car allowances and interest on loans are unallowable costs and consultant
and travel costs are questionable because they are included in the computation for direct billing
rates. Consultant and travel costs can only be charged once. NHT’s billing rates are further
complicated because NHT did not have an approved indirect cost rate in accordance with OMB
Circular A-122. Therefore, we could not determine the reasonableness of the billing rates NHT
charged to the grants. These issues are discussed in greater detail in a separate audit
memorandum on NHT’s Outreach and Technical Assistance Grants.

NCTO allowed its subgrantees to charge the grant excessive rates because it did not verify the
subgrantees’ actual wages or question the reasonableness of the proposed wages.2 In addition,
the ITAG Coordinator did not enforce the personnel and compensation requirements of OMB
Circular A-122. As a result, ITAG funds that could have been used to further the Mark-to-
Market Program were spent unnecessarily. These funds could have been better used to provide
training to residents and tenant organizations on meaningful ways to participate in the Mark-to-
Market process.

                                         AUDITEE COMMENTS

NCTO stated that the auditors may have underestimated hourly rates given that A-122 allows
wages, fringe, and indirect cost recovery; therefore, NCTO will review the rate charges and
make the results available to OMHAR. NCTO also indicated that the ITAG administrator
regularly compared the proposed rates to other subgrantees’ rates approved by OMHAR and had
rejected at least one subgrantee because the rates were unreasonable.

NCTO did not believe the methodology the auditors used to determine the $49,145 in
overcharges was sufficient to warrant repayment at this time and requested that the auditors
review “our data before determining the amount, if any, to be repaid.”

Subsequent to the review, NCTO worked closely with the Sponsored Accounting Office to
strengthen its oversight; therefore, the report no longer reflects the current situation at NCTO.

                         OIG EVALUATION OF AUDITEE COMMENTS

We acknowledge that the subgrantees may have been entitled to recover other costs, but they did
not provide this information to us during our audit. And, the data NCTO provided after our draft
report was not sufficient to substantially change the excessive amounts reported. Although
NCTO attributed most of the excessive charges to overhead costs that the subgrantees were
entitled to, none of the subgrantees had submitted an indirect cost proposal or obtained an
approved indirect cost rate. Therefore the indirect costs were questionable.

In addition, an acceptable methodology for determining the reasonableness of employees’
compensation is not to compare subgrantees’ rates but to evaluate whether the compensation
charged to the ITAG is the same or comparable to the subgrantee’s other activities.

2
  Subsequent to our draft report, NCTO advised us that the excessive charges were for overhead costs. However,
since none of the subgrantees had requested or obtained an approved indirect cost rate, we question these costs.

                                                         7
                                 RECOMMENDATIONS

We recommend that the Director of OMHAR:

1A. Require NCTO to repay the $45,212 in excessive compensation paid to subgrantees.

1B. Require NCTO to review NHT’s billing rates to determine the reasonableness of those rates
    and recover any excessive, unallowable, and unsupported costs charged to the grant.

1C. Consider suspending grant funding until NCTO implements appropriate controls to ensure
    that all of its grantees administer their grants in accordance with OMB Circular A-122.




                                             8
                                          FINDING 2
                              NCTO RECEIVED DUPLICATE PAYMENTS

NCTO received duplicate payments by submitting three different payment vouchers. This
occurred because NCTO did not have controls in place to prevent employees from requesting
draw downs for the same expenses. As a result, NCTO erroneously received $35,781 of HUD
funds.

24 CFR part 84.21(3), “Standards for Financial Management Systems,” states that recipients’
financial management systems shall provide for effective controls over and accountability for all
funds, property, and other assets. The recipients shall adequately safeguard all such assets and
assure that they are used solely for authorized purposes.

