oversight

Cities of Huntington, West Virginia and Ironton, Ohio Empowerment Zones Program, Huntington, West Virginia/Ironton, Ohio

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-12-31.

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

          AUDIT REPORT




 CITIES OF HUNTINGTON, WEST VIRGINIA AND
              IRONTON, OHIO
       EMPOWERMENT ZONE PROGRAM

HUNTINGTON, WEST VIRGINIA/IRONTON, OHIO

                2003-CH-1006

            DECEMBER 31, 2002



           OFFICE OF AUDIT, REGION V
               CHICAGO, ILLINOIS




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                                                             Issue Date
                                                                      December 31, 2002
                                                            Audit Case Number
                                                                      2003-CH-1006




TO:          Pamela Glekas-Spring, Director of Renewal Communities/Empowerment
               Zones/Enterprise Communities Initiative, DEEZ


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

SUBJECT: Cities of Huntington, West Virginia and Ironton, Ohio
         Empowerment Zone Program
         Huntington, West Virginia/Ironton, Ohio

We completed an audit of the Cities of Huntington, West Virginia and Ironton, Ohio’s
Empowerment Zone Program. The audit was conducted based upon our survey results and
requests from Congress. The objectives of our audit were to determine whether the Cities: (1)
efficiently and effectively used Empowerment Zone funds; and (2) accurately reported the
accomplishments of their Empowerment Zone Program to HUD. The audit was part of our
Fiscal Year 2002 Annual Audit Plan. The audit resulted in three findings.

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 Edward Kim, Assistant Regional
Inspector General for Audit, at (614) 469-5737 extension 8306 or me at (312) 353-7832.




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Executive Summary
We completed an audit of the Cities of Huntington, West Virginia and Ironton, Ohio’s
Empowerment Zone Program. The objectives of our audit were to determine whether the Cities:
(1) efficiently and effectively used Empowerment Zone funds; and (2) accurately reported the
accomplishments of their Empowerment Zone Program to HUD. The audit was part of our
Fiscal Year 2002 Annual Audit Plan. The audit was conducted based upon our survey results
and two requests from Congress.

The United States House of Representatives’ Conference Report 107-272 directed HUD’s Office
of Inspector General to review the use of Empowerment Zone funds and to report our findings to
the Senate Appropriations Committee. The United States Senate’s Report 107-43 also requested
us to review the use of Zone funds and report our audit results to Congress.

We concluded that the Cities need to improve their oversight of Empowerment Zone funds and did
not accurately report the accomplishments of their Empowerment Zone Program to HUD.
Specifically, the Cities did not use $160,000 of Empowerment Zone funds in accordance with their
Strategic Plan and the September 8, 1999 Agreement for the Marting Hotel Renovation project.
We also found that the Cities inaccurately reported the accomplishments of their Empowerment
Zone projects to HUD, and used Empowerment Zone monies to fund five projects that have not
provided benefits to Empowerment Zone residents or benefited only 27 percent of Zone residents as
of October 2002. Four of the five projects are scheduled for completion between June 2004 and
June 2005, and the remaining project was completed in June 2001.



                                     As previously mentioned, the Cities of Huntington,
 Controls Over                       West/Virginia and Ironton, Ohio need to improve their
 Empowerment Zone Funds              oversight of Empowerment Zone funds. One of the 10
 Need To Be Improved                 projects we reviewed inappropriately used $160,000 of
                                     Zone funds to serve non-Zone residents. Since the Cities
                                     spent over $4.6 million in Empowerment Zone funds as of
                                     April 2002 for the 10 projects, the Cities’ inappropriate use
                                     of Zone funds was not a systematic break down in their
                                     oversight of the Empowerment Zone Program. However,
                                     the Cities’ Strategic Plan for the Marting Hotel Renovation
                                     project showed that low to moderate income, elderly
                                     households residing in the Zone would be the targeted
                                     group to occupy the project. This was not done.

                                     Additionally, the September 8, 1999 Agreement for the
                                     project showed that 50 Zone residents projected to be
                                     served. However, Zone residents have only occupied 10 of
                                     the 50 units as of November 2002. The problem occurred
                                     because Huntington, West Virginia/Ironton, Ohio
                                     Empowerment Zone, Inc., the administering entity of the
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                            Cities’ Empowerment Zone Program, did not adequately
                            monitor the Empowerment Zone project to ensure the use
                            of Empowerment Zone funds benefited Zone residents.

                            The Cities incorrectly reported the actual status and/or
 The Cities Inaccurately    progress for five of the 10 projects we reviewed from their
 Reported The               June 30, 2001 or June 30, 2002 Annual Reports. The Cities’
 Accomplishments Of Their   June 2001 Report contained inaccuracies related to five
 Zone Projects              projects’ progress on projected outputs and one project’s
                            percentage of completion on a project milestone. The
                            problems      occurred     because     Huntington,   West
                            Virginia/Ironton, Ohio Empowerment Zone, Inc., the
                            administering entity of the Cities’ Empowerment Zone
                            Program, did not verify the accuracy of the information
                            included in the 2001 Report.

                            The Cities of Huntington, West Virginia and Ironton, Ohio
 The Cities Provided Zone   used $4,035,697 of the $4,637,000 in Empowerment Zone
 Funds To Projects That     monies committed to fund five projects that have not
 Have Not Benefited Zone    provided benefits to Empowerment Zone residents or
 Residents Or Benefited     benefited only 27 percent of Zone residents as of October
 Only 27 Percent Of Zone    2002. Four of the five projects are scheduled for
 Residents                  completion between June 2004 and June 2005, and the
                            remaining project was completed in June 2001. Since the
                            four projects spent 87 percent of their Zone funds
                            committed, benefits to Empowerment Zone residents would
                            be expected. However, this has not occurred.

                            The problem occurred because Huntington, West
                            Virginia/Ironton, Ohio Empowerment Zone, Inc., the
                            administering entity of the Cities’ Empowerment Zone
                            Program, did not ensure that Empowerment Zone contracts
                            required projects to primarily benefit Zone residents. We
                            believe the City’s use of Empowerment Zone funds for the
                            five projects does not meet HUD’s Empowerment Zone
                            regulation at 24 CFR Part 598.215(b)(4)(i)(D) that
                            incorporates the Appendix from the April 16, 1998 Federal
                            Register requiring all projects financed in whole or in part
                            with Zone funds be structured to primarily benefit Zone
                            residents. However, HUD must make a determination
                            whether the Cities’ use of Zone funds was appropriate.

                            We recommend that HUD’s Director of Renewal
 Recommendations            Communities/Empowerment        Zones/Enterprise
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       Communities Initiative assure that the Cities of Huntington,
       West Virginia and Ironton, Ohio reimburse the
       Empowerment Zone Program for the inappropriate use of
       Zone funds and implements controls to correct the
       weaknesses cited in this report.

       We presented our draft audit report to the Executive
       Director of Huntington, West Virginia/Ironton, Ohio
       Empowerment Zone, Inc., the administering entity of the
       Cities’ Empowerment Zone Program, and HUD’s staff
       during the audit. We held an exit conference with the
       Executive Director on December 17, 2002. Huntington,
       West Virginia/Ironton, Ohio Empowerment Zone, Inc.
       disagreed that Empowerment Zone funds were
       inappropriately used and submitted procedures to improve
       the accuracy of future information submitted to HUD.

       We included paraphrased excerpts of Huntington, West
       Virginia/Ironton, Ohio Empowerment Zone, Inc.’s
       comments with each finding (see Findings 1, 2, and 3) and
       the summary of Empowerment Zone projects reviewed (see
       Appendix B). The complete text of the comments is in
       Appendix C with the exception of two exhibits that were
       not necessary for understanding the comments. A complete
       copy of Huntington, West Virginia/Ironton, Ohio
       Empowerment Zone, Inc.’s comments with the exhibits
       were provided to HUD’s Director of Renewal
       Communities/Empowerment                 Zones/Enterprise
       Communities Initiative.




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Management Memorandum                                                     i



Executive Summary                                                       iii



Introduction                                                             1



Findings

1. Controls Over Empowerment Zone Funds Need To Be Improved              3

2. The Cities Inaccurately Reported The Accomplishments
   Of Their Empowerment Zone Projects                                    9

3. The Cities Provided Zone Funds To Projects That Have Not
   Benefited Zone Residents Or Benefited Only 27 Percent Of
   Zone Residents                                                      15



Management Controls                                                    21



Follow Up On Prior Audits                                              23



Appendices

   A. Schedule Of Ineligible Costs                                     25

   B. Projects Reviewed                                                27


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   C. Auditee Comments               45


   D. Distribution                   55




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Introduction
The Cities of Huntington, West Virginia and Ironton, Ohio were designated as an urban
Empowerment Zone effective January 1, 1999. The objective of the Empowerment Zone Program
is to rebuild communities in poverty stricken inner cities and rural areas by developing and
implementing strategic plans. The plans are required to be based upon the following four
principles: (1) creating economic opportunity for Empowerment Zone residents; (2) creating
sustainable community development; (3) building broad participation among community-based
partners; and (4) describing a strategic vision for change in the community.

The Omnibus Budget Reconciliation Act of 1993 authorized the Empowerment Zone Program.
The Reconciliation Act provided funding for the Empowerment Zone Program under Title 20 of the
Social Security Act. The Program was initially designed to provide the Empowerment Zones
authorized by the Reconciliation Act of 1993 with $250 million in tax benefits and $100 million of
Social Service Block Grant funds from the Department of Health and Human Services. The
Taxpayer Relief Act of 1997 authorized the Secretary of HUD to designate 15 additional urban
areas as Empowerment Zones. The 15 additional urban Empowerment Zones were eligible to share
in HUD grants and tax-exempt bonding authority to finance revitalization and job creation over the
next 10 years. As of April 30, 2002, the Cities of Huntington, West Virginia and Ironton, Ohio
drew down and spent $8,596,017 in HUD Empowerment Zone funds.

The Cities of Huntington, West Virginia and Ironton, Ohio are municipal corporations that are each
governed by a mayor and a city council. The City of Huntington’s fiscal year is July 1 through June
30 and the City of Ironton’s fiscal year is January 1 through December 31. Huntington, West
Virginia/Ironton, Ohio Empowerment Zone, Inc. is a nonprofit organization established to
administer the Cities’ Empowerment Zone Program.

