oversight

The City of Miami, Florida, Did Not Properly Administer Its Community Development Block Grant Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-18.

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

                                                                Issue Date
                                                                         August 18, 2009
                                                                Audit Report Number
                                                                         2009-AT-1011




TO:         Maria R. Ortiz, Director of Community Planning and Development, Miami Field
             Office, 4DD

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

SUBJECT: The City of Miami, Florida, Did Not Properly Administer Its Community
          Development Block Grant Program

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Community Development Block Grant (CDBG) program
             administered by the City of Miami, Florida (City). The objectives of the audit
             were to determine whether the City administered its CDBG program in
             accordance with applicable U.S. Department of Housing and Urban Development
             (HUD) requirements for: (1) meeting CDBG national objective(s), (2) allocation
             of expenditures to the CDBG program, and (3) reporting program activities. We
             selected the City for review because the Miami HUD Office of Community
             Planning and Development ranked it as high risk in its 2006, 2007, and 2008 risk
             assessments. In addition, previous HUD on-site monitoring reviews identified
             concerns regarding the City’s administration of the CDBG program.

 What We Found


             The City did not administer its CDBG program in accordance with applicable
             HUD requirements. It did not comply with HUD requirements in meeting national
             objectives for its commercial façade program. This condition occurred because the
             City lacked effective management controls and disregarded HUD requirements.
             As a result, it had no assurance that more than $4.1 million in expended CDBG
             funds achieved the intended national objective or met program requirements.
           The City did not properly allocate salary expenditures to its CDBG program and
           did not maintain adequate supporting documentation demonstrating that
           employees worked in the program. These conditions occurred because the City
           did not have effective management controls to properly allocate salary
           expenditures to the CDBG program and disregarded HUD requirements. As a
           result, the City improperly allocated $690,392 to the program.

           The City did not accurately report CDBG financial information to HUD in
           accordance with federal requirements. It inaccurately reported
           administrative/planning costs for program year 2006 and failed to report $265,823
           in reprogrammed CDBG funds to HUD. These conditions occurred because the
           City was transferring financial information to another automated system and
           disregarded HUD regulations. As a result, there was a lack of assurance that the
           City reported accurate CDBG financial information to HUD in accordance with
           HUD regulations.

What We Recommend


           We recommend that the Director of the Miami Office of Community Planning
           and Development require the City to (1) provide documentation to support that
           CDBG program requirements were followed and the intended national objective
           was met for two commercial façade activities or reimburse its program more than
           $4.1 million from nonfederal funds, (2) reimburse its program $690,392 from
           nonfederal funds for unsupported salary expenditures, and (3) provide
           documentation to support the reprogrammed funds or reimburse its program
           $265,823 from nonfederal funds for canceled CDBG activities for which funds
           were reprogrammed.

           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 findings with the City during the audit. We provided a copy of
           the draft report to City officials on June 29, 2009, for their comments and
           discussed the report with the officials at the exit conference on July 10, 2009.
           The City provided its written comments to our draft report on July 22, 2009. In
           its response, the City generally disagreed with the findings but agreed to
           implement corrective actions.




                                            2
The complete text of the City’s response, along with our evaluation of the
response, can be found in appendix B of this report. Attachments to the City’s
comments were not included in the report, but are available for review upon
request.




                                3
                           TABLE OF CONTENTS


Background and Objective                                                             5

Results of Audit
      Finding 1: The City Did Not Demonstrate Compliance in Meeting National         6
      Objectives for Its Commercial Façade Program
      Finding 2: The City Did Not Properly Allocate Salary Expenditures to the       9
      CDBG Program
      Finding 3: The City Did Not Accurately Report CDBG Financial Information to   12
      HUD
Scope and Methodology                                                               15

Internal Controls                                                                   17

Appendixes
   A. Schedule of Questioned Costs                                                  18
   B. Auditee Comments and OIG’s Evaluation                                         19
   C. Canceled CDBG Activities and Reprogrammed CDBG Funds                          28




                                           4
                      BACKGROUND AND OBJECTIVE

The City of Miami, Florida (City) receives annual Community Development Block Grant
(CDBG) program funds from the U.S. Department of Housing and Urban Development (HUD).
HUD awards annual grants to entitlement community recipients to carry out a wide range of
community development activities directed toward revitalizing neighborhoods, economic
development, and providing improved community facilities and services, principally for low-
and moderate-income persons. An activity that receives CDBG funds must meet one of three
national objectives:

       Benefit low- and moderate-income families,
       Aid in the prevention or elimination of slums or blight, or
       Meet community development needs having a particular urgency because existing
       conditions pose a serious and immediate threat to the health or welfare of the community
       and when other financial resources are not available.

