Issue Date March 20, 2008 Audit Report Number 2008-FW-1007 TO: Katie S. Worsham Director, Community, Planning, and Development, 6AD FROM: Gerald R. Kirkland Regional Inspector General for Audit, Fort Worth Region, 6AGA SUBJECT: City of Dallas, Dallas, Texas, Incurred Ineligible and Unsupported Expenses for Its Housing Opportunity for Persons with AIDS Grant HIGHLIGHTS What We Audited and Why We conducted a review of the City of Dallas’ (City) Housing Opportunities for Persons with AIDS (HOPWA) grant. We initiated the review due to concerns of the U. S. Department of Housing and Urban Development (HUD) regarding the City’s management and oversight of its program sponsors because of the size of the grant and the addition of two new competitive grants. Our objectives were to determine whether the City and its program sponsors provided rent, mortgage, and utility assistance to persons who met program criteria and whether the 2005 and 2006 competitive grants provided transitional and replacement housing. What We Found Generally, the City complied with program requirements to ensure that it and its program sponsors provided assistance to eligible persons. However, in violation of the HOPWA grant agreement, three program sponsors charged $24,521 in ineligible expenses, and one program sponsor did not support $138,979 in expenses. Further, the City provided $1,732 in excess short-term rental, mortgage, and utility assistance, and several client files lacked adequate supporting documentation. What We Recommend We recommend that the Director of HUD’s Fort Worth Office of Community Planning and Development require the City to (1) repay $26,253 to its HOPWA formula grant; (2) provide supporting documentation or reimburse its formula grant $138,979; (3) discontinue cable television payments, which will result in $16,345 in formula grant funds put to better use; and (3) strengthen controls to better comply with requirements. 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 or directives issued because of the audit. Auditee’s Response We provided a draft to the City of Dallas on February 25, 2008, and held an exit conference on March 10, 2008. The City of Dallas provided written comments on March 17, 2008. The City of Dallas agreed with all the recommendations except the ineligibility of cable television expenses. The City of Dallas’ response along with our evaluation is included in appendix B of this report. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: The City Charged Ineligible and Unsupported Expenses to Its Formula Grants 5 Finding 2: The City Paid Excessive Assistance and Did Not Maintain Complete Files 7 Scope and Methodology 9 Internal Controls 10 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 11 B. Auditee Comments and OIG’s Evaluation 12 3 BACKGROUND AND OBJECTIVES The City of Dallas (City) received Housing Opportunities for People with AIDS (HOPWA) formula grants of more than $3 million annually during our review period. The City’s Environmental and Health Services Department administers the HOPWA grant and provides management and oversight of the program. The HOPWA program year runs from October 1 through September 30. The Dallas eligible metropolitan statistical area includes the City and eight surrounding counties. A reported 13,472 persons with Human Immunodeficiency Syndrome/Acquired Immune Deficiency Syndrome (HIV/AIDS) lived in the area as of December 31, 2005. The City’s HOPWA formula grant provides the following services: (1) tenant-based rental assistance; (2) short-term rent, mortgage, and utility assistance; (3) facility-based housing assistance, including the lease of certain facilities; and (4) other supportive services, consisting of homeless outreach, medically managed day care, and lost-to-care outreach and assistance. The City has contracts or agreements with eight program sponsors to provide the services. During the 2005 and 2006 program years, the City’s HOPWA program provided housing assistance to 743 households, a total of 1,032 persons. This assistance consisted of long- and short-term rental assistance, short-term utility assistance, and facility-based housing. Additionally, the U.S. Department of Housing and Urban Development (HUD) awarded the City two HOPWA Special Projects of National Significance demonstration grants. One of the grants, totaling $773,839, which runs from October 1, 2005, to September 30, 2008, was to provide housing placement and transitional housing to homeless persons living with HIV/AIDS. The other grant, totaling $721,000, which runs from January 1, 2007, through December 31, 2009, provides housing placement and transitional tenant-based rental assistance to ex-offenders with HIV/AIDS residing in the City of Dallas. 