oversight

Cook County, Illinois, Needs to Improve Its Capacity to Effectively and Efficiently Administer Its Neighborhood Stabilization Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-17.

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

                                              U.S. Department of Housing and Urban Development
                                              Office of Inspector General for Audit, Region V
                                              Ralph H. Metcalfe Federal Building
                                              77 West Jackson Boulevard, Suite 2646
                                              Chicago, Illinois 60604-3507

                                              Phone (312) 353-7832 Fax (312) 353-8866
                                              Internet http://www.hud.gov/offices/oig/




                                                                                 MEMORANDUM NO.
                                                                                      2009-CH-1802

September 17, 2009

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


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

SUBJECT: Cook County, Illinois, Needs to Improve Its Capacity to Effectively and Efficiently
         Administer Its Neighborhood Stabilization Program

                                      INTRODUCTION

We reviewed Cook County’s (County) Neighborhood Stabilization Program. The review was
part of the activities in our fiscal year 2009 annual audit plan. We selected the County based
upon the results of our three previous audits of the County’s HOME Investment Partnerships
Program (HOME). Our objective was to determine whether the County had the capacity to
effectively and efficiently administer its Neighborhood Stabilization Program.

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.

                                       BACKGROUND

The Program. Authorized under Title III of the Housing and Economic Recovery Act (Act), as
amended, the Neighborhood Stabilization Program provides grants to every state and certain
local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or
redevelop these homes to stabilize neighborhoods and stem the decline in value of neighboring
homes. The U.S. Department of Housing and Urban Development (HUD) allocated more than
$3.9 billion in Neighborhood Stabilization Program funds to grantees.

The County. Organized under the laws of the State of Illinois, the 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) to
administer its Neighborhood Stabilization Program. The overall mission of the Department is to
promote community and economic growth in the region by investing in affordable housing,
public infrastructure and safety, and the retention and expansion of businesses and jobs in the
County. The County’s records are located at 69 West Washington Street, Chicago, Illinois.

HUD allocated nearly $28.2 million in Neighborhood Stabilization Program funds to the County
based upon the funding formula developed by HUD pursuant to the Act. On March 31, 2009,
HUD entered into a grant agreement with the County for the full amount allocated. The
County’s revised Neighborhood Stabilization Program budget included the following: nearly
$19 million for the purchase and rehabilitation of abandoned or foreclosed homes or residential
properties to sell, rent, or redevelop the homes or properties; $100,000 to establish land banks for
foreclosed homes; $1 million for the demolition of blighted structures; $5.3 million for the
redevelopment of demolished or vacant properties; and more than $2.8 million for planning and
administration costs. The County also plans to provide a financing mechanism for the purchase
and redevelopment of foreclosed homes and residential properties with the nearly $19 million for
the purchase and rehabilitation of abandoned or foreclosed homes or residential properties.

Congress amended the Neighborhood Stabilization Program and increased its funding as part of
the American Recovery and Reinvestment Act of 2009 (Recovery Act). The County, as part of a
consortium, submitted an application to HUD, dated July 14, 2009, which totaled more than $75
million in additional Neighborhood Stabilization Program funds under the Recovery Act. The
application is under review by HUD.

We issued three audit reports (Office of Inspector General (OIG) Audit Report numbers 2007-
CH-1015, 2008-CH-1009, and 2009-CH-1004) on the County’s HOME program from
September 26, 2007, through February 13, 2009. We found that the County did not adequately
manage its HOME program. It inappropriately used HOME funds and income and American
Dream Downpayment Initiative (Initiative) funds, incorrectly reported HOME match
contributions and the amounts of HOME contributions it was required to provide in its
consolidated annual performance and evaluation reports to HUD, and lacked documentation to
support its use of HOME and Initiative funds because its management did not implement
adequate procedures and controls to ensure that its HOME program was operated according to
HUD’s and its own requirements.