The Mayors of the Cities of Huntington, West Virginia and Ironton, Ohio are the Honorable David
Felinton and the Honorable Robert Cleary, respectively. The Executive Director of Huntington,
West Virginia/Ironton, Ohio Empowerment Zone, Inc. is Cathy Burns. The Empowerment Zone,
Inc.’s books and records are located at 320 Ninth Street, Huntington, West Virginia.



                                      The objectives of our audit were to determine whether the
 Audit Objectives                     Cities: (1) efficiently and effectively used Empowerment
                                      Zone funds; and (2) accurately reported the
                                      accomplishments of their Empowerment Zone Program to
                                      HUD.

                                      We performed our on-site work between July and
 Audit Scope And                      November 2002.         To determine whether the Cities
 Methodology                          efficiently and effectively used Empowerment Zone funds
                                      and accurately reported the accomplishments of their
                                      Empowerment Zone Program, we interviewed staff from:
                                      HUD; the Cities; Huntington, West Virginia/Ironton, Ohio
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               Empowerment Zone, Inc.; and administering entities of the
               Cities’ Zone projects. Based upon the projects’ reported
               expenditures as of April 30, 2002, we selected 10 of the
               Cities’ 29 projects reported in their June 30, 2001 or June
               30, 2002 Annual Reports. The following table shows the
               10 projects reviewed.

                                            Project
                      1.    Marting Hotel Renovations
                      2.    American College Testing Work Keys
                      3.    School Based Behavioral Health Services
                      4.    Universal Screening
                      5.    Huntington Industrial Center
                      6.    South Point
                      7.    Douglass Building Renovations
                      8.    City of Huntington Street Improvements
                      9.    City of Huntington Infrastructure
                     10.    City of Ironton Street Improvements

               To evaluate the Cities’ Empowerment Zone Program, we
               reviewed files and records maintained by: the Cities; HUD;
               Huntington, West Virginia/Ironton, Ohio Empowerment
               Zone, Inc.; and the administering entities. We also
               reviewed: 24 CFR Part 598; the April 16, 1998 Federal
               Register; HUD’s guidance and instructions for the
               Program; the Cities’ June 2001 and June 2002 Annual
               Reports; agreements and contracts; approved payment
               requests related to the projects; and the administering
               entities’ voucher payments, monitoring files, and
               supporting documentation.        We visited or met with
               representatives for each of the administering entities for the
               10 projects included in our audit to review their
               documentation, reports, and correspondence.

               The audit covered the period January 1, 1999 to April 30,
               2002. This period was adjusted as necessary. We
               conducted our audit in accordance with Generally Accepted
               Government Auditing Standards.

               We provided a copy of this report to the Mayors of the
               Cities of Huntington, West Virginia and Ironton, Ohio, and
               copies to the Executive Director of Huntington, West
               Virginia/Ironton, Ohio Empowerment Zone, Inc.


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Controls Over Empowerment Zone Funds Need
               To Be Improved
The Cities of Huntington, West Virginia and Ironton, Ohio need to improve their oversight of
Empowerment Zone funds. One of the 10 projects we reviewed inappropriately used $160,000
of Zone funds to serve non-Zone residents. Since the Cities spent over $4.6 million in
Empowerment Zone funds as of April 2002 for the 10 projects, the Cities’ inappropriate use of
Zone funds was not a systematic break down in its oversight of the Empowerment Zone Program.
However, the Cities’ Strategic Plan for the Marting Hotel Renovation project showed that low to
moderate income, elderly households residing in the Zone would be the targeted group to occupy
the project. This was not done. Additionally, the September 8, 1999 Agreement for the project
showed that 50 Zone residents projected to be served. However, Zone residents have only
occupied 10 of the 50 units as of November 2002. The problem occurred because Huntington,
West Virginia/Ironton, Ohio Empowerment Zone, Inc., the administering entity of the Cities’
Empowerment Zone Program, did not adequately monitor the Empowerment Zone project to
ensure the use of Empowerment Zone funds benefited Zone residents. As a result, Empowerment
Zone funds were not used efficiently and effectively.


                                    Page 1 of the Memorandum of Agreement effective January
 Federal Requirements               1, 1999, between the Cities of Huntington, West Virginia
 And Cities’ Strategic Plan         and Ironton, Ohio and HUD, requires the Cities to comply
                                    with HUD’s Empowerment Zone regulations at 24 CFR
                                    Part 598.

                                    24 CFR Part 598.215(b)(4)(i)(D) states a detailed plan that
                                    outlines how an Empowerment Zone will implement its
                                    strategic plan must include details about proposed uses of
                                    Zone funds in accordance with guidelines published on
                                    April 16, 1998 in the Federal Register’s Appendix.

                                    Paragraph (3)(c) of the April 16, 1998 Federal Register,
                                    Appendix-Guidelines on Eligible Uses of Empowerment
                                    Zone Funds, requires Empowerment Zones to ensure that
                                    each proposed use of Zone funds is included in their strategic
                                    plans.

                                    The Cities of Huntington, West Virginia and Ironton,
                                    Ohio’s Strategic Plan dated October 9, 1998 states the
                                    objective of the Marting Hotel Renovation project is to
                                    renovate the Marting Hotel in downtown Ironton, Ohio to
                                    provide 50 new units of rental housing to the elderly. The
                                    Cities’ Strategic Plan also shows low to moderate income,
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                              elderly households residing in the Empowerment Zone as
                              the targeted group to occupy the project.

                              Section 1(a) of the September 8, 1999 Agreement between
 Zone, Inc.’s Contract With   Huntington, West Virginia/Ironton, Ohio Empowerment
 Community Action             Zone, Inc. and Ironton-Lawrence County Community
 Organization                 Action Organization, Inc., the administering entity of the
                              Marting Hotel Renovation project, requires Community
                              Action Organization to provide housing services in
                              accordance with the Cities’ October 9, 1998 Strategic Plan.
                              Exhibit C, Section V(F)(2), of the Agreement projected that
                              50 Empowerment Zone residents would be served by the
                              project.

                              The Cities of Huntington, West Virginia and Ironton, Ohio
 The Cities Did Not Have      did not maintain adequate oversight for one of their 10
 Adequate Control Over        projects we reviewed. Huntington, West Virginia/Ironton,
 Zone Funds                   Ohio Empowerment Zone, Inc., the administering entity for
                              the Cities’ Empowerment Zone Program, executed an
                              agreement on September 8, 1999 with the Ironton-Lawrence
                              County Community Action Organization, Inc. for the
                              renovation of the Marting Hotel in downtown Ironton, Ohio
                              to provide housing services in accordance with the Cities’
                              October 9, 1998 Strategic Plan. The Cities’ Strategic Plan
                              dated October 9, 1998 states the objective of the Marting
                              Hotel Renovation project is to provide 50 new units of rental
                              housing to the elderly. The Cities’ Strategic Plan also shows
                              low to moderate income, elderly households residing in the
                              Empowerment Zone as the targeted group to occupy the
                              project. The Cities provided $200,000 in Zone funds for the
                              project.

                              RLJ Management Company, the management company for
                              the project, leased all 50 units as of November 26, 2002.
                              However, documentation provided by RLJ Management
                              Company showed that only 10 of the 50 units (20 percent)
                              were leased to elderly, Empowerment Zone households with
                              low to moderate incomes. Of the remaining 40 units,
                              individuals who previously resided outside of the two
                              counties where the Huntington, West Virginia/Ironton, Ohio
                              Empowerment Zone is located occupied 15 units. Therefore,
                              the intended beneficiaries of the Empowerment Zone were
                              not served.


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                   The     Executive    Director    of    Huntington,   West
                   Virginia/Ironton, Ohio Empowerment Zone, Inc. said she
                   believed Zone residents occupied all 50 units. However, she
                   said the Empowerment Zone, Inc. had not monitored the use
                   of Zone funds for the Marting Hotel Renovation project to
                   determine whether the 50 units were occupied by elderly,
                   Empowerment Zone households with low to moderate
                   incomes. Exhibit C, Section V(F)(2), of the September 8,
                   1999 Agreement for the project showed that 50
                   Empowerment Zone residents were projected to be served by
                   the Marting Hotel Renovation project.

                   The     Executive     Director    of  Huntington,    West
                   Virginia/Ironton, Ohio Empowerment Zone, Inc. said the
                   Cities’ Strategic Plan shows that low to moderate income,
                   elderly households residing in the Empowerment Zone were
                   the targeted group to occupy the Marting Hotel project.
                   However, this was not done. The President of RLJ
                   Management Company said his company was not instructed
                   to target low to moderate income, elderly households
                   residing in the Empowerment Zone. He said his company
                   only made sure that elderly, low to moderate income
                   households occupied the project in order to meet the Low
                   Income Housing Tax Credit requirements.

                   RLJ Management Company’s Property Manager provided
                   documentation regarding the marketing efforts for the
                   Marting Hotel Renovation project. The documentation
                   included: an in-house pamphlet that prospective tenants may
                   obtain by visiting the project; a flier distributed during the
                   project’s open house held in November 2001; 13 newspaper
                   advertisements; and a radio advertisement. Six of the 13
                   newspaper advertisements were published in newspapers
                   located outside of Huntington, West Virginia and Ironton,
                   Ohio. None of the marketing efforts mentioned that the
                   project was targeting Empowerment Zone residents. As a
                   result, $160,000 ($200,000 times 80 percent of the project
                   occupied by non-Zone households) of the Zone funds was
                   not used effectively and efficiently.



Auditee Comments   [Excerpts paraphrased from the comments provided by the
                   Executive Director of Huntington, West Virginia/Ironton,
                   Ohio Empowerment Zone, Inc. on our draft audit report
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               follow. Appendix C, pages 46 to 48, contains the complete
               text of the comments for this finding.]

               HUD’s Office of Inspector General incorrectly cited the
               Cities’ Strategic Plan for the Marting Hotel Renovation
               project. The objective of the project as stated in the Plan is
               to renovate the Marting Hotel in downtown Ironton to
               provide 50 new units of rental housing for the elderly. The
               Plan shows low to moderate income, elderly households
               residing in the Empowerment Zone as the targeted group.
               The Plan clearly does not state that the Cities must place
               existing Zone residents in the units or that the Cities are
               targeting all 50 units to existing Zone residents. To target a
               certain population for housing does not mean one must place
               only the population in the units and exclude all others. By
               definition, target means to direct one’s efforts. Huntington,
               West Virginia/Ironton, Ohio Empowerment Zone, Inc.’s
               project files include supporting documentation on
               marketing the units upon completion of the renovations.
               As a result, 10 households who were currently residing in
               the Zone that were elderly with low incomes moved into
               the project.