The City’s Department of Community Development administers the CDBG program. It
administers programs intended to assist in creating a viable urban community for the neediest
persons within the City while reducing poverty, embracing diversity, assisting with economic
development, and improving the overall quality of life.

The HUD Integrated Disbursement and Information System (IDIS) reported that the City
expended more than $17.9 million in CDBG funds for 2006 and 2007.

We selected the City for review because the Miami HUD Office of Community Planning and
Development ranked it as high risk in its fiscal years 2006, 2007, and 2008 risk assessments. In
addition, the 2006 Miami HUD monitoring review of the commercial façade program identified
concerns regarding the meeting of national objectives and eligibility of projects.

Our audit objectives were to determine whether the City administered its CDBG program in
accordance with applicable HUD requirements for: (1) meeting CDBG national objective(s), (2)
allocation of expenditures to the CDBG program, and (3) reporting program activities.




                                                5
                                 RESULTS OF AUDIT

Finding 1: The City Did Not Demonstrate Compliance in Meeting
           National Objectives for Its Commercial Façade Program
The City did not demonstrate compliance with HUD requirements in meeting national objectives for
its commercial façade program. It did not maintain adequate supporting documentation to
demonstrate that the program achieved the intended national objectives. This condition occurred
because the City lacked effective management controls and disregarded HUD requirements. As a
result, it had no assurance that more than $4.1 million in expended CDBG funds achieved the
intended national objective or met program requirements.


We selected eight activities to determine whether the City maintained sufficient documentation to
demonstrate that it met a national objective. The City did not maintain adequate supporting
documentation to demonstrate that two activities met a national objective.

 Supporting Documentation
 Inadequate to Meet National
 Objectives


               The City did not maintain adequate supporting documentation for two commercial
               façade activities to demonstrate that national objectives would be met. Regulations
               at 24 CFR [Code of Federal Regulations] 570.506(b) state that records must be
               maintained to demonstrate that each activity undertaken meets one of the national
               objective criteria.

               The commercial façade program activities were to provide assistance to for-profit
               businesses to rehabilitate the exterior of the business. The national objective was
               to benefit low- and moderate-income persons based on the area served by the
               activities. We reviewed seven completed CDBG projects from activity #1954 and
               16 completed CDBG projects from activity #2125.

               The City provided inadequate documentation to support that the 23 projects
               served areas that were primarily residential in nature. Regulations at 24 CFR
               570.208(a)(1)(i) require that an activity that serves an area that is not primarily
               residential in character shall not qualify as a low- and moderate-income area. We
               informed City officials about this issue, and they provided us with maps for
               several projects to illustrate that the area served was primarily residential in
               nature. The maps did not include adequate information to show whether the area
               served was primarily residential; they did not identify the area served and focused
               instead on the location of the business. The maps did not contain a legend to
               identify the symbols. Some maps indicated a commercial zone, whereas others



                                                 6
                 did not identify a zone type. While we recognize the City’s attempt to provide
                 documentation supporting that the national objective was met, the City did not
                 demonstrate that the area served was primarily residential in nature.

                 This condition occurred because the City lacked effective management controls
                 over its commercial façade program activities and disregarded HUD
                 requirements. Specifically, the City did not follow its own policies and
                 procedures to ensure effective performance and compliance with federal
                 regulations for meeting national objectives. City officials did not know that they
                 were required to maintain documentation supporting that the areas serviced were
                 primarily residential in nature, but they informed us that City inspectors made on-
                 site visits and observed the area to determine whether it was primarily residential.
                 However, the City’s policies and procedures described the inspectors’ sole
                 responsibility as reviewing the work performed and conducting the environmental
                 inspection. We did not find documentation indicating that the inspectors
                 evaluated the service area.

