oversight

Cook County, Illinois, Failed to Adequately Manage its HOME Investment Partnerships Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-01-13.

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

                                                                 Issue Date
                                                                          February 13, 2009
                                                                 Audit Report Number
                                                                          2009-CH-1004




TO:         Ray E. Willis, Director of Community Planning and Development, 5AD


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

SUBJECT: Cook County, Illinois, Failed to Adequately Manage Its HOME Investment
          Partnerships Program

                                    HIGHLIGHTS

 What We Audited and Why

             We audited Cook County’s (County) HOME Investment Partnerships Program
             (Program). The audit was part of the activities in our fiscal year 2008 annual
             audit plan. We selected the County based upon our analysis of risk factors
             relating to Program grantees in Region V’s jurisdiction. Our audit objectives
             were to determine whether the County effectively administered its Program,
             appropriately provided match contributions (contributions) for its Program,
             disbursed Program funds and/or income for new construction multifamily housing
             projects (multifamily projects) and non-administrative activities, and followed the
             U.S Department of Housing and Urban Development’s (HUD) requirements.
             This is the third of three audit reports on the County’s Program.

 What We Found

             The County did not adequately manage its Program. It inappropriately used
             Program funds and income and American Dream Downpayment Initiative
             (Initiative) funds, incorrectly reported Program contributions and the amounts of
             Program contributions it was required to provide in its consolidated annual
             performance and evaluation reports (consolidated reports) to HUD, and lacked
             documentation to support its use of Program and Initiative funds.
           The County incorrectly reported Program contributions and the amounts of
           Program contributions it was required to provide in its consolidated reports to
           HUD. Therefore, it inappropriately reported nearly $5.6 million in Program
           contributions available for future fiscal years.

           The County also inappropriately disbursed Program funds drawn down from its
           HOME trust fund treasury account (treasury account) and Program income from
           its HOME trust fund local account (local account) for multifamily projects and
           disbursed Program funds drawn down from its treasury account for non-
           administrative activities. As a result, HUD lost more than $59,000 in interest on
           nearly $7.2 million in Program funds that the County did not use for eligible
           Program costs within 15 days of being drawn down from its treasury account and
           the County lost more than $6,000 in interest on more than $1.4 million in Program
           income that it did not immediately use for eligible Program costs.

           We informed the director of the County’s Department of Planning and
           Development (Department) and the Director of HUD’s Chicago Office of
           Community Planning and Development of minor deficiencies through a
           memorandum, dated February 12, 2009.

What We Recommend

           We recommend that the Director of HUD’s Chicago Office of Community
           Planning and Development require the County to implement a detailed
           comprehensive written action plan to improve its procedures and controls to
           ensure that it operates its Program in accordance with HUD’s and its own
           requirements, reimburse HUD more than $59,000 and its local account more than
           $6,000 from nonfederal funds, and implement adequate procedures and controls
           to address the findings cited in this audit report.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response

           We provided our discussion draft audit report to the director of the County’s
           Department, the president of its board of commissioners, and HUD’s staff during the
           audit. We held an exit conference with the County’s director on January 23, 2009.

           We asked the County’s director to provide comments on our discussion draft audit
           report by February 6, 2009. The director provided written comments, dated
           February 6, 2009. The director agreed with our findings and recommendations. The



                                            2
complete text of the written comments, along with our evaluation of that response,
can be found in appendix B of this audit report.




                                 3
                            TABLE OF CONTENTS

Background and Objectives                                                           5

Results of Audit
      Finding 1: The County Did Not Operate Its Program in Accordance with HUD’s
                 and Its Own Requirements                                            6

      Finding 2: Controls over the County’s Program Contributions Were Inadequate   10

      Finding 3: Controls over the County’s Disbursement of Program Funds and
                 Income for Multifamily Projects Were Inadequate                    14

      Finding 4: The County Needs to Improve Controls over the Timeliness of Its
                 Disbursement of Program Funds for Non-administrative Activities    17

Scope and Methodology                                                               19

Internal Controls                                                                   21

Appendixes
   A. Schedule of Questioned Costs                                                  23
   B. Auditee Comments and OIG’s Evaluation                                         24
   C. Federal Requirements                                                          31




                                            4
                     BACKGROUND AND OBJECTIVES

The Program. Authorized under Title II of the Cranston-Gonzales National Affordable Housing
Act, as amended, the HOME Investment Partnerships Program (Program) is funded for the purpose
of increasing the supply of affordable standard rental housing; improving substandard housing for
existing homeowners; assisting new homebuyers through acquisition, construction, and
rehabilitation of housing; and providing tenant-based rental assistance. The American Dream
Downpayment Assistance Act established a separate funding formula for the American Dream
Downpayment Initiative (Initiative) under the Program to provide downpayment assistance, closing
costs, and rehabilitation assistance to eligible first-time homebuyers.