                               METHODOLOGY AND SCOPE

To accomplish our objective, we reviewed

           •   Applicable laws; the Federal Register, dated October 6, 2008, and June 19, 2009;
               HUD’s regulations at 24 CFR (Code of Federal Regulations) Parts 85 and 570;
               OIG Audit Report numbers 2007-CH-1015, 2008-CH-1009, and 2009-CH-1004;
               HUD’s Neighborhood Stabilization Program grant agreement with the County;
               and HUD’s Chicago Office of Community Planning and Development’s
               monitoring reports for the County’s HOME and Community Development Block
               Grant (Block Grant) programs from 2006 to 2009.




                                                 2
           •   The County’s 2008 action plan substantial amendment for the Neighborhood
               Stabilization Program, policies and procedures, staffing plans and allocations,
               budgets, job descriptions, and organizational charts.

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

We performed our on-site review work from July through August 2009 at the County’s office
located at 69 West Washington, Chicago, Illinois. The review covered the period October 2006
through May 2009 and was expanded as determined necessary.

                                     RESULTS OF REVIEW

1. The County Needs to Improve Its Capacity to Effectively and Efficiently Administer Its
   Neighborhood Stabilization Program

The Federal Register, dated October 6, 2008, stated that HUD encouraged each local jurisdiction
receiving an allocation of Neighborhood Stabilization Program funds to carefully consider its
administrative capacity to use those funds within the statutory deadline versus the capacity of a state
administrator. Further, HUD expected that after such consideration, some local jurisdictions would
choose to apply for less than the full amount of the funds allocated to them.

Policies, Procedures, and Controls
As of September 9, 2009, the County had not established sufficient policies and procedures for
its Neighborhood Stabilization Program. On July 24 and July 31, 2009, the County provided its
draft Community Development Block Grant procedures and operations manual (draft Block
Grant manual), dated July 2009, and draft financial grant management procedures manual (draft
financial manual), dated July 2009, respectively, which contained policies and procedures
concerning the County’s Neighborhood Stabilization Program. However, the draft manuals were
incomplete. The draft Block Grant manual lacked sections covering policies and procedures for
organization and program function, performance reporting, and civil rights and fair housing. The
draft financial manual lacked sections covering reliability of data and allocation of administrative
expenses. The draft manuals also did not contain management’s monitoring procedures to
ensure that funds were used appropriately.

On September 9, 2009, the County provided a revised financial grant management procedures
manual (financial manual), dated September 2009. The financial manual included the sections
mentioned above that were missing in the draft financial manual. However, the sections were
incomplete. Appendix A.7 identified the following items for reconciliation: postage, petty cash,
program income, project expenditures, draw down revenue, and HUD’s Integrated Disbursement
and Information System and Disaster Recovery Grant Reporting system. It also stated that
procedures for several of the items were contained throughout the financial manual. However,
the financial manual only contained policies and procedures for the reconciliation of program
income. In addition, the policies and procedures only referred to reconciling data with HUD’s
Integrated Disbursement and Information System. Neighborhood Stabilization Program data is
contained in HUD’s Disaster Recovery Grant Reporting system. The section covering allocation
of administrative expenses stated administrative expenses that cannot be directly associated with

                                                   3
one or more of the County’s grants will be allocated to all of the grants based on the percentage
of time the County’s employees work on each grant. However, allocating costs based on
employees’ time is not appropriate for all administrative expenses.

As previously stated, the County did not adequately manage its HOME program. The County’s
policies and procedures for its Neighborhood Stabilization Program, if implemented, should
address most of the issues we identified with the County’s HOME program that could impact the
Neighborhood Stabilization Program. However, the following issues, identified in OIG Audit
Report number 2008-CH-1009, if left uncorrected, could also impact the Neighborhood
Stabilization Program.

    The County did not effectively administer its HOME program income and administrative
    costs and failed to follow HUD’s requirements. It did not allocate interest earned from
    HOME program income as income and used HOME program funds for inappropriate
    administrative costs and did not have sufficient documentation to support that it used
    HOME program funds for eligible HOME program administrative costs. The policies and
    procedures for the County’s Neighborhood Stabilization Program income and administrative
    costs in its manuals did not address these issues identified for HOME program income and
    administrative costs to ensure that Neighborhood Stabilization Program funds are used
    appropriately.

