Issue Date:
December 2, 2002
Audit Case Number:
2003-SE-1002
TO: Charles H. Williams, Director HUD’s Office of Multifamily Housing Assistance
Restructuring, HY
//Signed//
FROM: Frank E. Baca, Regional Inspector General for Audit, 0AGA
SUBJECT: Congressionally Requested Audit of the Outreach and Training Assistance Grants
(numbers FFOT98030WA and FFOT00040WA) and Intermediary Technical
Assistance Grants (numbers MTMWAPEG00017 and MTMWAPEG01015)
awarded to the Tenants Union, Seattle, Washington
INTRODUCTION
We completed an audit of the Tenants Union and Washington Low Income Housing Network’s
Outreach and Training Assistance Grants (OTAG). The Tenants Union and Washington Low
Income Housing Network (Network) jointly submitted the grant applications. The HUD grant
agreements identify the Tenants Union as the grantee. The Washington Low Income Housing
Network performed OTAG work as a sub-grantee to the Tenants Union. We also audited the
Tenants Union’s two Public Entity Grants received through an intermediary as part of HUD’s
Intermediary Technical Assistance Grant (ITAG) program. The audit determined that the
Tenants Union participated in lobbying activities, contrary to the enabling legislation and Office
of Management and Budget (OMB) Circular A-122. Further, neither grantee fully complied with
HUD and OMB Circular A-122 cost allocation requirements, resulting in $127,804 of ineligible
and questionable labor costs charged to the OTAG grants. The grantees also charged $36,394 of
other ineligible and questionable expenses to the grants.
Our report contains seven recommendations to address the issues identified in the report and
other recommendations to strengthen management controls over the grantees.
Section 1303 of the 2002 Defense Appropriation Act (Public Law 107-117) requires the HUD
Office of Inspector General to audit all activities funded by Section 514 of the Multifamily
Assisted Housing Reform and Affordability Act of 1997 (MAHRA). The directive would
include the Outreach and Training Assistance Grants (OTAG) and Intermediary Technical
Assistance Grants (ITAG) administered by the Office of Multifamily Housing Assistance
Restructuring (OMHAR). Consistent with the Congressional directive, we reviewed the
eligibility of costs with particular emphasis on identifying ineligible lobbying activities.
In conducting the audit, we reviewed the grantees' accounting records and interviewed
responsible staff. We also reviewed the requirements in MAHRA, the OTAG Notice of Fund
Availability, the OTAG and ITAG grant agreements, HUD’s requirements for grant agreements
for non-profit entities, and Office of Management and Budget’s guidance on the allowability of
costs for non-profit grantees.
The audit covered the period October 1998 through December 2001 for the OTAG grants and
July 2000 through June 2001 for the ITAG Public Entity Grants. We performed the fieldwork
at the offices of the Tenants Union and the Washington Low Income Housing Network in
Seattle, Washington from May through August 2002. We conducted the audit in accordance
with Generally Accepted Government Auditing Standards.
We appreciate the courtesies and assistance extended by the personnel of the Tenants Union and
the Washington Low Income Housing Network during our review.
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 (206) 220-5360.
SUMMARY
The Tenants Union and Washington Low Income Housing Network (Network) are co-recipients
of two OTAG grants totaling $546,926. Although the two non-profits submitted the grant
applications together, the grant agreements only identify the Tenants Union as the grantee.
The audit found that the Tenants Union used grant funds in support of its lobbying activities.
Although we were able to trace some costs directly to lobbying activities, we could not
determine the full amount of grant funds spent for lobbying due to the Tenants Union's
inadequate record keeping. The audit also found that both grantees charged excessive hourly
labor rates to the grants. Further, the grantees violated indirect cost allocation requirements of
Office of Management and Budget (OMB) Circular A-122 because they did not submit required
cost allocation plans for HUD approval, used direct costs to the grants for the indirect cost
allocation calculation, and/or did not have adequate support for the indirect cost allocation. As a
result, the grantees overcharged the grants $127,804 for direct labor. The audit also identified an
additional $8,574 ineligible and $27,820 questionable expenditures to the grants.
Our report contains recommendations to address the issues identified in the report and other
recommendations to strengthen management controls over the grant.
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BACKGROUND
The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) established
the Office of Multifamily Housing Assistance Restructuring (OMHAR) within HUD. Utilizing
the authority and guidelines under MAHRA, OMHAR’s responsibilities included the
administration of the Mark-to-Market program, which included the awarding and oversight of
the Section 514 Outreach and Training Assistance and Intermediary Technical Assistance
Grants. The objective of the Mark-to-Market program was to reduce rents to market levels and
restructure existing debt to levels supportable by these reduced rents for thousands of privately
owned multifamily properties with federally insured mortgages and rent subsidies. OMHAR
worked with property owners, Participating Administrative Entities, tenants, lenders, and others
to further the objectives of MAHRA.
Congress recognized, in Section 514 of MAHRA, that tenants of the project, residents of the
neighborhood, the local government, and other parties would be affected by the Mark-to-Market
program. Accordingly, Section 514 of MAHRA authorized the Secretary to provide up to
$10 million annually ($40 million total) for resident participation, for the period 1998 through
2001. The Secretary authorized $40 million and HUD staff awarded about $26.6 million to
38 grantees (a total for 81 grants awarded). Section 514 of MAHRA required that the Secretary
establish procedures to provide an opportunity for tenants of the project and other affected
parties to participate effectively and on a timely basis in the restructuring process established by
MAHRA. Section 514 required the procedures to take into account the need to provide tenants
of the project and other affected parties timely notice of proposed restructuring actions and
appropriate access to relevant information about restructuring activities. Eligible projects are
generally defined as HUD insured or held multifamily projects receiving project based rental
assistance. Congress specifically prohibited using Section 514 grant funds for lobbying
members of Congress.
HUD issued a Notice of Fund Availability in fiscal year 1998 and a second in fiscal year 2000
to provide opportunities for non-profit organizations to participate in the Section 514 programs.
