AUDIT REPORT
THE CONGRESS OF NATIONAL BLACK
CHURCHES, INCORPORATED
HOUSING COUNSELING PROGRAM
WASHINGTON, DC
2004-PH-1003
FEBRUARY 19, 2004
OFFICE OF AUDIT, MID-ATLANTIC
PHILADELPHIA, PENNSYLVANIA
Issue Date
February 19, 2004
Audit Case Number
2004-PH-1003
TO: John C. Weicher, Assistant Secretary for Housing-Federal Housing Commissioner, H
FROM: Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic, 3AGA
SUBJECT: The Congress of National Black Churches, Incorporated
Housing Counseling Program
Washington, DC
We performed an audit of the Congress of National Black Churches, Incorporated (CNBC)
Housing Counseling Program. The primary focus of our audit was to determine whether CNBC
appropriately used the awarded HUD grant to fund its Program activities. Our audit covered the
period from October 1, 2000 through March 31, 2003. This report contains two findings and
applicable 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 action is
considered unnecessary. Additional status reports are required at 90 days and 110 days after
report issuance for any recommendation without a management decision. Also, please furnish us
copies of any correspondence or directives issued because of the audit.
We appreciate the cooperation extended to us during the audit by the CNBC staff, CNBC outside
legal counsel - Crowell and Moring, LLP and CNBC Consultants – Institute of Church
Administration and Management. Should you or your staff have any questions, please contact
Ms. Christine Begola, Assistant Regional Inspector General for Audit, at (410) 962-2520.
Management Memorandum
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2004-PH-1003 Page ii
Executive Summary
In response to a hotline complaint, we performed an audit of the Housing Counseling Program
administered by the CNBC. The complaint alleged that CNBC drew down funds from the
Housing Counseling grant and then failed to reimburse its affiliates for services rendered. The
complaint also noted that CNBC affiliates were performing services without sub-grant
agreements, which is a violation of the grant agreement between HUD and CNBC.
The primary objectives of our audit were to determine if the complainant’s allegations had merit
and if CNBC spent its grant funds in accordance with the applicable HUD rules and regulations.
To accomplish our objectives, we reviewed 100 percent of the grant funds disbursed to CNBC
during the period October 1, 2000 through March 31, 2003. We estimate the disbursements
totaled $1,053,7981.
We found CNBC did not administer its Housing Counseling Program according to the grant
agreements with HUD and the applicable HUD rules and regulations. Specifically, CNBC used its
grant funds to pay for ineligible and unsupported expenditures, and could not demonstrate it
provided the required leverage funding it agreed to under its grant agreement with HUD. The results
of our review are summarized below, and detailed in the Finding sections of this report.
CNBC Did Not Use Grant CNBC did not administer its grant program in accordance
Funds In Accordance with its grant agreements nor with HUD rules and
With HUD Requirements regulations. Specifically, we found CNBC used $521,062
in grant funds to pay for ineligible payroll, operating costs,
and payments to several affiliates; and drew down another
$423,584 of grant funds from HUD for expenditures that
were not properly supported. This represented 49 percent
and 40 percent respectively of the $1,053,798 total
expenditures we reviewed. This occurred because CNBC’s
Board of Directors did not provide adequate oversight over
the Executive Director and other key management officials’
administration of the Program, nor did they ensure
adequate management controls were in place to enable
them to detect and prevent these problems from occurring.
Due to the severity of these problems and abuses, CNBC’s
affiliates were forced to curtail or suspend their housing
counseling services. Further, CNBC itself was forced to
suspend all Program operations.
CNBC Could Not Provide CNBC could not provide support to demonstrate it met its
Support For Its Leverage leverage funding commitment for its 2000 and 2001 grants.
Funding Under its grant agreement with HUD, CNBC proposed to
provide $974,047 in leverage funds to cover a portion of its
1
During the period of our audit, October 1, 2000 through March 31, 2003, these LOCCS disbursements were
charged against Program grants for Fiscal Years 1999, 2000, and 2001.
