oversight

Safe Haven Outreach Ministry, Incorporated, Washington, DC

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-06-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                          Issue Date
                                                               June 3, 2004
                                                         Audit Case Number
                                                                2004-PH-1008




TO:    Frances Bush, Director, Office of Community Planning and Development, 3GD


FROM: Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic, 3AGA

SUBJECT: Safe Haven Outreach Ministry, Incorporated
         Washington, DC


                                  INTRODUCTION

We audited the Safe Haven Outreach Ministry, Incorporated’s (Safe Haven) management
and accountability of U.S. Department of Housing and Urban Development (HUD)
funds. We performed the audit at the request of HUD’s Office of Community Planning
and Development in Washington, D.C. In this regard, we reviewed Safe Haven’s
management and accountability over funds HUD provided it under three programs:
Housing Opportunities for Persons with AIDS, Supportive Housing Program, and Shelter
Plus Care. Our objective was to determine if the Safe Haven Outreach Ministry,
Incorporated expended program funds in accordance with HUD policies and procedures
and within the terms and condition of their grant agreements.

To accomplish our objective, we interviewed responsible staff from the Safe Haven
Outreach Ministry, Incorporated and HUD’s Office of Community Planning and
Development. We also reviewed federal regulations governing the programs and Safe
Haven’s local policies and procedures. In addition, we reviewed supporting documents
and records pertaining to the expenditures of the three programs to include accounting
records, invoices, receipts, payroll records, grant agreements, and grant applications.

We conducted the audit from October 2003 through May 2004. The audit covered the
period between June 1997 and January 2002, and was extended when necessary. We
performed the audit in accordance with generally accepted government auditing
standards.
In accordance with HUD Handbook 2000.6 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
and 110 days after report issuance for any recommendation without a management
decision.

Should you or your staff have any questions, please contact Mr. John Buck, Assistant
Regional Inspector General for Audit, at (215) 656-3401, extension 3486.

                                       SUMMARY

The Safe Haven Outreach Ministry, Incorporated did not always administer U.S.
Department of Housing and Urban Development funds in accordance with grant
applications and other federal requirements. In this regard, it failed to maintain adequate
accountability over funds HUD provided under three programs: Housing Opportunities
for Persons with AIDS; Supportive Housing Program; and Shelter Plus Care. This
occurred because Safe Haven did not have an effective or organized accounting or filing
system. In addition, Safe Haven officials were unaware of applicable federal and
contractual requirements of the programs. As a result, responsible officials could not
substantiate how they spent $1,160,873 in federal funds intended to improve the quality
of life for homeless persons in the District of Columbia, particularly those coping with
the emotional and physical hurdles due to mental illness, HIV/AIDS, and a history of
substance abuse. In addition, our audit identified officials spent $3,977 in HUD funds on
ineligible activities such as movie tickets, cigarettes, Christmas gifts, and weekly bingo
games.

                                     BACKGROUND

Safe Haven Outreach Ministry, Incorporated is a 501(c)(3) nonprofit multi-service
corporation, located at 1140 North Capitol Street, Washington, DC. It provides inpatient
and outpatient substance abuse treatment, primary medical care, mental health, case
management, housing and other supportive services to single, dual and multiple
diagnosed clients. Safe Haven’s stated mission is to improve the quality of life for
homeless persons in the District of Columbia, particularly those coping with the
emotional and physical hurdles due to mental illness, HIV/AIDS, and a history of
substance abuse. Its stated goal is to promote for these individuals a life with dignity,
security and self-determination. In addition to the three HUD funded programs
previously mentioned, Safe Haven has several non-HUD funded programs.

In Fiscal Year 2001, as a result of complaints and concerns regarding Safe Haven
Outreach Ministry, Incorporated’s grant administration, HUD instructed the city to
strengthen its oversight of the organization’s financial management. HUD further
instructed the city to perform an audit of the organization’s financial activities related to
HUD funded programs. In HUD’s view, the city’s resulting audit report did not
adequately address its concerns. Therefore, HUD conducted its own on-site monitoring
review. HUD’s monitoring review concluded the organization did not have an adequate


                                             2
   financial management system and it lacked adequate management controls, and did not
   maintain adequate documentation to justify its expenditures. Safe Haven Outreach
   Ministry, Incorporated currently has no access to HUD funds.