HUD created two types of grants, the Intermediary Technical Assistance Grant (ITAG) and the
Outreach and Training Assistance Grant (OTAG). The Notice of Fund Availability for the ITAG
states that the program provides technical assistance grants through Intermediaries to sub-
recipients consisting of: (1) resident groups or tenant affiliated community-based non-profit
organizations in properties that are eligible under the Mark-to-Market program to help tenants
participate meaningfully in the Mark-to-Market process, and have input into and set priorities for
project repairs; or (2) public entities to carry out Mark-to-Market related activities for Mark-to-
Market eligible projects throughout its jurisdiction. The OTAG Notices of Fund Availability
state that the purpose of the OTAG program is to provide technical assistance to tenants of
eligible Mark-to-Market properties so that the tenants can (1) participate meaningfully in the
Mark-to-Market program, and (2) affect decisions about the future of their housing.
OMHAR also issued a December 3, 1999 memorandum authorizing the use of OTAG and ITAG
funds to assist at-risk projects. OMHAR identified these as non-Mark-to-Market projects where
the owners were opting out of the HUD assistance or prepaying the mortgages.
HUD’s regulations at 24 Code of Federal Regulation Part 84 contain the uniform administrative
requirements for grants between HUD and non-profit organizations. The regulations (24 CFR
3
84.27) require that non-profit grantees utilize the Office of Management and Budget (OMB)
Circular A-122, Cost Principles for Non-Profit Organizations, in determining the allowability of
costs to the grant. OMB Circular A-122 outlines specific guidelines for allowability of charging
salaries and related benefits to the grants and the records needed to support those salaries. For
indirect costs charged to the grant, the Circular establishes restrictions for indirect costs, and
specific methods and record keeping to support the allocation of costs.
The Circular also establishes the unallowability of costs associated with federal and state
lobbying activities. Thus, the use of federal funds for any lobbying activity is unallowable.
OMB Circular A-122 identifies some examples of unallowable lobbying activities. These
include any attempt to influence an elected official or any Government official or employee
(Direct Lobbying) or any attempt to influence the enactment or modification of any actual or
pending legislation by propaganda, demonstrations, fundraising drives, letter writing, or urging
members of the general public either for or against the legislation (Grassroots Lobbying).
The Tenants Union and Washington Low Income Tenants Network (Network) jointly applied
for OTAG grants in 1998 and 2000. HUD awarded the Tenants Union two OTAG grants in the
amounts of $236,926 for FY 1998 (grant number FFOT98030WA) and $310,000 for FY 2000
(grant number FFOT00040WA). The Tenants Union entered into a contract with the Network
on March 29, 1999 "to assist with carrying out the provisions of exhibit 2 of the grant
application". The contract specified a three-year performance period from October 1998 to
September 2001 and required the Network to provide up to 600 hours of work for each year
of the contract. The Tenants Union agreed to compensate the Network up to $27,000 per year
during the term of this agreement.
As of February 2002, the Tenants Union and the Network had spent the entire $236,926 from
the FY 1998 grant and $53,763 from the FY 2000 grant.
The Tenants Union also received two ITAG Public Entity Grants from HUD’s Intermediary,
Amador-Tuolumne Community Action Agency. The first ITAG Public Entity Grant was for
$17,179 (grant number MTMWAPEG00017) and covered the period May 2000 through
December 2001. The second ITAG Public Entity Grant was for $20,000 (grant number
MTMWAPEG01015) and covered the period June 2001 through May 2002. As of July 2002,
the Tenants Union had spent $17,165 and $5,610 of funds from the first and second ITAG Public
Entity Grants, respectively.
In addition to the OTAG grant, the Tenants Union received a total of $388,988 of HUD
Community Development Block Grant funds from the cities of Seattle and Olympia, Washington
from 1998 through 2002. During this period, the Tenants Union also received grants from non-
federal sources, including $177,464 from King County, $32,000 from the State of Washington,
$12,000 from the City of Seattle, and $193,640 from various charities, foundations, and
businesses.
OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations,
requires that audits be performed on entities that spend $300,000 or more in grant funds in any
single year. The Tenants Union and the Network did not reach this level of spending, and thus
were not required to obtain audits.
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FINDING
The Grantees Did Not Comply With HUD and OMB Requirements
The Tenants Union charged the grants for prohibited lobbying activities, contrary to
the enabling legislation and OMB Circular A-122. Further, the Tenants Union and
Washington Low Income Housing Network overcharged the OTAG grants for the hours
performing work associated with the grants, and billed the grants for other ineligible and
questionable activities. This occurred because the grantees did not fully comply with
HUD and Office of Management and Budget (OMB) Circular A-122 cost allocation
requirements. As a result, one grantee used funds for lobbying activities that should have
been used for eligible grant activities. Further, $59,194 of the $266,940 in hourly labor
costs charged to the OTAG grants were ineligible and $68,610 were questionable.
Additionally, the grantees charged $36,394 of other ineligible and questionable
expenditures to the grants.
Lobbying Activities
The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) specifically
prohibits the use of Section 514 funds to lobby members of Congress or their staffs. OMB
Circular A-122, Attachment B, Paragraph 25, contains further limitations on the grantee’s use
of federal funds for lobbying.
Circular A-122 states that grantees may not use federal funds to:
· Attempt to influence any federal or state legislation through an effort to affect the
opinions of the general public or any segment thereof. This includes the introduction of
federal or state legislation; or the enactment or modification of any pending federal or
state legislation by preparing, distributing or using publicity or propaganda, or by urging
members of the general public or any segment thereof to contribute to or participate in
any mass demonstration, march, rally, fundraising drive, lobbying campaign or letter
writing or telephone campaign. (Grassroots Lobbying)
· Attempt to influence any legislation through communication with any member or
employee of a legislative body or with any government official or employee who may
participate in the formulation of legislation. (Direct Lobbying)
· Provide a technical and factual presentation of information on a topic directly related
to the performance of a grant, contract or other agreement through hearing testimony,
statements or letters to the Congress or a State legislature, or subdivision, member, or
cognizant staff member thereof, except in response to a documented request made by
the recipient member, legislative body or subdivision.
We reviewed the grantees' activity reports, employee time sheets, invoices, and other
documentation to determine if the grant funds were supporting lobbying activities. The review
5
found indications that the Tenants Union charged direct lobbying-related costs to the grant
including $2,061 in ineligible and $2,829 in questionable charges to the OTAG grants and ITAG
Public Entity Grants.
