oversight

Fontana Native American Indian Center, Fontana, California, Did Not Adequately Administer Its Supportive Housing Program Grant

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-03-03.

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

                                                                Issue Date
                                                                       March 3, 2006
                                                                Audit Report Number
                                                                       2006-LA-1009




TO:         William Vasquez, Director, Los Angeles Office of Community Planning and
            Development, 9DD




FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: Fontana Native American Indian Center, Fontana, California, Did Not
           Adequately Administer Its Supportive Housing Program Grant


                                   HIGHLIGHTS

 What We Audited and Why


             We audited the Fontana Native American Indian Center (Center) in response to a
             request from the U.S. Department of Housing and Urban Development’s (HUD)
             Los Angeles Office of Community Planning and Development.

             Our audit objectives were to determine whether the Center administered its
             Supportive Housing Program grant in accordance with HUD requirements and its
             grant agreement. More specifically, our objectives were to determine whether (1)
             grant expenditures were eligible and supported with adequate documentation and
             (2) the Center had implemented adequate financial management and record-
             keeping systems.

 What We Found


             The Center did not adequately administer its Supportive Housing Program grant.
             It spent $194,541 in grant funds for ineligible ($138,503), unsupported ($55,776),
             and unnecessary ($262) expenses. It also failed to develop adequate financial
             management and record-keeping systems.
What We Recommend


           We recommend that HUD require the Center to reimburse the grant and/or repay
           HUD from nonfederal funds for the $138,503 in expenses related to ineligible
           clients as well as the $55,776 in unsupported expenses and $262 for unnecessary
           expenses, unless it can provide adequate supporting documentation.

           We also recommend that HUD require the Center to establish and implement a
           financial management system that meets federal requirements and an adequate
           record-keeping system. In addition, we recommend that HUD not award the
           Center additional funding until it has implemented adequate systems and controls.

           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 the Center a draft report on February 10, 2006. The Center declined
           an exit conference and provided written comments on February 24, 2006. It
           generally disagreed with our report.

           The complete text of the auditee’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 Center Spent $194,541 in Supportive Housing Program Funds for 5
        Ineligible, Unsupported, and Unnecessary Expenses
        Finding 2: The Center Did Not Implement Adequate Financial Management and 12
        Record-Keeping Systems

Scope and Methodology                                                              16

Internal Controls                                                                  17

Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use             19
   B.   Auditee Comments and OIG’s Evaluation                                      20
   C.   Criteria                                                                   32
   D.   Schedule of Ineligible Clients                                             33
   E.   Schedule of Expenses Related to Ineligible Clients                         34




                                              3
                      BACKGROUND AND OBJECTIVES

The Supportive Housing Program is authorized under Title IV of the McKinney-Vento Homeless
Assistance Act. Supportive Housing Program grants are awarded on a competitive basis to develop
supportive housing and services to enable homeless persons to live as independently as possible.
Eligible activities include transitional housing, permanent housing for homeless persons with
disabilities, innovative housing that meets the intermediate and long-term needs of homeless
persons, and supportive services provided to homeless persons not in conjunction with supportive
housing.

The Fontana Native American Indian Center (Center), located at 9232 Sierra Avenue, Fontana,
California, incorporated in 1987 as a nonprofit organization. It was awarded a grant
(CA16B809010) for $841,837 as part of the 1998 Supportive Housing Program grant awards and
executed the grant agreement in January 2000. According to its application, the Center operated as
a transitional housing facility that also provided supportive services to homeless individuals. Its
purpose is to serve people from their transitional housing and supportive services to permanent
housing and employment within twenty-four months. Overall, $840,969 of the $841,837 was spent.
As of this report, the $868 balance remains, and the grant is pending closure by the Los Angeles
Office of Community Planning and Development.

A second grant (CA16B309010) for $249,286 was conditionally awarded to the Center by the Los
Angeles Office of Community Planning and Development under the fiscal year 2003 Supportive
Housing Program grant awards. After reviewing the Center’s application, the Los Angeles
Office of Community Planning and Development requested the Center to submit a technical
submission and address various conditions it identified. As of September 2005, the Center had
not submitted an acceptable technical submission, and the funds were deobligated at the end of
fiscal year 2005. Currently, the Center is operating at minimal existence due to a lack of
funding; however, it has applied for other non-U.S. Department of Housing and Urban
Development (HUD) grants to resume normal operations.

Our audit objectives were to determine whether the Center administered its Supportive Housing
Program grant in accordance with HUD requirements and its grant agreement. More
specifically, our objectives were to determine whether (1) grant expenditures were eligible and
supported with adequate documentation and (2) the Center had implemented adequate financial
management and record-keeping systems.