The County had never been involved in establishing land banks for foreclosed homes. The
deputy director of the Department said that there was at most a 10 percent chance that the
County would use the $100,000 in Neighborhood Stabilization Program funds for establishing
land banks. If the County moved forward with establishing land banks, the funds could be used
to award $10,000 grants to maintain properties in the land banks. The Federal Register, dated
June 19, 2009, stated that land bank operation costs charged to the Neighborhood Stabilization
Program are limited to those properties that were acquired with Neighborhood Stabilization
Program funds. If the land bank is a government entity, it may also maintain foreclosed property
that it does not own, provided it charges the owner of the property the full cost of the service or
places a lien on the property for the full cost of the service. However, the County’s draft Block
Grant manual did not contain specific policies and procedures for land bank operating costs. The
deputy director also said that the County may increase funding for establishing land banks once
its staff obtains a better understanding of the activities that can be completed through land banks.

On July 20, 2009, the deputy director said that the County’s draft manuals were being developed.
However, the County was not ready to fully establish the draft manuals because it had not
completed sections and had not had a chance to thoroughly review the draft manuals for
completeness and accuracy. The County had not been able to complete the draft manuals due to
completing its application, changes to the Neighborhood Stabilization Program’s requirements,
and the lack of guidance HUD provided for different Neighborhood Stabilization Program
functions, including the Disaster Recovery and Grants Reporting system.

Staffing
Through the Federal Register, dated October 6, 2008, HUD notified the County that it had been
allocated nearly $28.2 million in Neighborhood Stabilization Program funds. The County

                                                 4
submitted its 2008 action plan substantial amendment to HUD for the Neighborhood
Stabilization Program on November 25, 2008. The County’s initial detailed budget for planning
and administrative costs included nearly $953,000 in salaries and benefits for three staff
members at the County to monitor a lead agency; more than $165,000 for advertising, printing,
publishing, and computer services; more than $144,000 in salaries and benefits for other staff to
provide support services; $10,500 for office supplies and computer equipment and supplies; and
nearly $284,000 for an administration reserve. In addition to the detailed budget, the County
planned to use more than $1.5 million in planning and administration costs for a lead agency to
administer the day-to-day operations of its Neighborhood Stabilization Program. The detailed
budget for and planned use of planning and administration costs totaled nearly $3.1 million,
which exceeded the allowable amount for planning and administration costs by more than
$260,000.

On March 31, 2009, the County issued a request for proposal for a lead agency to administer the
day-to-day operations of its Neighborhood Stabilization Program. According to the request for
proposal, the selection of the lead agency was expected in June 2009. On July 8, 2009, the
director of the Department said that the County received proposals from seven organizations and
was still evaluating the proposals to determine whether it would contract with a lead agency to or
have the Department administer the day-to-day operations of its Neighborhood Stabilization
Program. If the County decided not to contract with a lead agency, the County had designated
10 staff members from the Department to assist in the administration of the Neighborhood
Stabilization Program.

The County provided a time allocation sheet for Department staff on July 20, 2009, that included
28 employees that would devote the equivalent of 14.1 staff years annually if the County decided
that the Department would administer the operations of the Neighborhood Stabilization Program.
On July 27, 2009, the County decided that its Department would administer the Neighborhood
Stabilization Program. Further, the deputy director said that the County would contract with
regional agencies to assist with inspections and environmental reviews of activities carried out
under the Neighborhood Stabilization Program. On July 28, 2009, the County showed us a
revised time allocation sheet which included more than $2.2 million in Neighborhood
Stabilization Program funds for salaries of the 28 employees who would devote the equivalent of
14.1 staff years annually to administer the operations of the Neighborhood Stabilization Program
over the four years. However, the County did not provide the revised time allocation sheet since
it did not accurately represent the Department’s staff that would work on the Neighborhood
Stabilization Program over the four-year period and did not take into consideration the costs of
the regional agencies that would assist in the administration of the Neighborhood Stabilization
Program.