               From the inception of Marting Hotel Renovation project, the
               renovations were primarily funded from the issuance of Low
               Income Housing Tax Credits. The Tax Credits could have
               never been sought for a project conditioned on rental to only
               existing Empowerment Zone residents. Therefore, all 50
               units were intended for and were rented to low income,
               elderly households. The Cities’ Strategic Plan states the
               objective of the project is to provide 50 new units of rental
               housing for the elderly. Since occupancy of the units began
               in April 2000, 60 households resided in the 50 units.

               By virtue of the Marting Hotel Renovation project being
               located in the Empowerment Zone, the Huntington, West
               Virginia/Ironton, Ohio Empowerment Zone, Inc.
               determined that Zone residents occupied all 50 units.
               Defining resident benefit was left to the locality as who
               benefits from the activity. Each resident who moved into
               the units benefited from the project and since their address
               is within the Zone, they are considered Zone residents.
               HUD concurs with the Cities’ definition as shown by its
               July 2, 2002 memorandum that states a beneficiary will be

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                    considered a Zone resident when the activity is completed
                    and the household’s residence is located within the Zone.

                    As a result of the Cities’ investment of $200,000 in a
                    $4,500,000 project, the City of Ironton Empowerment
                    Zone: gained 40 new Zone residents; provided 10 existing
                    residents with safe, affordable housing; renovated a vacant,
                    blighted building; improved a pivotal structure; and
                    provided 5,000 square feet of renovated space for a
                    potential private business. The Empowerment Zone’s
                    financial participation was less than five percent of the total
                    project costs and achieved multiple objectives in
                    accordance with the Cities’ Strategic Plan. Given that this
                    project is both a success and consistent with the Plan, the
                    Cities disagree fully with the finding, and the
                    recommendations for reimbursement and implementation
                    of new procedures to ensure that Empowerment Zone funds
                    are used efficiently and effectively, and in accordance with
                    Empowerment Zone Program requirements.



OIG Evaluation Of   We adjusted our audit report to show that the Cities’
Auditee Comments    Strategic Plan dated October 9, 1998 states the objective of
                    the Marting Hotel Renovation project is to provide 50 new
                    units of rental housing to the elderly and the Plan shows
                    low to moderate income, elderly households residing in the
                    Empowerment Zone as the targeted group to occupy the
                    project. However, this was not done. Huntington, West
                    Virginia/Ironton, Ohio Empowerment Zone, Inc.’s
                    Executive Director claimed that the project’s files include
                    supporting documentation on marketing the units upon
                    completion of the renovations, but no documentation was
                    provided to support this claim. Additionally, the President
                    of RLJ Management Company said his company was not
                    instructed to target low to moderate income, elderly
                    households residing in the Empowerment Zone. He said
                    his company only made sure that elderly, low to moderate
                    income households occupied the project in order to meet
                    the Low Income Housing Tax Credit requirements.

                    Exhibit C, Section V(F)(2), of the September 8, 1999
                    Agreement between Huntington, West Virginia/Ironton,
                    Ohio Empowerment Zone, Inc. and Ironton-Lawrence
                    County Community Action Organization, Inc. showed that
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                     50 Empowerment Zone residents were projected to be
                     served by the project.     Based upon the supporting
                     documentation provided by RLJ Management Company,
                     only 10 of the 50 units were leased to elderly,
                     Empowerment Zone households with low to moderate
                     incomes. Therefore, the terms of the Agreement were not
                     met.

                     The Marting Hotel Renovation project was initiated before
                     HUD’s July 2, 2002 memorandum; therefore, HUD’s
                     definition of benefits to Empowerment Zone residents
                     cannot be used retroactively. As previously mentioned, the
                     September 8, 1999 Agreement for the project showed that
                     50 Empowerment Zone residents were projected to be
                     served by the project. However, this was not done.

                     We agree that the Marting Hotel Renovation project
                     provided benefits to the City of Ironton Empowerment
                     Zone. However, the benefits were not in full compliance
                     with the Cities’ Strategic Plan and the September 1999
                     Agreement for the project. The Cities should reimburse
                     their Empowerment Zone Program from non-Federal funds
                     for the improper use of Zone funds to provide housing to
                     non-Zone residents. The Cities should also implement
                     procedures and controls to ensure that Empowerment Zone
                     funds are used efficiently and effectively, and in accordance
                     with Empowerment Zone Program requirements.



   Recommendations   We recommend that HUD’s Director of Renewal
                     Communities/Empowerment Zones/Enterprise Communities
                     Initiative assure the Cities of Huntington, West Virginia and
                     Ironton, Ohio:

                     1A.     Reimburse their Empowerment Zone Program
                             $160,000 from non-Federal funds for the improper
                             use of Zone funds to provide housing to non-Zone
                             residents.

                     1B.     Implement procedures and controls to ensure that
                             Empowerment Zone funds are used efficiently and
                             effectively, and in accordance with Empowerment
                             Zone Program requirements.

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    The Cities Inaccurately Reported The
Accomplishments Of Their Empowerment Zone
                   Projects
The Cities of Huntington, West Virginia and Ironton, Ohio incorrectly reported the actual status
and/or progress for five of the 10 projects (50 percent) we reviewed from their June 30, 2001 or
June 30, 2002 Annual Reports. The Cities’ June 2001 Report contained inaccuracies related to five
projects’ progress on projected outputs and one project’s percentage of completion on a project
milestone.     The problems occurred because Huntington, West Virginia/Ironton, Ohio
Empowerment Zone, Inc., the administering entity of the Cities’ Empowerment Zone Program, did
not verify the accuracy of the information included in the 2001 Report. As a result, the Cities did
not accurately report the accomplishments of their Empowerment Zone Program to HUD. The
impression exists that the benefits of the Cities’ Empowerment Zone Program were greater than
actually achieved.



                                      Article IV, Section A, of the Grant Agreement for the Cities
 Federal Requirements                 of Huntington, West Virginia and Ironton, Ohio’s
                                      Empowerment Zone Program requires the Cities to submit
                                      annual reports to HUD on the progress made against their
                                      Empowerment Zone’s Strategic Plan in accordance with 24
                                      CFR Part 598.415. Annual reports must be in a format
                                      required by HUD.

                                      24 CFR Part 598.415(a) requires Empowerment Zones to
                                      submit periodic reports to HUD identifying actions taken in
                                      accordance with their strategic plans and providing notice of
                                      updates and modifications to their plans.

                                      Page two of the Empowerment Zone and Enterprise
                                      Community Initiative Performance Measurement System
                                      guidance issued in April 2001 states that HUD is
                                      congressionally mandated to obtain performance reports
                                      from the Empowerment Zones.            To accomplish this
                                      objective, the Zones are to report projects and progress via
                                      HUD’s Performance Measurement System.                   The
                                      Empowerment Zones are required to submit an Annual
                                      Report that includes information on their progress for the
                                      projected outputs and milestones in the Zones’
                                      Implementation Plans.      Page 16 of the Performance
                                      Measurement System guidance states outputs are the results
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                                    immediately created upon implementation of a project or
                                    program. Page 14 of the Performance Measurement System
                                    guidance states milestones are the major steps taken to
                                    implement a project.

                                    The Cities of Huntington, West Virginia and Ironton, Ohio
 The Cities Incorrectly
                                    inaccurately reported the accomplishments for five of the
 Reported The Progress Of
                                    10 projects we reviewed from their June 30, 2001 or June
 Empowerment Zone
                                    30, 2002 Annual Reports. The Cities’ June 2001 Report
 Projects
                                    included inaccuracies related to five projects’ progress
                                    toward projected outputs and one project’s percentage of
                                    completion on a project milestone. The following table
                                    shows the incorrect reporting by category for the five
                                    projects and the page number in this report where a detailed
                                    summary for each project is located.

                                                                                    Page
                                  Project                    Outputs    Milestones Number
                       Marting Hotel Renovations                 X                       28
                 American College Testing Work Keys              X           X           35
                School Based Behavioral Health Services          X                       38
                            Universal Screening                  X                       41
                     Huntington Industrial Center                X                       43
                                  Totals                         5            1

                                    The Cities incorrectly reported five projects’ outputs.
 The Cities Inaccurately            Outputs are the results immediately created upon
 Reported Projects’                 completion of a project. For example, the Cities reported in
 Outputs                            their June 30, 2001 Annual Report that the School Based
                                    Behavioral Health Services project served 91
                                    Empowerment Zone children and 1,545 residents by public
                                    meetings. Documentation maintained by Prestera Center
                                    for Mental Health, the project’s administering entity,
                                    showed that 78 Zone children were served through June 30,
                                    2001. The Center did not maintain adequate documentation
                                    to support the number of residents served by the public
                                    meetings.




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                            The Cities inaccurately reported a milestone for one project.
The Cities Inaccurately     Milestones are the major steps taken to implement a
Reported A Project’s        project. The Cities reported in their June 30, 2001 Annual
Milestone                   Report that American College Testing Work Keys project
                            was 25 percent complete on the project’s milestone of
                            hiring Zone residents as of June 2001. Documentation
                            maintained by Collins Career Center, the project’s
                            administering entity, showed that the project had not
                            resulted in jobs for any Zone residents as of June 30, 2001.
                            The Center reported to Huntington, West Virginia/Ironton,
                            Ohio Empowerment Zone, Inc., the administering entity of
                            the Cities’ Empowerment Zone Program, that no jobs
                            resulted from the project for Zone residents. However, the
                            Empowerment Zone, Inc.’s Executive Director said she
                            reported that the project resulted in jobs for 15 Zone
                            residents based upon conversations she had with the
                            Center’s Contractual Services Director. The Empowerment
                            Zone, Inc.’s Executive Director lacked any documentation
                            to support the 25 percent of completion she reported.