The County. Organized under the laws of the State of Illinois, Cook County (County) is governed
by a 17-member board of commissioners (board), including a board president, elected to four-year
terms. The board designated the County’s Department of Planning and Development (Department)
as the lead agency to administer the County’s Program. The overall mission of the Department is to
work with municipalities, nonprofit organizations, businesses, developers, and other organizations
to revitalize communities and promote economic opportunity in the County. The former director of
the County’s Department had resigned as of April 16, 2008. The former assistant director of the
County’s Department was named the acting director until the County hired its new director on May
27, 2008. The County’s Program records are located at 69 West Washington Street, Chicago,
Illinois.

The following table shows the amount of Program funds the U.S. Department of Housing and
Urban Development (HUD) awarded the County for Program years 2003 through 2007.

                                   Program          Program
                                     year             funds
                                     2003            $6,555,837
                                     2004             6,565,213
                                     2005             6,297,078
                                     2006             5,820,276
                                     2007             5,761,486
                                    Total           $30,999,890

Our audit objectives were to determine whether the County effectively administered its Program,
appropriately committed Program funds, provided match contributions (contributions) for its
Program, disbursed Program funds and/or income for new construction multifamily housing
projects (multifamily projects) and non-administrative activities, and followed HUD’s
requirements. This is the third of three audit reports on the County’s Program. The first audit
report (report # 2007-CH-1015, issued on September 26, 2007) included two findings. The
second audit report (report # 2008-CH-1009, issued on June 7, 2008) included two findings.




                                                5
                                RESULTS OF AUDIT

Finding 1: The County Did Not Operate Its Program in Accordance
               with HUD’s and Its Own Requirements
As identified in this audit report and the two audit reports we previously issued regarding the
County’s Program, the County did not adequately manage its Program. It inappropriately used
Program funds and income and Initiative funds, incorrectly reported Program match
contributions (contributions) and the amounts of Program contributions it was required to
provide in its consolidated annual performance and evaluation reports (consolidated reports) to
HUD, and lacked documentation to support its use of Program and Initiative funds because its
management did not implement adequate procedures and controls to ensure that its Program was
operated according to HUD’s and its own requirements. As a result, HUD and the County
lacked assurance that Program funds were used efficiently and effectively and for eligible
activities.



 Controls over the County’s
 Program Income Were
 Inadequate

              The County did not comply with HUD’s requirements in its use and reporting of
              Program income. It had drawn down more than $48.3 million in Program funds
              from its HOME trust fund treasury account (treasury account) since October
              1999, when it had more than $2 million of Program income in its HOME trust
              fund local account (local account); did not allocate interest earned from Program
              income as income; and underreported Program income in HUD’s Integrated
              Disbursement and Information System (System) because it lacked adequate
              procedures and controls to ensure that HUD’s requirements were appropriately
              followed. As a result, the County had nearly $5.2 million of Program income in
              its local account, did not allocate at least $641,000 of interest earned from
              Program income as income in its local account, and underreported at least $2.7
              million of Program income in HUD’s System (see finding 1 in audit report #2008-
              CH-1009).

 Controls over the County’s
 Program Contributions Were
 Inadequate

              The County did not comply with HUD’s requirements in determining and
              reporting contributions for its Program. It incorrectly reported Program
              contributions and the amounts of Program contributions it was required to provide



                                               6
            in its consolidated reports to HUD because it lacked adequate procedures and
            controls to ensure that HUD’s requirements were appropriately followed. As a
            result, the County inappropriately reported nearly $5.6 million in Program
            contributions available for future fiscal years (see finding 2 of this audit report).

Controls over the County’s
Single-Family Projects Were
Inadequate

            The County did not comply with HUD’s regulations and its manual of
            administrative procedures for residential rehabilitation (manual) and policies and
            procedures for lead-based paint in housing programs (policies and procedures) in
            providing housing rehabilitation assistance for owner-occupied single-family
            rehabilitation projects (single-family projects). It provided assistance for improper
            single-family projects and paid excessive project delivery costs and lacked
            documentation to support that single-family projects and payments for project
            delivery costs were appropriate because it lacked adequate procedures and controls
            to ensure that HUD’s regulations and its manual and policies and procedures were
            appropriately followed. As a result, it inappropriately provided more than $100,000
            in Program funds to assist two single-family projects that did not qualify as
            affordable housing, used $15,000 in Program funds for excessive project delivery
            costs for two single-family projects, and was unable to support its use of nearly
            $670,000 in Program funds (see finding 1 in audit report #2007-CH-1015).

