oversight

Weaknesses in the Office of Fair Housing and Equal Opportunity's 2007 Award Process for the Fair Housing Initiative Program, National-Based Media Campaign

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-08-27.

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

                                                                               Issue Date
                                                                                        August 27, 2008
                                                                               Audit Report Number
                                                                                            2008-NY-0002




TO:               Kim Kendrick, Assistant Secretary, Office of Fair Housing and Equal
                                                 Opportunity, E

                                                   for
FROM:             Edgar Moore, Regional Inspector General for Audit, Region II, 2AGA

SUBJECT: Weaknesses in the Office of Fair Housing and Equal Opportunity’s 2007 Award
         Process for the Fair Housing Initiative Program, National-Based Media Campaign

                                             HIGHLIGHTS
    What We Audited and Why

                   In response to an Office of Inspector General (OIG) hotline complaint,1 we
                   performed a limited review of HUD’s Office of Fair Housing and Equal
                   Opportunity’s 2007 award process for the Fair Housing Initiatives Program,
                   Education and Outreach Initiative, national-based program, media campaign as
                   well as its fiscal year 2005 and 2006 national Education and Outreach Initiatives
                   program. The objectives of the review were to generally determine whether the
                   Office of Fair Housing and Equal Opportunity complied with the requirements of
                   42 U.S.C. (United States Code) Chapter 45, Subpart I, Section, 3616a(d), entitled
                   Fair Housing Intiatives Program, Education and Outreach, when it published the
                   2007 Fair Housing Initiatives Program notice of funding availability for the
                   national Education and Outreach Initiative national-based media campaign,
                   awarded the grant for the 2007 national media campaign, and administered the
                   national education and outreach program activities in 2005 and 2006.

    What We Found
                   The limited scope work conducted to address the complaint disclosed that the
                   Office of Fair Housing and Equal Opportunity generally complied with the
                   requirements of 42 U.S.C. Chapter 45, Subpart I, Section, 3616a(d); however, it
                   issued the 2007 Fair Housing Initiatives Program notice of funding availability

1
    The complaint allegations were addressed in a separate memorandum to the OIG Hotline.


                                                         1
           with an error related to applicant eligibility, and it did not fully document criteria
           to determine eligibility of the applicant awarded the 2007 Education and Outreach
           Initiative national program media campaign. This condition occurred because the
           Office of Fair Housing and Equal Opportunity broadly defined who was eligible
           to apply for the media campaign component by including for-profit entities and
           did not develop specific criteria or obtain a legal definition to support its
           designation of applicants as nonprofit organizations representing groups protected
           under the Fair Housing Act. As a result, the notice of funding availability may
           have been confusing to potential applicants, and there was no assurance that the
           grant award was made to an eligible organization under the Fair Housing
           Initiatives Program statute. Additionally, the Office of Fair Housing and Equal
           Opportunity lacked a policy regarding whether a portion of each fiscal year’s
           Education and Outreach Initiative funds were to be used for a national program for
           Fair Housing Month activities.

What We Recommend
           We recommend that the Assistant Secretary, Office of Fair Housing and Equal
           Opportunity, (1) strengthen its internal control procedures regarding the
           development of future super notices of funding availability to ensure that notice
           language complies with statutory requirements, (2) obtain guidance on the
           meaning of a nonprofit organization representing groups of persons protected
           under the Fair Housing Act, (3) make a determination whether the nonprofit
           organization awarded the 2007 media campaign is a nonprofit organization
           representing groups of persons protected under the Fair Housing Act, (4) establish
           procedures to ensure proper designation of organizations as nonprofit
           organizations representing groups of persons protected under the Fair Housing
           Act, and (5) develop policy on whether funds from each fiscal year’s Fair
           Housing Initiatives Program appropriation is intended to be used for a national
           program specifically for annual Fair Housing Month activities.

           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 discussed the results of our review with auditee officials during the audit and
           at an exit conference on July 29, 2008. We provided a draft report to the auditee
           on July 25, 2008 and requested their written comments by August 12, 2008,
           which we received on August 15, 2008. The auditee generally agreed with the
           finding and has begun implementing corrective action to address our
           recommendations. The complete text of the auditee’s response, without
           attachments, along with our evaluation of that response, can be found in appendix
           A of this report.