                                                 4
                                RESULTS OF AUDIT

Finding 1: The Center Spent $194,541 in Supportive Housing Program
Funds for Ineligible, Unsupported, and Unnecessary Expenses
The Center spent $194,541 of the total ($840,969) grant funds expended for ineligible
($138,503), unsupported ($55,776), and unnecessary ($262) expenses. We attribute the
deficiencies to the Center’s insufficient emphasis on ensuring it was adequately knowledgeable
of and met Supportive Housing Program requirements and responsibilities and followed
McKinney-Vento Act provisions. In addition, as discussed in finding 2, the Center did not
ensure that it had adequate financial management and record-keeping systems in place, which
contributed to the deficiencies. These improper expenditures prevented the Center from fully
meeting HUD’s goals of providing housing and supportive services to eligible clients.



 The Center Paid $138,503 in
 Ineligible Expenses


              Ineligible Payroll

              We reviewed the Center’s payroll expenses totaling $328,478 for 14 employees
              and contractors and determined that $68,038 was ineligible. The ineligible
              payroll expenses related to five employees, whose duties were neither included in
              the technical submission approved by HUD nor related to Supportive Housing
              Program activities. Based on grantee records and information, the five employees
              and their related duties and salary expenses were as follows:




                                               5
                     Employee                                  Duties                                    Salary
                      Cultural       Collaborated with other youth programs, taught                       $37,237
                      director       health and craft classes, conducted cultural
                                     presentations, and recruited for Western University.
                                     None of these duties specifically related to the
                                     Supportive Housing Program activities.
                       General       Conducted research on client tribal affiliations,                     $2,000
                       worker1       composed correspondence to seek additional funding
                                     for parolees, collected powwow funds, and sought
                                     powwow information. None of these duties
                                     specifically related to the Supportive Housing
                                     Program activities.
                       Office        Assisted the special projects director with the clients             $24,345
                      assistant      on probation, ensured they were not violating their
                                     probation, and responded to letters from incarcerated
                                     clients. None of these were specifically related to the
                                     Supportive Housing Program activities.
                        Intern       Counseled the participants of the Center’s youth                        $704
                                     group (There is no evidence that 100 percent of the
                                     children counseled belonged to parents who were
                                     eligible clients of the Center’s grant.)
                        Intern       Care for children at the youth center (There is no                    $3,752
                                     evidence that 100 percent of the children counseled
                                     belonged to parents who were eligible clients of the
                                     Center’s grant.)
                        Total                                                                            $68,038




1
 There was not a specific title assigned to this employee; however, he performed various general and administrative
duties.

                                                         6
                  As discussed and shown above, the five employees were not included in the
                  technical submission approved by HUD.2 In addition, the Center did not have
                  personnel activities reports as required by Office of Management and Budget
                  Circular A-122 (see appendix C) to detail how their time was spent. More
                  importantly, the employees did not have Supportive Housing Program-related
                  duties. For example, we found instances in which employees were paid to
                  respond to letters from incarcerated clients (not eligible for assistance under the
                  McKinney Act; see appendix C). Also, employees were ensuring that clients
                  were not violating probation, seeking additional funding for parolees, seeking
                  information for powwows, conducting research on client tribal affiliations, and
                  working with children of a youth group in which the children could not be linked
                  to eligible clients. Thus, the duties performed by these employees were not
                  related to carrying out the grant program, and their salaries were not eligible
                  expenses.

                  Ineligible Clients

                  The Center spent $67,667 for housing and supportive services related to 21 clients
                  who did not meet HUD’s definition of homelessness in 24 CFR [Code of Federal
                  Regulations] 583 (see appendix C). We selected 82 client files and determined
                  that 21 (26 percent) of these clients were ineligible (see appendix D) to receive
                  assistance through the Supportive Housing Program grant. As detailed in
                  appendix D, our review of the client files showed that the clients were ineligible
                  because they had been living with friends or relatives immediately before
                  receiving assistance for periods ranging from two days to four years. On
                  average,3 clients lived with friends or relatives for 61 days before being approved
                  for assistance by the Center. The $67,667 was spent on housing and supportive
                  services as shown in the table below and shown in more detail in appendix E.




2
  This is a violation of the grant agreement, which states “no change may be made to the project nor any right,
benefit, or advantage of the recipient hereunder be assigned without prior written approval of HUD.”
3
  After excluding the minimum and maximum days.

