oversight

WomenRising, Inc., HUD/Supportive Housing Program, Jersey City, New Jersey

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-01-31.

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

   AUDIT REPORT




    WOMENRISING, INC.
HUD/Supportive Housing Program
   Jersey City, New Jersey


        2006-NY-1002

        January 31, 2006


    OFFICE OF AUDIT
 New York/New Jersey Region
                                                                Issue Date
                                                                   January 31, 2006
                                                                Audit Report Number
                                                                   2006-NY-1002




TO:        Kathleen Naymola, Director, Community Planning and Development, 2FD



FROM:      Edgar Moore, Regional Inspector General for Audit, 2AGA

SUBJECT: WomenRising, Inc., Jersey City, New Jersey, Did Not Always Comply with
         HUD/Supportive Housing Program Requirements


                                   HIGHLIGHTS

 What We Audited and Why

             We completed a limited review of WomenRising, Inc. (the grantee), located in
             Jersey City, New Jersey. The review was initiated based on a complaint that was
             received from the Government Accountability Office. The complaint generally
             alleged that the grantee was misappropriating funds in regard to reimbursable
             expenses and the payment of salaries under its Project Home, part of the U.S.
             Department of Housing and Urban Development’s (HUD) Supportive Housing
             Program.

             Our review objectives were to determine whether (1) the allegations in the
             complaint were valid, (2) the grantee has adequate controls over disbursements
             and drawdowns, and (3) the grantee’s cost allocation plan was approved by HUD.

 What We Found

             Our review concluded that (1) the allegations in the complaint regarding HUD
             funding were not valid (see appendix B); (2) although the grantee generally had
             adequate controls over disbursements and drawdowns, $94,759 in drawdowns was
          not supported by invoices or evidence that costs were incurred; and (3) the grantee’s
          cost allocation plan had not been approved by HUD.
What We Recommend
             We recommend that the director of HUD’s New Jersey Office of Community
             Planning and Development instruct the grantee to provide documentation for the
             $94,597 in drawdowns or reimburse HUD from nonfederal funds for the
             unsupported costs. We also recommended that the grantee establish controls to
             ensure that all drawdowns are properly supported with documentation to show that
             eligible costs have been incurred, and submit its cost allocation plan to HUD for
             review and approval.

             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 discussed the results of our review during the audit and at an audit exit
             conference held on January 24, 2006. Auditee officials provided their written
             comments on January 25, 2006 and generally agreed with the findings and
             recommendations. The complete text of the auditee’s response, along with our
             evaluation of that response, can be found in appendix C of this report.




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                            TABLE OF CONTENTS

Background and Objectives                                                    4

Results of Audit
     Finding 1: The Grantee Did Not Always Follow HUD Requirements for the   5
                 Supportive Housing Program




Scope and Methodology                                                        7

Internal Controls                                                            8

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use         10
   B. The Allegations in the Complaint Could Not Be Substantiated            11
   C. Auditee Comments and OIG’s Evaluation                                  12




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                     BACKGROUND AND OBJECTIVES

WomenRising, Inc. (grantee), is a nonprofit organization located in Jersey City, New Jersey. It
provides shelter, counseling services and residential programs to homeless women and their
children to help them achieve self-sufficiency and live safe, fulfilling, and productive lives.
During the period from March 1, 2000, through June 30, 2003, the grantee received its initial
Supportive Housing Program grant of $2,404,532 from the U.S. Department of Housing and
Urban Development (HUD) (Project No. NJ39-B96-1202) to promote Project Home, a
transitional housing project for homeless women who were the victims of domestic violence and
substance abuse. The funding was later renewed for $644,000 each operating year for 2004 and
2005 under separate project numbers as follows:

              Project No. NJ39-B20-6003 - July 1, 2003 to June 30, 2004.
              Project No. NJ39-B30-6003 - July 1, 2004 to June 30, 2005.

The Government Accountability Office received a complaint regarding fiscal malfeasance of the
grantee in May 2001. It forwarded the complaint to the director of HUD’s Investigative
Support/Hotline Division in December 2001. The complaint was then referred to the HUD-
Office of Inspector General’s (OIG) New York Office of Investigation, which referred it to the
HUD-OIG New York Office of Audit in August 2002. However, due to staff constraints that
resulted from the September 11, 2001, terrorists attacks on New York City, the review was not
performed. However, in response to another request on July 20, 2005, from the director of the
Program Integrity (Hotline) Division, we initiated a limited review of WomenRising, Inc.

The objectives of this review were to determine whether (1) the allegations in the complaint were
valid, (2) the grantee has adequate controls over disbursements and drawdowns, and (3) the
grantee’s cost allocation plan was approved by HUD.