On July 31, 2009, the County provided a staffing plan which included staffing time, salary
allocations, and position descriptions for the Department’s staff reflecting its decision that the
Department would administer its Neighborhood Stabilization Program without the assistance of a
lead agency. The staffing plan included 17 employees who would devote the equivalent of 11
staff years annually to administer the operations of the Neighborhood Stabilization Program.
The staffing plan also included nearly $2.2 million in Neighborhood Stabilization Program funds
for the 17 employees’ salaries over the four years. The County did not provide a detailed budget

                                                5
for its planning and administrative costs. Further, the staffing plan did not include fringe
benefits, which if included, would have totaled more than the County’s $2.8 million for planning
and administrative costs.

On August 5, 2009, the County provided a revised staffing plan and budget for more than $2.8
million in planning and administrative costs. The revised staffing plan included 19 employees
who would devote the equivalent of 10.25 staff years annually to administer the operations of the
Neighborhood Stabilization Program. Of the 19 employees, 5 would contribute 100 percent of
their time to the Neighborhood Stabilization Program. The positions for three of the five
employees were vacant and would be hired from outside the County’s staff. The County had
posted a notice of job opportunity (notice) and was interviewing for one of the positions and
needed to advertise for the other two. The notice for the one position required at least three years
of experience working with and managing federal grants for a large governmental organization
or an equivalent nongovernmental corporation. The business manager of the Department said
that the other two notices would require the same level of experience. The deputy director also
said that the County plans to provide Neighborhood Stabilization Program training to the new
employees. This would include providing the new staff with materials that the Department’s
current staff received at training for the Neighborhood Stabilization Program. However, the
County did not have a specific plan for the training that it would provide. The budget included
more than $2.3 million for the 19 employees’ salaries and benefits; more than $220,000 for
advertising, printing, publishing, and computer services; $10,500 for office supplies and
computer equipment and supplies; and nearly $284,000 for an administration reserve. The
deputy director said that the County would directly charge the costs of the regional agencies to
Neighborhood Stabilization Program activities as project delivery costs to the specific activity
costs within the budget.

The County made multiple revisions to its plan for the administration of its Neighborhood
Stabilization Program. The deputy director and business manager said that our audit helped the
County in moving forward and deciding on how to administer its Neighborhood Stabilization
Program. If the County implements the revised staffing plan and budget provided to us on
August 5, 2009; hires individuals with experience in the planned activities; and provides
adequate training, it should have sufficient staff to administer its Neighborhood Stabilization
Program.

2. HUD’s Chicago Office of Community Planning and Development Did Not Include Special
   Conditions in Its Neighborhood Stabilization Program Grant Agreement with the County

HUD’s regulations at 24 CFR 85.12 state that a grantee may be considered high risk if it has a
history of unsatisfactory performance or has not conformed to the terms and conditions of previous
awards. Special conditions and/or restrictions shall correspond to the high-risk condition and shall
be included in the award.

On February 24, 2009, HUD’s Director of Field Management provided guidance on Neighborhood
Stabilization Program grant agreements to all of the directors of the Office of Community Planning
and Development. The guidance addressed when a special condition must be included in the
Neighborhood Stabilization Program grant agreement with the grantee. The guidance stated that if

                                                  6
a grantee’s Neighborhood Stabilization Program funds totaled at least three times its fiscal year
2008 Block Grant fund allocation or had unresolved monitoring findings or other serious actions, a
special condition must be included in the Neighborhood Stabilization Program grant agreement with
the grantee. The guidance also included the following standard language to be included in grant
agreements:

   Pursuant to 24 CFR 85.12(a)(1), (2), (4), or (5), a special condition applies to the
   Neighborhood Stabilization Program grant agreement due to past performance in the Block
   Grant program. The Program grantee shall submit documentation describing how past
   Block Grant program performance issues have been resolved or are now being resolved and
   explain how they will not impact the administration of the Program. If the Program grantee
   fails to submit such documentation within 60 days from the date HUD signed the Program
   grant agreement, HUD may withhold the Program grantee’s authority to incur additional
   obligations of Program funds or take other actions authorized under 24 CFR 85.12(b).