                                                          7
                                                                         Supportive
                         Client                 Housing                   services                    Total
                           1                           $ 606                            $0                   $ 606
                           2                         $ 6,755                            $0                 $ 6,755
                           3                         $ 8,300                         $ 640                 $ 8,940
                           4                           $ 500                            $0                   $ 500
                           5                              $0                         $ 100                   $ 100
                           6                         $ 3,600                       $ 1,395                 $ 4,995
                           7                        $ 20,049                         $ 607                $ 20,656
                           8                         $ 4,425                            $0                 $ 4,425
                           9                         $ 1,950                            $0                 $ 1,950
                          10                           $ 550                            $0                   $ 550
                          11                              $0                         $ 200                   $ 200
                          12                           $ 875                            $0                   $ 875
                          13                         $ 2,250                         $ 200                 $ 2,450
                          14                         $ 1,000                       $ 1,014                 $ 2,014
                          15                         $ 5,744                            $0                 $ 5,744
                          16                         $ 1,657                         $ 350                 $ 2,007
                          17                         $ 1,050                            $0                 $ 1,050
                          184                        $ 2,125                         $ 490                 $ 2,615
                          20                           $ 450                            $0                   $ 450
                          21                           $ 785                            $0                   $ 785
                         Total                      $ 62,671                       $ 4,996                $ 67,667

                  Center officials were apparently aware of the requirements but chose to disregard
                  them. In its technical submission, the Center detailed the eligibility requirements as
                  part of a pamphlet on its transitional housing and job training program, which
                  mirrored the requirements contained in 24 CFR [Code of Federal Regulations] 583.
                  Additionally, the executive director told us that the Center “helped a lot of people
                  that were not in the HUD program by giving them food, and sometimes the special
                  projects director gave them cash out of his pocket.”

                  During a March 2001 monitoring review by the Los Angeles Office of Community
                  Planning and Development, one item of concern was noted with regard to
                  documenting the homeless status of clients housed and served. The Center was
                  notified that written verification, required as part of the homeless documentation
                  process, was not evident in the files maintained by the Center. The Center
                  responded in June 2001 and stated “documentation from each homeless candidate is
                  being required and is in their files as much as possible.” Additionally, the Center
                  stated it had been careful to follow HUD documentation requirements since the
                  monitoring visit. However, we found instances in 2002 and 2003 in which the
                  Center did not obtain sufficient documentation to establish eligibility.

4
 Client 19 was ineligible for assistance but is not listed in the table because no Supportive Housing Program funds
were spent on this client.

                                                         8
            Other Ineligible Expenses

            We also found that the Center spent $2,798 on other unallowable and ineligible
            expenses. Several of these expenses were for the personal use of the employee(s) or
            were unallowable based on Office of Management and Budget Circular A-122 (see
            appendix C). Below is a table showing the ineligible expenses.

                                    Description                              Amount
             Personal use expenses – car repair costs for a vehicle             $ 181
             used by Center officials for transportation to/from home
             and the Center
             Other grant – express mail package sent to Employment                    18
             Development Department for a General Services
             Administration grant writing inquiry
             Film development – for unknown purposes                                  21
             Sit-down restaurant meals - not relating to Center                       24
             business
             Employee loan(s) – no documentation showing loan was                  1,929
             repaid and also an unallowable expense
             Fundraising – an unallowable expense                                    275
             Not a client – an educational fund paid for an individual               350
             who stayed in a unit with one of the Center’s clients; the
             individual, herself, was not a client.
                                                                  Total          $2,798


The Center Paid $55,776 in
Unsupported Expenses


            Our review also identified $55,776 in unsupported expenses related to clients for
            which the Center could not provide client files to support their eligibility for
            assistance ($21,052) and other expenses ($34,724) for which the Center could not
            provide supporting receipts or other documentation. Details are discussed
            separately below.

            Unsupported Clients and Related Expenses

            As discussed above, we selected 82 client files for review; however, contrary to
            the Office of Management and Budget Circular A-110, the Center was unable to
            locate 36 (44 percent) of the selected client files. As a result, we were unable to
            determine the eligibility of the 36 clients and, therefore, the $21,052 in related
            expenses. Given that 21 (46 percent) of the 46 client files we did review were
            ineligible clients, the same could be true for these 36 clients. Without the client


                                              9
files to determine the eligibility of the clients, we could not determine the
eligibility of the $21,052 in housing and other supportive services as shown
below.

                       Description                             Amount
 First month’s rent and security deposit                        $ 10,905
 Cash payments directly to clients                                 5,297
 Rental assistance                                                 4,263
 Collection fees                                                     450
 Parking ticket                                                      137
                                                     Total      $ 21,052

In a letter to us, the executive director wrote the following explanation: “With the
Office of Inspector General audit we find many files missing. Files that the office
manager was working with are not in our office…Some of the clients with
missing files have somewhat been exonerated with the findings of letters and
other records to prove they were indeed clients. But missing needs assessment
documentation has not been located yet for several clients.”

Other Unsupported Expenses

Our review also disclosed that contrary to Office of Management and Budget
Circular A-110, $34,724 was spent on various expenditures for items for which
the Center could not provide supporting invoices, receipts, or other documentation
to support the eligibility of the items. We also noted that these expenditures were
all paid to four employees, three of whom were related to the Center’s executive
director. The unsupported items were as shown in the table below.

