oversight

The City of Baltimore, Baltimore, Maryland, Generally Administered Uses of Block Grant Funds Reviewed in Accordance with Applicable Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-12-20.

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

                                                                 Issue Date
                                                                      December 20, 2006
                                                                 Audit Report Number
                                                                      2007-PH-1004




TO:         Charles E. Halm, Director, Office of Community Planning and Development,
             Baltimore Field Office, 3BD



FROM:



SUBJECT: The City of Baltimore, Baltimore, Maryland, Generally Administered Uses of
          Block Grant Funds Reviewed in Accordance with Applicable Requirements


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the City of Baltimore’s (City) Community Development Block Grant
             (Block Grant) program as part of our annual audit plan. The purpose of the audit
             was to determine whether the City properly administered certain uses of its Block
             Grant funds. We wanted to determine whether the City implemented adequate
             procedures to oversee four of its subrecipients and whether the City’s internal
             Code Enforcement Division had a reasonable method for determining and
             recording staff costs related to its Block Grant program.

 What We Found


             The City generally administered the particular uses of the Block Grant funds
             reviewed in accordance with applicable requirements. It generally implemented
             adequate procedures to oversee the four subrecipients reviewed. In addition, the
             City’s internal Code Enforcement Division ensured that staff costs related to the
           Block Grant program were reasonably determined and recorded. Further, the City
           as a whole had a reasonable method for determining and recording indirect costs
           associated with its Block Grant program. However, we identified minor
           deficiencies associated with the City’s tools for measuring subrecipients’
           accomplishments and with one subrecipient’s manual method of tracking some of
           its services provided, which we found susceptible to human error.

What We Recommend


           We do not recommend corrective action because the U.S. Department of Housing
           and Urban Development’s (HUD’s) Baltimore Office of Community Planning
           and Development, in a prior review of the City, noted the same deficiencies we
           identified and is currently working with the City to rectify them. Also, at the time
           of our review, the subrecipient for which we noted the deficiency was in the
           process of implementing an automated system to improve tracking of the services
           it provides.

Auditee’s Response


           We discussed the report with the City during the audit and at an exit conference on
           December 14, 2006. The City provided written comments to our draft report on
           December 19, 2006. In its response, the City agreed with the report and stated it
           benefited from the review and comments on its subrecipient monitoring procedures.
           The complete text of the City’s response can be found in appendix A of this report.




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                           TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
      Finding: Uses of Funds Reviewed Were Generally Administered in Accordance   5
      with Applicable Requirements

Scope and Methodology                                                             9

Internal Controls                                                                 10

Appendixes
   A. Auditee Comments                                                            11




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                            BACKGROUND AND OBJECTIVES


The U.S. Department of Housing and Urban Development (HUD) provides Community
Development Block Grant (Block Grant) entitlement funds for a wide range of community
development activities targeted toward revitalizing neighborhoods, economic development, and
providing improved facilities and services. The amount of the annual grant awarded a grantee is
determined on a formula basis to develop viable urban communities by providing decent housing
and suitable living environments and by expanding economic opportunities, principally for low-
and moderate-income persons.

A primary requirement of the Block Grant program is that activities and/or services funded under
the program meet one of three national objectives. These objectives include activities that (1)
benefit low- to moderate-income persons, (2) aid in the prevention or elimination of slums or
blight, or (3) are designed to meet community development needs having a particular urgency.

HUD awarded the City of Baltimore (City) more than $57.2 million in Block Grant entitlement
funds to administer its Block Grant program during its 2004 and 2005 fiscal years. 1 The City’s
fiscal years 2004 and 2005 were parallel to federal fiscal years 2003 and 2004.

                                  Fiscal year            Block Grant
                                     2004                $28,811,000
                                     2005                $28,469,000
                                     Total               $57,280,000

As of November 2006, the City had drawn all of its 2004 funds (awarded in federal fiscal year
2003), and approximately $25.5 million of its 2005 funds (awarded in federal fiscal year 2004),
leaving a balance of approximately $2.9 million available for draw. This is not unusual because
HUD’s Integrated and Disbursements System disburses Block Grant funds on a “first in first out”
basis.

The HUD Baltimore Office of Community Planning and Development performed a review of the
City’s Block Grant program in 2003. One general review objective was to determine whether
the City followed the Block Grant eligibility, national requirement, overall benefit, and related
record-keeping requirements. The review disclosed weaknesses in the City’s monitoring of
subrecipients. The City is currently working with the Baltimore Office of Community Planning
and Development to finalize a management plan to address the weaknesses noted.

Our audit objective was to determine whether the City properly administered certain uses of its
Block Grant funds. We wanted to determine whether the City implemented adequate procedures
to oversee four of its subrecipients and whether the City’s internal Code Enforcement Division
had a reasonable method for determining and recording staff costs related to its Block Grant
program.

