oversight

New Phoenix Assistance Center, Chicago, Illinois, Failed to Manage Its Supportive Housing Program Grants

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-10-24.

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

                                                                  Issue Date
                                                                         October 24, 2008
                                                                  Audit Report Number
                                                                         2009-CH-1001




TO:         Ray E. Willis, Director of Community Planning and Development, 5AD
            Henry S. Czauski, Acting Director of Departmental Enforcement Center, CV


FROM:       Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: New Phoenix Assistance Center, Chicago, Illinois, Substantially Failed to
           Manage Its Supportive Housing Program Grants

                                    HIGHLIGHTS

 What We Audited and Why

              We audited the New Phoenix Assistance Center’s (Center) Supportive Housing
              Program (Program) grants. The audit was part of the activities in our fiscal year
              2007 annual audit plan. We selected the Center based upon the U.S. Department
              of Housing and Urban Development’s (HUD) Office of Community Planning and
              Development being a priority audit area for our office and a request from HUD’s
              Chicago Office of Community Planning and Development. Our audit objectives
              were to determine whether the Center effectively administered its Program grants,
              appropriately used Program funds and provided matching contributions
              (contributions) for its Program grants, and followed HUD’s requirements.

 What We Found

              The Center materially failed to manage its Program grants. It lacked sufficient
              documentation to support that it used Program funds for appropriate Program
              expenses, inappropriately used Program funds, and lacked adequate
              documentation to support that it followed HUD’s requirements in providing
              contributions for its Program grants.
           The Center did not comply with federal requirements regarding its use of Program
           funds. It was unable to sufficiently support its use of more than $574,000 in
           Program funds for appropriate lease payments and more than $72,000 in Program
           funds for eligible nonlease expenses and used nearly $16,000 in Program funds
           for improper nonlease expenses. It also lacked sufficient documentation to
           support whether its transfers of $25,000 in Program funds among its Program
           grants were allowable.

           In addition, the Center lacked sufficient documentation to support that it followed
           HUD’s requirements in providing contributions for its Program grants. As a
           result, HUD lacked assurance that the Center provided $333,347 in eligible
           contributions for its Program grants.


What We Recommend

           We recommend that the Director of HUD’s Chicago Office of Community
           Planning and Development terminate the Center’s three current authorized Program
           grants, reallocate the nearly $92,000 in remaining Program funds, deny the Center’s
           three applications for nearly $838,000 in future Program funds, require the Center to
           provide sufficient supporting documentation or reimburse HUD from nonfederal
           funds for the unsupported payments and contributions, and reimburse HUD from
           nonfederal funds for the improper use of Program funds. We also recommend that
           HUD’s Acting Director of the Departmental Enforcement Center pursue the
           appropriate administrative sanctions against the Center’s officers for their failure to
           adequately manage the Center’s Program grants.

           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 and supporting schedules to the
           Center’s chief executive officer/president and HUD’s staff during the audit. We
           held an exit conference with the Center’s chief executive officer/president on
           October 2, 2008.

           We asked the Center’s chief executive officer/president to provide comments on
           our discussion draft audit report by October 10, 2008. The Center’s executive
           director provided written comments, dated October 9, 2008. The executive
           director did not agree with the findings. The complete text of the written
           comments, 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
      Finding 1: The Center Did Not Operate Its Program Grants in Accordance with
                 Federal Requirements                                                6

      Finding 2: The Center Lacked Controls over Its Use of Program Funds            9

      Finding 3: The Center Could Not Provide Sufficient Documentation to Support
                 Its Program Contributions                                          15

Scope and Methodology                                                               17

Internal Controls                                                                   18

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                20
   B. Auditee Comments and OIG’s Evaluation                                         21
   C. Federal Requirements                                                          23




                                            3
                       BACKGROUND AND OBJECTIVES

The Program. Authorized under Title IV of the McKinney-Vento Homeless Assistance Act of
1987 (Act), as amended, the Supportive Housing Program (Program) is funded for the purpose of
promoting the development of transitional and permanent supportive housing and supportive
services for homeless households. Program funds are available to state or local governmental
entities, private nonprofit organizations, and public nonprofit community mental health associations
for new construction, acquisition, rehabilitation, and leasing of buildings to provide transitional and
permanent supportive housing for homeless households; supportive services for homeless persons;
operating costs; and technical assistance. Homeless households may receive transitional supportive
housing assistance for up to 24-months and must qualify as disabled to be eligible for permanent
supportive housing.

The Center. Incorporated in October 1993 as a nonprofit corporation under the laws of the State of
Illinois, New Phoenix Assistance Center (Center) is governed by a 10-member board of directors,
including the Center’s chief executive officer/president. The Center’s overall mission is to provide
quality scattered-site supportive housing and supportive services to homeless individuals in
underserved communities to promote a high quality of family life, self-determination, and
independence. The Center’s Program records are located at its administrative office at 7624 South
Phillips Avenue, Chicago, Illinois, and its case management office at 2531 East 73rd Street,
Chicago, Illinois.

