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).
19
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).
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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
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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
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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.
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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.
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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)