                        Description                                   Amount
Payments to the Center                                                   $ 15,226
Employee                                                                   10,211
Cash payments directly to clients                                           2,505
Cash payments for reimbursements                                            1,997
Cash payments for business insurance                                        1,827
Cash payments for petty cash replenishments                                 1,700
Supplies                                                                      541
Lost checks                                                                   370
Cash payments (repairs, maintenance, and supplies)                            207
Food for clients                                                              122
Kitchen towels, kitty litter, and telephone card                               18
Total                                                                    $ 34,724




                                 10
The Center Paid $262 in
Unnecessary Expenses


              The Center also spent $262 on unnecessary expenses relating to the replacement
              of (1) videos that a client stole from another client ($197), which was not the
              Center’s responsibility to replace, and (2) miscellaneous items, such as cassette
              holders, for a youth group not linked to eligible clients ($65). These items were
              not necessary in carrying out Supportive Housing Program activities and,
              therefore, should not have been paid with grant funds.

 Conclusion


              We attribute the deficiencies to the Center’s insufficient emphasis on ensuring it
              was adequately knowledgeable of and met Supportive Housing Program
              requirements and responsibilities and followed McKinney-Vento Act provisions.
              In addition, as discussed in finding 2, the Center did not ensure it had adequate
              financial management and record-keeping systems in place, which contributed to
              the deficiencies. As a result, the improper expenditures prevented the Center
              from fully meeting HUD’s goals of providing housing and supportive services to
              eligible clients.

   Recommendations


              We recommend that the director of the Los Angeles Office of Community
              Planning and Development require the Center to

              1A.    Reimburse the grant and/or repay HUD from nonfederal funds for the
                     $138,503 in expenses for ineligible clients and other related ineligible
                     expenses.

              1B.    Reimburse the grant and/or repay HUD from nonfederal funds for the
                     $55,776 in unsupported expenses, unless it can provide adequate
                     supporting documentation.

              1C.    Reimburse the grant and/or repay HUD from nonfederal funds for the
                     $262 in unnecessary expenses paid.




                                              11
Finding 2: The Center Did Not Implement Adequate Financial
Management and Record-Keeping Systems
The Center failed to establish an adequate financial management system and implement a record-
keeping system to adequately maintain its grant records. We attribute the deficiencies to the
Center’s employment of personnel who were not knowledgeable of the pertinent requirements
and did not establish and implement the required systems and controls. These conditions
precluded the Center from conducting its Supportive Housing Program grant activities more
efficiently and effectively. In addition, as discussed in finding 1, HUD has no assurance that
Supportive Housing Program funds were used only for authorized and allowable expenses.



 The Center Failed to Establish
 an Adequate Financial
 Management System


              The financial management system is integral to the grantee’s ability to adequately
              administer its grant program. HUD requires grant recipients’ financial
              management systems to provide records that adequately identify the source and
              application of funds for federally sponsored activities. These records should
              contain information pertaining to federal awards, authorizations, obligations,
              unobligated balances, and outlays. Additionally, Office of Management and
              Budget Circular A-110, “Standards for Financial Management Systems,” requires
              the recipients’ financial management systems to provide records that identify
              adequately the source and application of funds for federally sponsored activities.
              Details of the deficiencies we found are discussed below.

              Financial Management System

              While the Center purchased Quickbooks, an accounting software package, for its
              operations, it did not use the software. The Center did not have personnel with
              adequate accounting and financial knowledge to implement and maintain its
              financial records. The executive director, who used the computer where the
              software is installed, lacked the appropriate training and was not familiar with
              Quickbooks. Further, the retired volunteer accountant who once did the
              accounting for the Center left the organization in May 2003, and the office
              manager who took over the accounting responsibilities left the organization soon
              thereafter. Consequently, the Center’s financial management system
              (Quickbooks) did not provide accurate, current, and complete disclosure of the
              financial results of its program. Based on supporting documentation the Center
              provided to us, the last time the accounting information was entered into the
              software was 2001. We obtained printed journal entries and general ledger


                                              12
information printed from the software dating back to October 2, 2001; however,
the entries in these reports ended in June 2001. Although these journals and
ledgers existed, there was no supporting documentation for the entries, which
would allow us to verify the integrity of the information for the first two years of
the grant. Further, upon our review of the software, the cancelled checks did not
match the issued checks as reported by the software. Upon review of the general
ledger as of June 30, 2000, it appeared that the accounts were adequately set up,
but there was a breakdown in the system, and no new information was entered.

In addition, the financial management system did not track the source and
application of funds. The Center received many drawdowns that were deposited
directly into its bank account between February 2000 and January 2004; however,
none of these deposits was entered in Quickbooks. Consequently, there was no
audit trail on how the funds were spent. We reviewed more than 1,200 checks
written for grant expenditures between January 2000 and November 2004, yet the
software did not show any of these transactions.

