AUDIT REPORT
UNITED STATES VETERANS INITIATIVE, INC.
SUPPORTIVE HOUSING PROGRAM GRANTEE
INGLEWOOD, CALIFORNIA
2004-LA-1008
SEPTEMBER 27, 2004
OFFICE OF AUDIT
PACIFIC/HAWAII REGION
LOS ANGELES, CALFORNIA
Issue Date
September 27, 2004
Audit Case Number
2004-LA-1008
TO: Nelson R. Bregon, General Deputy Assistant Secretary for
Community Planning and Development, D
FROM: Joan S. Hobbs, Regional Inspector General for Audit, 9DGA
SUBJECT: United States Veterans Initiative, Inc.
Supportive Housing Program Grantee
Inglewood, California
Pursuant to a request from HUD’s Honolulu Community Planning and Development Office, we
completed an audit of the United States Veterans Initiative, Inc., a Supportive Housing Program
grantee based in Inglewood, California. The audit objectives were to determine whether the
concerns raised by the Community Planning and Development Office had merit, and to
determine whether the U.S. Veterans Initiative, Inc. administered its Supportive Housing
Program grants in compliance with the pertinent HUD program requirements and applicable
regulations.
Our report contains three findings with recommendations requiring action by your office. 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 corrective
action is considered unnecessary. Additional status reports are required at 90 days and 120 days
after report issuance for each recommendation without a management decision. Also, please
furnish us with copies of any correspondence or directives issued because of the audit.
Should you or your staff have any questions, please contact me or Tanya Voigt, Assistant
Regional Inspector General for Audit, at (213) 894-8016.
Management Memorandum
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2004-LA-1008 Page ii
Executive Summary
Pursuant to a request from HUD’s Honolulu Community Planning and Development Office, we
completed an audit of the United States Veterans Initiative, Inc., a Supportive Housing Program
grantee based in Inglewood, California. The audit objectives were to determine whether the
concerns raised by the Community Planning and Development Office had merit, and to
determine whether U.S. Veterans Initiative, Inc. administered its Supportive Housing Program
grants in compliance with the pertinent HUD program requirements and applicable regulations.
Contrary to federal regulations and grant requirements,
U.S. Veterans Initiative U.S. Veterans Initiative was unable to support that it met
Did Not Meet Supportive cash matching funds requirements for any of the
Housing Program Grant $7,222,590 in Supportive Housing Program grant funds
Matching Funds expended during the audit period. We attribute the
deficiencies to U.S. Veterans Initiative officials’ failure to
ensure it understood and complied with the pertinent
matching funds requirements, as well as its failure to
implement an adequate financial management system to
record and track the funds. As a result, this lack of
required matching funds prevented U.S. Veterans Initiative
from the ability to further carry out eligible activities to
enable them to fully meet program goals and requirements
to house and support homeless veterans.
U.S. Veterans Initiative spent at least $633,348 in
U.S. Veterans Initiative Supportive Housing Program funds for ineligible
Spent Supportive Housing ($498,248) and unsupported ($135,100) salaries and other
Program Funds For expenses. We attribute the deficiencies to U.S. Veterans
Ineligible And Initiative officials’ insufficient emphasis on its Supportive
Unsupported Expenses Housing Program responsibilities and requirements,
including its failure to establish and implement an adequate
financial management system to record and track grant
expenditures. As a result, these improper expenditures
prevented U.S. Veterans Initiative from carrying out other
eligible activities to enable them to fully meet program
goals and requirements.
U.S. Veterans Initiative did not administer its Supportive
U.S. Veterans Initiative Housing Program grants in accordance with requirements.
Did Not Administer Its More specifically, we found that U.S. Veterans Initiative
Supportive Housing failed to:
Program Grants In
Accordance With Develop an adequate financial management system;
Requirements
Page iii 2004-LA-1008
Executive Summary
Comply with procurement and contract administration
requirements;
Establish and implement indirect cost rates as required;
and
Close out expired grants.
We attribute the deficiencies to U.S. Veterans Initiative
officials’ insufficient emphasis on its Supportive Housing
Program responsibilities and requirements. Collectively,
these conditions precluded U.S. Veterans Initiative from
conducting its Supportive Housing Program activities more
efficiently and effectively, as well as prevented U.S.
Veterans Initiative from fully meeting its program goals
and requirements. In addition, these deficiencies may have
contributed to Supportive Housing Program grant funds
being spent for ineligible and unsupported grant expenses.
We are recommending that HUD require U.S. Veterans
Recommendations Initiative, and/or its continuums Los Angeles Homeless
Services Authority and City of Long Beach to: (1) repay
HUD from non-federal funds for the $6,589,242 in
Supportive Housing Program grant expenditures that did
not have the required matching funds, unless it can provide
supporting documentation; (2) comply with federal
requirements in carrying out its Supportive Housing
Program grant activities; (3) reimburse the Supportive
Housing Program grants and/or repay HUD from non-
federal funds for the $633,348 in ineligible and
unsupported expenses; (4) revise U.S. Veterans Initiative’s
financial management system; (5) competitively procure
the services in the Business Services Agreement; (6)
develop and/or update indirect cost rates; and (7) submit
financial closeout reports for expired grants.
We discussed the findings with U.S. Veterans Initiative
Audit Results Discussed officials, and their Cantwell-Anderson Inc. accounting
With Auditee Controller during the audit and at an exit conference held
on August 6, 2004, which also included the Los Angeles
Homeless Services Authority and the City of Long Beach.
We also met with U.S. Veterans Initiative on August 18,
2004, and August 31, 2004, to further discuss the findings.
We also provided U.S. Veterans Initiative, Los Angeles
Homeless Services Authority, the City of Long Beach and
HUD with a copy of the draft audit report for comments on
2004-LA-1008 Page iv
Executive Summary
September 1, 2004. We received a written response from
U.S. Veterans Initiative on September 15, 2004,
disagreeing with our findings. We also received a written
response from the Los Angeles Homeless Services
Authority on September 15, 2004, in which they disagreed
with some issues, particularly with regard to Finding 1, but
agreed with others. We received the City of Long Beach’s
written response on September 14, 2004, disagreeing with
Finding 1, but they did not comment on the other two
findings. We considered the responses in preparing our
final report. We have summarized the three grantees’
responses for each finding, and included the complete
responses as Appendix H (U.S. Veterans Initiative –
without attachments), Appendix I (Los Angeles Homeless
Services Authority), and Appendix J (City of Long Beach).
Page v 2004-LA-1008
Executive Summary
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2004-LA-1008 Page vi
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1. U.S. Veterans Initiative Did Not Meet Matching Funds Requirements
for $7.2 Million in Supportive Housing Program Funds Expended 5
2. U.S. Veterans Initiative Spent At Least $633,348 in Supportive
Housing Program Funds for Ineligible and Unsupported
Expenses 15
3. U.S. Veterans Initiative Did Not Administer Its Supportive
Housing Program Grants In Accordance with Requirements 33
Management Controls 53
Follow Up On Prior Audits 55
Appendices
A. Schedule of Questionable Costs and Funds Put to Better Use 57
B. Schedule of Active Supportive Housing Program Grants 59
Page vii 2004-LA-1008
Table of Contents
C. Schedule of Supportive Housing Program Grant Matching
Funds Required and Provided 61
D. Schedule of Ineligible Expenses 63
E. Schedule of Unsupported Expenses 65
F. Schedule of Consulting Expenses Allocated by Grant 67
G. Schedule of Ineligible and Unsupported Expenses by Grant 69
H. Auditee Comments – U.S. Veterans Initiative 71
I. Auditee Comments – Los Angeles Homeless Services
Authority 97
J. Auditee Comments – City of Long Beach 103
2004-LA-1008 Page viii
Introduction
Background
The Supportive Housing Program is authorized under Title IV of the McKinney-Vento Homeless
Assistance Act. Supportive Housing Program grants are awarded on a competitive basis to
develop supportive housing and services to enable homeless persons to live as independently as
possible. Eligible activities include: transitional housing; permanent housing for homeless
persons with disabilities; innovative housing that meets the intermediate and long-term needs of
homeless persons; and supportive services provided to homeless persons not in conjunction with
supportive housing.
HUD is one of several agencies charged with supporting the care and services provided to
veterans at the state and local levels to address the problem of homelessness. Within HUD, the
Office of Community Planning and Development is responsible for overseeing the homeless
initiatives for the Department.
U.S. Veterans Initiative is a non-profit homeless assistance provider based in Inglewood,
California, and is one of the largest organizations in the country dedicated to helping homeless
veterans. Currently, they provide assistance at seven facilities located in five states: California,
Nevada, Arizona, Texas, and Hawaii. U.S. Veterans Initiative initially began operations on July
16, 1992, as the Los Angeles Veterans Initiative, Inc. On September 24, 1999, they changed
their name to United States Veterans Initiative, Inc. U.S. Veterans Initiative was awarded its
first Supportive Housing Program grant in 1997, and since then, has administered 18 additional
Supportive Housing Program grants, of which 15 were active between July 1, 2001, and
December 31, 2003, (our audit scope). In total, U.S. Veterans Initiative has been awarded or
administered $13,565,881 in Supportive Housing Program grants. HUD awarded nine of the
fifteen active Supportive Housing Program grants to U.S. Veterans Initiative as direct grants, and
the remaining six grants were administered by U.S. Veterans Initiative as the sub-recipient
through continuums Los Angeles Homeless Services Authority (four grants) and City of Long
Beach (two grants).
Between July 1, 2001, and June 30, 2003, U.S. Veterans Initiative expended over $21 million in
federal funds, from several different sources, as shown:
Funding Source FY 2002 FY 2003 Total
HUD Supportive Housing
Program $2,449,075 $3,120,567 $5,569,642
HUD CDBG 0 2,594,407 2,594,407
Veterans Affairs 2,837,439 3,214,847 6,052,286
Corporation of National Service 1,858,445 2,302,835 4,161,280
Department of Labor 1,430,930 1,469,418 2,900,348
Total $8,575,889 $12,702,074 $21,277,963
Page 1 2004-LA-1008
Introduction
In March 2003, HUD’s Honolulu Community Planning and Development Office conducted a
monitoring review of one of U.S. Veterans Initiative’s Supportive Housing Program grants, which
disclosed significant weaknesses and instances of noncompliance with HUD regulations related to
recording and reporting of grant financial transactions. More specifically, the Community Planning
and Development Office found that U.S. Veterans Initiative failed to report financial transactions in
compliance with the approved grant budget; failed to apply proper cost allocation procedures; and
failed to sufficiently support expenses charged to the grant.
The audit objectives were to determine whether the concerns
Audit Objectives, Scope raised by the Community Planning and Development Office
and Methodology had merit and to determine whether U.S. Veterans Initiative
administered its Supportive Housing Program grants in
compliance with the pertinent HUD program requirements
and applicable regulations.