4 RESULTS OF AUDIT Finding 1: The City Charged Ineligible and Unsupported Expenses to Its Formula Grants Three City program sponsors 1 charged $24,521 in ineligible expenses to the City’s HOPWA formula grant for cable television, aquarium supplies, and Christmas decorations. Further, contrary to HUD requirements, one program sponsor 2 did not provide support for $138,979 in expenses charged to the HOPWA formula grant. The City should reimburse its HOPWA grant $24,521 and any of the $138,979 that it cannot adequately support. Further, it should strengthen controls to ensure that the program sponsors only charge eligible expenses in the future, saving an additional $16,345 over the next year. Program Sponsors Charged Ineligible and Unsupported Costs From October 2005 through September 2007, two program sponsors charged the City’s HOPWA formula grant $24,022 in unallowable television charges. Also, one program sponsor charged the HOPWA grant for $278 in aquarium supplies and $119 for Christmas decorations and another program sponsor charged the HOPWA grant $122 for sporting equipment. The purpose of the formula grant is to provide housing and supportive services to individuals with HIV/AIDS and their families. Eligible uses of the funds include mortgage, utility, and rental assistance; support services; and acquisition, rehabilitation, operation, and lease of facilities to provide housing. Cable television, 3 aquarium supplies, and Christmas decorations are not housing costs and, therefore, unallowable. This occurred because the program sponsors and the City incorrectly considered these eligible expenses. The City should reimburse its HOPWA grant $24,521 and strengthen its controls to ensure that program sponsors charge only eligible expenses to its HOPWA grants. By doing this, it could avoid an estimated $16,345 4 in ineligible costs from being charged to its HOPWA grants over the next year. 1 AIDS Services of Dallas charged $23,596, Legacy Counseling Center charged $803, and Welcome House charged $122. 2 Welcome House, Inc. 3 Office of Management and Budget Circular A-87, attachment B 14. 4 Based upon the average cable costs charged to the HOPWA grants over the previous two years. 5 Contrary to HUD requirements, one program sponsor 5 did not provide support for $138,979 in expenses charged to the HOPWA formula grant. The expenses included payroll allocations, security, and utilities. The program sponsor did not reconcile its expenses with reimbursements. The City should provide supporting documentation for the $138,979 or repay any ineligible amounts. Recommendations We recommend that the Director of HUD’s Fort Worth Office of Community Planning and Development to require the City to 1A. Reimburse its HOPWA formula grant $24,521 6 for the ineligible expenses. 1B. Strengthen controls to ensure that it charges only eligible expenses to its grants, which could save an estimated $16,345 over the next year. 1C. Support the $138,979 in claimed expenses by a program sponsor or repay the grant the unsupported amounts. 5 Welcome House, Inc. 6 ($23,199+$803+$278+$119+$122). 6 Finding 2: The City Paid Excessive Assistance and Did Not Maintain Complete Files The City paid $1,732 in excess short-term rent, mortgage, and utility assistance for four clients. Three cases occurred due to an employee’s disregard for policy. The fourth case occurred because of errors. Additionally, some client files lacked required documentation, such as documentation to show that the units met housing quality standards. As a result, $1,732 was not available for eligible assistance, and the City could not ensure that assistance was eligible in all cases because of missing documentation. Ineligible Assistance Was Paid Of the 112 client files reviewed, four clients received short-term rent, mortgage, and utility assistance in excess of the allowed 21 weeks. 7 In total, the City paid $1,732 in ineligible assistance for the four clients. For the West Dallas Multipurpose Center, the City paid $1,280 in ineligible assistance for three clients. This occurred due to an employee's disregard for policy. For the Martin Luther King Community Center, one client received $452 in excessive assistance because of errors. The City terminated one case manager who disregarded policy by approving inappropriate assistance for three clients. The City should repay $1,732 and strengthen controls to ensure that it does not provide excessive assistance. Client Files Were Missing Documentation Of the 112 client files reviewed, 19 files lacked some documentation. One program sponsor 8 lacked housing quality standards documentation in 15 of 27 (56 percent) files reviewed. Contrary to program requirements, the client files lacked documentation supporting that units met housing quality standards 9 and were free of lead-based paint. 10 Files also did not always include documentation supporting 7 24 CFR [Code of Federal Regulations] Part 574 limits assistance to 21 weeks during a 52-week period. 8 AIDS Services of Dallas (ASD). 9 24 CFR 574.310.2. 10 24 CFR 574.635. 7 that annual income recertifications were performed, 11 client eligibility, 12 or persons being assisted. 