oversight

Cook County, Illinois, Lacked Adequate Controls over Its HOME Investment Partnerships Program Income and Administrative Costs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-06-07.

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

                                                                   Issue Date
                                                                            June 7, 2008
                                                                   Audit Report Number
                                                                            2008-CH-1009




TO:         Ray E. Willis, Director of Community Planning and Development, 5AD


FROM:       Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: Cook County, Illinois, Lacked Adequate Controls over Its HOME Investment
           Partnerships Program Income and Administrative Costs

                                    HIGHLIGHTS

 What We Audited and Why

             We audited Cook County’s (County) HOME Investment Partnerships Program
             (Program). The audit was part of the activities in our fiscal year 2007 annual
             audit plan. We selected the County based upon our analysis of risk factors
             relating to Program grantees in Region V’s jurisdiction. Our audit objectives
             were to determine whether the County effectively administered its Program
             income and administrative costs and followed the U.S. Department of Housing
             and Urban Development’s (HUD) requirements. This is the second of three audit
             reports on the County’s Program.

 What We Found

             The County did not effectively administer its Program income and administrative
             costs and failed to follow HUD’s requirements. It did not comply with HUD’s
             requirements in its use and reporting of Program income. As a result, the County
             had nearly $5.2 million of Program income in its HOME investment trust fund
             local account (local account), did not allocate at least $641,000 of interest earned
             from Program income in its local account, and underreported at least $2.7 million
             of Program income in HUD’s Integrated Disbursement and Information System
             (System).
           The County did not comply with HUD’s requirements in using Program funds for
           administrative costs. As a result, it used more than $28,000 in Program funds for
           improper administrative costs and lacked sufficient documentation to support its
           use of nearly $56,000 in Program funds for eligible Program administrative costs.

What We Recommend

           We recommend that the Director of HUD’s Chicago Office of Community
           Planning and Development require the County to commit and disburse Program
           income, unallocated interest earned from Program income, and reimbursed
           Program funds before drawing down any additional Program funds from its
           HOME trust fund treasury account (treasury account), provide support or
           reimburse its Program from nonfederal funds for the unsupported payments,
           provide sufficient documentation as to whether it earned interest from Program
           income before September 2002, and report its additional Program income in
           HUD’s System. We also recommend that the Director restrict the County’s
           ability to drawdown Program funds from its treasury account until the County
           disburses all Program income, unallocated interest earned from Program income,
           and reimbursed Program funds as cited in this report.

           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 issued because of the audit.


Auditee’s Response

           We provided our discussion draft audit report and supporting schedules to the former
           director of the County’s Department, the president of its board of commissioners,
           and HUD’s staff during the audit. We held an exit conference with the County’s
           assistant director on April 21, 2008.

           We asked the assistant director of the County’s Program to provide comments on
           our discussion draft audit report by May 20, 2008. The assistant director provided
           written comments, dated May 20, 2008. The assistant director generally agreed with
           finding 1 and only partially agreed with finding 2. The complete text of the written
           comments, except for 136 pages that were not necessary to understand the assistant
           director’s comments, along with our evaluation of that response, can be found in
           appendix B of this report. We provided the Director of HUD’s Chicago Office of
           Community Planning and Development with a complete copy of the County’s
           written comments plus the 136 pages of supporting documentation.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                             4

Results of Audit
      Finding 1: Controls over the County’s Program Income Were Inadequate            5

      Finding 2: The County Needs to Improve Controls over Its Administrative Costs   9

Scope and Methodology                                                                 12

Internal Controls                                                                     13

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                  15
   B. Auditee Comments and OIG’s Evaluation                                           16
   C. Federal Requirements                                                            35




                                            3
                     BACKGROUND AND OBJECTIVES

The Program. Authorized under Title II of the Cranston-Gonzales National Affordable Housing
Act, as amended, the HOME Investment Partnerships Program (Program) is funded for the purpose
of increasing the supply of affordable standard rental housing; improving substandard housing for
existing homeowners; assisting new homebuyers through acquisition, construction, and
rehabilitation of housing; and providing tenant-based rental assistance. The American Dream
Downpayment Assistance Act established a separate funding formula for the American Dream
Downpayment Initiative (Initiative) under the Program to provide downpayment assistance, closing
costs, and rehabilitation assistance to eligible first-time homebuyers.