Page iii 2004-PH-1003
Executive Summary
costs for the Housing Counseling Program. However, CNBC
could not provide support for $973,021, (or 99.9 percent) of
the funds. This deficiency occurred because CNBC did not
maintain cash receipt and disbursement records for the
Program nor did it separately account for the funds it received
from HUD and the other non-federal sources. As a result,
there was no assurance that CNBC met its commitment in
providing the required leverage funds. Also, due to the state
of the records at CNBC, we were not able to determine
whether CNBC actually used the leverage funds it received
only for eligible Program activities.
Recommendations We recommend that HUD’s Assistant Secretary for
Housing take appropriate administrative action against
CNBC as a designated National Housing Counseling
intermediary and take debarment action against the former
Executive Director and Chief Financial Officer. Further,
we recommend HUD require CNBC to reimburse HUD
from non-federal sources $521,062 for the ineligible
expenditures and $423,584 for unsupported expenditures.
Auditee Comments We provided our initial draft of this report to HUD staff
and to CNBC’s outside legal counsel on December 8, 2003.
We discussed the findings and recommendations with HUD
and CNBC’s outside legal counsel at an exit conference on
December 16, 2003. CNBC’s outside legal counsel
provided a written response to the draft report on
December 18, 2003. The response consisted of a three-
page letter and a two-page affidavit from the former Grant
Administrator.
Generally CNBC concurred with our findings and
recommendations, however, they did request we make a
few minor changes to the draft report. We reviewed these
requests and modified the report where appropriate. In
addition, the affidavit stated due to storage issues all
records supporting the quarterly reports forwarded to HUD
were destroyed in March 2003. The complete text of
CNBC’s comments is included in Appendix B of this
report. The affidavit is not included but is available upon
request.
2004-PH-1003 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Background 1
Findings
1. CNBC Did Not Use Grant Funds According to HUD 5
Requirements
2. CNBC Could Not Provide Support for Its Leverage 15
Funding Commitment
Management Controls 19
Follow Up On Prior Audits 21
Appendices
A. Schedule of Questioned Costs 23
B. Auditee Comments 25
Page v 2004-PH-1003
Table of Contents
Abbreviations
CNBC Congress of National Black Churches
HUD U.S. Department of Housing and Urban Development
LOCCS Line of Credit and Control System
NOFA Notice of Funding Availability
2004-PH-1003 Page vi
Background
The Congress of National Black Churches, Incorporated (CNBC) is a faith-based, non-profit
organization. Founded in 1978, CNBC is an ecumenical coalition of eight major historically
black denominations. Together, these denominations represent 65,000 churches and more than
20 million members. A Board of Directors manages the affairs of the Corporation. The current
Chairman of the Board is Bishop Cecil Bishop. Currently, CNBC does not have an Executive
Director. In fact, all of CNBC’s key management officials were terminated prior to the start of
our audit, leaving only the office manager on board to take care of the administrative items in its
Washington, DC office. The Corporation’s books and records are currently located at 1134-11th
Street, NW, Washington, DC. We conducted our work through the assistance of CNBC’s
Counsel and Consultants during the audit.
Section 106 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701x) authorized
HUD’s Housing Counseling Program. The purpose of the Program is to provide comprehensive
housing counseling through various levels (national – local level) of housing counseling
agencies, to assist homebuyers, homeowners, and tenants to meet their housing needs and
resolve their housing problems. Some of the eligible housing counseling services include:
homebuyer education programs that offer potential purchasers general information on the home
buying process; pre and post purchase homeownership counseling; mortgage delinquency and
default resolution counseling; and Home Equity Conversion Mortgage counseling; to name a
few.
Funding under the Housing Counseling Program is completed on a competitive basis. An
agency would submit an application for the grant under the Notice of Funding Availability
(NOFA) published in the Federal Register. To be competitive, an agency has to demonstrate
among other things, that the funds will be used effectively to implement the objectives of the
Housing Counseling Program. Since HUD funding is not intended to cover the total cost of
carrying out the grantee’s counseling program, the grantee would also have to provide evidence
of funds that would be leveraged to assist in covering some of the costs of the Program.
Typically, these awards had a performance period of one year from October 1 through
September 30. The grantee would obtain the funds from HUD by drawing the funds periodically
from the HUD Line of Credit and Control System (LOCCS).
HUD Handbook 7610.1 REV-4, provides the guidance for the Housing Counseling Program.
