AUDIT REPORT
CITY OF INDIANAPOLIS
ECONOMIC DEVELOPMENT INITIATIVE – SPECIAL
PURPOSE GRANT (B-03-SP-IN-0240)
INDIANAPOLIS, IN
HUD’s Interest in More Than $130,000 in Grant Funds
Awarded to the City Was Not Secured
2005-CH-1021
SEPTEMBER 30, 2005
OFFICE OF AUDIT, REGION V
CHICAGO, ILLINOIS
Issue Date
September 30, 2005
Audit Report Number
2005-CH-1021
TO: Francis P. McNally, Director of Congressional Grants, DECC
FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA
SUBJECT: HUD’s Interest in More Than $130,000 in Economic Development Initiative –
Special Purpose Grant Funds Awarded to the City of Indianapolis Was Not
Secured; Indianapolis, Indiana
HIGHLIGHTS
What We Audited and Why
We audited the City of Indianapolis, Indiana’s (City) Economic Development
Initiative - Special Purpose Grant (Grant). We initiated the audit in conjunction
with our internal review of the U.S. Department of Housing and Urban
Development’s (HUD) oversight of Economic Development Initiative – Special
Purpose Grants. The review is part of our fiscal year 2005 annual audit plan. We
chose the City’s Grant based upon a statistical sample of fiscal years 2002 and
2003 Economic Development Initiative – Special Purpose Grants, in which 90
percent or more in funds were disbursed. Our objectives were to determine
whether the City used its Grant funds in accordance with HUD’s requirements
and recorded HUD’s interest on the assisted property.
What We Found
The City used the Grant funds in accordance with HUD’s requirements. It
disbursed $134,123 in Grant funds to the Indiana University Research and
Technology Corporation (Corporation) to pay for the construction of the Indiana
University Emerging Technologies Center’s (Center) wet laboratory space.
However, it did not place a covenant on the property title for the Center assuring
nondiscrimination based on race, color, national origin, or handicap.
What We Recommend
We recommend that HUD’s director of congressional grants require the City to
ensure the Corporation records a covenant on the property title for the Center
assuring nondiscrimination based on race, color, national origin, or handicap. If
the covenant is not recorded, the City should reimburse HUD $134,123 from
nonfederal funds for the Grant funds used to pay for the Center’s wet laboratory
space.
For each recommendation without a management decision, please respond and
provide status reports in accordance with HUD Handbook 2000.06, REV-3.
Please furnish us copies of any correspondence or directives issued because of the
audit.
Auditee’s Response
We provided our discussion draft audit report to the City’s director of metropolitan
development and HUD’s staff during the audit. We held an exit conference with the
City’s assistant administrator of economic development for the Department of
Metropolitan Development on September 19, 2005.
We asked the City’s director of metropolitan development to provide comments on
our discussion draft audit report by September 21, 2005. The City’s administrator of
community economic development for the Department of Metropolitan
Development provided written comments dated September 21, 2005. The
administrator of community economic development agreed to implement corrective
action to address our finding. The complete text of the written comments can be
found in appendix B of this report.
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TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding: HUD’s Interest in More Than $130,000 in Grant Funds Awarded to the 5
City Was Not Secured
Scope and Methodology 7
Internal Controls 8
Appendixes
A. Schedule of Funds to Be Put to Better Use 10
B. Auditee Comments 11
C. Federal Requirements 13
3
BACKGROUND AND OBJECTIVES
The Economic Development Initiative program. The U.S. Department of Housing and Urban
Development’s (HUD) Economic Development Initiative program includes noncompetitive
Economic Development Initiative – Special Purpose Grants. HUD awards Economic
Development Initiative – Special Purpose Grants to entities included in the U.S. House of
Representatives’ conference reports.