We performed our audit during the period December 2003
through May 2004. The audit scope generally covered the
period July 1, 2001, through December 31, 2003, and
included 15 Supportive Housing Program grants, totaling
$10,958,258, that were active between May 1, 2000, and
December 31, 2003 (see Appendix B). To accomplish our
objectives, we performed the following:
Reviewed relevant HUD, OMB, and grant agreement
requirements and regulations;
Interviewed appropriate Community Planning and
Development Office officials to obtain an understanding
of Supportive Housing Program requirements, and to
identify the issues prompting the request for audit;
Interviewed U.S. Veterans Initiative officials to obtain an
understanding of its operating procedures and practices;
Reviewed Community Planning and Development Office
and continuum monitoring reports, Annual Progress
Reports, and audited financial statements to determine
U.S. Veterans Initiative’s compliance with Supportive
Housing Program requirements, and to identify any
findings and any corrective actions taken;
Evaluated U.S. Veterans Initiative’s indirect cost rates
and Business Services Agreement to determine its basis
2004-LA-1008 Page 2
Introduction
for costs allocated or charged as Supportive Housing
Program grant expenses;
Reviewed U.S. Veterans Initiative’s financial accounting
system, including its chart of accounts and cost code
structure, to determine how U.S. Veterans Initiative
processed, classified and segregated Supportive Housing
Program grant expenses;
Selected and reviewed the non-salary grant expenses
incurred between July 1, 2001, and December 31, 2003,
for the 15 active Supportive Housing Program grants to
determine the eligibility of the grant expenses; and
Selected and reviewed the salaries and related expenses
incurred between January 1 and December 31, 2003, for
14 of the 15 active grants to determine the eligibility of
the grant expenses.
Our review was conducted in accordance with generally
accepted government auditing standards.
Page 3 2004-LA-1008
Introduction
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2004-LA-1008 Page 4
Finding 1
U.S. Veterans Initiative Did Not Meet Matching
Funds Requirements For $7.2 Million In
Supportive Housing Program Funds Expended
Contrary to federal regulations and grant requirements, U.S. Veterans Initiative was unable to
support that it met cash matching funds requirements for any of the $7,222,590 in Supportive
Housing Program grant funds expended during the audit period. We attribute the deficiencies to U.S.
Veterans Initiative officials’ failure to ensure that it understood and complied with the pertinent
matching funds requirements, as well as its failure to implement an adequate financial management
system to record and track the funds. As a result, this lack of required matching funds prevented
U.S. Veterans Initiative from the ability to further carry out eligible activities to enable them to fully
meet program goals and requirements and maximize the effectiveness of the programs intent to
house and support homeless veterans.
HUD regulations and grant agreements require that grantees
Cash Match Requirements must share in the Supportive Housing Program costs. The
grantee must pay for the actual program costs not funded by
HUD. The cash match can be from federal, state, local or
other funding sources, identified in the Supportive Housing
Program grant technical submissions. The amount to be
funded by the grantee varies depending upon the grant
awarded. The cash match requirement is based on
appropriation law and grant agreements. Matching funds
must be in the form of cash payments.
Beginning with fiscal year 1999, the appropriation for HUD’s
budget states that in the Supportive Housing Program, “all
funding for services must be matched by 25 percent.” This
provision was stipulated as part of the funding availability
notice (Super Notice of Funding Availability) published in
the Federal Register/ Vol. 64, No 38/ February 26, 1999 page
9827 and was incorporated into grant agreements. Grant
agreements require this appropriation law based on cash
match, plus any additional cash match requirements. These
cash match requirements are specific to the Supportive
Housing Program grant project, and are required to be a firm
commitment of cash resources for the first year of the grant
term, and certification that cash resources will be provided in
the second and third years of the grant term. These
commitments and certifications must be submitted as part of
Page 5 2004-LA-1008
Finding 1
the technical submission. At the end of each operating year,
grantees must demonstrate that they have met their match
requirements in an Annual Progress Report and within the
grantee’s financial management system.
24 CFR 84 generally requires the grantee shall:
Ensure cost sharing or matching are: 1) verifiable from
the recipient’s records; 2) not included as contributions
for any other Federally assisted project or program; and
3) Necessary and reasonable for proper and efficient
accomplishment of project or program objectives;
Provide a financial management system that ensures
accurate, current, and complete disclosure of the financial
results of each Federally sponsored project or program.
We reviewed the cash matching funds for the 15 active
Cash Match Requirements
Supportive Housing Program grants included in our audit
Not Met
scope and found that U.S. Veterans Initiative was unable to
support that it met cash matching funds requirements for
any of the $7,222,590 in Supportive Housing Program
grant funds expended as of December 31, 2003. The
required cash match requirements for the fifteen grants
included in our audit ranged from 16 to 66 percent of total
program costs. These requirements were signed (with
certification and/or grant agreements) for availability in the
technical submission prior to the issuance of the grant
agreement. The funding requirements for these Supportive
Housing Program grants were:
Total HUD Supportive Housing Program
Funding $10,958,258
U.S. Veterans Initiative Cash Match
Required $ 7,689,624
Total Supportive Housing Program Project
Budget $18,647,882
We initially reviewed the most current Annual Progress
Reports for the 15 grants, which had total expenditures of
$3,720,172, which required cash matching funds of
$1,287,638. Annual Progress Reports were only available
for 10 grants since the remaining five grants had not been
operational long enough to require an Annual Progress
Report. In the Annual Progress Reports, U.S. Veterans
Initiative reported that $1,277,490 in cash match funding
2004-LA-1008 Page 6
Finding 1
were provided and used for eligible program activities.
Even though the signed grant agreements stipulated
mandatory cash match requirements (U.S. Veterans
Initiative reflected in the Annual Progress Reports), only 5
of 10 grants met their cash match requirements with three
grants reflecting no cash match was provided. Therefore,
there was a cash matching funds shortfall of $464,989. The
remaining five grants’ accounting records (not yet
requiring an Annual Progress Report) did not reflect any
cash match was provided. Subsequently, the cash matching
funds reported in the Annual Progress Reports were not
supported as expenditures of a specific Supportive Housing
Program project, nor were the cash matching funds
recorded in the accounting system for each grant.
Consequently, it is questionable whether the cash matching
funds of $1,277,490 for the grants were actually provided.
Details of our analyses are shown in Appendix C.
Collectively, based on our reviews of the Annual Progress
Reports and the accounting records, we found that for 11 of
15 grants the cash match funding was not supported as
expenditures in the accounting records for the individual
grants. The remaining four grants commingled funds from
various federal agencies and the accounting records did not
substantiate what agency paid for the program, who
provided the cash match, and/or if expenses paid were
required by the Supportive Housing Program grant
agreement.
Based on our determinations, we expanded our review and
requested that U.S. Veterans Initiative provide cash match
documentation supporting the full $7,222,590 (see
Appendix B) in Supportive Housing Program funds
expended during our audit review period. During the audit,
U.S. Veterans Initiative was unable to provide
documentation showing that any of the grant funds
expended were supported by the required cash match
funding. Instead, U.S. Veterans Initiative provided us with
documentation from other federal sources that provided
support to their veteran’s programs, however, costs paid
with these funds were not included in the approved grant
budgets or allowed in the associated HUD Supportive
Housing Program grants. To qualify for cash match
requirements, funding provided must specifically identify
the funds that corresponded to each of the Supportive
Housing Program grants, as required by HUD regulations
Page 7 2004-LA-1008
Finding 1
and grant agreements. Therefore, U.S. Veterans Initiative
was unable to support cash match requirements for any of
the $7,222,590 for the Supportive Housing Program grant
funds expended.
We attribute the deficiencies to U.S. Veterans Initiative
U.S. Veterans Initiative officials’ insufficient emphasis on ensuring that it understood
Failed to Ensure It and complied with the pertinent cash match funding
Understood and Complied requirements, as well as its failure to implement an adequate
financial management system to record and track the funds.
U.S. Veterans Initiative’s financial management system was
not sufficiently developed and did not identify cash match
requirements where we could:
Verify cash match in Supportive Housing Program
grants’ records;
Ensure contributions were specific to Supportive
Housing Program grants;
Determine if cash match was necessary and
reasonable for proper and efficient accomplishment
of project or program objectives (see Finding 3).
Initially, U.S. Veterans Initiative officials attributed the
problem to a deficient financial management system that
did not enable them to record and track the cash match
funding. Subsequently, U.S. Veterans Initiative officials
also informed us that they viewed the cash match as an
overall “big picture” that associated support for various
U.S. Veterans Initiative programs, and not specifically for a
particular grant. During the exit conference, U.S. Veterans
Initiative officials stated they did not have any Supportive
Housing Program grant cash match requirements prior to
2000, and contended what we were reporting as cash match
requirements were actually leveraging requirements. Later,
U.S. Veterans Initiative officials acknowledged they did
actually have cash match requirements prior to 2000. They
stated “that they had met cash match requirements since the
cash match provided on Supportive Housing Program
grants was for costs that were not allowed on the
Supportive Housing Program grant agreements and this is
how cash match worked.” Also, discussed in Finding 3,
U.S. Veterans Initiative officials informed us that they are
currently modifying their accounting system to meet
federal requirements; however they have stated they do not
intend to reflect cash match by each Supportive Housing
Program sponsored project (as required) since the program
2004-LA-1008 Page 8
Finding 1
funds identified for cash match cannot be directly
associated with or reflected on Supportive Housing
Program financial statements.
As a result, the lack of required matching funds prevented
U.S. Veterans Initiative U.S. Veterans Initiative from carrying out eligible activities
Programs Not Maximized to enable them to fully meet program goals and
requirements, and maximize the effectiveness of the
programs. We reviewed the most current Annual Progress
Reports for the 10 grants that had been operational long
enough to require Annual Progress Reports. We found that
for the seven grants that reported on program goals and
progress, none had fully met the Supportive Housing
Programs goals relating to residential stability, increased
skills and income, and greater self-determination. For
example, for the Hawaii grant, U.S. Veterans Initiative
planned to have 100 percent of the program participants
complete skills assessments and/or vocational assessments
before completing the program, in order to accomplish the
goal relating to increased skills or income. The Annual
Progress Reports reported, however, that only three percent
of the participants actually completed the assessments.
Auditee Comments U.S. Veterans Initiative:
U.S. Veterans Initiative disagreed with the finding with
respect to cash match requirements not met; failure to
ensure it understood and complied; and, program not
maximized. Details are as follows:
Cash Match Requirements Not Met
U.S. Veterans Initiative disagreed with OIG’s interpretation
of cash match requirements, and contended the cash match
requirements for all its grants were met and they provided
documentation to support their interpretation of cash
match.
U.S. Veterans Initiative Failed to Ensure It Understood and
Complied
U.S. Veterans Initiative disagreed with OIG’s conclusion
that they failed to ensure they understood and complied
with pertinent cash match funding requirements, and that
Page 9 2004-LA-1008
Finding 1
their financial management system was not in compliance
with federal requirements.
U.S. Veterans Initiative Program Not Maximized
U.S. Veterans Initiative disagreed with OIG’s conclusion
that their Supportive Housing Program was not maximized,
and contended the grants’ 31 Annual Progress Reports
represented an excellent reflection of their success and
achievement of the goals of the Supportive Housing
Program. Further, U.S Veterans Initiative stated that OIG’s
analysis of their program accomplishments was
mischaracterized through a deceptive representation of the
facts.
Los Angeles Homeless Services Authority:
Cash Match Requirements Not Met
Los Angeles Homeless Services Authority disagreed with
OIG’s conclusion that cash match requirements were not
met, and contended that they complied with HUD
requirements for cash match, which was based on
appropriation law requirements beginning in 1999 for all
Supportive Housing Program grants. Further, they state
that the Technical Submission Budget cash match
requirements for the Supportive Housing Program grants
should not be considered in determining cash match
requirements and they are only required to abide by the
appropriation law requirements beginning with 1999 grant
awards. Los Angeles Homeless Services Authority said
their review of U.S. Veterans Initiatives’ Annual Progress
Reports and accounting records for their grants showed that
U.S. Veterans Initiative met the appropriation law
requirements for cash match.
City of Long Beach:
Cash Match Requirements Not Met
The City of Long Beach disagreed with OIG’s conclusion
that cash match requirements for grants issued prior to
1999 were not met, and contended that cash match
requirements began with the Supportive Housing Program
grant awards in 1999, when appropriation law and HUD
regulations cited this requirement. Therefore, their 1996
and 1998 grants were not subject to a cash match
requirement. The City of Long Beach also stated that the
2004-LA-1008 Page 10
Finding 1
grant agreements for their two grants, and contracts with
U.S. Veterans Initiative did not include any cash match
requirements.