Under the Handbook intermediary grantees such as CNBC are given wide discretion to
implement its Housing Counseling Program. In order to assist a wide variety of people, CNBC
used sub-grantees from across the country, which provided the counseling services at a local
level. These sub-grantees would then bill CNBC for the services provided and in turn CNBC
would obtain the funding from HUD. The use of sub-grantees does not relieve the grantee of its
responsibility for complying with the grant agreement and other applicable laws. In fact, the
grantee is supposed to monitor the performance of its sub-grantees and take appropriate action to
resolve problems to ensure compliance with the grant agreement, sub-grant agreements, and
other applicable laws.
Page 1 2004-PH-1003
Introduction
HUD approved CNBC as a National Housing Counseling agency effective January 1998. For
the 1998 and 1999 grant years, HUD awarded CNBC $1,556,256 in Housing Counseling grants.
During that time period, through its nationwide affiliated agencies, CNBC reported that it
provided 11,008 individuals home buying education and housing counseling services. For the
2000 and 2001 grant years, HUD awarded CNBC an additional $1,234,913 in Housing
Counseling grants, bringing the total funds awarded to CNBC to $2,791,169. HUD records
show the following authorization and draw down of funds for the grant years within our audit
period, as of March 28, 2002.
Grant Year Amount Authorized Amount Disbursed Balance
2000 $ 522,209 $522,209 $ 0
2001 $ 712,704 $357,042 $355,662
Total $1,234, 913 $879,251 $355,662
Audit Objectives The primary objectives of our review were to determine if
the complainant’s allegations had merit and if CNBC spent
its grant funds in accordance with the applicable HUD rules
and regulations. The complaint alleged that CNBC drew
down funds from the Housing Counseling grant and then
failed to reimburse its affiliates for services rendered. The
complaint also noted that CNBC affiliates were performing
services without sub-grant agreements, which is a violation
of the grant agreement between HUD and CNBC.
Audit Scope And To achieve our audit objectives we reviewed:
Methodology
• Applicable laws, regulations, and other HUD Program
requirements;
• HUD and CNBC program files, and
• CNBC’s accounting books and records.
We also reviewed 100 percent of the grant expenditures
CNBC disbursed during the period from October 1, 2000
through March 31, 2003. These disbursements included
grant expenditures charged against the 1999, 2000 and
2001 grants. These disbursements totaled an estimated
2004-PH-1003 Page 2
Introduction
$1,053,7982. We reviewed the grant disbursement records
to determine whether the expenditures were properly
supported and eligible under the grant program.
In addition, we reviewed contracts, monthly activity
reports, timesheets, invoices, and other documents
supporting the sub-grantee expenditures. When appropriate,
we interviewed HUD staff, CNBC affiliated agencies, and
available CNBC representatives. We performed our site
work between March and June 2003 at CNBC’s office,
located at 1134-11th Street, NW, Washington, DC.
The audit covered the period October 1, 2000 through
March 31, 2003, but was expanded when necessary to
include other periods.
We conducted the audit in accordance with Generally
Accepted Government Auditing Standards.
2
We estimate the CNBC received $1,053,798 in LOCCS payments for the 2000 and 2001 grant years and a portion
of the 1999 grant year during the time period of our review. However, CNBC’s accounting records only support
disbursements of $718,865.
Page 3 2004-PH-1003
Introduction
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2004-PH-1003 Page 4
Finding 1
CNBC Did Not Use Grant Funds According To
HUD Requirements
CNBC did not administer its grant program in accordance with its grant agreements nor with
HUD rules and regulations. Specifically, we found CNBC used $521,062 in grant funds to pay
ineligible payroll and operating costs, and ineligible payments to several affiliates. Further,
CNBC drew down another $423,584 of grant funds from HUD for expenditures that it could not
properly support. This represented 49 percent and 40 percent respectively of the $1,053,798
total expenditures we reviewed. These costs are summarized in the table below.
