oversight

The City of Troy, New York, Did Not Always Administer Its Community Development Block Grant Program in Accordance with HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-05-21.

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

                                                                Issue Date
                                                                   May 21, 2008
                                                                Audit Report Number
                                                                   2008-NY-1006




TO:        Nancy Peacock, Director, Community Planning and Development, 2CD


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

SUBJECT: The City of Troy, New York, Did Not Always Administer Its Community
         Development Block Grant Program in Accordance with HUD Requirements


                                  HIGHLIGHTS

 What We Audited and Why

            We audited the operations of the City of Troy, New York (City), pertaining to its
            administration of its Community Development Block Grant (CDBG) program.
            We selected the City for review based upon previous U.S. Department of Housing
            and Urban Development (HUD) on-site monitoring reviews and indicators from
            our internal audit of HUD’s monitoring of the CDBG program, which identified
            concerns with the City’s administration of the program. The objective of our
            audit was to determine whether the City administered its CDBG program in an
            effective and efficient manner in compliance with applicable HUD rules and
            regulations.

 What We Found
            The City generally complied with HUD program requirements when
            administering its overall CDBG program; however, for certain areas, it did not
            always carry out its activities in an efficient and effective manner and comply
            with HUD regulations. Specifically, the City did not establish adequate
            procedures to ensure that its housing rehabilitation program was administered in
            accordance with program regulations. It could not always demonstrate that the
            homes funded through its rehabilitation program were brought into compliance
           with the Lead Safe Housing Rule as required. Consequently, the City could not
           ensure that the homes did not pose lead-based paint hazards to young children.
           The City did not establish adequate procedures to ensure that costs for its street
           improvement activities were allowable and supported by adequate documentation.
           As a result, it expended funds for ineligible and unsupported costs for repairs to
           sidewalks, filling of cracks and potholes, and street repaving activities. Thus,
           assurances that the CDBG program objectives were met were diminished.

           In addition, the City did not establish adequate administrative controls to ensure
           that costs associated with its public facilities activities were eligible, necessary,
           and supported by sufficient documentation. As a result, it expended funds for
           ineligible and unsupported costs for equipment and the rehabilitation of a City-
           owned police building and firehouse. Consequently, the City’s ability to
           administer its programs efficiently and effectively and ensure that CDBG program
           objectives were met was diminished.

           The City also did not establish adequate controls to ensure that program labor
           costs were adequately supported and that costs incurred were current and
           accurately recorded. As a result, it expended funds for unsupported labor and
           indirect costs without the assurance that these costs were eligible for the CDBG
           program. Thus, the lack of controls diminished budget oversight and increased
           the likelihood that program activity might be misclassified and reported to HUD
           incorrectly.

What We Recommend
           We recommend that the Director of HUD’s Buffalo Office of Community Planning
           and Development instruct the City to (1) reimburse the CDBG program from
           nonfederal funds the $186,088 paid for ineligible program expenditures, (2)
           provide supporting documentation to justify the eligibility of more than $1.2
           million in CDBG disbursements or reimburse the program from nonfederal funds
           any amounts not supported, and (3) establish adequate procedures to ensure
           compliance with CDBG program 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 discussed the results of our review during the audit, provided a copy of the
           draft report to City officials, and requested their comments on March 26, 2008.
           We held an exit conference on April 15, 2008, and City officials provided their
           written comments on April 25, 2008, at which time they generally disagreed with
           our findings. The complete text of the auditee’s response, along with our
           evaluation of that response, can be found in appendix B of this report.

                                             2
                            TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
                                                                                   5
      Finding 1: Administrative Weaknesses Existed in the City’s Housing
                 Rehabilitation Program

      Finding 2: Ineligible and Unsupported Costs for Street Improvement Program   9
                 Activities Were Charged to the CDBG Program

      Finding 3: The City Expended CDBG Funds for Questionable Public              12
                 Facilities Activities

      Finding 4: The City’s Controls over the Processing and Accounting for        16
                 CDBG Payroll Costs Were Inadequate


Scope and Methodology                                                              20

Internal Controls                                                                  21

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use               23
   B. Auditee Comments and OIG’s Evaluation                                        24
   C. Schedule of Unsupported Public Facilities Maintenance and Rehabilitation     39
      Costs




                                             3
                     BACKGROUND AND OBJECTIVES


The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974 (Public Law 93-383). The program provides
grants to state and local governments to aid in the development of viable urban communities.
Governments are to use grant funds to provide decent housing and suitable living environments
and to expand economic opportunities, principally for persons of low and moderate income. To
be eligible for funding, every CDBG-funded activity must meet one of the program’s three
national objectives. Specifically, every activity, except for program administration and planning,
must

           •   Benefit low-and moderate-income persons,
           •   Aid in preventing or eliminating slums or blight, or
           •   Address a need with a particular urgency because existing conditions pose a
               serious and immediate threat to the health or welfare of the community.

The City of Troy (City) is a CDBG entitlement recipient that has administered more than $2
million in CDBG funds annually. These funds are available to support a variety of activities
directed at improving the physical condition of neighborhoods by providing housing or public
improvements and facilities, creating employment, or improving services for low- and/or
moderate-income households.

The City works with some outside nonprofit organizations to carry out its CDBG-funded
programs; however, the majority of programs are administered in house by the City’s
Department of Planning, which is responsible for overseeing, monitoring, and supporting its
CDBG activities. The files and records related to the City’s CDBG programs are maintained in
City Hall, located at One Monument Square, Troy, New York.

We audited the City’s CDBG program based upon previous U.S. Department of Housing and
Urban Development (HUD) on-site monitoring reviews and indicators from our internal audit of
HUD’s monitoring of the CDBG program (Report No. 2008-NY-0001, issued December 31,
2007), which identified concerns with the City’s administration of the CDBG program. The
objective of our audit was to determine whether the City administered its CDBG program in an
effective and efficient manner in compliance with applicable HUD rules and regulations.




                                                4
                                RESULTS OF AUDIT


Finding 1: Administrative Weaknesses Existed in the City’s
           Housing Rehabilitation Program
The City did not establish adequate procedures to ensure that its housing rehabilitation program
was administered in compliance with program regulations. Specifically, our examination of 10
project files found that the City could not always demonstrate that the properties were brought
into compliance with HUD’s Lead Safe Housing Rule as required. Consequently, the City could
not ensure that the properties did not pose lead-based paint hazards to young children, which is
the mandate of the Lead Safe Housing Rule. We attribute these deficiencies to the City’s general
unfamiliarity with HUD’s regulations on controlling lead-based paint hazards in properties
receiving federal assistance. Accordingly, the $185,125 expended on rehabilitation costs for
these 10 projects is considered unsupported. In addition, the remaining unexpended budgeted
balance of $194,424 for this activity should be reprogrammed for other eligible program
activities.


