oversight

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)

         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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                   BLANK
               INTENTIONALLY




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

    Page 49                                       2004-LA-1008
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
2004-LA-1008          Page 50
                                                   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).




    Page 51                                     2004-LA-1008
Finding 3




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2004-LA-1008    Page 52
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.




                                         Page 53                                      2004-LA-1008
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).




2004-LA-1008             Page 54
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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2004-LA-1008                 Page 56
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 B




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Appendix C

Schedule of Supportive Housing Program Grant Matching Funds
Required and Provided




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2004-LA-1008    Page 62
Appendix D

Schedule of Ineligible Expenses




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Appendix E

Schedule of Unsupported Expenses




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2004-LA-1008    Page 66
Appendix F

Schedule of Consulting Expenses
Allocated By Grant




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2004-LA-1008    Page 68
Appendix G

Schedule of Ineligible and Unsupported
Expenses By Grant




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2004-LA-1008    Page 70
Appendix H

Auditee Comments – U.S. Veterans
Initiative




                  Page 71          2004-LA-1008
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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2004-LA-1008   Page 96
Appendix I

Auditee Comments – Los Angeles
Homeless Services Authority




                  Page 97        2004-LA-1008
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




                  Page 103              2004-LA-1008
Appendix J




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           Appendix J




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