oversight

The City of Malden, Massachusetts, Working to Ensure Appropriate Use of Community Development Block Grant and HOME Investment Partnerships Program Administrative Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-01-23.

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

                   AUDIT REPORT




The City of Malden, Massachusetts, Working to Ensure Appropriate Use
   of Community Development Block Grant and HOME Investment
             Partnerships Program Administrative Funds

                          2006-BO-1003

                         January 23, 2006




                    OFFICE OF AUDIT, REGION 1
                          Boston, Massachusetts
                                                              Issue Date
                                                                       January 23, 2006
                                                              Audit Report Number
                                                                           2006-BO-1003




TO:        Robert Paquin, Director for the Office of Community Planning and
             Development, 1AD


FROM:
           John A. Dvorak, Regional Inspector General for Audit, New England, 1AGA

SUBJECT: The City of Malden, Massachusetts, Working to Ensure Appropriate Use of
         Community Development Block Grant and HOME Investment Partnerships
         Program Administrative Funds


                                 HIGHLIGHTS

 What We Audited and Why


            At the request of the Office of Community Planning and Development, we reviewed
            the City of Malden (City) and the Malden Redevelopment Authority (Authority) to
            determine whether Community Development Block Grant (Block Grant) and HOME
            Investment Partnerships Program (HOME Program) administrative funds were used
            in compliance with U.S Department of Housing and Urban Development (HUD)
            requirements.


 What We Found

            We found that the City and the Authority were working to strengthen internal
            controls to ensure compliance with HUD requirements. The City and Authority
            needed to strengthen the controls by ensuring that all job descriptions related
            duties to the Block Grant and HOME programs, and allocations of salaries and
            travel expenditures were proper and adequately supported. While some funds had
           not been used in compliance with HUD requirements, the City and the Authority
           had commenced strengthening the controls, and these changes should ensure
           compliance. Additionally, the City and the Authority repaid $14,766 that had not
           been used in compliance with the Block Grant.


What We Recommend


           We did not identify any conditions that required us to recommend corrective
           action.


Auditee’s Response


           The report did not require a response from the auditee.




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                           TABLE OF CONTENTS


Background and Objectives                                                             4

Results of Audit
Finding 1: The City and the Authority are Strengthening Internal Controls to Ensure   5
All Block Grant and HOME Funds are Used Appropriately

Scope and Methodology                                                                 8

Internal Controls                                                                     9




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                      BACKGROUND AND OBJECTIVES

The Office of Community Planning and Development requested a review of the City of Malden
(City). Based on the request and discussions with the Office of Community Planning and
Development, we initiated a review of administrative funds and expenditures for the City’s
Community Development Block Grant (Block Grant) and HOME Investment Partnerships Program
(HOME program). The City selected the Malden Redevelopment Authority (Authority), a quasi-
public corporation, to carry out the Block Grant and HOME program functions.

The U.S. Department of Housing and Urban Development (HUD) provided $3,733,000 to the City
for the Block Grant, of which the City spent $688,699 on administration of the Block Grant. The
City is the lead entity for the North Suburban Consortium, a participating jurisdiction for the HOME
Program, which includes the contiguous communities of Arlington, Revere, Chelsea, Everett,
Malden, and Medford. HUD provided $5,964,997to the North Suburban Consortium for the
HOME Investment Partnerships Program.

The Office of Community Planning and Development conducted a comprehensive monitoring
review of Block Grant and HOME Investment Partnerships Program funding in August and
November 2004. The monitoring report identified a number of findings and concerns. Four of
these findings were related to the City’s and Authority’s internal controls and record keeping
associated with administrative expenditures. The Office of Community Planning and
Development also concluded that the Authority allowed its board members to travel using Block
Grant funds, which it questioned as ineligible. In addition, the Office of Community Planning
and Development identified that the Authority funded retirement benefits. It requested an audit
to determine whether the Authority used HUD funds for eligible administrative expenditures.
The City and the Authority cooperated with our office to provide the necessary documentation.

The objective of our audit was to address concerns about whether Block Grant and HOME
Investment Partnerships Program administrative funds were used in compliance with HUD
requirements. Specifically, we examined job descriptions, salary allocation, and travel
expenditures.




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                                 RESULTS OF AUDIT

Finding 1: The City and the Authority are Strengthening Internal
Controls to Ensure all Block Grant and HOME Funds are Used
Appropriately
The Authority did not always adequately support the administrative costs charged to the Block
Grant and HOME programs, or use the administrative funds in compliance with HUD requirements.
These deficiencies occurred because internal controls relating to travel and salaries did not ensure
costs were always supported or eligible. However, the City and the Authority have been
implementing new controls that should prevent recurrence. Additionally, the City and the Authority
reimbursed the Block Grant $14,766 for the inappropriate non-program expenditures.



 Funds not Always Supported or
 Used in Compliance

               The administrative funds for the Block Grant and HOME program were not
               always supported or used in compliance with HUD requirements. We found that:
               (1) administrative job descriptions did not always support distributions of salary
               costs to the Block Grant and HOME programs; (2) the allocation of salaries was
               not always adequately supported as program expenditures; (3) the retirement
               expenditures charged were appropriate to the Block Grant program and
               adequately supported; and (4) some travel expenditures did not benefit the Block
               Grant program. However, the City and the Authority have commenced
               implementing appropriate corrective actions.

