oversight

The City of Dayton, Ohio, Lacked Adequate Controls Regarding Staff Salaries Paid from Its Community Development Block Grant Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-09-26.

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

                                                                Issue Date
                                                                         September 26, 2008
                                                                Audit Report Number
                                                                         2008-CH-1015




TO:         Jorgelle Lawson, Director of Community Planning and Development, 5ED


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

SUBJECT: The City of Dayton, Ohio, Lacked Adequate Controls Regarding Staff Salaries
           Paid from Its Community Development Block Grant Program

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the City of Dayton’s (City) Community Development Block Grant
             program (program). The audit was part of the activities in our fiscal year 2008
             annual audit plan. We selected the City based upon our increased emphasis on
             the U.S. Department of Housing and Urban Development’s (HUD) Office of
             Community Planning and Development’s programs and a citizen’s complaint.
             Our objectives were to determine whether program funds used to pay the City’s
             former Division of Real Estate and Redevelopment’s (Division) staff salaries
             were reasonable and necessary and associated with eligible program activities.

 What We Found

             The City lacked sufficient documentation to support that it followed federal
             requirements when it used program funds to pay the Division’s staff salaries from
             January through December 2003. As a result, it was unable to support its use of
             more than $550,000 in program funds.
What We Recommend

           We recommend that the Director of HUD’s Columbus Office of Community
           Planning and Development require the City to provide documentation or
           reimburse its program from nonfederal funds for the unsupported salaries and
           implement adequate procedures and controls to address the finding cited in this
           audit 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 to the director of the City’s
           Department of Planning and Community Development, the city manager, and
           HUD’s staff during the audit. We held an exit conference with the City’s director on
           September 26, 2008.

           We asked the City’s director to provide comments on our discussion draft audit
           report by September 25, 2008. The director provided written comments, dated
           September 22, 2008, and agreed with our finding and recommendations. The
           complete text of the auditee’s response, along with our evaluation of that response,
           can be found in appendix B of this report.




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                            TABLE OF CONTENTS

Background and Objectives                                                      4

Results of Audit
      Finding: The City’s Controls over Salaries in Its Former Division Were   5
               Inadequate

Scope and Methodology                                                          8


Internal Controls                                                              9

Appendixes
   A. Schedule of Questioned Costs                                             11
   B. Auditee Comments and OIG’s Evaluation                                    12
   C. Federal Requirements                                                     14




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                      BACKGROUND AND OBJECTIVES

The Block Grant Program. Authorized under Title I of the Housing and Community Development
Act of 1974, as amended, the Community Development Block Grant program (program) is funded
to assist in the development of viable urban communities, by providing decent housing and a
suitable living environment and expanding economic opportunities, principally for persons of low-
and moderate-income. All program activities must meet one of the following national objectives:
benefit low- and moderate-income persons, aid in the prevention or elimination of slums and blight,
or meet certain community development needs having a particular urgency.

The City. Organized under the laws of the State of Ohio, the City of Dayton (City) was the first
large city to adopt the council-manager form of government. The City is comprised of a mayor and
four city commissioners. Each city commission member is elected at large on a non-partisan basis
for four-year, over-lapping terms. All policy items are decided by the city commissioners, who are
empowered by the city charter to pass ordinances and resolutions, adopt regulations, and appoint the
city manager, who is responsible for managing the overall operations of the City’s 16 departments.
The City’s Department of Planning and Community Development (Department) has lead oversight
and production responsibility for the program, including the responsibility to ensure that outcomes
are planned for, monitored, and reported. The Department’s overall mission is to provide leadership
and information to advance the quality of life in the City by guiding the development of physical
and functional spaces, and by developing and empowering people. The City’s program records are
located at 101 West Third Street, Dayton, Ohio.

The following table shows the amount of program funds the U.S. Department of Housing and
Urban Development (HUD) awarded the City for program years 2003 through 2008.

                                    Program           Program
                                      year             funds
                                      2003            $7,778,000
                                      2004             7,675,000
                                      2005             7,241,610
                                      2006             6,501,915
                                      2007             6,491,820
                                      2008             6,249,477
                                     Total           $41,937,822

The City’s former Division of Real Estate and Redevelopment (Division) received
approximately $600,000 in program funds in 2003 to pay staff salaries to manage the acquisition,
disposition, and relocation activities associated with eligible program activities.

Our objectives were to determine whether program funds used to pay the City’s former
Division’s staff salaries were reasonable and necessary and associated with eligible program
activities.




                                                 4
                                RESULTS OF AUDIT

Finding: The City’s Controls over Salaries in Its Former Division
                          Were Inadequate
The City lacked sufficient documentation to support that it followed federal requirements when it
used program funds to pay the Division’s staff salaries from January through December 2003.
The weaknesses occurred because the City lacked adequate procedures and controls to ensure
that it maintained adequate documentation. As a result, it was unable to sufficiently support that
more than $550,000 in program funds used to pay the Division’s staff salaries was reasonable
and necessary and associated with eligible program activities.



 The City Lacked
 Documentation to Support Its
 Use of More Than $550,000 in
 Program Funds

               The City lacked sufficient documentation to support that $556,455 in program
               funds used to pay the Division’s staff salaries from January through December
               2003 was reasonable and necessary and associated with eligible program
               activities.

               On June 18, 2008, the City provided us the Division’s 2003 payroll time analysis
               (summary) worksheets for all staff in hard-copy format. However, the summary
               worksheets did not contain the actual activities administered by the Division’s
               staff. Therefore, the City initially could not provide sufficient documentation to
               support its use of program funds to pay the Division’s staff salaries from January
               through December 2003.