                            The inaccurate reporting occurred because Huntington,
The Cities’ Administering   West Virginia/Ironton, Ohio Empowerment Zone, Inc., the
Entity Of Their Program     administering entity of the Cities’ Empowerment Zone
Did Not Verify Annual       Program, did not verify the accuracy of the information
Reports Submitted To        included in the Cities’ June 2001 Report.                The
HUD                         Empowerment Zone, Inc.’s Executive Director said she
                            relied on the projects’ administering entities to accurately
                            report projects’ outputs and milestones. The Cities of
                            Huntington, West Virginia and Ironton, Ohio did not
                            monitor the Empowerment Zone, Inc. to ensure it accurately
                            reported projects’ accomplishments to HUD. As a result, the
                            Cities did not accurately report the accomplishments of their
                            Empowerment Zone Program to HUD. The impression
                            exists that the benefits of the Cities’ Empowerment Zone
                            Program were greater than actually achieved.



 Auditee Comments           [Excerpts paraphrased from the comments provided by the
                            Executive Director of Huntington, West Virginia/Ironton,
                            Ohio Empowerment Zone, Inc. on our draft audit report
                            follow. Appendix C, pages 49 to 51, contains the complete
                            text of the comments for this finding.]


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               In regards to the School Based Behavioral Health Services
               project, Huntington, West Virginia/Ironton, Ohio
               Empowerment Zone, Inc. concurs that Prestera Center for
               Mental Health, the project’s administering entity,
               maintained case files on 78 Empowerment Zone children.
               The inconsistency between what the Empowerment Zone,
               Inc. reported and Prestera’s file documentation resulted
               from formal medical records not opened on all children
               served. In 13 instances, children were served for brief
               intervention or guidance, but a case was not formally
               opened. Effective July 1, 2002, Prestera’s reports to the
               Empowerment Zone, Inc. will only include children that
               have a formal chart/record. Once HUD returns the Cities’
               June 2002 Annual Report, the project’s outputs of
               Empowerment Zone residents served will be amended.

               Huntington, West Virginia/Ironton, Ohio Empowerment
               Zone, Inc. added the output of public meetings for the School
               Based Behavioral Health Services project to the Cities’
               Implementation Plan to show the broad level of community
               support and input. Prestera conducted six community
               meetings and one workshop. Prestera counted the people in
               attendance and reported the totals in their final report.
               However, Prestera did not utilize sign in sheets. The local
               newspaper reported on the community meetings and the
               estimated number of people in attendance. Copies of the
               newspaper article were provided to HUD’s Office of
               Inspector General as supporting documentation to confirm
               the meetings and estimated number of people in attendance.
               The Empowerment Zone, Inc. contends the newspaper
               articles are sufficient documentation to establish the
               meetings occurred and residents attended.

               Huntington, West Virginia/Ironton, Ohio Empowerment
               Zone, Inc.’s contracts with Collins Career Center, the
               administering entity for American College Testing Work
               Keys project, provide for work force development in the
               areas of assessment, job profiles, skills testing, and training
               to private businesses. As of June 30, 2002, the Center was
               working with four manufacturing businesses.               After
               contracting with the Empowerment Zone, Inc. to receive
               Empowerment Zone monies, the Center received funding
               from the State of Ohio to pay for workforce development
               assistance. The State funding was used for one of the four
               businesses that created new jobs and ultimately hired 15
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                    Zone residents. The Empowerment Zone, Inc. reported this
                    accomplishment because Empowerment Zone objectives
                    were achieved and leveraged with the assistance of other
                    funds. The Center provided the Empowerment Zone, Inc.
                    with a list of employees hired and staff confirmed that the
                    employees resided in the Zone. Based upon the 15 Zone
                    residents employed by the manufacturing business, the
                    Empowerment Zone, Inc. reported the project’s milestone
                    for job creation was 25 percent complete.

                    Huntington, West Virginia/Ironton, Ohio Empowerment
                    Zone, Inc. is not aware of any Federal requirements that only
                    accomplishments funded by the Empowerment Zone may be
                    reported in the Annual Report. The Empowerment Zone,
                    Inc. will amend the Cities’ Implementation Plan for the
                    American College Testing Work Keys project to include
                    funding provided by the State of Ohio and maintain
                    documentation to support the State’s funds.

                    To enhance the reporting procedures, the Cities and the
                    Empowerment Zone, Inc. submit the procedures to assure
                    the accuracy of future information submitted.



OIG Evaluation Of   As indicated by Huntington, West Virginia/Ironton, Ohio
Auditee Comments    Empowerment Zone, Inc.’s comments, the number of
                    residents in attendance for the School Based Behavioral
                    Health Services project’s community meetings were
                    estimates based upon information included in a newspaper
                    article. However, the Cities reported in their June 30, 2001
                    Annual Report to HUD that 1,545 residents were served by
                    the project’s meetings. The Empowerment Zone, Inc. and
                    the project’s administering entity lacked any documentation
                    to support the number of residents served by the meetings.
                    Information included in a newspaper article that cites an
                    estimated number of residents served is not adequate
                    documentation to support the Cities’ June 2001 Report.

                    In regards to the American College Testing Work Keys
                    project, the Cities reported that the project was 25 percent
                    complete on its milestone of hiring Zone residents as of
                    June 2001. Documentation maintained by Collins Career
                    Center, the project’s administering entity, showed that the
                    project had not resulted in jobs for any Zone residents as of
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                     June 30, 2001. Additionally, the Center’s Contractual
                     Services Director said the State of Ohio funding did not
                     relate to the project. She said the State funding was used
                     for a different project. Therefore, the Cities incorrectly
                     reported the project’s milestone in the June 2001 Annual
                     Report.

                     The procedures provided by the Cities and Huntington,
                     West Virginia/Ironton, Ohio Empowerment Zone, Inc.
                     should improve the accuracy of information reported in the
                     Cities’ Annual Report, if they include controls to verify the
                     accuracy of information submitted to HUD for their
                     Empowerment Zone Program.               Additionally, staff
                     responsible for preparing the Annual Report for HUD
                     should use the actual verified accomplishments to report
                     each project.




   Recommendations   We recommend that HUD’s Director of Renewal
                     Communities/Empowerment Zones/Enterprise Communities
                     Initiative assure the Cities of Huntington, West Virginia and
                     Ironton, Ohio:

                     2A.      Implement procedures and controls to verify the
                              accuracy of information submitted to HUD for their
                              Empowerment Zone Program.

                     2B.      Ensure that staff responsible for preparing the Annual
                              Report for HUD, use the actual verified
                              accomplishments to report each project.




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  The Cities Provided Zone Funds To Projects
  That Have Not Benefited Zone Residents Or
  Benefited Only 27 Percent Of Zone Residents
The Cities of Huntington, West Virginia and Ironton, Ohio used $4,035,697 of the $4,637,000 in
Empowerment Zone monies committed to fund five projects that have not provided benefits to
Empowerment Zone residents or benefited only 27 percent of Zone residents as of October 2002.
Four of the five projects are scheduled for completion between June 2004 and June 2005, and the
remaining project was completed in June 2001. Since the four projects spent 87 percent of their
Zone funds committed, benefits to Empowerment Zone residents would be expected. However,
this has not occurred. The problem occurred because Huntington, West Virginia/Ironton, Ohio
Empowerment Zone, Inc., the administering entity of the Cities’ Empowerment Zone Program, did
not ensure that Empowerment Zone contracts required projects to primarily benefit Zone residents.
We believe the City’s use of Empowerment Zone funds for the five projects does not meet HUD’s
Empowerment Zone regulation at 24 CFR Part 598.215(b)(4)(i)(D) that incorporates the Appendix
from the April 16, 1998 Federal Register requiring all projects financed in whole or in part with
Zone funds be structured to primarily benefit Zone residents. However, HUD must make a
determination whether the Cities’ use of Zone funds was appropriate.



                                     Page 1 of the Memorandum of Agreement effective January
 Federal Requirements                1, 1999, between the Cities of Huntington, West Virginia
                                     and Ironton, Ohio and HUD, requires the Cities to comply
                                     with HUD’s Empowerment Zone regulations at 24 CFR
                                     Part 598.

                                     24 CFR Part 598.215(b)(4)(i)(D) states a detailed plan that
                                     outlines how an Empowerment Zone will implement its
                                     strategic plan must include details about proposed uses of
                                     Zone funds in accordance with guidelines published on
                                     April 16, 1998 in the Federal Register’s Appendix.

                                     Paragraph (3)(f) of the April 16, 1998 Federal Register,
                                     Appendix–Guidelines on Eligible Uses of Empowerment
                                     Zone Funds, requires all programs, services, and activities
                                     financed in whole or in part with Round II Empowerment
                                     Zone funds must be structured to primarily benefit Zone
                                     residents. The program, services, and activities may also
                                     benefit non-Zone residents.


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                                                The Cities of Huntington, West Virginia and Ironton, Ohio
      Projects Have Not                         used $4,035,697 of the $4,637,000 in Empowerment Zone
      Benefited Zone Residents                  monies committed to fund five projects that have not
      Or Benefited Less Than                    provided benefits to Empowerment Zone residents or
      50 Percent Of Zone                        benefited only 27 percent of Zone residents as of October
      Residents                                 2002. Four of the five projects are scheduled for
                                                completion between June 2004 and June 2005, and the
                                                remaining project was completed in June 2001. Since the
                                                four projects spent 87 percent of their Zone funds
                                                committed, benefits to Empowerment Zone residents would
                                                be expected. However, this has not occurred. We believe
                                                the City’s use of Empowerment Zone funds for the five
                                                projects does not meet HUD’s Empowerment Zone
                                                regulation at 24 CFR Part 598.215(b)(4)(i)(D) that
                                                incorporates the Appendix from the April 16, 1998 Federal
                                                Register requiring all projects financed in whole or in part
                                                with Zone funds be structured to primarily benefit Zone
                                                residents. However, HUD must make a determination
                                                whether the Cities’ use of Zone funds was appropriate.

                                                The following table shows for each of the five projects as of
                                                October 2002: the actual start date; the projected or actual
                                                completion date; Empowerment Zone funds committed;
                                                Zone funds spent; total number of individuals served; actual
                                                number of Zone residents served; and the percentage of Zone
                                                residents served.