OIG Evaluation of U.S. Veterans Initiative:
Auditee Comments
Cash Match Requirements Not Met
We disagree with U.S. Veterans Initiative’s interpretation
that the cash match requirement is to satisfy a “big picture”
concept of supportive housing services, which in their eyes,
only requires the use of the funds to fall under the umbrella
of providing supportive services to veterans. In a meeting
with OIG, U.S. Veterans Initiative’s Executive Director,
stated that cash match funds are a means to pay for all the
services not included in HUD’s Supportive Housing
Program grants’ budgets, or expenses not allowed to be
paid by HUD Supportive Housing Program grant funds.
We interpreted the requirements for cash match as the
portion of the total budget included in the Grant Agreement
Technical Submission, not paid for out of the HUD
Supportive Housing Program funding. Further, the cash
match funds are required to be used for the budgeted
activities contained in the Technical Submission budget.
The HUD Community Planning and Development Offices,
contacted during this audit, all verbally agreed with the
OIG’s interpretation of cash match requirements.
We reviewed the documentation provided by U.S. Veterans
Initiative, but it did not sufficiently support the cash match
requirements. The documentation for 11 of the 15 grants
included general ledger statements of funds from other
federal agencies. The documentation for the other four
grants included general ledger statements that commingled
funds from various federal agencies and the accounting
records did not substantiate what agency paid for the
program, who provided cash match, and/or if the expenses
paid were required by the HUD Supportive Housing
Program grants. We found, however, that the
documentation was insufficient to support that cash
matching funds requirements were met because we could
not be assured that the cash match was:
Page 11 2004-LA-1008
Finding 1
Verifiable, since there was no way to associate, or link,
these costs to the Supportive Housing Program grants;
Not already included as contributions, or cash match,
for other Federally assisted projects or programs; and
Necessary and reasonable for proper and efficient
accomplishment of HUD Supportive Housing Program
objectives.
U.S. Veterans Initiative Failed to Ensure It Understood and
Complied
We disagree with U.S. Veterans Initiative that its financial
management system ensured accurate, current and
complete disclosure of the financial results of each
federally sponsored program. In fact, U.S. Veterans
Initiative stated in July 2004 they implemented a revised
financial management system. As discussed in the finding,
the system did not
Verify cash match in Supportive Housing Program
grants’ records;
Ensure contributions were specific to Supportive
Housing Program grants;
Determine if cash match was necessary and reasonable
for proper and efficient accomplishment of project or
program objectives (see Finding 3).
U.S. Veterans Initiative Program Not Maximized
We disagree with U.S. Veterans Initiative’s contention that
we mischaracterized the achievement of program goals and
requirements. We used the Annual Progress Reports for
the 15 grants, prepared by U.S. Veterans Initiative, and
submitted to HUD, and disclosed the scope and
methodology of our analysis in the audit report. We
reviewed the most current Annual Progress Reports for the
10 grants that had been operational long enough to require
Annual Progress Reports. We found that for the seven
grants that reported on program goals and progress, none
had fully met the Supportive Housing Programs goals
relating to residential stability, increased skills and income,
and greater self-determination.
2004-LA-1008 Page 12
Finding 1
Los Angeles Homeless Services Authority:
We disagree with Los Angeles Homeless Services
Authority’s contention that the Technical Submission of the
grant agreement is not a binding contractual requirement
for the HUD Supportive Housing Program grants. The
grant agreement between Los Angeles Homeless Services
Authority and HUD specifically states, “The term
“Application” means the application submissions on the
basis of which a grant was approved by HUD, including
the certifications and assurances and any information
required to meet any of the grant conditions. The
Application is incorporated herein as a part of this
Agreement…” Since the Technical Submission is part of
the application submission to HUD, in which HUD reviews
and approves before executing the grant agreement, it is a
binding condition of the grant agreement.
We agree that grants executed prior to 1999 were not
subject to appropriation law requirements for cash match.
However, when the corresponding grant agreements
included cash match requirements, as a condition of the
agreement, then the grantee must fulfill these agreed-to
requirements. Further, for grant awards after 1999,
appropriation law requires a minimum of 20 percent cash
match for Supportive Housing Program grants, however,
when the grant agreements reflect cash match requirements
greater than the minimum requirements, the grantee is
required to abide by the higher cash match funding
requirements agreed-to in the grant agreement.
We also noted that U.S. Veterans Initiative’s comments
conflicted with Los Angeles Homeless Services Authority
on cash match requirements for grants issued prior to 1999.
As discussed above, U.S. Veterans Initiative acknowledged
the cash match requirements and provided documentation
to support their interpretation of cash match requirements.
City of Long Beach:
We disagree with the City of Long Beach’s contention that
cash match requirements were non-existent prior to 1999.
As discussed above in Los Angeles Homeless Services
Authority’s comments, the cash match requirements were a
part of a binding grant agreement with HUD, and
Page 13 2004-LA-1008
Finding 1
additionally included in their contracts with U.S. Veterans
Initiative, Inc.
In addition, we noted that U.S. Veterans Initiative’s
comments on the cash match requirements conflict with the
City of Long Beach. U.S. Veterans Initiative
acknowledged these grants have cash match requirements,
and provided the documentation to purportedly support the
cash match. Further, in an e-mail to OIG, the U.S.
Veterans Initiative Executive Director stated that the legal
counsel for the City of Long Beach had advised the
Manager for the City’s Bureau of Human and Social
Services that the OIG’s interpretation of cash match
requirements was correct.
We also disagree with the City of Long Beach that federal
regulations for cash match do not apply to their grants
because both the superceded, and the current OMB Circular
A-110 (Revised 11/19/93 further Amended 8/29/97), and
the current version dated 9/30/99, have the same cash
match requirements.
Recommendations We recommend that the Office of Community Planning and
Development require:
1A. U.S. Veterans Initiative to provide documentation
supporting that the required cash matching funds were
provided for the $3,151,576 expended for their grants (see
Appendix G), or repay it from non-federal funds.
1B. Los Angeles Homeless Services Authority to
provide documentation supporting that the required cash
matching funds were provided for the $2,252,705 expended
for their grants (see Appendix G), or repay it from non-
federal funds.
1C. City of Long Beach to provide documentation
supporting that the required cash matching funds were
provided for the $1,184,961 expended for their grants (see
Appendix G), or repay it from non-federal funds.
2004-LA-1008 Page 14
Finding 2
U.S. Veterans Initiative Spent At Least $633,348
in Supportive Housing Program Funds for
Ineligible and Unsupported Expenses
U.S. Veterans Initiative spent at least $633,348 in Supportive Housing Program funds for
ineligible ($498,248) and unsupported ($135,100) salaries and other expenses. We attribute the
deficiencies to U.S. Veterans Initiative officials’ insufficient emphasis on its Supportive Housing
Program responsibilities and requirements, including its failure to establish and implement an
adequate financial management system to record and track grant expenditures. As a result, these
improper expenditures prevented U.S. Veterans Initiative from carrying out other eligible
activities to enable them to fully meet program goals and requirements.
OMB Circular A-110, Uniform Administrative
Criteria Requirements for Grants and Agreements, Amended
September 30, 1999, and 24 CFR 84 generally provide that:
The budget plan is a financial expression of the project or
program as approved during the award process.
Recipients are required to report deviations from budget
and program plans, and request prior approvals for budget
and program plans, for the following circumstances:
• Change in the scope or objective of the project or
program.
• Change in key personnel specified in the application
of award document.
• The transfer of amounts budgeted for indirect costs to
absorb increases in direct costs, or vice versa.
The grantee’s financial management system must
provide: (1) effective control over and accountability
for all funds, property and assets (2) adequate
safeguards for all such assets and assures that they are
Page 15 2004-LA-1008
Finding 2
used solely for authorized purposes, and (3) accounting
records that are supported by source documentation;
The grantee shall liquidate all obligations incurred
under the award not later than 90 calendar days after
the funding period or the date of completion; and
Only costs directly related to providing supportive
services to the program’s recipients are eligible.
In addition, OMB Circular A-122 establishes the criteria
for determination of direct and indirect costs for federal
awards and once determined these costs must be
consistently applied.
We reviewed Supportive Housing Program grant
Supportive Housing
expenditures of $7,222,590 and found that U.S. Veterans
Program Funds Used for
Initiative used at least $633,348 in Supportive Housing
Ineligible and
Program grant funds for ineligible ($498,248) and
Unsupported Expenses
unsupported ($135,100) salaries and other expenses. The
breakdown of the ineligible and unsupported expenses we
identified is as follows:
Category Salary Expenses1 Other Expenses2 Total
Ineligible
Non-budgeted items $71,034 $276,403 $347,437
Indirect costs charged as direct costs 80,353 80,353
Unallowable grant expenses 11,252 11,252
Paid after grants expired 58,085 58,085
Duplicate payments 1,121 1,121
Total Ineligible $151,387 $346,861 $498,248
Unsupported
Consulting services3 134,560 134,560
Not recorded in accounting system 540 540
Total Unsupported $135,100 $135,100
Total $151,387 $481,961 $633,348
1
Salary expenses included salaries, fringe benefits (25.76%), overhead (23.84%) and administrative costs (5.0%).
2
The scope of our review was the cumulative draws for the 15 active Supportive Housing Program grants, between
July 1, 2001 and December 31, 2003.
3
Total consulting expenses was $165,000, however $30,440 related to three grants not included in our audit (see
Appendix F).
2004-LA-1008 Page 16
Finding 2
A breakdown of the ineligible and unsupported expenses,
by grant, is shown in Appendices D and E. Details of the
deficiencies are discussed separately below.
U.S. Veterans Initiative improperly used $151,387 in
Ineligible Salaries and Supportive Housing Program funds for ineligible salaries
Related Expenses and related expenses. We reviewed the budget in the
technical submission and identified the 24 unauthorized
positions. We then reviewed the timesheets and
corresponding pay stubs for the 24 employees that incurred
salary expenses during calendar year 2003 for the 14 active
grants4 to determine if the duties performed by these 24
employees could be considered eligible as Supportive
Housing Program grant expenses. We found that in four of
the grants, U.S. Veterans Initiative improperly used
Supportive Housing Program funds totaling $71,034 for
salaries relating to positions that were not approved by
HUD in the grants’ technical submissions. In addition, we
found that U.S. Veterans Initiative improperly used
$80,353 in Supportive Housing Program funds for salaries
as direct costs, instead of including these expenses as
indirect (administrative) costs. Details of the ineligible
salaries and related expenses, for each of the four grants is
as shown:
Grant No. Of Salary Fringe & Admin
Number Employees Amount Overhead Costs Total
HI08B001002 8 $77,522 $38,451 $5,799 $121,772
CA16B100025 1 12,551 6,225 939 19,715
CA16B909003 1 1,662 824 124 2,610
TX01B209025 2 4,641 2,302 347 7,290
Total 12 $96,376 $47,802 $7,209 $151,387
Changes to key personnel requires HUD’s prior approval
however, U.S. Veterans Initiative did not obtain the needed
approval for the above costs.
Non-budgeted items
Our review disclosed that $71,034 of the $151,387 in salary
expenses was ineligible because they were for salaries
incurred for positions that were not included in the
4
The scope of our review for the salary expenses paid during calendar year 2003 was 14 of the 15 active Supportive
Housing Program grants. The remaining grant did not have salary expenses in 2003, thus, was not included in our
review of salaries.
