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
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)