oversight

Jewish Community Federation of Cleveland Special Purpose Grant OH12-SPG-505 Cleveland, Ohio

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-11-15.

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

                                                                 Issue Date
                                                                         November 15, 2002
                                                                 Audit Case Number
                                                                         2003-CH-1005




TO:            Preston A. Pace, Jr., Director of Columbus Multifamily Housing Hub, Columbus
                 Field Office


FROM:          Heath Wolfe, Regional Inspector General for Audit, Region V

SUBJECT:       Jewish Community Federation of Cleveland
               Special Purpose Grant OH12-SPG-505
               Cleveland, Ohio

                                       INTRODUCTION

We completed an audit of Jewish Community Federation of Cleveland’s Special Purpose Grant.
We initiated the audit based upon a request from HUD’s Director of the Cleveland Multifamily
Housing Program Center. The objectives of our audit were to determine whether the Federation:
used its Grant funds in an efficient and effective manner; and complied with the terms of its
Grant Agreement.

To accomplish our audit objectives, we reviewed Jewish Community Federation of Cleveland’s
policies and procedures for the period February 1, 1995 through December 31, 2001. We also
reviewed and evaluated the Federation’s: management controls over the Special Purpose Grant;
Special Purpose Grant Agreement; annual financial audit reports for the period July 1, 1995 through
June 30, 2001; employee timesheets and position descriptions; general ledgers; cash receipts and
disbursements ledgers; organizational structure; Articles of Incorporation; reliability of computer-
processed data; and vendor files. In addition, we reviewed 24 CFR Part 84 and Office of
Management and Budget Circular A-122. We tested $188,635 of the $1,241,138 (15.2 percent) in
expenses that the Federation charged to the Grant as of February 1, 2002.

We reviewed Jewish Community Federation of Cleveland’s records and HUD’s records for the
Federation. We interviewed the Federation’s staff, its computer consultant, and staff from HUD’s
Cleveland Multifamily Housing Program Center. Our audit covered the period February 1995 to
December 2001 for the Special Purpose Grant that the Federation received. We performed our on-




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site audit work between January and May 2002. We conducted the audit in accordance with
Generally Accepted Government Auditing Standards.

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 have them contact Ronald Huritz, Assistant
Regional Inspector General for Audit, at (312) 353-6236 extension 2675 or me at (312) 353-
7832.

                                         SUMMARY

Jewish Community Federation of Cleveland did not administer its Special Purpose Grant in
full compliance with Federal requirements and its Fiscal Standards Policy. Specifically, the
Federation:

   ·    Did not obtain computer consulting services for the Grant through open and free
        competition;
   ·    Failed to execute a written contract for its computer consulting services received for
        the periods December 1998 through January 2000 and August 2000 through
        September 2001; and
   ·    Lacked adequate documentation to support an additional $44,720 in computer
        consulting services paid to its consultant as a reasonable expense of the Grant.

As a result, HUD lacks assurance that Grant funds were used efficiently and effectively, and the
Federation’s procurement of computer consulting services was not subject to open and free
competition.

                                      BACKGROUND

HUD awarded Jewish Community Federation of Cleveland a $2,000,000 Special Purpose
Grant (OH12-SPG-505) effective January 27, 1995. The purpose of the Grant was to
establish a comprehensive system of support services to the frail elderly. The system is
designed to increase services, access, delivery, and coordination through the Federation’s
partner agencies. Key components include social, health, and case management including
access to: establishment of a transportation system; empowerment of the frail elderly and
their caregivers by developing training programs to teach self-care and direct care to
maintain or increase self-sufficiency; and a recruitment/training program to build a cadre of
home health workers to allow the frail elderly to avoid entering nursing homes.

Jewish Community Federation of Cleveland incorporated as a nonprofit entity in 1903 as a
charitable, educational, and religious organization to meet the needs of the Jewish



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community. The Federation’s purposes are to: cooperate with and assist other charitable,
educational, and religious organizations in meeting the needs of the Jewish community;
foster and maintain sound relations and understanding within the Jewish community and
between the Jewish community and the community-at-large; conduct and support charitable,
educational, and religious projects and programs; and raise funds to carry out the projects and
programs. The President of the Federation is Stephen H. Hoffman. The Federation’s offices
are located at 1750 Euclid Avenue, Cleveland, Ohio.