The County. Organized under the laws of the State of Illinois, Cook County (County) is governed
by a 17-member board of commissioners (board), including a board president, elected to four-year
terms. The board designated the County’s Department of Planning and Development (Department)
as the lead agency to administer the County’s Program. The overall mission of the Department is to
work with municipalities, nonprofit organizations, businesses, developers, and other organizations
to revitalize communities and promote economic opportunity in the County. The former director of
the County’s Department resigned as of April 16, 2008. The assistant director of the County’s
Department was named the acting director until the County hired its new director on May 27, 2008.
The County’s Program records are located at 69 West Washington Street, Chicago, Illinois.

The following table shows the amount of Program funds the U.S. Department of Housing and
Urban Development (HUD) awarded the County for Program years 2003 through 2007.

                                   Program          Program
                                     year             funds
                                     2003            $6,555,837
                                     2004             6,565,213
                                     2005             6,297,078
                                     2006             5,820,276
                                     2007             5,761,486
                                    Total           $30,999,890

Our audit objectives were to determine whether the County effectively administered its Program
income and administrative costs and followed HUD’s requirements. This is the second of three
audit reports on the County’s Program.




                                                4
                             RESULTS OF AUDIT

Finding 1: Controls over the County’s Program Income Were
                              Inadequate
The County did not comply with HUD’s requirements in its use and reporting of Program
income. It had drawn down more than $48.3 million in Program funds from its HOME trust
fund treasury account (treasury account) since October 1999, when it had more than $2 million
of Program income in its HOME trust fund local account (local account); did not allocate interest
earned from Program income as income; and underreported Program income in HUD’s
Integrated Disbursement and Information System (System) because it lacked adequate
procedures and controls to ensure that HUD’s requirements were appropriately followed. As a
result, the County had nearly $5.2 million of Program income in its local account, did not
allocate at least $641,000 of interest earned from Program income as income in its local account,
and underreported at least $2.7 million of Program income in HUD’s System.



 The County Improperly Drew
 Down Program Funds When It
 Had Program Income

              Contrary to HUD’s requirements, the County did not properly use income
              generated from its Program. Since October 1999, the County had made 788 draw
              downs from its treasury account totaling more than $48.3 million in Program
              funds, when it had more than $2 million of Program income in its local account.
              The following table shows the Program years of October through September; the
              number of draw downs, including the amount of Program funds, the County made
              during the Program years; and the County’s balance of Program income at the end
              of each Program year.

                              Program      Number of        Program        Program
                                year       draw downs         funds         income
                                1999            98          $6,063,573     $2,826,876
                                2000            77           4,975,823      2,869,437
                                2001           100           3,547,846      4,154,553
                                2002           157           8,148,176      4,519,485
                                2003            88           3,320,858      4,688,427
                                2004            79           6,760,054      5,997,551
                                2005            95           9,290,701      6,673,621
                                2006            91           3,251,866      5,911,768
                               2007*             3           2,990,000      5,185,721
                               Totals          788         $48,348,897
                             * Program year 2007 is from October 2007 through March 2008.




                                                5
           Although the County had reduced the amount of its Program income in its local
           account by nearly $1.5 million since October 2005, it still had nearly $5.2 million
           in Program income as of March 2008.

The County Did Not Allocate
Interest Earned on Program
Income


           The County did not allocate $641,537 of interest earned from Program income
           since September 2002 to its local account. It placed the interest in its general fund
           to be used for its operations. As of March 2008, the County had not been able to
           provide sufficient documentation as to whether it earned interest from Program
           income before September 2002.

The County Did Not Report All
Program Income to HUD

           The County did not properly record Program income in HUD’s System. It did not
           report in HUD’s System any of its $2,089,550 in Program income received before
           October 1999. In addition, the County did not report at least $641,537 in interest
           earned from Program income. Therefore, the County had underreported at least
           $2,731,087 of Program income in HUD’s System as of March 2008.

