oversight

The City and County of Denver, Colorado, Did Not Comply with HOME Investment Partnerships Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-10-18.

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

                                                                Issue Date
                                                                         October 18, 2006
                                                                Audit Report Number
                                                                             2007-DE-1001




TO:        Guadalupe M. Herrera, Director, Office of Community Planning and
             Development, 8AD

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 8AGA


SUBJECT: The City and County of Denver, Colorado, Did Not Comply with HOME
           Investment Partnerships Program Requirements


                                  HIGHLIGHTS

 What We Audited and Why

            We audited the City and County of Denver, Colorado’s, (City) HOME Investment
            Partnerships Program (HOME). Our objective was to determine whether the City
            properly established, administered, and accounted for eligible HOME projects.
            We selected this audit as part of the Office of Inspector General (OIG) annual
            audit plan.

 What We Found
            The City did not properly enter its data into the Integrated Disbursements and
            Information System (System). This resulted in the City incorrectly reserving
            more than $720,000 in HOME funds.

            The City did not have adequate controls over the administration of its HOME
            activities and funds. Therefore, the U.S. Department of Housing and Urban
            Development (HUD) lacked assurance that management properly accounted for
            or realized maximum benefit from the HOME funds.
What We Recommend


           We recommend that HUD require the City to implement policies and procedures
           to ensure that it accurately and completely enters and maintains all required
           information in the System and to ensure effective administration of the HOME
           program.

           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 draft report to the City on September 18, 2006, and received its
           written response on September 28, 2006. The City’s response indicated general
           agreement with the findings and recommendations. The response detailed current
           and planned actions to address the recommendations.

           The complete text of the auditee’s response can be found in appendix B of this
           report.




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                            TABLE OF CONTENTS

Background and Objectives                                                        4

Results of Audit
      Finding 1: The City Did Not Properly Enter Its Data into HUD’s System      5
      Finding 2: The City Did Not Have Adequate Controls over Its HOME Program   7

Scope and Methodology                                                            10

Internal Controls                                                                11

Appendixes
   A. Schedule of Funds to Be Put to Better Use                                  12
   B. Auditee Comments and OIG’s Evaluation                                      13




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                     BACKGROUND AND OBJECTIVES

The U. S. Department of Housing and Urban Development (HUD) designated the City and County
of Denver (City) as a participating jurisdiction to receive annual Office of Community Planning
and Development funding. For 2004 and 2005, the City signed a funding approval and HOME
Investment Partnerships Agreement that established the funding and its terms. The City received
HOME funds totaling more than $5.6 million for 2004 and more than $4.5 million for 2005.

In August 2004, a City executive order established the Office of Economic Development, which
consisted of four divisions. The Division of Housing and Neighborhood Development (Housing
Division) was responsible for administering the HOME and other HUD-funded housing
programs. The Office of Economic Development also had the Financial and Information
Services Unit that provided the accounting for the four divisions. The City’s overall housing
objective was to create “Decent Affordable Housing” for the purpose of “Improved availability
and affordability.”

The director of the Housing Division has been in her position for about two years. The two
program managers responsible for the HOME program have been in their positions since January
2006. Before that, the positions were vacant for a year or more.

The Mayor and a 13-member city council govern the offices of the City. A director manages the
daily operations of the Housing Division, which maintains its records at 201 West Colfax
Avenue, Suite 204, Denver, Colorado.

Our objective was to determine whether the City properly established, administered, and
accounted for eligible HOME projects.




                                              4
                                RESULTS OF AUDIT

Finding 1: The City Did Not Properly Enter Its Data into HUD’s
            System
The City’s Housing Division did not accurately or timely enter its data into HUD’s System. The
Housing Division had not developed or implemented policies and procedures to ensure that it
accurately entered all required information into the System. This caused the City to
unintentionally restrict the use of more than $720,000 in HOME funds.


 Data Not Properly Maintained
 in the System


              Of the 14 project files reviewed, we found that four contained instances of double
              System set ups and an incorrect set up. Housing Division staff established the
              required agreements with the contractors to commit the HOME funds for these
              projects. However, Housing Division staff then incorrectly set up three HOME
              projects into the System twice, each under two System numbers, and incorrectly set
              up $22,000 in Community Development Block Grant funds as HOME funds. These
              incorrect duplicate set ups were still in the System at the end of our audit period.
              Since the funds were incorrectly set up in the System, the funds were not available to
              be set up for valid HOME projects.