   During our audit period, HUD funded Safe Haven Outreach Ministry, Incorporated under
   the following grant programs:

                                          Date                      Disbursed as of
  Program Area       Project Number      Awarded      Authorized        9/25/03         Balance
     Housing
 Opportunities for
Persons with AIDS     DCH99-0033         03/03/00     $1,286,000        $1,025,673     $260,327
Supportive Housing
    Program           DC39B960006        08/18/97     $ 721,309         $ 721,308      $         1
                      DC39C97-
 Shelter Plus Care    0010-01            09/28/98     $ 365,400         $ 205,963      $159,437
             TOTALS                                   $2,372,709        $1,952,944     $419,765

   HUD’s Office of Inspector General had not completed any prior audits on Safe Haven
   Outreach Ministry, Incorporated.

                                           FINDING

       SAFE HAVEN OUTREACH MINISTRY, INCORPORATED COULD NOT
       SUBSTANTIATE HOW IT USED THE MAJORITY OF ITS HUD FUNDS

   Contrary to federal requirements, Safe Haven Outreach Ministry, Incorporated failed to
   maintain adequate documentation to support withdrawals it made from three grants we
   reviewed: Housing Opportunities for Persons with AIDS; the Supportive Housing
   Program; and the Shelter Plus Care Program. In addition, Safe Haven Outreach Ministry,
   Incorporated officials charged ineligible activities to both the Housing Opportunities for
   Persons with AIDS grant and the Supportive Housing Program grant. This occurred
   because Safe Haven did not have an effective or organized accounting system or filing
   system. In addition, Safe Haven officials were unaware of applicable federal and
   contractual requirements of the programs. As a result, officials could not support
   $1,160,873 of the $1,618,149 (72-percent) of HUD funds we reviewed for the three
   grants. Officials also charged $3,977 in ineligible activities to the Housing Opportunities
   for Persons with AIDS and the Supportive Housing Programs.




                                               3
Safe Haven Outreach Ministry Could Not Substantiate How It Spent the Majority of
Its Housing Opportunities for Persons With AIDS Funds

Safe Haven Outreach Ministry could not adequately support $648,704 of the $703,4821
(92-percent) in Housing Opportunities for Persons With AIDS Program expenditures we
reviewed under the audit. In addition, officials spent another $3,873 in grant funds on
ineligible activities such as movie tickets, cigarettes, Christmas gifts, and weekly bingo
games.

HUD established the Housing Opportunities for Persons with AIDS Program to address
the specific needs of persons living with HIV/AIDS and their families. The program
offers grants to local communities, states, and nonprofit organizations to provide housing
assistance, and related supportive services. Safe Haven Outreach Ministry, Incorporated
received a total of $1,286,000 in funding under the program and it expended $1,025,673
to date. However, HUD froze the remaining $260,327 in January 2002 due to its concern
about the organization’s apparent financial mismanagement. The following graph shows
the total grant award and it details the amounts we found supported, unsupported and
ineligible.



             Status of Housing Opportunities for Persons With
                           AIDS Grant Funding
                             INELIGIBLE
                               $3,873
         SUPPORTED
           $50,905
                                                                            Other
                                                                            $66,072
     SUSPENDED
      FUNDING                                                               Administrative
      $260,327                                                              $28,651

                                       UNSUPPORTED
                                         $648,704
                                                                             Salaries
                                                                             $553,981


             NOT
          REVIEWED
           $322,191




1
 Safe Haven Outreach Ministry, Incorporated was the Housing Opportunities for Persons With AIDS
grantee and it received these funds directly from HUD.


                                                 4
Salaries and Fringe Benefits

We reviewed 100-percent of the salaries and fringe benefits officials charged to this grant
totaling $553,981 and found that it was all unsupported. OMB Circular A-122, Cost
Principals for Nonprofit Organizations, Attachment B requires nonprofit organizations to
support distributions of salaries and wages to federal awards by appropriate personnel
activity reports which reflect an after-the-fact determination of the actual activity of each
employee. Safe Haven Outreach Ministry, Incorporated did not do so. Instead, they told
us they allocate employees’ time based on funding received from the grants or on
estimated percentages of employees’ time spent on the grant. We found there were a
total of 31 people who were employed during the grant period and 17 of them completely
charged their time to this grant. Most of these individuals were employed as counselors.
We attempted to interview the 17 employees who completely charged their time to this
grant to verify that they in fact worked 100-percent on this grant. However, we were
only able to interview one out of the 17 employees because Safe Haven no longer
employed the other 16 employees. This one individual told us he could not remember if
he worked solely on this grant, or on several of the Safe Haven’s grants. Nevertheless,
since Safe Haven officials did not require their employees to keep daily personnel
activity reports in violation of federal requirements, we consider all of these salaries and
fringe benefits to be unsupported.