NCTO received the duplicate payments by submitting different payment vouchers covering the
same or overlapping periods. Specifically, these vouchers were for tenant outreach and training
activities previously reimbursed to the Delaware Housing Coalition, New York State Tenant &
Neighbors, and Pennsylvania Low Income Housing Corporation. Also included in the duplicate
payments was $1,704 (5 percent of the costs) for NCTO’s administrative fee. These payments
are described in Table 2.

                  Table 2: Schedule of Duplicate Payments for Tenant Outreach and
                           Training Activities and Administrative Fees
                                 Month/Year                 Draw Down Dates & Voucher Numbers
                                 Charges                                                                   Total Amount
         Subgrantee              Incurred                                                                   Reimbursed
                                                                   1st                       2nd
      Delaware Housing                 01/00          3/17/00            84000293     7/26/01 84000701     $ 1,711.50*
      Coalition
      Delaware Housing                 11/00          7/26/01            84000701      8/9/01   84000731     1,538.25
      Coalition
      Delaware Housing                 05/01          7/26/01            84000701      8/9/01   84000731     1,475.25
      Coalition
      Delaware Housing                 04/01          7/26/01            84000701      8/9/01   84000731     1,475.25
      Coalition
      Delaware Housing                 03/01          7/26/01            84000701      8/9/01   84000731     2,546.25
      Coalition
      Delaware Housing                 02/01          7/26/01            84000701      8/9/01   84000731     1,664.25
      Coalition
      Delaware Housing                 01/01          7/26/01            84000701      8/9/01   84000731     1,664.25
      Coalition
      Delaware Housing                 12/00          7/26/01            84000701      8/9/01   84000731     2,483.25
      Coalition
      Delaware Housing                 10/00          7/26/01            84000701     8/31/01   84000760     1,559.25
      Coalition
      New York State Tenants       12/00 – 02/01      7/26/01            84000701     8/31/01   84000760    10,080.00
      & Neighbors
      Pennsylvania Low             08/00 – 11/00      7/26/01            84000701     8/31/01   84000760     9,583.76
      Income Housing
      Corporation
       Total                                                                                               $35,781.26

      * Amount includes $777.50 paid under a different voucher that totaled $2,352.




NCTO’s Account Analyst submitted three draw down request schedules that contained itemized
amounts and then a subsequent request that contained a lump sum for the same expenditures.
The Account Analyst advised us that he only reviewed the vouchers for mathematical accuracy

                                                                  9
and not to determine whether the vouchers were used for payment under different draw downs.
Additionally, the Senior Account Analyst confirmed that Sponsored Accounting did not review
the vouchers that were submitted under each of the draw downs.

OMHAR also contributed to this weakness because OMHAR did not obtain the required
documentation prior to approving NCTO’s requests for payment. Specifically, OMHAR allowed
NCTO to draw down $2,352 without submitting a voucher. In subsequent discussions, OMHAR
officials essentially agreed that a grantee could bill HUD twice for the same activity.

NCTO and OMHAR should have controls to detect and prevent grantees from requesting and
making multiple draw downs for the same expenditures. However, to NCTO’s credit, it
recognized that $2,352 was a duplicate payment and adjusted its next payment voucher by this
amount. In addition, after discussing the results of the duplicate payments with Georgetown’s
Director of Sponsored Accounting, NCTO agreed to repay HUD $37,861.3

                                            AUDITEE COMMENTS

NCTO concurs with the recommendations to strengthen controls and will now process draw
down request by reconciling the draw down amounts to the total expenses on the Center Status
Report as required by the University. Based on the finding, NCTO remitted $37,861 to HUD for
the duplicate payments and accrued interest.

                            OIG EVALUATION OF AUDITEE COMMENTS

The actions NCTO has taken and plans to take should correct the identified deficiency.

                                            RECOMMENDATIONS

We recommend that the Director of OMHAR:

2A.        Require NCTO to remit $35,781 to HUD for the duplicate payments.

2B.        Require NCTO to establish oversight controls to prevent and detect duplicate voucher
           requests for reimbursement.