               On August 7, 2008, the manager of the Division of Housing and Neighborhood
               Development (Housing) of the City’s Department stated that the City did not
               maintain original timesheet documentation for the Division for fiscal year 2003.
               The Housing manager confirmed this statement on August 12, 2008, and said that
               the former Division manager discarded the original 2003 timesheets when she left
               employment with the City on December 22, 2006.

               However, on August 20, 2008, nearly eight weeks after the documentation was
               originally requested, the City provided us the Division’s 2003 timesheets for all
               staff in hard-copy format. In addition, an electronic version of the Division’s
               2003 timesheets was provided on August 21, 2008. Several discrepancies existed
               between the hard-copy and the electronic version of the Division’s 2003
               timesheets. Further, the Division’s 2003 timesheets did not always agree with the



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             corresponding summary worksheets that were previously provided. According to
             a senior development specialist for the City’s Office of Economic Development,
             the timesheets provided on August 20 and 21, 2008, may not have been the
             Division’s final timesheets for 2003.

             The City provided another version of the Division’s 2003 timesheets on August
             27, 2008, in hard-copy and electronic format. Once again, the City was unable to
             verify whether the timesheets were the Division’s final timesheets that reflected
             the exact number of hours the Division’s staff spent on each activity for fiscal
             year 2003.

The City Lacked Adequate
Procedures and Controls

             The weaknesses regarding the City’s lacking sufficient documentation to support
             that staff salaries were reasonable and necessary and associated with eligible
             program activities occurred because the City lacked adequate procedures and
             controls to ensure that it appropriately followed federal requirements.

             As previously mentioned, the former Division manager discarded the Division’s
             original 2003 timesheets when she left employment with the City on December
             22, 2006. According to the Housing manager, it was the understanding of the
             former Division manager that original timesheet documentation did not need to be
             maintained for more than three years. The Housing manager stated that the
             former Division manager’s decision to discard the timesheets was based on the
             State of Ohio’s record retention policy of three years as opposed to HUD’s
             requirements.

Conclusion


             The City did not comply with federal requirements when it used program funds to
             pay the Division’s staff salaries. Therefore, HUD and the City lack assurance that
             $556,455 in program funds used to pay the Division’s staff salaries from January
             through December 2003 was reasonable and necessary and associated with
             eligible program activities.

Recommendations

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




                                              6
1A.   Provide supporting documentation or reimburse its program from
      nonfederal funds as appropriate for the $556,455 in program funds used
      for the Division’s staff salaries from January through December 2003.

1B.   Implement adequate procedures and controls to ensure that the use of
      program funds for staff salaries is sufficiently supported in accordance
      with federal requirements.




                                7
                        SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

          •   Applicable laws, HUD’s regulations at 24 CFR [Code of Federal Regulations] Parts
              85 and 570, and Office of Management and Budget Circular A-87.

          •   The City’s accounting records, annual audited financial statements for 2006, data
              from HUD’s Integrated Disbursement Information System, program activity files,
              policies and procedures, organizational charts, 2006 to 2010 consolidated plan,
              2000 through 2008 proposed program/project cost summaries, and fiscal years
              2000 through 2003 organization detail activity reports.

          •   HUD’s files for the City.

We also interviewed the City’s employees, HUD’s staff and the complainant.

We performed our on-site audit work from April through September 2008 at the City’s Department
office located at 101 West 3rd Street, Dayton, Ohio. The audit covered the period January 2006
through February 2008 and was expanded as determined necessary.

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




                                              8
                             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.




                                                9
Significant Weakness

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

           •   The City lacked adequate procedures and controls to ensure that it complied
               with federal requirements regarding maintaining sufficient documentation to
               support its use of program funds (see finding).




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                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                           Recommendation
                               number             Unsupported 1/
                                   1A               $556,455
                                  Total             $556,455


1/   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.




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Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         12
                        OIG’s Evaluation of Auditee Comments

Comment 1   The City’s proposed actions should address the recommendations, if fully
            implemented.




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Appendix C

                           FEDERAL REQUIREMENTS

HUD’s regulations at 24 CFR 85.20(b)(1) state that accurate, current, and complete disclosure of
the financial results of financially assisted activities must be made in accordance with the
financial reporting requirements of the grant. Section 85.20(b)(2) states that grantees must
maintain records that adequately identify the source and application of funds provided for
financially assisted activities. These records must contain information pertaining to grant or
subgrant awards and authorizations, obligations, unobligated balances, assets, liabilities, outlays
or expenditures, and income. 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 85.42(b)(1) state that records must be retained for three years from
the starting date specified in 24 CFR 85.42(c). Section 85.42(c) states that when grant support is
continued or renewed at annual or other intervals, the retention period for the records of each
funding period starts on the day the grantee submits to the awarding agency its single or last
expenditure report for that period.

HUD’s regulations at 24 CFR 570.502(a) state that recipients that are governmental entities shall
comply with Office of Management and Budget Circular A-87 and 24 CFR Part 85. Section
570.502(a)(16) states that recipients that are governmental entities shall comply with 24 CFR
85.42, retention and access requirements for records, except that the period shall be four years.

Attachment B, section 11.h.(4), of Office of Management and Budget Circular A-87 states that
when employees work on multiple activities or cost objectives, a distribution of their salaries or
wages will be supported by personnel activity reports or equivalent documentation. Section
11.h.(5) states that personnel activity reports or equivalent documentation must meet the
following standards: (a) reflect an after the fact distribution of the actual activity of each
employee, (b) account for the total activity for which each employee is compensated, (c) be
prepared at least monthly and must coincide with one or more pay periods, and (d) be signed by
the employee.




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