                                             2
                            TABLE OF CONTENTS

Background and Objectives                                                       4

Results of Audit
      Finding 1: Weaknesses Existed in the Office of Fair Housing and Equal     5
                 Opportunity’s Award Process for the Fair Housing Initiatives
                 Program National-Based Media Campaign

Scope and Methodology                                                           9

Internal Controls                                                               10

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                     12




                                             3
                     BACKGROUND AND OBJECTIVES

The Office of Fair Housing and Equal Opportunity’s mission is to create equal housing
opportunities for all persons in America by administering laws that prohibit discrimination in
housing on the basis of race, color, religion, sex, national origin, age, disability, and familial
status. The Fair Housing Initiatives Program provides funding to public and private entities
formulating or carrying out programs to prevent or eliminate discriminatory housing practices.
The program is authorized under Section 561 of the Housing and Community Development Act
of 1987 (42 U.S.C. (United States Code) 3616a, P. L. 100-242), as amended by the Housing and
Community Development Act of 1992, and regulations at 24 CFR (Code of Federal Regulations)
Part 125.

The Fair Housing Initiatives Program supports projects and activities designed to enhance
compliance with the Fair Housing Act through four initiatives: Fair Housing Organizations,
Private Enforcement, Education and Outreach, and Administrative Enforcement. The Education
and Outreach Initiative provides funding to state and local governments and nonprofit
organizations for initiatives to foster understanding of equal opportunity in housing and
compliance with the Fair Housing Act. Regulations at 42 U.S.C. Chapter 45, Subpart I, Section
3616a, authorize the Secretary of Housing and Urban Development, through contracts with one
or more qualified fair housing enforcement organizations, other fair housing enforcement
organizations, and other nonprofit organizations representing groups of persons protected under
the Fair Housing Act [Title VIII of the Civil Rights Act of 1968 [42 U.S.C. 3601 et seq.]], to
establish a national education and outreach program. This national program should be designed
to provide a centralized, coordinated effort for the development and dissemination of fair
housing media products, including both audio and video public service announcements;
television, radio, and print advertisements; posters; pamphlets; and brochures.

The U.S. Department of Housing and Urban Development (HUD) published a super notice of
funding availability in 2007 to solicit applicants to receive funding for various discretionary
programs, including the Fair Housing Initiatives Program, Education and Outreach Initiative,
national-based program, media campaign component. Two applications were received; one was
determined not eligible, and the remaining applicant was awarded the funding.

The objectives of the review were to generally determine whether the Office of Fair Housing and
Equal Opportunity complied with the requirements of 42 U.S.C. Chapter 45, Subpart I, Section
3616a(d), entitled Fair Housing Intiatives Program, Education and Outreach, when it published
the 2007 Fair Housing Initiatives Program notice of funding availability for the national
Education and Outreach Initiative media campaign, awarded the 2007 national media campaign,
and administered the national education and outreach program activities in 2005 and 2006.




                                                4
                                         RESULTS OF AUDIT

Finding 1: Weaknesses Existed in the Office of Fair Housing and Equal
           Opportunity’s Award Process for the Fair Housing Initiatives
           Program National-Based Media Campaign
The Office of Fair Housing and Equal Opportunity generally complied with the requirements of
42 U.S.C. Chapter 45, Subpart I, Section, 3616a (d); however, it issued the 2007 Fair Housing
Initiatives Program notice of funding availability with an error related to applicant eligibility, and
it did not fully document criteria to determine the eligibility of the applicant awarded the 2007
Education and Outreach Initiative national program media campaign. This condition occurred
because the Office of Fair Housing and Equal Opportunity broadly defined who was eligible to
apply for the media campaign component by including for-profit entities and did not develop
specific criteria or obtain a legal definition to support its designation of applicants as nonprofit
organizations representing groups protected under the Fair Housing Act2. As a result, the notice
of funding availability may have been confusing to potential applicants, and there was no
assurance that the grant award was made to an eligible organization under the Fair Housing
Initiatives program statute. Additionally, the Office of Fair Housing and Equal Opportunity
lacked a policy regarding whether a portion of each fiscal year’s Education and Outreach Initiative
funds were to be used for a national program for Fair Housing Month activities.


