oversight

Review of the Commonwealth of Pennsylvania �s HOME Investment Partnership Program, Harrisburg , Pennsylvania

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-07-29.

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

                                                               Issue Date
                                                                     July 29, 2005
                                                               Audit Report Number
                                                                     2005-PH-1013




TO:         Nadab Bynum, Director, Office of Community Planning and Development,
             Philadelphia Regional Office, 3AD



FROM:      Daniel G. Temme, Regional Inspector General for Audit, Philadelphia Regional
            Office, 3AGA

SUBJECT: Review of the Commonwealth of Pennsylvania’s HOME Investment Partnership
          Program, Harrisburg, Pennsylvania


                                  HIGHLIGHTS

 What We Audited and Why

            In response to a request from the former assistant United States attorney of the
            Commonwealth of Pennsylvania, we audited Pennsylvania’s Department of
            Community and Economic Development’s (Commonwealth) administration of
            the HOME Investment Partnership Program (HOME). Our audit objectives were
            to determine whether the Commonwealth is 1) adequately monitoring localities to
            ensure HOME funds are expended on allowable HOME activities, and 2) properly
            allocating its staff’s time for the administration of the HOME program in
            accordance with applicable U.S. Department of Housing and Urban Development
            (HUD) and other federal regulations.

 What We Found

            The Commonwealth is not adequately monitoring its localities to ensure HOME
            funds are expended on eligible HOME activities and is improperly allocating its
            staff’s time for the administration of the HOME program. Three of the four
           localities we reviewed had spent a portion of their HOME funds on ineligible
           expenses/activities, which totaled $79,070. This occurred because the
           Commonwealth did not develop or implement an adequate monitoring program to
           oversee its localities. The Commonwealth had accumulated more than $6.9
           million in administrative fees from the program by obligating more funds than it
           spent to administer its HOME program. These excess funds should have been
           used to strengthen the Commonwealth’s monitoring program and to fund
           additional eligible HOME projects. Doing so would have enabled the
           Commonwealth’s HOME program to better meet its main goal of providing
           affordable housing for low-income households.

           In addition, we found the Commonwealth is improperly allocating its staff’s time
           for the administration of the HOME program. Instead of maintaining accurate
           timesheets, the Commonwealth follows an unwritten policy that requires staff
           time to be split equally between the HOME and Community Development Block
           Grant (Block Grant) programs. As a result, the Commonwealth is unable to ensure
           HOME funds are only being used to pay for the administration of the HOME
           program.

What We Recommend

           We recommend that the director of Community Planning and Development,
           Philadelphia Regional Office, require the Commonwealth to recover $79,070 in
           ineligible fees from the localities we reviewed. In addition, the Commonwealth
           should use the accumulated $6,930,916 in administrative fees to improve its
           monitoring program and recommit the funds to eligible HOME projects. We also
           recommend that the director of Community Planning and Development,
           Philadelphia Regional Office, require the Commonwealth to establish proper time
           allocations that meet the requirements of Office of Management and Budget
           Circular A-87.

           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


           The complete text of the Commonwealth’s response, along with our evaluation of
           that response, can be found in Appendix B of this report.




                                        2
                            TABLE OF CONTENTS


Background and Objectives                                                      4

Results of Audit
      Finding 1: The Commonwealth Does Not Ensure HOME Funds Are Expended      5
      on Eligible HOME Activities
      Finding 2: The Commonwealth Is Improperly Allocating Staff Time to Its   12
      HOME and Block Grant Programs

Scope and Methodology                                                          14

Internal Controls                                                              15

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use           16
   B. Auditee Comments and OIG’s Evaluation                                    17




                                        3
                     BACKGROUND AND OBJECTIVES


The HOME Investment Partnership Program (HOME) is authorized under Title II of the
Cranston-Gonzalez National Affordable Housing Act, as amended, and is regulated by Code of
Federal Regulations, title 24, part 92. HOME is the largest federal block grant provided to state
and local governments and is designed to create affordable housing for low-income households.
HOME funds are awarded annually as formula grants to participating jurisdictions. State
governments are automatically eligible for HOME funds and receive either the greater of $3
million or the amount calculated under their formula allocation. Participating jurisdictions may
choose among a broad range of eligible activities using HOME funds. These activities may
include providing home purchase or rehabilitation financing assistance to eligible homebuyers,
building or rehabilitating housing for rent or ownership, or obtaining property to make way for
HOME-assisted developments.