The following table shows the amount of Program funds the U.S. Department of Housing and
Urban Development (HUD) awarded the Center for the period October 2004 through September
2008.

   Program grant                                                                         Program
      number                  Program grant period                 Type of Program         funds
   IL01B310075         October 2004 through September 2006           Temporary            $543,018
   IL01B410097             July 2005 through June 2006                Permanent             325,780
   IL01B410094         September 2005 through August 2006            Temporary              240,500
   IL01B510087             July 2006 through June 2007                Permanent             325,780
   IL01B510095         September 2006 through August 2007            Temporary              240,500
   IL01B510086         October 2006 through September 2007           Temporary              271,509
   IL01B610083             July 2007 through June 2008                Permanent             325,780
   IL01B610110         September 2007 through August 2008            Temporary              240,500
   IL01B610094         October 2007 through September 2008           Temporary              271,509
                                        Total                                           $2,784,876

HUD’s monitoring review. HUD’s Chicago Office of Community Planning and Development
assessed the Center’s performance under Program grant number IL01B310075 through an April
2007 monitoring review. The monitoring review focused on the Center’s Program grant records
and files, financial management, and supportive housing facilities. HUD identified six findings and
three concerns. HUD requested that our office conduct an audit of the Center’s Program grants



                                                   4
based on the results of its monitoring review and the Center’s inability to adequately resolve the
issues identified in the monitoring review.

Our audit objectives were to determine whether the Center effectively administered its Program
grants, appropriately used Program funds and provided matching contributions (contributions)
for its Program grants, and followed HUD’s requirements.




                                                  5
                                RESULTS OF AUDIT

Finding 1: The Center Did Not Operate Its Program Grants in
               Accordance with Federal Requirements
The Center substantially failed to manage its Program grants. It lacked sufficient documentation
to support that it used Program funds for appropriate Program costs, inappropriately used
Program funds, and lacked adequate documentation to support that it followed HUD’s
requirements in providing contributions for its Program grants because it failed to implement
adequate procedures and controls to ensure that its Program grants were managed according to
federal requirements. As a result, HUD lacked assurance that Program funds were used
efficiently and effectively and for eligible expenses.



 The Center Lacked Controls
 over Its Use of Program Funds

              The Center did not comply with federal requirements regarding its use of Program
              funds. It lacked sufficient documentation to support that it used Program funds for
              eligible Program costs and used Program funds for inappropriate expenses because it
              lacked adequate procedures and controls to ensure that federal requirements were
              appropriately followed. As a result, it was unable to sufficiently support its use of
              more than $574,000 in Program funds for eligible lease payments and more than
              $72,000 in Program funds for eligible nonlease expenses, and used nearly $16,000 in
              Program funds for improper nonlease expenses. It also could not provide sufficient
              documentation to support whether it appropriately transferred $25,000 in Program
              funds among its Program grants.

              HUD’s April 2007 monitoring review determined that the Center lacked sufficient
              documentation to support that it used all of its Program funds for eligible Program
              costs, used Program funds for inappropriate expenses, and did not have a method to
              allocate its costs to all funding sources. HUD had not substantially resolved these
              issues as of September 2008.

 The Center Could Not Provide
 Sufficient Documentation to
 Support Its Program
 Contributions

              The Center lacked sufficient documentation to support that it followed HUD’s
              requirements in providing contributions for its Program grants. The weaknesses
              occurred because the Center lacked adequate procedures and controls to ensure



                                                6
             that HUD’s requirements were appropriately followed. As a result, HUD lacked
             assurance that the Center provided eligible contributions for more than $1.1
             million in Program funds.

             HUD’s April 2007 monitoring review determined that the Center did not have
             sufficient documentation to support the contributions for its Program grants. HUD
             had not resolved this issue as of September 2008.

The Center Had Nearly $92,000
in Program Funds Remaining
in Its Current Grants

             As of August 28, 2008, the Center had $91,730 in Program funds remaining for its
             three current authorized Program grants (IL01B610083, IL01B610110, and
             IL01B610094). In addition, it submitted three applications for $837,789 in future
             Program funds. As of August 2008, the Center had not been awarded additional
             funding based upon its applications. Given the Center’s substantial failure to
             manage its current authorized Program grants, HUD should deny the Center’s three
             applications so the Program funds can be awarded to an organization that will
             comply with the applicable federal requirements to ensure that eligible households
             receive the full benefits of the Program funds. This would be an avoidance of
             unnecessary Program expenditures for future Program grants.

Conclusion

             The previously mentioned deficiencies occurred because the Center lacked
             adequate procedures and controls to ensure that it properly managed its Program
             grants and appropriately followed federal requirements. It did not ensure that it
             fully implemented federal requirements. The deficiencies with the Center’s
             Program grants are significant and demonstrate a substantial lack of effective
             Program management. As a result, HUD lacked assurance that Program funds
             were used efficiently and effectively and for eligible expenses.

Recommendations

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

             1A. Terminate the Center’s three current authorized Program grants, deobligate the
                 remaining $91,730 in Program funds, and reaward the Program funds in
                 accordance with HUD’s requirements.