                 Based on conversations with City officials and review of the City’s policies and
                 procedures and CDBG program files, we consider all CDBG projects funded for
                 activities #1954 and #2125 to be missing adequate supporting documentation to
                 meet the low- and moderate-area national objective. As a result of the condition
                 noted above, we were unable to confirm whether a national objective was met for
                 two commercial façade program activities that were provided more than $4.1
                 million1 in CDBG funds.


    Conclusion


                 The City did not demonstrate commercial façade program compliance with HUD
                 requirements for meeting a national objective for two CDBG activities. Our
                 review of eight activities indicated that the City did not maintain adequate
                 documentation to support that a national objective was met for two commercial
                 façade program activities. This condition occurred because the City lacked
                 effective management controls and disregarded HUD requirements. As a result, it
                 had no assurance that two CDBG commercial façade program activities totaling
                 more than $4.1 million achieved the intended national objective or met program
                 requirements.




1
 The City expended $1,872,817 in CDBG funds for activity #2125 and $2,322,262 for activity #1954. We reduced
$2,322,262 by $38,879 because HUD had previously requested reimbursement for two projects from activity #1954.
Total expended CDBG funds for both activities are $4,156,200.


                                                      7
Recommendations



          We recommend that the Director of the Miami Office of Community Planning and
          Development require the City to

          1A. Provide documentation supporting that CDBG program requirements were
              followed and the intended national objective was met for two CDBG
              activities according to 24 CFR 570.506 and 570.208 or reimburse its
              program $4,156,200 from nonfederal funds.

          1B. Revise its policies and procedures to ensure that commercial façade program
              activities comply with federal regulations for meeting CDBG national
              objectives.




                                          8
Finding 2: The City Did Not Properly Allocate Salary Expenditures to
           the CDBG Program
The City did not properly allocate salary expenditures to its CDBG program and did not maintain
adequate supporting documentation demonstrating that employees worked in the program.
These conditions occurred because the City did not have effective management controls to
properly allocate salary expenditures to the CDBG program and disregarded HUD requirements.
Without supporting documentation to substantiate the allocations of actual services performed by
personnel or some type of quantifiable measure of employee effort, the City had no assurance
that salary expenditures were accurate and CDBG program related. As a result, the City
improperly allocated $690,392 to the CDBG program.


 Salary Expenditures Not
 Properly Allocated to the
 CDBG Program

              The City did not properly allocate salary expenditures to the CDBG program.
              Regulations at 2 CFR Part 225, appendix B, paragraph 8h(4), require that a
              distribution of salaries or wages be supported by personnel activity reports or
              equivalent documentation for employees that work on multiple activities or cost
              objectives.

              We selected salary expenditures from three pay periods in program years 2006
              and 2008 for a total of six pay periods. The City did not follow federal
              requirements that adequate supporting documentation be maintained on the
              distribution of salaries of those employees that worked on multiple programs. For
              program year 2006, the City indicated that the salary allocation percentage for
              each employee for federal and nonfederal programs was prepared by the budget
              department and other directors and supervisors. The City did not maintain
              adequate documentation supporting the actual time worked by employees
              between federal and nonfederal programs. Regulations at 2 CFR Part 225,
              appendix B, paragraph 8h(5)(e), state that budget estimates or other distribution
              percentages determined before the services are performed do not qualify as
              support for charges to federal awards but may be used for interim accounting
              purposes. As a result, we consider $244,900 allocated to the CDBG program to
              be an unsupported cost.




                                               9
                                                                            Unsupported
                                                      Total salary             salary
                           No.       Pay period       expenditure           expenditure
                            1       Apr. 14, 2007       $83,179                 $76,615
                            2       Sept. 15, 2007      $94,465                 $90,954
                            3       Sept. 29, 2007      $80,842                 $77,331
                                    Subtotal in program year 2006             $244,9002

                   For program year 2008, City officials indicated that the salary allocation process
                   had not changed except for the preparation of timesheets. The City did not
                   prepare biweekly timesheets until program year 2008. The biweekly timesheets
                   were prepared by the City for each pay period according to the approved salary
                   allocation for each employee. The employees were required to certify by means
                   of their biweekly timesheets that they worked the hours allocated to the different
                   programs. If the hours shown on the biweekly timesheets were incorrect, the
                   employees were to submit a form with the revised hours to the director for
                   approval.