13 Regarding housing quality standards documentation, the program sponsor’s management stated that maintaining the documentation was not a requirement until recently. Previously, a contractor was responsible for ensuring that standards were met but did not maintain documentation. As a result, the program sponsor did not have any records of unit deficiencies or whether they were properly corrected. HOPWA regulations required that documentation be maintained. When the program sponsor did start maintaining documentation, it only collected the apartment number. This was not adequate documentation to show the types of deficiencies and whether or not they were corrected. Recently, the sponsor began maintaining additional information to sufficiently meet requirements. Recommendations We recommend that the Director of HUD’s Fort Worth Office of Community Planning and Development require the City to 2A. Reimburse the HOPWA formula grant $1,732 in ineligible short-term rent, mortgage, and utility assistance. 2B. Strengthen policies and procedures to ensure that client files contain required documentation. 11 24 CFR 574.330(a). 12 24 CFR 574.332 (a)(2). 13 24 CFR 574.3. 8 SCOPE AND METHODOLOGY Our objectives were to determine whether the City and its program sponsors provided rent, mortgage, and utility assistance to persons that met program criteria and whether the 2005 and 2006 competitive grants provided transitional and replacement housing. To accomplish our objectives, we • reviewed applicable program requirements, • reviewed the City's internal controls regarding the HOPWA grant, • reviewed draws from the following grants that were statistically selected based on a confidence level of 95 percent with a $100 materially level, GRANT POPULATION SAMPLE SIZE 2005-06 Formula Grant 1,234 37 2006-07 Formula Grant 1,554 47 2005 Competitive grant 1,560 47 2006 Competitive grant 527 16 • reviewed 112 of 667 (17 percent) formula client files, 8 of 46 (17 percent) 2005 HOPWA competitive grant client files, and 6 of 27 (22 percent) 2006 HOPWA competitive grant client files. The client files were judgmentally selected to include men and women, persons living in all facilities, and current clients as well as terminated clients, • conducted housing quality standards inspections of 29 of 281 (10 percent) assisted units that were judgmentally selected to include all facilities and include units occupied by both women and men, and • interviewed City's Department of Environmental Health Services and program sponsor personnel. We conducted our review from October through December 2007 at the City Environmental and Health Services Office, Dallas, TX, the City's program sponsor's offices located in Dallas, TX, Denton, TX, and Weatherford, TX; two of the City's community centers, and our offices. Our review period was from January 1, 2005, through September 30, 2007. We performed our review in accordance with generally accepted government auditing standards. 9 INTERNAL CONTROLS Internal control is an integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: • Effectiveness and efficiency of operations, • Reliability of financial reporting, and • Compliance with applicable laws and regulations. Internal controls relate to management’s plans, methods, and procedures used to meet its mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined the following internal controls were relevant to our audit objectives: • Compliance with laws and regulations – Policies and procedures that management has implemented to reasonably ensure that resource use is consistent with laws and regulations, including policies and procedures regarding eligible costs, eligible clients, and housing quality standards. We assessed the relevant control identified above. A significant weakness exists if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet the organization’s objectives. Significant Weakness Based on our review, we do not believe there are any significant weaknesses. 10 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 $24,521 1B $16,345 1C $138,979 2A 1,732 Totals $26,253 $138,979 $16,345 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 policies 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 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 reductions 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 which are specifically identified. In this instance, by avoiding ineligible costs, the funds can be used for eligible expenses. 11 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 12 Comment 1 Comment 2 13 Comment 1 14 Comment 1 15 Comment 1 16 OIG Evaluation of Auditee Comments Comment 1 With the exception of the ineligibility of cable television, the City of Dallas agreed with the report and recommendations. Comment 2 The City of Dallas believed that the cable television expense should be an eligible expense because it benefited “the health, welfare, and safety of HOPWA clients residing in facilities.” However, the Deputy Director of the Office of HIV/AIDS made the determination that cable television was an entertainment expense and not an eligible operating expense. 17
City of Dallas, Dallas, Texas, Incurred Ineligible and Unsupported Expenses for Its Housing Opportunity for Persons with AIDS Grant
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-03-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)