                                               4
                                RESULTS OF AUDIT

Finding 1: The Grantee Did Not Always Follow HUD Requirements for
           the Supportive Housing Program
The grantee did not always follow HUD regulations for the Supportive Housing Program. It did not
provide adequate support for its final 2004 and 2005 drawdowns and did not obtain HUD’s
approval of its alternative cost allocation plan. These problems occurred because the grantee
believed that it was entitled to the last drawdown and failed to follow HUD requirements. As a
result, $94,759 in reimbursements could not be substantiated, and HUD was not afforded the
opportunity to determine whether the grantee’s cost allocation plan was fair and reasonable.


 Final Drawdowns Not
 Supported

              Generally, our testing of drawdowns and disbursements for the initial supportive
              housing grant showed that the internal controls were effective. However, we
              noted that the grantee’s final drawdowns of $94,759 related to its 2004 and 2005
              supportive housing grant were made without evidence that costs were incurred or
              documented. This occurred because the grantee believed it was entitled to the full
              amount of the grant; therefore, it drew down these funds without adequate
              support. Office of Management and Budget Circular A-122, paragraph A, entitled
              General Principles, provides that to be reimbursed, allowable direct and indirect
              costs must be incurred and adequately documented. Consequently, since the
              grantee drew down $94,759 without proper supporting documentation, these costs
              are considered unsupported.

Unapproved Alternative Cost
Allocation Plan
              Our review also disclosed that the grantee applied an alternative cost allocation
              methodology that had not been approved by HUD for indirect expenses such as
              administrative costs. It allocated indirect costs to each program according to the
              grant’s percentage of the total funds, although its actual costs allocated to the
              supportive housing grants were much less than what would have been permitted
              under this methodology due to a 5 percent cap in the grant agreement. HUD
              Office of Community Planning and Development staff stated that Office of
              Management and Budget Circular A-122 requires the grantee to obtain HUD
              approval before applying an alternative cost allocation methodology.
              Subparagraph E2b states: “A non-profit organization, which has not previously
              established an indirect cost rate with a Federal agency shall submit its initial
              indirect cost proposal immediately after the organization is advised that an award
              will be made and, in no event, later than three months after the effective date of


                                               5
          the award.” Therefore, by not submitting the alternative allocation plan for
          review, HUD was not afforded the opportunity to determine whether the grantee’s
          alternative allocation methodology was fair and reasonable.
Recommendations

          We recommend that the director of HUD’s New Jersey Office of Community
          Planning and Development

          1A.     Instruct the grantee to provide support for the $94,759 in drawdowns or
                  reimburse the Supportive Housing Program from non-federal funds for the
                  unsupported costs.

          1B.     Instuct the grantee to establish controls to ensure that all drawdowns are
                  properly supported with documentation to show that eligible costs have
                  been incurred.

          1C.     Instruct the grantee to submit its alternative cost allocation plan to HUD
                  for review and approval.




                                            6
                        SCOPE AND METHODOLOGY

Our review focused on the grantee’s Supportive Housing Program. To accomplish our
objectives, we reviewed the grant agreements, applicable HUD regulations, and regulatory
guidance for the Supportive Housing Program. We reviewed annual progress reports submitted
to HUD and the grantee’s audited financial statements prepared by its independent public
accountant. We performed an internal control review by applying limited testing over financial
records and conducting interviews with grantee officials and HUD staff.

We initially performed a limited review of the supporting documents and disbursement of
Supportive Housing Program funds for the period from March 1, 2000, through June 30, 2003.
We later expanded our review period to extend through June 30, 2005.

We conducted our review from September 19 though November 30, 2005. We performed our
review in accordance with generally accepted government auditing standards.




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                             INTERNAL CONTROLS

Internal controls are 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 that the following internal controls were relevant to our audit
              objectives:

              •       Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

              •       Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              •       Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              •       Validity and reliability of data - Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

              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.




                                                8
Significant Weaknesses
           Based on our review, we believe the following item is a significant weakness:

           •      The grantee did not have an adequate system to ensure compliance with laws
                  and regulations or to safeguard resources when $94,759 in Supportive
                  Housing Program funds were drawn down without adequate supporting
                  documentation that costs had been incurred and when it did not obtain HUD
                  approval for its alternative cost allocation plan (see Finding 1).




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                                    APPENDIXES

Appendix A

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


                                Type of questioned costs

     Recommendation                        Unsupported
     number                                costs 1/

      1A                                   $94,759
                                            _______
               Total                       $94,759


1/    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 the 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.