                                              7
1B. Disapprove the Center’s three applications for $837,789 in future Program
    funds so they can be awarded to an organization that will comply with the
    applicable federal requirements to ensure that eligible households receive the
    full benefits of the Program funds.

We also recommend that the Acting Director of HUD’s Departmental Enforcement
Center

1C. Pursue the appropriate administrative sanctions against the Center’s officers
    for their failure to adequately manage the Center’s Program grants.




                                 8
Finding 2: The Center Lacked Controls over Its Use of Program Funds
The Center did not comply with federal requirements (see appendix C of this report) regarding
its use of Program funds. It lacked sufficient documentation to support that it used Program
funds for appropriate Program expenses and improperly used Program funds for inappropriate
expenses because it lacked adequate procedures and controls to ensure that federal requirements
were appropriately followed. As a result, it was unable to sufficiently support its use of more
than $574,000 in Program funds for appropriate lease payments and more than $72,000 in
Program funds for eligible nonlease expenses and used nearly $16,000 in Program funds for
improper nonlease expenses. The Center also could not provide sufficient documentation to
support whether its transfers of $25,000 in Program funds among its Program grants were
allowable.



 The Center Lacked
 Documentation to Support Its
 Use of More Than $574,000 in
 Program Funds for Lease
 Payments

              We reviewed $645,172 in Program funds the Center used for lease payments from
              October 2004 through August 2007. The $645,172 included $537,987 for
              supportive housing lease payments and $107,185 for office lease payments. The
              Center could not provide sufficient documentation to support that any of the
              $537,987 in Program funds it used for supportive housing lease payments were for
              eligible households. In addition, it could not provide leases for $284,820 in Program
              funds used for supportive housing lease payments. The Center lacked sufficient
              documentation to support whether households qualified as homeless or homeless
              and disabled, which units the households were renting, and/or whether households
              were being served under transitional or permanent supportive housing.

              Further, the Center provided the following incomplete and/or conflicting
              documentation as to the households receiving supportive housing lease payment
              assistance through its Program:

                  ™   The Center provided eviction notices for two households to support that
                      they qualified as homeless. However, the landlord whose signature was
                      on the eviction notices stated that the signature on the eviction notices
                      were her signature but that she did not create or issue the eviction notices
                      for the two households. The landlord also stated that the notices must
                      have been altered by someone else.

                  ™   The Center provided lab reports for two households to support that they
                      qualified as disabled. However, the lab reports for the two households
                      were identical, except for the names on the reports. Further, the lab report


                                                9
                   for one of the households was for a male, but the lab report stated that the
                   household member was female.

               ™   The Center provided a maintenance request binder for its supportive
                   housing leased units for the period October 2004 through August 2007.
                   The binder contained maintenance requests, dated June 8 and August 16,
                   2007, from two households in supportive housing leased units for which
                   the Center lacked documentation to support whether the households
                   qualified as homeless or homeless and disabled. Further, the binder
                   contained three maintenance requests, dated from August 9, 2007, through
                   March 11, 2008, from a household in a supportive housing leased unit that
                   did not match the supportive housing leased unit in the lease agreement for
                   the household. The lease agreement was for the period August 2007
                   through August 2008.

            The Center also could not provide documentation to support $36,030 in Program
            funds it used for office lease payments. It paid a landlord $105,615 from March
            2005 through August 2007 for office leases when it could only provide office lease
            agreements with the landlord from October 2004 through September 2007 totaling
            $69,585.

The Center Could Not Support
Its Use of More Than $72,000 in
Program Funds for Nonlease
Expenses

            We reviewed $721,445 in Program funds the Center used for nonlease expenses
            from January 2006 through July 2007. The Center lacked sufficient
            documentation to support that it used $72,235 in Program funds from January
            2006 through July 2007 for appropriate Program expenses. The following table
            shows the cost category, period during which Program funds were paid, and
            amounts of Program funds paid for the unsupported expenses.




                                             10
                                                             Program
     Cost category           Period of disbursement           funds
 Household assistance     January 2006 through July 2007      $19,160
 Unidentified
 expenses                January 2006 through June 2007        10,109
 Salaries                           June 2006                   9,119
 Office supplies         January 2006 through June 2007         7,005
 Transportation          January 2006 through June 2007         7,094
 Contracting            February 2006 through August 2006       4,565
 Office equipment        February 2006 through June 2007        4,168
 Appliances and
 electronics              April 2006 through October 2006       3,312
 Furnishings            August 2006 through December 2006       2,318
 Miscellaneous            January 2006 through March 2007       1,832
 Internet service         February 2006 through June 2007       1,529
 Utilities              January 2006 through December 2006      1,082
 Software programs      March 2006 through September 2006         810
 Fees                               January 2007                   84
 Entertainment           April 2006 through September 2006         48
                            Total                             $72,235

The Center used $19,160 in Program funds from January 2006 through July 2007
to pay for unsupported household assistance. The following items are examples
of the household assistance expenses listed in the table: grocery store gift cards,
food, cleaning and laundry supplies, health and beauty supplies, and paper and
plastic goods.