                                      FINDING
                The Federation Needs To Improve Its Contracting Process

Jewish Community Federation of Cleveland did not maintain an effective system of controls
over its contracting process. The Federation failed to follow its Special Purpose Grant
Agreement, HUD’s regulations, Office of Management and Budget Circular A-122, and its
Fiscal Standards Policy for open and free competition regarding the procurement of computer
consulting services. In addition, the Federation did not: ensure that a written contract for the
consulting services was in effect for the full term that the services were provided; and
maintain adequate documentation to support $44,720 in additional computer consulting
services paid to its consultant as a reasonable expense of the Grant. The problems occurred
because the Federation’s top management failed to exercise their responsibilities to
implement effective contracting controls. As a result, HUD lacks assurance that $44,720 in
Grant funds was used efficiently and effectively, and the Federation’s procurement of computer
consulting services was not subject to open and free competition.

                      Federal Requirements And Federation’s Policy

Article I, paragraph E, of the Special Purpose Grant Agreement OH12-SPG-505, between
HUD and Jewish Community Federation of Cleveland, required the Federation to follow the
requirements of 24 CFR Part 84 and Office of Management and Budget Circular A-122, Cost
Principles for Non-Profit Organizations.

24 CFR Part 84.43 requires that all procurement transactions be conducted in a manner to
provide, to the maximum extent practical, open and free competition. In order to ensure
objective contractor performance and eliminate unfair competitive advantage, contractors
that develop or draft specifications, requirements, statements of work, invitations for bids
and/or requests for proposals will be excluded from competing for such procurements.
Awards will be made to the bidder or offeror whose bid or offer is responsive to the
solicitation and is most advantageous to the recipient with price, quality, and other factors
considered. Solicitations will clearly set forth all requirements that the bidder or offeror must
fulfill in order for the bid or offer to be evaluated by the recipient.

24 CFR Part 84.44(a)(3)(i), 84.44(a)(3)(ii), and 84.44(a)(3)(iv) require that solicitations for
good and services will include: a clear and accurate description of the technical requirements
for the material, product, or service to be procured; in competitive procurements, the
description will not contain features that unduly restrict competition; and requirements that




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the bidder/offeror must fulfill and all other factors to be used in evaluating the bids or
proposals.

24 CFR Part 84.84(f) requires that some form of cost or price analysis must be made and
documented in the procurement files in connection with every procurement action. This
analysis should contain a comparison of price quotes, market prices, or similar indicators. A
cost analysis is the review and analysis of each element of cost to determine reasonableness,
allocability, and allowability. Part 84.84(h) requires that a system for contract administration
will be maintained to ensure contractor performance with the terms, conditions, and
specifications of the contract to ensure adequate and timely follow-up of all purchases.

Attachment A, Section 2, of Office of Management and Budget Circular A-122 requires that
costs must be adequately documented to be allowable. Section 3 of Attachment A requires
that for cost to be reasonable in its nature or amount, the cost must not exceed what would be
incurred by a prudent person under the circumstances at the time the decision was made to
incur the cost. The question of reasonable cost is scrutinized with particular care in
connection with organizations or separate divisions that receive the balance of their support
from awards made by Federal agencies. In determining reasonable cost, consideration should
be given to whether individuals concerned acted with prudence in the circumstances,
considering their responsibilities to the organization, its members, employees, and clients, the
public at large, and the Federal Government.

The Federation’s Fiscal Standards Policy requires that whenever possible, all purchases
above $2,500 must be accompanied by evidence of three bids. The three-bid requirement
may be waived in cases of emergency or when no comparable providers are available to bid
on the purchase or contract.

               Computer Consulting Services Were Not Properly Procured

Jewish Community Federation of Cleveland did not properly procure its computer consulting
services contract with the Jared Group, Inc. In February 2000, the Federation signed a
written contract with the Jared Group to develop a management information system for its
Special Purpose Grant Program. HUD’s regulation and the Federation’s Fiscal Standards
Policy required the Federation to award its computer consulting services contract through
open and free competition. However, this was not done.