Description Ineligible Unsupported
Unauthorized Payroll Costs $394,933
2000 Operating Costs $ 72,629
Contracts with Affiliates $ 53,500 $417,547
No Support Documentation $ 6,037
Total $521,062 $423,584
This occurred because CNBC’s Board of Directors did not provide adequate oversight over the
Executive Director and other key management officials’ administration of the Program, nor did
they ensure adequate management controls were in place to enable them to detect and prevent
these problems from occurring. As a result of these Program abuses, CNBC failed to reimburse
its affiliates for billed housing counseling services they provided clients. Many affiliates were
forced to curtail and ultimately suspend their housing counseling services. Further, because of
the severity of the Program abuse, CNBC itself suspended all Program operations. Thus, HUD
has no assurance the housing counseling services CNBC proposed in its approved grant
applications to HUD were satisfactorily provided and the objectives of the Program met.
Following is a detailed explanation for the various questioned costs by category.
CNBC Used $521,062 to Pay for Ineligible Expenditures
From our review of the $1,053,7983 in payment vouchers
charged to the grant program, we identified $521,062 of
ineligible expenditures. This included $394,933 of
ineligible payroll costs, $72,629 of FY 2000 operating
3
This amount included the $174,547 from the 1999 grant, which CNBC used to pay affiliated agencies in December
2000.
Page 5 2004-PH-1003
Finding 1
costs, and $53,500 of unauthorized payments to affiliates.
A more detailed discussion of these expenditures follows.
CNBC Paid Ineligible From our review of CNBC’s 2000 and 2001 grants, we
Payroll Costs With 2000 identified $394,933 that CNBC used to pay ineligible
And 2001 Grant Funds administrative payroll costs. When CNBC drew down
these funds from HUD, they indicated the funds would be
used for program operating and subcontract costs.
However, CNBC records showed there were no
corresponding program expenditures to support these
various draws. Specifically, we found CNBC could not
support $100,871 of the $522,209 it drew down from its
2000 grant and $294,062 of the $357,042 it drew down
from its 2001 grant.
According to a memorandum submitted to HUD, CNBC
admitted that the Executive Director and Chief Financial
Officer (CFO) had used the grant funds to pay for all
CNBC staff salaries (including staff not associated with the
Housing Counseling Grant) and related administrative
costs. This was done without authorization and approval
from the Board, in anticipation that future private funding
would be forthcoming to cover the amount of funds
withdrawn from the grants.
The results from our review of CNBC’s operating and
payroll account activities confirmed that they used the
grant funds in this way. For example, for the three months
of banking activities we reviewed, CNBC transferred
$354,217 in funds received from HUD and other federal
sources from its operating account to the payroll account.
This usually happened when the funding received from
non-federal sources was insufficient to cover the payroll of
all CNBC staff for that particular pay period. Both the
2000 and 2001 grant agreements between HUD and the
CNBC require that grant funds only be used for the housing
counseling services specified within the grant agreement
and/or in the grantee application. The use of funds for this
type of activity was specifically prohibited by the grant
agreements. Thus, we consider the use of these funds an
ineligible activity under the grant and are requesting the
full $394,933 be paid to the sub-grantees and HUD.
Further, when the private funding did not materialize,
CNBC faced a funding shortfall, which impaired its
financial capability to continue Program operations and
2004-PH-1003 Page 6
Finding 1
fully pay its affiliated agencies. At the end of our review,
CNBC owed its affiliated agencies $331,000.
CNBC Paid Ineligible The 2000 NOFA and grant agreement limited the amount
Operating Costs With of Program funds that a grantee could use to pay its
2000 Grant Funds operating costs. The limit was set at ten percent of the
grant and required the grantee to distribute at least ninety
percent of its grant award to its sub-grantees. For the 2000
grant, CNBC was awarded $522,209 of which they
budgeted $52,209 (or 10 percent) for operating costs
(personnel salaries, office rent and administrative costs).
CNBC budgeted the remaining $470,000 (or 90 percent)
for subcontract costs.
As of September 26, 2001, CNBC had drawn down 100
percent of its 2000 grant from LOCCS for Program
expenditures. However, CNBC’s records showed it
disbursed $296,500 to its sub-grantees and $124,838 (or 24
percent) for operating costs in 2000. This amount exceeded
the HUD-approved budget by $72,629. Since this cost did
not conform to the limitation set forth in the grant
agreement, we determined this $72,629 operating cost was
ineligible under the Program and should be paid back to
HUD.