The Center used $10,109 in Program funds from January 2006 through June 2007
to pay for expenses that were not identified. The expenses were unidentifiable
due to the Center’s inability to provide receipts and/or vouchers, legible receipts
and/or vouchers, and/or receipts and/or vouchers that adequately identified the
expenses.

The Center used $9,119 of Program funds in June 2006 to pay unsupported salary
expenses for its director of case management. The amount was in excess of the
director’s normal salary payments, and the Center did not provide an explanation
for the additional salary payment.

In addition, the Center used $431,014 in Program funds to pay its employees’
salaries. However, it could not support from which Program grants the employees
were paid. It transferred the Program funds from its Program grant bank accounts
to its payroll bank account each pay period. It then paid its employees’ salaries
from the payroll bank account. Neither the transfers nor the salary payments
identified from which Program grants the employees’ salaries were paid. Further,
the Center could not provide personnel activity reports or other equivalent
documentation for the time its employees spent working on activities funded by
the Program grants and other funds.




                                  11
The Center Inappropriately
Used Nearly $16,000 in
Program Funds for Nonlease
Expenses

           The Center used an additional $15,724 in Program funds for improper nonlease
           expenses. The following table shows the cost category, period during which
           Program funds were used, and amount of Program funds disbursed for the
           improper nonlease expenses.

                                                                             Program
                Cost category                 Period of disbursement          funds
          Entertainment                   January 2006 through June 2007       $8,623
          Automobile maintenance          January 2006 through May 2007         2,840
          Excessive cellular phones       January 2006 through June 2007          649
          Miscellaneous                   January 2006 through June 2007          641
          Attorney registration fees     March 2006 through October 2006          639
          Furnishings                               May 2007                      573
          Equipment                      February 2006 through May 2006           541
          Software programs               April 2006 through March 2007           525
          Fines and penalties             January 2006 through June 2007          306
          Travel items                     April 2006 through July 2006           194
          Appliances and electronics   September 2006 through October 2006        193
                                        Total                                 $15,724


           The Center used $8,623 in Program funds from January 2006 through June 2007
           to pay for improper entertainment expenses. The following items are examples of
           improper entertainment costs listed in the table: digital video discs (DVD), video
           game console and components, video games, portable digital audio/video/media
           players, frequency modulation (FM) transmitters, audio systems, digital and
           nondigital cameras, audio noise cancelling headphones, party supplies, toys, and
           audio books.

           The Center used $2,840 in Program funds from January 2006 through May 2007 to
           pay for inappropriate automobile maintenance on its executive director’s personal
           vehicle. The following items are examples of maintenance costs listed in the table:
           a 10,000-mile maintenance checkup; the replacement of lower ball joints, an inner
           tie rod, air and fuel filters, rear door glass, and transmission fluid; suspension and
           wheel alignments; tire mounting; and electrical work.

           On July 24, 2007, the Director of HUD’s Chicago Office of Community Planning
           and Development sent a letter to the Center’s chief executive officer/president
           requesting clarification of expenses for which the Center previously submitted
           vouchers. One of the questioned expenses was $420 to an automobile dealership on
           May 9, 2007. The Center’s executive director responded to the request, dated July
           30, 2007, stating that he found HUD’s inquiry regarding the expenses troublesome



                                               12
             and HUD was trying to micromanage how the Center carried out its Program grants.
             Further, the executive director stated that the automobile dealership expense was for
             automobile maintenance on one of the Center’s vehicles used for the transportation
             of small furniture and donations. During our audit, the Center did not provide any
             receipts for automobile maintenance on May 9, 2007, for any of its vehicles.
             However, it did provide a May 9, 2007, receipt from the previously mentioned
             automobile dealership for $420 in automobile maintenance on the executive
             director’s personal vehicle.

The Center Could Not Support
Whether Its Transfers of
$25,000 in Program Funds
Were Allowable

             The Center could not provide adequate documentation to support whether its
             transfers of $25,000 in Program funds among its Program grants were allowable.
             Specifically, it transferred $10,000 on February 2, 2006, from its bank account for
             Program grant number IL01B310075 to its bank account for Program grant number
             IL01B410094. It also transferred $15,000 on May 3, 2006, from its bank account
             for Program grant number IL01B410097 to its bank account for Program grant
             number IL01B410094. However, the Center could not provide sufficient
             documentation showing the expenses for which the transferred Program funds were
             used.

The Center Lacked Adequate
Procedures and Controls

             The weaknesses regarding the Center’s lack of sufficient documentation to support
             that it used Program funds for eligible Program costs and use of Program funds for
             inappropriate expenses occurred because it lacked adequate procedures and controls
             to ensure that it appropriately followed federal requirements. It did not ensure that it
             fully implemented federal requirements.

             The Center’s executive director said that the Center did not have written cost
             allocation plans for its costs because it would be too cumbersome to develop and
             implement the cost allocation plans. He said that the Center usually paid for
             expenses directly related to a Program grant with the appropriate Program funds and
             tried to divide other expenses equally among the Program grants.