                   City employees appeared to be routinely certifying through their biweekly
                   timesheets that they worked a percentage of time on a particular program although
                   they may not have actually worked on that program. As indicated above, the City
                   did not maintain adequate documentation supporting the actual time worked by
                   employees between federal and nonfederal programs. Several City employees
                   also certified hours on their biweekly timesheets for the CDBG program that did
                   not agree with the hours reported in the City’s financial system and exceeded the
                   approved salary allocation percentage. In addition, three employees revised
                   timesheets that were not approved by the director, and the revisions appeared in
                   the City’s financial system.

                   We consider all CDBG salary expenditures for program year 2008 to be missing
                   adequate documentation supporting the actual hours worked on the program. As
                   a result, we consider $445,492 allocated to the CDBG program to be an
                   unsupported cost.

                                                                            Unsupported
                                                       Total salary            salary
                           No.       Pay period        expenditure          expenditure
                            4       Oct. 25, 2008        $57,985                $57,985
                            5        Nov. 8, 2008        $61,299                $61,299
                            6        Jan. 17, 2009       $57,388                $57,388
                                            Subtotal                           $176,672
                           Total unsupported salary expenditures in
                           program year 2008                                    $445,492

2
    We deducted $13,586, which represents those employees who worked 100 percent in the CDBG program.


                                                      10
             This condition occurred because the City did not maintain effective management
             controls to properly allocate salary expenditures to the CDBG program and
             disregarded HUD requirements. The City did not have written procedures for
             salary allocation among CDBG and other federal and nonfederal programs and
             did not require its employees to maintain documentation supporting the time
             worked for each federal or nonfederal program. City officials also believed that
             the methodology it used to allocate salary expenditures was adequate.

             Without supporting documentation to substantiate the allocations of actual
             services performed by personnel or some type of quantifiable measure of
             employee effort, we had no assurance that salary expenditures were accurate and
             CDBG program related. As a result, we consider $690,392 allocated to the
             CDBG program to be an unsupported cost.

Conclusion


             The City improperly allocated salary expenditures to the CDBG program without
             adequate supporting documentation demonstrating that employees worked in the
             program. This condition occurred because the City did not have effective
             management controls to properly allocate salary expenditures to the CDBG
             program and disregarded HUD requirements. As a result, the City had no
             assurance that $690,392 in salary expenditures was accurate and CDBG program
             related.

Recommendations


             We recommend that the Director of the Miami Office of Community Planning
             and Development require the City to

             2A. Reimburse its program $690,392 for unsupported salary expenditures from
                 nonfederal funds.

             2B. Develop a salary allocation method that complies with 2 CFR Part 225.

             2C. Develop, implement, and enforce written procedures for salary allocation
                 among federal and nonfederal programs to include documentation
                 requirements for its employees.




                                             11
Finding 3: The City Did Not Accurately Report CDBG Financial
           Information to HUD
The City did not accurately report CDBG financial information to HUD in accordance with
federal requirements. It reported more than $1.7 million in administrative/planning costs to
HUD but reported more than $1.9 million in its financial system. In addition, it failed to report
$265,823 in reprogrammed CDBG funds to HUD. These conditions occurred because the City
was transferring financial information to another automated system and disregarded HUD
regulations. As a result, there was a lack of assurance that the City reported accurate CDBG
financial information to HUD in accordance with HUD regulations.


  Administrative/Planning Costs
  Not Accurately Reported to
  HUD

               The City did not accurately report CDBG financial information to HUD. It
               reported more than $1.7 million in administrative/planning costs to HUD in
               program year 2006, but the City’s financial system showed more than $1.9
               million. Regulations at 24 CFR 85.20 require that accurate, current, and complete
               disclosure of the financial results of financially assisted activities be in
               accordance with the financial reporting requirements of the grant.