The County Lacked Adequate
Procedures and Controls


           The weaknesses regarding the County drawing down Program funds from its
           treasury account when it had Program income in its local account, not allocating
           interest earned from Program income in its local account, and not recording all
           Program income in HUD’s System occurred because the County lacked adequate
           procedures and controls to ensure that it appropriately followed HUD’s
           requirements.

           The Department’s former director said that the reason the County had not used all
           of its Program income in its local account before drawing down Program funds
           from its treasury account was that the County backed out of some large
           development projects in which it planned to use the Program income. The County
           backed out of the development projects because the Department determined that
           the projects would not meet HUD’s requirements. The County decided to use
           Program funds rather than Program income for its other activities to avoid losing
           its Program funds as a result of not meeting HUD’s 24-month commitment and
           five-year expenditure deadlines. The former director also said that the County




                                             6
             planned to use all of its Program income on five large development projects
             during Program year 2007.

             The County’s director of financial reporting in the Office of the Comptroller
             (Office) said that he was not aware that the Office was required to allocate interest
             earned from Program income. It was the Department’s responsibility to inform
             the Office that interest earned on Program income should be allocated to the
             Program. The Department’s former director said that he could not explain why
             the Office was not aware that it was required to allocate interest earned from
             Program income to the Program. However, as of March 2008, the Office was
             developing a new procedure for the County’s various departments to inform it
             when earned interest should be allocated to specific funds.

             A Department staff member said that the County did not know how to enter
             Program income from prior Program years into HUD’s System. The County
             planned to contact its consultant, which provides technical support on HUD’s
             System, and/or HUD’s Chicago Office of Community Planning and Development
             for assistance on the matter.

Conclusion

             The County did not comply with HUD’s requirements in its use and reporting of
             Program income. As previously mentioned, the County had drawn down more than
             $48.3 million in Program funds since October 1999, when it had more than $2
             million of Program income in its local account; did not allocate at least $641,000 of
             interest earned from Program income since September 2002 in its local account; and
             underreported at least $2.7 million of Program income in HUD’s System. In
             addition, HUD and the County lacked assurance on the total amount of Program
             income available to the County.

Recommendations

             We recommend that the Director of HUD’s Chicago Office of Community
             Planning and Development require the County to

             1A. Commit and disburse its Program income of $5,185,721 for eligible housing
                 activities before drawing down any additional Program funds from its
                 treasury account.

             1B. Reimburse its local account $641,537 from nonfederal funds for the interest
                 earned from Program income that the County did not allocate in its local
                 account, and commit and disburse the $641,537 for eligible housing
                 activities before drawing down any additional Program funds from its
                 treasury account.



                                               7
1C. Provide sufficient documentation as to whether it earned interest from
    Program income before September 2002. If the County earned interest from
    Program income, it should reimburse its local account the appropriate
    amount, and commit and disburse the amount for eligible housing activities
    before drawing down any additional Program funds from its treasury
    account.

1D. Report at least an additional $2,731,087 of Program income in HUD’s
    System for the amount of Program income cited in this finding.

1E. Implement adequate procedures and controls to ensure that it uses Program
    income for eligible housing activities before drawing down Program funds
    from its treasury account.

1F. Implement adequate procedures and controls to ensure that it accurately
    reports Program income in HUD’s System.

We recommend that the Director of HUD’s Chicago Office of Community
Planning and Development

1G. Restrict the County’s ability to drawdown Program funds from its treasury
    account until the County commits and disburses all Program income,
    unallocated interest earned from Program income, and reimbursed Program
    funds as cited in this report.




                                8
Finding 2: The County Needs to Improve Controls over Its
                      Administrative Expenses
The County did not comply with HUD’s requirements in using Program funds for administrative
costs. It used Program funds for inappropriate administrative expenses and did not have
sufficient documentation to support that it used Program funds for eligible Program
administrative costs because it lacked adequate procedures and controls to ensure that HUD’s
requirements were appropriately followed. As a result, the County used more than $28,000 in
Program funds for improper administrative costs and was unable to sufficiently support its use of
nearly $56,000 in Program funds for eligible Program administrative costs.