Controls over the County’s
Initiative Activities Were
Inadequate

            The County lacked documentation to support that it followed HUD’s regulations
            when it provided Initiative funds to assist homebuyers with downpayments and
            closing costs for Initiative activities. The weaknesses occurred because the County
            lacked adequate procedures and controls to ensure that it used Initiative funds for
            eligible activities and maintained adequate documentation. As a result, HUD and
            the County lacked assurance that more than $158,000 in Initiative funds was used
            efficiently and effectively and in accordance with HUD’s regulations (see finding 2
            in audit report # 2007-CH-1015).

The County Needs to Improve
Controls over Its
Administrative Expenses

            The County did not comply with HUD’s requirements in using Program funds for its
            administrative expenses. It used Program funds for inappropriate administrative



                                               7
            expenses and did not have sufficient documentation to support that it used Program
            funds for eligible Program administrative costs because it lacked adequate
            procedures and controls to ensure that HUD’s requirements were appropriately
            followed. As a result, the County used more than $28,000 in Program funds for
            improper administrative expenses and was unable to sufficiently support its use of
            nearly $56,000 in Program funds for eligible Program administrative costs (see
            finding 2 in audit report# 2008-CH-1009).

Controls over the County’s
Disbursement of Program
Funds and Income for
Multifamily Projects Were
Inadequate

            The County did not comply with HUD’s regulations in its disbursement of
            Program funds drawn down from its treasury account and Program income from
            its local account for new construction multifamily housing projects (multifamily
            projects). It inappropriately disbursed Program funds and income into escrow
            accounts for multifamily projects because it lacked adequate procedures and
            controls to ensure that it appropriately followed HUD’s regulations. As a result,
            HUD lost more than $59,000 in interest on the nearly $7.2 million in Program
            funds that the County did not use for eligible Program costs within 15 days of
            being drawn down from its treasury account, and the County lost more than
            $6,000 in interest on the more than $1.4 million in Program income that it did not
            immediately use for eligible Program costs (see finding 3 of this audit report).

The County Needs to Improve
Controls over the Timeliness of
Its Disbursement of Program
Funds for Non-administrative
Activities

            The County did not always comply with HUD’s regulations in its disbursement of
            Program funds that it drew down from its treasury account for non-administrative
            activities. It failed to disburse Program funds drawn down from its treasury
            account within 15 days because it lacked procedures and controls to ensure that
            HUD’s regulations were appropriately followed. As a result, HUD and the
            County lacked assurance that Program funds were used efficiently and effectively
            (see finding 4 of this audit report).




                                             8
Conclusion

             The previously mentioned deficiencies occurred because the County lacked
             adequate procedures and controls to ensure that it properly managed the day-to-
             day operations of its Program and appropriately followed HUD’s and its own
             requirements. The County did not ensure that it fully implemented HUD’s and its
             own requirements. The deficiencies in the County’s Program were significant and
             demonstrated a lack of effective Program management. As a result, HUD and the
             County lacked assurance that Program funds were used efficiently and effectively
             and for eligible activities.

Recommendation

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

             1A.    Implement a detailed comprehensive written action plan (plan) to improve
                    its procedures and controls to ensure that it operates its Program in
                    accordance with HUD’s and its own requirements. The plan should
                    include the submission of quarterly reports to HUD’s Chicago Office of
                    Community Planning and Development detailing the County’s progress in
                    improving its procedures and controls regarding its Program in accordance
                    with its plan. The quarterly reports should address but not be limited to
                    the issues cited in this finding. If the County is unable to implement the
                    plan, HUD should take appropriate action, such as requiring the County to
                    contract out the management of the day-to-day operations of its Program
                    until it can implement adequate procedures and controls to ensure that it
                    operates its program in accordance with HUD’s and its own requirements.




                                             9
Finding 2: Controls over the County’s Program Contributions Were
                              Inadequate
The County did not comply with HUD’s requirements (see appendix C of this audit report) in
determining and reporting contributions for its Program. It incorrectly reported Program
contributions and the amounts of Program contributions it was required to provide in its
consolidated reports to HUD because it lacked adequate procedures and controls to ensure that
HUD’s requirements were appropriately followed. As a result, the County inappropriately
reported nearly $5.6 million in Program contributions available for future fiscal years.



The County Overreported
Nearly $5.6 Million in Program
Contributions

              The County overreported contributions for its Program. It drew down more than
              $39.8 million in Program funds from its treasury account for fiscal years 2000
              through 2007. It was required to provide contributions for at least 25 percent of
              the Program funds it drew down from its treasury account during the period.
              Therefore, it was required to provide nearly $10 million in Program contributions
              for the period. The County reported in its consolidated reports to HUD more than
              $22.2 million in Program contributions during the period, for an excess in
              contributions totaling nearly $12.3 million. The following table shows the
              amounts of contributions the County was required to provide, contributions it
              reported in its consolidated reports to HUD, and excessive contributions for fiscal
              years 2000 through 2007.