               In our review of administrative job descriptions, we found five job descriptions
               where the duties did not support the distribution of administrative salaries to the
               Block Grant and HOME programs. For instance, the rehab specialist’s job
               description listed duties that were primarily performed for the Lead Paint
               program, but a majority of the salaries were allocated to the Block Grant
               programs. Between June 1, 2005 and August 15, 2005, the City and the Authority
               redrafted the job descriptions to ensure that the descriptions demonstrate the
               relationship between duties and the program(s) funding the position. The
               Authority had not completed its revisions as of our review and was continuing to
               work with HUD in defining duties.

               The review of allocated salaries identified five positions (four were different from
               the job descriptions above) where the associated timesheets did not adequately
               support the distribution of salaries. However, to strengthen controls management
               reviewed timesheet preparation with their employees to stress the importance of
               properly documenting the hours worked on each program. Also, a supervisor now


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             reviews the allocation of hours on all timesheets to ensure proper and uniform
             allocations. In addition, the City and the Authority modified their allocation of
             salaries by changing from an annual reconciliation to a quarterly reconciliation
             process. The review also showed that the Authority was capable of providing the
             information needed to perform quarterly reconciliations using actual payroll costs.

             For the review of retirement expenditures, we selected $48,032 in expenditures;
             which was all retirement expenditures charged to the Block Grant in 2004. We
             found that these expenditures were eligible and supported.

             In the review of travel, we selected $26,165 in travel expenditures. Of these
             charges, $14,766 were not appropriate Block Grant expenditures or were not
             adequately supported. The inappropriate expenditures occurred because
             employees and board members used credit cards to pay for meals and spouses’
             travel expenses that were not supportable as Block Grant expenses. On August
             11, 2005, the City and the Authority instituted a new travel policy to ensure that
             all travel expenses were appropriate charges to the program(s) funding the travel.
             This policy sets out the purposes, goals, procedures, and documentation for
             official program business travel. The Authority also destroyed all credit cards to
             prevent recurrence of inappropriate expenses. If any staff or board members
             travel on business, they must use personal credit cards and be reimbursed for the
             travel. Upon completion of the travel, travelers must submit an itemized
             summary with receipts showing dates and amounts of the expenses. Additionally,
             the Authority reimbursed the Block Grant $14,766 for the ineligible expenses.

             The deficiencies occurred because the City and the Authority had insufficient
             controls in place to assure program compliance. The HUD Office of Community
             Planning and Development identified similar deficiencies in their 2004
             monitoring report. The City and the Authority have been working with the Office
             of Community Planning and Development to strengthen controls. The
             Authority’s improvements to its financial management and record-keeping
             procedures should assure charges to federal grants are eligible and supported.
             With proper implementation of these changes, internal controls should be
             strengthened.


Conclusion

             The review found that the Block Grant and HOME program administrative funds
             were not always supported or used in compliance with HUD requirements, however;
             the improvements, implemented and planned, should prevent recurrence. The City
             and the Authority need to continue implementing the corrective actions underway
             and working cooperatively with HUD to address the deficiencies.




                                              6
Recommendations

          Based on the conditions found and the improvements underway, we do not have any
          recommendations.




                                         7
                         SCOPE AND METHODOLOGY

To accomplish our objective, we

•      Reviewed Block Grant regulations at 24 CFR [Code of Federal Regulations] Part 570,
       HOME Investment Partnerships Program regulations at 24 CFR Part 92, and Office of
       Management and Budget Circular A-87, “Cost Principles for State and Local
       Governments,” to determine eligibility for administrative costs.

•      Reviewed the independent public accountants’ audited financial statements for the Authority
       and the North Suburban Consortium for July 1, 2002, to June 30, 2004, to determine
       whether issues existed regarding the Authority’s operations and administrative expenditures.

•      Reviewed the Office of Community Planning and Development’s monitoring report to
       determine the deficiencies related to the Block Grant and HOME Investment Partnerships
       program administrative funds and expenditures.

•      Interviewed Authority staff to determine its procedures for financial management and record
       keeping and the actions taken to resolve the deficiencies identified by the Office of
       Community Planning and Development.

•      Reconciled Block Grant salaries to the general ledgers and the audited financial statements
       for July 1, 2002, through June 30, 2004, to determine whether any year-end adjustments
       existed.

•      Reconciled Block Grant retirement and group health insurance to the comptroller’s quarterly
       payments, the general ledgers, and the audited financial statements for July 1, 2002, through
       June 30, 2004, to determine whether these expenses were eligible and supported.

•      Reviewed job descriptions and timesheets for all staff employed between October 1, 2004,
       and December 30, 2004. Evaluated the Authority’s actual to budgeted costs, its wage
       distribution, the frequency of reconciliations, and the use of other sources of funds for
       administrative costs.

•      Reviewed a non-representative sample of Block Grant vendors in the categories of credit
       cards and conferences to determine the eligibility of the expenditures. The sample included
       $16,556 in credit card expenditures and $9,608 in conference expenditures out of the
       $688,699 in total administrative expenditures. These categories were identified as having
       ineligible expenditures in the monitoring report prepared the Office of Community Planning
       and Development.

We performed our fieldwork between August and November 2005, covering the period
July 1, 2002, through June 30, 2005, and included other periods when appropriate. We
conducted our audit in accordance with generally accepted government auditing standards.



                                                 8
                              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:

              •       Financial management
              •       Record keeping

              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


              We found no significant weaknesses within the scope of our review of
              administrative costs related to travel, salary, retirement, and health benefits.




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