 The County Used More Than
 $28,000 in Program Funds That
 Did Not Benefit Its Program

                We reviewed all 219 of the County’s nonsalary administrative expenses for the
                period October 2005 through September 2007, which totaled $407,122. The
                County used $28,325 in Program funds for inappropriate administrative
                expenses.

                The County used $25,000 in Program funds from April through July 2007 to
                pay a consultant to provide technical support on HUD’s System for the
                County’s Program and Community Development Block Grant (Block Grant)
                and Emergency Shelter Grant programs. However, the consultant said that he
                only spent 20 percent of his time working on reports for the County’s Program.
                Therefore, the County inappropriately used $20,000 in Program funds to pay
                administrative costs for its Block Grant and Emergency Shelter Grant programs.
                On January 31, 2008, and as a result of our audit, the County reimbursed its
                local account for its Program $25,000 for the technical support for HUD’s
                System.

                The County used an additional $12,487 in Program funds from May through
                September 2007 to pay a publisher for advertisements. However, the
                advertisements were for the County’s public hearings for its Program and Block
                Grant and Emergency Shelter Grant programs. Therefore, the County
                inappropriately used $8,325 in Program funds to pay administrative costs for its
                Block Grant and Emergency Shelter Grant programs.




                                                9
The County Lacked
Documentation to Support Its
Use of Nearly $56,000 in
Program Funds

              The County lacked sufficient documentation to support that it used an additional
              $55,527 in Program funds from October 2005 through July 2007 for eligible
              Program administrative costs. The unsupported disbursements were for
              furniture, office equipment/supplies, publications, printing and publishing, and
              travel. The following table shows the following for the unsupported
              disbursements: administrative cost category; period that Program funds were
              disbursed; and amounts of Program funds disbursed.

                        Administrative                                             Program
                         cost category             Period of disbursements          funds
                 Furniture                               March 2006                  $45,128
                 Office equipment/supplies   December 2005 through December 2006       6,956
                 Publications                   August 2006 through April 2007         1,923
                 Printing and Publishing     October 2005 through September 2006       1,431
                 Travel                                   July 2007                       89
                                              Total                                  $55,527


The County’s Procedures and
Controls Had Weaknesses


             The weaknesses regarding the County’s use of Program funds for inappropriate
             administrative costs and lacking documentation to support that administrative
             costs were eligible occurred because the County lacked adequate procedures and
             controls to ensure that it appropriately followed HUD’s requirements.

             The Department’s finance manager said that the Department did not prepare a
             schedule allocating administrative costs between the Program and the Block Grant
             and Emergency Shelter Grant programs. The finance manager said that the
             Department alternated payments for some administrative costs among the three
             programs because the County could not split its purchase orders among different
             programs. However, the Department did not allocate these administrative costs
             systematically among the three programs to ensure that each program received its
             allocable share of the costs. The finance manager said that the Department and
             the County’s industrial engineers had scheduled a meeting to determine equitable
             methods to allocate costs among the three programs.

Conclusion

             The County did not comply with HUD’s requirements in its use of Program funds
             for administrative costs. As previously mentioned, it used more than $28,000 in


                                             10
          Program funds for improper administrative costs. In addition, HUD and the
          County lacked assurance that the County used nearly $56,000 in Program funds
          for eligible Program administrative costs.

Recommendations

          We recommend that the Director of HUD’s Chicago Office of Community
          Planning and Development require the County to

          2A.     Commit and disburse the $25,000 in Program funds it reimbursed into its
                  local account for eligible housing activities before drawing down any
                  additional Program funds from its treasury account.

          2B.     Reimburse its Program $8,325 of Program funds used for Block Grant and
                  Shelter Grant advertisements, and commit and disburse the $8,325 for
                  eligible housing activities before drawing down any additional Program
                  funds from its treasury account.