Note that, in the vouchers related to the costs discussed below, the Tenants Union billed HUD
$40.00 per hour to the grants. However, as discussed in the following section on Labor and
Indirect Costs, we determined that $12.13 of the $40.00 billing rate was a double billing of
expenses directly charged to the grants. Therefore, for questionable hourly charges discussed
below, we only include $27.87 ($40.00 less $12.13) per hour since the $12.13 portion is already
being questioned separately as a double billing.
· The Tenants Union charged the grant $138 for translation and interpretation services for
a meeting at a housing project between the Tenants Union, tenants, and a member of a
U.S. Senator Maria Cantwell’s staff. The purpose of the meeting was to lobby for the
Senator’s support of the project’s tenants. These were charged to the 2000 ITAG Public
Entity Grant.
· On November 11, 2000, the Tenants Union held the “Tenants Convention 2000”. The
Tenants Convention agenda indicated that the hours from 3:00 to 4:30 PM of the five and
a half hour convention were scheduled for “Direct Action for R.O.O.F.” The agenda
described this activity as “ ‘Renters Outraged and Organized for Fairness’ Help kick off
the Tenants Union new campaign to pass statewide legislation which would outlaw no-
cause evictions.” According to the Tenants Union, the direct action was a picket at a
prominent landlord’s house asking that he treat tenants with respect and give reasons
when he evicts tenants. The Tenants Union issued a press release for the event, but
received no media coverage. The Tenants Union charged 64 hours to the 1998 OTAG
grant for the convention. Since one quarter of the convention was for a specific
grassroots lobbying activity, we are questioning 16 hours, one quarter of the time, as an
ineligible lobbying expense. This amounts to $446 (16 hours X $27.87 per hour), and
includes $296 for direct labor and fringe benefits, and $150 of other indirect costs.
· In a voucher submitted to HUD for the quarterly period ending March 31, 2000, the
Tenants Union charged the 1998 OTAG grant 44 hours for “Section 8 Legislative
Briefing, press outreach, tenant preparation for press conference.” According to the
Director’s report to the Tenants Union board regarding February 2000 activities, the
Section Eight Tenants Organizing Project (STOP) organizer “… recruited 10 tenants
from around the state to testify at Senate and House Housing Committee Hearings
regarding the Section 8 notice legislation…” The Director also noted that the STOP
organizer “…recruited tenants to attend a briefing for legislators regarding Section 8
housing. A press conference that (STOP organizer) organized resulted in three print
stories and 18 radio stories on the Section 8 notice legislation.” All of these activities
are characterized as grassroots lobbying by OMB Circular A-122; therefore $1,226
(44 hours X $27.87, including $814 for direct labor and fringe benefits, and $412 of
other indirect cost) charged to the grant is ineligible.
· The Tenants Union charged 9 hours to the grant for attendance and participation at City
of Seattle Councilmember Judy Nicastro's June 10, 2000 Renter's Summit. According
6
to the Spring 2000 Tenants Union Newsletter "The Renters' Summit will serve as a
springboard for Nicastro's affordable rental housing legislative agenda." This is another
example of grassroots lobbying and $251 (9 hours X $27.87, including $167 for direct
labor and fringe benefits, and $84 of other indirect cost) charged to the grant for this
activity is ineligible.
· From January 2000 through December 2001, the Tenants Union charged the grants
101.5 hours for participating in National Alliance of HUD Tenants (NAHT) conference
calls. Our review of the agendas for these conference calls determined that a substantial
portion of the calls focused on NAHT lobbying activities. Since the grantee’s timesheets
did not segregate the portion of the calls dedicated to lobbying, we are questioning the
101.5 hours charged, amounting to $2,829 in questioned costs (101.5 hours X $27.87,
including $1,878 for direct labor and fringe benefits, and $951 of other indirect cost).
OMB Circular A-122 requires the grantee to identify total lobbying costs in its indirect rate
proposal and submit a certification with the proposal that it has conformed to paragraph 25
standards and requirements. OMB Circular A-122 further requires that the grantee maintain
adequate records to support that they made the determination that the costs charged to the grant
were allowable in accordance with paragraph 25.
The Tenants Union never submitted an indirect rate proposal with the required lobbying
certification to HUD for the OTAG grants. Further, the Tenants Union did not have adequate
records segregating the amount of time spent on lobbying activities. Our review of the
timesheets for 1998 through 2001 found that the Tenants Union charged only 2 of 40,228 hours
(all hours, including non-federal) as lobbying. Although the Tenants Union’s time keeping and
accounting records contain virtually no charges for lobbying work performed, we found
indications that the Tenants Union is involved with various lobbying activities including, but
not limited to:
· Preparation of newsletters that contain specific lobbying activities, including encouraging
readers to contact federal, state and local elected representatives in support of legislation
relating to tenant rights.
· Distribution of the "STOP Watch" newsletter. As part of its operation of the Section
Eight Tenants Organizing Project (STOP), the Tenants Union distributes the STOP
Watch newsletter, which has a calendar of STOP events that includes numerous
lobbying activities, such as monthly Tenants Union Meetings, Housing Advocacy Day,
Local Housing Needs Local Laws Campaign meetings, City Council Meetings, and
meetings with elected federal representatives. Further, the minutes of STOP policy board
meetings contain discussions of various lobbying activities. According to the Tenants
Union, 18 percent of the time spent on STOP policy meetings is dedicated to lobbying
activities.
· Preparation for and participation in the June 2001 National Alliance of HUD Tenants
convention in Washington DC. This convention included many lobbying activities,
including sessions and workshops instructing attendees about various lobbying methods
and strategies.
7
Due to the lack of details in the Tenants Union’s records we could not determine the actual
amount of time spent on lobbying.
Labor and Indirect Costs
Both the Tenants Union and the Washington Low Income Housing Network charged the OTAG
grants for labor costs using flat rate hourly rates that were excessive and unsupported, resulting
in $59,194 of ineligible and $68,610 of questionable labor charges.