The Center’s financial management system did not identify required cash-
matching funds. The Center had two bank accounts in which deposits and
withdrawals took place. There was, however, no method of showing which
deposits were for matching funds or for other, unrelated program activities.
Consequently, we were required to manually trace the flow of funds to determine
whether the Center complied with grant-matching requirements.

The Center’s financial management system also did not compare outlays with
budgets. The Center received $840,969 from its $841,837 grant. The Center’s
system did not show how much was in the grant budget or how the budgeted
funds had been spent to enable the Center to determine the remaining balances
throughout the duration of the grant.

We also noted that the Center had no written procedures for its accounting system
and no accountant or other specific person to maintain the system. Consequently,
to accomplish our audit, we had to review every check that we could locate (more
than 1,200 checks) and create our own spreadsheet to analyze and evaluate the
grant expenditures. Even then, we were unable to completely reconcile the
revenues and expenses of the Center.

In addition, we noted that the Center’s lack of accounting procedures
compounded its problem relating to internal controls. For example, payroll
advances were given to employees, but there was no tracking system in place to
ensure advances were repaid. Other internal control issues stemmed from the lack
of segregation of duties. For example, one employee who received
reimbursements was the same person who signed the checks, including
reimbursements to himself.




                                 13
Other examples are the lack of approval of timesheets for all employees and no
separation between the various activities performed by employees or the funding
source. Each of the above examples supports the inadequacy of the Center’s
financial management system and internal controls.

These deficiencies clearly demonstrate that the Center had an inadequate system
in place and should not be provided more funding from HUD until it can establish
and implement systems and controls that meet federal requirements.

Record Keeping

Our audit also disclosed that the Center did not implement a system to adequately
maintain its grant records. It did not have an organized and systematic means of
filing and retaining its various operating records. Consequently, during the audit,
the Center experienced severe difficulty in locating records and documents
required for performing the audit. The Center’s client files were filed in one
drawer by year and in alphabetical order. The vendor files, however, were filed
away in multiple drawers in no particular order. For example, in some instances,
receipts were kept in files labeled by the vendor’s name or the type of service,
such as AT&T, office maintenance, and petty cash. In other instances, the vendor
receipts were located in the file of the client who received the service. Most
critical, however, was the accounting information, which was spread throughout
the office. Without the guidance and memory of the executive director, it was
difficult to review the performance of the grant.

We also noted that a monitoring review in March 2001 by the Los Angeles Office
of Community Planning and Development had one finding, stating that the Center
“needed to better organize its financial records to comply with the standards for
financial management systems required at 24 CFR [Code of Federal Regulations]
85.20.” The recommendation for this finding was “expenditure records, to
include back-up documentation, should be filed with each grant drawdown
voucher to permit easier verification of eligible and allowable grant expenditures,
and to measure whether grant funds have been disbursed in a timely manner
pursuant to 24 CFR [Code of Federal Regulations] 85.20(b)(7).” The Center
responded in a letter that stated, “…we have begun compiling receipts with
drawdown vouchers. We are fixing each drawdown voucher with accounting
reports.” However, as experienced during our audit, the Center’s record-keeping
system was still inadequate.




                                14
Conclusion


             We attribute the deficiencies to the Center not ensuring that it employed personnel
             who were adequately knowledgeable of the pertinent Supportive Housing
             Program requirements, as well as accounting and finance requirements, to
             establish and implement the required systems and controls. These conditions
             precluded the Center from conducting its Supportive Housing Program grant
             activities more efficiently and effectively. In addition, as discussed in finding 1,
             HUD has no assurance that Supportive Housing Program funds were used only
             for authorized and allowable expenses. Further, since the Center was previously
             advised of these problems, HUD should not award the Center additional funding
             until it implements adequate systems and controls.

Recommendations


             We recommend that the director of the Los Angeles Office of Community
             Planning and Development

             2A.    Require the Center to establish and implement a financial management
                    system and an adequate record-keeping system that meet federal
                    requirements.

             2B.    Not award the Center additional funding until it has implemented an
                    adequate financial management system and adequate internal controls.




                                              15
                               SCOPE AND METHODOLOGY

We performed the audit between July 2005 and January 2006. The audit generally covered the
period from January 20005 through June 2004. We expanded the scope as necessary. We reviewed
applicable guidance and discussed operations with management and staff personnel at the Center
and key officials from HUD’s Los Angeles Office of Community Planning and Development.
Our primary methodologies included

       •   Reviewing applicable HUD regulations at 24 CFR [Code of Federal Regulations] Part
           583, Office of Management and Budget Circulars A-110 and A-122, as well as the Super
           Notice of Funding Availability, dated April 30, 1998, part V.

       •   Interviewing appropriate HUD personnel and relevant grant files to obtain an
           understanding of Supportive Housing Program requirements and identify HUD’s
           concerns with the grantee’s operations.