Conclusion

             The Center did not comply with federal requirements regarding its use of Program
             funds. As previously mentioned, it was unable to sufficiently support its use of



                                               13
          more than $574,000 in Program funds for eligible lease payments and more than
          $72,000 in Program funds for eligible nonlease expenses and used nearly $16,000
          in Program funds for improper nonlease expenses. It also could not provide
          sufficient documentation to support whether its transfers of $25,000 in Program
          funds among its Program grants were allowable.


Recommendations

          We recommend that the Director of HUD’s Chicago Office of Community Planning
          and Development require the Center to

          2A. Provide sufficient supporting documentation or reimburse HUD from
              nonfederal funds, as appropriate, for the $671,252 in Program funds ($537,987
              for supportive housing lease payments, $36,030 for office lease payments,
              $72,235 for nonlease expenses, and $25,000 for transferred Program funds)
              used for unsupported expenses cited in this finding.

          2B. Reimburse HUD from nonfederal funds for the $15,724 in Program funds it
              used for improper expenses.




                                          14
Finding 3: The Center Could Not Provide Sufficient Documentation to
                 Support Its Program Contributions
The Center lacked sufficient documentation to support that it followed HUD’s requirements (see
appendix C of this report) in providing contributions for its Program grants. The weaknesses
occurred because the Center lacked adequate procedures and controls to ensure that HUD’s
requirements were appropriately followed. As a result, HUD lacked assurance that the Center
provided $333,347 in eligible contributions for its Program grants.



 The Center Lacked Controls
 over Program Contributions

              The Center could not provide sufficient documentation to support whether it
              complied with HUD’s requirements in providing contributions for its six Program
              grants for the period October 2004 through September 2007. It drew down more
              than $1.9 million in Program funds from HUD’s Line of Credit Control System
              (System) during the period. It was required to provide contributions for 33.3 and 25
              percent of the Program funds it drew down for operating and supportive services
              costs, respectively. Therefore, it was required to provide more than $333,000 in
              contributions for its Program grants. The Center reported more than $408,000 of
              contributions in its annual performance reviews (reviews) to HUD for its Program
              grants. The following table shows the Program funds it drew down; operating,
              supportive services, and total contributions that it was required to provide; and
              contributions it reported in its reviews to HUD for its six Program grants.

                                Program              Required contributions
                  Program        funds                    Supportive                     Reported
                grant number     drawn       Operating      services        Total      contributions
                IL01B310075       $538,018      $66,333        $26,500       $92,833        $141,750
                IL01B410097        325,780       24,981         32,625        57,606          70,000
                IL01B410094        240,500       22,311         16,715        39,026          39,709
                IL01B510087        325,780       24,981         32,625        57,606          70,000
                IL01B510095        235,684       22,311         16,715        39,026          39,709
                IL01B510086        267,518       34,000         13,250        47,250          47,250
                   Totals       $1,933,280     $194,917       $138,430      $333,347        $408,418

              The Center provided commitment and award letters from other organizations and
              partial grant agreements with other organizations totaling more than $2.3 million as
              support for its contributions. The period of the commitments was from July 2003
              through February 2008. The Center also provided bank statements and accounting
              documentation showing that it received more than $810,000 from the organizations
              from October 2004 through September 2007. However, all but $16,874 of the
              receipts were commingled with other commitments or Program funds. Further, the
              Center did not provide receipts to support that it used the commitments for eligible
              Program expenses and/or could not provide grant agreements or other


                                               15
             documentation to support the eligible uses of the commitments. Therefore, it was
             unable to support that it provided contributions for more than $1.1 million in
             Program funds for the six grants.

The Center’s Procedures and
Controls Had Weaknesses

             The weaknesses regarding the Center’s lack of sufficient documentation to support
             its Program contributions occurred because the Center lacked adequate procedures
             and controls to ensure that it appropriately followed HUD’s requirements. It did not
             ensure that it fully implemented HUD’s requirements.

             The Center lacked adequate knowledge of Program contribution requirements to
             ensure that it maintained sufficient documentation to support that its contributions
             were used for eligible Program expenses. The Center’s chief executive
             officer/president said that the commitment and award letters from other
             organizations and partial grant agreements with other organizations were sufficient
             to support its contributions. She said that she did not know how the Center could
             support that Program contributions were used for eligible Program expense.

Conclusion

             The Center lacked sufficient documentation to support that it followed HUD’s
             requirements in providing contributions reported in its reviews to HUD for its
             Program grants. As previously mentioned, HUD lacked assurance that the Center
             provided eligible contributions for more than $1.1 million in Program funds.


Recommendation

             We recommend that the Director of HUD’s Chicago Office of Community Planning
             and Development require the Center to

             3A. Provide sufficient supporting documentation for at least $333,347 in
                 contributions for its Program grants. If the Center cannot provide sufficient
                 supporting documentation, it should reimburse HUD from nonfederal funds
                 for the more than $333,000 in unsupported Program contributions.




                                              16
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

            •   Applicable laws, HUD’s regulations at 24 CFR [Code of Federal Regulations]
                Part 583, Office of Management and Budget Circulars A-110 and A-122, and
                HUD’s Homeless Assistance Programs Program Desk Guide.

