oversight

St. Louis, Missouri/East St. Louis, Illinois Empowerment Zones

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-12-26.

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

Telephone: (913) 551-5870                 www.hudoig.gov                          Fax: (913) 551-5877




                                                               Issue Date
                                                                       December 26, 2002
                                                              Audit Case Number
                                                                       2003-KC-1003




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



FROM: Roger E. Niesen, Regional Inspector General for Audit, 7AGA


SUBJECT:          St. Louis, Missouri/East St. Louis, Illinois Empowerment Zones
                  St. Louis, MO


                                       INTRODUCTION

We have completed an audit of the City of St. Louis Empowerment Zone Program. The
audit was conducted based upon a request from Congress. The objectives of our audit
were to determine whether the City: (1) efficiently and effectively used Empowerment
Zone funds; and (2) accurately reported the accomplishments of its Empowerment Zone
Program to HUD. Our audit covered the period of January 1, 1999 through June 30,
2002. We conducted the audit in accordance with generally accepted government
auditing standards.

To determine whether the City efficiently and effectively used Empowerment Zone funds
and accurately reported the accomplishments of its Empowerment Zone Program, we
interviewed appropriate Empowerment Zone and HUD staff, researched the Internet to
obtain background information on the Empowerment Zone, reviewed HUD’s guidance,
and performed site visits at the projects selected for detailed review. Additionally, we
reviewed the following records maintained by HUD, the St. Louis Empowerment Zone,
and administering entities:

                       ·    St. Louis Community Planning and Development files, records and
                            reports
                       ·    Empowerment Zone project files
                       ·    Subgrantee files and records
                       ·    Disbursing agent documentation
Telephone: (913) 551-5870                  www.hudoig.gov                     Fax: (913) 551-5877




                       ·    HUD guidelines and other pertinent federal regulations applicable
                            to the review objectives.

We reviewed the purpose and eligibility of all the projects performed by the Zone during
the audit period. In addition, we performed a more detailed review of the activities of
four of the Zone’s 20 projects. These projects represent $2,400,000 or 45 percent of the
Zone’s $5,278,675 in total funding commitments and fall into three of the four main
funding categories contained in the City’s Strategic Plan. We chose these four projects
because they were the only projects that had expended at least 85 percent and $100,000
of their committed funding.

The following table shows the four activities reviewed:

                                           Activity
                  1. Parson’s Place Phase 1
                  2. Near Southside Hope Senior Housing
                  3. Midwest Telecommunications Preparatory Academy
                  4. River South Recreation Area Remediation

We concluded that the City did not correctly report all accomplishments of its
Empowerment Zone Program to HUD. This report contains one recommendation requiring
corrective action.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for
each recommendation without a management decision, a status report on: (1) the corrective
action taken; (2) the proposed corrective action and the date to be completed; or (3) why
action is considered unnecessary. Additional status reports are required at 90 days and 120
days after report issuance for any recommendation without a management decision. Also,
please furnish us copies of any correspondence or directives issued because of the audit.

Should you or your staff have any questions, please contact me at (913) 551-5870.


                                           SUMMARY

We have completed an audit of the City of St. Louis Empowerment Zone Program. The
audit was conducted based upon a request from Congress. The 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 Report 107-43 also requested HUD’s Office of
Inspector General to review the use of Empowerment Zone funds with a report to
Congress. This audit was part of our fiscal year 2002 Annual Audit Plan.

We concluded that the City did not accurately report all planned and actual outputs or
funding commitments in its June 30, 2002 Performance Review. For one of the four projects
we reviewed, the Performance Review contained information that overstated the projected
number of area residents to be served and understated the actual number of area residents


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Telephone: (913) 551-5870              www.hudoig.gov                        Fax: (913) 551-5877




served. For two of the four projects, total funding commitments were understated. This
occurred because the City projected all residents of the Empowerment Zone census tract
as being served by a construction project, whereas only the occupants of the units should
have been projected. Also, the City overlooked reporting the actual figures when it
prepared its report. HUD requires accurate information to be able to accurately review
and assess the progress of the City’s Empowerment Zone activities.


                                     BACKGROUND

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 designed to provide $250
million in tax benefits with $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
Round II Empowerment Zones were eligible to share in Federal grants and tax incentives to
finance revitalization and job creation over a ten-year period.