CNBC Paid Affiliates Both the 2000 and 2001 grant agreements between CNBC
Without Appropriate and HUD require CNBC to execute a sub-grant agreement
Agreements with each affiliated agency before disbursing funds to that
sub-grantee. Also, CNBC’s sub-grant agreements, which
we found were retroactively executed, require the sub-
affiliate to submit monthly time sheets, activity reports and
quarterly documentation, before CNBC is to pay the
affiliate for services rendered.
Our review of the $296,500 payments made to affiliates in
2000 showed that CNBC did not follow HUD’s or its own
requirements. Specifically, we found CNBC paid an
affiliate $16,000 in payments without ever executing the
proper sub-grant agreement. In addition, CNBC paid this
affiliate without first obtaining necessary supporting
documentation that showed the activity this sub-grantee
performed.
Page 7 2004-PH-1003
Finding 1
We also found CNBC made $14,500 in payments to
affiliates prior to executing a written sub-grant agreement,
and without obtaining the required supporting monthly
timesheet or activity reports. Without the proper agreement
and/or supporting documentation, CNBC and HUD have no
assurance affiliates used these funds only for eligible grant
activities.
Also, for a portion of the 1999 grant funds that CNBC
spent during our audit period, we determined CNBC
disbursed $23,000 to affiliated agencies without having an
effective sub-grant agreement in place. As in 2000, CNBC
also distributed these funds without the proper supporting
documentation to show what activities the affiliates
actually completed. As a result, our review found CNBC
incurred $53,500 in ineligible subcontract payments.
CNBC Could Not Support $423,584 of Grant
Expenditures
CNBC could not adequately support $423,584 of the
$1,053,798 of payment vouchers we reviewed.
Specifically, CNBC did not maintain the required
documentation to support $417,547 in payments made to its
affiliates, and $6,037 in administration expenses.
CNBC Could Not Support The 1999, 2000 and 2001 sub-grant agreements between
All Payments Made To Its CNBC and its affiliated agencies state that the member
Affiliates agency will be paid the sum specified in the contract for the
performance period upon receipt of various reports,
including a monthly time record of activities performed, a
written quarterly report, confirmation of adherence to the
counseling plans and budget objectives, and satisfactory
site inspections by CNBC, or HUD, if applicable.
We found CNBC did not obtain the required supporting
documentation prior to reimbursing its affiliates as was
required by its sub-grant agreements. Of the $296,500
affiliate payments we reviewed for grant year 2000, we
found CNBC made $266,000 of the payments without
obtaining the required supporting monthly timesheets or
activity reports. We also found CNBC made $151,547 of
such payments from the 1999 grant funds we reviewed. As
a result, CNBC could not properly support $417,547 in
affiliated contract costs.
2004-PH-1003 Page 8
Finding 1
Some Administrative CNBC could not provide us with any documentation to
Expenditures Were Not support $6,037 of administrative expenditures it paid with
Properly Supported grant funds. HUD and CNBC regulations require that
expenditures be supported before making payments.
However, our review of CNBC operating costs showed
CNBC did not follow these requirements and charged the
grant $6,037 in salaries and fringe benefits, travel,
conference fees, and office expenditures without invoices
or documents to support how it allocated these costs.
Lack Of Controls In our opinion, the above-cited deficiencies occurred because
Contributed To The CNBC failed to provide adequate oversight and control over
Deficiencies Program funds and operations to ensure funds were only used
for authorized and intended purposes.
First, CNBC failed to establish and maintain an
organizational structure that would require the Board to
actively manage the affairs of the Corporation. Specifically,
the CNBC Articles of Incorporation and By-laws require the
Board to meet only twice a year, which we consider passive
participation and inadequate to ensure effective oversight of
Program operations. Consequently, the Board relied heavily
on the Executive Director to manage the CNBC’s day-to-day
operation and often accepted the decisions made by the
Executive Director without question.
Second, the Board, who was responsible for establishing the
controls and management of the organization, failed to ensure
that organizational financial statements were regularly
audited, despite HUD requirements to do so. Specifically, the
Board did not engage an independent public accountant to
perform the required annual independent audit of CNBC’s
financial operation in 2001 and 2002.
We believed that these control deficiencies created an
environment that allowed CNBC’s management to
misspend Program funds for an extended period of time
undetected until HUD and the Board discovered the
problem during the early part of 2002. As a result, CNBC’s
financial capability to continue Program operations and pay
its affiliated agencies was severely impaired.