                                     Projected/                   Zone          Total    Number      Percentage
                            Actual     Actual      Zone Funds    Funds       Number Of Of Zone        Of Zone
                            Start    Completion    Committed    Spent On     Individuals Residents    Residents
         Project             Date       Date       To Project    Project       Served     Served       Served
American College Testing    4/1/99    6/30/04        $52,500     $50,730         0           0           0
Work Keys
Huntington Industrial       4/1/99    6/30/04       $292,000    $292,000         0           0           0
Center
South Point                 4/1/99    6/30/05      $3,542,500   $2,942,967       0           0           0
Douglass Building           4/1/99    6/30/04       $650,000    $650,000         0           0           0
Renovations
City of Huntington Street   4/1/99    6/30/01       $100,000    $100,000        334         90          27
Improvements
         Totals                                   $4,637,000    $4,035,697

                                                Huntington, West Virginia/Ironton, Ohio Empowerment
                                                Zone, Inc. executed contracts between July 1, 1999 and
                                                November 1, 2001 with the five projects’ administering
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                   entities. None of the Empowerment Zone, Inc.’s contracts
                   required the projects to primarily serve Empowerment Zone
                   residents. Additionally, the April 16, 1998 Federal Register
                   does not provide a definition for primarily benefits
                   Empowerment Zone residents. HUD issued a memorandum
                   on July 2, 2002 that provided guidance to Empowerment
                   Zones regarding benefits to Zone residents.

                   HUD’s July 2002 memorandum states HUD presumes an
                   Implementation Plan is consistent with an Empowerment
                   Zone’s strategic plan if at least a majority, 51 percent, of the
                   beneficiaries of an activity are Zone residents. The
                   memorandum also states that in computing the percentage of
                   beneficiaries who are Zone residents where the benefit is in
                   the form of jobs, at least 35 percent of those jobs must be
                   filled by Zone residents. Since HUD’s memorandum was
                   issued after the five projects were started, the memorandum
                   cannot be used retroactively to determine the appropriateness
                   of Empowerment Zone funds used for the projects.
                   Therefore, HUD must make a determination whether the
                   Cities’ use of Zone funds for the five projects was
                   appropriate.



Auditee Comments   [Excerpts paraphrased from the comments provided by the
                   Executive Director of Huntington, West Virginia/Ironton,
                   Ohio Empowerment Zone, Inc. on our draft audit report
                   follow. Appendix C, pages 52 and 53, contains the
                   complete text of the comments for this finding.]

                   Huntington, West Virginia/Ironton, Ohio Empowerment
                   Zone, Inc. believes that:

                      ·   Given that four of the five projects will not be
                          complete until after June 2004, the heading for this
                          finding implying a past failure is inaccurate and
                          should be changed;
                      ·   The reference to the Federal Register is inaccurate
                          and should be changed to show that the Appendix is
                          entitled: Guidelines on Eligible Uses of
                          Empowerment Zone/Enterprise Community Social
                          Security Block Grant Funds; and
                      ·   The legal governing regulations are not contained in
                          the Appendix or the Federal Register publication of
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                              the interim rule, but rather at 53 CFR 19155. The
                              Appendix does not exist as a governing document
                              because it was dropped in the Code of Federal
                              Regulations and it applies only to Social Security
                              Block Grant monies that did not fund the Round II
                              Empowerment Zones. The Federal Register included
                              the Appendix in case Social Security Block Grant
                              funds were provided to the Round II Zones and was
                              made moot by the fact that such funding never
                              occurred.

                       Actual funding took place for the Cities of Huntington, West
                       Virginia and Ironton, Ohio Empowerment Zone as a result of
                       HUD signing a contract with the Cities on June 11, 1999 and
                       HUD’s subsequent approval of the action budget for the first
                       year that resulted in a draw of funds for administrative costs
                       on July 23, 1999. HUD approved subsequent annual plans
                       for the five projects cited by HUD’s Office of Inspector
                       General for failing a regulatory test.

                       There is no HUD regulation defining primary benefit.
                       HUD’s Office of General Counsel stated that without a
                       publication for comment in the Federal Register, the July 2,
                       2002 memorandum cited by the Office of Inspector General
                       carries no legal authority for HUD to make any
                       determination carrying with it any sanction against an
                       Empowerment Zone Program based upon its content and
                       standards. Until there is a Federal regulatory or statutory
                       definition for required resident benefit, the Cities will
                       continue to follow the current rules that allow for local
                       decision-making in defining benefit for Zone residents.

                       This finding should be eliminated from the audit report since
                       its conclusion has no legal standing and its recommendation
                       suggests a legal authority that does not exist.



   OIG Evaluation Of   The Cities and Huntington, West Virginia/Ironton, Ohio
   Auditee Comments    Empowerment Zone, Inc. claim that there is no legal
                       governing regulation in the Federal Register or its
                       Appendix is incorrect. The Cities and HUD executed a
                       Memorandum of Agreement effective January 1, 1999 that
                       required the Cities to comply with HUD’s Empowerment
                       Zone regulations at 24 CFR Part 598. 24 CFR Part 598.215
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                  (b)(4)(i)(D) required the Cities to outline in a detailed plan
                  how their Empowerment Zone will implement the Cities’
                  Strategic Plan that included details about proposed uses of
                  Zone funds in accordance with guidelines published on
                  April 16, 1998 in the Federal Register’s Appendix.
                  Paragraph (3)(f) of the April 16, 1998 Federal Register’s
                  Appendix required all programs, services, and activities
                  financed in whole or in part with Round II Empowerment
                  Zone funds must be structured to primarily benefit Zone
                  residents. The program, services, and activities may also
                  benefit non-Zone residents. Therefore, the Cities were
                  required to follow the April 16, 1998 Federal Register’s
                  Appendix regarding the use of Zone funds.

                  We agree with the Cities and Huntington, West
                  Virginia/Ironton, Ohio Empowerment Zone, Inc. that
                  HUD’s July 2, 2002 memorandum has no legal authority
                  for HUD to make a determination regarding the use of Zone
                  funds. As our audit report states that since HUD’s
                  memorandum was issued after the five projects were
                  started, the memorandum cannot be used retroactively to
                  determine the appropriateness of Empowerment Zone funds
                  used for the projects. Therefore, HUD must make a
                  determination whether the Cities’ use of Zone funds for the
                  five projects was appropriate.          Huntington, West
                  Virginia/Ironton, Ohio Empowerment Zone, Inc.’s
                  Executive Director claims that governing regulations for
                  the Empowerment Zone Program are located at 53 CFR
                  19155; however, there is no such Federal regulation.

                  We also agree that there is no regulatory or statutory
                  definition regarding resident benefit. As stated in our audit
                  report, the Appendix in the April 16, 1998 Federal Register
                  does not provide a definition of primarily benefits
                  Empowerment Zone residents. Again, HUD must make a
                  determination whether the Cities’ use of Zone funds for the
                  five projects was appropriate.




Recommendations   We recommend that HUD’s Director of Renewal
                  Communities/Empowerment Zones/Enterprise Communities
                  Initiative assure the Cities of Huntington, West Virginia and
                  Ironton, Ohio:

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               3A.      Implement procedures and controls to ensure that
                        Empowerment Zone contracts meet Empowerment
                        Zone Program requirements regarding benefits to
                        Zone residents.

               3B.      Amend the contracts for the four projects cited in this
                        finding scheduled for completion between June 2004
                        and June 2005 to include requirements regarding
                        benefits to Zone residents.

               We also recommend that HUD’s Director of Renewal
               Communities/Empowerment Zones/Enterprise Communities
               Initiative:

               3C.      Ensures the five projects cited in this finding
                        primarily benefit Empowerment Zone residents as
                        required by the April 16, 1998 Federal Register. If
                        HUD determines that the projects do not primarily
                        benefit Zone residents, then HUD should require the
                        Cities of Huntington, West Virginia and Ironton,
                        Ohio to reimburse their Empowerment Zone Program
                        the applicable amount from non-Federal funds.




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Management 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
 Relevant Management                 were relevant to our audit objectives:
 Controls
                                     ·   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
                                     during our audit of the Cities of Huntington, West Virginia
                                     and Ironton, Ohio’s Empowerment Zone Program.

                                     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              significant weaknesses:




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                      ·   Program Operations

                      The Cities did not use all Empowerment Zone funds to
                      benefit Zone residents or the Zone as required by the Cities’
                      Strategic Plan and the September 8, 1999 Agreement for
                      the Marting Hotel Renovation project (see Finding 1).

                      ·   Validity and Reliability of Data

                      The Cities incorrectly reported the actual status and/or
                      progress for five of the 10 projects we reviewed from their
                      June 30, 2001 or June 30, 2002 Annual Reports. The Cities’
                      June 2001 Report contained inaccuracies related to five
                      projects’ progress on projected outputs and one project’s
                      percentage of completion on a project milestone (see Finding
                      2).

                      ·   Compliance with Laws and Regulations

                      The Cities did not follow 24 CFR Part 598.215 (b)(4)(i)(D)
                      or the April 16, 1998 Federal Register. Empowerment Zone
                      funds were used and did not benefit Empowerment Zone
                      residents (see Finding 1). Additionally, the Cities failed to
                      follow HUD’s regulation regarding the reporting of actual
                      status and/or progress for five of the 10 projects we reviewed
                      from their June 30, 2001 or June 30, 2002 Annual Reports
                      (see Finding 2).

                      ·   Safeguarding Resources

                      The Cities inappropriately used $160,000 of Empowerment
                      Zone funds for services that did not benefit Zone residents as
                      required by the Cities’ Strategic Plan and the September 8,
                      1999 Agreement for the Marting Hotel Renovation project
                      (see Finding 1).




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Follow Up On Prior Audits
This is the first audit of the Cities of Huntington, West Virginia and Ironton, Ohio’s Empowerment
Zone Program by HUD’s Office of Inspector General. The latest Independent Auditors’ Reports
for the City of Huntington, West Virginia and Huntington, West Virginia/Ironton, Ohio
Empowerment Zone, Inc., the administering entity of the Cities’ Program, covered the periods
ending June 30, 2001. The latest Independent Auditor’s Report for the City of Ironton, Ohio
covered the period ending December 31, 2001. The Reports contained no findings.




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                                                                                       Appendix A

Schedule Of Ineligible Costs

                       Recommendation
                          Number              Ineligible Costs 1/

                              1A                 $160,000
                             Total               $160,000


1/          Ineligible costs are costs charged to a HUD-financed or insured program or activity that
            the auditor believes are not allowable by law, contract, or Federal, State, or local
            policies or regulations.




