oversight

The City of Fort Worth, Texas, Has Made Significant Improvements in Procedures for Drawing Down Community Development Block Grant Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-08-16.

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

                                                             Issue Date
                                                                      August 16, 2006
                                                             Audit Report Number
                                                                      2006-FW-1014




TO:        Katie S. Worsham
           Director, Office of Community Planning and Development, 6AD



FROM:      Frank E. Baca
           Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The City of Fort Worth, Texas, Has Made Significant Improvements in
         Procedures for Drawing Down Community Development Block Grant Funds


                                 HIGHLIGHTS

 What We Audited and Why

            Based on a request from the Fort Worth U. S. Department of Housing and Urban
            Development (HUD) Office of Community Planning and Development, we
            performed a survey of the City of Fort Worth’s (City) Community Development
            Block Grant (Block Grant) program. In 2003, HUD performed a financial
            monitoring review of the City’s Block Grant program and found material
            weaknesses in the City’s administration of this program.

            Based on HUD’s request and monitoring review findings, we focused our review
            on funding drawdowns made by the City from January 1 through December 31,
            2005. Our objective was to determine whether the City was including only
            eligible and supported costs in its drawdowns. We also wanted to determine
            whether the City had implemented sufficient internal controls over the draw
            process.
What We Found


           The City has made significant improvements in drawing down grant funds since
           HUD’s monitoring report of 2003, and has reorganized and implemented new
           procedures to address its lack of controls over its draw process. The City is now
           substantially following HUD requirements in drawing down funds for its Block
           Grant program.

What We Recommend


           Because the City is substantially complying with HUD requirements, we did not
           recommend corrective action.

Auditee’s Response


           We provided a draft report to the City on June 30, 2006, and had an exit
           conference and received the City’s comments on the draft on July 19, 2006. The
           City generally agreed that it has made significant improvements in procedures to
           draw down CDBG funds since the HUD monitoring review of 2003 The
           complete text of the auditee’s response, along with our evaluation of that
           response, can be found in the appendix to this report.




                                            2
                          TABLE OF CONTENTS

Background and Objectives                      4

Results of Audit                               4

Scope and Methodology                          5

Internal Controls                              7

Follow Up on Prior Audits                      8

Appendix
   Auditee Comments and OIG’s Evaluation       9




                                           3
                      BACKGROUND AND OBJECTIVES


According to the City of Fort Worth’s (City) 2006 comprehensive plan, Fort Worth is the
nation’s 19th largest city. The population of Fort Worth as of January 1, 2005, is estimated to be
618,000. The City has a city manager form of government.

Each year the U. S. Department of Housing and Urban Development (HUD) provides the City
with a Community Development Block Grant (Block Grant). The amount of the grant varies and
is determined on a formula basis. In 2005, the City received $7.5 million in Block Grant
funding.

The Block Grant program provides annual grants to develop viable urban communities by
providing decent housing and a suitable living environment and by expanding economic
opportunities, principally for low- and moderate-income persons.

Through monitoring reviews, HUD determines whether the Block Grant funds are being used as
required. In 2003, HUD performed a financial monitoring review of the City’s Block Grant
program to ensure that it was being administered in accordance with HUD guidelines. The
review disclosed material weaknesses in the City’s administration of its program.

Based on the 2003 financial monitoring review and a request from HUD, we performed a survey
of the City’s Block Grant program. Our objective was to determine whether the City was
following HUD requirements in administering its Block Grant program. We wanted to
determine whether the City was including only eligible and supported costs in grant drawdowns.
We also wanted to determine whether the City had implemented sufficient controls over the draw
process.


                                 RESULTS OF AUDIT


Although some material HUD monitoring findings are still outstanding (see FOLLOW UP ON
PRIOR AUDIT FINDINGS section of this report) the City has made significant improvements in
drawing down grant funds. The City revised its procedures and reorganized its Block Grant
management. Due to improved drawdown procedures, grant fund drawdowns can now generally
be tied to Block Grant activity expenditures documented by invoices. During our review of a
sample taken from 2005 drawdowns, we determined that only an insignificant amount of grant
funds was erroneously drawn down.