According to Attachment A of OMB Circular A-122, compensation for personal services
includes all compensation paid currently or accrued by the organization for services of
employees rendered during the period of the award. Allowable compensation costs include
salaries, wages, director's and executive committee member's fees, incentive awards, fringe
benefits, pension plan costs, allowances for off-site pay, incentive pay, location allowances,
hardship pay, and cost of living differentials. Compensation costs are allowable to the extent
that it is reasonable for the services rendered.
Further, Attachment A, paragraph E.2.b. states: “A non-profit organization which has not
previously established an indirect cost rate with a federal agency shall submit its initial indirect
cost proposal immediately after the organization is advised that an award will be made and, in no
event, later than three months after the effective date of the award.” Submitting a cost proposal
provides the granting agency assurance that the grant funds are being used for their stated
purposes and gives the grant recipient some assurance that the cost allocation adequately covers
the expenses related to the grant.
Tenants Union. Our review of the support included with the Tenant Union’s OTAG vouchers
used to withdraw grant funds disclosed that the Tenants Union billed its labor costs at a flat rate
of $35 per hour for the first four vouchers, and $40 per hour for the remaining eight vouchers.
Total labor costs billed to the grants amounted to $190,867 for 4,880 hours. However, the
grantee was only able to show support for an actual average hourly labor cost, including benefits,
of only $18.50 per hour. Therefore, actual labor costs for the 4,880 hours amounted to $90,280,
$100,587 less than the amount charged to the grants. The reason for the $100,587 difference
consists mainly in the ineligible inclusion of directly charged expenses in the rate calculation,
and in indirect charges made without an allocation plan.
When calculating the labor rate charged to its OTAG grants, the Tenants Union included
budgeted amounts for translation fees, payments to the subgrantee, travel expenses, and
conference and training expenses. However, the Tenants Union also charged the grants
for these items as direct costs. Inclusion of these amounts accounted for $12.13 of the labor
rate charged to the grants. Thus the double billing for these expenses resulted in $59,194
(4,880 hours x $12.13) of ineligible labor charges to the grants.
Further, the Tenants Union did not submit an indirect cost rate proposal to HUD for approval
subsequent to receiving the OTAG grants. Thus neither HUD nor the Tenants Union were
assured that the expenses included in the indirect cost allocation were eligible and that all
eligible expenses were included in the indirect cost rate. Accordingly, we are questioning an
additional $33,844 of other/indirect costs allocated to the Tenants Union’s OTAG grants
8
($100,587 less $59,194 ineligible costs and $7,549 of other/indirect costs questioned in other
sections of this report).
Washington Low Income Housing Network. Our review of the $76,173 charged to the grants for
labor performed by the sub-grantee, the Washington Low Income Housing Network (Network)
found that the Network billed the grants at an average labor rate of $42 per hour when its actual
labor costs (including fringe benefits, leave accrual, and taxes) averaged $22.33 per hour. The
actual labor costs for the 1,827 hours charged was $40,801. Thus the Network overcharged the
grants by $34,766 ($35,372 total other/indirect costs charged to the grant, less $606 of other/
indirect costs questioned in other sections of this report).
The Network did not provide support for the difference between the actual labor costs and the
amounts charged to the grants and did not prepare a cost allocation plan for its indirect costs,
claiming that they were not the grantee but rather a contractor for the Tenants Union, and were
not subject to the requirements of OMB Circular A-122. However, paragraph 3.a. of A-122
provides that: “All cost reimbursement subawards (subgrants, subcontracts, etc.) are subject to
those federal cost principles applicable to the particular organization concerned. Thus, if a
subaward is to a non-profit organization, this Circular shall apply….” Since the Network is a
non-profit and is subject to A-122, we are questioning the $34,766 in labor overcharges that the
Network made to the grants.
Direct Costs
OMB A-122, Attachment A, paragraph B.1., states: “Direct costs are those that can be identified
specifically with a particular final cost objective, i.e., a particular award, project, service, or other
direct activity of an organization. However, a cost may not be assigned to an award as a direct
cost if any other cost incurred for the same purpose, in like circumstance, has been allocated to
an award as an indirect cost. Costs identified specifically with awards are direct costs of the
awards and are to be assigned directly thereto. Costs identified specifically with other final cost
objectives of the organization are direct costs of those cost objectives and are not to be assigned
to other awards directly or indirectly.”
Our review of the grantees’ OTAG activity reports found the following ineligible and
questionable costs billed as direct charges to the 1998 OTAG grant:
Tenants Union. The Tenants Union charged the OTAG grants for $5,215 in ineligible and $533
in questionable direct costs; specifically, it:
· Double-billed the OTAG and ITAG Public Entity Grants for the same translation and
interpretation costs totaling $913. The $913 in charges to the OTAG grant is ineligible
because these charges should have only been made to the ITAG Public Entity Grants.
· Charged the 1998 OTAG grant $4,302 for costs associated with attending the 2000
National Alliance of HUD Tenants (NAHT) conference with four Section 8 tenants.
Costs for the conference are not eligible as these costs were budgeted for the Tenants
Union’s initial ITAG Public Entity Grant and should not have been charged to the OTAG
grant.
9
· Charged the 1998 OTAG grant for $533 in audit costs. The grantees were not required to
obtain an OMB Circular A-133 audit, as they did not exceed the $300,000 grant fund-
spending threshold during any one year. Therefore, the audit cost to the grant is
questionable since it did not directly benefit the grant.
Washington Low Income Housing Network. The Network charged the OTAG grants $1,298 in
ineligible and $2,745 in questionable costs; specifically, the Network:
· Charged the OTAG grant $1,298 of direct labor charges for Access Database training.
This training is not an eligible grant activity because it benefits other grantee activities
and therefore is not a direct cost. This expense should have been allocated as an indirect
cost.
· Made $2,745 in questionable charges to the OTAG grant for activities that were not
funded by the OTAG grants. The $2,745 included $1,750 charged for "Section 8
Summit," which focused on Section 8 issues. The Network had previously removed this
activity from the OTAG budget. The Network used $589 of the $1,750 for printing the
"Section 8 Housing Summit, Recent Changes, New Opportunities" publication, dated
November 2000, $817 for room rental and coffee service, and $344 for three airfare
scholarships. The Network also charged the grant $995 for travel to Washington DC for
meetings with the National Low Income Housing Coalition Preservation Working Group.