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                                                                                    Appendix B

Projects Reviewed
This appendix contains the individual evaluations for the projects we reviewed. We selected 10
of the Cities of Huntington, West Virginia and Ironton, Ohio’s 29 projects reported in their June
30, 2001 or June 30, 2002 Annual Reports. We found that the Cities inappropriately used
Empowerment Zone funds for one project and inaccurately reported the accomplishments of its
Program to HUD for five projects. The following table shows the five projects that had
problems, the location of their evaluation in this appendix, and the finding(s) they relate to.

                                  Project                                    Page     Finding
 Marting Hotel Renovations                                                    28      1 and 2
 American College Testing Work Keys                                           35         2
 School Based Behavioral Health Services                                      38         2
 Universal Screening                                                          41         2
 Huntington Industrial Center                                                 43         2




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       Controls Over Marting Hotel Renovation
             Project Were Not Adequate
The Cities of Huntington, West Virginia and Ironton, Ohio did not maintain adequate controls
over the Marting Hotel Renovation project. The Cities did not ensure that $160,000 of
Empowerment Zone funds benefited Zone residents. The Cities’ Strategic Plan for the Marting
Hotel Renovation project showed that low to moderate income, elderly households residing in
the Zone would be the targeted group to occupy the project. However, this was not done.
Additionally, the September 8, 1999 Agreement for the project showed that 50 Zone residents
projected to be served. However, Zone residents have only occupied 10 of the 50 units as of
November 2002. The Cities also inaccurately reported the project’s outputs for the number of
Empowerment Zone residents who were provided with housing and the number of Zone resident
jobs created or retained. The inappropriate use of the Zone funds and inaccurate reporting occurred
because Huntington, West Virginia/Ironton, Ohio Empowerment Zone, Inc., the administering
entity of the Cities’ Empowerment Zone Program, did not ensure the use of Empowerment Zone
funds benefited Zone residents and verify the accuracy of the information included in the June
2001 Annual Report. As a result, Empowerment Zone funds were not used efficiently and
effectively. The Cities also did not provide HUD with an accurate representation of the project and
the impression exists that the benefits of the project are greater than actually achieved.


                                      Page 1 of the Memorandum of Agreement effective January
 Federal Requirements                 1, 1999, between the Cities of Huntington, West Virginia
 And Cities’ Strategic Plan           and Ironton, Ohio and HUD, requires the Cities to comply
                                      with HUD’s Empowerment Zone regulations at 24 CFR
                                      Part 598.

                                      24 CFR Part 598.215 (b)(4)(i)(D) states a detailed plan that
                                      outlines how an Empowerment Zone will implement its
                                      strategic plan must include details about proposed uses of
                                      Zone funds in accordance with guidelines published on
                                      April 16, 1998 in the Federal Register’s Appendix.

                                      Paragraph (3)(c) of the April 16, 1998 Federal Register,
                                      Appendix-Guidelines on Eligible Uses of Empowerment
                                      Zone Funds, requires Empowerment Zones to ensure that
                                      each proposed use of Zone funds is included in their strategic
                                      plans.

                                      The Cities of Huntington, West Virginia and Ironton,
                                      Ohio’s Strategic Plan dated October 9, 1998 states the
                                      objective of the Marting Hotel Renovation project is to
                                      renovate the Marting Hotel in downtown Ironton, Ohio to
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                             provide 50 new units of rental housing to the elderly. The
                             Cities’ Strategic Plan also shows low to moderate income,
                             elderly households residing in the Empowerment Zone as
                             the targeted group to occupy the project.

                             Section 1(a) of the September 8, 1999 Agreement between
Zone, Inc.’s Contract With   Huntington, West Virginia/Ironton, Ohio Empowerment
Community Action             Zone, Inc. and Ironton-Lawrence County Community
Organization                 Action Organization, Inc., the administering entity of the
                             Marting Hotel Renovation project, requires Community
                             Action Organization to provide housing services in
                             accordance with the Cities’ October 9, 1998 Strategic Plan.
                             Exhibit C, Section V(F)(2), of the Agreement projected that
                             50 Empowerment Zone residents would be served by the
                             project.

                             The Cities lacked adequate oversight over the Marting Hotel
The Cities Did Not Have      Renovation project. Huntington, West Virginia/Ironton,
Adequate Control Over        Ohio Empowerment Zone, Inc., the administering entity for
Zone Funds                   the Cities’ Empowerment Zone Program, executed an
                             agreement on September 8, 1999 with the Ironton-Lawrence
                             County Community Action Organization, Inc. to renovate the
                             Marting Hotel in downtown Ironton, Ohio to provide
                             housing services in accordance with the Cities’ October 9,
                             1998 Strategic Plan. The Cities’ Strategic Plan dated
                             October 9, 1998 states the objective of the Marting Hotel
                             Renovation project is to provide 50 new units of rental
                             housing to the elderly. The Cities’ Strategic Plan also shows
                             low to moderate income, elderly households residing in the
                             Empowerment Zone as the targeted group to occupy the
                             project. The Cities provided $200,000 in Zone funds for the
                             project.

                             RLJ Management Company, the management company for
                             the project, leased all 50 units as of November 26, 2002.
                             However, documentation provided by RLJ Management
                             Company showed that only 10 of the 50 units (20 percent)
                             were leased to elderly, Empowerment Zone households with
                             low to moderate incomes. Of the remaining 40 units,
                             individuals who previously resided outside of the two
                             counties where the Huntington, West Virginia/Ironton, Ohio
                             Empowerment Zone is located occupied 15 units. Therefore,
                             the intended beneficiaries of the Empowerment Zone were
                             not served.

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                              The     Executive    Director    of    Huntington,   West
                              Virginia/Ironton, Ohio Empowerment Zone, Inc. said she
                              believed Zone residents occupied all 50 units. However, she
                              said the Empowerment Zone, Inc. had not monitored the use
                              of Zone funds for the Marting Hotel Renovation project to
                              determine whether the 50 units were occupied by elderly,
                              Empowerment Zone households with low to moderate
                              incomes. Exhibit C, Section V(F)(2), of the September 8,
                              1999 Agreement for the project showed that 50
                              Empowerment Zone residents were projected to be served by
                              the Marting Hotel Renovation project.

                              The Executive Director of Huntington, West
                              Virginia/Ironton, Ohio Empowerment Zone, Inc. said the
                              Cities’ Strategic Plan shows that low to moderate income,
                              elderly households residing in the Empowerment Zone
                              were the targeted group to occupy the Marting Hotel
                              project. However, this was not done. The President of RLJ
                              Management Company said his company was not instructed
                              to target low to moderate income, elderly households
                              residing in the Empowerment Zone. He said his company
                              only made sure that elderly, low to moderate income
                              households occupied the project in order to meet the Low
                              Income Housing Tax Credit requirements.

                              RLJ Management Company’s Property Manager provided
                              documentation regarding the marketing efforts for the
                              Marting Hotel Renovation project. The documentation
                              included: an in-house pamphlet that prospective tenants may
                              obtain by visiting the project; a flier distributed during the
                              project’s open house held in November 2001; 13 newspaper
                              advertisements; and a radio advertisement. Six of the 13
                              newspaper advertisements were published in newspapers
                              located outside of Huntington, West Virginia and Ironton,
                              Ohio. None of the marketing efforts mentioned that the
                              project was targeting Empowerment Zone residents. As a
                              result, $160,000 ($200,000 times 80 percent of the project
                              occupied by non-Zone households) of the Zone funds was
                              not used effectively and efficiently.

                              The Cities incorrectly reported in their June 30, 2001 Annual
 The Cities Inaccurately      Report the number of Empowerment Zone residents who
 Reported Project’s Outputs   received housing and the number of Zone resident jobs
                              created or retained. The Cities reported that 23 Zone
                              residents were provided with housing and that one Zone
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                   resident job was created or retained.           However,
                   documentation provided by RLJ Management Company
                   showed that only four Zone residents received housing and
                   no Zone resident jobs were created or retained.

                   The      Executive     Director     of    Huntington,     West
                   Virginia/Ironton, Ohio Empowerment Zone, Inc. said she
                   believes a determination whether individuals are
                   Empowerment Zone residents should be made at the time
                   individuals move into the Zone. The Director also said she
                   believes all individuals that leased units at the Marting Hotel
                   Renovation project should be considered Empowerment
                   Zone residents. However, the September 8, 1999 Agreement
                   for the project showed that 50 Empowerment Zone residents
                   were projected to be served by the Marting Hotel Renovation
                   project. Based upon the September 1999 Agreement, the
                   individuals must already be Zone residents for the Cities to
                   report them in their Annual Report to HUD.



Auditee Comments   [Excerpts paraphrased from the comments provided by the
                   Executive Director of Huntington, West Virginia/Ironton,
                   Ohio Empowerment Zone, Inc. on our draft audit report
                   follow. Appendix C, pages 46 to 48, contains the complete
                   text of the comments for this project.]

                   HUD’s Office of Inspector General incorrectly cited the
                   Cities’ Strategic Plan for the Marting Hotel Renovation
                   project. The objective of the project as stated in the Plan is
                   to renovate the Marting Hotel in downtown Ironton to
                   provide 50 new units of rental housing for the elderly. The
                   Plan shows low to moderate income, elderly households
                   residing in the Empowerment Zone as the targeted group.
                   The Plan clearly does not state that the Cities must place
                   existing Zone residents in the units or that the Cities are
                   targeting all 50 units to existing Zone residents. To target a
                   certain population for housing does not mean one must place
                   only the population in the units and exclude all others. By
                   definition, target means to direct one’s efforts. Huntington,
                   West Virginia/Ironton, Ohio Empowerment Zone, Inc.’s
                   project files include supporting documentation on
                   marketing the units upon completion of the renovations.
                   As a result, 10 households who were currently residing in

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               the Zone that were elderly with low incomes moved into
               the project.

               From the inception of Marting Hotel Renovation project, the
               renovations were primarily funded from the issuance of Low
               Income Housing Tax Credits. The Tax Credits could have
               never been sought for a project conditioned on rental to only
               existing Empowerment Zone residents. Therefore, all 50
               units were intended for and were rented to low income,
               elderly households. The Cities’ Strategic Plan states the
               objective of the project is to provide 50 new units of rental
               housing for the elderly. Since occupancy of the units began
               in April 2000, 60 households resided in the 50 units.