            •   The Center’s accounting records, annual audited financial statements for 2005 and
                2006, Program grant agreements and technical submissions, data from HUD’s
                System, Program files, computerized databases, policies and procedures,
                organizational chart, and reviews for its Program grants.

            •   HUD’s files for the Center.

We also interviewed the Center’s employees, landlords, management agents, the City of
Chicago’s Department of Human Services employees, Program participants, and HUD’s staff.

Finding 2

We reviewed the more than $645,000 in Program funds the Center used for lease payments from
October 2004 through August 2007. We also reviewed more than $721,000 of the nearly
$877,000 in Program funds the Center used for expenses from January 2006 through July 2007.
The expenses were selected to determine whether the Center effectively administered its
Program grants, appropriately used Program funds, and followed HUD’s requirements.

Finding 3

We reviewed more than $408,000 in contributions the Center reported in its reviews to HUD for
its Program grants for the period October 2004 through September 2007. The Program
contributions were selected to determine whether the Center effectively administered its Program
grants, appropriately provided contributions for its Program grants, and followed HUD’s
requirements.

We performed our on-site audit work from September 2007 through January 2008. We
conducted our audit at the Center’s offices located at 2531 and 2537 East 73rd Street, Chicago,
Illinois, and HUD’s Chicago Regional Office. The audit covered the period January 2006
through July 2007 and was expanded as determined necessary.

We performed our audit in accordance with generally accepted government auditing standards.




                                               17
                             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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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 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.




                                               18
Significant Weakness

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

           •   The Center lacked adequate procedures and controls to ensure that it complied
               with federal requirements regarding the management of Program grants, its use
               of Program funds for eligible Program expenses, and providing contributions
               for its Program grants (see findings 1, 2, and 3).




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                                   APPENDIXES

Appendix A

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

          Recommendation                                              Funds to be put
              number            Ineligible 1/        Unsupported 2/   to better use 3/
                1A                                                            $91,730
                1B                                                            837,789
                2A                                        $671,252
                2B                    $15,724
                3A                                          333,347
               Totals                 $15,724            $1,004,599         $929,519


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     policies or regulations.

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

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. This includes reductions in outlays, deobligation of funds, withdrawal of
     interest subsidy costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     which are specifically identified. In these instances, if HUD implements our
     recommendations, it will cease providing Program funds to an entity that does not
     adequately manage its Program grants. This includes a deobligation of Program funds
     from current authorized Program grants and an avoidance of unnecessary Program
     expenditures for future Program grants.




                                                20
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         21
                         OIG Evaluation of Auditee Comments

Comment 1   The Center did not provide a basis for or documentation to support its
            disagreement with the findings.




                                            22
Appendix C

                           FEDERAL REQUIREMENTS

Finding 1
HUD’s Program grant agreements with the Center (Program grant numbers IL01B310075,
IL01B410097, IL01B410094, IL01B510087, IL01B510095, and IL01B510086) state that a default
of the Program grant agreements shall consist of any use of Program funds for a purpose other than
as authorized by the Program grant agreements, failure to provide supportive housing for the
minimum term in accordance with the provisions of 24 CFR Part 583, noncompliance with the
provisions of the Act or 24 CFR Part 583, and any other material breach of the grant agreements.
Upon due notice to the Center of the occurrence of any such default and the reasonable opportunity
to respond, HUD may take one or more of the following actions: reduce or recapture the Program
funds, direct the Center to reimburse its Program grants for costs inappropriately charged to the
Program grants, continue the Program grants with substitute recipient(s) of HUD’s choosing, or
other appropriate action including but not limited to any remedial action legally available.

Federal regulations at 2 CFR 2424.10 state that HUD adopted, as HUD’s policies, procedures,
and requirements for nonprocurement debarment and suspension, the federal regulations at 2
CFR Part 180.

HUD’s regulations at 24 CFR 24.1 state that the policies, procedures, and requirements at 2 CFR
Part 2424 permit HUD to take administrative sanctions against employees of recipients under
HUD assistance agreements that violate HUD’s requirements. The sanctions include debarment,
suspension, or limited denial of participation and are authorized by 2 CFR 180.800, 2 CFR
180.700, or 2 CFR 2424.1110, respectively. HUD may impose administrative sanctions based
upon the following conditions:

   ™   Failure to honor contractual obligations or to proceed in accordance with contract
       specifications or HUD regulations (limited denial of participation);

   ™   Violation of any law, regulation, or procedure relating to the application for financial
       assistance, insurance, or guarantee or to the performance of obligations incurred pursuant
       to a grant of financial assistance or pursuant to a conditional or final commitment to
       insure or guarantee (limited denial of participation);

   ™   Violation of the terms of a public agreement or transaction so serious as to affect the
       integrity of an agency program, such as a history of failure to perform or unsatisfactory
       performance of one or more public agreements or transactions (debarment); or

   ™   Any other cause so serious or compelling in nature that it affects the present
       responsibility of a person (debarment).