Page 17 2004-LA-1008
Finding 2
corresponding Supportive Housing Program grant budget
in the technical submission approved by HUD. Below are
the specific positions for the two grants:
Grant/Position Salary Fringe Overhead Admin Total
HI08B001002
V.A. Staff/ Lead Resident
Assistant $4,846 $1,248 $1,155 $362 $7,611
Resident Assistant 3,960 1,020 944 296 6,220
AmeriCorps Director 22,053 5,681 5,257 1,650 34,641
Resident Assistant 4,176 1,076 996 312 6,560
Resident Assistant 4,176 1,076 996 312 6,560
Clinical Director 1,370 353 327 102 2,152
Subtotal $40,581 $10,454 $9,675 $3,034 $63,744
TX01B209025
Outreach Specialist 2,501 644 597 187 3,928
Clinical Director 2,140 551 510 160 3,362
Subtotal 4,641 1,195 1,107 347 7,290
Total $45,222 $11,649 $10,782 $3,381 $71,034
Indirect costs charged as direct costs
Our review also disclosed that $80,353 of the
$151,387 in salary expenses was ineligible because
U.S. Veterans Initiative charged these expenses as
direct costs, instead of including these expenses as
indirect costs.
As an illustration, the Hawaii grant incurred most of
these expenses ($58,028 of the $80,353), because
U.S. Veterans Initiative charged the salaries for the
two former site directors as direct costs. While the
site director is an approved supportive services cost,
it was not included in the budget with the technical
submission that HUD approved. Therefore, the
salary expenses for this position were not eligible as
a direct expense to the grant, and instead should
have been included as an indirect cost. If the duties
performed by the employee were eligible duties, we
allowed the costs. For example, if the site director
was performing case management work, we
considered the costs as eligible. A breakdown of the
improper charges for the three grants we identified
is as shown:
2004-LA-1008 Page 18
Finding 2
Grant/
Position Salary Fringe Overhead Admin Total
HI08B001002
Site Director $16,636 $4,285 $3,966 $1,244 $26,131
Site Director 20,306 5,231 4,841 1,519 31,897
Subtotal $36,942 $9,516 $8,807 $2,763 $58,028
CA16B100025
Receptionist 12,551 3,233 2,992 939 19,715
Subtotal $12,551 $3,233 $2,992 $939 $19,715
CA16B909003
Site Director 1,662 428 396 124 2,610
Subtotal $1,662 $428 $396 $124 $2,610
Total $51,155 $13,177 $12,195 $3,826 $80,353
U.S. Veterans Initiative improperly used $481,961
Other Ineligible and in grant funds for other ineligible ($346,861) and
Unsupported Expenses unsupported ($135,100) expenses. The ineligible
expenses related to:
Non-budgeted items ($276,403);
Unallowable grant expenses ($11,252);
Expenses paid after grants expired ($58,085);
and
Duplicate payments ($1,121).
The unsupported expenses related to $134,560 in
Supportive Housing Program grant expenses for
consulting services in conjunction with the Business
Services Agreement that was not supported with
source documentation (see Finding 3), and $540 in
expenses that were paid with Supportive Housing
Program funds, but not recorded in the accounting
system. Details are discussed separately below.
Non-budgeted items
Our review showed that in 12 of 15 grants
reviewed, U.S. Veterans Initiative improperly used
$276,403 in Supportive Housing Program funds for
ineligible expenses because they were for items not
included in the budgets approved by HUD in the
Page 19 2004-LA-1008
Finding 2
grants’ technical submissions. Specifically, the
non-budgeted items included:
Indirect Costs $139,795
Equipment, Furniture and Fixtures 51,408
Telephones 41,275
Other Miscellaneous 43,925
Costs incurred for budget line items not approved in
the technical submission budget, and the transfer of
amounts budgeted for indirect costs to absorb
increases in direct costs, or vice versa requires HUD’s
prior approval for these changes. However, U.S.
Veterans Initiative did not obtain the needed approval
for the above costs.
Unallowable expenses
U.S. Veterans Initiative improperly used $11,252
for unallowable Supportive Housing Program grant
expenses for promotional expenses ($5,776); travel
($3,914); special events ($1,150); and training staff
($412). These expenses were not allowable
Supportive Housing Program expenses because they
were not directly related to carrying out the
Supportive Housing Program grant activities, and
also not included in the approved budgets.
Expenses paid after grant expired
U.S. Veterans Initiative improperly used $58,085 in
Supportive Housing Program funds after the two
grants expired as shown:
Grant Billing Billing Payment
Grant Terminated Cutoff Date Submitted Received
CA16B900005 8/31/2002 11/29/2002 3/29/2003 $45,513
CA16R151121 4/30/2003 7/29/2003 9/30/2003 12,572
Total $58,085
As shown above, U.S. Veterans Initiative submitted
billings and was paid on two grants after the
payment period for these grants expired.
2004-LA-1008 Page 20
Finding 2
Duplicate payments
U.S. Veterans Initiative used $1,121 in duplicate
payments to the Hawaii grant based on three
instances; 1) two invoices were paid twice for the
same billing; this occurred because the same
invoice was entered into the Accounts Payable
system as different invoice numbers; 2) duplicate
general journal entries resulted in duplicate charges
to the grant; and 3) the responsible program staff
approved the same billing twice, once as a prepaid
item and then again when the invoice was received.
U.S. Veterans Initiative improperly used $135,100
U.S. Veterans Initiative in Supportive Housing Program funds for expenses
Used Supportive Housing that were not adequately supported. Specifically,
Program Funds For U.S. Veterans Initiative paid $134,560 in
Unsupported Expenses Supportive Housing Program grant expenses for
consulting services in conjunction with the Business
Services Agreement that was not supported with
source documentation (see Finding 3), and $540 in
expenses for three grants that were paid with
Supportive Housing Program funds, but not
recorded in the accounting records.
Consulting Services
As discussed in Finding 3, U.S. Veterans Initiative
executed a Business Services Agreement that
provided for consulting services by Cantwell–
Anderson, Inc.’s President, in which the costs are
included with the overhead costs that are charged to
the Supportive Housing Program grants. We
estimated the active Supportive Housing Program
grants paid a total of $134,560 for consulting
services, however, U.S. Veterans Initiative could
not provide adequate any documentation supporting
the consulting services were actually rendered, if
any. Therefore, we were unable to validate the
eligibility of these expenses. The allocation of the
consulting expenses to each grant is shown in
Appendix F. We also identified an additional
$30,440 paid by three Supportive Housing Program
grants not included in our audit. Therefore, in total
we identified $165,000 in unsupported consulting
services costs ($134,560 + $30,440).
Page 21 2004-LA-1008
Finding 2
Expenses not recorded in accounting system
U.S. Veterans Initiative improperly used $540 in
Supportive Housing Program funds from one grant
for expenditures that were not recorded in the
accounting system because of billing errors.
Collectively, we attribute the deficiencies to U.S.
U.S. Veterans Initiative’s Veterans Initiative officials’ insufficient emphasis
Lack of Emphasis On on its Supportive Housing Program responsibilities
Requirements and requirements, including its failure to establish
and implement an adequate financial management
system to record and track grant expenditures, and
provide a comparison of outlays with approved
budgets (see Finding 3). U.S. Veterans Initiative
officials claimed that they were unaware of the
requirement to file a budget modification request.
However, we noted that U.S. Veterans Initiative had
filed several budget modification requests in other
situations. Therefore, in our opinion, U.S. Veterans
Initiative was aware of the requirement but did not
abide by it.
As a result, these improper expenditures prevented
Other Eligible Activities U.S. Veterans Initiative from carrying out other
Not Carried Out eligible activities to enable them to fully meet
program goals and requirements.
Auditee Comments U.S. Veterans Initiative:
U.S. Veterans Initiative disagreed with the finding
and contended that it spent all awarded Supportive
Housing Program funds for eligible activities.
Details of their comments are as follows:
Non-budgeted items (Salaries)
U.S. Veterans Initiative acknowledged that the non-
budgeted salaries were not included in the budget
because they failed to submit the required budget
modifications; however, U.S. Veterans Initiative
claimed that the salaries are eligible because the
duties performed by these personnel were related to
carrying out the Supportive Housing Program.
2004-LA-1008 Page 22
Finding 2
Indirect costs charged as direct costs
U.S. Veterans Initiative contended that the services
provided by these personnel were actually in direct
support of the grant programs. U.S. Veterans
Initiative also attributed the problem to a
misrepresentation on the timesheets of the personnel
in question as to their actual duties.
Non-budgeted items (Other Expenses)
U.S. Veterans Initiative stated that OIG
inappropriately concluded that these expenses were
non-budgeted items, when in fact they were
included in the budget under a generalized line
item, and thus, should have been eligible.
Unallowable expenses
U.S. Veterans Initiative contended that the expenses
that OIG concluded were unallowable, were
actually eligible, but were charged to the wrong
general ledger expense account. U.S. Veterans
Initiative provided documentation supporting these
expenses.
Expenses paid after the grant expired
U.S. Veterans Initiative claimed that the expenses
should be eligible because they were for eligible
program expenses incurred during the grant period.
Consulting Services
U.S. Veterans Initiative contended that the consulting
expenses were eligible and provided supporting
documentation as an attachment to its written
response.
Duplicate payments
U.S. Veterans Initiative agreed that there were
duplicate payments and provided documentation
showing it took corrective action.
Los Angeles Homeless Services Authority:
Los Angeles Homeless Services Authority
disagreed with some issues in this finding, but
agreed with others. Details of their comments are
as follows:
Page 23 2004-LA-1008
Finding 2
Indirect costs charged as direct costs
Los Angeles Homeless Services Authority disagreed
that the salary expenses of $19,715 charged to grant
CA16B100025 were ineligible and attributed the
problem to disallowing the expenses based on the
staff person’s title, instead of the actual job function
of that person.
Non-budget items (Other Expenses)
Los Angeles Homeless Services Authority stated that
even though charges were for unauthorized budget
line items, they should be deemed eligible because
they were for eligible supportive service activities.
Los Angeles Homeless Services Authority stated
that it appeared that OIG applied an extremely
narrow definition to their consideration of what was
approved under the budget. Los Angeles Homeless
Services Authority acknowledged, however that
these items need to be further reviewed and justified
by the U.S. Veterans Initiative.
Unallowable expenses
Los Angeles Homeless Services Authority stated that
U.S. Veterans Initiative has agreed that the $5,470
charged to the CA16R151121 was ineligible. The $6
noted as unallowable as “travel” charged to
CA16B200052 was incurred for parking of a direct
staff position; this could be better classified as
“mileage”, an allowable item.
Expenses paid after the grant expired
Los Angeles Homeless Services Authority
acknowledged the funds were drawn at a late date;
however, Los Angeles Homeless Services Authority
stated it approved final invoices for the programs
based on expenditures incurred during the program
period, close-outs and final budget and invoice
adjustments notwithstanding. Therefore, the
amounts should be considered eligible.
Consulting Services
Los Angeles Homeless Services Authority agreed that
better documentation including monthly invoices with
tasks and/or hours of work performed, should have
been provided by the consultant to support the
consulting fees paid to Cantwell Anderson, Inc., on
2004-LA-1008 Page 24
Finding 2
behalf of U.S. Veterans Initiative. Los Angeles
Homeless Services Authority stated that U.S.
Veterans Initiative provided documentation attesting
to the significant work performed by Mr. Cantwell,
which indicated an annual average of 1,660 hours
spent on U.S. Veterans Initiative programs.
Expenses not recorded in the accounting system
Los Angeles Homeless Services Authority stated
that if the $540 is for valid and program-eligible
items, the expenses can be rectified through an
accounting adjustment.