       •   Reviewing the grantee’s policies, procedures, and practices and interviewing key Center
           personnel.

       •   Reviewing past independent public accountants’ reports and prior HUD monitoring
           results.

       •   Reviewing available cancelled checks for the $840,969 in grant funds expended. After
           our initial review, we nonstatistically selected expense items of $100 or more for a
           detailed review.

       •   Reviewing client files, vendor files, and all other documentation provided by the Center to
           support its payments to vendors, clients, and employees from the funds drawn down from
           HUD. Documentation reviewed included available contracts, accounting records, cancelled
           checks, bank statements, payrolls, and timesheets.

We conducted our audit in accordance with generally accepted government auditing standards and
included tests of management controls that we considered necessary under the circumstances.




5
    The grant was awarded in 1998; however, funding was not received until January 2000.

                                                         16
                             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

                  •   Policies and procedures to ensure grant expenditures were eligible and
                      adequately supported.
                  •   Policies and procedures to ensure an adequate financial management and
                      record-keeping systems.

              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:

              The Center did not have

                  •   Policies and procedures in place to ensure grant expenditures were eligible
                      and adequately supported (finding 1) and

                  •   Policies and procedures to ensure adequate financial management and
                      record-keeping systems were in place (finding 2).


                                               17
                                   APPENDIXES

Appendix A

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

       Recommendation             Ineligible 1/   Unsupported      Unnecessary or
           number                                          2/      unreasonable 3/
              1A                    $138,503
              1B                                       $55,776
              1C                                                             $262


             Total                  $138,503           $55,776               $262


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
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

3/   Unnecessary/Unreasonable costs are those costs not generally recognized as ordinary,
     prudent, relevant, and/or necessary within established practices. Unreasonable costs
     exceed the costs that would be incurred by a prudent person in conducting a competitive
     business.




                                             18
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                 Auditee Comments




Comment 1




Comment 2

Comment 3

Comment 4




                        Names have been redacted for privacy



                                        19
Comment 5




Comment 6



Comment 7


Comment 8



Comment 9




Comment 10



Comment 11




             20
Comment 12


Comment 13




Comment 14




Comment 15




Comment 16




             21
Comment 17




             22
Comment 18




             23
Comment 19
Comment 20
Comment 21
Comment 22
Comment 23
Comment 24
Comment 25
Comment 26
Comment 27
Comment 28




             24
Comment 29



Comment 30




             25
26
                         OIG Evaluation of Auditee Comments

Comment 1   The letters submitted to the OIG from the Center were turned in and were taken
            into consideration. For example, on page 10 the audit report contains a quote
            from one of the letters.

Comment 2   OIG has the authority to audit any HUD-funded program activity and does not
            need a specific justification for its selection. Nevertheless, as mentioned in the
            report the OIG did receive a request from the Los Angeles Office of Community
            Planning and Development to conduct this audit. However, it was based on
            concerns relating to the Center’s capacity to administer the grant program.

Comment 3   Comments made regarding a specific HUD employee does not fall within the
            scope of our audit; thus we have no comment.

Comment 4   The cultural director was not listed on the approved technical submission.
            Additionally, all supportive services are supposed to be for homeless individuals
            and families. By the Center’s own admission, this employee collaborated with
            other youth groups that involved children who were not homeless. Further, a
            document from this employee specifically states, “I do recruiting for Western
            University”. This document was in the employees file and is titled “My job at
            Fontana Native American Indian Center”. Furthermore, the executive director
            told the OIG “[this employee] gave classes on nutrition, diabetes, anger
            management, parenting, and some counseling,” all of which were part of the
            Center’s California Wellness grant which covers mental and physical health
            issues and was a “supplement to what was done with HUD monies”.

Comment 5   By the Center’s own admission “general worker duties were ALL related to
            helping clients become stabilized, especially those who had been recently
            incarcerated”. The McKinney Act does not include any individuals imprisoned or
            otherwise detained under an act of Congress or a state law. Thus, the salary
            expenses for this position were not eligible Supportive Housing Program
            expenses.

Comment 6   The McKinney Act does not include any individual imprisoned or otherwise
            detained under an act of Congress or a state law. Furthermore, without any
            personnel activity reports, as required by Office of Management and Budget, nor
            documentation in the employee’s personnel file, there was no way for us to
            otherwise confirm the other duties claimed. Thus, the salary expenses for this
            position were not eligible Supportive Housing Program expenses.

Comment 7   Sign in sheets were not available or provided to the OIG during the audit.
            Furthermore, with no personnel activity reports, as required by Office of
            Management and Budget, there was no way for us to confirm other duties



                                             27
              claimed by the Center. Thus, the salary expenses were not eligible Supportive
              Housing Program expenses.