As a participating jurisdiction, the Commonwealth of Pennsylvania administers its HOME
program through the Department of Community and Economic Development (Commonwealth).
The Commonwealth received $92,228,850 in HOME grants from the U.S. Department of
Housing and Urban Development (HUD) over a three-year period.

                                 Grant Year       Grant Amount
                                    2002           $28,828,000
                                    2003           $30,165,304
                                    2004           $33,235,546
                                    Total          $92,228,850

Of these funds, the Commonwealth awarded at least 33.3 percent for each of these years to the
Pennsylvania Housing Finance Agency. An additional 10 percent was obligated to the
Commonwealth for administrative costs. The remaining HOME funds were then awarded to
approximately forty-five local governments each grant year in amounts ranging from $5,000 to
$550,000.

In early 2002, a suit was filed by a former Commonwealth employee, along with the United
States of America, acting on behalf of HUD, against the Commonwealth. The suit claimed the
Commonwealth falsely charged time to the HOME program for employees having no
relationship with the program. A full and final settlement was reached between the
Commonwealth and the United States of America in early 2002. As a result, the Commonwealth
agreed to pay the United States $1,696,000 in damages.

Our overall objective was to determine whether the Commonwealth is properly administering its
HOME program by 1) adequately monitoring localities to ensure HOME funds are expended on
allowable HOME activities, and 2) properly allocating its staff’s time for the administration of
the HOME program in accordance with applicable HUD and other federal regulations.




                                            4
                                RESULTS OF AUDIT


Finding 1: The Commonwealth Does Not Ensure HOME Funds Are
Expended on Eligible HOME Activities
The Commonwealth is not adequately monitoring its localities to ensure HOME funds are
expended on eligible HOME activities. Three of the four localities we reviewed violated some
provision of the HOME requirements. The Commonwealth failed to ensure

           •   A nonprofit entity operating as a community housing development organization
               was set up properly,
           •   An operating budget contained only eligible operating expenses, and
           •   Program income was used only for eligible activities.

This occurred because the Commonwealth did not develop or implement an adequate monitoring
program to oversee its localities. As a result, the three localities spent $79,070 of their HOME
funds on ineligible expenses/activities that the Commonwealth did not detect. The
Commonwealth had accumulated more than $6.9 million in administrative fees from the program
by obligating more funds than it spent to administer its HOME program. These excess funds
should have been used to strengthen the Commonwealth’s monitoring program and to fund
additional eligible HOME projects. Doing so would have enabled the Commonwealth’s HOME
program to better meet its main goal of providing affordable housing for low-income households.



           HOME Funds Were Not Always Spent on Eligible Activities
In three of the four localities we reviewed, the Commonwealth failed to ensure HOME funds
were expended only on eligible HOME activities. Our review focused on HOME grants provided
during 2002, 2003, and 2004 to the following localities: Carlisle Borough, Franklin County,
Monroe County, and Lebanon County. During our review, we wanted to determine whether the
HOME funds provided to each locality were expended on eligible HOME activities. The detailed
results of our review follow.

Franklin County

 Mid-Atlantic Coalition Was Not
 Properly Set Up as a
 Community Housing
 Development Organization


               The Mid-Atlantic Coalition for Housing Opportunities (Mid-Atlantic) violated
               federal HOME regulations in operating as a community housing development


                                           5
            organization. Mid-Atlantic’s financial advisor plans Mid-Atlantic’s HOME-
            funded projects, which are then awarded to a for-profit construction firm (G.
            Keith Construction) in which the financial advisor is the owner. Code of Federal
            Regulations, title 24, part 92.2 defines a community housing development
            organization as “a private nonprofit organization that is neither controlled by, nor
            under the direction of, individuals or entities seeking to derive profit or gain from
            the organization.” Thus, by the owner of the for-profit construction company also
            serving as Mid-Atlantic’s financial advisor, there is no assurance that Mid-
            Atlantic is not being controlled by an individual who seeks to gain a profit from
            the organization.