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Appendix B

The Allegations in the Complaint Could Not Be Substantiated
 Allegation 1

                The complaint indicated that the grantee did not have a detailed budget for the
                Supportive Housing Program (Project Home) that was operated by the company.

                Evaluation - We noted that the grant agreement between the grantee and HUD included
                a budget that contained four categories: rehabilitation costs, supportive service costs,
                operating costs, and administrative costs. The budget also specified the eligible expenses
                for each category in accordance with Supportive Housing Program regulations. As a
                result, we concluded that this allegation was not valid.

 Allegation 2
                The complaint indicated that the grantee charged ineligible direct and other
                expenses to its program Project Home, such as salaries, benefits, supplies, travel,
                and food.

                Evaluation - Based on our review of Supportive Housing Program fund drawdowns for
                supportive service costs and operating costs, no material deficiencies were noted. Staff
                salaries were in line with positions and wage amount as defined in the budget. Salaries
                and benefits were allocated to Project Home based on the staff’s time contribution to that
                project. Other direct expenses such as supplies, travel, and food complied with the
                budget and regulations. Since these costs were incurred exclusively for Project Home, it
                is reasonable to consider them as direct supportive service costs or operating costs. As a
                result, we concluded that this allegation was not valid.

Allegation 3

                The complaint indicated that the grantee allocated ineligible administrative costs to
                Project Home.

                Evaluation - The shared administrative costs could be allocated to Project Home up to 5
                percent of the total grant award. Our analysis disclosed that the reimbursed
                administrative costs were reasonable and within the budget. As a result, we concluded
                that this allegation was not valid.




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Appendix C

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                        Auditee Comments


                                              WomenRising, Inc.
                                           2005 HUD Audit Response

              WomenRising, Inc. prides itself on the services provided to the community and the
              accurate reporting of that work. In spite of best efforts, there are times when usually
              strong internal controls may fail resulting from high turnover of critical positions or
              transactions not properly processed in accordance with policy and procedures.
              Though this does not excuse WomenRising from its contractual responsibilities, it is
              the basis for justifying an isolated breakdown in processing HUD drawdowns.

              It is important to note that the staff that controlled processing of the drawdowns during
              the operating years audited is no longer employed by WomenRising. Consequently,
              efforts to resolve this matter are being spearheaded by a new Executive Director and
              Chief Financial Officer. Both individuals began employment just a little over three
              months ago and found the HUD audit already in progress. As a result, the agency
              was ill-prepared to respond to the concerns put forth by the auditors during the time of
              their fieldwork. Since then, the CFO has completed an analysis of the HUD project for
              the operating year ended June 30, 2005 (analysis of operating year June 30, 2004 to
              follow) and has concluded the following:
                     1. With the exception of the last 2 drawdowns, the procedures were applied
Comment 1                consistently throughout the operating year.
                     2. The records show that the project incurred almost $882,200 in expenses
                         during the operating year. Based upon this analysis, it appears that there
                         were significant expenses charged to matching funds that have been
                         charged directly to HUD. To date, $18,400 of unsupported expenses has
                         been substantiated with documentation.
Comment 3            3. Review of the technical submission effective during the operating year did
                         not include a HUD approved allocation methodology.

              The following is the corrective plan currently in progress to adequately respond to the
              findings and recommendations of audit report:
                   1. Negotiate more time with HUD NJ Office of Community Planning and
Comment 2              Development to compile supporting documents to substantiate the $94,759 in
                       unsupported drawdowns.
Comment 1          2. Policies and procedures have been revised ensuring that future drawdowns
                       are properly supported with documentation that substantiates eligible costs
                       before processing in LOCCS.
Comment 3          3. Submit WomenRising’s allocation methodology for approval to HUD program
                       manager, Richard Kotuski immediately.

              WomenRising is confident that the internal controls already established and further
              enhanced with the implementation of the above plan will ensure appropriate and
              accurate reporting in the future. It is important that HUD remains confident that
              WomenRising, Inc. will continue to provide much needed services to the community
              and the agency is committed to timely and accurate reporting the results of that work.




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                         OIG Evaluation of Auditee Comments

Comment 1   Auditee officials agreed that the last two drawdowns of the operating year 2005
            did not follow the procedures. They agreed to revise their policies and procedures
            to ensure that future drawdowns are properly supported with documentation.

Comment 2   Auditee officials did not furnish any additional documentation regarding the
            $94,759 of unsupported costs. They indicated that they would request additional
            time to compile the documentation to support the questioned amounts.

Comment 3   Auditee officials agreed that they did not obtain HUD approval for their cost
            allocation methodology, and would immediately submit its cost allocation
            methodology to HUD.




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