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)