 Background

              The primary purpose of the City’s housing rehabilitation program is to eliminate
              housing code deficiencies by providing financial and technical assistance to low-
              to-moderate-income homeowners of one to four family homes. At the time of our
              review, the City had assisted approximately 46 homeowners with grants to bring
              their homes into compliance with the Housing Code of the City of Troy.

              Regulations at 24 CFR (Code of Federal Regulations) 570.608 provide that
              CDBG funds used to assist housing must comply with the requirements of the
              Lead Safe Housing Rule at 24 CFR Part 35. The Lead Safe Housing Rule is
              designed to help ensure that all pre-1978 federally assisted housing does not pose
              lead-based paint hazards to young children. The regulation establishes procedures
              for evaluating whether a hazard may be present, controlling or eliminating the
              hazard, and notifying occupants of what was found and what was done in such
              housing. The Lead Safe Housing Rule took effect on September 15, 1999.
              Subparts B thorough R of the Lead Safe Housing Rule took effect on September
              19, 2000.

              HUD’s lead-based paint requirements provide that at a minimum, the City must
              ensure that homeowners and tenants are provided a lead hazard information
              pamphlet, paint testing is performed on surfaces to be disturbed, and occupants
              are notified of the results of the evaluations. Thereafter, the requirements vary,
              based on the amount of CDBG funding per household unit; however, safe work
              practices and occupant protection are always required. For properties receiving
              more than $5,000 and up to $25,000 per unit in federal rehabilitation assistance,

                                               5
           the City must provide for (1) a risk assessment report by a qualified risk assessor,
           (2) interim controls to address all lead hazards, and (3) clearance of the worksite.
           Trained workers using lead-safe work practices must perform all construction
           work where lead-based paint is known or presumed present.

           We selected a nonstatistical sample of 10 housing rehabilitation files for review.
           The rehabilitation assistance for these 10 properties, all built before 1978,
           averaged between $4,900 and $25,000 per dwelling unit. Our examination
           included a review of the documentation contained in the files to ensure
           compliance with the City’s policies and procedures, along with HUD program
           requirements. Although the City generally administered its program as described
           in its own policies and procedures, it did not comply with HUD regulations and
           requirements pertaining to lead-based paint hazards.

           Specifically, the City did not always ensure that (1) homeowners and tenants were
           provided a lead hazard information pamphlet before rehabilitation; (2) a risk
           assessment was performed when required and interim controls were performed on
           properties where lead hazards were identified; and (3) occupants were protected
           during the hazard reduction activities. Moreover, the City did not always ensure
           that the work was performed by a qualified contractor. The weaknesses are
           discussed in detail below.

Lead Hazard Information
Pamphlet Not Always Provided
to Tenants as Required

           Regulations at 24 CFR 35.910(b) requires the grantee to provide lead hazard
           information pamphlets to each occupied dwelling unit for which federal
           rehabilitation assistance is provided. Despite this requirement, we found two
           instances in which the homeowners were not provided the pamphlet until after the
           rehabilitation work had been performed. We also found three instances in which
           the homeowner was provided the pamphlet; however, there was no evidence in
           the files that the homeowner’s tenant(s) was provided with the information in the
           pamphlet as required.

Risk Assessments Not Always
Performed

           Based on the level of CDBG funding provided for each of the 10 properties
           included in our review, the City was to provide for paint testing or presume the
           presence of lead-based paint. Nine of the properties included in our sample
           received funding in excess of $5,000 per dwelling unit, hence the regulations
           required that a risk assessment be performed in the dwelling units, in common
           areas servicing those units, and on exterior painted surfaces before the
           rehabilitation work began. Contrary to this requirement, the City did not always
           ensure that a risk assessment was performed.

                                             6
             Risk assessments were performed on only four of the nine properties for which
             they were required. Moreover, although lead risk hazards were identified in each
             of the four properties in which a risk assessment was conducted, the City did not
             always document its follow-up with interim controls to address the lead hazards
             as required. Only two of the properties had work done to address the lead hazards
             identified in the risk assessment. Documentation in the files also showed that
             only one of the two properties was later tested for clearance, the results of which
             showed that clearance had not been achieved. Additionally, the City did not
             always require that the rehabilitation work be performed by contractors trained in
             lead-safe work practices.

Occupants Possibly Not
Protected during the Hazard
Reduction Activities

             Regulations at 24 CFR 35.1345 establish procedures for protecting dwelling unit
             occupants and their belongings during hazard reduction activities. Occupants
             shall not be permitted to enter the worksite during hazard reduction activities until
             after hazard reduction work has been completed and clearance, if required, has
             been achieved. Occupants shall be temporarily relocated before and during
             hazard reduction work, except for the exceptions noted at 24 CFR 35.1345(a)
             (2)(i) through (iv).

             Despite these requirements, we found no evidence that the occupants were
             relocated during the rehabilitation work. Moreover, we found no evidence to
             suggest that the occupants did not need to be relocated. As discussed above, we
             found one instance in which the results of testing showed that clearance had not
             been achieved. Despite clearance not having been achieved, the City’s Bureau of
             Code Enforcement cleared the residence of all code violations and issued a
             certificate of compliance, thus closing the project as complete.

Conclusion

             Based on our review of the City’s administration of its housing rehabilitation
             program, it is apparent that adequate controls to ensure compliance with the Lead
             Safe Housing Rule were not established. Since the City could not demonstrate
             that the program was administered in accordance with HUD program
             requirements, we consider the $185,125 expended on rehabilitation costs for these
             10 properties to be unsupported. In addition, the remaining unexpended budget
             balance of $194,424 for this activity should be reprogrammed for other CDBG-
             eligible activities if the City cannot demonstrate that lead safe requirements will
             be followed.




                                               7
Recommendations

          We recommend that the Director of HUD’s Buffalo Office of Community Planning
          and Development, instruct the City to

          1A.     Provide documentation to justify the $185,125 in unsupported costs
                  incurred so that HUD can make an eligibility determination and reimburse
                  from nonfederal funds any unsupported costs determined to be ineligible.