    Applicant Eligibility Incorrectly
    Defined


                  The Office of Fair Housing and Equal Opportunity did not ensure that applicant
                  eligibility in the 2007 notice of funding availability for the national-based program
                  media campaign was defined in accordance with the Fair Housing Initiatives statute
                  (Section 3616a(d)(1)). Regulations at 42 U.S.C. Chapter 45, Subpart I, Section
                  3616a(d)(1), imply that eligible applicants are qualified fair housing enforcement
                  organizations, other fair housing enforcement organizations, and other nonprofit
                  organizations representing groups of persons protected under the Fair Housing Act.
                  Contrary to regulations, the super notice of funding availability defined eligible
                  applicants as including for-profit entities that carry out programs to prevent or
                  eliminate discriminatory housing practices. We concluded that the statute is
                  controlling and the policy requirements and general section of the super notice of
                  funding availability required that eligible applicants meet all statutory and regulatory
                  requirements applicable to any program for which they sought funding.
                  Consequently, while the notice may have been confusing, no harm occurred.



2
  Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), as amended, prohibits discrimination in the sale,
rental and financing of dwellings based on race, color, religion, sex, national origin, disability or familial status.


                                                            5
            The Fair Housing Initiatives program division director stated that the eligibility
            definition was intended to apply to applicants in each of the initiatives under the Fair
            Housing Initiatives program. The director further stated that, while public or private
            for-profit entities are not eligible for funding under the Education and Outreach
            Initiative, national-based program, media campaign component, they would be
            eligible under the Education and Outreach Initiative, regional/local programs
            component. The division director also stated that the statute trumps information
            published in the super notice, although the notice contained errors in defining
            eligible applicants. Nevertheless, the director noted that corrective action had been
            taken to ensure that the draft 2008 notice of funding availability defines eligible
            applicants for the national-based program media campaign as qualified fair housing
            enforcement organizations, other fair housing enforcement organizations, and other
            nonprofit organizations representing groups of persons protected under the Fair
            Housing Act. We verified this correction in the final notice issued.


Applicant Eligibility Not Fully
Documented


            The Office of Fair Housing and Equal Opportunity did not ensure that the
            applicant awarded a cooperative agreement under the 2007 national media
            campaign met the Fair Housing Initiatives program statutory eligibility
            requirement of being a nonprofit organization representing groups of persons
            protected under the Fair Housing Act. Specifically, Fair Housing Initiatives
            Program staff relied upon the information provided in the application for the
            grant. The entity that was awarded the grant certified on its application that it was
            a nonprofit organized under Internal Revenue Code Section 501(c)(3) and
            reported that it was a national, multi-channel news and communications
            organization for ethnic media dedicated to bringing the voices of immigrant and
            ethnic minority communities into national discourse. Review of the applicant’s
            Form 990 for tax year 2005 disclosed that it reported its primary exempt purpose
            as public education and community organizing. The Form 990 also listed the
            following accomplishments in 2005: (1) served more than 7,500 at-risk youth
            through its youth communication program; (2) channeled more than two million
            dollars in advertising into the ethnic media sector and increased the ethnic
            media’s capacity to report on policy, health, and the environment; and (3)
            convened the first national expo of ethnic media in New York City.

            Fair Housing Initiatives program staff concluded that a 501(c) (3) organization
            dedicated to working with and for diverse groups, such as those for whom the
            organization awarded the grant, met the criteria for representing groups of persons
            protected under the Fair Housing Act. However, program staff had not developed
            and could not identify a legal definition or other criteria used to support
            designation of such an organization as a nonprofit organization representing
            groups protected under the Fair Housing Act. Consequently, there is a question as



                                               6
           to whether such a media organization could qualify as an eligible applicant that
           represented groups protected under the Fair Housing Act. In response to this
           uncertainty, we requested that the Fair Housing Initiatives Program division
           director obtain legal guidance from the HUD General Counsel regarding the
           meaning of a nonprofit organization representing groups of persons protected
           under the Fair Housing Act. A response had not been received prior to the
           issuance of our draft report, but was subsequently received on August 18, 2008.
           HUD General Counsel advised that the Assistant Secretary for Fair Housing and
           Equal Opportunity has legal authority to interpret and apply the phrase “represent
           groups protected under the Fair Housing Act”.