The cities of Wellston, St. Louis, and East St. Louis, St. Louis County and the states of
Illinois and Missouri participated in a joint planning process and applied for an
Empowerment Zone designation to receive extended benefits for development projects.
As a result, their application for Round II Empowerment Zone designation was approved
and the City of St. Louis was designated as an urban Empowerment Zone effective
January 1, 1999.

The Greater St. Louis Regional Empowerment Zone, a non-profit management corporation
was formed to administer the program. The Greater St. Louis Regional Empowerment Zone
has a board of directors representing the different geographies, residents, business and
regional development organizations. To date, the Empowerment Zone has become actively
involved in projects throughout the region and reports $4.5 million in grants, $95 million in
bonds, and a total leveraged investment of $294 million into the regional economy.

The Mayor of The City of St. Louis is Francis G. Slay and the Executive Director of the
City’s Regional Empowerment Zone Program is Michael Jones. The Empowerment Zone
operates on a calendar year of January 1 through December 31, but reports to HUD using a
fiscal year of July 1 through June 30. The Zone maintains its books and records at 100 N.
Tucker, suite 540, St. Louis, Missouri 63101.




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Telephone: (913) 551-5870             www.hudoig.gov                       Fax: (913) 551-5877




                                      FINDING 1

          The City Did Not Accurately Report Information To HUD

The City of St. Louis did not accurately report all planned and actual outputs or funding
commitments in its June 30, 2002 Performance Review. For one of the four projects we
reviewed, the Performance Review contained information that overstated the projected
number of area residents to be served and understated the actual number of area residents
served. This occurred because the City improperly calculated the projected benefit of the
project and had not received an updated report from the activity. Additionally, for two of
the four activities, total funding commitments were understated. The City overlooked
updating the actual figures when it prepared its report. HUD requires accurate
information to be able to accurately evaluate the progress and benefit of the City’s
Empowerment Zone activities



                                     The City of St. Louis is required to submit annual
  HUD’s Requirements                 progress reports to HUD according to 24 CFR
                                     598.415.

                                     HUD’s Empowerment Zone and Enterprise
                                     Community Initiative Performance Measurement
                                     System (PERMS) Guidance for Grantees states that
                                     outputs are the results immediately created upon
                                     implementation of a project or program. Outputs
                                     are set when programs and projects are designed,
                                     and should clearly explain what quantifiable
                                     product is created by the activity.       Output
                                     measurements can be modified or edited to reflect
                                     changes.

                                     The Guidance also says that sources and uses of
                                     funds should reflect the total projected funds over
                                     the life of the program or project. Sources and uses
                                     can be modified over time to reflect any significant
                                     budget changes.

                                     The City did not accurately report the planned or
  The City Inaccurately              actual outputs relating to the Parson’s Place
  Reported Output                    Development. The City’s June 30, 2002 Performance
                                     Review inaccurately reported that the activity planned
                                     to serve 2,157 zone residents. This occurred
                                     because the City projected all residents of the
                                     empowerment zone census tract as being served by
                                     the construction project, whereas only the occupants


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Telephone: (913) 551-5870   www.hudoig.gov                       Fax: (913) 551-5877




                            of the units should have been projected. We also
                            found that the City understated the number of
                            residents it actually served. The City reported that
                            zero residents were actually served. However, the
                            project was substantially complete, and as of
                            August 2002, there were 328 residents occupying
                            units and all had “move-in dates” that were prior to
                            June 30, 2002. Therefore, on its June 30, 2002
                            Performance Report, the City should have reported
                            that 328 residents were served. The City failed to
                            report an accurate figure because it had not received
                            an updated report from the administering entity.

                            The City also did not accurately report information
  The City Did Not Update   relating to funding commitments (leveraged
  Funding Commitments       funding) on two projects. The City did not update
                            the funding status to reflect actual funding
                            commitment increases as of June 30, 2002. Based
                            on information we obtained from Commonwealth
                            Land Title Company, the funding commitments for
                            Parson’s Place Housing Development and Near
                            Southside Senior Housing, both increased by
                            $2,892,235 and $27,897 respectively, but were not
                            accurately reported in the June 30, 2002
                            Performance Report. The $25,244,500 original
                            projection on Parsons’s Place increased to
                            $28,136,735, and on Near Southside Senior
                            Housing the original projection of $4,571,345
                            increased to $4,599,242. The City was unaware
                            that the commitments had changed and; therefore,
                            overlooked including the changes in its June 30,
                            2002 Performance Report.