          1B.     Reprogram the remaining unexpended balance of $194,424 and put the
                  funds to better use for other eligible program activities if the City cannot
                  demonstrate that the lead safe requirements will be followed.

          1C.     Implement procedures to ensure that all of the properties funded under
                  the City’s housing rehabilitation program are brought into compliance with
                  the Lead Safe Housing Rule.

          1D.     Establish program guidelines to ensure that requirements of the Lead
                  Safe Housing Rule are consistently implemented.




                                             8
Finding 2: Ineligible and Unsupported Costs for Street Improvement
           Program Activities Were Charged to the CDBG Program
Contrary to HUD requirements, the City did not establish adequate procedures to ensure that
costs for its street improvements activities were allowable and supported by adequate
documentation. Specifically, the City expended $152,172 for repairs to sidewalks and the filling
of cracks and potholes on City streets, which is ineligible under CDBG regulations. In addition,
it expended $887,962 on street repaving activities that was not supported by adequate
documentation to ensure that the costs were eligible under the CDBG program. As a result,
assurances that CDBG program objectives were met were diminished.


              We examined all costs charged by the City to the CDBG program pertaining to
              street improvement activities during fiscal years 2005 and 2006. The purpose of
              the examination was to determine the reasonableness of the costs and the City’s
              compliance with applicable program requirements. For each of the program
              years, weaknesses were identified that resulted in ineligible and/or unsupported
              costs being incurred.

 Ineligible Costs Charged for
 Maintenance and Repair of
 Publicly Owned Streets

              Regulations at 24 CFR 570.207(b)(2) detail requirements regarding operating and
              maintenance expenses and provide that as a general rule, any expense associated
              with repairing, operating, or maintaining public facilities, improvements, and
              services is ineligible. Examples of ineligible operating and maintenance expenses
              include those contained in 24 CFR 570.207(b)(2)(i), which provides in part that
              the maintenance and repair of publicly owned streets, including the filling of
              potholes in streets and repairing of cracks in sidewalks, is ineligible.

              Contrary to the above requirements, for fiscal year 2005, the City expended
              $102,220 on materials to seal sidewalk cracks and fill street potholes. In addition,
              during fiscal year 2006, $49,952 was expended on materials to seal sidewalk
              cracks. In total, the City expended $152,172 for materials used to fill potholes in
              streets and repair cracks in sidewalks, which is ineligible according to CDBG
              regulations.

 Inadequate Documentation to
 Demonstrate CDBG National
 Objective Met

              Our review of the documentation supporting the City’s street resurfacing activities
              for fiscal program years 2005 and 2006 showed that CDBG funds were to be
              expended for work on targeted streets in program-eligible areas. In addition, the


                                               9
             City was to verify program accomplishments by having the City’s Bureau of
             Engineering take before and after photos of all projects and perform routine
             inspections at least two to three times weekly.

             An examination of the project files for each program year showed that the City
             did not maintain adequate documentation to demonstrate that its street resurfacing
             activities met one of the national objectives of the CDBG program as required by
             program regulations. Specifically, documentation maintained by the City to
             support the costs charged to street resurfacing did not always support that costs
             were expended on the targeted streets in program-eligible areas. Moreover, we
             found no documentation in the project files showing that the City’s Bureau of
             Engineering took before and after photos of the street resurfacing projects or
             performed routine inspections as required.

             In February 2006, the City’s Department of Planning performed an internal
             monitoring review of the City’s fiscal program year 2005 street improvement
             project. The report, signed by the commissioner of planning, noted that an annual
             inspection of streets to determine their need for paving, based on condition, had
             been supplanted by a complaint system under which City Council members
             determined which streets should be paved. The report went on to state that under
             this system, many streets that should have been paved were not and many others,
             the conditions of which did not warrant paving, were paved anyway. The report
             also noted that there was a lack of coordination between street paving activities
             and other neighborhood improvement actions. Therefore, the report raised
             concern that the City’s paving program was a stand-alone activity that could be
             classified as a maintenance activity, thus ineligible for CDBG funding. To avoid
             being classified as a maintenance activity, the report recommended that the street
             improvement program be connected with other neighborhood improvement
             activities.

             Despite the concerns and recommendations raised by the Department of Planning,
             the documentation supporting the City’s fiscal years 2005 and 2006 street
             improvement programs showed no evidence that the concerns identified in the
             report were addressed or the recommendations acted upon. Consequently, street
             improvement costs of $887,962, which includes $150,000 in labor costs for street
             repaving activities performed by City employees, are considered unsupported
             pending a HUD eligibility determination.


Conclusion

             Despite the City’s having performed a thorough monitoring review of its fiscal
             year 2005 street improvement program, corrective actions were not implemented.
             The City expended $152,172 for ineligible maintenance and repairs of publicly
             owned streets and $887,962 for unsupported street resurfacing activities, thus
             diminishing its ability to ensure that its program was administered in an efficient



                                              10
          and effective manner. We attribute these deficiencies to the City’s not having
          adequate administrative controls to ensure compliance with CDBG regulations.

Recommendations

          We recommend that the Director of HUD’s Buffalo Office of Community Planning
          and Development, instruct the City to

          2A.     Reimburse from nonfederal funds the ineligible costs of $152,172 related to
                  the maintenance and repair of publicly owned streets.

          2B.     Provide documentation to justify the $887,962 in unsupported street
                  resurfacing costs incurred so that HUD can make an eligibility
                  determination and reimburse from nonfederal funds any unsupported costs
                  determined to be ineligible.

          2C.     Develop administrative control procedures to ensure compliance
                  with CDBG program requirements, including ensuring that costs are
                  eligible and necessary before being charged to the program.




                                           11
Finding 3: The City Expended CDBG Funds for Questionable Public
           Facilities Activities
Contrary to CDBG regulations, the City did not establish adequate administrative controls to
ensure that costs associated with two public facilities activities were eligible, necessary, and
supported by sufficient documentation before being charged to the CDBG program.
Specifically, the City expended $35,637 in questionable costs for sporting goods equipment from
its Recreational Facilities Improvement grant. The purchase of equipment is ineligible under
CDBG regulations. In addition, as part of its Public Neighborhood Facilities Improvement
activity, the City expended or committed $98,090 for maintenance and rehabilitation costs
associated with a City-owned community police building and firehouse. Since the maintenance
and rehabilitation costs may represent general government expenses as defined in CDBG
regulations, these costs are considered unsupported. Consequently, the City’s ability to
administer its programs efficiently and effectively and ensure that CDBG program objectives
were met was diminished. Based on the City’s use of funds for public facilities activities, the
remaining unexpended budgeted balance of $94,450 for these two activities should be
reprogrammed for other eligible CDBG program activities.