                                                4
                          SCOPE AND METHODOLOGY

To determine whether the City was including only eligible and supported costs in grant
drawdowns and that there were sufficient controls over the draw process, we selected a sample of
grant drawdowns for review. We took our survey sample from the draws made by the City from
January 1 through December 31, 2005. We selected our sample based on high dollar amounts,
which represented high risk. During 2005, the City had more than $14 million in draws. We
selected our survey sample from the activities in HUD’s Integrated Disbursement and
Information System with draw amounts over $200,000. There were 19 activities with draws over
$200,000. The total amount drawn for these 19 activities was $8,897,122 during 2005. We
initially selected four activities, considered high-risk activities, with draws totaling $1,433,476 to
determine whether the City included only eligible and supported costs. Out of the $1,433,476,
we selected a sample of draws totaling $1,321,461 for detailed review. We also selected two
separate activities recommended by HUD to determine whether those activities met HUD’s
Block Grant national objectives.

To determine whether the draws included only eligible and supported expenditures, we

   •   Reviewed invoices for expenditures included in draws to determine whether they were
       eligible and supported;

   •   Reviewed program requirements to determine whether the City was administering its
       program in accordance with City and HUD requirements;

   •   Interviewed City personnel to obtain background information and determine how
       activities were initiated and processed;

   •   Interviewed program participants to determine assistance received from the Block Grant
       program;

   •   Reviewed subgrantee records to determine whether expenditures were eligible and
       supported;

   •   Interviewed subgrantees to obtain background information on interaction with City
       officials and to determine how the program operated;

   •   Interviewed contractors to determine repairs made to participants’ homes;

   •   Visited homes of participants to view repairs made using Block Grant funds;

   •   Interviewed HUD personnel to obtain background information on the City’s program and
       obtain past monitoring reviews; and

   •   Reviewed HUD files pertaining to the City’s Block Grant program.


                                                  5
In addition, we performed steps to ensure that the City has improved its procedures for its Block
Grant program. To accomplish this, we

   •   Reviewed HUD monitoring reports to determine past weaknesses in the City’s program;

   •   Reviewed current processes implemented by the City for its Block Grant draws; and

   •   Interviewed City personnel to determine changes made to its procedures.

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




                                                6
                              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:

           •   Determining whether expenditures were eligible and supported and
           •   Maintaining documentation on expenditures.

           We assessed 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. We noted no significant weaknesses in the
           City's current internal controls.




                                                 7
                   FOLLOW UP ON PRIOR AUDITS


The City Needs to Address
Prior HUD Monitoring
Findings


           HUD’s 2003 financial monitoring review disclosed seven material weaknesses in
           the City’s administration of its Block Grant program. The City has provided
           documentation for HUD to close all but three of the findings of its 2003 financial
           monitoring review. As of June 13, 2006, the following HUD monitoring findings
           remain open:

           Finding 1. A reconciliation of program drawdowns to the City’s general ledger
           revealed overpayments to the City of HUD funds in the amount of $1.36 million.
           In addition, the City drew down $1 million in grant funds that were not identified
           or reconciled with a Block Grant activity number. The City will need to repay its
           Block Grant program from nonfederal funds or provide HUD adequate
           documentation to support the eligibility of the expenditures.

           Finding 2. The City’s single audit for fiscal year 2001 reported that the auditor
           was unable to reconcile all amounts to the City’s accounting records, and the
           disbursement amount reported in two reports could not be reconciled to the
           expenditures in the general ledger. The City also failed to accurately report its
           program income on its federal cash transaction reports. The City must provide
           acceptable federal cash transaction reports and corrected financial summary
           reports for 1999 through 2004.

           Finding 7. The City has three subrecipients that operate six revolving loan funds.
           For each of the three funds, the City did not compute or report the program
           income correctly. The City’s computation often included the bank interest earned
           on the funds and escrow payments. The City submitted additional documentation
           to HUD to close this finding, and it is under HUD review.

           HUD will need to work with the City to ensure adequate corrective action on each
           of the outstanding findings.




                                            8
Appendix A


        AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                          9
                        OIG Evaluation of Auditee Comments

Comment 1   The City agrees it has made significant improvements in drawing down funds
            since the HUD monitoring review in 2003.

Comment 2   Based on the City’s comments and additional information provided, we revised
            our report. We confirmed that HUD has not yet closed monitoring finding 7.




                                           10