                              Fiscal             Program contributions
                               year     Required       Reported        Excessive
                               2000      $1,405,551     $1,246,136      ($159,415)
                               2001       1,137,413      1,319,280         181,867
                               2002         628,777      1,011,000         382,223
                               2003       1,877,173      1,647,990       (229,183)
                               2004         769,124      2,100,000       1,330,876
                               2005       1,396,624      6,081,000       4,684,376
                               2006       2,104,959      7,896,000       5,791,041
                               2007         642,094        937,000         294,906
                              Totals     $9,961,715    $22,238,406     $12,276,691


              In addition, the County had nearly $348,000 in excessive Program contributions
              carried over from fiscal year 1999. Therefore, its excessive contributions at the
              end of fiscal year 2007 totaled more than $12.6 million ($12,276,691 plus
              $347,546). HUD’s regulations allow a participating jurisdiction to carry over and
              apply excess contributions to meet the participating jurisdiction’s required
              contributions for future fiscal years. However, it failed to ensure that it


                                              10
           determined and reported its contributions in accordance with HUD’s
           requirements. The more than $22.2 million in contributions that the County
           reported in its consolidated reports to HUD for fiscal years 2000 through 2007
           was the amount of contributions the County budgeted rather than the actual
           amount of contributions it made for its Program. It only made nearly $16.7
           million in contributions for the period. Therefore, it overreported nearly $5.6
           million in Program contributions that it carried over and could apply to meet its
           required contributions for future fiscal years. The following table shows the
           amounts of contributions that the County reported in its consolidated reports to
           HUD, eligible contributions that it actually made, and excessive contributions
           reported for fiscal years 2000 through 2007.

                           Fiscal               Program contributions
                            year      Reported         Actual         Excessive
                           2000        $1,246,136        $248,934       $997,202
                           2001         1,319,280       2,013,387       (694,107)
                           2002         1,011,000          86,327         924,673
                           2003         1,647,990         664,106         983,884
                           2004         2,100,000       2,886,979       (786,979)
                           2005         6,081,000         721,446       5,359,554
                           2006         7,896,000       8,636,248       (740,248)
                           2007           937,000       1,423,430       (486,430)
                           Totals     $22,238,406     $16,680,857      $5,557,549

           As a result of our audit, the County removed the nearly $5.6 million in Program
           contributions it overreported from its consolidated report to HUD for fiscal year
           2008.

The County Incorrectly
Reported the Amount of
Contributions It Was Required
to Provide

           The County also incorrectly reported in its consolidated reports to HUD the
           amounts of Program contributions it was required to provide for fiscal years 2000
           through 2007. The following table shows the amounts of contributions it reported
           that it was required to provide in its consolidated reports to HUD and the amounts
           that it was actually required to provide for fiscal years 2000 through 2007.




                                            11
                             Fiscal          Required Program contributions
                              year      Reported         Actual        Difference
                             2000        $1,409,988     $1,405,551           $4,437
                             2001         1,127,549       1,137,413          (9,864)
                             2002           816,085         628,777         187,308
                             2003         1,677,995       1,877,173       (199,178)
                             2004           785,263         769,124          16,139
                             2005           769,124       1,396,624       (627,500)
                             2006         1,396,624       2,104,959       (708,335)
                             2007         2,104,959         642,094       1,462,865
                             Totals     $10,087,587     $9,961,715         $125,872

             The County overreported the total amount of Program contributions it was
             required to provide for fiscal year 2000 through 2007 by nearly $130,000.
             However, it could not provide the amounts of Program contributions it reported in
             its consolidated reports to HUD that it was required to provide prior to fiscal year
             2000. Therefore, the cumulative difference between the amounts of contributions
             the County reported that it was required to provide in its consolidated reports to
             HUD and the amounts that it was actually required to provide through fiscal year
             2007 could not be determined.

             In addition, the County did not maintain a contribution log as required by HUD’s
             regulations. On July 30, 2008, and as a result of our audit, the County prepared a
             contribution log for fiscal years 1998 through 2007.

The County Lacked Adequate
Procedures and Controls

             The weaknesses regarding the County’s contributions for its Program occurred
             because the County lacked adequate procedures and controls to ensure that it
             accurately determined and reported Program contributions in its consolidated
             report to HUD. The County could not provide a reason why it inappropriately
             reported Program contributions and required Program contributions in its
             consolidated reports to HUD since the Department’s former finance director, who
             managed its Program contributions, no longer worked for the County.