              To determine the adequacy of grantee administration and the eligibility of costs
              incurred, we selected two public facilities activities for review. The activities
              selected for review were the fiscal year 2005 Troy Recreational Facilities
              Improvement and the fiscal year 2007 Public Neighborhood Facilities
              Improvement grants. For each of the activities reviewed, administrative
              weaknesses were identified that resulted in costs having been incurred that were
              ineligible and/or unsupported. Particulars regarding the review of each activity
              are discussed below.

 Fiscal Year 2005 Troy
 Recreational Facilities
 Improvement Grant

              The City established the Troy Recreational Facilities Improvement activity as part
              of its fiscal year 2005 program year. The activity included a CDBG budget of
              $85,000, of which $70,000 was earmarked to renovate seven Troy recreational
              facilities, six of which were private and one that was public, contingent upon
              receipt of a matching grant from the Baseball Tomorrow Fund. The remaining
              budget of $15,000 was reserved for the Troy Public Works Department to
              renovate Troy parks.

              At the time of our review, the City had expended $35,637 for the purchase of
              various equipment and materials. Most of the purchases represented costs
              associated with sporting goods equipment. Analysis of the project activity folder
              and review of the related disbursement documentation showed that all of the costs
              incurred were questionable as to their eligibility. According to CDBG


                                              12
            regulations, the purchase of equipment is ineligible under 24 CFR
            570.207(b)(1)(iii).

            Specifically, we identified $33,916 in costs that are considered ineligible and
            $1,721 in unsupported costs. The ineligible costs consist of the following:

               $23,374            Six portable basketball systems
                  7,217           20 picnic tables
                  1,600           Four portable basketball courts, materials, and
                                  labor
                  1,425           Three tabletop score boards
                    300           One used refrigerator

               $33,916            Total

            In addition, the unsupported cost of $1,721 was for the purchase of sporting goods
            materials and equipment for the Frear Park Recreational Facility. Since a portion
            of these purchases appears to be for materials, the costs are considered
            unsupported rather than ineligible, pending an eligibility determination.

            In addition to the above, City officials verified that after the equipment purchases
            mentioned above, no inventory records were established, nor had any physical
            inventory verification been conducted. Consequently, the safeguarding of assets
            purchased with CDBG funds was diminished.

            Based on the ineligible and unsupported use of program funds for this activity, we
            suggest that the remaining unexpended budget balance of $49,363 be
            reprogrammed and put to better use for eligible purposes.

Fiscal Year 2007 Public
Neighborhood Facilities
Improvement Grant


            As part of its fiscal 2007 program year, the City established a Public
            Neighborhood Facilities Improvement activity. CDBG funds budgeted for the
            activity amounted to $156,161 and consisted of residual balances from previous
            inactive or completed activities transferred from prior program years. The
            activity was created to consist of but not be limited to possible improvements and
            repairs to the following: Bouton Road Fire House, Douw Street and 6th Avenue
            Community Police Substation, Riverfront Park stairs, Front Street pedestrian
            overpass, and other neighborhood facility improvements that might arise.

            From June 15 through September 20, 2007, the City purchased or issued purchase
            requisitions for 28 transactions totaling $111,074 for this activity. Of the 28
            transactions, 25 totaling $98,090 represent public facilities activities costs that are


                                              13
             questionable regarding their eligibility for CDBG funding and are, therefore,
             considered unsupported pending an eligibility determination. A detailed listing of
             the 25 unsupported transactions is contained in appendix C of this report.

             The $98,090 in unsupported costs consisted of purchases and commitments to
             purchase supplies and materials for the rehabilitation of a City-owned police
             substation, a new roof and roof repairs, and a new roof for a City-owned
             firehouse. Based on our analysis, the costs incurred appeared to characterize
             general government and maintenance expenses. According to CDBG regulations
             at 24 CFR 570.207(a)(2), expenses required to carry out the regular
             responsibilities of the unit of general local government are not eligible for
             assistance under this part.

             Based on the unsupported use of program funds for this activity, we suggest that
             the remaining unexpended budget balance of $45,087 be put to better use and be
             reprogrammed for other eligible purposes.

Conclusion
             Based on our review of the City’s administration of public facilities program
             activities, it is clear that adequate controls were not established to ensure that
             costs were eligible and necessary before being charged to the CDBG program.
             Consequently, the City expended $33,916 for ineligible purposes and $99,811
             ($1,721 + $98,090) for unsupported costs that diminished its ability to effectively
             and efficiently administer CDBG program funding for public facilities activities.
             In addition, our review identified $94,450 ($49,363 + $45,087) in cost savings.

Recommendations

             We recommend that the Director of HUD’s Buffalo Office of Community Planning
             and Development, instruct the City to

             3A.    Reimburse from nonfederal funds the $33,916 related to the ineligible
                    sporting goods equipment/materials.

             3B.    Provide documentation to justify the $99,811 ($1,721 + $98,090) in
                    unsupported costs incurred so that HUD can make an eligibility
                    determination and reimburse from nonfederal funds any unsupported costs
                    determined to be ineligible.

             3C.    Reprogram the remaining unexpended balance of $94,450 ($49,363 for the
                    Troy Recreational Facilities Improvement activity and $45,087 for the
                    Public Neighborhood Facilities Improvement activity) and put the funds to
                    better use for other eligible program activities.




                                              14
3D.   Establish and implement controls to ensure that costs are eligible and
      necessary before being charged to the CDBG program.

3E.   Establish and implement controls to ensure that assets purchased with
      CDBG program funds are properly inventoried and safeguarded.




                               15
Finding 4: The City’s Controls over the Processing and Accounting for
           CDBG Payroll Costs Were Inadequate
Contrary to HUD requirements, the City did not establish adequate controls to ensure that all
labor costs were adequately supported before incurrence and that costs incurred were current,
complete, and accurately recorded. Specifically, our review of four activities found that (1)
allocable payroll costs were inaccurately calculated, (2) activity accomplishments were not
tracked or documented, and (3) payroll costs were not consistently processed or properly
accounted for. As a result, unsupported costs of $59,102 for labor and indirect costs were
charged to the CDBG program. Consequently, the lack of controls diminished effective budget
oversight while increasing the likelihood that CDBG activity might be misclassified and reported
to HUD incorrectly.