The Federation did not issue a Request for Qualifications or a Request for Proposal to obtain
the computer consulting services for its Special Purpose Grant Program. A Request for
Qualifications is used to determine whether a contractor has the necessary skills to provide
the required services while a Request for Proposal is used to obtain cost estimates from
contractors. In December 1998, the Federation’s Information Technology Director
telephoned at least four computer-consulting companies to assist in preparing specifications
to develop a management information system. Based upon the responses received by the
Director, the Federation engaged the Jared Group without a written contract in December
1998 to prepare specifications and a cost analysis to develop the system. The Jared Group




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completed the specifications and cost analysis in February 1999. The analysis anticipated the
system to cost $46,150 plus ongoing costs for fixes and enhancements.

The Federation did not provide the specifications to other consultants for review and to allow
them to formally bid on the services. However, the 1997-1998 telephone book for the
Cleveland, Ohio metropolitan area included over 360 computer-consulting companies to
whom the Federation could have provided the specifications for bid. Instead, the Federation
awarded the Jared Group a verbal contract in February 1999 to commence with developing
the management information system. A written contract was not executed with the Jared
Group until February 1, 2000. Because the Jared Group developed the specifications, HUD’s
regulation prohibited the Federation from awarding any contracts for the management
information system to the Jared Group. HUD’s regulation also required the Federation to
execute written contracts to measure the Jared Group’s full performance in developing the
system. However, the Federation awarded verbal contracts to the Jared Group.

In order to determine whether the computer consulting services were reasonable, we
compared the Jared Group’s cost to proposals we obtained from three vendors. The vendors
provided us cost proposals ranging from $17,250 to $58,050. The $45,630 costs charged by
the Jared Group between January 1999 and October 1999 appear to be within an acceptable
range when compared to the vendors’ quotes.

The Federation’s Director of Foundation Reporting said the Federation requested the Jared
Group to make fixes and enhancements to the Special Purpose Grant’s management
information system. As of September 15, 2001, the Federation paid the Jared Group a total
of $90,350 in Special Purpose Grant funds. The Federation failed to execute a written
change order or contract modification with the Jared Group to include the fixes and
enhancements in computer consulting services. As a result, HUD lacks assurance that the
$44,720 ($90,350 less $45,630) in additional Grant funds was used efficiently and effectively.

                                 AUDITEE COMMENTS

We provided our draft audit finding to Jewish Community Federation of Cleveland’s Director of
Foundation Reporting and HUD’s staff during the audit. The Federation’s Chief Financial
Officer and its Director of Foundation Reporting provided their comments on the draft finding
on September 3, 2002. The Federation’s comments included four attachments (written quotes
and analysis of services performed by the Jared Group) that were not necessary for
understanding its comments.

We held an exit conference with Jewish Community Federation of Cleveland’s Chief Financial
Officer and its Director of Foundation Reporting on October 30, 2002. We included the Chief
Financial Officer and the Director of Foundation Reporting’s comments in Appendix B of this
report with the exception of the four attachments. HUD’s Director of Columbus Multifamily
Housing Hub received a complete copy of the Federation’s comments with the four
attachments. The Federation’s President was provided with copies of the audit memorandum
report.




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[Excerpts paraphrased from the comments provided by Jewish Community Federation of
Cleveland’s Chief Financial Officer and its Director of Foundation Reporting on our draft audit
finding follow. Appendix B, pages 13 to 17, contains the complete text of the comments for
the draft finding.]

The objective at the beginning of Jewish Community Federation of Cleveland’s procurement
process was to identify a single vendor who could work with the Federation’s staff to define
and develop a database to the facilitate the Special Purpose Grant services provided. The
Federation contracted with the Jared Group after interviewing and obtaining quotes from
three vendors because the Jared Group had the requisite skills and their price was most
reasonable. The Federation did not develop written specifications to obtain the Jared Group.

Between July 2000 and September 2000, the Federation obtained written quotes from three
vendors to carry out additional training, documentation, and system enhancements. The
quotes received were 35 to 70 percent higher than the Jared Group’s hourly rate.