3
    This amount includes the $35,781 in duplicate payments erroneously received plus interest.

                                                          10
                            FINDING 3
   NCTO AND SUBGRANTEE DID NOT COMPLY WITH OMB REQUIREMENTS

One subgrantee did not maintain adequate supporting documentation for employees’ direct time
charges and charged indirect costs based on budget estimates. These conditions occurred
because NCTO did not provide adequate monitoring and oversight over the grant administration
process. As a result, the subgrantee received $7,953 in unsupported costs.

Lack of Adequate Supporting Documentation

OMB Circular A-122 places specific salary recordkeeping requirements on the grantee. The
grantee must maintain personnel activity reports that account for the total activity for which an
employee is compensated in the fulfillment of his/her obligation to the organization. The reports
must reflect an after-the-fact determination of actual activity for each employee. Budget
estimates do not qualify as support for charges to the grant. Grantees must also 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. OMB Circular A-122
also requires that the employee or a responsible official sign the report.

As the intermediary, NCTO executed a grant agreement with DHC. The grant agreement states
the grantee will draw down funds by submitting a HUD approved voucher to the intermediary
and attaching a detailed expense explanation or billing documentation. The grantee shall submit
quarterly progress reports on December 31, March 31, June 30, and September 30; and
semiannual financial reports are due on June 30 and December 31. No grant payments will be
approved for projects with overdue progress or financial reports until the report has been
submitted and approved.

DHC submitted 7 vouchers and 12 invoices for reimbursement totaling $20,000, their total grant
award. DHC did not submit adequate documentation (i.e., billing invoices, receipts, canceled
checks, and mileage logs) for the $20,000 claimed for reimbursement. Generally, the only
support DHC provided to NCTO was a monthly timesheet for the Grassroots Policy Specialist
that showed the number of hours worked or an invoice summarizing the amounts claimed. The
invoices did not indicate the hourly rate charged or the number of hours the Grassroots Policy
Specialist spent performing activities under the ITAG program.

DHC charged the grant a total of $12,600 for salary expense. As discussed in Finding 1, we
determined that $8,177 of the salary billed to ITAG was in excess of the actual costs. Based on
the number of hours claimed, it appears that the grantee should have only charged $4,423
($21.06 x 210 hours) for salary expenses. However, the documentation provided by the Director
was insufficient to verify the number of hours the employee worked. The DHC Director
provided handwritten notes prepared by the Grassroots Policy Specialist. The Specialist’s notes
included a description of the activities performed but did not include the time spent performing
those activities. The Director also provided activity reports for July through September 2000 but
none for October 1999 through June 2000. Therefore, we question the remaining $4,423 as
unsupported salary expenses charged to the grant.



                                               11
DHC also incorrectly charged travel expenses to the grant. The travel claims, totaling $2,130,
were for a VISTA volunteer’s travel from home to the DHC office 5 days a week (approximately
40 miles one way) and travel from the DHC office to various rural developments. DHC used
$.30 a mile or a flat rate of $200 per pay period to reimburse the VISTA volunteer for the local
travel. Mileage to the various rural developments is allowable but since the VISTA volunteer
did not maintain a mileage log we question these costs.

DHC was not aware of the requirement and thus did not submit the required financial reports.
NCTO approved DHC’s funding requests despite DHC’s failure to submit required reports. The
current ITAG Coordinator now requires subgrantees to submit required documentation and financial
reports before disbursing payments to grantees.

Subgrantee Did Not Comply with Indirect Cost Proposal Requirements

DHC also allocated costs to the grant without having a federally approved indirect cost rate.
OMB Circular A-122 provides guidance on the basic considerations for grant fundable costs and
allocation of indirect costs. The grantee should prepare an indirect cost proposal that
substantiates its claims for reimbursement of indirect costs. The proposal provides the basis for
the review and negotiation leading to the establishment of an organization’s indirect cost rate. If
the grantee does not have an approved indirect cost rate, the grantee shall submit an initial
indirect cost proposal within 3 months of receiving the award.