Administrative Costs

We reviewed 100-percent of the administrative costs for the grant period totaling $28,651
and found the Safe Haven Outreach Ministry, Incorporated did not maintain any
documentation to support these costs. Federal regulations (Title 24 CFR 84.21) state a
grantee must maintain complete and accurate grant records identifying the source and
application of grant funds and ensure that grant expenditures are supported by source
documentation and used solely for authorized purposes. However, during our audit, the
Executive Director stated that her organization maintains no support for administrative
costs because she believed maintaining records for an administrative cost was not
required.

Other Costs

Safe Haven could not support the majority of other expenditures we reviewed under this
grant. OMB Circular A-122, Attachment A, Paragraph A, subparagraph 2(g) states that
to be allowable under an award, costs must be adequately documented. Title 24 CFR
84.21 further states that grantees must ensure that grant monies are supported by source
documentation and used solely for authorized purposes. We selected a non-statistical
sample of expenditures from the remaining $444,709 in grant funds to determine if
expense had supporting documentation such as invoices, receipts, and cancelled checks,
and to determine if they were eligible under this grant. We selected the highest dollar
value from each cost category in the general ledger for calendar years 2000 through 2003.




                                             5
Of the $120,850 sampled expenditures, we determined that Safe Haven could not
support expenditures totaling $66,072 (55-percent). We found that a majority of the files
did not include support such as invoices, receipts and/or cancelled checks as required. For
example, we found officials could not provide support for expenditures such as food for
clients, medical supplies, consultants, and building maintenance. The Executive Director
acknowledged during the audit that Safe Haven does not have an organized filing system
and she stated that all records are in boxes in no particular order. She further stated
however, she now will ask the staff to organize it.

Ineligible Expenditures

Safe Haven Outreach Ministry, Incorporated charged tickets to a movie theater,
cigarettes, Christmas gifts and decorations, weekly bingo games and other activities not
eligible under this grant totaling $3,873. OMB Circular A-122, Attachment A, Section 3,
states that costs must be reasonable and necessary. The Circular further states in Section
14 under Attachment B, that entertainment costs are unallowable. Additionally, these
activities are not allowable under the grant agreement or other federal regulations (Title
24 CFR 574.300).

Safe Haven Outreach Ministry Could Not Substantiate How It Spent All Supportive
Housing Program Funds

Our review of $708,7042 of $721,309 in Supportive Housing Program expenditures
showed that responsible officials could not substantiate how they used $306,206 (43-
percent) of this funding. Also, officials spent $104 in grant funds on ineligible activities
such as movie tickets, and novelty items.

Title IV of the Stewart B. McKinney Homeless Assistance Act authorizes the Supportive
Housing Program. The program is designed to promote the development of supportive
housing and supportive services, including innovative approaches to assist homeless
persons in the transition from homelessness and to promote the provision of supportive
housing to homeless persons to enable them to live as independently as possible. Safe
Haven received a total of $721,309 under the Supportive Housing Program as of August
1997 and expended all but one dollar. The below chart shows the total grant award
detailing the amounts we found supported, unsupported and ineligible.




2
  Safe Haven Outreach Ministry, Incorporated was the Supportive Housing sponsor, and it received these
funds through the grantee, an organization known as the Community Partnership for the Prevention of
Homelessness. We did not review $12,605 paid to the grantee to cover its administrative costs.


                                                  6
           Summary of Supportive Housing Program Grant Funding

                                INELIGIBLE
                                   $104                                  Other
                                                                         $16,476


                                                                         Administrative
                                                                         $8,404



                   SUPPORTED         UNSUPPORTED                         Salaries
                     $402,393          $306,206                          $280,588




                                                                          Rehabilitation
                                                                          $738


                             NOT REVIEWED
                                $12,605



Salaries and Fringe Benefits

We reviewed 100-percent of salaries and fringe benefits officials charged to this grant for
18 employees, totaling $280,588 and found it was all unsupported. As stated previously,
OMB Circular A-122, Cost Principals for Nonprofit Organizations, Attachment B
requires nonprofit organizations to support distributions of salaries and wages to federal
awards by appropriate personnel activity reports, which reflect an after-the-fact
determination of the actual activity of each employee. Here again, Safe Haven Outreach
Ministry, Incorporated did not do so. As with their other grants, officials said they
allocate employees’ time based on funding received from the grants, or on estimated
percentages of employees’ time spent on the grant and not actual hours worked. Safe
Haven officials did not require their employees to keep daily personnel activity reports in
violation of federal requirements.