               The City attempted to reconcile the discrepancies between IDIS and the City’s
               financial system. The City reported transactions totaling $53,258 in IDIS that did
               not belong to program year 2006, and it reported $1,019 in IDIS that it could not
               explain. The City also reported $265,823 in its financial system representing
               reprogrammed CDBG funds that was not reported to HUD (see below). The net
               amount of these transactions totaled $211,546 that was inaccurately reported to
               HUD.

  Reprogrammed CDBG Funds
  Not Reported to HUD

               The City reprogrammed $265,823 in CDBG funds to administrative/planning
               activity for four canceled activities without notifying HUD and conducted public
               hearings for only one activity. Regulations at 24 CFR 91.505(a) require that the
               jurisdiction amend its approved plan whenever it makes one of the following
               decisions: (1) to make a change in its allocation priorities or a change in the
               method of distribution of funds; (2) to carry out an activity, using funds from any
               program covered by the consolidated plan (including program income), not
               previously described in the action plan; or (3) to change the purpose, scope,
               location, or beneficiaries of an activity. (b) The jurisdiction shall identify in its
               citizen participation plan the criteria it will use for determining what constitutes a
               substantial amendment. It is these substantial amendments that are subject to a


                                                 12
             citizen participation process in accordance with the jurisdiction’s citizen
             participation plan. (c) Upon completion, the jurisdiction must make the
             amendment public and must notify HUD that an amendment has been made. The
             jurisdiction may submit a copy of each amendment to HUD as it occurs or at the
             end of the program year. Letters transmitting copies of amendments must be
             signed by the official representative of the jurisdiction authorized to take such
             action.

             City officials claimed that the conditions described above occurred because the
             City was transferring financial information to another automated system. The
             transfer of financial information between systems created a number of problems
             for users of the financial records. City officials claimed that canceling the CDBG
             activities in IDIS was sufficient to notify HUD about the cancelation and
             reprogramming of CDBG funds from one activity to another.

             As a result of the conditions noted above, there was a lack of assurance that the
             City reported accurate CDBG financial information to HUD in accordance with
             HUD regulations. In addition, we consider $265,823 in reprogrammed CDBG
             funds not reported to HUD to be an unsupported cost.

Conclusion


             The City did not accurately report CDBG financial information to HUD. It also
             improperly reprogrammed CDBG funds from four canceled activities without
             notifying HUD. These conditions occurred because the City was transitioning to
             another financial system and disregarded HUD regulations. As a result, there was
             a lack of assurance that the City reported accurate CDBG financial information to
             HUD in accordance with HUD regulations. The City should provide
             documentation supporting the reprogrammed funds or reimburse its program
             $265,823 for improperly reprogramming CDBG funds for four canceled activities
             without notifying HUD. See appendix C for a list of the canceled activities.

Recommendations


             We recommend that the Director of the Miami Office of Community Planning
             and Development require the City to

             3A. Provide documentation supporting that CDBG program requirements were
                 followed or reimburse its program $265,823 from nonfederal funds.

             3B. Reconcile CDBG administrative/planning costs between IDIS and the City’s
                 financial system.




                                              13
3C. Ensure that all CDBG activities are properly reported in IDIS and the City’s
    financial system on a timely basis.

3D. Notify HUD of all substantial changes to CDBG activities in accordance
    with HUD regulations.




                               14
                                    SCOPE AND METHODOLOGY

Our audit objectives were to determine whether the City administered its CDBG program in
accordance with applicable HUD requirements for: (1) meeting CDBG national objective(s), (2)
allocation of expenditures to the CDBG program, and (3) reporting program activities.

To accomplish our objectives, we

          Reviewed relevant HUD regulations and guidebooks;

          Reviewed relevant City policies and procedures and independent public accountant
          reports;

          Interviewed HUD and City officials;

          Reviewed HUD files to include IDIS reports and monitoring reports;

          Reviewed City financial records; and

          Reviewed City files and records to include the subrecipient contract, resolutions, and
          monitoring reports.

We obtained a list of CDBG-funded activities administered by the City from October 1, 2006, to
September 30, 2008. The City reported 165 completed activities, and we selected eight activities
(representing 37 percent of total expenditures) to determine whether the City met a national
objective. We selected activities from each of the four subcategories to benefit low- and moderate-
income individuals (area benefit, limited clientele, housing, and job creation or retention) and
activities with large CDBG expenditures.