                                                23
HUD’s regulations at 24 CFR 583.400(a) state that the duty to provide supportive housing or
supportive services in accordance with the requirements of 24 CFR Part 583 will be incorporated
into a Program grant agreement between HUD and a recipient. Section 583.400(b) states that
HUD will enforce the obligations in the grant agreement through such action as may be
appropriate, including reimbursement of Program funds that have already been disbursed to the
recipient.

HUD’s regulations at 24 CFR 583.410(c)(3) state that a Program grant agreement may set forth
circumstances under which Program funds may be deobligated and other sanctions may be
imposed. Section 583.410(c)(4) states that HUD may readvertise the availability of Program
funds that have been deobligated through a notice of funding availability in accordance with 24
CFR 583.200 or award deobligated funds to applications previously submitted in response to the
most recently published notice of funding availability in accordance with 24 CFR Part 583.

Finding 2
According to 42 United States Code (U.S.C.) 423(d)(1), the term disability means: an inability
to engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months; or in the case of an individual
who has attained the age of 55 and is blind, an inability by reason of such blindness to engage in
substantial gainful activity requiring skills or abilities comparable to those of any gainful activity
in which the person has previously engaged with some regularity and over a substantial period of
time.

According to 42 U.S.C. 11382(2), the term disability means: a disability as defined in 42 U.S.C.
423; to be determined to have, pursuant to regulations issued by HUD, a physical, mental, or
emotional impairment which is expected to be of long-continued and indefinite duration,
substantially impedes an person’s ability to live independently, and of such a nature that such
ability could be improved by more suitable housing conditions; a developmental disability as
defined in 42 U.S.C. 15002; or the disease of acquired immunodeficiency syndrome or any
conditions arising from the etiologic agency for acquired immunodeficiency syndrome.

According to 42 U.S.C. 11302(a), the term homeless or homeless person includes: a person who
lacks a fixed, regular, and adequate nighttime residence; and a person who has a primary
nighttime residence that is a supervised publicly or privately operated shelter designed to provide
temporary living accommodations (including welfare hotels, congregate shelters, and transitional
housing for the mentally ill), an institution that provides a temporary residence for persons
intended to be institutionalized; or a public or private place not designed for, or ordinarily used
as, a regular sleeping accommodation for human beings.

According to 42 U.S.C. 15002(8), the term developmental disability means a severe, chronic
disability of an individual that: is attributable to a mental or physical impairment or a
combination of mental and physical impairments; is manifested before a person attains the age of
22 years old; is likely to continue indefinitely; results in substantial functional limitations in three
or more areas of major life activity; and reflects the person’s need for a combination and


                                                  24
sequence of special, interdisciplinary, or generic services, individualized supports, or other forms
of assistance that are of lifelong or extended duration and are individually planned and
coordinated. Areas of major life activity include the following: self care, receptive and
expressive language, learning, mobility, self direction, capacity for independent living, and
economic self-sufficiency.

HUD’s Program grant agreements with the Center (Program grant numbers IL01B310075,
IL01B410097, IL01B410094, IL01B510087, IL01B510095, and IL01B510086) state that the
Program grant agreements are governed by the Act, 24 CFR Part 583, and applicable notices of
funding availability. The applications, which include the original and renewal application
submissions on which HUD approved the Program grants, are incorporated as part of the
Program grant agreements.

HUD’s regulations at 24 CFR 583.1(b) state that Program funds may be used for: transitional
housing to facilitate the movement of homeless persons and households to permanent housing;
permanent housing that provides long-term housing for homeless persons with disabilities;
housing that is, or is part of, a particularly innovative project for, or the alternative methods of,
meeting the immediate and long-term needs of homeless persons; or supportive services for
homeless persons not provided in conjunction with supportive housing.

HUD’s regulations at 24 CFR 583.5 state that a disability is defined in section 422(2) of the Act
[42 U.S.C. 11382(2)] and homeless person means a person or household that is described in
section 103 of the Act [42 U.S.C. 11302].

HUD’s regulations at 24 CFR 583.300(g) state that each recipient of assistance under 24 CFR
Part 583 must keep any records and make any reports (including those pertaining to race,
ethnicity, gender, and disability status data) that HUD may require within the timeframe
required.

HUD’s regulations at 24 CFR 583.330(c) state that the policies, guidelines, and requirements of
Office of Management and Budget Circulars A-110 and A-122 apply to the acceptance and use
of assistance by nonprofit organizations, except when inconsistent with the provisions of the Act,
other federal statues, or 24 CFR Part 583.

According to paragraph 21(b) of Office of Management and Budget Circular A-110, recipients’
financial management systems shall provide for the following: records that identify adequately
the source and application of funds for federally sponsored activities; that assets are used solely
for authorized purchases; written procedures for determining reasonableness, allocability, and
allowability of costs in accordance with the provisions of the applicable federal cost principles
and the terms and conditions of the award; accounting records, including cost accounting records
that are supported by source documentation. Paragraph 45 states that some form of cost or price
analysis shall be made and documented in the procurement files in connection with every
procurement action. Paragraph 53(b) states that financial records, supporting documents,
statistical records, and all other records pertinent to an award shall be retained by a recipient for a
period of three years from the date of submission of its final expenditure report. Paragraph 53(e)
states that the federal awarding agency and its Inspector General have the right of timely and



                                                  25
unrestricted access to any books, documents, papers, or other records of recipients that are
pertinent to the awards in order to make audits, examinations, excerpts, transcripts, and copies of
such documents.