Administrative Costs

We reviewed 100-percent of administrative costs for the entire grant period totaling
$8,404 and here again found Safe Haven did not maintain any documentation to support
these costs. Federal regulations (Title 24 CFR 84.21) state a grantee must maintain
complete and accurate grant records identifying the source and application of grant funds
and ensure that grant expenditures are supported by source documentation and used
solely for authorized purposes. However, during our audit, the Executive Director stated
that her organization maintains no support for administrative costs because she believed
maintaining records for an administrative cost was not required.




                                             7
Other Costs

We reviewed $419,712 of the remaining $432,317 expenditures charged to the grant to
determine if the grantee could support the expenditures. We determined Safe Haven
could support all but $17,214 (4-percent) of the expenditures. As stated previously,
OMB Circular A-122, Attachment A, Paragraph A, subparagraph 2(g) states that to be
allowable under an award, costs must be adequately documented. 24 CFR 84.21 further
states that grantees must ensure that grant monies are supported by source documentation
and used solely for authorized purposes.

Specifically, we found that officials could not support $738 of costs it incurred during its
October 1996 acquisition and rehabilitation of a facility used to house clients known as
Buckmon House. Also, responsible officials could not provide support such as invoices,
receipts and/or cancelled checks to substantiate $16,476 in supportive services and
operating costs such as utilities and food for its clients. Here again, the Executive
Director acknowledged during the audit that Safe Haven does not have an organized
filing system and she stated that all records are in boxes in no particular order. She
further stated however, she now will ask the staff to organize it.

Ineligible Expenditures

Safe Haven Outreach Ministry, Incorporated charged tickets to a movie theater and
ineligible novelty items totaling $104 to this grant. As stated previously, OMB Circular
A-122, Attachment A, Section 3, states that costs must be reasonable and necessary. The
Circular further states at Section 14 under Attachment B, that entertainment costs are
unallowable. Additionally, these activities are not allowable under the grant agreement
or other federal regulations (Title 24 CFR 574.300).

Safe Haven Outreach Ministry Could Not Substantiate How It Spent Any Shelter
Plus Care Funds

Safe Haven could not provide support for any of the $205,963 it received from this grant.
The Shelter Plus Care program is authorized by title IV, subtitle F, of the Stewart B.
McKinney Homeless Assistance Act. It is designed to link rental assistance to supportive
services for hard-to-serve homeless persons with disabilities. Individuals primarily
assisted should be those who are seriously mentally ill; have chronic problems with
alcohol, drugs, or both; or have acquired AIDS and related diseases.

We found that as of August 2002, Safe Haven Outreach Ministry, Incorporated received
$205,9633 from this grant. However, responsible Safe Haven officials could only provide
us with general ledgers covering the period January 2000 through December 2001. The
available general ledger contained 104 transactions valued at $102,885 or about 50-
percent of the $205,963 in HUD funds officials received under this grant. The Executive

3
  Safe Haven Outreach Ministry, Incorporated was the Shelter Plus Care sponsor, and it received these
funds through the grantee, an organization known as the DC Department of Health, Agency for HIV/AIDS.



                                                 8
Director informed us that regrettably, Safe Haven did not have possession of all of the
general ledgers because the former accountant took them when the accountant resigned
from Safe Haven.

We audited 20 of 104 transactions (every fifth transaction) on the available general ledger
and found that responsible officials could not provide support such as invoices, receipts
and/or cancelled checks to substantiate any of the 20 transactions audited valued at
$15,324. Since Safe Haven’s available general ledger covered only half of the HUD
funds it received, and for the transactions they did record they did not have an adequate
system in place to maintain invoices, receipts and/or cancelled checks required by OMB
Circular A-122, we consider the entire $205,963 unsupported. Since Safe Haven could
not substantiate how it spent any of its Shelter Plus Care funds there is no assurance that
it used these funds to attain the goals of this program.