We performed a cursory review of CDBG administrative/planning costs for program year 2006
(October 1, 2006, to September 30, 2007) and noted that salary expenditures represented
approximately 81 percent or $1,606,103 of the administrative/planning costs. Since City
officials informed us that they did not maintain adequate supporting documentation for salary
expenditures, we selected three pay periods with the largest amount of salary expenditures,
totaling $258,486, to determine whether they were properly allocated to the CDBG program.
City officials also informed us that biweekly timesheets were required to support the City’s
salary allocation beginning in October 2008. The City provided us with a listing of salary
expenditures for program year 2008 (October 2008 to January 17, 2009).3 We selected three pay
periods with the largest amounts of salary expenditures, totaling $176,672, to determine whether
they were properly allocated to the CDBG program. Our overall selection represents
approximately 21 percent of total salary expenditures for program years 2006 and 2008 (as of
January 17, 2009).

3
 We requested salary expenditures incurred in program year 2008 early in 2009. The City provided us with salary information as of January 17,
2009. The City’s program year 2008 is ongoing (October 1, 2008 – September 30, 2009).



                                                                     15
We verified whether CDBG administrative/planning costs were reported accurately between the
City’s financial system and IDIS for fiscal year 2006 (October 1, 2006, to September 30, 2007).
IDIS generates reports from the submission of the City’s consolidated annual performance and
evaluation report to HUD. We compared the financial summary report (PR-26) to the City’s
financial system.

We assessed the reliability of computer-processed data reported in IDIS and in the City’s
financial system for salary expenditures and national objectives. We traced salary expenditures
to and from the source documents to assess the reliability of salary expenditures reported in IDIS
and the City’s financial system. During program year 2006, the City did not require
documentation supporting its employees’ time distribution. The City indicated that hours
charged to the CDBG program were based on an estimated yearly budget determined by City
officials. The City did not maintain adequate documentation supporting the actual time worked
by employees between federal and nonfederal programs. In program year 2008, City officials
indicated that beginning in October 2008, it required biweekly timesheets to support its salary
allocation. We identified inconsistencies between what was reported in 13 biweekly timesheets
and the City’s financial system. The City lacked adequate controls to ensure that valid and
reliable data were obtained, maintained, and accurately reported in IDIS and the City’s financial
system. Therefore, we consider salary expenditures reported in IDIS and the City’s financial
system to be unreliable. For purposes of determining questioned costs, we used the CDBG
expenditures reported in the City’s financial system.

For national objectives, we tested the accuracy of the City drawdowns of CDBG funds reported
in IDIS and the expenditures reported in the City’s financial system. Based on our tests, we
found that the drawdowns were generally supported by the expenditures reported in the City’s
financial system for those activities funded from October 2007 to September 2008. We also
found that the expenditures reported in the City’s financial system were supported and accurate
and thus could be relied upon for our audit purposes. Therefore, we used the CDBG
expenditures reported in the City’s financial system for questioned costs.

Due to the volume of CDBG activities and administrative/planning costs, we did not perform a 100
percent review. The results of the audit apply only to the items selected and were not projected to
the universe or population.

The audit generally covered the period October 1, 2006, through September 30, 2007, and we
extended the period as needed to accomplish our objective. We conducted our fieldwork from
November 2008 through May 2009 at the City’s offices located at 444 Southwest 2nd Avenue,
Miami, Florida.

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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                16
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:

         Effectiveness and efficiency of program operations,
         Relevance and reliability of information,
         Compliance with applicable laws and regulations, and
         Safeguarding of assets and resources.

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:

                  Controls over program operations;
                  Controls over the reliability of data;
                  Controls over compliance with laws and regulations; and
                  Controls over the safeguarding of resources 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.

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

                  The City did not demonstrate compliance in meeting national objectives for its
                  commercial façade program (see finding 1).

                  The City did not properly allocate salary expenditures to the CDBG program
                  (see finding 2).

                  The City did not accurately report CDBG financial information to HUD (see
                  finding 3).