Uncertainty Related to Funding
of a National Program for Fair
Housing Month Activities

           We concluded that the Fair Housing Initiatives Program statute does not require
           HUD to fund annual National Fair Housing Month activities, but HUD may
           impose stricter requirements upon itself through interpretation of the statute. In a
           May 13, 2008, memorandum, the Associate General Counsel for Fair Housing
           concluded that interpretation of the statute would require that HUD annually fund
           a national program specifically for activities related to the annual National Fair
           Housing Month. However, based upon our further inquiry, the Associate General
           Counsel sought advice from HUD appropriation counsel, which reportedly
           concluded that the statute did not require HUD to fund this activity annually.

           Nevertheless, the Director of the Office of Fair Housing and Equal Opportunity,
           Fair Housing Initiatives Program Division, stated that the Office of Fair Housing
           and Equal Opportunity did fund and produce a national education and outreach
           program in 2005 and 2006. Our review of the application for which the fiscal
           year 2004 national-based program media campaign award was made found that
           the award included promoting the 2005 National Fair Housing Month. Our
           review of fiscal years 2005 and 2006 Fair Housing Initiatives program funding
           found that no Education and Outreach Initiative funding was allocated to a
           national program specifically for Fair Housing Month activities.

           While the statute may not require HUD to fund annual National Fair Housing
           Month activities, it gives HUD discretion to impose such a requirement upon
           itself if it so chooses. Without documentation as to HUD’s intention in this
           regard, we cannot conclude that the Office of Fair Housing and Equal
           Opportunity was required to use a portion of each fiscal year’s appropriation to
           fund a national program for Fair Housing Month.




                                             7
Conclusion

             The Office of Fair Housing and Equal Opportunity’s 2007 Fair Housing
             Initiatives program notice of funding availability incorrectly defined eligible
             applicants for the national education and outreach media campaign because it
             broadly defined who was eligible to apply for the media campaign component by
             including for-profit entities. However, since the statute controlled who was
             determined to be eligible, other than possible confusion among applicants, there
             was no adverse effect. Additionally, the office did not fully document that the
             applicant awarded the 2007 national media campaign was a nonprofit
             organization representing groups protected under the Fair Housing Act. This
             condition occurred because the Office of Fair Housing and Equal Opportunity did
             not use specific criteria or a legal definition to support such a designation. As a
             result, there was no assurance that the grant award was made to an eligible
             organization under the Fair Housing Initiatives program statute.

Recommendations

             We recommend that the Assistant Secretary, Office of Fair Housing and Equal
             Opportunity,

             1A.    Strengthen its internal control procedures regarding the development of
                    future super notices of funding availability to ensure that notice language
                    complies with statutory requirements.

             1B.    Obtain legal guidance on the meaning of a nonprofit organization
                    representing groups of persons protected under the Fair Housing Act.

             1C.    Make a determination regarding whether the nonprofit organization
                    awarded the cooperative agreement for the 2007 media campaign is a
                    nonprofit organization representing groups of persons protected under the
                    Fair Housing Act.

             1D.    Establish procedures to ensure proper designation of organizations as
                    nonprofit organizations representing groups of persons protected under the
                    Fair Housing Act.

             1E.    Develop policy on whether the Office of Fair Housing and Equal
                    Opportunity intends to use a portion of each fiscal year’s appropriation to
                    fund a national program specifically for activities related to the annual
                    National Fair Housing Month.