              While a significant portion of costs charged to the City’s CDBG program related to
              expenses for in-house payroll and related costs, generally the costs charged were
              adequately supported with documentation such as payroll journals, time sheets, and
              time cards; nonetheless, reportable conditions were identified. CDBG regulations at
              24 CFR 85.22 provide cost principles for determining allowable costs. Specifically,
              to be allowable under federal awards, costs must be necessary, reasonable, and
              adequately documented. However, contrary to these regulations, some payroll costs
              charged to the City’s CDBG program were not appropriately supported. The details
              are provided below.

 Allocable Payroll Costs Were
 Inaccurately Calculated

              We reviewed the project files for four CDBG activities in which payroll and
              related costs were charged to the program. The payroll costs pertaining to the
              Civil Enforcement - Lenny Welcome activity for program year 2003/2004 were
              inaccurately calculated. Consequently, unsupported costs of $59,102 for labor
              and indirect costs were charged to the CDBG program.

              The Civil Enforcement - Lenny Welcome activity was established to foster crime
              awareness and prevention, pursue prosecution of criminals including owners of
              substandard housing, uphold fair housing standards to bring more units into code
              compliance, and prevent neighborhood deterioration while improving community
              safety and livability. To achieve these goals, the activity planned for Civil
              Enforcement to work in conjunction with traditional Code Enforcement and
              Community Policing to eliminate criminal activity and nuisances.

              Project files disclosed that payroll and related costs totaling $59,102 were charged
              to the Civil Enforcement – Lenny Welcome activity on January 20, 2005,
              although some of the documented payroll activity occurred as far back as 2003.
              Moreover, the City’s method of calculating the allocable labor and fringe benefit
              costs was contrary to previous HUD instructions regarding the determination of


                                               16
          costs relating to labor charges incurred by City code enforcement employees.
          Specifically, rather than calculating the allocable costs based on HUD’s approved
          factor of 1.8155 ($15,102 direct labor x 1.8155 = $27,418), the City calculated the
          costs based on a factor of 4.05 ($15,102 x 4.05 = $61,163). Although the City
          only charged $59,102 to the program using the unapproved allocation base, it
          resulted in an additional $31,684 ($59,102 - $27,418) being charged to the
          program.

Program Activity
Accomplishments Were Not
Tracked or Documented


          In April 2006, City staff documented that the Integrated Disbursement and
          Information System reporting for the Civil Enforcement - Lenny Welcome
          activity needed to be completed and questioned what program accomplishments
          should be included in the Consolidated Annual Program Evaluation Report
          (CAPER). According to the internal documentation, the police department which
          administered part of the program, was unable to and did not provide the
          Department of Planning with information regarding activity accomplishments.
          Since no files existed regarding program accomplishment data, a member of the
          Department of Planning staff provided a sentence at the last minute to be included
          in the CAPER for activity accomplishment data. Further, the internal
          documentation concluded that the action taken by the Department of Planning
          was technically not allowable. Thus, if any money was spent during the program
          year, the program accomplishments needed to be documented, and the
          Department of Planning would be required to obtain the accomplishment data
          from the police department.

          Although the City failed to (1) track and document activity progress while costs
          were being incurred and (2) verify any program accomplishments, it chose to
          prepare the CAPER narrative as required by HUD for reporting purposes.
          Specifically, under the CAPER section for the accomplishments narrative, the
          City provided a general statement describing why the Civil Enforcement – Lenny
          Welcome activity was established and the overall goals of the activity. However,
          this section of the CAPER did not contain any accomplishments for the activity.
          Therefore, it could not be determined, based on the project folder documentation
          and our discussions with City officials, whether the activity goals were
          accomplished or whether this activity met one of the CDBG national objectives.
          Therefore, this activity is considered unsupported pending an eligibility
          determination.




                                          17
Payroll Costs Were Not
Consistently Processed or
Properly Accounted For

            Review of the City’s controls over processing and accounting for CDBG-related
            labor costs also disclosed administrative weaknesses. In particular, the method of
            charging the CDBG program for payroll and related allocable costs was not
            applied consistently or in a timely manner. For instance, while most of the City’s
            CDBG payroll was charged to either the CDBG Administration or Code
            Enforcement Administration activity line items, entries to book the costs varied
            from as few as two to as many as seven transactions in a given program year.
            Therefore, controls over budgeting, operations, and decision making, based on
            program activity status and progress, were diminished. For example, code
            enforcement labor costs incurred from July through December 2005 were not
            charged to the related CDBG activity until March 29, 2006. Hence, since CDBG
            payroll costs were continually incurred throughout each program year and since
            the City processed payroll on a biweekly basis, controls over budgeting and the
            ability to use budgeting as an effective analysis tool would be greatly improved if
            the City accrued and charged payroll costs to the program on a more consistent
            basis. Standards for Internal Control in the Federal Government, U.S. General
            Accountability Office/Accounting and Information Management Division
            (GAO/AIMD)-00-21.3.1, dated November 1999, provides that transactions should
            be promptly recorded to maintain their relevance and value to management in
            controlling operations and making decisions.

            In addition to inconsistent payroll processing, inaccurate accounting for CDBG
            payroll costs also occurred. Specifically, while certain payroll-related costs were
            properly charged as program delivery costs, other payroll costs that should have
            been charged as program delivery were comingled with the CDBG
            Administration and Code Enforcement Administration activity line items. For
            instance, although the City established a CDBG Paint Program activity, we noted
            an example in 2006 in which labor costs of $1,340 associated with the Paint
            Program were charged to the City’s Code Enforcement Administration activity.
            Further, the review showed several instances in which the City identified costs as
            program delivery, but charged those costs to the CDBG Administration activity,
            although the City had already established a separate activity for CDBG
            administration program delivery. For example, in 2005, the City charged payroll
            costs of $360,000 to its CDBG Administration activity and identified program
            delivery payroll costs of more than $212,000. However, the City charged only
            $50,000 to its CDBG Program Delivery activity.