                                AUDITEE COMMENTS

We discussed the draft findings with Safe Haven personnel during the audit, and at the
exit conference with the Executive Director on May 20, 2004. Safe Haven provided
written comments to our draft findings on May 26, 2004. In its response, Safe Haven
acknowledged it needed to improve its financial management system. It stated that in
April 2001, its Certified Public Accounting firm also reported that it was overspending,
underreporting short-term liabilities, and making numerous posting errors. Safe Haven
further acknowledged that its employee time reporting procedures were not in accordance
with federal regulations. However, Safe Haven stated that most of the problems our audit
identified were due to errors its previous accounting staff made, and it has already
terminated or asked these employees to resign. In addition, it stated it could now
substantiate most of the costs our audit identified as unsupported. As such, Safe Haven
asked us to reconsider most of the ineligible and unsupported costs we found during our
audit. Safe Haven further stated it would like HUD to help it develop a system to
properly allocate its costs.

                  OIG EVALUATION OF AUDITEE COMMENTS

We considered Safe Haven’s comments in preparing the final report and included the full
response as Appendix B. We are encouraged that Safe Haven acknowledged the
management control weaknesses our audit identified, and has begun taking actions to
strengthen its management controls. However, although Safe Haven believes that most
of its accounting problems were due to its previous accounting staff, we believe it still
has significant room for improvement. Additionally, although Safe Haven stated it could
now substantiate most of the costs our audit identified as unsupported, it did not provide
this documentation during our audit period. If these expenditures remain unsupported,
Safe Haven should reimburse HUD for the expenditures from non-federal funds. Lastly,
we considered Safe Haven’s views of expenses we considered ineligible and continue to
believe these expenses are ineligible.




                                            9
                              RECOMMENDATIONS

We recommend that HUD:

1A.    Initiate appropriate administrative actions against current and/or former members
       of the Board of Directors, Executive Committee and other responsible officials of
       the Safe Haven Outreach Ministry, Incorporated.

We further recommend that HUD require Safe Haven Outreach Ministry, Incorporated to:

1B.    Provide adequate documentation to support all salaries and fringe benefits paid
       from HUD funds. If the grantee is not able to provide adequate documentation,
       require them to reimburse HUD $834,569 from non-federal funds (Housing
       Opportunities for Persons with AIDS - $553,981; Supportive Housing Program -
       $280,588).

1C.    Provide adequate documentation to support all administrative costs. If they are
       not able to provide the documentation, require them to reimburse HUD $37,055
       from non-federal funds (Housing Opportunities for Persons with AIDS - $28,651;
       Supportive Housing Program - $8,404).

1D.    Provide adequate documentation to support remaining unsupported expenditures.
       If they are not able to provide the documentation, require them to reimburse HUD
       $289,249 from non-federal funds (Housing Opportunities for Persons with AIDS -
       $66,072; Supportive Housing Program - $17,214; Shelter Plus Care -$205,963).

1E.    Reimburse HUD $3,977 for ineligible costs from non-federal funds (Housing
       Opportunities for Persons with AIDS - $3,873; Supportive Housing Program -
       $104).

1F.    Develop a policy to maintain adequate time distribution records that are activity
       specific, to support salaries and fringe benefits charged to any future HUD
       awards.

1G.    Develop an effective system for adequately documenting and accounting for any
       future expenditure of HUD funds.




                                          10
                            MANAGEMENT CONTROLS

Management controls include the plan of organization, methods, and procedures adopted
by management to ensure that its goals are met. Management controls include the
processes for planning, organizing, directing, and controlling program operations. They
include the systems for measuring, reporting, and monitoring program performance.

We determined policies, procedures, control systems, and other management tools
implemented to ensure Safe Haven Outreach Ministry, Incorporated appropriately
expended project funds were relevant to our audit objectives. It is a significant weakness
if management controls do not provide reasonable assurance that the process for
planning, organizing, directing, and controlling program operations will meet an
organization’s objectives.

Based on our review, we believe the following items are significant weaknesses. Safe
Haven Outreach Ministry, Incorporated did not:

   •   Maintain personnel activity reports to support salaries and wages charged to HUD
       grant programs,

   •   Maintain an organized filing system,

   •   Accurately record expenditures in their General Ledger,

   •   Maintain adequate documentation to support charges to HUD grant programs, and

   •   Charge only eligible activities to HUD funded grants.




                                           11
                                                                               Appendix A


                     SCHEDULE OF QUESTIONED COSTS


        Recommendation
            Number                      Ineligible Costs 1/          Unsupported Costs 2/
              1B                                                          $ 834,569
              1C                                                          $ 37,055
              1D                                                          $ 289,249
              1E                              $ 3,977
            TOTAL                             $ 3,977                        $ 1,160,873



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or
     activity that 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.




                                           12
                   Appendix B

AUDITEE COMMENTS




       13
14
15
16
17