City of Long Beach:
The City of Long Beach did not provide any
comments on this finding.
OIG Evaluation of U.S. Veterans Initiative:
Auditee Comments
Non-budgeted items (Salaries)
We disagree. Since U.S. Veterans Initiative did not
submit the required budget modifications for these
expenses, HUD has no assurance that the salary
expenses for the staff members were for eligible
Supportive Housing Program expenses, and would
not affect U.S. Veterans Initiative’s ability to
accomplish its grant program activities. Therefore,
we still categorized these as ineligible expenses.
Indirect costs charged as direct costs
We disagree with U.S. Veterans Initiative. We
evaluated the Honolulu Site Director’s timesheets
and found that when she prepared and signed her
timesheets, she did not include eligible program
activities in the description on how she spent her
time. Further, we noted that these timesheets were
reviewed and approved by either U.S. Veterans
Initiative Executive Director, or were processed
without any approval. Therefore, we believe the
timesheet was accurately completed when it was
first prepared. With regard to the Westside
Residence receptionist, we determined the
Page 25 2004-LA-1008
Finding 2
eligibility of the salary expenses based on the work
activities stated in the employee’s timesheet, not the
job title. Since these timesheets were prepared by
the employee, and approved by the employee’s
supervisor, we believe these were an accurate
description of the duties performed.
Non-budgeted items (Other Expenses)
We disagree with U.S. Veterans Initiative that the
non-budgeted items were eligible expenses and
have the following specific comments:
We disagree with U.S. Veterans interpretation
that eligibility of grant costs should be approved
based on the eligibility that these costs fall
under the umbrella of supportive services.
Specific budgeted line items are approved in the
Technical Submission to meet the technical
requirements of each particular Supportive
Housing Program grant. When U.S. Veterans
Initiative uses approved funding for non-
budgeted, and unapproved, items, then this may
impact U.S. Veterans Initiative’s ability to meet
required program requirements. For example, in
the case of the U.S. Veterans Initiative’s Texas
grants, the Community Planning and
Development Office in Fort Worth advised us
they did not allow overhead costs to be included
in their budgets since the U.S. Veterans
Initiative could not provide adequate
substantiation for these costs. The U.S.
Veterans Initiative charged $72,343 in Texas
grants overhead costs even though the
Community Planning and Development Office
disallowed these costs. U.S. Veterans Initiative
used Evaluation and Monitoring and Bus
Passes/Tokens budget categories to pay for
these overhead costs, which in our opinion,
directly impacts the ability to adequately
support homeless veterans.
We disagree that the expenses were approved
under a generalized budget line item. In the case
of telephones, these costs are included in the
overhead rate charged to Supportive Housing
Program grants. Therefore, when telephones are
2004-LA-1008 Page 26
Finding 2
also charged as a direct cost to the grant, this
requires the Technical Submission budget to
specifically identify these costs.
Further, charges such as Furniture and Fixtures
bought without prior approval from HUD are not
eligible expenses against the Equipment and
Maintenance budget line item because, in our
opinion these are two completely different
categories.
We acknowledge that U.S. Veterans Initiative
submitted extensive documentation on September
15, 2004 for expense items it believes are eligible.
This documentation will be provided to HUD for its
review and determination during the audit
resolution process.
Unallowable expenses
We acknowledge that U.S. Veterans Initiative
submitted documentation on September 15, 2004
for some non-budgeted items they believe are
eligible. This documentation will be provided to
HUD for its review and determination during the
audit resolution process.
Expenses paid after the grant expired
We disagree with U.S. Veterans Initiative. HUD
regulations require that all eligible program
expenses must be paid within 90 days after the grant
termination date, or the date can be extended based
on the grantee requesting and getting approval for
this extension. Further the Los Angeles Homeless
Services Authority’s contract with the U.S.
Veterans Initiative specifically requires the payment
cutoff date or the request for an extension within 60
days after the grant termination date. Since U.S.
Veterans Initiative fulfilled neither of these
requirements, these expenses are not eligible for
reimbursement.
Consulting Services
We disagree that the unsupported consultant costs
are eligible for reimbursement. During the audit,
U.S. Veterans Initiative could not provide any
documentation, such as invoices, supporting the
Page 27 2004-LA-1008
Finding 2
consulting services. Later, on September 1, 2004,
they provided a spreadsheet prepared based on
records in the consultant’s palm pilot that listed
meetings held and number of hours spent in these
meetings to substantiate the services provided
between January 2001 and December 2003.
However, these records did not provide any
information detailing the nature of the consulting
services provided and how it related to the
Supportive Housing Program activities. Therefore,
we could not determine the eligibility of the
consulting services. We also noted that the
Business Services Agreement between U.S.
Veterans Initiative and Cantwell-Anderson Inc.,
expired on June 30, 2000; therefore, all the
documentation provided by U.S. Veterans Initiative
was for consulting services rendered under an
expired agreement, and therefore, should not be
eligible program expenses. In addition, we also
noted that the purported supporting documentation
conflicts with other correspondence between U.S.
Veterans Initiative and HUD’s Office of General
Counsel in April and May 2003, in which the
Executive Director specifically attested to the fact
that the President of Cantwell-Anderson Inc. was
not an employee, agent, or a paid consultant of U.S.
Veterans Initiative.
Duplicate payments
We acknowledge U.S. Veterans Initiative provided
some additional documentation on September 15,
2004 relating to the duplicate payments. This
documentation can be evaluated by HUD during the
audit resolution process to determine whether
appropriate action has been taken.
Los Angeles Homeless Services Authority:
Indirect costs charged as direct
We disagree. The salary expenses of $19,715
charged to grant CA16B100025 were disallowed
based on the employee’s timesheets stating she was
performing work activities that were not approved
in the grant Technical Submission budget.
2004-LA-1008 Page 28
Finding 2
Non-budget items (Other Expenses)
We disagree that the non-budgeted expenses are
eligible. Since the required budget modification was
not submitted to HUD for review and approval, there
is no assurance that these expenses were eligible
Supportive Housing Program activities, and approval
of these items would not adversely impact meeting
the grant program goals. We did however, agree with
Los Angeles Homeless Services Authority’s issue on
the administrative fee, and have revised the report
accordingly.
Unallowable expenses
Since Los Angeles Homeless Services Authority
agreed that the $5,470 charged to the CA 16R151121
is ineligible, we have no further comment. HUD can
determine the eligibility of the remaining $6 during
the audit resolution process.
Expenses paid after the grant expired
We disagree with Los Angeles Homeless Services
Authority that these are eligible expenses since
these were not billed within the required time
period.
Consulting Services
We disagree that the expenses for consulting services
were eligible. The documentation we obtained not
only conflicted as to whether consulting services were
actually rendered, but was also insufficient to
determine the nature of the services rendered in
relation to U.S. Veterans Initiative’s Supportive
Housing Program activities.
Expenses not recorded in the accounting system
We disagree that these costs could be easily
supported. Based on earlier documentation
provided by the U.S. Veterans Initiative, these costs
are billing errors. The audit report reflects a change
in the cause for these unsupported costs as billing
errors.
City of Long Beach:
The City of Long Beach provided no comments on
this finding; thus, we have no further comments.
Page 29 2004-LA-1008
Finding 2
Recommendations We recommend that the Office of Community Planning and
Development:
2A. Instruct U.S. Veterans Initiative, Los Angeles
Homeless Services Authority, and City of Long Beach to
comply with the pertinent federal requirements in carrying
out its Supportive Housing Program grant activities.
2B. Require U.S. Veterans Initiative to reimburse the
Supportive Housing Program grants, and/or repay HUD from
non-federal funds for the $347,408 in ineligible expenses (see
Appendices D and G).
2C. Require Los Angeles Homeless Services Authority to
reimburse the Supportive Housing Program grants, and/or
repay HUD from non-federal funds for the $151,290 in
ineligible expenses (see Appendices D and G).
2D. Require U.S. Veterans Initiative to reimburse the
Supportive Housing Program grants, and/or repay HUD from
non-federal funds for the $66,424 in unsupported expenses,
unless it can provide adequate supporting documentation (see
Appendices E and G). Additionally, any consulting service
charges since December 31, 2003, should be prorated and
paid back to each grant.
2E. Require Los Angeles Homeless Services Authority to
reimburse the Supportive Housing Program grants, and/or
repay HUD from non-federal funds for the $46,189 in
unsupported expenses, unless it can provide adequate
supporting documentation (see Appendices E and G).
Additionally, any consulting service charges since
December 31, 2003, should be prorated and paid back to each
grant.
2F. Require City of Long Beach to reimburse the
Supportive Housing Program grants, and/or repay HUD from
non-federal funds, for the $22,037 in unsupported expenses,
unless it can provide adequate supporting documentation (see
Appendices E and G). Additionally, any consulting service
charges since December 31, 2003, should additionally be
prorated and paid back to each grant.
2004-LA-1008 Page 30
Finding 2
2G. Require U.S. Veterans Initiative to reimburse the
Supportive Housing Program grants, and/or repay HUD from
non-federal funds for the $30,440 in unsupported consulting
expenses, unless it can provide adequate supporting
documentation (see Appendices F and G).
Page 31 2004-LA-1008
Finding 2
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2004-LA-1008 Page 32
Finding 3
U.S. Veterans Initiative Did Not Administer its
Supportive Housing Program Grants in
Accordance with Program Requirements
U.S. Veterans Initiative did not administer its Supportive Housing Program grants in accordance
with Program requirements. More specifically, we found that U.S. Veterans Initiative failed to:
Develop an adequate financial management system;
Comply with procurement and contract administration requirements;
Establish and implement indirect cost rates as required; and
Close out expired grants.
We attribute the deficiencies to U.S. Veterans Initiative officials’ insufficient emphasis on its
Supportive Housing Program responsibilities and requirements. Collectively, these conditions
precluded U.S. Veterans Initiative from conducting its Supportive Housing Program activities
more efficiently and effectively, as well as prevented U.S. Veterans Initiative from fully meeting
its program goals and requirements. In addition, these deficiencies may have contributed to
Supportive Housing Program grant funds being spent for ineligible and unsupported expenses.
Title 24, CFR, § 84.21(b)(1), (2), and (4) of the Code of
U.S. Veterans Initiative Federal Regulations (CFR), requires the grant recipient to
Failed to Develop an maintain a financial management system that provides (1)
Adequate Financial accurate, current, and complete disclosure of the financial
Management System results for each federally sponsored project or activity; and
(2) records that adequately identify the sources and
application of funds for each HUD sponsored activity; and
(3) a comparison of outlays with budget amounts.
Contrary to HUD regulations, U.S. Veterans Initiative’s
financial management system was inadequate because it
did not (1) differentiate the source and application of funds
for each HUD sponsored activity, (2) identify required cash
matching funds, and (3) provide a comparison of outlays
with budget amounts for each award. Details of each
deficiency are discussed below.
Page 33 2004-LA-1008
Finding 3
System did not track source and application of funds
U.S. Veterans Initiative’s financial management system
was not sufficiently developed and did not identify the
sources and application of funds for each HUD sponsored
project. U.S. Veterans Initiative’s system tracked funds by
U.S. Veterans Initiative program, instead of funding source,
therefore any program that had multiple funding sources
were co-mingled under one account. Consequently, U.S.
Veterans Initiative had to develop a separate spreadsheet
system to record the grant draw amounts and expenditures.
As a result, expenses incurred for U.S. Veterans Initiative
program activities that were funded by multiple sources
could be arbitrarily allocated amongst the available funding
sources, instead of directly to the appropriate grant.
The problems that HUD’s Honolulu Community Planning
and Development Office found during its monitoring
review of Supportive Housing Program grant
HI108B001002 clearly illustrates the problem with U.S.