The City of Indianapolis, Indiana. Organized under the laws of the State of Indiana, the City
of Indianapolis (City) and Marion County, Indiana are combined under a unified government
(Unigov). Unigov is governed by a mayor and a 29-member council. The U.S. House of
Representatives’ Conference Report 108-10 set aside $135,000 in Economic Development
Initiative – Special Purpose Grant (Grant) funds to the City for construction at the life sciences
research park. In December 2003, HUD awarded the City a $134,123 Grant to pay for the
construction of wet laboratory space at the Indiana University Emerging Technologies Center
(Center). The Center is a business incubator for life sciences, biotechnology, and bioinformatics
companies. It provides support, guidance, and resources to help entrepreneurs launch and build
successful companies. The City’s Department of Metropolitan Development administered the
City’s Grant. The City disbursed the Grant funds to the Indiana University Research and
Technology Corporation (Corporation) to construct the Center. The City’s records for the Grant
are maintained at the City-County Building, located at 200 East Washington Street, Indianapolis,
Indiana.
The Indiana University Research and Technology Corporation. Incorporated in 1996 under
the laws of the State of Indiana, the Corporation, formerly the Advanced Research Technology
Institute, is a nonprofit corporation charged with increasing Indiana University’s collaboration
with the private sector.
We initiated this audit in conjunction with our internal review of HUD’s oversight of Economic
Development Initiative – Special Purpose Grants. The review is part of our fiscal year 2005
annual audit plan. We chose the City’s Grant based upon a statistical sample of fiscal years 2002
and 2003 Economic Development Initiative – Special Purpose Grants, in which 90 percent or
more in funds were disbursed.
Our objectives were to determine whether the City used its Grant funds in accordance with
HUD’s requirements and recorded HUD’s interest on the assisted property.
4
RESULTS OF AUDIT
Finding: HUD’s Interest in More Than $130,000 in Grant Funds
Awarded to the City Was Not Secured
The City disbursed $134,123 in Grant funds to the Corporation to pay for the construction of the
Center’s wet laboratory space; however, the City did not ensure the Corporation placed a
covenant on the property title for the Center, a research facility constructed with Grant funds,
assuring nondiscrimination based on race, color, national origin, or handicap. The City did not
record the covenant on the title because it lacked effective oversight over applicable Grant
requirements. As a result, HUD’s interest in the Center is not protected.
The City Used More Than
$130,000 in Grant Funds
without Placing a Covenant on
the Center’s Title to Ensure
Nondiscrimination
Contrary to federal requirements, the City did not ensure the Corporation secured
HUD’s interest in $134,123 in Grant funds used to pay for the construction of the
Center’s wet laboratory space. The Center is a business incubator for life
sciences, biotechnology, and bioinformatics companies. The funds were
disbursed in February 2004. The City failed to place a covenant on the Center’s
property title to assure nondiscrimination based on race, color, national origin, or
handicap. The purpose of the covenant is to ensure nondiscrimination for the
period that the Center is used for a research facility as outlined in the City’s
application for the Grant or for another purpose involving similar services or
benefits. The recording of the covenant will provide HUD recourse if
discrimination based on race, color, national origin, or handicap occurs in relation
to the Center.
HUD’s Interest in the Center Is
at Risk
The City’s administrator of economic development for the Department of
Metropolitan Development said HUD did not provide the City any directives or
guidance regarding the securing of HUD’s interest in the Center. However, the
City assured it would place a covenant in the real property’s title to assure
nondiscrimination during the useful life of the project. The recording of the
covenant will provide HUD recourse if discrimination based on race, color,
national origin, or handicap occurs in relation to the Center.
5
Recommendations
We recommend that HUD’s director of congressional grants require the City to
1A. Ensure the Corporation records a covenant on the property title for the Center
assuring nondiscrimination based on race, color, national origin, or
handicap. The covenant should help ensure that the City protects HUD’s
interest in the $134,123 in Grant funds used for the Center.
1B. Reimburse HUD from nonfederal funds for the Grant funds used to pay for
the Center’s wet laboratory space if the covenant is not recorded.
