oversight

The City of Augusta, Georgia, Did Not Comply with HOME Monitoring Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-04-01.

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

                                                               Issue Date
                                                                   April 1, 2009
                                                               Audit Report Number
                                                                   2009-AT-1005




TO:        Mary D. Presley, Director, HUD Atlanta Office of Community Planning and
            Development, 4AD


           //signed//
FROM:      James D. McKay, Regional Inspector General for Audit, 4AGA

SUBJECT:   The City of Augusta, Georgia, Did Not Comply with HOME Monitoring
           Requirements


                                 HIGHLIGHTS

 What We Audited and Why


           We audited the City of Augusta’s (City) HOME Investment Partnerships (HOME)
           program as part of the U.S. Department of Housing and Urban Development’s
           (HUD) annual audit plan. We selected the City for review based on a HOME risk
           assessment we conducted. Our audit objectives were to determine whether the
           City complied with HOME program requirements for monitoring (1) HOME
           community housing development organizations (CHDO) and subrecipients and
           (2) the use of CHDOs’ proceeds. This is the second of two audit reports on the
           HOME program.

 What We Found


           The City did not comply with the HOME requirements for performing its
           monitoring and follow-up reviews or have sufficient documentation to support
           that required reviews were conducted. In addition, it did not properly monitor the
           use of its CHDOs’ proceeds. The City did not implement its procedures to ensure
           that the required monitoring and follow-up reviews were performed and
           documented. Also, City officials did not follow and enforce program monitoring
           requirements. As a result, the City and HUD lacked assurance that HOME funds
           was spent for activities that were administered in compliance with program
           requirements, and CHDOs’ proceeds and grant funds of $105,049 were used for
           eligible program costs.

What We Recommend


           We recommend that the Director of HUD’s Atlanta Office of Community
           Planning and Development require the City to properly support or repay $105,049
           in questioned costs because of program violations. We also recommend that the
           Director require the City to establish and implement proper controls and
           procedures to ensure compliance with all 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 provided our discussion draft audit report to the City on March 3, 2009. We
           held an exit conference on March 11, 2009. The City provided written comments
           on March 23, 2009, and generally agreed with our audit finding.

           The complete text of the City’s written response, along with our evaluation of that
           response, can be found in appendix B of this report. The City also provided
           attachments with its response that are available for review upon request.




                                            2
                          TABLE OF CONTENTS


Background and Objectives                                                    4

Results of Audit
      Finding 1: The City Did Not Comply with HOME Monitoring Requirements   5

Scope and Methodology                                                        8

Internal Controls                                                            9

Appendixes
   A. Schedule of Questioned Costs                                           10
   B. Auditee Comments and OIG’s Evaluation                                  11




                                          3
                       BACKGROUND AND OBJECTIVES


The City of Augusta’s (City) government was created by legislative act in the state of Georgia
from the unification of the two governments, the City of Augusta, Georgia, and Richmond
County, Georgia. On June 20, 1995, the citizens of the City of Augusta and Richmond County
voted to consolidate into one government named Augusta, Georgia. The officials for the new
government were elected and took office on January 1, 1996. The unified government combined
all functions and began financial operations on January 1, 1996.

The City is governed by a full-time mayor, with a term of four years, and a 10-member
commission, serving on a part-time basis and elected to staggered terms of four years. The
mayor and commission appoint an administrator who serves as a full-time administrative officer
and is responsible for the daily operations of the government. The City’s Housing and
Community Development department is responsible for administering several programs
including the Community Development Block Grant, HOME Investment Partnerships (HOME),
Emergency Shelter Grant, and the Economic Development Initiative. The mission of the
Augusta Housing and Community Development department is to create positive change by
promoting self-sufficiency through partnership in economic development, quality housing, and
neighborhood reinvestment.

Since 2003, the City has received more than $8.2 million in HOME funding. HOME funding is
allocated to eligible state and local governments to strengthen public-private partnerships and to
increase the supply of decent, safe, and sanitary affordable housing to very low-income families.
Participating jurisdictions may use HOME funds to carry out multiyear housing strategies
through acquisition, rehabilitation, new construction, and tenant-based rental assistance.

The U. S. Department of Housing and Urban Development’s (HUD) Atlanta Office of
Community Planning and Development in Atlanta, Georgia, is responsible for overseeing the
City. HUD’s most recent monitoring report, dated August 10, 2007, indicated that the City’s
HOME program did not operate at a level that ensured compliance with program requirements.