Veterans Initiative’s financial management system. U.S.
Veterans Initiative’s Veterans In Progress program was
funded by the Supportive Housing Program grant (starting
in August 2002) and Department of Veterans Affairs (VA)
grants (starting in October 2003). Since the HUD
Supportive Housing Program grant funds were available
before the VA grant funds, U.S. Veterans Initiative charged
the VA portion of the program costs to the HUD
Supportive Housing Program grant. As a result, U.S.
Veterans Initiative charged ineligible and unauthorized
expenses to the Supportive Housing Program grant. Based
on the monitoring review, the Community Planning and
Development Office required U.S. Veterans Initiative to
reverse and reclassify $37,251 in ineligible and
unauthorized expenses. However, had HUD’s Community
Planning and Development Office not conducted the
monitoring review, these expenses would have
inappropriately remained as Supportive Housing Program
grant expenses. We also noted that, because of the
inadequate accounting system, $32,936 of the $37,251 in
accounting adjustments made are not properly recorded in
the accounting system. The adjustments are only reflected
on the separate grant spreadsheet, and as a reduction on the
next grant drawdown.
2004-LA-1008 Page 34
Finding 3
System did not identify required cash matching funds
U.S. Veterans Initiative’s financial management system was
not sufficiently developed and did not:
Verify cash matching funds for Supportive Housing
Program grants;
Ensure contributions were specific to Supportive
Housing Program grants; and
Support that cash matching funds were necessary
and reasonable for proper and efficient
accomplishments of project or program objectives.
Consequently, as detailed in Finding 1, U.S. Veterans
Initiative was unable to support that it met cash matching
funds requirements for any of the $7,222,590 in Supportive
Housing Program grant funds expended during the audit
period.
System did not compare outlays with budgets.
U.S. Veterans Initiative’s financial management system did
not provide for a comparison of Supportive Housing
Program grant outlays with budgeted amounts.
Additionally, the commingling of funds with multi-funded
programs precluded this comparison. This inability for
budget comparison to outlays resulted in $287,655 in
ineligible expense payments. This included $276,403 in
non-budgeted items and $11,252 in unauthorized grant
expenditures (see Finding 2). If the financial management
system had been properly developed, this should have
precluded the payments for these unauthorized
expenditures.
U.S. Veterans Initiative officials explained that the problem
U.S. Veterans Initiative occurred because the financial management system was
Did Not Modify Financial developed when U.S. Veterans Initiative was a small
System organization. U.S. Veterans Initiative did not modify the
system as they grew and their funding increased, so that the
system would record and track funds by grant instead of by
program. In our opinion, U.S. Veterans Initiative officials
did not provide sufficient emphasis on its responsibilities to
ensure that their system complied with federal
requirements. During our audit, in February 2004, U.S.
Veterans Initiative advised us they had initiated corrective
action to resolve this problem, and planned to implement
the new system in July 2004.
Page 35 2004-LA-1008
Finding 3
As a result of the inadequate system, the financial reports do
HUD Has No Assurance not reflect the actual grant expenses and do not provide a
That Supportive Housing comparison of expenses with the budgeted amounts.
Program Funds Were Spent Therefore, HUD has no assurance that the Supportive
As Approved Housing Program funds are being used only for authorized
and allowable expenses. In addition, the inadequate financial
management system has increased audit costs because the
Independent Public Accountant must prepare additional
financial reports in order to prepare the annual audited
financial statements.
OMB Circular A-110, Uniform Administrative
U.S. Veterans Initiative Requirements for Grants and other Agreements with
Failed to Comply With Institutions of Higher Education, Hospitals, and Other Non-
Procurement and Contract Profit Organizations, Amended September 30, 1999,
Administration Procurement Standards, and 24 CFR 84, generally require:
Requirements
Competitive procurement for purchases exceeding the
threshold fixed at 41 U.S.C. § 403 (11) (currently
$25,000) or $100,000 whichever is greater requires
proper documentation. This supporting documentation
includes pre-award review and procurement documents,
such as requests for proposals, invitations for bids,
independent cost estimates, etc. and procurement records
for contractor selection or justification for lack of
competition;
Ensure that small businesses, minority owned firms, and
women’s business enterprises are used to the fullest
extent practicable.
Contract administration to ensure contractor
conformance with the terms, conditions, and
specifications of the contract; and
Contractual provisions that allow for administrative,
contractual, or legal remedies for contracts exceeding
the $100,000 threshold. Further, all contracts must
include provisions for Equal Employment Opportunity
(EEO) as required by Executive Orders 11246 and
11375.
Contrary to the OMB and CFR requirements, U.S. Veterans
Initiative failed to comply with procurement requirements.
Specifically, U.S. Veterans Initiative did not:
2004-LA-1008 Page 36
Finding 3
Competitively procure the Business Services
Agreement between U.S. Veterans Initiative and
Cantwell-Anderson, Inc., or justify the lack of
competition;
Ensure that small businesses, minority owned firms, and
women’s business enterprises are used to the fullest
extent practicable.
Ensure contractor performance with the contract terms,
conditions, and specifications; and
Include contract provisions that allow for
administrative, contractual, and legal remedies or EEO
requirements for contracts.
Details of the deficiencies are discussed below.
U.S. Veterans Initiative did not competitively procure the
Business Services Agreement
U.S. Veterans Initiative executed the Business Services
Agreement with Cantwell-Anderson, Inc., dated August 3,
1998, which provided for accounting and consulting services,
but did not competitively procure the services nor did it
justify the lack of competition. The Business Services
Agreement showed that annual accounting fees would be the
greater of $114,000 or 4 percent of expenses processed, and
consulting fees would be $75,000. The Business Services
Agreement expired on June 30, 2000. We also noted that
U.S. Veterans Initiative did not competitively procure the
accounting services rendered by the Independent Public
Accountant even though these costs exceeded the $100,000
threshold. Since the Supportive Housing Program grant funds
paid a portion of the Independent Public Accountant
expenses, these services should have also been competitively
procured. However, Cantwell-Anderson, Inc. has continued
to provide the services using the expired Business Services
Agreement. Between July 1, 1998, and December 31, 2003,
U.S. Veterans Initiative paid Cantwell-Anderson, Inc., an
estimated $2,177, 894 for services rendered as shown:
Page 37 2004-LA-1008
Finding 3
HUD Supportive HUD Supportive
Service Agreement Total Estimated Housing Program Housing Program
Provided Terms Payments Payments Future Payments
Accounting 4% of expenses $1,765,394 $321,697 $457,413
Consulting $6,250 monthly 412,500 165,000 30,000 per yr
Totals $2,177,894 $486,697
U.S. Veterans Initiative officials claimed they were
knowledgeable of, and adhered to, the procurement
requirements for all purchases over $1,000; however, they
were unable to explain why they did not follow them for the
Business Services Agreement or for the Independent Public
Accountant services. U.S. Veterans Initiative officials did not
abide by procurement requirements, possibly to give
preferential treatment to Cantwell-Anderson, Inc. in the
issuance of this Agreement, since U.S. Veterans Initiative has
close ties with its former Acting Executive Director, who is
currently the President of Cantwell-Anderson, Inc. With
regard to the expiration of the Business Services Agreement,
U.S. Veterans Initiative officials initially stated that it had not
been extended past the June 30, 2000 termination date. But
later, officials stated that it had been extended, but were
unable to locate any supporting documentation.
U.S. Veterans Initiative did not ensure contractor
performance with the Business Services Agreement
U.S. Veterans Initiative did not ensure Cantwell-Anderson,
Inc. complied with the Business Services Agreement. The
Business Services Agreement required that accounting and
consulting services be performed in a manner, which will
result in services being delivered within approved budgets
and in conformance with governmental funding
requirements5. Specifically, we found that while U.S.
Veterans Initiative paid $6,250 per month to Cantwell-
Anderson, Inc. for its president to be on 24-hour call for
consulting services, it did not obtain any documentation
supporting the actual consulting services rendered, if any.
The Business Services Agreement based the monthly fee on
the basis that the president would provide 113 consulting
hours at a rate of $55.37 per hour. However, U.S. Veterans
5
The accounting requirements are established in the Super Notice of Funding Availability by requiring compliance
with the federal requirements and regulations Supportive Housing Program grants, which included the OMB
Circulars and 24 CFR 84. The budget requirements are established in OMB Circular A-110 and 24 CFR 84 and the
grant agreements.
2004-LA-1008 Page 38
Finding 3
Initiative could not support how many hours of consulting, if
any, that the president actually provided. Therefore, we
questioned the entire $134,560 paid by the Supportive
Housing Program grants for consulting services as
unsupported expenses (see Finding 2).
U.S. Veterans Initiative did not include required
provisions in the Business Services Agreement
U.S. Veterans Initiative did not include any contractual
provisions that allow for administrative, contractual, and legal
remedies or EEO requirements for contracts. U.S. Veterans
Initiative omitted contractual provisions that provide for
administrative, contractual and legal remedies from the
Business Services Agreement, which adversely affects the
ability of the grantee to effectively resolve these issues on this
agreement as well as other contracts where these provisions
are omitted. Further, omitting these required provisions could
jeopardize current and future grant awards. U.S. Veterans
Initiative’s controller6 was recently hired and was unable to
provide any reason for the omission of these requirements;
however, she advised us that the required contract provisions
would be included in all future contracts.
OMB Circular A-122, Cost Principles for Non-Profit
U.S. Veterans Initiative Organizations, revised November 1993, Amended
Failed to Establish and September 30, 1999, requires:
Implement Indirect Cost
Organizations with previously established indirect cost
rate, submit a new indirect cost proposal to the
cognizant agency within six months after the close of
the fiscal year.
The methods for cost allocation be consistent for
indirect costs to be allowable.
Indirect costs be accumulated into separate cost
groupings, where an organization’s indirect costs
benefit major functions in varying degrees.
Further, OMB Circular A-110, Uniform Administrative
Requirements for Grants and Agreements Amended
September 30, 1999, Financial and Program Management,
requires written procedures for determining the
6
The controller is actually a contract employee of Cantwell-Anderson, Inc. U.S. Veterans Initiative contracted with
Cantwell-Anderson, Inc. for its accounting services in the Business Services Agreement.
Page 39 2004-LA-1008
Finding 3
reasonableness, allocability and allowability of costs in
accordance with the provisions of the applicable Federal
cost principles and the terms of the award.
Contrary to OMB Circular requirements, U.S. Veterans
Initiative did not:
Update indirect cost rates for the Los Angeles facility;
Establish indirect cost rates for facilities outside Los
Angeles;
Consistently charge general and administrative and
overhead costs;
Segregate indirect cost pools; and
Prepare written procedures for determining the
reasonableness, allocability, and allowability of costs.
Indirect costs are those that have been incurred for common
or joint objectives and cannot be readily identified with a
particular final cost objective. U.S. Veterans Initiative uses
indirect cost rates for fringe benefits, overhead and general
and administrative costs. The information below provides the
details for each of the above conditions:
U.S. Veterans Initiative did not update indirect cost rates
as required
U.S. Veterans Initiative indirect cost rate proposal was
prepared and approved in 1999, and these rates have not been
updated since that time. At the time these rates were
approved, U.S. Veterans Initiative only had one site in Los
Angeles and these rates were exclusive to Los Angeles
County and not approved for other locations. These rates
have continued to be used for the indirect cost allocations
through the time of this audit. During the period from July 7,
1999, through June 30, 2003, grant revenues (involving
indirect cost allocations) have increased 227 percent where
as, indirect cost rates have increased 406 percent as shown:
2004-LA-1008 Page 40
Finding 3
1999 Cost July 1, 2002 – Percent
Indirect Cost Proposal June 30, 2003 Increase
General and
Administrative $207,114 $830,233 401%
Overhead 249,937 1,095,395 438%
Fringe Benefits 383,675 1,490,196 388%
Total $840,726 $3,415,824 406%
Grant Revenues $4,447,421 $10,107,667 227%
In July 1999, indirect costs represented about 19 percent of
Supportive Housing Program grant expenses; but currently
they exceed about 34 percent. Since indirect costs for
overhead and fringe benefits are based on direct salary
expenses, then this increase is attributed to higher salary
expenses, which directly impacts the program. If the indirect
costs increase, then there is less available for direct expenses
to support the program and ensure goals and requirements are
met.