          2C.     Provide sufficient supporting documentation or reimburse its Program
                  from nonfederal funds, as appropriate, for the $55,527 in Program funds
                  used for unsupported administrative costs cited in this finding, and commit
                  and disburse the applicable amount before drawing down any additional
                  Program funds from its treasury account.

          2D.     Implement adequate procedures and controls to ensure that Program funds
                  are only used for eligible administrative costs.




                                           11
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

            •   Applicable laws, HUD’s regulations at 24 CFR [Code of Federal Regulations] Parts
                85 and 92, HUD’s Office of Community Planning and Development Notice 97-9,
                Office of Management and Budget Circular A-87, and “Building HOME: a Program
                Primer.”

            •   The County’s accounting records, annual audited financial statements for 2005
                and 2006, data from HUD’s System, Program and activity files, computerized
                databases, policies, procedures, organizational chart, consolidated community
                development and annual plans, and consolidated annual performance and
                evaluation reports.

            •   HUD’s files for the County.

We also interviewed the County’s employees and HUD staff.

Finding 2

We selected all 219 of the County’s nonsalary administrative expenses for the period October
2005 through September 2007, which totaled $407,122. The nonsalary administrative expenses
were selected to determine whether the County effectively administered its Program admistrative
costs.

We performed our on-site audit work from August 2007 through April 2008 at the County’s office
located at 69 West Washington Street, Chicago, Illinois. The audit covered the period October 2005
through June 2007 and was expanded as determined necessary.

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




                                               12
                             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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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:

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

              •       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.

              •       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.

              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.




                                               13
Significant Weakness

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

           •   The County lacked adequate procedures and controls to ensure compliance
               with HUD’s requirements regarding the use and reporting of Program income
               and the use of Program funds for eligible Program administrative expenses
               (see findings 1 and 2).




                                           14
                                    APPENDIXES

Appendix A

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

          Recommendation                                             Funds to be put
              number           Ineligible 1/        Unsupported 2/   to better use 3/
                 1A                                                       $5,185,721
                 1B                                                          641,537
                 2A                                                           25,000
                 2B                   $8,325
                 2C                                       $55,527
                Totals                $8,325              $55,527         $5,852,258


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
     polices 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 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.

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. This includes reduction in outlays, deobligation of funds, withdrawal of
     interest subsidy costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In these instances, if the County implements our
     recommendations it will commit and use Program income and Program funds in its local
     account before drawing down Program funds from its treasury account. Once the County
     successfully improves its procedures and controls, this will be a recurring benefit.




                                               15
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 1


Comment 1




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 2




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comments 1
 and 4




Comments 1, 4,
 and 5




Comment 6




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 7


Comment 8




Comment 9




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 9




Comment 9


Comment 10
Comment 11




Comment 12




                         21
Ref to OIG Evaluation   Auditee Comments




Comments 9
 and 11




Comment 13




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 6




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 8



Comments 9,
 11, and 14


Comments 9
 and 11




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 15




Comment 15




                         25
Ref to OIG Evaluation   Auditee Comments




Comments 15,
 16, 17, 19,
 and 20




Comment 16




Comment 16




                         26
Ref to OIG Evaluation   Auditee Comments




Comments 17
 and 18




Comment 17


Comments 15
 and 17

Comment 19




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 17


Comments 18
 and 19

Comments 18
 and 19
Comments 18
 and 19

Comments 18
 and 19




Comment 20

Comment 17




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 19

Comment 20




Comments 18
 and 20




Comment 17

Comment 17

Comment 19

Comment 17




                         29
Ref to OIG Evaluation   Auditee Comments




Comments 18
 and 20




Comment 15


Comments 16,
 17, 19, and
 20




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 21




                         31
                           OIG’s Evaluation of Auditee Comments

Comment 1   HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.502(c)(3) state
            that a participating jurisdiction must disburse Program funds, including program
            income, in its local account before requesting Program funds from its treasury
            account. Contrary to HUD’s requirements, the County did not properly use
            income generated from its Program. Since October 1999, the County had made
            788 draw downs from its treasury account totaling more than $48.3 million in
            Program funds, when it had more than $2 million of Program income in its local
            account.