The Assistant Director of Financial Management in HUD’s Office of Block Grant Assistance
stated that the special conditions referred to the Block Grant program since Neighborhood
Stabilization Program funds were considered a special allocation of Block Grant funds. However, if
a grantee had a history of unsatisfactory performance in another community planning and
development program, such as the HOME program, and that unsatisfactory performance was
applicable to the grantee’s Neighborhood Stabilization Program, it would be appropriate to include
special conditions in the grant agreement.

As previously stated, we identified significant deficiencies in the County’s administration of its
HOME program, which included issues applicable to the County’s Neighborhood Stabilization
Program. Further, the Department administers both the Neighborhood Stabilization Program and
the HOME program. However, HUD’s Chicago Office of Community Planning and Development
did not place special conditions in its Neighborhood Stabilization Program grant agreement with the
County based on its review of the County’s 2008 action plan substantial amendment. The Director
of HUD’s Chicago Office of Community Planning and Development said that although there were
previous issues identified with the County’s HOME program, he did not believe that special
conditions were necessary since his office was handling the deficiencies with the County’s HOME
program through the management decision process and HOME and the Neighborhood Stabilization
Program were separate programs. Further, he did not believe that amending the County’s grant
agreement to include special conditions was appropriate. However, based upon HUD’s regulations
at 24 CFR 85.12, the guidance provided by HUD’s Director of Field Management and Assistant
Director of Financial Management, and the previous issues identified in the OIG audit reports,
which included issues applicable to the County’s Neighborhood Stabilization Program, we believe
that the inclusion of special conditions in the County’s Neighborhood Stabilization Program grant
agreement is warranted.

                                    RECOMMENDATIONS

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



                                                 7
1A. Implement adequate policies, procedures, and controls to ensure that Neighborhood
    Stabilization Program funds are used effectively and efficiently and in accordance with
    applicable requirements.

1B. Implement its revised staffing plan and budget for planning and administrative costs
    provided on August 5, 2009, and provide its new employees with adequate training on the
    Neighborhood Stabilization Program to ensure that the County has sufficient capacity to
    effectively and efficiently administer its Neighborhood Stabilization Program.

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

2A. Include special conditions in its Neighborhood Stabilization Program grant agreement with
    the County. The special conditions should include but not be limited to (1) requiring the
    County to submit documentation describing how unresolved HOME program performance
    issues were resolved or are being resolved and explain whether they will impact the
    administration of the Neighborhood Stabilization Program and (2) performing additional
    monitoring.




                                               8
        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation                           Auditee Comments




             September 9, 2009


             Brent G. Bowen, Assistant Regional Inspector General for Audit
             United States Department of Housing and Urban Development
             Office of the Inspector General
             77 West Jackson, Suite 2646
             Chicago, IL 60604-3507

             RE:     Office of Inspector General’s Audit
                     Cook County, Illinois - Neighborhood Stabilization Program
                     Memorandum No. 2009-CH-180X

             Dear Mr. Bowen:

             The Cook County Department of Planning and Development (CCDPD) acknowledges receipt of
             the August 21, 2009 HUD’s Office of Inspector General’s (OIG) draft audit memorandum on
             Cook County’s Need to Improve Its Capacity to Effectively and Efficiently Administer Its
             Neighborhood Stabilization Program. Thank you for allowing CCDPD additional time to respond
             to the report.

             We recognize the importance of adhering to the United States Department of Housing and Urban
             Developments’s (HUD’s) regulations and share in the OIG’s goals of insuring that we effectively
             administer the program, appropriately provide matching contributions, and disburse program
             funds according to HUD’s requirements.

             If you have any questions or need further information, please contact Ms. Sheila L. Jackson,
             Finance Manager at (312) 604-1036.