                                               17
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                        Recommendation
                                number            Unsupported 1/
                             1A                       $4,156,200
                             2A                          690,392
                             3A                          265,823
                                                     $ 5,112,415


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.




                                            18
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         19
20
Comment 1




            21
Comment 2




            22
23
Comment 3




            24
25
                       OIG Evaluation of Auditee Comments

Comment 1   The City stated that it did not agree with our determination that the national
            objective was not met, and contended that City staff inspects the business and
            surrounding area and reports any condition that does not meet program
            parameters.

            The City provided us with documentation that it inspected the businesses to
            ensure the work was completed, and performed the environmental and flood
            inspections. However, the City failed to provide us with supporting
            documentation that the service area was primarily residential in nature to
            achieve the intended national objective.

            The City said it would work with the local HUD office to ensure that
            appropriate, adequate and clear information is included in each façade file to
            fully document compliance with the requirements established at 24 CFR
            570.506 and 24 CFR 570.208(1)(a). The City will submit to HUD thorough
            documentation for each individual façade to demonstrate that the intended
            national objective – Area Benefit - was met. The City will also revise its
            policies and procedure for the façade program (detailed in the City of Miami
            Commercial Façade Program Policies and Procedures Manual) to ensure that in
            the future, façade files contain all the necessary information to clearly
            demonstrate that the activity complies with federal regulation and that the
            intended national objective was met.

Comment 2   The City agreed that it allocated salary expenditures to the CDBG program
            especially for the 2006 program year without proper documentation, but
            believed that all salary expenditures during the period under audit were
            eligible, and properly chargeable to CDBG in accordance with 24 CFR
            570.206.

            The City did not provide us with supporting documentation that the salary
            expenditures we reviewed during our audit were eligible and properly
            chargeable to CDBG in accordance with 24 CFR 570.206. We maintain that
            the City improperly allocated salary expenditures to the CDBG program
            without adequate supporting documentation demonstrating that employees
            worked in the program.

            The City agreed documentation needs to be improved and will amend its
            current policy to require staff to prepare an activity report on a biweekly period
            and has already consulted CPA firms to provide proposals on the preparation
            of salary allocations.

Comment 3   The City contended the reprogrammed funds were used for eligible activities,
            and indicated that the revised IDIS vouchers for $5,026, $2,240 and $4,770
            were reported to HUD through the City’s substantial amendment to HUD for
            the 2006-2007 program year. The City provided us with this amendment.

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We reviewed the amendment and agree that the City reported these
reprogrammed CDBG funds to HUD. We corrected appendix C to reflect this.
The amendment indicates that the funds were reallocated to Section 108 debt
service. However, the City reported in the HUD IDIS system that these funds
were reallocated to administrative/planning costs. In addition, the City failed
to provide supporting documentation that the reallocation of these funds
involved conducting public hearings. Therefore, we maintain that the City
failed to report accurate financial information to HUD in accordance with
federal requirements.




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Appendix C

                             CANCELED CDBG ACTIVITIES AND
                              REPROGRAMMED CDBG FUNDS

                   #                                                                         City
                                                CDBG funds                                conducted                  City
                                              reprogrammed to                               public                 notified
                         Canceled           administrative/planning                       hearings4                 HUD
                         activity #                activity                                 yes/no                  yes/no
                   1       1567                      $ 253,787(1)                               yes                     no
                   2       1406                           5,026                                  no                    yes
                   3       1511                           2,240                                  no                    yes
                   4       1601                           4,770                                  no                    yes
                           Total                     $ 265,823

    Note:
    (1) The City informed citizens during the public hearing about the cancelation of the activity
        but did not inform them regarding the use of the reprogrammed CDBG funds. According
        to the City, no other hearings were held to discuss the use of the funds. The City did not
        inform HUD about the reprogramming of these funds to the administrative/planning
        activity.




4
  Based on the City’s citizen participation plan, revised in November 2005, any changes made in the use of funds are considered substantial and
require that a substantial amendment be made to its consolidated plan. In addition, it needed to conduct a public hearing informing its citizens
of the cancelation and reprogramming of funds it planned to make. The cancelation of these activities and reprogramming of funds occurred in
program year 2006.

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