DHC did not submit an indirect cost proposal in accordance with OMB Circular A-122. Instead,
DHC used the amount budgeted in the grant application to charge allocate costs to the ITAG.
We did not perform an audit of the indirect costs; therefore, we could not determine the
reasonableness of the rates charged. However, our cursory review of some of DHC’s proposed
costs raised questions as to the reasonableness of these costs. For example, the grantee charged
$1,400 for telephone, rental, and printing and copying expenses. The grantee based this amount
on its grant application budget.

                                   AUDITEE COMMENTS

NCTO concurs with our conclusion and recommendations and stated that, “Since its change in
administrator, NCTO has increased the documentation of its oversight of subgrantee activity.”
To that end, NCTO is sending a questionnaire to all subgrantees to determine the extent to which
oversight is required. NCTO will also more clearly define the supporting documents required to
meet the compliance terms.

Regarding Recommendation 3B, NCTO is currently reviewing DHC’s supporting documentation
and will respond to OMHAR and the auditors when the review is complete. NCTO specifically
requests that OMHAR provide more extensive training on cost requirements.

                     OIG EVALUATION OF AUDITEE COMMENTS

NCTO’s comments were responsive but we could not determine whether the proposed actions
will correct the deficiencies.



                                                12
                                 RECOMMENDATIONS

We recommend that the Director of OMHAR:

3A. Require NCTO to maintain supporting documentation for all ITAG expenditures and ensure
    that all expenditures are reviewed and approved prior to submission for payment.

3B. Require NCTO to determine the reasonableness of the $7,953 (salary, travel, and indirect)
    in unsupported costs DHC charged to the grant.

3C. Require NCTO to ensure that subgrantees maintain timekeeping records and salary expense
    documentation in accordance with OMB Circular A-122.

3D. Require NCTO to ensure that subgrantees prepare and submit indirect cost proposals that
    comply with OMB Circular A-122.




                                             13
                             MANAGEMENT CONTROLS

In planning and performing our audit, we considered the management controls relevant to
NCTO’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 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:

      §    Duplicate payments, excessive salaries and benefits, and ineligible cost charged to the
           grant.

      §    Ineffective policies and procedures for reviewing and approving subgrantee payment
           vouchers; and ensuring that salaries and time records met the standards of OMB
           Circular A-122, and supporting documentation is provided for all expenditures
           charged to the ITAG program.

      §    Inadequate procedures for reviewing and approving indirect cost to ITAG in
           accordance with OMB Circular A-122.

Significant weaknesses identified by our audit are discussed in the findings.


                              FOLLOW-UP ON PRIOR AUDITS

The Office of Inspector General has not performed any previous audits of the National Center for
Tenant Owners.




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                                                                           Appendix A

                 SCHEDULE OF QUESTIONED COSTS


      Recommendation                         Type of Questioned Costs
          Number                    Ineligible 1/            Unsupported 2/
            1A                        $45,212
            2A                         35,781
            3B                                                    $7,953
                  Total               $80,993                     $7,953

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.




                                      15
                   Appendix B
AUDITEE COMMENTS




       16
17
                                                                          Appendix C

                     EXTERNAL REPORT DISTRIBUTION

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
Linda Halliday (52P), Department of Veterans Affairs, Office of Inspector General, 810
    Vermont Ave., NW, Washington, DC 20420
William Withrow (52KC), Department of Veterans Affairs, OIG Audit Operations Division,
    1100 Main, Rm 1330, Kansas City, Missouri 64105-2112
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
The Honorable Barbara A. Mikulski, Chairman, Subcommittee on Veterans Affairs, Housing
    and Urban Development and Independent Agencies, Suite 709 Hart Senate Office Bldg.,
    Washington, DC 20910
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
Jennifer Miller, Professional Staff, House Committee on Appropriations




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