             Sincerely,



             Maurice S. Jones
             Planning and Development Director

             MSJ/SLJ/nctk

             Attachments:
             1.     CCDPD Comments to OIG Recommendations
             2.     Financial Grant Procedures Manual
             3.     Activity Sheets
             4.     Supply Request Form
             5.     Chapter 5 - HOME Manual “Financial Management”




                                                   9
Ref to OIG Evaluation            Auditee Comments




                                   ATTACHMENT 1


                        COOK COUNTY DEPARTMENT OF PLANNING AND
                         DEVELOPMENT (CCDPD) COMMENTS TO OIG




                                   10
Ref to OIG Evaluation                      Auditee Comments




                                         OIG RECOMMENDATIONS


                    1A. Implement adequate policies, procedures and controls that
                  Neighborhood Stabilization Program funds are used effectively and
                      efficiently and in accordance with applicable requirements.


                                                   Financial

              The draft copy of the Financial Grant Procedures Manual (FGPM) provided to the
              OIG auditors on July 31, 2009 was identical to the Draft Financial Grant
              Procedures submitted to the Director of HUD’s Chicago Office of Community
              Planning and Development on February 27, 2009. The date on the manual
              submitted to the OIG auditors represented the date the copy of printed, July 31,
              2009.

Comment 1     CCDPD has removed “Draft” from the document because all of the policies and
              procedures outlined in the manual were in place at the time of issuance,
Comment 2     February 27, 2009.CCDPD will continue to revise the manual on an ongoing
              basis as the policies, procedures and controls are assessed for the most current
              compliance requirements. The date of any revisions will be footnoted on the
              appropriate page and forwarded to the HUD local office.

                 1A-F1: Finance Manual lacked sections covering the reliability of data.

Comment 1     CCDPD has included the procedures for reconciling program income in the
              manual. This reconciliation procedure as stated in the FGPM is between the
              Cook County records, TRAKKER, Lotus Approach Data Base and IDIS. And this
              will process/reconciliation will continue on a monthly basis. (See FGPM, Page
              34)

Comment 1     Also, included in the manual are the procedures for reconciling or verifying the
              costs associated with projects, administration and draw downs. (See FGPM,
              Page 40)


                   1A-F2: Finance Manual lacked sections regarding the allocation of
                                        administrative costs.

Comment 1     The FGPM includes procedures for the procurement of administrative purchases.
              All administrative purchases require prior approval by the division supervisor and




                                              11
Ref to OIG Evaluation                       Auditee Comments


              reviewed by the Executive Assistant to the Director. The appropriate grant
              benefiting from the purchase is identified and it is determined if the purchase is
              allowable, reasonable and necessary per appropriate HUD guidelines. (See
              FGPM, Page 41)

Comment 1     CCDPD has included the methodology of allocating administrative costs that can
              not be associated with a specific grant. This methodology will result in a Cost
              Allocation Plan to insure that administrative costs are charged to the appropriate
              grant. (See FGPM, Page 42)

              1B. Implement its revised staffing plan and budget for planning and
              administrative costs provided on August 5, 2009, and provide its new
              employees with adequate training on the Neighborhood Stabilization
              Program to ensure the County has sufficient capacity to effectively and
              efficiently administer is Neighborhood Stabilization Program.

Comment 3     CCDPD will implement the August 5, 2009 staffing plan and budget, as submitted
              to the OIG auditors. CCDPD will provide all new employees with all of the
              training and reference materials on the Neighborhood Stabilization Program
              available. CCDPD has also requested additional HUD and OIG training.

                                                Programmatic


              Cook County Department of Planning and Development (CCDPD) has made the
              following strides to comply with the Department of Housing and Urban
              Development as it relates to the Neighborhood Stabilization Program;

                    1A-P1: Establish Policies and Procedures for the Neighborhood
                                         Stabilization Program

              During the audit, CCDPD provided the OIG staff with a draft manual for
              Neighborhood Stabilization Program. Cook acknowledges that procedures are
              necessary for the operation of Neighborhood Stabilization Program. Therefore,
Comment 4     CCDPD is constantly updating the Neighborhood Stabilization Program Manual
              to meet the ever changing needs of the Neighborhood Stabilization Program.
              Currently, we are striving to integrate policies and procedure already established
              in the CDBG and HOME programs to facilitate operation of the program.
              Additionally, CCDPD provided HUD OIG with a copy of its policies and
              procedures manual for its Single Family Rehabilitation Program. The manual
              contains Neighborhood Stabilization Program updates. Notwithstanding, the
              existence of CCDPD Single Family Rehabilitation Manual and modifications
              made thereto, CCDPD will continue to make revisions to the manual as the
              Neighborhood Stabilization Program evolves.