According to attachment A, paragraph A(2), of Office of Management and Budget Circular A-
122, to be allowable under an award, costs must be reasonable for the performance of the award
and adequately documented. Paragraph A(4)(b) states that any cost allocable to a particular
award or other cost objective under these principles may not be shifted to other federal awards to
overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the
award.

According to attachment B, paragraph 8(m), of Office and Management and Budget Circular A-
122, the distribution of salaries and awards to awards must be supported by personnel activity
reports, except when a substitute system has been approved in writing by the cognizant agency.
Paragraph 14 states that costs of entertainment, including amusement, diversion, and social
activities, and any cost directly associated with such costs (such as tickets to shows or support
events, meals, lodging, rentals, transportation, and gratuities) are unallowable. Paragraph
15(b)(1) states that capital expenditures for general purpose equipment, buildings, and land are
unallowable as direct charges, except when approved in advance by the awarding agency.
General purpose equipment includes office equipment and furnishings, modular offices,
telephone networks, information technology equipment and systems, air conditioning equipment,
reproducing and printing equipment, and motor vehicles. Paragraph 16 states that costs of fines
and penalties resulting from violations of, or a failure of an organization to comply with federal,
state, or local laws and regulations, are unallowable. Paragraph 19 states that costs of goods or
services for personal use of an organization’s employees are unallowable regardless of whether
the costs are reported as taxable income to the employees.

Finding 3
According to 42 U.S.C. 11383(a)(4), HUD may provide any project with annual payments for
operating costs of housing assisted under the Program, not to exceed 75 percent of the annual
operating costs of such housing.

HUD’s Program grant agreements with the Center (Program grant numbers IL01B310075,
IL01B410097, IL01B410094, IL01B510087, IL01B510095, and IL01B510086) state that the
Program grant agreements are governed by the Act, 24 CFR Part 583, and applicable notices of
funding availability. The applications, which include the original and renewal application
submissions on which HUD approved the Program grants, are incorporated as part of the
Program grant agreements.

The original and/or renewal Program grant application submissions for Program grant numbers
IL01B310075, IL01B410097, IL01B410094, IL01B510087, IL01B510095, and IL01B510086 state
that by law, Program funds can be no more than 80 percent of the total supportive services
budgets and 75 percent of the total operating budgets.




                                                26
HUD’s regulations at 24 CFR 583.125(c) state that assistance for operating costs will be
available for up to 75 percent of the total cost in each year of a grant term. The recipient must
pay the percentage of actual operating costs not funded by HUD. At the end of each operating
year, the recipient must demonstrate that it has met its match requirement of the cost for that
year.

HUD’s regulations at 24 CFR 583.330(c) state that the policies, guidelines, and requirements of
Office of Management and Budget Circular A-110 apply to the acceptance and use of assistance
by nonprofit organizations, except when inconsistent with the provisions of the Act, other federal
statutes, or 24 CFR Part 583.

HUD issued notices of funding availability for the Program in the Federal Register, dated April
25, 2003, May 14, 2004, and March 21, 2005. Section IV(C) of the notice in the Federal
Register, dated April 25, 2003, and section III(B) of the notices in the Federal Register, dated
May 14, 2004 and March 21, 2005, state that since the Program by statute can pay no more than
75 percent of the total operating budget for supportive housing, a recipient must provide at least
a 25 percent cash match of the total annual operating costs. In addition, for all Program funding
for supportive services and homeless management information systems, a recipient must provide
a 25 percent cash match. This means that of the total supportive services budget line item, no
more than 80 percent may be from Program grant funds.

According to paragraph 23(a) of Office of Management and Budget Circular A-110, all
contributions, including cash and third party in-kind, shall be accepted as part of a recipient’s
cost sharing or matching when the contributions meet all of the following: are verifiable from
the recipient’s records; are not included as contributions for any other federally assisted project
or program; are necessary and reasonable for proper and efficient accomplishment of project or
program objectives; are allowable under the applicable cost principles; are not paid by the federal
government under another award, except when authorized by federal statute to be used for cost
sharing or matching; are provided in the approved budget when required by the federal awarding
agency; and conform to other provisions of Office of Management and Budget Circular A-110.
Paragraph 53(b) states that financial records, supporting documents, statistical records, and all
other records pertinent to an award shall be retained by a recipient for a period of three years
from the date of submission of its final expenditure report. Paragraph 53(e) states that the
federal awarding agency and its Inspector General have the right of timely and unrestricted
access to any books, documents, papers, or other records of recipients that are pertinent to the
awards in order to make audits, examinations, excerpts, transcripts, and copies of such
documents.




                                                27