Auditee Comments            The Executive Director of the Greater St. Louis
                            Regional Empowerment Zone provided the following
                            comments:

                            “The draft audit report referenced two PERMS
                            reporting areas that the St. Louis Regional
                            Empowerment Zone is to correct. The first is
                            accurately reporting the outputs for the Parson’s
                            Place Development and the second is correcting the
                            leverage for both the Parson’s Place Development
                            and the Near Southside Senior Housing projects.


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Telephone: (913) 551-5870   www.hudoig.gov                        Fax: (913) 551-5877




                            “The Parson’s Place Development Implementation
                            Plan G4.C3.P1 has been updated and approved by
                            HUD. The changes include updating the outputs to
                            reflect serving 328 residents served. The leverage
                            amount was also updated. Between the time of the
                            audit data gathering and today the project has been
                            completed. The project drew down $1,098,115 in
                            Empowerment Zone funds and will not be making
                            any additional requests. The leverage number for
                            this project was $27,036,735 and the total project
                            costs were $28,134,850.

                            “The Near Southside Senior Housing project
                            Implementation Plan G4.C1.P2 has been updated
                            and approved by HUD. The leverage was increased
                            to $4,599,242.

                            “The final step in correcting items mentioned in the
                            audit is to update the 2002 Annual Report to reflect
                            the changed leverage amounts and outputs. This
                            was competed December 18, 2002.”




OIG Evaluation of           The Director, Greater St. Louis Regional
                            Empowerment Zone says the Zone has corrected the
Auditee Comments            deficiencies we identified in our report for the
                            projects we reviewed. The Empowerment Zone also
                            needs to establish and implement controls to ensure
                            the Zone reports accurate information for all projects
                            in its Annual Performance Reports.



Recommendation              We recommend that the Director of Renewal
                            Communities/Empowerment          Zones/Enterprise
                            Communities Initiative ensure that the City of St.
                            Louis:

                            1A.    Establishes and implements management
                                   controls to ensure that accurate and current
                                   output goals and funding commitments are
                                   obtained and included in the Annual
                                   Performance Reports.




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Telephone: (913) 551-5870               www.hudoig.gov                      Fax: (913) 551-5877




                             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 were relevant to our audit
objectives:

    ·    Controls for determining the eligibility of each activity
    ·    Controls over determining the level of funding for each activity
    ·    Controls over compliance with laws and regulations

We assessed the relevant controls identified above.

It is a significant weakness if management controls do not provide reasonable assurance
that the process for planning, organizing, directing, and controlling program operations
will meet an organization’s objectives.

We did not identify any significant control weaknesses during our review.




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Telephone: (913) 551-5870          www.hudoig.gov                    Fax: (913) 551-5877


                                                                                 Appendix A

                        Distribution Outside of HUD
Chairman, Committee on Government Reform, 2185 Rayburn Building, House of
  Representatives, Washington, DC 20515
Ranking Member, Committee on Government Reform, 2204 Rayburn Building
  House of Representatives, Washington, DC 20515
Chairman, Committee on Governmental Affairs, senator_lieberman@lieberman.senate.gov
Ranking Member, Committee on Governmental Affairs, senator_thompson@thompson.senate.gov
Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human Resources,
  Sharon.Pinkerton@mail.house.gov
House Committee on Financial Services, Andy.Cochran@mail.house.gov
Senior Counsel, Committee on Financial Services, Clinton.Jones@mail.house.gov
Committee on Financial Services, Kay.Gibbs@mail.house.gov
Director, Housing and Telecommunications Issues, U.S. GAO, CzerwinskiS@GAO.gov
Chief Housing Branch, Office of Management and Budget, Fredburn@omb.eop.gov
Department of Veterans Affairs, Office of Inspector General, Linda.Halliday@mail.va.gov
Department of Veterans Affairs, OIG Audit Operations Division, William.Withrow@med.va.gov
Assistant Inspector General for Health Care Financing Audits, rneddo@os.dhhs.gov




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