The Federation disagrees that its procurement of computer consulting services to develop a
management information system was not conducted through free and open competition. It
was the Federation’s belief that it would be more efficient to select a firm capable of assisting
to define the system and translate the definition into an end product without having to expend
costly and duplicative time to bring new professionals into the project after the definition
stage. Competitive bids were obtained before the Federation selected the Jared Group
although the Federation acknowledges that it did not utilize formal written bids or
specifications.

The Federation conducted a bid process for the management information system that
included interviewing and obtaining quotes from three vendors. This process met the
Federation’s Fiscal Standards Policy by documenting the bidding process. The Federation
also believes that it substantially met HUD’s requirements. The Federation acknowledges
that its documentation of the process was not sufficiently detailed to meet all of the Federal
requirements.

The Jared Group was operating under a contract with an hourly rate of $65 per hour. The
Federation has not been able to locate its original signed contract; however, there was one.
The Federation acknowledges that the contract was not specific to the term and conditions of
the engagement. However, the Federation could terminate the contract at any time if it was
dissatisfied with the Jared Group’s progress.

The draft finding indicates that the amount paid to the Jared Group exceeded the Federation’s
estimate by $44,000. This is untrue. The $44,000 represents the difference between the total
cost of $90,350 and the Federation’s budget of $46,000 for a portion of the management
information system.

The Federation disagrees with Recommendation A that its reimburse the Special Purpose
Grant $32,300 from non-Federal funds for excessive costs paid that were not in accordance
with the Grant Agreement. While Jewish Community Federation of Cleveland acknowledges



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that it engaged the Jared Group without using written specifications or a formal written bid
process and cannot locate the original written contract, the Federation believes it took
adequate measures to procure the computer consulting services.

With regards to Recommendation B, the Federation agrees that it needs to enhance its
procedures and controls over the administration of the Grant. The Federation fully accepts
this Recommendation and will make these changes as soon as possible.

                    OIG EVALUATION OF AUDITEE COMMENTS

Jewish Community Federation of Cleveland did not follow its Special Purpose Grant
Agreement, HUD’s regulations, Office of Management and Budget Circular A-122, and its
Fiscal Standards Policy for open and free competition regarding the procurement of computer
consulting services. The Federation signed a written contract with the Jared Group to
develop a management information system for its Special Purpose Grant Program. HUD’s
regulation and the Federation’s Policy required the Federation to award its computer
consulting services contract through open and free competition. However, the Federation
awarded a written contract to the Jared Group without open and free competition.

The Federation did not issue a Request for Qualifications or a Request for Proposal to obtain
the computer consulting services for its Special Purpose Grant Program. The Federation’s
Information Technology Director telephoned computer-consulting companies to assist in
preparing specifications to develop a management information system. Based upon the
responses received by the Director, the Federation engaged the Jared Group without a written
contract to prepare specifications and a cost analysis to develop the system.

The Federation did not provide the specifications to other consultants for review and to allow
them to formally bid on the services. Instead, the Federation awarded the Jared Group a
verbal contract to commence with developing the management information system. A
written contract was subsequently executed with the Jared Group. HUD’s regulation
prohibited the Federation from awarding any contracts for the management information
system to the Jared Group since it prepared the specifications. HUD’s regulation also
required the Federation to execute written contracts to measure the Jared Group’s full
performance in developing the system.

The Federation requested the Jared Group to make fixes and enhancements to the Special
Purpose Grant’s management information system. As of September 2001, the Federation
paid the Jared Group a total of $90,350 in Grant funds. The Federation did not execute a
written change order or contract modification with the Jared Group to include the fixes and
enhancements. Therefore, HUD lacks assurance that the $44,720 in additional Grand funds
was used efficiently and effectively. The Federation needs to provide HUD documentation to
support the additional $44,720 in computer consulting services paid to the Jared Group was a
reasonable expense of the Grant or reimburse the unsupported amount to the Grant from non-
Federal funds.




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The Federation’s planned actions, if fully implemented, should improve its procedures and
controls over its procurement transactions if they meet HUD’s regulations and Office of
Management and Budget Circular A-122.