6
SCOPE AND METHODOLOGY
We performed the audit at the City’s Department of Metropolitan Development’s offices and the
Center in July 2005. To accomplish our objectives, we interviewed HUD’s staff, and the City’s
and the Center’s employees.
To determine whether the City used Grant funds in accordance with HUD’s requirements and
recorded HUD’s interest on the assisted property, we reviewed
• U.S. House of Representatives’ Conference Report 108-10,
• HUD’s file related to the Grant,
• The City’s financial records,
• The Corporation’s financial records, and
• The Indiana secretary of state’s, the City’s, and the Center’s Websites for organizational
information on the City and the Institute.
We also reviewed 24 CFR [Code of Federal Regulations] parts 1, 8, and 85; HUD Directives 1.5,
8.50, and 85.31; Office of Management and Budget Circulars A-21, A-87, A-110, and A-122;
and HUD Handbook 2000.06, REV-3.
The audit covered the period from December 1, 2003, through June 10, 2005. This period was
adjusted as necessary. We performed our audit in accordance with generally accepted
government auditing standards.
7
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:
• Effectiveness and efficiency of operations,
• Reliability of financial reporting,
• Compliance with applicable laws and regulations, and
• Safeguarding resources.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined the following internal controls were relevant to our audit objectives:
• Program operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives.
• Validity and reliability of data – Policies and procedures that management
has implemented to reasonably ensure that valid and reliable data are
obtained, maintained, and fairly disclosed in reports.
• Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that resource use is
consistent with laws and regulations.
• Safeguarding resources – Policies and procedures that management has
implemented to reasonably ensure that resources are safeguarded against
waste, loss, and misuse.
We assessed all of the relevant controls identified above.
A significant weakness exists if internal controls do not provide reasonable
assurance that the process for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
8
Significant Weakness
Based on our audit, we believe the following item is a significant weakness:
• The City did not record the covenant on the title because it lacked
effective oversight over applicable Grant requirements.
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APPENDIXES
Appendix A
SCHEDULE OF FUNDS TO BE PUT TO BETTER USE
Funds to be
Recommendation
put to better
number
use 1/
1A $134,123
Total $134,123
1/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
expenditures at a later time for the activities in question. This includes costs not incurred,
deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of
unnecessary expenditures, loans and guarantees not made, and other savings.
10
Appendix B
AUDITEE COMMENTS
11
12
Appendix C
FEDERAL REQUIREMENTS
The City’s grant agreement with HUD, article I, section B, states the grant funds must be made
available in accordance with 24 CFR [Code of Federal Regulations] parts 1 and 8. Section E of
article I states the City will comply with 24 CFR [Code of Federal Regulations] part 85.
According to 24 CFR [Code of Federal Regulations] 1.5(a)(2), in the case of real property,
structures, improvements thereon, or interests therein, acquired through a program of federal
financial assistance, the instrument effecting any disposition by the recipient of such real
property, structures, improvements thereon, or interests therein shall contain a covenant running
with the land assuring nondiscrimination based on race, color, or national origin for the period
during which the real property is used for a purpose for which the federal financial assistance is
extended or for another purpose involving the provision of similar services or benefits.
According to 24 CFR [Code of Federal Regulations] 8.50(c)(2), when no transfer of property is
involved, but property is purchased or improved with federal financial assistance, the recipient
shall agree to include a covenant in the instrument effecting or recording any later transfer of the
property for the period during which it retains ownership or possession of the property to assure
nondiscrimination based on a handicap.
The City’s administrator of economic development for the Department of Metropolitan
Development certified in Form HUD-424-B, Applicant Assurances and Certifications, sections 2
and 3, that the City would administer the Grant in compliance with 24 CFR [Code of Federal
Regulations] 1 and 8.
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HUD �s Interest in More Than $130,000 in Economic Development Initiative � Special Purpose Grant Funds Awarded to the City of Indianapolis Was Not Secured; Indianapolis, Indiana
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-09-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)