            Furthermore, Mid-Atlantic’s executive secretary prepares and signs checks for
            both Mid-Atlantic and G. Keith Construction. In 1996, Mid-Atlantic’s board gave
            its executive secretary the authority to supervise and direct the management and
            operation of the corporation. In 1997, Mid-Atlantic’s executive secretary signed a
            power of attorney in which G. Keith Construction appointed her as attorney-in-
            fact to deposit or withdraw funds held in G. Keith Construction’s account. Thus,
            Mid-Atlantic’s executive secretary is also acting as an agent for G. Keith
            Construction, which is a violation of the regulation.

Monroe County

 Sub-recipient Included
 Ineligible Expenses in Its
 Operating Budget to Obtain a
 Larger Grant Than It Was
 Eligible


            The Commonwealth failed to identify ineligible operating expenses on the
            Shepherds of Monroe County’s (Shepherds) 2004 operating budget, which
            allowed the Shepherds to receive a higher operating grant in 2004. The
            Shepherds’ operating budget contained a $16,000 interest expense, incurred on
            the payment of the loan used to purchase land for the Shepherds’ future HOME-
            funded project. Code of Federal Regulations, title 24, part 92.206(g) classifies
            costs relating to the payment of loans, including interest for such loans, as a
            project cost. Therefore, the $16,000 is an ineligible operating expense and should
            not have been included in the operating budget. In addition, the Shepherds
            optimistically budgeted the executive director’s salary as $55,000, which includes
            potential bonuses offered to the executive director as an incentive to obtain grants
            from local vendors. However, the Commonwealth did not review the actual year-
            end operating expenses showing the executive director’s salary was only $32,666
            in 2004.

            Code of Federal Regulations, title 24, part 92.300(f) states a certified community
            housing development organization is allowed an operating grant between the



                                          6
                 greater of $50,000 or 50 percent of its operating budget. Shepherds received its
                 2004 operating grant of $75,000 based upon an operating budget of $150,420,
                 which included the ineligible operating expense of $16,000 and an over-inflated
                 executive director’s salary by $22,334. As a result, Shepherds overstated its
                 operating budget by $38,334 and received $18,957 in additional HOME funds. 1

Lebanon County

    Lebanon County
    Redevelopment Authority
    Improperly Spent Program
    Income


                 From June 2003 through January 2005, the Lebanon County Redevelopment
                 Authority (Authority) improperly spent $60,113 of $262,448 (23 percent) in
                 program income on administrative costs. Code of Federal Regulations, title 24,
                 part 92.503(a) allows the Authority to retain program income for additional
                 HOME-eligible projects pursuant to the Authority’s contract with the
                 Commonwealth. However, appendix C, (2)(j), of the Commonwealth’s HOME
                 contract with the Authority directly prohibits the use of program income for
                 administrative costs. Therefore, the Authority violated the Commonwealth’s
                 program income provisions.

        The Commonwealth Did Not Develop and Implement an Adequate
                          Monitoring Program
The Commonwealth was not able to identify violations of HOME and/or Commonwealth
regulations because it did not develop and implement an adequate monitoring program. The
Commonwealth conducts infrequent and limited monitoring visits of its grantees, has minimal
staff, and is not fully using $6,930,916 in obligated administrative fees to ensure current
monitoring procedures are effective.

    The Commonwealth Performs
    Infrequent and Limited
    Monitoring Reviews of Its
    Grantees


                 Code of Federal Regulations, title 24, part 92.201 provides the Commonwealth
                 must conduct reviews and audits of its State Recipients as may be necessary to
                 determine whether the State Recipient has met the HOME regulations. Our
                 review of the Commonwealth showed that the Commonwealth did not always
1
 Adjusted operating budget of $112,086 (reduced by $38,334 to account for over-inflated salary of $22,334 and
$16,000 in ineligible interest expense) times .50 = $56,043. Adjusted grant amount was calculated by subtracting
$56,043 from the $75,000 amount that was received.