This expense was not a budgeted activity of the OTAG grant. It should be noted that the
Network budgeted 11.1 percent of its OTAG grant funds for regional and clearinghouse
activities, such as the above, and 88.9 percent for project specific activities, but instead
spent 79.8 percent for regional and clearinghouse activities, and only 20.1 percent for
project specific activities.
General Compliance with OMB Circular A-122
The Tenants Union is not compliant with the requirements of OMB Circular A-122, Attachment
A, General Principles in its classification of direct vs. indirect costs. Direct costs are defined as
costs that can be identified specifically with a final cost objective such as a grant award or other
direct activity of an organization. Furthermore, the grantee must be consistent in its
identification of direct costs. A cost can’t be assigned to an award as a direct cost if other costs
incurred for the same purpose are allocated to the award as indirect costs. Indirect costs are
those that have been incurred for common or joint activities and can’t be readily identified with
an award or other direct activity of the organization.
Our review of the Tenants Union’s accounting practices disclosed that the Tenants Union is not
consistent in its identification of direct costs. We noted the following activities charged to the
grants by the lead organizer: general organization and staff meetings, funding retreat, and
organizers meetings (including other tenant organizers). The review disclosed that the lead
organizer also performs activities such as lobbying, issue organizing, other tenant organizing,
and hotline activities that are not receiving an equitable share of indirect costs.
Specific examples of non-compliance with Circular A-122 regarding the classification of the
costs charged to the OTAG grants include:
10
· $14,625 in labor expenses (524.75 hours X $27.87 per hour, including $9,708 for direct labor
and fringe benefits, and $4,917 of other indirect costs) for activities that don't meet the
definition of direct costs. The activities reported to OMHAR commingle indirect and direct
activities. Indirect activities charged to the grant include organizational support, staff
meetings, organizational meetings, work plan and strategic plan development. These
activities are indirect in nature because they were incurred for common and/or joint activities.
However, commingled with the indirect charges were some direct charges that appear to be
eligible such as Supervision of Mark-to-Market staff. We were unable to determine if similar
activities were charged to the other funding sources because the timesheets do not provide
this level of detail.
· $3,079 in labor expenses (110.5 hours X $27.87 per hour, including $2,044 for direct labor
and fringe benefits, and $1,035 of other indirect cost) for general membership activities.
The costs included the Tenants Convention membership meeting, newsletter production, and
development of a Tenants Union brochure charged as direct labor to the OTAG grants. The
charges are ineligible because they should have been treated as direct membership charges,
since the organization, its members, and clients benefited from these activities as a whole.
We were unable to determine the total effect of this non-compliance, however, based on our
analysis, the practice shifts costs away from unallowable, ineligible activities to the grant award.
We also noted a number of other instances of the grantee’s non-compliance with the cost
principles of OMB Circular A-122. The significant instances of non-compliance are discussed
in other sections of this finding.
Charges to the Tenant Union’s Public Entity Grant
In July 2000, The Tenants Union received its first ITAG Public Entity Grant. According to the
grant agreement, any transfer of funds between activity categories that exceeds 10 percent of the
budget total requires prior approval from the Intermediary. In the grant application, the Tenants
Union stated that $5,219 was to be used to send five tenants and one staff person to the June
2000 National Alliance of HUD Tenants Meeting. The remaining $11,960 in grant funds were
for translation and interpretation costs. Our review of the Tenants Union’s billings to the grant
found that it billed the grant only for translation and interpretation expenses in the amount of
$17,165. Since the Tenants Union only budgeted $11,960 for these services and prior approval
for the transfer of funds between categories was not obtained, the ITAG Public Entity Grant
could only be charged for this amount plus ten percent, or $13,156. Therefore, we are
questioning $4,009 ($17,165 less $13,156) of the unapproved translation and interpretation
costs charged to the grant.
AUDITEE COMMENTS AND OIG EVALUATION OF AUDITEE COMMENTS
The Executive Directors of the Tenants Union and the Washington Low Income Housing
Network responded separately to our draft report. Their entire comments are incorporated in this
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report as Appendix B, except for the attachments, which were too voluminous to include in the
report. The attachments are available upon request.
Tenants Union Response
Lobbying Activities
The Tenants Union (TU) did not dispute the ineligibility of the $138 in translation costs or the
$1,226 charged in the quarter ending March 31, 2000 for work on the Section 8 Legislative
Briefing, press outreach, and tenant preparation for press conference. The TU contended that the
OIG overstated the portion of the 2000 Tenant Convention involving the “Renters Outraged and
Organized for Fairness” (ROOF) activities, citing that the meeting actually lasted 6.5 hours as
their staff worked during the half hour lunch break and only 23 percent of the time was devoted
to the ROOF activities. The TU further argued that the OIG misunderstood the purpose of the
ROOF activity since it was not just for lobbying purposes but was also to hold a prominent
landlord accountable for poor treatment of tenants. Regarding the Renters Summit, the TU
claimed that the time charged to the OTAG grant represented hours spent by employees who
were staffing an informational table set up to distribute information about Section 8 tenant rights
and the TU’s programs including its work in assisting tenants in preserving Section 8 housing.
The TU admitted that the NAHT conference calls included lobbying activities and stated that
only half the time spent on the calls was billed to the OTAG grant. They claimed that the OIG
inaccurately determined that any contact with HUD administrative officials constituted lobbying
and stated that costs arising from the staff’s participation in the NAHT conference calls should
not be declared ineligible.
The TU further stated that there is no basis for the OIG to dispute as lobbying the Tenants
Union’s newsletters, “Stop Watch” publication, or its participation in the 2001 NAHT
convention. They contend that the report implies that the hours that TU billed to the OTAG
grant for these activities constitute ineligible lobbying.
OIG Response
Based on TU’s response, we adjusted the number of hours questioned relating to the 2000
Tenants Convention. However, we continue to categorize the ROOF activities as grass roots
lobbying since the stated purpose of the activities were to kick off a campaign to pass statewide
legislation. The picket demonstration was held at the home of a landlord of a non-Section 8
building, making the activity ineligible for OTAG funding, and appears to have been designed
to generate publicity for its lobbying campaign as TU issued a press release on the event.