1
    The City’s fiscal years 2004 and 2005 are between July 1, 2003, and June 30, 2005.


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                                RESULTS OF AUDIT

Finding: Uses of Funds Reviewed Were Generally Administered in
Accordance with Applicable Requirements
The City generally administered the particular uses of the Block Grant funds reviewed in
accordance with applicable requirements. It generally implemented adequate procedures to
oversee the four subrecipients reviewed. In addition, the City’s internal Code Enforcement
Division ensured that staff costs related to its Block Grant program were reasonably determined
and recorded. Further, the City as a whole had a reasonable method for determining and
recording indirect costs associated with its Block Grant program. However, we identified minor
deficiencies associated with the City’s tools for measuring subrecipients’ accomplishments and
with one subrecipient’s manual method of tracking some of its services provided, which we
found susceptible to human error. At the time of our review, both the City and the subrecipient
were in the process of addressing the deficiencies noted.



 The City Had Adequate
 Procedures in Place to Oversee
 the Four Subrecipients
 Reviewed

              The City generally implemented adequate procedures to oversee the four
              subrecipients reviewed. The subrecipients were Bon Secours of Maryland, Oliver
              Community Association, the Commission on Aging and Retirement Education, and
              the Baltimore Development Corporation. Collectively, the four subrecipients were
              awarded more than $2 million in Block Grant funds to administer eligible Block
              Grant activities during fiscal years 2004 and 2005. The City had procedures to (a)
              select the subrecipients and execute agreements with them concerning the use of
              Block Grant funds and (b) develop and implement monitoring schedules to ensure
              that the subrecipients were operating in compliance with their agreements with
              the City. For example, the City performed risk analyses to facilitate selection of
              the subrecipients and executed agreements with the subrecipients that included the
              scope of services, national objectives and eligible activities, and record-keeping
              requirements.

              The City also established and implemented monitoring schedules for the
              subrecipients and properly documented the objectives, findings if any, and
              proposed corrective actions pertaining to its monitoring activities. However, we
              noted some minor deficiencies associated with the City’s tools for measuring
              subrecipients’ accomplishments. Its monitoring checklists did not require the
              monitors to specify how subrecipients complied with their national objective(s)



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            and reporting requirements. Further, there was little documentation to support the
            monitors’ review of subrecipients’ quarterly reports on their accomplishments.

            HUD identified similar deficiencies in its 2003 review of the City and is currently
            working with the City to address those deficiencies. HUD’s finding pertaining to
            the City’s monitoring of subrecipients was one of nine findings noted in
            conjunction with the 2003 review of the City. As of October 2006, the City had
            worked with HUD to close six of the other eight findings. In recent
            correspondence, dated October 13, 2006, between HUD and the City, HUD stated
            that its 2003 finding concerning the City’s monitoring of subrecipients would be
            closed pending the City’s implementation of satisfactory revised monitoring
            checklists and completion of related staff training. The City expected to provide
            HUD its revised monitoring checklists by the end of the calendar year.

Subrecipients Reviewed on Site
Met the National Objective
Requirements of the Block
Grant Program


            Recipients of funding under the Block Grant program are required to provide
            services or engage in activities which meet the national objectives of the program.
            Based on regulations at 24 CFR [Code of Federal Regulations] 570.200(a)(2),
            activities which comply with the national objective requirements of the Block
            Grant program include activities benefiting low- and moderate-income families,
            activities aiding in the prevention or elimination of slums or blight, or activities
            designed to meet community development needs having a particular urgency. We
            performed on-site reviews of the Commission on Aging and Retirement Education
            (Commission) and the Baltimore Development Corporation (Corporation) to
            determine whether they adequately documented the activities and/or services they
            provided and whether they met their national objective requirements.

            The Commission received Block Grant funding to provide public services to
            elderly persons. Its memorandum of understanding with the City stated that its
            national objective was to serve low- to moderate-income limited clientele.
            According to 24 CFR [Code of Federal Regulations] 570.208(a)(2)(A), elderly
            persons are included in the limited clientele category that is presumed to meet the
            low- to moderate-income criterion. In addition, based on regulations at 24 CFR
            [Code of Federal Regulations] 570.506(b)(3)(i), the Commission only needs to
            establish that it is designed for the particular needs of or used exclusively by
            seniors citizens. During our on-site review, we observed elderly persons
            participating in social/recreational activities and receiving lunch meal and health
            care services. We also determined that the Commission had a system for
            identifying eligible clientele and tracking services provided. However, we noted
            that the Commission’s manual method of tracking some of its clients served was
            inherently susceptible to human error. Based on a random review of select


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           recreational activity logs, we determined that the Commission overstated the
           number of clients served for two activities by seven counts over a five-day span.
           Officials of the Commission stated that efforts were underway to implement an
           electronic tracking system to ensure that the Commission properly tracks its
           services provided. Currently, the Commission only tracks its meal services
           electronically; however, as of August 2006, it had ordered the equipment needed
           to implement an electronic tracking system to track its other services provided.