                        First number     Second number           Amount
                            1491             1506                  $391,250
                            1489             1529                   200,000
                            1505             1492                   108,750
                            1492                                     22,000
                            Total                                   722,000

              In addition, the Housing Division had not kept the data in the System current for
              several years. As of May 2006, Housing Division staff stated that they were
              working on correcting the data, but still needed to update System information for
              about 320 projects, including 52 HOME projects.


 Adequate Policies and
 Procedures Not Developed

              Housing Division management had not developed or implemented policies and
              procedures to ensure that its staff consistently entered all HUD-required information
              into the System. The double entries occurred because some staff members entered


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           the projects into the system at project approval and other staff members entered the
           project at contract execution. Different staff entered the same projects at different
           times under different System numbers.

           To address the inaccuracies in the System, management implemented a new policy
           and appointed a System specialist for HUD-funded housing programs. However,
           program specialists did not provide the System specialist with the information
           needed to update and maintain the System, so the new procedure was not effective.

Restricted Use of More Than
$720,000 in HOME Funds

           The double and incorrect setting up of four separate projects restricted the use of
           $722,000 in HOME funds for more than a year. Without these errors, the City
           would have had the funds available to use for other projects.

Recommendations

           We recommend that the director of HUD’s Denver Office of Community Planning
           and Development require the City and County of Denver to

           1A.   Establish and implement policies and procedures to ensure that it enters all
                 required information into the Integrated Disbursements and Information
                 System and the data are accurate and complete.

           1B. Make the necessary updates to the incorrect entries totaling $722,000 and
               ensure that funding is available for use, and ensure that all open projects are
               current and accurate in the System.




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Finding 2: The City Did Not Have Adequate Controls over Its HOME
            Program
The City did not have adequate controls over the administration of its HOME activities and funds.
Management did not take the actions necessary to improve the controls. Therefore, HUD lacked
assurance that the City properly accounted for or realized maximum benefit from the HOME funds.



 Inadequate Controls over
 HOME Activities and Funds


               The City did not have adequate controls over the administration of its HOME
               activities and funds. HUD requires that grant recipients effectively control and
               account for all HOME funds. Examples of the deficiencies include the following:

                  •   The Financial and Information Services Unit used three separate accounting
                      systems to account for HOME funds, but the systems did not reconcile. The
                      2005 year-end reconciliation report contained more than $593,000 in
                      discrepancies. The Financial and Information Services Unit and the Housing
                      Division did not effectively coordinate to resolve the discrepancies.

                  •   The Housing Division did not have the required records identifying the
                      source and application of HOME funds for each fiscal year. Therefore, it did
                      not have the information needed to ensure that it met the requirements of
                      committing the funds within two years and expending the funds within five
                      years.

                  •   The City exceeded the 120-day closure requirement for projects with final
                      draws for many HOME projects. This extended the affordability period, in
                      some cases by several years, which could cause undue hardship for the
                      contractors.

                  •   The City did not actively solicit proposals to meet HOME priorities, which
                      resulted in more than $10 million in HOME funds being available but not
                      committed at the end of 2005.

                  •   The City did not consistently set up or maintain project files that contained
                      all required documentation. Therefore, it did not always have records of the
                      actual status of the projects.

               The City has been aware of many of these problems for several years, yet they still
               exist. HUD’s Denver Office of Community Planning and Development also
               identified most of these deficiencies in monitoring reviews in 2003 and 2004. The



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            most recently available single audit report also contained a finding that the federal
            funds were not properly reconciled.

 Inadequate Policies and
 Procedures and Management
 Oversight


            While the City was aware of these control weaknesses, it did not take the action
            necessary to correct them. The prior management hired a contractor to update the
            policies and procedures. Two years later, the update work is still in progress. In
            addition, the two key management positions responsible for providing oversight of
            the HOME activities were vacant for a year or more. This resulted in appointing
            staff members to act as managers while also fulfilling their own responsibilities.

 Use and Benefits of HOME
 Funds Not Maximized

            Because management was not effectively controlling HOME program activities,
            HUD lacked assurance that the City accurately accounted for the funds in the
            System and required reports. Because management did not have effective
            procedures for committing HOME funds, management allowed extensive
            amounts to sit idle rather than using them for the intended benefits to the
            community.