Conclusion

             The County did not comply with HUD’s requirements in determining and
             reporting contributions for its Program. As previously mentioned, the County
             inappropriately reported nearly $5.6 million in Program contributions available
             for future fiscal years. If not corrected, the County could draw down more than
             $22 million in Program funds from its treasury account in future fiscal years
             without making its required contributions.




                                              12
Recommendations

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

          2A.     Provide the amounts of Program contributions it reported in its
                  consolidated reports to HUD that it was required to provide prior to fiscal
                  year 2000, calculate the cumulative difference between the amounts of
                  contributions it reported that it was required to provide in its consolidated
                  reports to HUD and the amounts that it was actually required to provide
                  through fiscal year 2007, and adjust the amount of required Program
                  contributions in its consolidated reports to HUD as appropriate. If the
                  County cannot provide the amounts of Program contributions it reported in
                  its consolidated reports to HUD that it was required to provide prior to
                  fiscal year 2000, it should not adjust the amount of required Program
                  contributions in its consolidated reports to HUD for the $125,872 in
                  Program contributions it inappropriately reported it was required to
                  provide for fiscal years 2000 through 2007.

          2B.     Implement adequate procedures and controls to ensure that it accurately
                  reports Program contributions in its consolidated reports to HUD.




                                           13
Finding 3: Controls over the County’s Disbursement of Program Funds
         and Income for Multifamily Projects Were Inadequate
The County did not comply with HUD’s regulations (see appendix C of this audit report) in its
disbursement of Program funds drawn down from its treasury account and Program income from
its local account for multifamily projects. It inappropriately disbursed Program funds and income
into escrow accounts for multifamily projects because it lacked adequate procedures and controls
to ensure that it appropriately followed HUD’s regulations. As a result, HUD lost more than
$59,000 in interest on the nearly $7.2 million in Program funds that the County did not use for
eligible Program costs within 15 days of being drawn down from its treasury account, and the
County lost more than $6,000 in interest on the more than $1.4 million in Program income that it
did not immediately use for eligible Program costs.



 The County Inappropriately
 Disbursed Nearly $7.2 Million
 in Program Funds into Escrow
 Accounts

              We reviewed nearly $15.3 million in Program funds that the County drew down
              for eight multifamily projects for the period June 2005 through December 2007.
              The County inappropriately disbursed nearly $7.2 million (46.9 percent) of the
              Program funds into escrow accounts for four of the multifamily projects. HUD’s
              regulations at 24 CFR 92.502(c)(2) state that Program funds drawn down from a
              participating jurisdiction’s treasury account must be expended for eligible costs
              within 15 days. Contrary to HUD’s regulations, the Program funds were not used
              for eligible Program costs for 17 to 176 days after the County drew down the
              Program funds from its treasury account. Therefore, HUD lost more than $59,000
              in interest on the nearly $7.2 million in Program funds that the County disbursed
              into the escrow accounts and was not used for eligible Program costs within 15
              days of being drawn down from its treasury account. The following table shows
              the voucher number, the draw-down date, the disbursement date, the use date, the
              amount of Program funds, and the amount of interest HUD lost for the Program
              funds that the County improperly disbursed into the escrow accounts.

         Voucher      Date of           Date of                       Program        Lost
         number     Draw-down        disbursement      Date of use      funds      interest
         1303365   Aug. 4, 2006      Aug. 24, 2006    Aug. 30, 2006    $738,122       $1,109
         1326038    Oct. 3, 2006     Oct. 16, 2006    Oct. 20, 2006   $1,579,109          429
         1326038    Oct. 3, 2006     Oct. 16, 2006    Nov. 13, 2006      370,891       1,282
         1346657   Nov. 30, 2006      Dec. 7, 2006    Dec. 21, 2006      855,542          657
         1346657   Nov. 30, 2006      Dec. 7, 2006    Jan. 26, 2007      475,451       2,662
         1346657   Nov. 30, 2006      Dec. 7, 2006    Mar. 21, 2007      169,007       2,159
         1488154   Dec. 27, 2007     Dec. 27, 2007    Apr. 21, 2008      414,447       4,855
         1488154   Dec. 27, 2007     Dec. 27, 2007    May 20, 2008       777,304      11,835
         1488154   Dec. 27, 2007     Dec. 27, 2007    June 20, 2008    1,788,249      34,217
                                   Totals                             $7,168,122     $59,205


                                                 14
           We were conservative in our determination of the amount of interest HUD lost.
           We based our calculation on the 10-year United States Treasury rate using simple
           interest on the Program funds from after the 15th day on which the Program funds
           were drawn down to the date on which the Program funds were used for eligible
           Program expenses by the County.