                                                    7
          complete adequate monitoring reviews. For example, the Commonwealth failed to
          perform any form of a monitoring review of Monroe County during the four-year
          period of 2001 through 2004. For the remaining three localities we reviewed, it
          performed reviews for Carlisle Borough in August 2003, Franklin County in
          September 2002, and Lebanon County in April 2003. The review of Lebanon
          County was performed for Community Development Block Grant (Block Grant)
          and/or HOME funds received in 1999, 2000, and 2001. The review of Franklin
          County was performed for HOME funds received in 2000 and 2001, and the
          review of Carlisle Borough was performed for HOME funds received in 2002.

The Commonwealth Relies on
Self-Assessments By Its
Grantees


          When the Commonwealth does conduct reviews, they are largely based on a self-
          assessment by the locality. The Commonwealth sends the locality a self-
          assessment checklist it is requested to complete. This information is then verified
          during the onsite monitoring visit. However, the questions on the checklist are
          general in nature and have limited coverage concerning the eligibility of the costs
          related to the HOME program. Further, our review of the monitoring reviews of
          Carlisle Borough, Franklin County, and Lebanon County gave no indication the
          grant managers verified the information provided to them on the checklists. The
          Commonwealth also did not maintain documentation to support or verify the
          answers given by the localities. When we discussed these issues with the
          Commonwealth’s division chief, he explained his staff are not experts in the
          HOME program and do not have the expertise needed to identify many of the
          issues we identified from our reviews.

The Commonwealth Does Not
Employ Sufficient Staff to
Effectively Administer Its
HOME Program


          The Commonwealth does not have sufficient staff to administer its HOME
          program effectively. The Commonwealth currently has five grant managers who
          administer and monitor the HOME, Block Grant, and Emergency Shelter Grant
          programs for sixty-seven local governments. Commonwealth employees informed
          us that on average there are 125-150 Block Grants and 35-40 HOME grants
          issued in a year. Each grant manager is assigned from twelve to sixteen local
          governments to manage. Their responsibilities include reviewing grant
          applications to ensure compliance and completeness, addressing questions and/or
          concerns of the local governments, and monitoring each local government to
          ensure HOME funds are expended on allowable activities.




                                       8
    The Commonwealth is Not
    Fully Utilizing Its Obligated
    Administrative Fees


                 Since 2001, the Commonwealth has obligated $6,930,916 in HOME funds for
                 administrative fees in excess of its actual operating expenses. The following table
                 shows the amount of administrative fees the Commonwealth over-obligated from
                 the HOME program for grant years 2001 through 2005.

                                  Accumulated Administrative Fees
                         Grant Year   Amount Obligated        Amount Used
                            2001         $1,428,362               $0.00
                            2002         $1,544,915               $0.00
                            2003         $1,518,652               $0.00
                            2004         $1,273,204               $0.00
                            2005         $1,165,783               $0.00
                           Total         $6,930,916                $0

                 Although the Commonwealth obligated between $1.17 million and $1.54 million
                 each year for administrative fees, it only expended between $570,000 2 and
                 $772,487 of the obligated amounts each year. The following table shows the
                 amount of administrative fees drawn by the Commonwealth from 2002 through
                 2004, as well as the grant years the funds were drawn from.

                         Grant Year        Calendar Year in Which Administrative
                           Drawn                     Fees Were Drawn
                           From               2002          2003        2004
                            1995            $ 3,500          $0           $0
                            1996            $ 3,025          $0           $0
                            1997            $ 14,568         $0           $0
                            1998            $278,848         $0           $0
                            1999            $472,546      $635,000    $172,280
                            2000               $0            $0       $397,720
                           Totals           $772,487      $635,000    $570,000

                 As the table above shows, the Commonwealth started drawing administrative fees
                 from the 2000 HOME grant in 2004. As of May 2005, the Commonwealth had
                 $775,454 in obligated funds remaining from the 2000 HOME grant for
                 administrative fees. Based on the Commonwealth’s history of administrative fee


2
 The data for the 2004 administrative draws were provided to HUD’s Office of Inspector General on December 21,
2004; therefore, the $570,000 does not include any draws made from December 21 through December 31, 2004.