The City’s independent public accountant report for fiscal year 2007 contained six current
findings and five prior findings. The independent public accountant findings included
noncompliance with subrecipient monitoring and cash management.

Our audit objectives were to determine whether the City complied with HOME program
requirements for monitoring (1) HOME community housing development organizations (CHDO)
and subrecipients and (2) the use of CHDOs’ proceeds.




                                                4
                                RESULTS OF AUDIT

Finding 1: The City Did Not Comply with HOME Monitoring
           Requirements

The City did not comply with the HOME requirements for performing its monitoring and follow-
up reviews or have sufficient documentation to support that required reviews were conducted. In
addition, it did not properly monitor the use of its CHDOs’ proceeds. The City did not
implement its procedures to ensure that the required monitoring and follow-up reviews were
performed and documented. Also, City officials did not follow and enforce program monitoring
requirements. As a result, the City and HUD lacked assurance that HOME funds was spent for
activities that were administered in compliance with program requirements to benefit eligible
HOME recipients and CHDOs’ proceeds of $105,049 were used for eligible program costs.




 Monitoring Not Adequately
 Performed or Documented


              The City contracted with various CHDOs and subrecipients to administer some of
              its HOME activities. Therefore, it was responsible for monitoring each CHDO
              and subrecipient annually, as well as obtaining their audit/financial reports. In
              addition, it was responsible for monitoring the sources, uses, and amount of
              proceeds generated by the CHDOs.

              We reviewed the City’s monitoring files for all six CHDOs and two subrecipients,
              and we visited three CHDOs with more than $2.9 million in grants awarded by
              the City. The City did not properly perform the required programmatic and
              financial monitoring and follow-up reviews or maintain sufficient documentation
              to support the reviews of the CHDOs’ and subrecipients’ internal controls and
              financial records. In addition, adequate documentation was not available to
              support corrective actions taken to resolve findings and concerns. The City’s files
              did not document the audit/financial reports as required by the contract between
              the City and the CHDOs.

              For the reviews that were performed by the City, the files contained a letter to the
              CHDOs or subrecipients and the violations identified. However, the files did not
              document information on the follow-up reviews or the corrective actions taken.

              Regulations at 24 CFR [Code of Federal Regulations] 92.504(a) state that the
              City is responsible for managing the day-to-day operations of its HOME program,
                                               5
             ensuring that HOME funds are used in accordance with all program requirements
             and written agreements, and taking appropriate action when performance
             problems arise. The use of state recipients, subrecipients, or contractors does not
             relieve the City of this responsibility. The City is required to conduct annual
             reviews of the performance of each contractor and subrecipient. Regulations at
             24 CFR 92.508(6)(iii) state that at a minimum, the City must maintain records
             documenting required inspections, monitoring reviews, audits, and the resolution
             of any findings or concerns. By not properly monitoring the CHDOs and
             subrecipients, the City could not ensure that CHDOs and subrecipients complied
             with program requirements. Also, the City and HUD lacked assurance that
             HOME funds were used for eligible HOME activities and that the intended
             program benefits were realized.

             In addition, the three CHDOs visited generated more than $850,000 in proceeds.
             The City did not properly monitor the use of these proceeds, resulting in $105,049
             in proceeds and grant funds that were not properly supported as having been used
             for HOME-eligible activities. City officials stated that they were unaware of the
             amount of proceeds the CHDOs generated and how they used the funds. Notice
             CPD (Community Planning and Development) 97-9 requires the City to monitor
             the CHDOs’ compliance with the terms of the written agreement regarding
             CHDO proceeds. Regulations at 24 CFR 92.508(a) require the City to establish
             and maintain sufficient records to enable HUD to determine compliance with
             program requirements. The $105,049 consists of

                    $10,298 paid for unsupported demolition and clearance activities. One
                    CHDO did not have invoices to support payments made to various
                    individuals or documentation from the individuals identifying what work
                    was performed and the property involved.

                    $94,751 paid for unsupported housing activities. The two other CHDOs
                    did not have adequate documentation to show that affordable housing
                    units were sold to individuals who met the required income limits.

             City officials stated that they were aware of the requirement to monitor and
             resolve findings and concerns, but due to time constraints, the reviews and
             documentation were not always completed.

Conclusion



     Overall, as a result of the City’s not implementing procedures for monitoring its CHDOs
     and subrecipients and City officials’ failure to follow and enforce program monitoring
     requirements, the City could not ensure that its HOME funds were used in compliance

                                              6
    with program requirements. In addition, CHDOs’ proceeds of $105,049 were spent for
    activities that were not supported as eligible program costs.