            The Program years are for the period October 1999 through March 2008.

Comment 2   The County did not provide documentation to support the amounts in its schedule.
            We provided the County a schedule, based on its own records, showing that it
            made 312 disbursements of Program income from its local account from October
            1999 through March 2007. The disbursements totaled $9,717,040. In addition,
            HUD’s System shows that the County drew down $9,717,040 in Program income
            from October 1999 through March 2008.

Comment 3   The County did not contact HUD for assistance regarding how to record in
            HUD’s System the Program income the County received prior to October 1999.

Comment 4   We do not disagree that the County has disbursed all the income generated from
            its Program from October 1999 through September 2005 and a significant amount
            of Program income received from October 2005 through September 2006 that it
            reported in HUD’s System. However, note that the County’s schedule shows the
            amount of Program income it received during the Program years that it had
            reported in HUD’s System as disbursed as of May 7, 2008. The schedule did not
            show the Program year the County actually disbursed its Program income. In
            addition, also note that the County’s schedule did not take into consideration the
            $2,089,550 in Program income it received prior to October 1999 and the $641,537
            of interest earned from Program income since September 2002.

Comment 5   The County disbursed $2,284,905 and $1,780,743 in Program income from its
            local account in Program years 2006 and 2007, respectively.

Comment 6   The County did not provide any documentation to support that it planned to use or
            has used Program income for its owner-occupied single-family rehabilitation
            projects.

Comment 7   The County did not allocate $641,537 in interest earned from Program income
            since September 2002 to its local account. It placed the interest in its general fund
            to be used for its operations.




                                             32
Comment 8     Before September 2002, the County electronically transferred Program funds and
              income from its non-interest bearing bank account to its other bank accounts prior
              to disbursement. The County could not provide documentation as to whether its
              other bank accounts earned interest and how long the Program funds and income
              remained in the other bank accounts before being disbursed. Therefore, as of
              March 2008, the County had not been able to provide sufficient documentation as
              to whether it earned interest from Program income before September 2002.

Comment 9     The County’s balance of Program income at the end of Program year 1998 was
              $2,084,842. The County’s Program revenue report, as of October 19, 2007,
              contained Program income from vanguard rental rehabilitation (vanguard)
              receipts totaling $264,042 for Program years 1994 through 2001. The County
              received Program income from vanguard receipts totaling $206,906 for Program
              years 1994 through 1998. The Program revenue report did not refer to the
              vanguard receipts as part of the County’s HUD funded Rental Rehabilitation
              Program or include the vanguard receipts under its Program matching funds.
              Further, the County did not provide documentation to support that the vanguard
              receipts were from its Rental Rehabilitation Program or that it credited the
              vanguard receipts to its Program matching funds. In addition, the County
              reported vanguard receipts of $46,136 and $11,000 in Program years 1999 and
              2001, respectively, as Program income in HUD’s System.

Comment 10 Section V.A. of HUD’s Office of Community Planning and Development Notice
           97-03 states that eligible Program matching cash contributions may include
           Rental Rehabilitation Program income received after closeout of all Rental
           Rehabilitation Program grants.

Comment 11 The County did not allocate $641,537 of interest earned from Program income
           since September 2002 to its local account. It did not include the $206,906 of
           Program income from vanguard receipts for Program years 1994 through 1998 in
           its calculation of interest earned from Program income since September 2002.
           Therefore, the County failed to include $22,727 of interest earned from Program
           income since September 2002, in which it did not allocate to its local account.

Comment 12 We revised the report to state that the County did not report in HUD’s System any
           of its $2,089,550 in Program income received before October 1999.

Comment 13 The County had drawn down more than $48.3 million in Program funds from its
           treasury account since October 1999, when it had more than $2 million of
           Program income in its local account; did not allocate interest earned from
           Program income as income; and underreported Program income in HUD’s System
           because it lacked adequate procedures and controls to ensure that HUD’s
           requirements were appropriately followed.