The County Incorrectly
Disbursed More Than $1.4
Million in Program Income into
an Escrow Account

           We also reviewed more than $1.6 million in Program income that the County
           disbursed for multifamily project number 3185 in December 2007. The County
           inappropriately disbursed more than $1.4 million (87.6 percent) of the Program
           income into an escrow account for the multifamily project. Contrary to HUD’s
           regulations, the Program income was not used for eligible Program costs for 50 to
           116 days after the County disbursed the Program income from its local account.
           Therefore, the County lost more than $6,000 in interest on the more than $1.4
           million in Program income that it disbursed into the escrow account and was not
           immediately used for eligible Program costs. The following table shows the
           voucher number, the disbursement date, the use date, the amount of Program
           income, and the amount of interest the County lost on the Program income that it
           improperly disbursed into the escrow account.

          Voucher       Date of                        Program          Lost
          number     disbursement      Date of use      income        interest
          1488154    Dec. 27, 2007    Feb. 15, 2008      $417,392        $1,282
          1488154    Dec. 27, 2007    Mar. 28, 2008       656,053         3,285
          1488154    Dec. 27, 2007    Apr. 21, 2008       337,604         1,772
                          Totals                       $1,411,049        $6,339

The County’s Procedures and
Controls Had Weaknesses

           The weaknesses regarding the County’s inappropriate disbursements of Program
           funds and income into escrow accounts for multifamily projects occurred because
           the County lacked adequate procedures and controls to ensure that it appropriately
           followed HUD’s regulations.

           A planner for the Department said that the County’s consultant, who completed a
           wellness review of the County’s Program in November 2007, advised that it was
           permissible to disburse Program funds and income into escrow accounts for
           multifamily projects. However, the planner could not provide documentation to
           support her statement. The planner also said that the funds were required at


                                           15
             closing by the title companies managing the escrow accounts and that the funds
             were provided so that the multifamily projects would not incur additional costs
             through bridge loans.

Conclusion

             The County did not comply with HUD’s regulations when it disbursed Program
             funds and income into escrow accounts for multifamily projects. As a result,
             HUD lost more than $59,000 in interest on the nearly $7.2 million in Program
             funds that the County did not use for eligible Program costs within 15 days of
             being drawn down from its treasury account, and the County lost more than
             $6,000 in interest on the more than $1.4 million in Program income that it did not
             use immediately for eligible Program costs.

Recommendations

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

             3A.    Reimburse HUD $59,205 from nonfederal funds for the interest HUD lost
                    on the Program funds that the County disbursed into the escrow accounts
                    and were not used for eligible Program costs within 15 days of being
                    drawn down from its treasury account.

             3B.    Reimburse its local account $6,339 from nonfederal funds for the interest
                    it lost on the Program income that it disbursed into the escrow account and
                    was not immediately used for eligible Program costs.

             3C.    Implement adequate procedures and controls to ensure that it appropriately
                    disburses Program funds and income for eligible Program costs.




                                             16
Finding 4: The County Needs to Improve Controls over the Timeliness
of Its Disbursement of Program Funds for Non-administrative Activities
The County did not always comply with HUD’s regulations (see appendix C of this audit report)
in its disbursement of Program funds that it drew down from its treasury account for non-
administrative activities. It failed to disburse Program funds drawn down from its treasury
account within 15 days because it lacked procedures and controls to ensure that HUD’s
regulations were appropriately followed. As a result, HUD and the County lacked assurance that
Program funds were used efficiently and effectively.



 The County Did Not Disburse
 $1.8 Million in Program Funds
 in a Timely Manner

              We reviewed all 55 of the County’s non-administrative activity draw-downs from
              its treasury account for the period October 2005 through March 2008. The draw-
              downs totaled nearly $14.1 million in Program funds. HUD’s regulations at 24
              CFR 92.502(c)(2) state that Program funds drawn down from a participating
              jurisdiction’s treasury account must be expended for eligible costs within 15 days.
              Contrary to HUD’s regulations, the County failed to disburse eight of the draw-
              downs totaling more than $1.8 million (12.8 percent) in Program funds within 15
              days. Further, it did not return any of the Program funds to its treasury account.
              The following table shows the voucher number, the draw-down date, the
              disbursement date, and the Program funds for the draw-downs that were not
              disbursed within 15 days

                 Voucher      Date of draw-         Date of        Program
                 number           down           disbursement        funds
                 1214298       Dec. 2, 2005      Dec. 21, 2005        $34,309
                 1225763       Jan. 4, 2006       Feb. 2, 2006         45,163
                 1235094       Feb. 3, 2006      Apr. 12, 2006            125
                 1258833       Apr. 4, 2006       June 1, 2006        318,953
                 1303365      Aug. 4, 2006       Aug. 24, 2006        738,122
                 1303372      Aug. 4, 2006       Aug. 31, 2006         52,073
                 1306466      Aug. 11, 2006      Aug. 31, 2006         75,550
                 1315342      Sept. 6, 2006       Oct. 5, 2006        541,250
                                      Total                        $1,805,545

              The County also did not return to HUD the interest earned on the Program funds
              after the 15th day.