Similarly, the TU promoted the June 10, 2000 Renter’s Summit as an event in support of a
Seattle Councilmember’s rental housing legislative agenda. Clearly the event was a grass roots
lobbying activity and any costs associated with it are not eligible to be charged to the OTAG
grant.
Our review of the NAHT telephone conference call agendas found that the agendas do contain
numerous topics that are related to lobbying activities. We also noted that the agendas do not
always clearly show which topics are OTAG eligible nor do they show the purpose of
discussions on meetings with HUD officials. Further, the TU could not provide any other
12
documentation such as notes on the conference calls to support that the issues discussed were
either OTAG-related or unrelated to lobbying activities. In the absence of any other supporting
documentation, we cannot accurately determine how much of the conference call time was spent
on lobbying activities. Thus we consider the full amount of charges for these conference calls
questionable, requiring further examination by HUD to determine their eligibility.
The draft report did not state that TU charges to the OTAG grants for its newsletters and the
NAHT convention constitute ineligible lobbying. The report includes these items as examples
of some of the TU’s functions that contain lobbying activities. These lobbying activities are
discussed here to illustrate that the TU did not segregate time spent on lobbying in its
timekeeping records as required by OMB Circular A-122. As stated above in this report, the
TU’s timesheets only show that 2 of the 40,228 recorded hours were categorized as time spent on
lobbying. By its own admission and as evidenced by documentation found in the TU newsletters
and board meeting minutes, the TU spends a material portion of its time on lobbying activities.
Labor and Indirect Costs
The TU stated that HUD-OMHAR never requested a cost allocation plan nor did HUD instruct
the OTAG grantees on how to submit such a plan during a training session in 1998. The TU
noted that it has submitted its cost allocation plan to HUD for approval and attached a copy to
their response. The TU explained that the inclusion of direct costs into its original indirect cost
calculation was not deliberate but was due to the organizations inexperience and lack of controls
sufficient to ensure compliance with the OTAG regulations. The TU further noted that it has
instituted new accounting and management controls to ensure that direct costs are not included
in the indirect cost rate and to ensure lobbying activities are defined and lobbying time and costs
are segregated from charges to government grants.
OIG Response
We commend the TU for its efforts to strengthen its controls to ensure conformance with the
grant requirements. Although HUD did not specifically request the TU to submit an indirect cost
allocation plan, the OTAG grant agreement obligated the TU to conform with the cost principles
of OMB Circular A-122, including the submission of an indirect cost allocation plan to HUD as
the granting agency. Any indirect cost allocation plan submitted to HUD by the TU should be
carefully reviewed by HUD to ensure that no direct costs are included in the cost allocation
formula and to ensure complete conformance with the principles of OMB Circular A-122.
Direct Costs
The TU acknowledged that it inadvertently charged both the OTAG and ITAG grants $913
for interpretation/translation services. They contended that the ITAG grant administrator
determined that the non-lobbying costs associated with the 2000 NAHT conference were
ineligible for the ITAG grant and thus they had to charge the OTAG grant for these costs.
The TU stated that the conference costs were an eligible OTAG expense that benefited its OTAG
program and should not be questioned. The TU further claimed that the audit cost charged to the
OTAG grant was eligible because it was for a portion of an internal audit, which benefited the
OTAG program.
13
OIG Response
As noted above in this report, we determined the $4,302 charged to the OTAG for the 2000
NAHT Conference was ineligible because this cost was budgeted for the TU initial ITAG grant.
During the audit we asked the TU for documentation to support its claim that the ITAG
administrator told the TU that the NAHT costs were ineligible charges to the ITAG grant.
The TU was unable to provide any documentation to support this claim.
Regarding the audit costs, we question the TU’s assertion that an internal audit benefited the
OTAG program in light of the lack of its controls over OTAG charges, such as not segregating
lobbying hours in the timekeeping records and using direct charges in its indirect cost allocation.
The internal audit would have benefited the OTAG program if it had reported these control
weaknesses and recommended strengthening the controls over the OTAG costs to ensure their
eligibility and conformance with the grant and program requirements. Since the audit did not
benefit the OTAG program, we question the eligibility of these costs.
General Compliance With OMB Circular A-122
The TU asserted that the fact that charged activities were organization-wide does not cause these
expenses to fall out of compliance with Circular A-122. They noted that they only charged a
portion of those hours to the grant because the STOP program staff needed to participate in
organization-wide activities in order to perform their duties under the grant. They stated that in
order to function and provide organizational support for the OTAG-funded program, the STOP
program staff must participate in organization-wide meetings and participate in organizational
development and planning.
The TU also contended that the $3,079 expenses for the Tenants Convention membership
meeting, newsletter production, and Tenants Union brochure benefited the OTAG-funded
program and were properly charged to the grant. The TU stated that the Tenants Convention
included training on the preservation of Section 8 housing and the newsletters are distributed to
not only to members, but also to non-member residents of Section 8 buildings. The TU further
noted that the brochure was needed to introduce the program’s activities to the residents of
properties where the TU was performing OTAG-funded work.
OIG Response
The finding in question relates to the classification and commingling of direct and indirect costs.
In the report, we acknowledged that there were eligible direct charges commingled with the
questioned indirect charges for general organizational activities. However, to be in conformance
with OMB Circular A-122, costs that can be identified as directly benefiting the Mark-to-Market
grant should be charged to the grant as a direct cost. For example in July through September of
2000, 129.25 hours were spent for “Supervision of M2M staff and training of new staff, work-
plan and project development, strategic planning meetings, organizational support, staff
meetings.” While supervision of M2M activities performed by staff members is eligible as a
direct activity, the other staff activities benefit the STOP program as a whole. Accordingly, the
costs for these activities are not direct costs as defined in the A-122 Compliance Supplement.
Further, the STOP activities can also be questioned as direct expenses to the OTAG program
since they have additional funding sources other than the OTAG grant.