Management Working on
Improvements
            The Housing Division filled its two manager positions in January 2006 and is
            developing new policies and procedures. Housing Division management stated
            that in the past, contractors submitted proposals that directed the use of HOME
            funds. Current management officials stated that they need to determine the
            highest needs and areas in the City for development and then request proposals to
            meet those needs. The City should resolve many of its control problems if it
            implements procedures that ensure this approach.




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Recommendations

          We recommend that the director of HUD’s Denver Office of Community Planning
          and Development require the City to

          2A. Establish and implement policies and procedures that ensure all financial
              systems reconcile, accurate and complete records are maintained, the close out
              of projects on time, and the selection of projects that address identified needs
              or areas for development.




                                          9
                          SCOPE AND METHODOLOGY

We reviewed HUD and City criteria and contracts, met with HUD and City staff, and looked at
HUD and City records.

We requested a list of all HOME projects with any activity during our review period. Housing
Division staff provided two lists that were significantly different. One list contained 12 projects,
reportedly all HOME projects with activity during 2004 and 2005. The other list contained 46 open
HOME projects.

Using the two lists, we performed three separate processes to select our sample of 14 HOME project
files for review. The list of 46 open projects showed old projects with no draw activities. We
selected four of these projects with the largest project activity amounts for review.

For the second sample, we compared the two lists and identified the projects on the open projects
list that were not on the other list. We selected the five projects with commitment dates during our
audit period for review.

For the third sample, we compared the two lists and determined that there were 10 projects listed on
both lists. We selected the five projects with the largest project activity amounts for review.

We used this three-step sample approach to obtain an understanding of the similarities and
differences in the two lists. The file review showed that the Housing Division did not maintain the
files consistently or completely (finding 2). The file review results supported information provided
by Housing Division management and staff that each project specialist had his/her own procedures
for file documentation.

Information provided for the first sample showed that Housing Division staff entered three projects
into the System twice, each under two System numbers, and incorrectly combined Community
Development Block Grant funds in a HOME project. These double or incorrect set ups resulted in
restricting the use of HOME funds in the amounts of $391,250, $200,000, $108,750, and $22,000
for a total of $722,000 (finding 1).

Our review period was from January 1, 2004, to December 31, 2005. We expanded the period as
needed into 2006 to include actions of the current management. We did our work at the City’s
offices at 201 West Colfax Avenue, Suite 204, Denver, Colorado, from April to July 2006.

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




                                                10
                             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:

              •       Controls over the proper maintenance of accurate, complete information in
                      the System,
              •       Controls over accounting and reconciliation of HOME funds,
              •       Controls over administration of the HOME program, and
              •       Controls over procedures to ensure maximum use of HUD funds.

              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:

              •       Housing Division staff did not properly maintain the System information
                      (finding 1),
              •       HOME fund balances in the System did not reconcile to the City’s two sets
                      of accounting records (finding 2), and
              •       Housing Division management and staff did not have adequate or consistent
                      controls over the administration of HOME activities (finding 2).




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                                    APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                            Recommendation         Funds to be put
                                   number           to better use 1/
                                            1B         722,000.00


1/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     OIG recommendation is implemented, resulting in reduced expenditures at a later time
     for the activities in question. This includes costs not incurred, deobligation of funds,
     withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures,
     loans and guarantees not made, and other savings.

     For recommendation 1B, we determined that Housing Division staff entered three HOME
     projects into the System twice and incorrectly combined Community Development Block
     Grant funds in a HOME project. Because of these errors, the funds were not available to set
     up other programs for more than a year.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         13
Comment 2




Comment 3




            14
Comment 4




            15
                           OIG Evaluation of Auditee Comments

The City’s response indicated general agreement with the findings and recommendations. The
response detailed current and planned actions to address the recommendations.

Comment 1     If the City finalizes and implements the policies and procedures and internal
              review processes, the quality of the data in the Integrated Disbursements and
              Information System (System) should improve. The City has one impediment to
              the effective implementation of these policies and procedures, and that is that the
              Housing System specialist position has been vacant since July 2006.

Comment 2     The City indicated it canceled most of the duplicate or incorrect projects before
              our site work. The City first gave us the summary schedule after we gave it the
              draft audit report. However, it has never provided us with any supporting
              evidence that it cancelled the projects.

Comment 3     If the new System specialist is properly trained and the policies and procedures
              are finalized and effectively implemented, the City could realize an improvement
              in the accuracy and completeness of the System data.

Comment 4     If the proposed policies and procedures and review processes are properly
              finalized and implemented, the City could realize improvements in the
              administration and accounting of the HOME Program.




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