           The other subrecipient we visited (the Corporation) is a private nonprofit agency,
           which received Block Grant funding to perform various planning activities for the
           City. The Corporation develops functional plans in areas such as housing, land
           use and urban environmental design, economic development, and small area and
           neighborhood plans for the City. According to regulations at 24 CFR [Code of
           Federal Regulations] 570.205, the type of planning that the Corporation performs
           is eligible for Block Grant funds. We found records such as functional planning
           sketches and internal notes concerning development options for one project and
           correspondence detailing the site development and utility issues relating to
           another project. The records reviewed were consistent with requirements
           stipulated in the Corporation’s written agreement with the City and were related
           to the activities reflected on the Corporation’s quarterly reports to the City. Also,
           based on testing of staff members’ time sheets for a random selection of four
           consecutive pay periods, we found the information in the time sheets to be
           consistent with the hours reflected in the Corporation’s quarterly reports to the
           City.

           Based on observations during our site visits, we concluded that the two
           subrecipients were in compliance with the national objective requirement of the
           Block Grant program.

The City’s Code Enforcement
Division Reasonably
Determined and Recorded Staff
Costs


           The City’s Code Enforcement Division had a reasonable system for determining
           and recording staff costs related to the Block Grant program. We selected the
           division for review because it received more than $11 million of approximately
           $57.2 million awarded to the City in Block Grant funds for fiscal years 2004 and
           2005. We reviewed how staff from the division’s housing inspection, legal, and
           demolition departments determined and recorded time between Block Grant and
           non-Block Grant activities. Based on our review of three randomly selected pay
           periods, we found that costs charged to the Block Grant program were supported
           by a combination of activity logs and time sheets. The activity logs and time
           sheets distinguished time spent on Block Grant activities from time spent on other
           activities. In addition, division staff used various forms of computerized



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            databases to document the work they performed. We also performed some
            random verifications of inspection and demolition activities reported and did not
            note any significant deficiencies or problems.

The City Had a Reasonable
Method for Developing Its
Annual Indirect Cost Allocation
Plan


            The City contracts out the preparation of its annual indirect cost allocation plan
            (cost plan) to an independent consultant. The City’s cost plans for fiscal years
            2004 and 2005 were prepared by its contracted consultant. We reviewed the
            methodology used to calculate the City’s cost rates for fiscal years 2004 and 2005
            and found it reasonable. In addition, we obtained data on the City’s indirect costs
            incurred for the Block Grant program during fiscal years 2004 ($1.6 million) and
            2005 ($1.9 million) and determined that the costs incurred were lower than the
            maximum allowable indirect costs by more than 20 and 25 percent, respectively.




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                          SCOPE AND METHODOLOGY

To accomplish the survey objectives, we

   •   Reviewed applicable HUD regulations relating to the administration of the Block Grant
       program.

   •   Obtained a list of subrecipients awarded Block Grant funds for fiscal years 2004 and 2005,
       nonstatistically selected four subrecipients that were awarded more than $2 million, and
       reviewed their monitoring files to verify and assess the adequacy of the monitoring
       performed.

   •   Performed on-site reviews for two of the four subrecipients selected to determine whether
       they had valid supporting documentation for costs charged to the Block Grant program and
       for quarterly reported data on services provided.

   •   Nonstatistically selected a sample of housing inspectors within the City’s Code Enforcement
       Division and reviewed their timesheets for select pay periods to determine whether their
       time charged to the Block Grant program was adequately supported.

   •   Nonstatistically selected a sample of legal staff within the City’s Code Enforcement
       Division and reviewed their timesheets for select pay periods to determine whether their
       time charged to the Block Grant program was adequately supported.

   •   Verified random samples of inspection and demolition activities to determine the validity of
       time charged to the Block Grant program.

   •   Conducted interviews with officials and employees of HUD’s Community Planning and
       Development Division, the City, and subrecipients of the Block Grant program.

To achieve our audit objectives, we relied in part on computer-processed data in the City’s database.
Although we did not perform a detailed assessment of the reliability of the data, we did perform a
minimal level of testing and found it to be adequate for our purposes.

We performed the majority of our fieldwork between April 21, 2006, and June 13, 2006, at the
offices of the City. In addition, we conducted on-site visits at the facilities of the following two
subrecipients: the Commission on Aging and Retirement Education, and the Baltimore
Development Corporation. The audit generally covered the period July 1, 2003, through June 30,
2005.

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




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                             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 that Block Grant subrecipients operated in
                      compliance with their agreements (i.e., grant expenditures were eligible, met
                      national objective requirements, and were adequately supported).

              •       Procedures to ensure that time charged to the Block Grant program was
                      reasonably accurate.

              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 did not identify any significant weaknesses in the relevant
              controls identified above.




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                APPENDIXES


Appendix A

             AUDITEE COMMENTS




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