                                              12
Ref to OIG Evaluation                         Auditee Comments


                   1A-P2: Manual lacked sections covering organization and program
                                              function.

Comment 5     CCDPD has included a copy of its organization chart as well as a flow chart of its
              program design. Although the manual is in draft form, it contains specific sections
              regarding the operation of the Neighborhood Stabilization Program and instances
              where it differs from the CDBG program. CCDPD continues to update this draft
              manual as it modifies its program to comply with the regulation. CCDPD requests
              a model of what a complete and accurate manual would consist of for operation
              of Neighborhood Stabilization Program from HUD OIG.

                    1A-P3: Manual lacked sections covering performance reporting.

Comment 6     CCDPD is in the process of contracting with a computer service agency for the
              purposes of automating and streamlining required performance reporting through
              DRGR for Neighborhood Stabilization Program. Once an agency has been
              selected, an outline of the performance reporting process will be included in
              manuals. In the meantime, CCDPD is in the process of including its existing
              reporting process as part of the draft manual.

                 1A-P4: Manual lacked sections covering civil rights and fair housing.

              CCDPD acknowledges that the civil rights and fair housing section was not
Comment 7     included in the draft manual. However, as part of its ongoing process of updating
              the manual, the aforementioned section has been included. The draft language
              for that section is provided below:

                    (A). Affirmative Marketing Plan for Fair Housing
                    It is the policy of the Department of Planning and Development that developments of 5 or
                    more housing units must adhere to the Department's Affirmative Marketing Plan. The
                    County's plan identifies the methods that CDBG Program recipients are to use in
                    developing their affirmative marketing plans for submission and approval by the
                    Department.

                    CCDPD will inform the public, owners and potential tenants about Federal fair housing
                    laws and the County affirmative marketing policy through the distribution of fair housing
                    information at each of the public hearings that are held throughout the year. In addition,
                    the CCDPD will make fair housing information available in its office, on its website and in
                    application materials distributed to all potential CDBG Program applicants.             The
                    information that will be made available will list the County policy and a prescribed method
                    for achieving compliance with the County requirements.

                    Each owner who has received County CDBG funding must conduct its business
                    operation in a manner that promotes fair and equal access to all those who apply and are
                    eligible for tenancy. That should include the selection of a management agent or the
                    employment of internal staff that is familiar with the fair housing laws as well as what
                    constitutes prohibited acts under the fair housing laws. All owners are required to use the
                    Fair Housing Logo and Slogan on all marketing materials, with the inclusion of
                    information on where discrimination complaints can be filed by rejected applicants.




                                                 13
Ref to OIG Evaluation                          Auditee Comments



                    All CCDPD CDBG applicants must submit an affirmative marketing plan that indicates the
Comment 7           racial composition of the housing primary market area in which the housing will be
                    located. In the plan it is also required to submit a list of the targeted groups the CDBG
                    applicant believes is least likely to apply for housing in the project. In arriving at this
                    group, the CDBG applicant should consider factors such as price or rental of housing,
                    sponsorship of housing, racial/ethnic characteristics of housing market area in which
                    housing will be located, disability or familial status of eligible population and public
                    transportation routes.

                    The CDBG applicant must describe the marketing program that it will use to attract
                    members of the eligible population, with special emphasis on those groups designated
                    least likely to apply. The applicant shall state: the type of media identified in the plan and
                    the size or duration of newspaper advertising or length and frequency of broadcast
                    advertising. Community contacts include individuals or organizations that are well known
                    in the housing market area or the locality that can influence persons within groups
                    considered least likely to apply. Such contacts may include neighborhood, minority and
                    women=s organizations, labor unions, employers, public and private agencies, disability
                    advocates, schools and individuals who are connected with these organizations and/or
                    well known in the community.

