oversight

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)

             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.




                                            2
                            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.




                                             9
                                    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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