Recommendations



           We recommend that the Director of HUD’s Atlanta Office of Community
           Planning and Development

           1A.    Require the City to establish and implement acceptable procedures and
                  controls to ensure that HOME activities are adequately monitored in a
                  timely manner, to include identifying documentation to be maintained and
                  obtaining the required audit/financial reports.

           1B.    Require the City to conduct quality control reviews to ensure compliance
                  with the monitoring requirements for the six CHDOs and two
                  subrecipients reviewed in this audit.

           1C.    Require the City to develop and implement procedures and controls to
                  ensure that CHDO program proceeds are properly accounted for and used.

           1D.    Require the City to repay the program from nonfederal funds any portion
                  of the $105,049 in CHDOs’ proceeds determined to be unsupported.




                                           7
                        SCOPE AND METHODOLOGY

To accomplish our objectives, we

       Researched HUD handbooks, the Code of Federal Regulations, and other requirements
       and directives that govern the City’s HOME program;

       Reviewed HUD’s monitoring reports and files for the City’s HOME program;

       Reviewed the City’s HOME matching funds records;

       Reviewed the City’s procedures and controls used to administer its HOME program
       activities;

       Interviewed officials of the Atlanta HUD Office of Community Planning and
       Development, the City, and CHDOs;

       Obtained and reviewed the City’s annual audited financial statements and program and
       project files; and

       Reviewed the City’s monitoring files for all six CHDOs and two subrecipients. We also
       conducted site visits and reviewed files at three CHDOs that had a high level of project
       activity and past HUD monitoring concerns. The three CHDOs received more than $2.9
       million in grant funds and generated proceeds of more than $850,000 during the period.

We did not review and assess general and application controls over the City’s information
system. We conducted other tests and procedures to ensure the integrity of computer-processed
data that were relevant to the audit objectives. The tests included but were not limited to
comparison of computer-processed data to written agreements, contracts, and other supporting
documentation. We did not place reliance on the City’s information and used other supporting
documentation for the activities reviewed.

The review generally covered the period January 1, 2003, through December 31, 2008.
We performed the review from September 2008 to January 2009 at the offices of the City’s
Housing and Community Development department and its HOME program recipients located in
Augusta, Georgia, and the HUD Office of Community Planning and Development in Atlanta,
Georgia. We adjusted the review period when necessary.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
                                               8
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are 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. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.


 Relevant Internal Controls


              We determined that the following internal controls were relevant to our audit
              objectives:

                      Policies and procedures that management has implemented to reasonably
                      ensure that resource uses are consistent with laws and regulations.

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

              We assessed 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.

 Significant Weaknesses



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

                      The City did not comply with HOME monitoring requirements (see
                      finding 1).



                                                9
                                   APPENDIXES

Appendix A
                 SCHEDULE OF QUESTIONED COSTS




                           Recommendation         Unsupported 1/
                                  number
                                1D                      $105,049


                                 Total                  $105,049


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                             10
Appendix B
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         11
Comment 3



Comment 4




            12
                          OIG Evaluation of Auditee Comments

Comment 1   The City acknowledges its responsibility for managing the day to day operations
            of its HOME program. The City did not perform the required monitoring and
            follow-up reviews or have sufficient documentation to support that monitoring
            and follow-up reviews were conducted, as required. The City stated that it has
            written monitoring procedures. The procedures were provided after we
            completed our site work. Thus, we did not verify the information. The City
            should provide its procedures to HUD.

Comment 2   The City stated that the CHDO had appropriate documentation to include
            invoices for demolition and clearance activities. However, the information
            provided by the City did not properly support the payments. The invoices
            provided were not prepared or signed by the individuals who performed the work.

Comment 3   The City stated the CHDO provided a copy of the homebuyer’s 2004 income tax
            return and application which were used to determine the homebuyer’s eligibility
            for the program. However, the source documentation used to qualify the
            homebuyer for the program was not sufficient. The City did not show that the
            CHDO obtained information regarding the homebuyer’s income. In addition, we
            noted that the application showed four members in the household and the tax
            return showed one exemption. The CHDO qualified the homebuyer to participate
            in the program based on her income and the number of household members. We
            noted that the income for the other household members were not obtained and
            included in the income calculation.

Comment 4   The City responded that the CHDO used an Internal Revenue Service regulation
            to define total family income. However, the City did not provide documentation
            to support that the method used was acceptable.




                                           13