14
Charges to the Tenants Union’s Public Entity Grant
The TU stated that the Public Entity Grant monitor, Amadour-Tuolumne Community Action
Agency, informed the TU that the grant funds could not be used to send tenants to the NAHT
conference. The TU contended that it made up for this by billing the NAHT Conference cost
to the OTAG grant. Instead of billing the NAHT Conference costs to the Public Entity Grant
(PEG), it billed the PEG for the additional translation and interpretation services. The TU also
claimed that it has put in place more stringent management controls and that future problems in
this regard are not anticipated.
OIG Response
We asked the TU to provide documentation to support their claim that the Amadour-Tuolumne
Community Action Agency (ATCAA) informed them that PEG funds could not be used to send
tenants to the NAHT conference. The TU gave us a copy of a May 9, 2000 letter from the
ATCAA. In this letter, the ATCAA asked the TU for additional information including how they
would select tenants to attend training and how the knowledge gained by the tenants attending
training/conferences would be disseminated to tenants not in attendance. In the letter the
ATCAA did not tell the TU that sending tenants to the NAHT was an ineligible cost to the PEG.
The TU also provided a copy of the December 3, 1999 memo from the OMHAR Director to all
OTAG and ITAG recipients which clearly stated that OMHAR would allow grant recipients to
use the OTAG and ITAG funds to cover tenant training costs except for those incurred on
training days where lobbying activities take place. Since the additional documentation provided
does not support the TU’s claim, we continue to question the unauthorized transfer of PEG
funds.
Washington Low Income Housing Network Response
Labor and Indirect Costs
In its response, the Network acknowledged that it neglected to establish a cost allocation plan
under OMB Circular A-122 guidelines, resulting in some overcharges for labor and indirect
costs. The Network included a copy of the indirect cost allocation plan that it submitted to HUD
in response to our draft report. The Network further noted that, according to its calculations
using the new indirect cost allocation plan, it overcharged the cost of labor to the grant by $2,817
and not the $34,766 questioned in the audit report.
OIG Response
We support the Network’s efforts in compiling and submitting an indirect cost allocation plan to
HUD. However, HUD should carefully review these cost allocations to ensure that the costs
claimed are supported and consistent with the provisions of OMB Circular A-122. For example,
although we did not thoroughly analyze the new cost allocation plan submitted by the Network,
we did notice that that the Network may be over-allocating its administrative costs to the OTAG
program. In its proposed indirect cost allocation plan, the Network’s billing rate increases from
$34.24 per hour for 1999 to $49.50 per hour for 2001. In the plan, the amounts shown as costs
for the administration portion of salaries increased by 94 percent from 1999 to 2001, yet the
15
number of hours spent on the OTAG program only increased by 5 percent over the same period.
This disproportionate increase in the allocation of administrative costs caused an $8.51 per hour
increase in the proposed billing rate.
Direct Costs
The Network stated that the 2000 Risk Assessment was partially funded by one additional
source, the State of Washington, but this does not make the $645 charge to the OTAG ineligible.
The Network contended that the NOFA gives extra points to applicants if they leverage other
resources in order to achieve the purposes of the OTAG award. Regarding charges for Access
database training, the Network claimed that the training was not an indirect cost because the
purpose of the training was to improve the skills in executing queries for the Section 8 Risk
Assessment and did not benefit the organizational administration or other programs of the
Network.
The Network also disagreed with our finding relating to the costs of the Section 8 Summit. The
Network stated that, with the exception of the $200 mistakenly charged for coffee service, the
costs relating to the Section 8 Summit should be considered eligible. The Network noted that it
and the TU agreed to remove the Summit from the budget because they felt that the funds were
not available to cover this activity. The Network further stated that they held the Summit after
determining that the funds were available to do so. The Network admitted that it should have
changed the budget to reflect this, but contends that the charges were for an eligible activity
originally outlined in Exhibit 2 of the grant application.
OIG Response
Based upon the Network’s response, we removed the questionable $645 charge for the Risk
Assessment from the report.
Regarding Access database training, the Network is involved with numerous Section 8 activities
not just the Mark-to-Market activities. Further, the Network’s Section 8 database is funded by
multiple sources, including the State of Washington, and contains information relevant to the
various entities providing the funding. Accordingly, the charge for training Network employees
in how to query the database is not eligible as a direct cost to the OTAG program as other
programs benefit from this training. The training costs must be allocated as indirect to be in
conformance with OMB Circular A-122.
We continue to question the charges for the Section 8 Summit as the Network never informed
HUD that it wished to revise the budget to reinstate the Summit into its OTAG budget. Article
11.(c) of the grant agreement specifically states: “Only the Grant Officer has the authority to
authorize deviations from this Grant Agreement. In the event the Grantee does deviate without
written approval of the Grant Officer, such deviation shall be at the risk of the Grantee. Any
costs related thereto shall be borne by the Grantee.”
16
RECOMMENDATIONS
We recommended that the Director of OMHAR require the:
1A. Tenants Union to account for its lobbying hours and avoid charging the grant for
activities related to lobbying as defined by MAHRA and OMB Circular A-122.
1B. Tenants Union and Washington Low Income Tenants Network to submit cost allocation
plans for review and approval. After the plans are approved, require the grantees to use
the plans to adjust all costs charged to the grants containing an allocation of indirect
costs, and repay any overcharges.
1C. Tenants Union and Washington Low Income Tenants Network to put controls in place to
ensure that all expenditures charged to the grant are in compliance with OMB Circular
A-122.
1D. Tenants Union to repay the grants $2,061 for ineligible lobbying, $59,194 for ineligible
labor double billings, and $5,215 for other ineligible direct expenses.
1E. Tenants Union to provide support for or repay the grant for $33,844 of questionable labor
and indirect costs, $2,829 for questionable lobbying costs, and $22,246 for other
questionable direct costs.
1F. Washington Low Income Tenants Network to repay the grants $1,298 for ineligible direct
expenses.
1G. Washington Low Income Tenants Network to provide support for or repay the grant for
$34,766 of questionable labor and indirect costs and $2,745 for other questionable direct
costs.
We also recommended that the Director of OMHAR:
1H. Consider taking sanctions against the Grantee in accordance with Section 1303 of the
Defense Appropriations Act (Public law 107-117).
1I. Consider suspending grant funding until the grantees develop and implement appropriate
management controls to ensure that only eligible activities receive funding and that the
documentation for the expenditures complies with OMB Circular A-122.