            CDBG program regulations at 24 CFR 85.20 provide the standards for financial
            management systems. The regulations require grantees to meet standards
            including that (1) accurate, current, and complete financial results of financially
            assisted activities must be disclosed; (2) records which adequately identify the
            source and application of funds provided for financially assisted activities must be

                                             18
             maintained; and (3) actual expenditures or outlays must be compared with
             budgeted amounts for each grant or subgrant. The distinction of properly
             accounting for costs as either program delivery or administrative is important
             because CDBG program regulations place limitations on specific cost types that
             can be incurred, such as limiting administrative costs to 20 percent and public
             services costs to 15 percent of the total grant award. Therefore, inaccurate
             accounting could lead to the limitations being exceeded without detection.
             Moreover, misclassified accounting of program costs impacts the accuracy of data
             reported to HUD and entered into the Integrated Disbursement and Information
             System.

Conclusion
             The City did not establish adequate controls to ensure that labor costs were
             adequately supported before incurrence and that costs incurred were current,
             complete, and accurately recorded. As a result, unsupported costs of $59,102 for
             labor and indirect costs were charged to the CDBG program without assurance
             that the costs were eligible and met the national objectives. Consequently, the
             lack of controls diminished effective budget oversight while increasing the
             likelihood that CDBG activity might be misclassified and reported to HUD
             incorrectly.

Recommendations

             We recommend that the Director of HUD’s Buffalo Office of Community Planning
             and Development, instruct the City to

             4A. Provide documentation to justify the $59,102 in unsupported costs incurred
                 so that HUD can make an eligibilty determination and reimburse from
                 nonfederal funds any unsupported costs determined to be ineligible.

             4B. Establish and implement controls to ensure that labor and related costs
                 charged to the CDBG program are adequately supported before incurrence,
                 that costs incurred are for activities that meet a national objective, and that
                 costs incurred are current, complete, and accurately recorded.




                                              19
                         SCOPE AND METHODOLOGY

Our review focused on whether the City complied with HUD regulations, procedures, and
instructions related to the administration of its CDBG program. To accomplish our objectives, we
reviewed relevant HUD regulations, guidebooks, and files and interviewed HUD officials to obtain
an understanding of and identify HUD’s concerns with the City’s operations. In addition, we
reviewed the City’s policies, procedures, and practices and interviewed key personnel responsible
for administration of the City’s CDBG program.

For fiscal years 2004 through 2006 the City received approximately $7 million in CDBG funding
and at the time of our review, the City had expended $5.6 million on CDBG activities, of which 16
activities were administered by the City. We selected five activities administered by the City that
received the largest amount of CDBG funding. We reviewed the expenditures and related
supporting documents for the activities to determine whether the expenditures met CDBG
requirements, were reasonable, and complied with national objectives. We also examined the City’s
internal controls over its CDBG program.

The review covered the period from January 1, 2004, through July 31, 2007, and was extended as
necessary. We performed audit work from August 2007 through January 2008 at the City’s offices
in Troy, New York. The review was conducted in accordance with generally accepted government
auditing standards.




                                                20
                             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.

                  •   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 of 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.




                                               21
Significant Weaknesses


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

           •      The City did not have adequate controls over its program operations when it
                  did not implement adequate procedures to ensure that its housing
                  rehabilitation program would meet all lead safe housing requirements (see
                  finding 1).

           •      The City did not have adequate controls over compliance with laws and
                  regulations, as it did not always comply with HUD regulations while
                  disbursing CDBG funds (see findings 1, 2, 3, and 4).

           •      The City did not have an adequate system to ensure that resources were
                  properly safeguarded when ineligible and unsupported costs were charged to
                  the program and when it did not maintain adequate supporting
                  documentation (see findings 1, 2, 3, and 4).




                                           22
                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE

         Recommendation            Ineligible 1/   Unsupported      Funds to be put
                number                                      2/       to better use 3/
                       1A                              $185,125
                       1B                                                 $194,424

                       2A            $152,172
                       2B                              $887,962
                       3A              $33,916
                       3B                               $99,811
                       3C                                                   $94,450
                       4A            ________       ___$59,102            ________
                     Total           $186,088        $1,232,000            $288,874


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 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, if the City implements our
     recommendations of reprogramming its unexpended balances for its housing
     rehabilitation program and Public Neighborhood Facilities Improvement and Troy
     Recreational Facilities Improvement activities and uses the funds for other eligible
     program activities, it will ensure a cost savings to its CDBG program.




                                             23
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         24
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         25
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3


Comment 4




Comment 5




Comment 6




                         26
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 8




Comment 9




                         27
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 10




                         28
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12




Comment 13




                         29
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 14



Comment 15




                         30
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 16




Comment 17




Comment 18




                         31
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 18




Comment 19




                         32
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 20




Comment 21




Comment 22




                         33
          OIG EVALUATION OF AUDITEE COMMENTS

Comment 1    Officials for the City expressed concerns related to the negative content detailed
             in the report, minimal interaction with the OIG auditors, unawareness of the
             magnitude of questioned costs, and its own monitoring efforts. We remind the
             officials that the issues raised in the audit report are not intended to reflect a
             negative light on the City; however the issues are both valid and serious. The
             OIG auditors held numerous discussions with several City officials during the
             course of the audit to discuss the issues and deficiencies identified; including
             formal meetings held with City officials to discuss the results of the audit and the
             questioned costs prior to leaving the audit site, during pre-exit and exit conference
             meetings. Moreover, a number of HUD reports issued during the past several
             years have identified numerous significant deficiencies pertaining to the City’s
             administration of its CDBG program. Thus, our conclusions are supported by
             factual evidence, and any corrective actions in place were recognized and taken
             into consideration.

Comment 2 Officials for the City disagree with the statements and language contained in the
          first paragraph of finding 1, stating that the generalization of administrative
          weaknesses, inadequate program procedures and unfamiliarity with HUD
          regulations is inaccurate and misleading. The fact that the finding cites several
          items of noncompliance and the City could not always demonstrate that properties
          were brought into compliance with the requirements clearly supports our
          disclosure that adequate procedures were not in place to ensure that the City’s
          housing rehabilitation program was administered in accordance with the
          requirements of HUD’s Lead Safe Housing Rule. Further, the unfamiliarity with
          HUD regulations is evident by the official’s admission to having a different
          interpretation of HUD’s Lead Safe Housing Rule. Thus, the statements and
          language contained in the finding are accurate and not misleading.