               By virtue of the Marting Hotel Renovation project being
               located in the Empowerment Zone, the Huntington, West
               Virginia/Ironton, Ohio Empowerment Zone, Inc.
               determined that Zone residents occupied all 50 units.
               Defining resident benefit was left to the locality as who
               benefits from the activity. Each resident who moved into
               the units benefited from the project and since their address
               is within the Zone, they are considered Zone residents.
               HUD concurs with the Cities’ definition as shown by its
               July 2, 2002 memorandum that states a beneficiary will be
               considered a Zone resident when the activity is completed
               and the household’s residence is located within the Zone.

               As a result of the Cities’ investment of $200,000 in a
               $4,500,000 project, the City of Ironton Empowerment
               Zone: gained 40 new Zone residents; provided 10 existing
               residents with safe, affordable housing; renovated a vacant,
               blighted building; improved a pivotal structure; and
               provided 5,000 square feet of renovated space for a
               potential private business. The Empowerment Zone’s
               financial participation was less than five percent of the total
               project costs and achieved multiple objectives in
               accordance with the Cities’ Strategic Plan. Given that this
               project is both a success and consistent with the Plan, the
               Cities disagree fully with the finding, and the
               recommendations for reimbursement and implementation
               of new procedures to ensure that Empowerment Zone funds
               are used efficiently and effectively, and in accordance with
               Empowerment Zone Program requirements.



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                    In the Cities’ June 30, 2001 Annual Report, the Cities
                    reported that the Marting Hotel Renovation project
                    provided 23 Zone households with housing units. For the
                    Cities June 30, 2002 Annual Report, 50 Zone households
                    were provided housing units since the building reached 100
                    percent occupancy.      Additionally, Huntington, West
                    Virginia/Ironton, Ohio Empowerment Zone, Inc.
                    maintained proper file documentation to support the one
                    new job created. The new job is the project’s Housing
                    Manager and she resides in one of the project’s units.



OIG Evaluation Of   We adjusted our audit report to show that the Cities’
Auditee Comments    Strategic Plan dated October 9, 1998 states the objective of
                    the Marting Hotel Renovation project is to provide 50 new
                    units of rental housing to the elderly and the Plan shows
                    low to moderate income, elderly households residing in the
                    Empowerment Zone as the targeted group to occupy the
                    project. However, this was not done. Huntington, West
                    Virginia/Ironton, Ohio Empowerment Zone, Inc.’s
                    Executive Director claimed that the project’s files include
                    supporting documentation on marketing the units upon
                    completion of the renovations, but no documentation was
                    provided to support this claim. Additionally, the President
                    of RLJ Management Company said his company was not
                    instructed to target low to moderate income, elderly
                    households residing in the Empowerment Zone. He said
                    his company only made sure that elderly, low to moderate
                    income households occupied the project in order to meet
                    the Low Income Housing Tax Credit requirements.

                    Exhibit C, Section V(F)(2), of the September 8, 1999
                    Agreement between Huntington, West Virginia/Ironton,
                    Ohio Empowerment Zone, Inc. and Ironton-Lawrence
                    County Community Action Organization, Inc. showed that
                    50 Empowerment Zone residents were projected to be
                    served by the project.     Based upon the supporting
                    documentation provided by RLJ Management Company,
                    only 10 of the 50 units were leased to elderly,
                    Empowerment Zone households with low to moderate
                    incomes. Therefore, the terms of the Agreement were not
                    met.


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               The Marting Hotel Renovation project was initiated before
               HUD’s July 2, 2002 memorandum; therefore, HUD’s
               definition of benefits to Empowerment Zone residents
               cannot be used retroactively. As previously mentioned, the
               September 8, 1999 Agreement for the project showed that
               50 Empowerment Zone residents were projected to be
               served by the project. However, this was not done.

               We agree that the Marting Hotel Renovation project
               provided benefits to the City of Ironton Empowerment
               Zone. However, the benefits were not in full compliance
               with the Cities’ Strategic Plan and the September 1999
               Agreement for the project. The Cities should reimburse
               their Empowerment Zone Program from non-Federal funds
               for the improper use of Zone funds to provide housing to
               non-Zone residents. The Cities should also implement
               procedures and controls to ensure that Empowerment Zone
               funds are used efficiently and effectively, and in accordance
               with Empowerment Zone Program requirements.

               The Cities incorrectly reported in their June 30, 2001
               Annual Report the number of Empowerment Zone residents
               who received housing and the number of Zone resident jobs
               created or retained. The Cities reported that 23 Zone
               residents were provided with housing and that one Zone
               resident job was created or retained.           However,
               documentation provided by RLJ Management Company
               showed that only four Zone residents received housing and
               no Zone resident jobs were created or retained.




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Accomplishments Of American College Testing
Work Keys Project Were Inaccurately Reported
The Cities of Huntington, West Virginia and Ironton, Ohio incorrectly reported the
accomplishments of the American College Testing Work Keys project in their June 30, 2001
Annual Report. The Cities inaccurately reported the percentage of completion on the project’s
milestone that 50 Empowerment Zone residents be hired and the project’s output for the number
of Zone residents placed in jobs. The inaccurate reporting occurred because Huntington, West
Virginia/Ironton, Ohio Empowerment Zone, Inc., the administering entity of the Cities’
Empowerment Zone Program, did not verify the accuracy of the information included in the June
2001 Annual Report. As a result, the Cities did not provide HUD with an accurate representation
of the project and the impression exists that the benefits of the project are greater than actually
achieved.



                                      In their June 30, 2001 Annual Report, the Cities
 The Cities Inaccurately              inaccurately reported the percentage of completion on
 Reported Project’s                   American College Testing Work Keys project’s milestone
 Milestone And Output                 that 50 Empowerment Zone residents be hired and the
                                      project’s output for the number of Zone residents placed in
                                      jobs. The Cities reported that the project was 25 percent
                                      complete on the project’s milestone of hiring 50 Zone
                                      residents and the project’s output that 15 Zone residents
                                      were placed in jobs.

                                      Documentation maintained by Collins Career Center,
                                      American College Testing Work Keys project’s
                                      administering entity, showed that the project had not
                                      resulted in jobs for any Zone residents as of June 30, 2001.
                                      The Center reported to Huntington, West Virginia/Ironton,
                                      Ohio Empowerment Zone, Inc., the administering entity of
                                      the Cities’ Empowerment Zone Program, that no jobs
                                      resulted from the project for Zone residents.

                                      The     Executive     Director  of    Huntington,     West
                                      Virginia/Ironton, Ohio Empowerment Zone, Inc., the
                                      administering entity of the Cities’ Empowerment Zone
                                      Program, stated the accomplishments in the Cities’ Annual
                                      Report should show all of the Zone residents placed in jobs
                                      by the Collins Career Center, even if Zone funds were not
                                      used to place the Zone residents in jobs. As a result, the
                                      Cities did not provide HUD with an accurate representation
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                       of the project and the impression exists that the benefits of
                       the project are greater than actually achieved.



   Auditee Comments    [Excerpts paraphrased from the comments provided by the
                       Executive Director of Huntington, West Virginia/Ironton,
                       Ohio Empowerment Zone, Inc. on our draft audit report
                       follow. Appendix C, page 49, contains the complete text of
                       the comments for this project.]

                       Huntington, West Virginia/Ironton, Ohio Empowerment
                       Zone, Inc.’s contracts with Collins Career Center, the
                       administering entity for American College Testing Work
                       Keys project, provide for work force development in the
                       areas of assessment, job profiles, skills testing, and training
                       to private businesses. As of June 30, 2002, the Center was
                       working with four manufacturing businesses.               After
                       contracting with the Empowerment Zone, Inc. to receive
                       Empowerment Zone monies, the Center received funding
                       from the State of Ohio to pay for workforce development
                       assistance. The State funding was used for one of the four
                       businesses that created new jobs and ultimately hired 15
                       Zone residents. The Empowerment Zone, Inc. reported this
                       accomplishment because Empowerment Zone objectives
                       were achieved and leveraged with the assistance of other
                       funds. The Center provided the Empowerment Zone, Inc.
                       with a list of employees hired and staff confirmed that the
                       employees resided in the Zone. Based upon the 15 Zone
                       residents employed by the manufacturing business, the
                       Empowerment Zone, Inc. reported the project’s milestone
                       for job creation was 25 percent complete.

                       Huntington, West Virginia/Ironton, Ohio Empowerment
                       Zone, Inc. is not aware of any Federal requirements that only
                       accomplishments funded by the Empowerment Zone may be
                       reported in the Annual Report. The Empowerment Zone,
                       Inc. will amend the Cities’ Implementation Plan for the
                       American College Testing Work Keys project to include
                       funding provided by the State of Ohio and maintain
                       documentation to support the State’s funds.


   OIG Evaluation Of   The Cities reported that the American College Testing
   Auditee Comments    Work Keys project was 25 percent complete on its
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       milestone of hiring Zone residents as of June 2001.
       Documentation maintained by Collins Career Center, the
       project’s administering entity, showed that the project had
       not resulted in jobs for any Zone residents as of June 30,
       2001. Additionally, the Center’s Contractual Services
       Director said the State of Ohio funding did not relate to the
       project. She said the State funding was used for a different
       project. Therefore, the Cities incorrectly reported the
       project’s milestone in the June 2001 Annual Report.




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  Accomplishments Of School Based Behavioral
  Health Services Project Were Not Accurately
                   Reported
The Cities of Huntington, West Virginia and Ironton, Ohio inaccurately reported outputs for its
School Based Behavioral Health Services project. The Cities inaccurately reported in its June
30, 2001 Annual Report the number of Empowerment Zone children and residents served by the
project. The inaccurate reporting occurred because Huntington, West Virginia/Ironton, Ohio
Empowerment Zone, Inc., the administering entity of the Cities’ Empowerment Zone Program, did
not verify the accuracy of the information included in the June 2001 Annual Report. As a result,
the Cities did not provide HUD with an accurate representation of the project and the impression
exists that the benefits of the project are greater than actually achieved.