CNBC And Affiliates We found CNBC’s officials’ use of the grant funds for
Suffered Undue Financial unauthorized payroll activity caused a shortfall in funding,
Hardship which eventually severely impaired CNBC’s financial
capability to continue Program operations and fully pay
Page 9 2004-PH-1003
Finding 1
affiliated agencies for contracted services. Despite the
Board’s effort to solicit private funds, CNBC has not been
able to fully pay its affiliates, had to terminate nearly all its
employees, and severely curtailed or suspended its housing
counseling services.
Our review found CNBC did not have the capacity to
continue Program operations. At the time of our review,
CNBC did not have the full complement of staff needed to
administer its programs and to perform its monitoring
responsibilities imposed by its grant agreement with HUD.
Since the financial trouble was discovered in the early part
of 2002, CNBC had decreased staff from twenty six to one
Office Manager. CNBC has no other employees and it is
adhering to its decision not to pursue additional HUD
grants until it can become financially stable.
CNBC Board Took Action We found the CNBC’s Board took immediate corrective
When Problem Was action and solicited private funds to pay the affiliates for
Discovered the amount owed, after HUD informed them of the non-
payment issue. However, the Board was only able to raise
$60,000 from these efforts. Further, we found the
corresponding payments to the affiliates from these funds
were also not properly supported. At the end of our review,
CNBC owed its affiliates $331,000 for billed services.
During our review, we contacted 23 of the 32 affiliates who
had previous or current sub-grant agreements with CNBC
to determine the impact of not receiving payments from
CNBC. Nineteen of the twenty-three affiliates contacted
stated that their housing counseling agencies suffered a
major impact, which included a reduction in workforce,
reduction in housing counseling activities, and suspension
of some housing counseling activities.
In summary, CNBC did not use Program funds according
to HUD regulations and grant requirements because it
failed to provide and maintain adequate oversight and
controls over Program funds and operations to ensure
effective and efficient use of federal resources. As a result,
CNBC could not assure HUD that housing counseling
services proposed in its approved grant applications were
satisfactorily provided and the objectives of the Program
were met.
2004-PH-1003 Page 10
Finding 1
Auditee Comments Generally, CNBC’s legal counsel concurred with our
findings and recommendations. However, they did request
we make a few changes to the report to more clearly
demonstrate that prior to the downfall of CNBC’s Housing
Counseling Program, the program was running without
complication. CNBC explained that the downfall of the
Program took place only after the anticipated private sector
funds did not materialize. They also stressed that once
CNBC Board members became aware of the problems with
the Housing Counseling Program, they terminated the
employees involved and voluntarily withdrew from not
only this HUD program, but all federally managed
programs. In addition, CNBC’s legal counsel provided a
copy of an affidavit from the former Grant Administrator
that stated due to storage issues all records supporting the
quarterly reports forwarded to HUD were destroyed in
March 2003.
OIG Evaluation of
We are encouraged by the actions CNBC’s board has taken
Auditee Comments thus far to resolve the outstanding issues. However, since
our audit only addressed the period from October 1, 2000
through March 31, 2003, we could not attest to CNBC’s
legal counsel’s statement that the Housing Counseling
Program was operating without problems prior to the
discovery of the cash flow problem. Our overall
conclusion was based solely on the information within our
audit period.
As to the issue in maintaining Program records, CNBC’s
grant agreement requires it to retain all documents that
support each LOCCS draw for a period of three years. The
agreement also specifies these documents must be readily
available for review when requested by HUD. However,
CNBC ignored these requirements and destroyed most of
its records in March 2003, just one month after the OIG
formally notified them of the pending audit. Thus, we
questioned CNBC’s actions especially since this was the
only evidence that could show how the grant funds were
actually used.
Page 11 2004-PH-1003
Finding 1
Recommendations We recommend the Office of Housing:
1A. Take debarment action through the Enforcement
Center against CNBC’s former Executive Director
and CFO.
1B. Take appropriate administrative action against
CNBC as a National Housing Counseling
Intermediary given the abuse of taxpayer funds and
the Board’s failure to oversee CNBC’s Housing
Counseling Program.
