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.
33
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.
34
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.
35
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.
36
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)