Comment 8     OIG did not report that hospitalized persons were ineligible for transitional
              housing. As for the incarcerated, the Center did not present any information to
              the OIG showing where HUD allows for these individuals. Additionally, based
              on the files reviewed, there were no clients that came from hospitals or other
              medical facilities, and only one that came from a drug rehabilitation center.

Comment 9     OIG agrees that some clients did have letters in their files and none of these
              individuals are included as ineligible clients. As for the office manager, this is the
              first time that the OIG was told that she was fired; in a previous letter to the OIG
              from the Center, we were told that she disappeared on May 6, and had never been
              seen again by any of the Center people.

Comment 10 This conflicts with what OIG was told during the audit fieldwork. The executive
           director and her husband told the OIG that this vehicle was used 75 percent of the
           time for business and took it home for safety. This vehicle was not used 100
           percent for business and was used to transport the executive director and her
           husband to and from the Center, even if they were commuting to and from the
           Center for Center related business. Additionally, the Center never kept any
           transportation logs that indicated the uses for this vehicle.

Comment 11 The Center stated in writing “at times loans were made to employees and some
           clients to facilitate their return to employment. Nothing in the 1998 rules said we
           could not do that.” Furthermore, this section of the report is addressing the loans
           made to employees, not to clients.

Comment 12 The Center was unable to locate missing files, possibly due to a former employee.
           However, since we were unable to review the files we cannot confirm that these
           clients were eligible clients, especially since we found more than twenty ineligible
           clients, with the files we were able to review.

Comment 13 The OIG found notes in client files where $5, $10, or $20 was hand written on a
           note and put in the file. This supports that clients were given cash. We are not
           referring to money orders written for rent checks. As for the parking ticket, the
           Center previously told the OIG that this client was driving the Center’s vehicle to
           get back and forth to work.

Comment 14 The OIG did take previous letters written by the Center into consideration. The
           letters did explain the situation regarding the previous office manager and the
           executive director’s account of thirteen clients. Due to the ineligibility of more
           than twenty clients, it is difficult to take the executive director’s word, without
           supporting documentation.




                                               28
Comment 15 We acknowledge the Center’s explanation regarding its financial record keeping.
           Thus, as concluded in the report, “the Center did not have personnel with
           adequate accounting and financial knowledge to implement and maintain its
           financial records.”

Comment 16 This was outside the scope of our audit; thus, we have no comment.

Comment 17 The Center provided explanations for each of the clients, but did not provide any
           new information supporting the eligibility of the clients, which is what we were
           questioning.

Comment 18 The Center explained the reasons for various expenses; however, it did not
           provide any new information or documents supporting the eligibility of the
           expenses.

Comment 19 During the audit fieldwork, the executive director and her husband told us that
           this vehicle was used 75 percent of the time for business; therefore, they cannot
           charge 100 percent of expenses for this vehicle to this grant. Furthermore, the
           Center has no transportation logs that indicate the uses for this vehicle.

Comment 20 The executive director told us during the audit fieldwork that this expense was for
           a grant written to the Employment Development Department, not Supportive
           Housing Program related.

Comment 21 The Center claimed that this expense was for photos taken in some classes that
           were given. However, the Center did not provide any support for this statement,
           nor has the OIG seen any of these pictures. Additionally, previously in comment
           13, the Center stated, “At no time were cash payments given to clients,” while
           here they clearly state that they did. Thus, the Center’s response is conflicting.

Comment 22 The OIG reviewed the supporting Wal-Mart receipt and the $64.94 was not for
           computer and printer cartridges. The receipt clearly shows the following
           purchases: “cass case, hp owl, 100cap spin, Eeyore hyper, Cord pmw/cid, and
           funnoodle.” There were no line items for office computers and printers.

Comment 23 The Supportive Housing Program grant funds were used to pay for Acapulco
           restaurant expenses. The Center did not provide any documentation or
           information supporting that the expense was Supportive Housing Program
           eligible.

Comment 24 There is nothing in the cultural director’s file or the payroll reports that indicates
           that this money was repaid.

Comment 25 The Supportive Housing Program grant funds were used to pay for the fundraising
           expenses and the executive director told the OIG “this is a company that helps

                                                29
               you to raise money.” The Center did not provide any documentation or
               information supporting that the expense was Supportive Housing Program
               eligible.

Comment 26 There is nothing in this employee’s file or the payroll reports that indicates that
           this money was repaid.

Comment 27 The OIG was not questioning how this money was spent. Rather, we were
           questioning the use of Supportive Housing Program funds for a person that was
           never a Center client.

Comment 28 The OIG’s review of the deposits made by the Center did not locate a check
           payable to this student intern and then deposited by the Center to repay the
           amount.

Comment 29 There is nothing in this employee’s file or in payroll reports that indicates that this
           money was repaid.

Comment 30 We questioned these expenses as unsupported because the Center did not provide
           documentation to support the eligibility of the expenses. The Center’s response
           was inadequate to support the eligibility of these items.