                                    The Cities reported in their June 30, 2001 Annual Report
 The Cities Inaccurately            that the School Based Behavioral Health Services project
 Reported Project’s Outputs         served 91 Empowerment Zone children and 1,545 residents
                                    by public meetings. Documentation maintained by Prestera
                                    Center for Mental Health, the project’s administering
                                    entity, showed that 78 Zone children were served through
                                    June 30, 2001.        The Director of Marketing and
                                    Development for Prestera Center for Mental Health said he
                                    lacked adequate documentation for residents served by the
                                    meetings.

                                    The inaccurate reporting occurred because Huntington, West
                                    Virginia/Ironton, Ohio Empowerment Zone, Inc., the
                                    administering entity of the Cities’ Empowerment Zone
                                    Program, failed to verify the accuracy of the information
                                    included in the 2001 Report. As a result, the Cities did not
                                    accurately report the accomplishments of their
                                    Empowerment Zone Program to HUD. The impression
                                    exists that the benefits of the Cities’ Empowerment Zone
                                    Program were greater than actually achieved.



   Auditee Comments                 [Excerpts paraphrased from the comments provided by the
                                    Executive Director of Huntington, West Virginia/Ironton,
                                    Ohio Empowerment Zone, Inc. on our draft audit report


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                    follow. Appendix C, page 50, contains the complete text of
                    the comments for this project.]

                    Huntington, West Virginia/Ironton, Ohio Empowerment
                    Zone, Inc. concurs that Prestera Center for Mental Health,
                    the School Based Behavioral Health Services project’s
                    administering entity, maintained case files on 78
                    Empowerment Zone children. The inconsistency between
                    what the Empowerment Zone, Inc. reported and Prestera’s
                    file documentation resulted from formal medical records
                    not opened on all children served. In 13 instances, children
                    were served for brief intervention or guidance, but a case
                    was not formally opened. Effective July 1, 2002, Prestera’s
                    reports to the Empowerment Zone, Inc. will only include
                    children that have a formal chart/record. Once HUD
                    returns the Cities’ June 2002 Annual Report, the project’s
                    outputs of Empowerment Zone residents served will be
                    amended.

                    Huntington, West Virginia/Ironton, Ohio Empowerment
                    Zone, Inc. added the output of public meetings for the School
                    Based Behavioral Health Services project to the Cities’
                    Implementation Plan to show the broad level of community
                    support and input. Prestera conducted six community
                    meetings and one workshop. Prestera counted the people in
                    attendance and reported the totals in their final report.
                    However, Prestera did not utilize sign in sheets. The local
                    newspaper reported on the community meetings and the
                    estimated number of people in attendance. Copies of the
                    newspaper article were provided to HUD’s Office of
                    Inspector General as supporting documentation to confirm
                    the meetings and estimated number of people in attendance.
                    The Empowerment Zone, Inc. contends the newspaper
                    articles are sufficient documentation to establish the
                    meetings occurred and residents attended.



OIG Evaluation Of   As indicated by Huntington, West Virginia/Ironton, Ohio
Auditee Comments    Empowerment Zone, Inc.’s comments, the number of
                    residents in attendance for the School Based Behavioral
                    Health Services project’s community meetings were
                    estimates based upon information included in a newspaper
                    article. However, the Cities reported in their June 30, 2001
                    Annual Report to HUD that 1,545 residents were served by
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               the project’s meetings. The Empowerment Zone, Inc. and
               the project’s administering lacked any documentation to
               support the number of residents served by the meetings.
               Information included in a newspaper article that cites an
               estimated number of residents served is not adequate
               documentation to support the Cities’ June 2001 Report.




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 An Output Of Universal Screening Project Was
            Inaccurately Reported
The Cities of Huntington, West Virginia and Ironton, Ohio did not accurately report in their June
30, 2001 Annual Report the output for its Universal Screening project. The Cities inaccurately
reported the number of Empowerment Zone residents served by the project. The inaccurate
reporting occurred because Huntington, West Virginia/Ironton, Ohio Empowerment Zone, Inc., the
administering entity of the Cities’ Empowerment Zone Program, did not verify the accuracy of the
information included in the June 2001 Annual Report. As a result, the Cities did not provide
HUD with an accurate representation of the project and the impression exists that the benefits of the
project are greater than actually achieved.



                                      The Cities inaccurately reported in their June 30, 2001
 The Cities Inaccurately              Annual Report the number of Empowerment Zone residents
 Reported Project’s Output            served through the Universal Screening project. The Cities
                                      reported that 276 Zone residents were served.
                                      Documentation maintained by Together Eliminating Abuse
                                      and Maltreatment for West Virginia Children, the project’s
                                      administering entity, showed that 265 Zone residents were
                                      served as of June 30, 2001. The inaccuracy was as a result
                                      of four residents counted twice, one resident counted three
                                      times, and five residents lived outside the Zone.

                                      The Executive Director for Huntington, West
                                      Virginia/Ironton, Ohio Empowerment Zone, Inc., the
                                      administering entity for the Cities’ Empowerment Zone
                                      Program, said that the reporting of the five individuals
                                      multiple times occurred because the Zone, Inc. only reviewed
                                      the addresses for the individuals served. The Executive
                                      Director also said the reporting of the five residents living
                                      outside the Empowerment Zone occurred because HUD’s
                                      website was not accurate until after the Annual Report was
                                      submitted. As a result, the Cities did not provide HUD with
                                      an accurate representation of the project and the impression
                                      exists that the benefits of the project are greater than actually
                                      achieved.




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   Auditee Comments    [Excerpts paraphrased from the comments provided by the
                       Executive Director of Huntington, West Virginia/Ironton,
                       Ohio Empowerment Zone, Inc. on our draft audit report
                       follow. Appendix C, page 50, contains the complete text of
                       the comments for this project.]

                       Huntington, West Virginia/Ironton, Ohio Empowerment
                       Zone, Inc. concurs that 265 Empowerment Zone residents
                       were served. Prior to July 1, 2002, the Empowerment Zone,
                       Inc. required administering entities to provide client numbers
                       and addresses of individuals served. The Empowerment
                       Zone, Inc. now requires the administering entities to provide
                       client names and addresses.



   OIG Evaluation Of   The actions taken by Huntington, West Virginia/Ironton,
   Auditee Comments    Ohio Empowerment Zone, Inc. to require administering
                       entities to provide client names and addresses of individuals
                       served should improve its reporting procedures, if fully
                       implemented.




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 One Of Huntington Industrial Center’s Outputs
          Was Incorrectly Reported
The Cities of Huntington, West Virginia and Ironton, Ohio failed to accurately report in their June
30, 2001 Annual Report an output for the Huntington Industrial Center project. The Cities
incorrectly reported that one Zone business received assistance from the project. The inaccurate
reporting occurred because Huntington, West Virginia/Ironton, Ohio Empowerment Zone, Inc., the
administering entity of the Cities’ Empowerment Zone Program, did not verify the accuracy of the
information included in the June 2001 Annual Report. As a result, the Cities did not provide
HUD with an accurate representation of the project and the impression exists that the benefits of the
project are greater than actually achieved.



                                      The Cities inaccurately reported in their June 30, 2001
 The Cities Inaccurately              Annual Report the number of Empowerment Zone
 Reported Project’s Output            businesses that received assistance from the Huntington
                                      Industrial Center project. Documentation maintained by
                                      Huntington Municipal Development Authority, the
                                      project’s administering entity, showed that no Zone
                                      businesses received assistance from the project as of June
                                      30, 2001.

                                      The     Executive      Director     of     Huntington,     West
                                      Virginia/Ironton, Ohio Empowerment Zone, Inc., which
                                      administers the Cities’ Empowerment Zone Program, said
                                      that the over-reporting occurred, because the Zone, Inc.’s
                                      Fiscal and Office Administrator entered the incorrect number
                                      of the output in the Performance Measurement System and
                                      the Executive Director did not verify the accuracy of the
                                      project’s information entered into the Annual Report. As a
                                      result, the Cities did not provide HUD with an accurate
                                      representation of the project and the impression exists that
                                      the benefits of the project are greater than actually achieved.



   Auditee Comments                   [Excerpts paraphrased from the comments provided by the
                                      Executive Director of Huntington, West Virginia/Ironton,
                                      Ohio Empowerment Zone, Inc. on our draft audit report
                                      follow. Appendix C, page 51, contains the complete text of
                                      the comments for this project.]

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Appendix B


                       Huntington, West Virginia/Ironton, Ohio Empowerment
                       Zone, Inc. concurs that typographical error occurred by
                       reporting one business assisted by the Huntington Industrial
                       Center project in the Cities’ June 30, 2001 Annual Report.
                       The Empowerment Zone, Inc. caught the mistake while
                       monitoring the project and corrected the error in the Cities’
                       June 30, 2002 Annual Report. The Empowerment Zone,
                       Inc. questions why this is a finding when it has monitoring
                       procedures in place to correct reporting errors and corrected
                       this output prior to the Office of Inspector General’s audit.



   OIG Evaluation Of   As our audit report shows, we did not review the Cities’ June
   Auditee Comments    30, 2002 Annual Report submitted to HUD for accuracy.
                       We reviewed the Cities’ June 30, 2001 Annual Report and
                       found that the Cities’ failed to accurately report an output for
                       the Huntington Industrial Center project. The problem
                       occurred because the Empowerment Zone, Inc.’s Fiscal and
                       Office Administrator entered the incorrect number of the
                       output in the Performance Measurement System and the
                       Executive Director did not verify the accuracy of the
                       project’s information entered into the Annual Report.
                       Therefore, the Empowerment Zone, Inc. needs to implement
                       procedures and controls to verify the accuracy of
                       information submitted to HUD for the Cities’
                       Empowerment Zone Program.




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                                                                                 Appendix D

Distribution
The Honorable Barbara A. Mikulski, Chairperson, Subcommittee on Veterans Affairs,
       HUD, and Independent Agencies, 709 Hart Senate Office Building, United States Senate,
       Washington, DC 20510
The Honorable Christopher S. Bond, Ranking Member, Subcommittee on Veterans
       Affairs, HUD, and Independent Agencies, 274 Russell Senate Office Building, United
       States Senate, Washington, DC 20510
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
David Felinton, Mayor of the City of Huntington, West Virginia
Robert Cleary, Mayor of the City of Ironton, Ohio
Cathy Burns, Executive Director of Huntington, West Virginia/Ironton, Ohio Empowerment
       Zone, Inc.




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