Comment 3    Officials for the City contend that although certain files may not have contained
             signed documents confirming that homeowners and/or tenants received lead
             pamphlets, the officials understand the importance of their distribution. In
             addition, officials contend that the dates on the notification documents may not
             represent the actual date the pamphlet was received by the homeowner. While it
             is encouraging that the City understands the importance of providing lead hazard
             information pamphlets, the City could not always demonstrate that homeowners
             and/or tenants were indeed provided the pamphlets as required. Accordingly, the
             City should ensure that the requirements of the Lead Safe Housing Rule are
             consistently implemented.

Comment 4    Officials for the City contend that at the time of our audit there were 46 and not
             70 open housing rehabilitation grant projects. During the exit conference we
             learned and subsequently confirmed that the list of housing rehabilitation projects
             provided during the audit contained homes that were not funded under the City’s
             housing rehabilitation program. Accordingly, we have revised our report to

                                              34
              accurately reflect that the City had assisted approximately 46 homeowners with
              grants to bring their homes into compliance with the City’s housing code.

Comment 5     Officials for the City disagree with our disclosure that it did not establish
              adequate procedures to ensure that its housing rehabilitation program was
              administered in compliance with program regulations. Although officials’ state
              that they created a policies and procedures document, along with a 62-point
              control checklist; the finding shows that the City did not adequately administer
              the program in a manner to ensure compliance with the requirements of the Lead
              Safe Housing Rule.

Comment 6     Contrary to the assertion by City officials that all 46 rehabilitation projects were
              not completed, but rather were in various stages of completion; only one of the 10
              projects included in our sample was open at the time of our review. In fact, the
              files for the remaining nine projects detailed that the projects were complete and
              included “Violations Corrected Notices” issued by the City’s Bureau of Code
              Enforcement. Further, the City’s program reports submitted to HUD noted that
              the projects were complete and brought into compliance with Lead Safety Rules.

Comment 7     Officials for the City contend that the statement that the deficiencies identified
              were attributed to the City’s general unfamiliarity with HUD’s regulations is
              contradictory to the training that City employees have received. Nevertheless,
              although City officials were trained in 2006 on lead base paint hazards, the
              findings of the auditors reveal that these officials are still unfamiliar with or
              misinterpreted the Lead Safe Housing Rule; thus the statement is not
              contradictory.

Comment 8     Officials for the City contend that the housing rehabilitation program is vital to
              the improvement of the City’s aging housing stock and to reallocate the funds out
              of this program would cause a significant impact to the City’s homeowners and its
              housing stock. We are not suggesting that the City’s rehabilitation program is not
              important. Rather, we recommend that the remaining unexpended budgeted
              balance be reprogrammed for other CDBG eligible activities if the City cannot
              demonstrate that its housing program will be brought into compliance with the
              requirements of the Lead Safe Housing Rule.

Comment 9     Contrary to the assertion by City officials that risk assessments were performed
              on all properties with the exception of those with elderly homeowner with no
              children; we found that risk assessments were performed on only four of the 10
              properties included in our review. Moreover, only three of the properties in our
              sample represented elderly homeowners, yet they accounted for two of the four
              properties for which a risk assessment was performed.

Comment 10 Officials for the City believe they have the documentation to justify the $185,125
           in unsupported costs as eligible expenses and request that the recommendation to
           reprogram $194,424 to better use be eliminated. During the audit, officials were
           provided sufficient opportunity to provide supporting documentation; however,

                                               35
              the City did not adequately ensure compliance with regulations. Therefore, since
              sufficient documentation was not provided, the finding will not be adjusted and
              the recommendation to reprogram funds to better use for other eligible activities
              shall remain intact.

Comment 11 Officials for the City contend that $152,172 in costs to seal joint and cracks were
           authorized as interim assistance and thus eligible under 24 CFR Part 570.201(f),
           of the program regulations. However, as documented in the City’s
           Comprehensive Annual Performance and Evaluation Report submitted to HUD
           for both of the applicable fiscal years, the City’s street improvement program
           activities were approved as public facilities and improvements, eligible under 24
           CFR Part 570.201(c) of the program regulations, and not as interim assistance
           activities as asserted by the City. Moreover, to qualify for interim assistance the
           City had to document that the streets were exhibiting objectively determinable
           signs of physical deterioration and should have made a determination that
           immediate action was needed to arrest the deterioration. Yet, as noted in the
           finding, the City was to verify program accomplishments by taking before and
           after photos of all street improvement projects; however, this was not done.
           Lastly, the City Department of Planning’s internal monitoring report on its street
           improvement activities stated that the use of funds for crack sealing was a
           prohibited maintenance activity, and thus ineligible for CDBG funding.

Comment 12 Officials for the City contend that its crack sealing and repair program was part of
           a neighborhood improvement project that was approved as eligible by HUD.
           However, we found that the monitoring report prepared by the City’s Department
           of Planning noted that there was a lack of coordination between street paving
           activities and other neighborhood improvement actions, raising the concern that
           the City’s paving program was a stand-alone activity that could be classified as a
           maintenance activity, and thus ineligible for CDBG funding.

Comment 13 Officials for the City do not support the claim that documentation was inadequate
           to demonstrate a CDBG National Objective was met. However, we found that the
           City did not adequately support program accomplishments. Specifically,
           documentation maintained by the City to support the costs charged to street
           resurfacing did not always support that costs were expended on the targeted
           streets in program-eligible areas. Thus, the $887,962 in street resurfacing costs
           remains unsupported.

Comment 14 Officials for the City agree that its own Planning Department had certain findings
           similar to those in our report; however some of the findings were cleared. Our
           conclusions are supported by factual evidence, and corrective actions in place
           were recognized and taken into consideration.

Comment 15 Officials for the City request that the finding be adjusted to allow the $152,172 in
           street improvement costs as eligible and $887,962 in street resurfacing costs as
           supported. The officials admit that their 2005 and 2006 project files were lacking
           the before and after photographs, and they agreed to our recommendation to

                                              36
               implement this task. However, as stated above in comments 11 and 13, the street
               improvement activities were ineligible for CDBG funding and the street
               resurfacing documentation was inadequate to demonstrate that a CDBG national
               Objective was met. Accordingly, the finding and recommendations have not been
               adjusted.

Comment 16 Officials for the City disagree that $33,916 in costs pertaining to the Troy
           Recreational Facilities Improvement Grants are ineligible since the grant was
           revised in June 2006 to provide funding for conversion and improvement of
           access to the recreational center. The officials state that the improvements
           included the purchase of equipment. The fact that the grant activity was revised
           does not change the fact that the activity is a Public Facilities activity, nor do the
           comments contest that the activity incurred costs for the purchase of sporting
           goods equipment. Thus, we remind the City that 24 CFR 570.207 (b) (1) (iii)
           provides that the purchase of equipment is ineligible.