                                              17
The County’s Procedures and
Controls Had Weaknesses

             The weaknesses regarding the County’s lack of timeliness in disbursing Program
             funds occurred because the County lacked adequate procedures and controls to
             ensure that it appropriately followed HUD’s regulations. The County could not
             provide a reason why it did not disburse Program funds drawn down from its
             treasury account within 15 days since the Department’s former finance director,
             who managed its disbursement of Program funds, no longer worked for the
             County.

Conclusion

             The County did not comply with HUD’s regulations when it did not disburse
             Program funds drawn down from its treasury account within 15 days. As a result,
             HUD and the County lacked assurance that Program funds were used efficiently
             and effectively.

Recommendation

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

             4A.    Implement adequate procedures and controls to ensure that it disburses
                    Program funds for eligible costs within 15 days of drawing down the
                    Program funds from its treasury account.




                                             18
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

            •   Applicable laws, HUD’s regulations at 24 CFR [Code of Federal Regulations] Parts
                91 and 92, HUD’s Office of Community Planning and Development Notices 07-06
                and 97-03, and HUD’s “Building HOME: A Program Primer.”

            •   The County’s accounting records, annual audit financial statements for 2005 and
                2006, data from HUD’s System, Program and activity files, computerized
                databases, policies, procedures, organizational chart, consolidated community
                development and annual plans, and consolidated reports.

            •   HUD’s files for the County.

We also interviewed the County’s employees and HUD staff.

Finding 2

We reviewed all of the more than $22.2 million in Program contributions that the County
reported in its consolidated reports to HUD for fiscal years 2000 through 2007. The Program
contributions were selected to determine whether the County effectively administered its
Program, appropriately provided contributions for its Program, and followed HUD’s
requirements.

Finding 3

We reviewed all of the nearly $15.3 million in Program funds that the County drew down for
eight multifamily projects for the period June 2005 through December 2007 and all of the more
than $1.6 million in Program income that the County disbursed for multifamily project number
3185 in December 2007. The draw-downs were selected to determine whether the County
effectively administered its Program, appropriately disbursed Program funds and income for
multifamily projects, and followed HUD’s requirements.

Finding 4

We reviewed all 55 of the County’s non-administrative activity draw-downs from its treasury
account for the period October 2005 through March 2008, which totaled nearly $14.1 million in
Program funds. The draw-downs were selected to determine whether the County effectively
administered its Program, appropriately disbursed Program funds for non-administrative
activities, and followed HUD’s requirements.

We performed our on-site audit work from April through December 2008 at the County’s office
located at 69 West Washington Street, Chicago, Illinois. The audit covered the period October 2006
through March 2008 and was expanded as determined necessary.


                                                19
We performed our audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                               20
                              INTERNAL CONTROLS

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

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting,
   •   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. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls

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

              •       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.




                                               21
Significant Weakness

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

           •   The County lacked adequate procedures and controls to ensure that it
               complied with HUD’s and/or its own requirements in regard to managing the
               day-to-day operations of its Program, determining and reporting contributions
               for its Program, disbursing Program funds drawn down from its treasury
               account and Program income from its local account for multifamily projects,
               and disbursing Program funds drawn down from its treasury account for non-
               administrative activities (see findings 1, 2, 3, and 4).

Separate Communication of
Minor Deficiencies

           We informed the director of the County’s Department and the Director of HUD’s
           Chicago Office of Community Planning and Development of minor deficiencies
           through a memorandum, dated February 12, 2009.




                                           22
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                           Recommendation
                               number             Ineligible 1/
                                  3A                    $59,205
                                  3B                      6,339
                                 Totals                 $65,544


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




                                            23
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 2
Comment 1




Comment 1




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         29
                          OIG’s Evaluation of Auditee Comments

Comment 1   The County’s commitment to updating its policies and procedures should improve
            its procedures and controls over its management of its Program if fully
            implemented.

Comment 2   We revised the audit report to state that as a result of our audit, the County
            removed the nearly $5.6 million in Program contributions it overreported from its
            consolidated report to HUD for fiscal year 2008. We also removed the
            recommendation for the County to remove the nearly $5.6 million in Program
            contributions from its consolidated reports to HUD for the contributions that it
            incorrectly reported.




                                            30
Appendix C

                           FEDERAL REQUIREMENTS

Finding 1
HUD’s regulations at 24 CFR 92.504(a) state that a participating jurisdiction is responsible for
managing the day-to-day operations of its Program, ensuring that Program funds are used in
accordance with all Program requirements and written agreements, and taking appropriate action
when performance problems arise. The use of subrecipients or contractors does not relieve the
participating jurisdiction of this responsibility.