We recommend the Office of Housing require CNBC to:
1C. Repay from non-federal sources, $394,933 for the
housing counseling funds used for unauthorized
administrative payroll costs, as follows: $331,000
to its affiliates and $63,933 to HUD.
1D. Repay to HUD, from non-federal sources, $72,629
for the ineligible operating costs charged to the
2000 grant.
1E. Repay to HUD from non-federal sources $53,500
for the ineligible subcontract costs charged to the
1999 and 2000 grants.
1F. Provide adequate support documentation to show
that the $417,547 expended in unsupported costs for
the 1999 and 2000 grants can be supported. If
proper support documentation cannot be obtained,
this amount should be repaid to HUD from non-
federal sources.
1G. Provide adequate support documentation for the
$6,037 in unsupported operating costs. If proper
support documentation cannot be obtained, this
amount should be repaid to HUD from non-federal
sources.
1H. Establish an effective grants administration system,
which includes the designation of a person to act as
a grantee’s representative with respect to the
services and the agreements for each of the grants
awarded to CNBC.
2004-PH-1003 Page 12
Finding 1
1I. Establish and implement policies and procedures to
ensure all future LOCCS Payment Vouchers are
supported with original supporting documentation,
such as invoices or timesheets, at the time of the
LOCCS draw. These policies should include a
requirement for routinely completing
reconciliations between the LOCCS vouchers to the
expenditures charged.
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Finding 1
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2004-PH-1003 Page 14
Finding 2
CNBC Could Not Provide Support For Its
Leverage Funding Commitment
CNBC could not provide support to demonstrate it met its leverage funding commitment for its 2000
and 2001 grants. Specifically, CNBC proposed to provide $974,047 in leverage funds to cover a
portion of the costs for the Housing Counseling Program. However, our review found that CNBC
could not provide support for $973,021, (or 99.9 percent) of the funds. This deficiency occurred
because CNBC did not maintain cash receipt and disbursement records for the Program nor did it
separately account for the funds it received from HUD and the other non-federal sources. As a result,
there was no assurance that CNBC met its commitment in providing the required leverage funds.
Also, we were unable to determine whether the leverage funds that were received actually were used
for eligible Program activities.
CNBC Agreed To Provide Under the Housing Counseling Program, HUD does not
Leverage Funding To The intend for its grant funds to cover the total cost of carrying
Program out a grantee's counseling program, therefore, the ability of
applicants to secure private and public resources is one of
five factors used by HUD in its selection and approval of
grantee applicants. For CNBC’s 2000 and 2001 grants,
CNBC submitted letters of commitment from various
affiliated agencies, which provided evidence of their
leverage commitments. For both grant years, CNBC
proposed to commit $974,047 of leverage funds to the
Program. This included $100,000 from CNBC and
$874,047 from its affiliated agencies. Based upon this
information, HUD approved CNBC’s 2000 and 2001
applications for funding in the total amount of $ 1,234,913.
CNBC Could Not Support During the review, we requested a listing of the committed
Its Leverage Funding leverage funds received from CNBC and its affiliates for
Commitment the 2000 and 2001 grants. However, based on the
documents CNBC was able to provide, we could not
determine whether the funding commitments mentioned in
the 2000 and 2001 grant applications had been met. Of the
$974,047 in leverage funding commitments CNBC
promised to provide, we could only identify $1,026 that
was contributed by three affiliated agencies in July 2001.
We were unable to determine whether CNBC provided its
$100,000 share of leverage funds or if its affiliated
agencies provided the remaining $873,021. Also, we were
not able to determine how CNBC used the $1,026 of
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Finding 2
leverage funds it had received from its three affiliated
agencies.
CNBC Commingled We found CNBC pays all grant program expenditures from
Program Funds With its general fund account. This account commingles funds
Other Federal And Non- from the Housing Counseling Program along with funds
federal Funds from its other federal and non-federal programs. The
general grant requirements state that accounting systems of
the grantee must ensure that HUD funds are not
commingled with funds from other HUD or federal
programs. Although accounting for the various program
funds in one cash account is not a violation, the grantee
must establish an auditable system to provide adequate
accountability for funds it has been awarded. CNBC did
not maintain cash receipt and disbursement records
specifically for the Housing Counseling Program to
separately account for the funds received from HUD and
other non-federal sources.