                                                  9
          expenditures, the remaining portion of the 2000 grant should be sufficient to
          cover the Commonwealth’s remaining 2005 administrative expenses.

          As discussed above, the Commonwealth has accumulated $6,930,916 in excess
          administrative fees that could be used to strengthen its inadequate monitoring
          program. In addition, these excess obligations could be used to fund other eligible
          HOME projects. Therefore, any funds the Commonwealth does not use to
          strengthen its monitoring program should be reprogrammed for the use of
          HOME-eligible projects. This would help the Commonwealth ensure the HOME
          program’s main goal of providing affordable housing for low-income households
          is accomplished more efficiently.

Recommendations


          We recommend that the Philadelphia Regional Office of Community Planning
          and Development

          1A.     Ensure the Commonwealth recovers the $18,957 in ineligible HOME
                  funds from Monroe County.

          1B.     Ensure the Commonwealth recovers the $60,113 in ineligible HOME
                  funds from Lebanon County.

          1C.     Determine whether Mid-Atlantic violated either provision (3) under the
                  Code of Federal Regulations, title 24, part 92.2 definition of a community
                  housing development organization or the HOME conflict of interest
                  provisions. If Mid-Atlantic violated either of these provisions, seek
                  administrative actions against Mid-Atlantic’s financial advisor and owner
                  of G. Keith Construction.

          1D.     Determine whether the Commonwealth should be allowed to continue on-
                  site monitoring of HOME program recipients on a three-year schedule. If
                  this schedule continues to be allowed, require the Commonwealth to
                  establish procedures that ensure the Commonwealth reviews, at least
                  annually, financial reports (i.e., income statement, balance sheet, general
                  ledgers, etc.) submitted by the sub-recipients and/or contractors to ensure
                  HOME funds are being expended on eligible activities.

          1E.     Require the Commonwealth to improve its monitoring procedures to
                  include (at a minimum)

                  i.     A more comprehensive review checklist,
                  ii.    Procedures to ensure HOME funds expended (i.e., developer fees,
                         project costs, operating costs, etc.) are valid HOME program
                         activities, and



                                       10
      iii.   Documentation stating the specific information and/or
             documentation used by the grant managers to verify the monitoring
             checklist and to complete their reviews.

1F.   Require the Commonwealth to employ and/or contract additional staff to
      ensure its monitoring process is efficient, adequate, and in compliance
      with the HOME regulations.

1G.   Ensure current and future Commonwealth employees receive HOME-
      specific training that will provide them the expertise required to
      effectively administer and monitor the HOME program.

1H.   Require the Commonwealth to establish a procedure (on an annual basis)
      that will ensure future funds obligated by the Commonwealth for
      administrative fees are based on actual administrative costs. This
      procedure should ensure that any amount the Commonwealth determines
      is in excess of the actual expenditures should be recommitted for use on
      eligible HOME projects.

1I.   Require the Commonwealth to recommit any portion of the $6,930,916
      not used by the Commonwealth to strengthen its monitoring program for
      use on HOME-eligible projects.

1J.   Determine if the procedures implemented by the Commonwealth are
      sufficient to adequately monitor its HOME program. If the
      Commonwealth fails to implement these procedures, seek appropriate
      administrative actions as described in Code of Federal Regulations, title
      24, part 92.