Comment 17 City officials disagree that the costs associated with the Public Neighborhood
           Facilities Improvement grant are unsupported and/or are related to general
           government and maintenance expenses. Nevertheless, they acknowledge that this
           activity was originally established to consider replacing three City firehouse roofs
           when they became aware that two of the three facilities housed administrative
           offices. As such, the City properly determined that replacing these two roofs
           would constitute a general government expense that is not eligible for CDBG
           funding. Moreover, City officials also did not demonstrate or document that the
           third roof replacement constituted an emergency to justify the use of CDBG
           funding, as per 24 CFR 570.201 (f) (2). Although officials proclaim that this roof
           replacement was an emergency that if not repaired would put the general public at
           a great safety and health risk. Documentation in the project activity files
           indicated that City officials first contemplated whether all or a portion of the
           activity could be classified as an interim emergency assistance project in
           December 2005. However, the purchase requisition for the firehouse roof was not
           executed until August 2007. Accordingly, it does not appear reasonable that the
           City would wait more than a year and a half to address an emergency.

Comment 18 The City’s statements suggest that the costs incurred for the Police Station were
           associated with rehabilitation and providing of public services. However, these
           statements are not responsive to the issues identified in the report. First, this
           activity does not meet the eligibility criteria for rehabilitation activities as defined
           in 24 CFR Part 570.202. Moreover, the City did not demonstrate that this activity
           would result in an increased level of public services as defined in 24 CFR Part
           570.201 (e). The activity was established as a Public Facilities activity, and
           CDBG regulations provided at 24 CFR Part 570.207 (b) (2) do not allow for
           incurring expenses associated with repairing public facilities. Consequently, our
           conclusion that the costs incurred represent general government expenses is
           accurate.




                                                37
Comment 19 In summary officials for the City request that finding 3 be adjusted to allow the
           $33,916 in Recreational Facilities project costs as eligible, $99,811 in Facilities
           Improvement project costs as supported, and that the recommendation to
           reprogram $94,450 to better use be eliminated. However, as cited above, the
           audit report accurately presents the facts and deficiencies noted. Nevertheless,
           based on comments received by HUD, we have revised the recommendations to
           include the implementation of controls to ensure that costs are eligible and
           necessary before being charged to the program, and assets purchased with
           program funds are properly inventoried and safeguarded.

Comment 20 Officials for the City disagree that the City did not establish controls to ensure
           labor costs were adequately supported before incurrence and that costs incurred
           were not current. However, the officials agree to implement changes to ensure a
           more timely review prior to drawing down funds. As indicated in the audit report,
           the City has not ensured that labor costs incurred were current and charged to the
           CDBG program in a timely manner. The finding cites one of many examples
           where costs charged were not current or timely.

Comment 21 Officials for the City disagree that the payroll costs pertaining to the Civil
           Enforcement Activity for program year 2003/2004 were inaccurately calculated
           and contrary to HUD instructions. Officials claim the City had a verbal
           agreement with a former HUD employee to adjust the allocation factor. However,
           during discussions with City officials (during the audit) regarding the basis of the
           allocation rate or factor used for the Civil Enforcement activity, at no time was an
           explanation provided as to why an allocation rate different from that prescribed by
           HUD was used to calculate costs charged to the activity. In addition, there is no
           record to support the claim of a verbal agreement with HUD. Further, since
           officials agreed that the Civil Enforcement activity was not adequately tracked or
           documented; the City could not demonstrate that the activity accomplished a
           national objective of the program. Therefore, the costs incurred for the activity
           are properly classified as unsupported.

Comment 22 Officials for the City request that the language in the finding be adjusted to more
           accurately reflect the fact that costs were adequately supported before incurrence
           and that the recommendation also be adjusted. For the various reasons cited
           above, the audit report accurately reflects the facts and deficiencies noted;
           accordingly, we have not adjusted the finding.




                                               38
Appendix C

          SCHEDULE OF UNSUPPORTED PUBLIC FACILITIES
            MAINTENANCE AND REHABILITATION COSTS


    Date            Amount                  Purchase order number     Check number   Note
  June 15,              $327.00                      N/A                 14938        (1)
    2007
  June 29,               1,219.59                     N/A                15255       (1)
    2007
  Aug. 17,                                                                           (1)
    2007                   272.90                    70904               15350
Sept. 7, 2007            4,809.40                    70922               15405       (1)
July 6, 2007             1,011.00                    70972               15442       (1)
  July 13,                                                                           (1)
    2007                   420.86                    70904               15459
  Aug. 10,                                                                           (2)
    2007                60,000.00              Purchase requisition       N/A
Sept. 7, 2007           19,300.00              Purchase requisition       N/A        (3)
Sept. 7, 2007              253.94                    70927               15665       (1)
Aug. 3, 2007               298.79                    70977               15792       (1)
  July 13,                                                                           (1)
    2007                 3,442.34                    70922               15850
  Aug. 10,                                                                           (1)
    2007                   218.25                    70927               15883
  Aug. 10,                                                                           (1)
    2007                    57.16                    70904               15892
  July 27,                                                                           (1)
    2007                   577.80                    70903               16005
  Aug. 10,                                                                           (1)
    2007                   263.58                    70977               16030
  Aug. 24,                                                                           (1)
    2007                   641.93                    70977               16138
  July 13,                                                                           (1)
    2007                    50.00                    70903               16302
Aug. 3, 2007                21.80                    70904               16312       (1)
  Aug. 17,                                                                           (1)
    2007                   511.20                    70904               16313
  Aug. 24,                                                                           (1)
    2007                    78.76                    70904                N/A
    N/A                  2,099.93                    70922                N/A        (1)
  July 16,                                                                           (1)
    2007                   500.00                    70962                N/A
  July 13,                                                                           (4)
    2007                 1,451.60                    70998                N/A
    N/A                    217.29                    71393                N/A        (1)
    N/A                     45.00                    71394                N/A        (1)
   Total               $98,090.12

Notes:
    N/A     Not available or not applicable
    (1)      Materials and/or equipment for police building
    (2)      New roof for firehouse
    (3)      New roof for police building
    (4)      Roof repairs for police building

                                                          39