U.S. Veterans Initiative did not establish rates for
facilities outside Los Angeles
U.S. Veterans Initiative did not establish indirect rates for
new facilities, which should have been established and
approved by the cognizant agency within six months after the
initiation of the grant. U.S. Veterans Initiative currently has
facilities in several California counties, as well as Arizona,
Hawaii, Nevada, and Texas. Even though indirect cost rates
were only approved for the Los Angeles County facility, they
were inappropriately being used as indirect cost rates on all
U.S. Veterans Initiative facilities. U.S. Veterans Initiative
officials stated they were unaware of the requirements to
establish or update the rates.
U.S. Veterans Initiative did not consistently charge
General and Administrative and overhead costs
U.S. Veterans Initiative did not consistently include General
and Administrative and overhead in its indirect cost rates. In
2001, U.S. Veterans Initiative adjusted General and
Administrative and overhead rates for Arizona and Nevada
using the 1999 data by taking out General and Administrative
salaries and depreciation costs, but did not obtain approval by
the cognizant agency as required. The San Francisco
Community Planning and Development Office required U.S.
Veterans Initiative to make these adjustments before issuing
the Supportive Housing Program grants in Arizona and
Page 41 2004-LA-1008
Finding 3
Nevada. However, U.S. Veterans Initiative did not make
these same changes to other Supportive Housing Program
grants. Additionally, U.S. Veterans Initiative officials stated
they were unaware of the requirement to obtain approval for
revised indirect cost rates.
U.S. Veterans Initiative did not segregate indirect cost
pools
U.S. Veterans Initiative did not segregate indirect cost pools
as required. As discussed above, U.S. Veterans Initiative
inappropriately used the indirect cost rates established for the
Los Angeles County facility for all its other locations, except
for Arizona and Nevada where they arbitrarily adjusted Los
Angeles County rates. The indirect cost rates for the Los
Angeles County facility were exclusive to that facility since
those costs would be different than those in other facilities;
therefore, the costs should have been accumulated and
allocated as such. U.S. Veterans Initiative’s current controller
stated she was aware this was required, however, she was
unaware why the previous Controller did not adhere to this
requirement.
U.S. Veterans Initiative did not establish written
procedures for determining costs
U.S. Veterans Initiative did not establish written procedures
for determining the reasonableness, allocability, and
allowability of costs as required. The lack of such procedures
created confusion at U.S. Veterans Initiative on how to
account for expenditures, such as telephones, office expenses
and mileage. Written procedures are needed to provide clear
guidance on how to determine whether an expenditure was a
direct, or indirect grant expense, and how to properly record
it, so that all grant expenditures are consistently accounted
for. This lack of guidance has created confusion with grant
administrators on what costs are included in indirect and
direct costs. If U.S. Veterans Initiative had written
procedures, it would have established the proper
methodology to account for such expenses.
U.S. Veterans Initiative officials advised us they had initiated
corrective action to resolve these problems. They are in the
process of developing indirect cost pools and rates for each
location in accordance with HUD and OMB requirements
and are planning on implementing these new rates by location
early in fiscal year 2005.
2004-LA-1008 Page 42
Finding 3
Under the provisions of 24 CFR § 84.71, Closeout
Failed to Closeout Procedures:
Expired Grants
Recipients shall submit, within 90 calendar days after
the date of completion of the award, all financial,
performance, and other reports as required by the terms
and conditions of the award. HUD may approve
extensions when requested by the recipient.
Unless HUD authorizes an extension, a recipient shall
liquidate all obligations incurred under the award not
later than 90 calendar days after the funding period or
the date of completion as specified in the terms and
conditions of the award or in HUD instructions.
Between July 1, 2001, through December 31, 2003, 5 of the
15 Supportive Housing Program grants we reviewed
expired. However, U.S. Veterans Initiative did not close
out the grants as required. The expired grants included:
Grant
Grant Number Grant Period Amount Drawn Down Balance
CA16B900005 09/01/00 - 08/31/02 $895,496 $832,293 $63,203
CA16R151121 05/01//00 - 04/30/03 1,051,189 997,315 53,874
CA16B960302 05/01/00 - 04/30/03 840,000 840,000 0
AZ01B002030 12/01/01 - 03/31/03 525,000 477,458 47,542
TX01B910018 08/01/00 - 07/31/03 575,902 575,902 0
Total $3,887,587 $3,722,968 $164,619
As shown above, the total grant funds awarded was
$3,887,587, of which U.S. Veterans Initiative had drawn
down $3,722,968, which left a balance of $164,619, which
should have been de-obligated and made available for other
uses. U.S. Veterans Initiative officials stated they were not
aware of the requirements to close out the expired grants.
Collectively, we attribute the deficiencies to U.S. Veterans
U.S. Veterans Initiative Initiative officials’ insufficient emphasis on its Supportive
Did Not Place Emphasis Housing Program responsibilities and requirements. U.S.
On Responsibilities And Veterans Initiative officials generally informed us they
Requirements were unaware of the requirements associated with the
deficiencies we identified. However, we noted that U.S.
Veterans Initiative claimed extensive knowledge and
Page 43 2004-LA-1008
Finding 3
experience in administering HUD grants in the grant
technical submissions that it submitted to HUD. Therefore,
in our opinion, U.S. Veterans Initiative officials either did
not ensure they were sufficiently knowledgeable of, or
chose to ignore the requirements.
Collectively, these conditions precluded U.S. Veterans
Supportive Housing Initiative from conducting its Supportive Housing Program
Program Grant Funds activities more efficiently and effectively, as well as
May Not Have Been Used precluded U.S. Veterans Initiative from fully meeting its
Properly program goals and requirements. We reviewed the most
current Annual Performance Reports for the 10 grants that
had been operational long enough to require Annual
Performance Reports. We found that for seven grants that
reported on program goals and progress, none had fully met
the Supportive Housing Program goals relating to
residential stability, increased skills and income, and
greater self-determination. For example, for the Hawaii
grant, U.S. Veterans Initiative planned to have 100 percent
of the program participants complete skills assessments
and/or vocational assessments before completing the
program, in order to accomplish the goal relating to
increased skills or income. The Annual Performance
Report reported, however, that only three percent of the
participants actually completed the assessments. In
addition, as discussed in Finding 2, these deficiencies may
have contributed to Supportive Housing Program grant
funds being spent for ineligible and unsupported expenses.
Auditee Comments U.S. Veterans Initiative:
U.S. Veterans Initiative failed to develop an adequate
financial management system
U.S. Veterans Initiative disagrees and claims they have an
adequate financial management system. They contend
their system is a combination of the general ledgers from
the financial management system used in conjunction with
spreadsheets that meets federal requirements for financial
management systems.
U.S. Veterans Initiative failed to comply with procurement
and contract administration requirements
U.S. Veterans Initiative disagrees and contends that it has
two contracts, which they consider as “sole source”. They
2004-LA-1008 Page 44
Finding 3
stated that documentation supporting these services as sole
source has been provided to the OIG for both the Business
Services Agreement with Cantwell-Anderson, Inc. and the
contract with Montgomery & Neimeyer, CPAs, LLC. U.S
Veterans Initiative also contends the Board Resolutions
renewed the Business Services Agreement and they have
provided us this documentation. Further, they stated that
the personnel interviewed by the OIG were not appropriate
for procurement issues.
U.S. Veterans Initiative failed to establish indirect cost
rates as required
U.S. Veterans Initiative disagrees and stated the Indirect
Cost Rates approved in 1999 still remain in effect. In
addition, the rates approved for the Los Angeles facility
have the same requirements as their other California,
Nevada, Arizona, Texas and Hawaii grants, and therefore,
all indirect charges should use the same cost rates.
U.S. Veterans Initiative also stated OIG misrepresented the
facts since we never identified that the Honolulu grant
refused to pay any overhead costs. Further, they state they
have written procedures for implementing the Indirect Cost
Rates and have a simplified version in their documentation.
U.S. Veterans Initiative failed to closeout expired grants
The U.S. Veterans Initiative generally agrees and has now
taken appropriate required action to close out the expired
grants.
Los Angeles Homeless Services Authority:
Los Angeles Homeless Services Authority agreed with the
finding and recommendations.
City of Long Beach:
The City of Long Beach did not comment on this finding.
Page 45 2004-LA-1008
Finding 3
OIG Evaluation of U.S. Veterans Initiative:
Auditee Comments
U.S. Veterans Initiative failed to develop an adequate
financial management system
We disagree with the U.S. Veterans Initiative’s contention
that their financial management system meets federal
requirements because of the following reasons:
U.S. Veterans Initiative’s financial management system
cost code structure was developed to track expenses by
program instead of by grant. This has resulted in the
general ledger cost codes for several grants
commingled in one cost code account for all expenses
incurred. On four of HUD’s Supportive Housing
Program grants, U.S. Veterans Initiative commingled
several federal agencies’ funding and costs into one
general ledger cost code. For all the Supportive
Housing Program grants, there is no differentiation
between the expiring grant and the renewal grant when
expenses are incurred.
Accounting adjustments are made through withdrawals
versus adjustments to the accounting records, which
violates the internal control system of an organization
and the federal requirements for a financial management
system.
Federal requirements for financial management
systems require that records adequately identify the
source and application of funds for federally sponsored
activities. These records shall contain information
pertaining to Federal awards, authorizations,
obligations, unobligated balances, assets, outlays,
income and interest. U.S. Veterans Initiative’s
financial management system does not meet this
requirement.
The documentation provided by U.S. Veterans
Initiative to meet system requirements for a
comparison of outlays to budgets is provided on their
net operating statement prepared by Cantwell-
Anderson, Inc. on September 14, 2004 for their fiscal
year ending June 30, 2003. This document was
2004-LA-1008 Page 46
Finding 3
provided to the OIG on September 15, 2004. The
basic premise for having a financial management
system that compares outlays with budget is to ensure
only valid expenses are charged and to provide an up
to date comparison of what funds have been spent and
are currently available against the grant. The U.S.
Veterans Initiative’s system does not meet these
requirements. Further, the comparison of budgets to
outlays requires including the total budget, which
additionally includes cash match requirements. U.S.
Veterans Initiative has stated they are not and will not
show cash match requirements on Supportive Housing
Program grants accounting records.
In addition, the Community Planning and Development
Offices in Honolulu and Los Angeles, as well as the Los
Angeles Homeless Services Authority have documented in
monitoring reports, and/or in response to this audit report,
that the financial management system used by the U.S.
Veterans Initiative is inadequate and/or is not in
compliance with federal regulations.
We also noted that U.S. Veterans Initiative provided a
document on their revised financial management system to
the OIG on September 15, 2004. This document has
several pages reflecting the fact that they are correcting
everything (except cash match requirements) in the revised
financial management system that OIG identified as a
deficiency.
