oversight

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)

     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

                                           Page 15                                      2004-PH-1003
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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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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2004-PH-1003    Page 24
                             Appendix B

Auditee Comments




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Appendix B




2004-PH-1003   Page 26
          Appendix B




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2004-PH-1003    Page 28