                                               30
Appendix C

                                      CRITERIA
A.   McKinney Act, Title I, Section 103, 42 United States Code 11302, states the term
     “homeless” or “homeless individual or homeless person” includes an individual who
     lacks a fixed, regular, and adequate nighttime residence and an individual who has a
     primary nighttime residence that is a public or private place not designed for human
     beings. Further, the McKinney Act states for the purpose of this Act, the term
     “homeless” or “homeless individual” does not include any individual imprisoned or
     otherwise detained under an act of the Congress or a state law.

B.   24 Code of Federal Regulations, Part 583, Subpart A, Section 583.5, states that
     “homeless person” means an individual or family that is described in section 103 of the
     McKinney Act (42 United States Code 11302).

C.   Office of Management and Budget Circular A-110, Subpart C, Section .21,
     Paragraph b, Subparagraph 2, requires the recipients’ financial management systems
     to provide for the following: records that identify adequately the source and application
     of funds for federally sponsored activities. These records shall contain information
     pertaining to federal awards, authorizations, obligations, unobligated balances, assets,
     outlays, income, and interest.

D.   Office of Management and Budget Circular A-110, Subpart C, Section .21,
     Paragraph b, Subparagraph 7, states recipients’ financial management systems shall
     provide the following: accounting records, including cost accounting records, that are
     supported by source documentation.

E.   Office of Management and Budget Circular A-122, 1998, Attachment A, Section A,
     Paragraph 3 – 3.a, states “in determining the reasonableness of a given cost,
     consideration shall be given to whether the cost is of a type generally recognized as
     ordinary and necessary for the operation of the organization or the performance of the
     award.

F.   Office of Management and Budget Circular A-122, 1998, Attachment B, Section 7,
     Subsection m, Paragraph 1, states “the distribution of salaries and wages to awards
     must be supported by personnel activity reports.”

G.   Office of Management and Budget Circular A-122, 1998, Attachment B, Section 18,
     states, “Costs of goods and services for personal use of the organization’s employees are
     unallowable regardless of whether the cost is reported as taxable income to the
     employees.”




                                             31
H.       Appendix D

                      SCHEDULE OF INELIGIBLE CLIENTS
                                                           Reason for Ineligibility
                                    Living           Living      Living                              Number of
                    Client            with            with         At          Other                   days in
                                    friends         relatives    home                                 housing
                                                                                                    arrangement
                       1                X                                                                 14
                       2                X                                                                  7
                       3                X                                                                 30
                       4                X                                                                 60
                       5                X                                                                  2
                       6                                X                                                180
                       7                X                                                             unknown
                       8                X                                                                180
                       96                                                                X                89
                      10                                                 X                              1,460
                      117                                                                X            unknown
                      12                X                                                                14
                      13                X                                                                180
                      14                X                                                                60
                      15                                X                                             unknown
                      16                X                                                             unknown
                      17                X                                                                 7
                      18                X                                                                 4
                      19                                                 X                               60
                      20                X                                                                30
                      21                                                 X                              1,460




6
  Client 9 was sleeping on a couch in a living room for 89 days before seeking assistance. The file did not specify
whose living room or where it was located.
7
  Client 11 was released from a youth authority. The length of time he was incarcerated is unknown.

                                                         32
Appendix E

                       SCHEDULE OF EXPENSES RELATED TO INELIGIBLE CLIENTS
                                                                        Court     License     Auto Transportation Child TV Phone
                   Move-in Temporary
Client    Rent                       Cash      Clothes Education Food   fees        and      repairs bus or gas care rental cards Total
                    fees    housing
                                                                                registration
  1                 $606                                                                                                           $606
  2      $5,855     $900                                                                                                          $6,755
  3      $7,110    $1,190             $640                                                                                        $8,940
  4       $500                                                                                                                     $500
  5                                             $100                                                                               $100
  6      $3,600                                         $107    $251                          $719     $292                  $26 $4,995
  7      $20,049                                                        $454                                      $110 $43       $20,656
  8      $3,930     $495                                                                                                          $4,425
  9                $1,950                                                                                                         $1,950
 10       $350      $200                                                                                                           $550
 11                                             $200                                                                               $200
 12       $875                                                                                                                     $875
 13                $2,250             $200                                                                                        $2,450
 14                $1,000             $705                                          $309                                          $2,014
 15      $5,744                                                                                                                   $5,744
 16       $257               $1,400                                                           $350                                $2,007
 17                $1,050                                                                                                         $1,050
 18      $1,460     $665                                $340                                           $150                       $2,615
 19                                                                                                                                 $0
 20       $450                                                                                                                     $450
 21                 $785                                                                                                           $785
Total    $50,180   $11,091   $1,400   $1,545    $300    $447    $251    $454       $309      $1,069    $442       $110 $43 $26 $67,667




                                                                        33