                               RECOMMENDATIONS

We recommend that HUD’s Director of Columbus Multifamily Housing Hub require Jewish
Community Federation of Cleveland to:

1A.    Provide documentation to support the additional $44,720 in computer consulting
       services paid to the Jared Group was a reasonable expense of the Special Purpose
       Grant or reimburse the unsupported amount to the Grant from non-Federal funds.

1B.    Implement procedures and controls to ensure that its procurement transactions meet
       HUD’s regulations and Office of Management and Budget Circular A-122.




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                               MANAGEMENT CONTROLS

In planning and performing our audit, we considered the management controls of Jewish
Community Federation of Cleveland to determine our auditing 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 the following management controls were relevant to our audit objectives:


·   Program Operations - Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.


·   Validity and Reliability of Data - Policies and procedures that management has
    implemented to reasonably ensure that valid and reliable data are obtained, maintained, and
    fairly disclosed in reports.


·   Compliance with Laws and Regulations - Policies and procedures that management has
    implemented to reasonably ensure that resource use is consistent with laws and regulations.


·   Safeguarding Resources - Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.

We assessed all of the relevant controls identified above.

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 upon our review, we believe the following items are significant weaknesses:

·   Program Operations

Jewish Community Federation of Cleveland did not manage its Special Purpose Grant
according to program requirements. Specifically, the Federation did not maintain and effective
system of controls over its contracting process (see Finding).

·   Compliance with Laws and Regulations

Jewish Community Federation of Cleveland did not follow HUD’s regulations and/or Office of
Management and Budget Circular A-122 to ensure that full and open competition existed




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regarding the procurement of computer consulting services and contract terms were documented
(see Finding).

·   Safeguarding Resources

Jewish Community Federation of Cleveland lacked adequate documentation to support the
additional $44,720 in computer consulting services paid to its consultant as a reasonable and
necessary expense of the Grant (see Finding).




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                          FOLLOW-UP ON PRIOR AUDITS

This is the first audit of Jewish Community Federation of Cleveland by HUD’s Office of
Inspector General. The latest Independent Auditor’s Report for the Federation covered the
period ending June 30, 2001. The Report contained no findings.




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                                                                              Appendix A

                      SCHEDULE OF UNSUPPORTED COSTS


      Recommendation
         Number                           Unsupported Costs 1/

             1A                                  $44,720
            Total                                $44,720


1/    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

The Honorable Joseph Lieberman, Chairman, Committee on Governmental Affairs, 706
       Hart Senate Office Building, United States Senate, Washington, DC 20510
The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs,
       340 Dirksen Senate Office Building, United States Senate, Washington, DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185
       Rayburn House Office Building, United States House of Representatives,
       Washington, DC 20515
The Honorable Henry A. Waxman, Ranking Member, Committee on Government
       Reform, 2204 Rayburn House Office Building, United States House of
       Representatives, Washington, DC 20515
Andy Cochran, Committee on Financial Services, 2129 Rayburn House Office Building,
       United States House of Representatives, Washington, DC 20515
Clinton C. Jones, Senior Counsel, Committee on Financial Services, B303 Rayburn House
       Office Building, United States House of Representatives, Washington, DC 20515
Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy &
       Human Resources, B373 Rayburn House Office Building, United States House of
       Representatives, Washington, DC 20515
Stanley Czerwinski, Director of Housing and Telecommunications Issues, United States
       General Accounting Office, 441 G Street NW, Room 2T23, Washington, DC 20548
Steve Redburn, Chief of Housing Branch, Office of Management and Budget, 725 17th
       Street NW, Room 9226, New Executive Office Building, Washington, DC 20503
Linda Halliday (52P), Department of Veterans Affairs, Office of Inspector General, 810
       Vermont Avenue NW, Washington, DC 20420
William Withrow (52KC), Department of Veterans Affairs, Office of Inspector General
       Audit Operations Division, 1100 Main, Room 1330, Kansas City, Missouri 64105-
       2112
Kay Gibbs, Committee on Financial Services, 2129 Rayburn House Office Building,
       United States House of Representatives, Washington, DC 20515
George Reeb, Assistant Inspector General for Health Care Financing Audits
Stephen H. Hoffman, President of Jewish Community Federation of Cleveland




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