Comment 14 Bank transaction fees should not be used to reduce the amount of Program income
           the County reports in HUD’s System.



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Comment 15 We revised the report to state that the County used $28,325 in Program funds for
           inappropriate administrative expenses. The County used an additional $12,487 in
           Program funds from May through September 2007 to pay a publisher for
           advertisements. However, the advertisements were for the County’s public
           hearings for its Program and Block Grant and Emergency Shelter Grant programs.
           Therefore, the County inappropriately used $8,325 for the advertisements.

              We also amended recommendations 2B and 2C to reflect this revision.

Comment 16 The County did not allocate these administrative costs between its Program and
           Block Grant and Emergency Shelter Grant programs.

Comment 17 We revised our report to state that the County lacked sufficient documentation to
           support that it used an additional $55,527 in Program funds from October 2005
           through July 2007 for eligible Program administrative costs.

              We also amended recommendation 2C to reflect this revision.

Comment 18 We adjusted the table showing the administrative cost category, period that
           Program funds were disbursed, and amounts of Program funds disbursed for the
           unsupported disbursements by removing postage administrative costs, removing
           the financial services and central services administrative cost categories, revising
           the miscellaneous chargebacks administrative cost category to a printing and
           publishing administrative cost category, and identifying the administrative costs
           to more appropriate administrative cost categories.

Comment 19 The County lacked sufficient documentation to support that these administrative
           costs were for the Program.

Comment 20 The County lacked sufficient documentation to support that only the County’s
           Program benefited from these administrative costs.

Comment 21 The County’s planned actions should improve its procedures and controls over its
           use of Program funds for administrative costs, if fully implemented.




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Appendix C

                           FEDERAL REQUIREMENTS

Finding 1
HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.2 define program income as
gross income received by a participating jurisdiction directly generated from the use of Program
funds or matching contributions. Program income also includes interest earned on program
income pending its disposition.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.502(c)(3) state that a
participating jurisdiction must disburse Program funds, including program income, in its local
account before requesting Program funds from its treasury account.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.503(a)(1) state that a
participating jurisdiction must deposit program income into its local account.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.508(a)(5) state that a
participating jurisdiction must establish and maintain sufficient records to enable HUD to
determine whether the participating jurisdiction has met the requirements of 24 CFR [Code of
Federal Regulations] Part 92. The participating jurisdiction must maintain records identifying
the source and application of program income, repayments, and recaptured funds.

HUD’s Office of Community Planning and Development Notice 97-9, issued September 12,
1997, requires available program income to be determined and recorded in HUD’s System in
periodic intervals not to exceed 30 days.

Finding 2
HUD’s regulations at 24 CFR [Code of Federal Regulations] 85.20(b)(2) require grantees to
maintain records that adequately identify the source and application of funds provided for
financially-assisted activities. Section 85.20(b)(6) states that accounting records must be
supported by such source documentation as cancelled checks, paid bills, payrolls, time and
attendance records, and contract and subgrant award documents.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 85.20(b)(2) state that allowable
costs for state, local, or Indian tribal governments will be determined in accordance with cost
principles contained in Office of Management and Budget Circular A-87.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.505(a) state that the
requirements of Office of Management and Budget Circular A-87 and sections 85.20 and 85.22
of 24 CFR [Code of Federal Regulations] Part 85 are applicable to a participating jurisdiction
that is a government entity.



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HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.508(a)(5) state that a
participating jurisdiction must establish and maintain sufficient records to enable HUD to
determine whether the participating jurisdiction has met the requirements of 24 CFR [Code of
Federal Regulations] Part 92. Section 92.508(a)(6) states the participating jurisdiction must
maintain records demonstrating compliance with the applicable uniform administrative
requirements required by section 92.505.

Attachment A, section C.1, of Office of Management and Budget Circular A-87, revised May 10,
2004, requires all costs to be necessary, reasonable, and adequately documented. Section C.3.d
requires a cost allocation plan when indirect costs are charged to a federal award.




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