MANAGEMENT CONTROLS
In planning and performing our audit, we considered the management controls relevant to the
Tenants Union and Washington Low Income Housing Network’s Section 514 program to
determine our audit procedures, not to provide assurance on the controls. Management controls
include the plan of organization, methods, and procedures adopted by management to ensure that
its goals are met. Management controls include the processes for planning, organizing, directing,
17
and controlling program operations. They include the systems for measuring, reporting, and
monitoring program performance.
We determined that the following management controls were relevant to our audit objectives:
· Identification of projects and activities eligible for assistance,
· Controls and documents to support costs of assistance provided, and
· Controls and procedures over the reporting of activities and costs.
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:
· Lack of polices and procedures to ensure that salaries and time records meet the standards
of OMB Circular A-122,
· Lack of a cost allocation plan to charge shared costs, and
· Lack of polices and procedures to ensure that lobbying activities are not directly or
indirectly funded by federal sources.
FOLLOW-UP ON PRIOR AUDITS
The Office of Inspector General performed no previous audits of the Tenants Union or
Washington Low Income Housing Network.
18
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Type of Questioned Costs
Number Ineligible 1/ Unsupported 2/
1D $66,470
1E $58,919
1F $1,298
1G $37,511
The following table shows a breakdown of the above schedule by the description of each
individual questioned cost (See breakdown of labor costs by cost element below):
Type of Questioned Costs
Recommendation
Number Ineligible Unsupported
Description of Cost
1/ 2/
1D Other Direct-Translation & Interpretation Lobbying $ 138
1D Labor-Tenants Convention 2000 - Lobbying 446
1D Labor-Section 8 Legislative Briefing - Lobbying 1,226
1D Labor-Renter's Summit - Lobbying 251
1D Other Direct-Translation & Interpretation Double Billing 913
1D Other Direct-NAHT Conference Travel - Wrong Grant 4,302
1D Double Billings of Direct Costs in Labor Rate 59,194
1E Labor-NAHT Conference Calls - Lobbying $ 2,829
1E Labor-Meetings - Indirect Activities Charged Direct 14,625
1E Labor-Membership Activities 3,079
1E Other Direct-Audit Costs 533
1E Other Direct-Unapproved Translation & Interpretation 4,009
1E Other/Indirect-Indirect Cost without an Approved Rate (Net) 33,844
1F Labor-Access Database Training 1,298
1G Other Direct-Section 8 Summit Publication 589
1G Other Direct-Section 8 Summit Room Rental & Coffee 817
1G Other Direct-Section 8 Summit Airfare Scholarships 344
1G Other Direct-Travel to Washington DC 995
1G Other/Indirect-Indirect Cost without an Approved Rate (Net) 34,766
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or
activity that the auditor believes are not allowable by law, contract or federal,
state or local policies or regulations.
2/ Unsupported costs are costs charged to a HUD-financed or HUD-insured program
or activity and eligibility cannot be determined at the time of audit. The costs are
not supported by adequate documentation or there is a need for a legal or
administrative determination on the eligibility of the costs. Unsupported costs
require a future decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or
clarification of Departmental policies and procedures.
19
The following table shows a breakdown of the above schedule for questioned labor costs:
Direct Labor No Approved Double Billings
Total Labor
Description of Labor Cost Plus Fringe Rate for of Direct Costs
Questioned
Benefits Other/Indirect in Labor Rate
Tenants Convention 2000 - Lobbying $ 446 $ 296 $ 150
Section 8 Legislative Briefing - Lobbying 1,226 814 412
Renter's Summit - Lobbying 251 167 84
NAHT Conference Calls - Lobbying 2,829 1,878 951
Meetings - Indirect Activities Charged as
Direct Costs 14,625 9,708 4,917
Membership Activities 3,079 2,044 1,035
Double Billings (Net) 59,194 $59,194
Indirect Cost without an Approved Rate 33,844 33,844 _______
(Net)
Total Tenants Union Questioned Labor $115,494 $ 14,907 $41,393 $59,194
Access Database Training $ 1,298 $ 692 $ 606
Indirect Cost without an Approved Rate 34,766 34,766
(Net)
Total Network Questioned Labor $ 36,064 $ 692 $35,372
Total Questioned Labor Costs $151,558 $ 15,599 $76,765 $59,194
20
Appendix B
AUDITEE COMMENTS
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Appendix C
EXTERNAL REPORT DISTRIBUTION
Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human
Resources, B373 Rayburn House Office Bldg., Washington, DC 20515
Stanley Czerwinski, Director, Housing and Telecommunications Issues, U.S. General
Accounting Office, 441 G Street, NW, Room 2T23, Washington, DC 20548
Steve Redburn, Chief Housing Branch, Office of Management and Budget, 725 17th Street,
NW, Room 9226, New Executive Office Bldg., Washington, DC 20503
Linda Halliday (52P), Department of Veterans Affairs, Office of Inspector General, 810
Vermont Ave., NW, Washington, DC 20420
William Withrow (52KC), Department of Veterans Affairs, OIG Audit Operations Division,
1100 Main, Rm 1330, Kansas City, Missouri 64105-2112
The Honorable Joseph Lieberman, Chairman, Committee on Government Affairs, 706 Hart
Senate Office Bldg., United States Senate, Washington, DC 20510
The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs, 340
Dirksen Senate Office Bldg., United States Senate, Washington, DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
Bldg., House of Representatives, Washington, DC 20515
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
2204 Rayburn Bldg., House of Representatives, Washington, DC 20515
Andy Cochran, House Committee on Financial Services, 2129 Rayburn H.O.B., Washington,
DC 20515
Clinton C. Jones, Senior Counsel, Committee on Financial Services, U.S. House of
Representatives, B303 Rayburn H.O.B., Washington, DC 20515
42
Congressionally Requested Audit of the Outreach and Training Assistance Grants (numbers FFOT98030WA and FFOT00040WA) and Intermediary Technical Assistance Grant (numbers MTMWAPEG00017 and MTMWAPEG01015) awarded to the Tenants Union, Seattle, Washington
Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-12-02.
Below is a raw (and likely hideous) rendition of the original report. (PDF)