U.S. Veterans Initiative failed to comply with procurement
and contract administration requirements
We disagree that U.S. Veterans Initiative provided
adequate documentation to support a “sole source”
justification for the Business Services Agreement with the
Cantwell-Anderson, Inc. and Montgomery & Neimeyer,
CPAs, LLC. The “sole source” justification for these
contracts was provided to the OIG on August 31, 2004 and
the “sole source” justification was dated August 2004.
However, during the audit, no documentation was provided
to support any attempt for competitive procurement or sole
source justification for this contract. Contracts exceeding
$100,000 or more require adequate supporting
documentation. This supporting documentation includes pre-
award review and procurement documents, such as requests
Page 47 2004-LA-1008
Finding 3
for proposals, invitations for bids, independent cost estimates,
etc. and procurement records for contractor selection or
justification for lack of competition. Based on the document
provided to the OIG, “sole source” justification requirements
were not met because the document was simply a letter
explaining what had transpired. Additionally, the OIG
disputes “sole source” justification for providing accounting
or auditing services since these are common services and do
not fall under the purview of what would qualify as sole
source procurement.
We disagree that the Board Resolutions extended the
Business Services Agreement with Cantwell-Anderson,
Inc. U.S. Veterans Initiative provided documentation to the
OIG on September 15, 2004; however, the documentation
provided by the U.S. Veterans Initiative is the Business
Services Agreement with Cloud Break, LLC. Cloud Break,
LLC provides leases and building management to the U.S.
Veterans Initiative. The Business Service Agreement with
Cantwell-Anderson, Inc. grant expired on June 30, 2000,
however, payments to Cantwell Anderson, Inc have
continued after the expiration date through the period of
this audit.
We disagree that appropriate personnel were not
interviewed during the audit. During the entrance
conference, the Executive Director of U.S. Veterans
Initiative designated the Cantwell-Anderson, Inc.
Controller as our point of contact for all audit issues.
Whenever the Controller was unfamiliar with any issue, she
addressed these issues with upper management and
Montgomery & Neimeyer, CPAs, and then conveyed their
responses on these issues. Further, the other person
interviewed on these issues was the Program
Director/Officer for U.S. Veterans Initiative.
Consulting services documentation was provided by U.S.
Veterans Initiative to OIG on September 15, 2004, for the
President of Cantwell-Anderson, Inc.’s calendar, phone
bills, expense reports, and daily work activities, which
purportedly supports his consulting services rendered. We
had requested this documentation several times during the
audit and no documentation was provided, until after the
draft audit report was transmitted. However, the
documentation provided does not show how the
2004-LA-1008 Page 48
Finding 3
consultant’s daily activities relate to the supportive housing
program.
U.S. Veterans Initiative failed to establish indirect cost
rates as required
We disagree. The U.S. Veterans Initiative indirect cost rate
proposal was prepared and approved in 1999, and these rates
have not been updated since that time. At the time these rates
were approved, U.S. Veterans Initiative only had one site in
Los Angeles and these rates were prepared exclusively for
Los Angeles County and not approved for other locations.
These rates have continued to be used for the indirect cost
allocations through the time of this audit and for facilities
located in five states. During the audit no documentation was
available indicating any communication between U.S.
Veterans Initiative and the Corporation of National Service,
who approved the 1999 indirect cost rates.
U.S. Veterans Initiative did not establish rates for facilities
outside Los Angeles
We disagree, U.S. Veterans Initiative did not establish
indirect rates for new facilities, which should have been
established and approved by the cognizant agency within six
months after the award of the grant. U.S. Veterans Initiative
currently has other facilities in California, Arizona, Hawaii,
Nevada, and Texas. Even though indirect cost rates were only
approved for the Los Angeles County facility, they were
inappropriately used as indirect cost rates on all U.S. Veterans
Initiative’s facilities. The San Francisco Community
Planning and Development Office would not approve the
awards of the Nevada and Arizona grants without reductions
in the overhead and General and Administrative rates.
Because no substantiation could be provided to Fort Worth,
Community Planning and Development Office, they refused
to include overhead costs in their grants’ Technical
Submission budgets. U.S. Veterans Initiative charged the
Texas grants for overhead costs of $72,343 anyway. The
Honolulu Community Planning and Development Office
refused to approve overhead costs until U.S. Veterans
Initiative could provide substantiation for their overhead cost
rate and the Los Angeles Homeless Services Authority is
questioning including overhead costs in their renewal grant
with the U.S. Veterans Initiative. U.S. Veterans Initiative’s
(Cantwell-Anderson, Inc.) current Controller stated she was
aware these separate cost pools were required, however, she
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Finding 3
was unaware why the previous Controller did not adhere to
this requirement.
U.S. Veterans Initiative did not establish written procedures
for determining costs
We disagree with U.S. Veterans Initiative response, at the
time of the audit, U.S. Veterans Initiative could not provide
written procedures for determining the reasonableness,
allocability, and allowability of costs as required.
Documentation provided on September 15, 2004 is
supposed to be the simplified version of these written
procedures; however, documentation for these procedures
was not available during the audit.
OIG disagrees that we misrepresented the facts by not
reflecting the non-payment of overhead costs to the
Honolulu Supportive Housing Program grant. This
information is reflected as footnote number 3 in Appendix
D of the audit report.
U.S. Veterans Initiative failed to closeout expired contracts
We generally agree with the response based on the action
being initiated by Los Angeles Homeless Services
Authority’s response and the U.S. Veterans Initiative’s
request to Phoenix on July 27, 2004, to close out the
Arizona grant.
Los Angeles Homeless Services Authority:
Since the Los Angeles Homeless Services Authority agreed
with the finding and recommendations, we have no further
comment.
City of Long Beach:
The City of Long Beach provided no comments on the
audit finding, thus we have no further comment.
Recommendations We recommend that the Office of Community Planning and
Development:
3A. Suspend Supportive Housing Program grant
funding on grants administered by U.S. Veterans Initiative
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Finding 3
until U.S. Veterans Initiative develops and implements
appropriate management controls to ensure only eligible
activities receive funding and required documentation for
the expenditures complies with OMB Circular A-122.
3B. Require U.S. Veterans Initiative to revise its financial
management system so it meets the requirements of 24
CFR 84.21 and OMB Circular A-110.
3C. Require U.S. Veterans Initiative to competitively
procure the services included in the Business Service
Agreement and the Independent Public Accountant
contract, in accordance with OMB Circular A-110 and 24
CFR 84.
3D. Require U.S. Veterans Initiative establish and
implement written procedures: (a) to ensure that
Supportive Housing Program grant expenses are supported
with documentation before being paid; (b) to ensure that
contracts include provisions for administrative, contractual
and legal remedies and EEO requirements; and (c) for
determining the reasonableness, allocability, and
allowability of indirect costs and to ensure cost allocations
are consistently applied.
3E. Require U.S. Veterans Initiative develop, and/or
update, and obtain approval on indirect cost rates for each
U.S. Veterans Initiative facility as required.
3F. Require Los Angeles Homeless Services Authority
to submit financial closeout reports for the expired grants
(CA16B900005 and CA16R151121) so that $117,077 can
be de-obligated and put to better use (see Table on Page
43).
3G. U.S. Veterans Initiative submit financial closeout
reports for expired grant (AZ01B002030) so that $47,542
can be de-obligated and put to better use (see Table on
Page 43).
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Finding 3
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Management Controls
In planning and performing our audit, we considered the management controls of U.S. Veterans
Initiative to determine our audit procedures, not to provide assurance on the controls. Management
controls include the plan of the 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 its business operations. They include the systems for measuring,
reporting, and monitoring business performance.
We determined the following management controls were
Relevant Management relevant to our audit objectives:
Controls
Validity and Reliability of Data - Policies and
procedures that management has implemented to
reasonably assure accurate, current and complete
disclosure of the financial results of each HUD
sponsored project; and
Compliance with Law and Regulations – Policies and
procedures that management has implemented to
reasonably assure its administration of Supportive
Housing Program grants is carried out in accordance
with applicable law and regulations.
The following audit procedures were used to assess the
relevant controls identified above:
Reviewed grant expenditures for the 15 Supportive
Housing Program grants that were active between July 1,
2001, and December 31, 2003; and
Reviewed and obtained an understanding of U.S.
Veterans Initiatives’ policies, procedures, and practices
for administering Supportive Housing Program grants;
A significant weakness exists if management controls do not
Significant Weaknesses give reasonable assurance that resource use is consistent with
laws, regulations, and policies; that resources are safeguarded
against waste, loss and misuse; and that reliable data is
obtained and maintained.
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Management Controls
Our review disclosed significant weaknesses in the
following areas:
Insufficient emphasis on U.S. Veterans Initiative’s
Supportive Housing Program responsibilities and
requirements (Findings 1, 2 and 3).
Inadequate financial management system to record and
track grant expenditures, matching funds, and
comparison of expenditures with budgeted amounts.
(Findings 1, 2 and 3).
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Follow Up On Prior Audits
This is Office of Inspector General’s (OIG) first audit of U.S. Veterans Initiative.
An independent public accountant expressed an unqualified audit opinion on U.S. Veterans
Initiative’s financial statements for the fiscal year ending June 30, 2003. However, the audit
identified:
Two reportable conditions relating to the audit of the financial statements, one of which
was reported as a material weakness.
Two instances of noncompliance that were material to the financial statements of U.S.
Veterans Initiative.
Two reportable conditions relating to the audit of internal controls over the major federal
award programs.
At the time of our audit, U.S. Veterans Initiative informed us that it had initiated the necessary
corrective actions to remedy the deficiencies.
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Follow Up On Prior Audits
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Appendix A
Schedule of Questionable Costs
And Funds Put to Better Use
Type of Questioned Cost Funds Put to
Recommendation Number Ineligible 1/ Unsupported 2/ Better Use 3/
1A $3,151,576a
1B $2,252,705b
1C $1,184,961c
2B $347,408d
2C $151,290
2D $66,424
2E $46,189
2F $22,037d
2G $30,440
3F $117,077
3G $47,542
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 charged to a HUD-financed or HUD-insured program or activity, and
eligibility cannot be determined at the time of the 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.
3/ Funds put to better use relates to costs that will not be expended in the future if our
recommendations are implemented; for example, costs not incurred, de-obligation of funds,
withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures, loans and
guarantees not made and other savings.
a
Net match funds questioned is $3,151,576 (total expended $3,565,408 less ineligible and unsupported in Finding
2 ($413,832) for active grants.
b
Net match funds questioned match funds is $2,252,705 (total expended $2,450,184 less ineligible and
unsupported in Finding 2 ($197,479) for active grants.
c
Net match funds questioned is $1,184,961 (total expended is $1,206,998 less ineligible and unsupported in
Finding 2 ($22,037) for active grants.
d
The City of Long Beach was overcharged $450 for indirect costs. This $450 was reduced from the $22,487 of
unsupported costs, and this resulted in unsupported costs of $22,037.
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Appendix A
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Appendix B
Schedule of Active Supportive Housing
Program Grants
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Appendix C
Schedule of Supportive Housing Program Grant Matching Funds
Required and Provided
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Appendix D
Schedule of Ineligible Expenses
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Appendix E
Schedule of Unsupported Expenses
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Appendix F
Schedule of Consulting Expenses
Allocated By Grant
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Appendix G
Schedule of Ineligible and Unsupported
Expenses By Grant
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Appendix H
Auditee Comments – U.S. Veterans
Initiative
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix H
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Appendix I
Auditee Comments – Los Angeles
Homeless Services Authority
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Appendix I
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Appendix I
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Appendix I
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Appendix I
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Appendix I
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Appendix J
Auditee Comments – City of Long Beach
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Appendix J
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Appendix J
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United States Veterans Initiative, Inc., Supportive Housing Program Grantee, Inglewood, California
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-09-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)