                           11
Finding 2: The Commonwealth Is Improperly Allocating Staff Time to
Its HOME and Block Grant Programs
The Commonwealth is improperly allocating its staff’s time to the HOME and Block Grant
programs. The Commonwealth has an unwritten policy that its staff’s time is to be equally
divided between the HOME and Block Grant programs. As a result, the Commonwealth’s staff
created timesheets to reflect this unwritten policy. Consequently, the Commonwealth is unable to
ensure that approximately $660,000 3 in HOME funds spent annually on administrative fees is
not expended on the administration of the Block Grant program. Also, the Commonwealth is
unable to ensure it is complying with the maximum regulatory amounts of HOME and/or Block
Grant funding allowed for the administration of each corresponding program.




    The Commonwealth Has an
    Unwritten Time Allocation
    Policy


                Based on the Commonwealth’s unwritten time allocation policy, seven
                Commonwealth employees signed annual time allocation certifications, stating 50
                percent of their time is devoted to each of the HOME and Block Grant programs.
                However, our review found this was not always the case. When we spoke to the
                individual employees, we found that one employee spends approximately six
                months of each year solely on HUD’s McKinney Act program. In two other
                examples, employees stated they spend approximately 70-80 percent of their time
                working on the Block Grant program. However, all of their time was divided
                equally between the HOME and Block Grant programs. When we asked the
                employees why the time was split 50/50, they explained that it was done for
                convenience, based upon the belief that the time spent administrating the HOME
                and Block Grant programs would even out to 50/50 by the end of the year.

    Circular A-87 Requires Time
    Charged to an Activity to Be
    Supported

                Each certification signed by the employees states that a timesheet is required if
                there are changes in work assignment or changes in time distribution of the
                employee. Office of Management and Budget Circular A-87 requires employees
                working on multiple activities to support their time with a personnel activity
                report or equivalent documentation, which reflects an after-the-fact distribution of

3
 This number is the average of the administrative fees expended on the HOME program from 2002 to 2004
($772,487, $635,000, and $570,000) as discussed in Finding 1.


                                                 12
          the actual activity of each employee. Budget estimates or other distribution
          percentages determined before the services are performed do not qualify as
          support. We were unable to locate documentation to support the actual activity
          completed. The Commonwealth did not make the appropriate adjustments to the
          employees’ time allocations as required by Office of Management and Budget
          Circular A-87 and its own time allocation certification requirements. Thus, the
          Commonwealth is unable to ensure that HOME administrative fees were used for
          only HOME activities.

Recommendations



          We recommend that the Philadelphia Regional Office of Community Planning
          and Development

          2A. Require the Commonwealth to establish proper time allocations that meet
              the requirements of Office of Management and Budget Circular A-87 and
              other applicable federal regulations.




                                     13
                         SCOPE AND METHODOLOGY


To accomplish the audit objectives, we

   •   Reviewed applicable HUD regulations relating to the administration of the HOME
       program.

   •   Obtained a list of grantees receiving HOME program and operating grants from the
       Commonwealth for fiscal years 2002, 2003, and 2004 and selected a nonrepresentative
       sample of four sub-recipients. The selection was based on the frequency in which the
       sub-recipients received HOME grants from the Commonwealth and their geographic
       location. Each of the four grantees received at least one grant during the audit period.

   •   Conducted interviews with officials and employees of HUD’s Community Planning and
       Development Division, the Commonwealth, and sub-recipients/grantees of the HOME
       program.

   •   Reviewed HOME program contracts established between the Commonwealth and the
       selected four grantees and obtained and reviewed contracts established among the
       grantees and the community housing development organizations during onsite grantee
       reviews.

   •   Reviewed general ledgers, statements of income and expenses, operating budgets, bank
       statements, and invoices to ensure HOME program and operating grants were used for
       eligible HOME activities.

We performed the majority of our fieldwork between October 2004 and May 2005 at the offices
of the Commonwealth, located at the Keystone Building, 400 North Street, Harrisburg,
Pennsylvania. In addition, we conducted fieldwork at the facilities of the following four grantees:
Carlisle Borough, Franklin County, Monroe County, and Lebanon County. The audit generally
covered the period of January 1, 2002, through September 30, 2004, but was expanded when
necessary.

We performed our review in accordance with generally accepted government auditing standards.




                                            14
                             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, and
   •   Compliance with applicable laws and regulations.