HUD’s regulations at 24 CFR 92.550(a) state that HUD will review the performance of each
participating jurisdiction in carrying out its responsibilities under 24 CFR Part 92 whenever
determined necessary by HUD, but at least annually. HUD may also consider relevant
information pertaining to a participating jurisdiction’s performance gained from other sources.

HUD’s regulations at 24 CFR 92.551(c) state that corrective or remedial actions for a
participating jurisdiction’s performance deficiency or a failure to meet a provision of 24 CFR
Part 92 will be designed to prevent its continuation; mitigate, to the extent possible, its adverse
effects or consequences; and prevent its recurrence. Section 92.551(c)(1) states that HUD may
instruct the participating jurisdiction to submit and comply with proposals for action to correct,
mitigate, and prevent a performance deficiency to include the following:

   ™   Preparing and following a schedule of actions for carrying out the affected activities,
       consisting of schedules, timetables, and milestones necessary to implement the affected
       activities;
   ™   Establishing and following a management plan that assigns responsibilities for carrying
       out remedial actions;
   ™   Canceling or revising activities likely to be affected by the performance deficiency before
       expending Program funds for the activities;
   ™   Reprogramming Program funds that have not yet been expended for affected activities to
       other eligible activities;
   ™   Reimbursing its local account in any amount not used in accordance with the
       requirements of 24 CFR Part 92;
   ™   Suspending the disbursement of Program funds for affected activities; and
   ™   Making matching contributions as draws are made from its treasury account.

HUD’s regulations at 24 CFR 92.551(c)(2) state that HUD may also change the method of
payment to a participating jurisdiction from an advance to a reimbursement basis and take other
remedies that may be legally available.


Finding 2


                                                 31
Title II of the Act, as amended, section 220(a), and HUD’s regulations at 24 CFR 92.218(a) state
that each participating jurisdiction must make contributions to housing that qualifies as
affordable housing under the Program during a fiscal year. The contributions must total not less
than 25 percent of the Program funds drawn from the participating jurisdiction’s treasury account
during a fiscal year.

HUD’s regulations at 24 CFR 92.221(b) state that Program contributions made during a fiscal
year that exceed the amount of contributions a participating jurisdiction is required to make for
that fiscal year may be carried over and applied to the participating jurisdiction’s required
contributions for future fiscal years.

HUD’s regulations at 24 CFR 92.508(a) state that a participating jurisdiction must establish and
maintain sufficient records to enable HUD to determine whether the participating jurisdiction has
met the requirements of 24 CFR Part 92. The participating jurisdiction must maintain records
demonstrating compliance with the Program contribution requirements of 24 CFR 92.218
through 24 CFR 92.222, including a running log and project records documenting the type and
amount of contributions by project.

Section XI of HUD’s Office of Community Planning and Development Notice 97-03 states that
to ensure compliance with statutory Program contribution requirements, a participating
jurisdiction must establish a system that tracks its required contributions as Program funds are
expended and contributions are made. A participating jurisdiction is required to maintain a
running contribution log that demonstrates compliance with the contribution requirements. The
contribution log must identify the type and amount of each contribution and should serve as the
basis for reporting the participating jurisdiction’s contributions as part of its consolidated report.

Finding 3
HUD’s regulations at 24 CFR 92.502(c)(2) state that Program funds drawn down from a
participating jurisdiction’s treasury account must be expended for eligible costs within 15 days.
Any interest earned on the Program funds within the 15-day period may be retained by the
participating jurisdiction as Program funds. Any Program funds that are drawn down and not
expended for eligible costs within 15 days must be returned to HUD for deposit in the
participating jurisdiction’s treasury account. Interest earned on Program funds after the 15 days
belongs to the United States and must be remitted to HUD at least quarterly, except that a
participating jurisdiction may retain interest up to $100 per year for administrative expenses.

HUD’s regulations at 24 CFR 92.503(a) state that Program income must be used in accordance
with 24 CFR Part 92.

Finding 4
HUD’s regulations at 24 CFR 92.502(c)(2) state that Program funds drawn down from a
participating jurisdiction’s treasury account must be expended for eligible costs within 15 days.
Any interest earned on the Program funds within the 15-day period may be retained by the


                                                  32
participating jurisdiction as Program funds. Any Program funds that are drawn down and not
expended for eligible costs within 15 days must be returned to HUD for deposit in the
participating jurisdiction’s treasury account. Interest earned on Program funds after the 15 days
belongs to the United States and must be remitted to HUD at least quarterly, except that a
participating jurisdiction may retain interest up to $100 per year for administrative expenses.




                                                33