                                              8
                        SCOPE AND METHODOLOGY

To address the complaint allegations and determine whether the Office of Fair Housing and
Equal Opportunity complied with the requirements of 42 U.S.C. (United States Code) Chapter
45, Subpart I, Section, 3616a(d), entitled Fair Housing Initiatives Program, Education and
Outreach, we reviewed Fair Housing Initiatives Program laws and regulations and Office of Fair
Housing and Equal Opportunity files and applications for awards made for the fiscal years 2004
and 2007 Fair Housing Initiatives Program, Education and Outreach Initiative, national-based
program, media campaign component. In addition, we obtained and reviewed Form 990, Return
of Organization Exempt from Income Tax, of the nonprofit organization funded in 2007 for its
tax years 2004, 2005, and 2006. We reviewed the entity’s quarterly reports submitted to HUD
and payments made by HUD for services the organization provided. We also interviewed
officials of the Office of Fair Housing and Equal Opportunity to obtain an understanding of the
internal controls over the Fair Housing Initiatives Program, Education and Outreach Initiative,
national-based program, and obtained guidance from the Counsel to the OIG on the issues
relating to compliance with 42 U.S.C. Chapter 45, Section 3616(a), Fair Housing Initiatives
Program. Additionally, we discussed with HUD’s Associate General Counsel for Fair Housing
whether the statute required the Office of Fair Housing and Equal Opportunity to annually fund
National Fair Housing Month activities.

We performed our review between January and March 2008 at the Office of Fair Housing and
Equal Opportunity in Washington, DC, 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:

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

                      Safeguarding resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

                      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.

              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.




                                               10
Significant Weaknesses


           Based on our review, we believe the following items are significant weaknesses:

                  The Office of Fair Housing and Equal Opportunity lacked adequate
                  controls to (1) accurately define who was eligible to apply for the media
                  campaign, and (2) develop specific criteria or obtain a legal definition to
                  support its designation of applicants as nonprofit organizations
                  representing groups protected under the Fair Housing Act (see finding 1).




                                           11
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         12
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         13
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 3




                         14
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                Auditee Comments




Comment 4




                        OIG Evaluation of Auditee Comments




                                       15
                   OIG Evaluation of Auditee Comments

Comment 1   The auditee agrees with the finding and has already taken actions that are
            responsive to our recommendation.

Comment 2   The auditee takes exception to the finding that it had not developed or identified a
            legal definition or criteria to support designation of an applicant as a nonprofit
            organization representing groups of persons protected under the Fair Housing Act.
            Officials disagree with the statement that they did not fully document that the
            applicant was a nonprofit organization representing groups of persons protected
            under the Fair Housing Act and note that the applicant provided documents to
            certify that it is a 501(c) 3 nonprofit as designated by Section 501(c) 3 of the
            Internal Revenue Code. The report does acknowledged that the auditee verified
            the applicant’s status as a nonprofit organization organized and operated under the
            provisions of Internal Revenue Code 501(c)(3); however, this verification ensures
            that the applicant is a nonprofit organization, but does not verify that the
            organization represents groups of persons protected under the Fair Housing Act.

Comment 3   The auditee responds that the applicant’s background clearly demonstrates that
            the applicant organization by itself and in association with the subcontractor is an
            organization that represents groups of persons protected under the Fair Housing
            Act. Further the auditee references an August 8, 2008 memo from the Associate
            General Counsel for Fair Housing providing guidance that recognizes the legal
            authority of the Assistant Secretary for Fair Housing and Equal Opportunity to
            interpret and apply the definition of an organization representing groups protected
            under the Fair Housing Act as it administers the Fair Housing Initiatives Program.
            Therefore, the auditee believes that it correctly interpreted the eligibility of the
            subject organization. Nevertheless, the actions taken by the auditee to obtain
            legal guidance on this issue are responsive to our recommendation.

Comment 4   While HUD General Counsel determined that annual funding of annual fair
            Housing Month activities is at the discretion of the Secretary, the Assistant
            Secretary for Fair Housing and Equal Opportunity encourages all Fair Housing
            and Equal Opportunity regional and field offices, Fair Housing Initiative Program
            partners, and other fair housing partners to coordinate and participate in Fair
            Housing Month activities. This is responsive to our recommendation.




                                             16