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:

              •   Management oversight processes - Policies and procedures that management
                  has in place to reasonably ensure that improper administrative payments
                  would not be made or would be detected in the normal course of business.

              •   Monitoring of HOME-eligible activities - Policies and procedures that
                  management has in place so that adequate reviews are performed to ensure
                  HOME grants are used for eligible activities.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.

 Significant Weaknesses


              Based on our review, we believe the following items are significant weaknesses:

              •   Lack of management oversight.
              •   Lack of adequate reviews performed on the sub-recipients and/or contractors.
              •   Lack of adequate supporting documentation to support the use of
                  administrative fees.


                                           15
                                 Appendixes
Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE


                  Recommendation             Ineligible 1/   Funds to Be Put
                        Number                               to Better Use 2/
                                 1A              $18,957
                                 1B              $60,113
                                 1I                               $6,930,916
                               Total             $79,070          $6,930,916


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
     polices or regulations.

2/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     Office of Inspector General 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.




                                           16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




                        17
Comment 1




            18
Comment 2




Comment 3




            19
Comment 4




            20
Comment 5




            21
Comment 6




            22
                         OIG Evaluation of Auditee Comments


Comment 1   Although we acknowledge the Commonwealth has procedures to conduct
            closeout reviews, the Commonwealth did not perform a closeout review of
            Monroe County’s Operating Grant. Further, based on the evidence we gathered
            during the audit we question whether the Commonwealth actually completes
            closeout reviews. For example, the division chief stated the Commonwealth
            auditors recently asked the Commonwealth to provide support of audit closeouts,
            but the Commonwealth was not able to find or provide them with audit closeouts
            for the community housing development organization operating grants.

Comment 2   Based upon our review, we identified $60,113 in ineligible expenditures. If
            Lebanon County provided additional documentation to justify eliminating some
            of these expenditures, HUD program staff can verify this in the audit resolution
            process.

Comment 3   Initially the Commonwealth took some actions to certify that Mid-Atlantic was
            organized properly. However, as the audit showed there were several events in
            their dealings with Mid-Atlantic which should have led them to question Mid-
            Atlantic’s organizational structure. For example, Mid-Atlantic’s original
            executive director was asked by the Commonwealth to certify independence
            between his for-profit company and Mid-Atlantic. In response to that request, the
            executive director resigned from Mid-Atlantic, but continued to represent Mid-
            Atlantic in the majority of Mid-Atlantic’s dealings with the Commonwealth.

Comment 4   We agree the regulations pertaining to the annual review requirements are limited
            to contractors and sub-recipients and adjusted the report accordingly. Although
            the HOME regulations do not require annual monitoring of State Recipients, Code
            of Federal Regulations, title 24, parts 92.201 (b)(2)(i) and (ii) provide the
            Commonwealth must conduct such reviews and audit of its State Recipients as
            may be necessary to determine whether the State Recipient has met the
            requirements of the HOME and other federal regulations. Based on the results of
            our reviews we believe the Commonwealth’s monitoring is infrequent and the
            Commonwealth’s overall monitoring program is not adequate to ensure the State
            Recipients are using HOME funds in accordance with HOME and other federal
            regulations.

Comment 5   In addition to reviewing the monitoring checklists, we also reviewed the
            performance review reports provided for Carlisle Borough, Franklin County, and
            Lebanon County. These reports gave no indication the grant managers verified
            the information provided by the localities to the Commonwealth. In addition, the
            performance reports are vague and do not show what documents and/or support
            were reviewed to verify the information provided on the checklists. In fact, the
            Commonwealth had no findings for all three grantees we reviewed.



                                        23
Comment 6   We disagree with the Commonwealth’s assessment that the HOME program is
            adequately monitored and has efficient management oversight. As our audit
            report demonstrates, the Commonwealth conducts infrequent and limited
            monitoring visits of its grantees, has minimal staff, and is not fully using the
            administrative funds available to manage the program. These monitoring
            deficiencies directly contributed to the problems we identified in how several
            grantees used their HOME funds




                                         24