Since CNBC did not have the proper accounting system in
place, HUD has no assurance that funds committed during the
application phase of the grant process were ever provided. In
addition, CNBC cannot provide evidence to show that the
funds were received and if they were, how those funds were
used. Thus, HUD does not have any assurance the Housing
Counseling grant funds distributed to CNBC were ever used
for their intended purpose.
Auditee Comments Generally, CNBC’s legal counsel concurred with our
findings and recommendations. In addition, they stated
CNBC will no longer accept HUD funds and voluntarily
will abstain from participating in all future federal grants
and programs. Thus, they stated the OIG recommendation
that HUD not provide CNBC with additional funding was a
moot point and it should be removed from the report. They
added that CNBC is prepared to give assurance in writing
to the appropriate HUD officials of its voluntary abstention
from all future participation in federal programs.
OIG Evaluation of We are encouraged by CNBC’s decision to voluntarily
Auditee Comments abstain from all future participation in federal programs.
However, it will be HUD’s decision as to whether CNBC’s
2004-PH-1003 Page 16
Finding 2
proposed action is acceptable or an alternative course of
action is warranted. Consequently, the recommendation
was not removed from this report.
Recommendations We recommend the Office of Housing:
2A. Not provide CNBC with any additional funding
until it demonstrates it provided the required
leverage funding for its 2000 and 2001 grants.
Further, do not provide any additional funding to
CNBC until it demonstrates it has established an
effective cash management system to ensure grant
funds that are drawn down can be effectively
accounted for separately within a system. This
system should ensure that the funds can be fully
accounted for at all times, i.e. when obtained, how
maintained and how they were used.
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Finding 2
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2004-PH-1003 Page 18
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
that were relevant to our audit. Management is responsible for establishing effective
management controls. Management controls, in the broadest sense, include the plan of
organization, methods, and procedures adopted by management to ensure that its goals are met.
Management controls include the processes for planning, organizing, directing, and controlling
program operations. They include the systems for measuring, reporting, and monitoring program
performance.
Relevant Management We determined the following management controls were
Controls relevant to our audit objectives:
• Cash management of the program,
• Documentation to support activity and cost eligibility,
• Procedures over the reporting of activities and
associated costs, and
• Policies and procedures in awarding sub-grantee
agreements.
We assessed all of the relevant control categories identified
above, to the extent they impacted our audit objectives.
Significant Weaknesses A significant weakness exists if management controls do not
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 are obtained, maintained, and fairly disclosed
in reports. Based on our review, we believe the following
items are significant weaknesses:
• CNBC did not have a system to ensure costs incurred
were for eligible activities, properly supported by
appropriate source documentation, and were allowable
as grant expenditures (see Finding 1).
• CNBC did not have a system to ensure proper cash
management and use of budgetary control over
expenditures (see Finding 1 & Finding 2).
Page 19 2004-PH-1003
Management Controls
• CNBC did not have effective policies and procedures in
place to ensure sub-grantee agreements were awarded
according to federal requirements (see Finding 1).
2004-PH-1003 Page 20
Follow Up On Prior Audits
This is the first audit of the Congress of National Black Churches, Incorporated (CNBC)
Housing Counseling Program by HUD’s Office of Inspector General.
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Follow Up On Prior Audits
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2004-PH-1003 Page 22
Appendix A
Schedule of Questioned Costs
Recommendation Type Of Questioned Cost
Number Ineligible 1/ Unsupported 2/
1C $394,933
1D 72,629
1E 53,500
1F $417,547
1G ________ ___6,037
$521,062 $423,584
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law, contract or federal, state or local
policies or regulations.
2/ Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
activity and eligibility cannot be determined at the time of audit. The costs are not
supported by adequate documentation or there is a need for a legal or administrative
determination on the eligibility of the costs. Unsupported costs require a future decision
by HUD program officials. This decision, in addition to obtaining supporting
documentation, might involve a legal interpretation or clarification of Departmental
policies and procedures.
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Appendix A
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2004-PH-1003 Page 24
Appendix B
Auditee Comments
Page 25 2004-PH-1003
Appendix B
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Appendix B
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Appendix B
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2004-PH-1003 Page 28
The Congress of National Black Churches, Incorporated Housing Counseling Program, Washington, DC
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-02-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)