                    The CDBG applicant must also include information that best describes marketing
                    activities for outreach to fill vacancies as they occur after the project has been initially
                    occupied.

                    In addition, the CDBG applicant must indicate whether the sales/rental staff has had
                    previous experience in marketing housing to groups identified as least likely to apply for
                    the housing. The applicant must describe the instructions and training provided or to be
                    provided to sales/rental staff. This information must include information regarding
                    Federal, State and local fair housing laws and the affirmative plan.

                    (B).    Record-Keeping/Requirements for Affirmative Marketing
                    The HOME applicant will be responsible for maintaining documentation that
                    demonstrates the applicant affirmative marketing efforts. Such information should
                    include copies of the correspondence sent to community agencies that represent
                    outreach to those groups least likely to apply along with meetings minutes, or resolutions
                    from the agency documenting the organizations= efforts in reaching their respective
                    constituents. The HOME applicant must keep the affirmative marketing records, from the
                    marketing study which begins prior to the start of construction until 60 percent of
                    occupancy is achieved.

                    CCDPD staff conducts an annual assessment of each municipality that applies for
                    funding under the HOME Program. Municipalities that are not in compliance with
                    CCDPD and HUD’s requirements regarding the affirmative plan, will be denied funding
                    for the Program year.

                    CCDPD will annually assess the success of the affirmative marketing action at each
                    annual on-site compliance review for projects of 26 or more. For projects between 5 and
                    25 all affirmative marketing action will be subject to a desk monitoring and an onsite
                    inspection, if the desk monitoring uncovers a preliminary finding of non compliance. The
                    success of the Affirmative Marketing Plan will be judged on the basis of the number of
                    application received from those identified as least likely to apply and the number that
                    actually rent or purchase units within the project. At least 5% of all application received
                    should be from the targeted groups, with at least 1% of new residents representing one of




                                                  14
Ref to OIG Evaluation                           Auditee Comments


Comment 7           the targeted groups. If an inspection determines that no applications are being received
                    from those least likely to apply, the department will require the HOME subrecipient to
                    institute a more aggressive affirmative marketing plan, with monitoring being conducted
                    more frequently to ensure reaching the Department=s affirmative marketing goals.

                    Provisions (§570.600)
                    § 570.600 General.
                    (a) This subpart K enumerates laws that the Secretary will treat as applicable to grants
                    made under section 106 of the Act, other than grants to States made pursuant to section
                    106(d) of the Act, for purposes of the Secretary's determinations under section 104(e)(1)
                    of the Act, including statutes expressly made applicable by the Act and certain other
                    statutes and Executive Orders for which the Secretary has enforcement responsibility.
                    This subpart K applies to grants made under the Insular areas program in §570.405, with
                    the exception of §570.612. The absence of mention herein of any other statute for which
                    the Secretary does not have direct enforcement responsibility is not intended to be taken
                    as an indication that, in the Secretary's opinion, such statute or Executive Order is not
                    applicable to activities assisted under the Act. For laws that the Secretary will treat as
                    applicable to grants made to States under section 106(d) of the Act for purposes of the
                    determination required to be made by the Secretary pursuant to section 104(e)(2) of the
                    Act, see §570.487.
                    (b) This subpart also sets forth certain additional program requirements which the
                    Secretary has determined to be applicable to grants provided under the Act as a matter
                    of administrative discretion.
                    (c) In addition to grants made pursuant to section 106(b) and 106(d)(2)(B) of the Act
                    (subparts D and F, respectively), the requirements of this subpart K are applicable to
                    grants made pursuant to sections 107 and 119 of the Act (subparts E and G,
                    respectively), and to loans guaranteed pursuant to subpart M.
                    [53 FR 34456, Sept. 6, 1988, as amended at 61 FR 11477, Mar. 20, 1996]
                    Affirmatively Furthering Fair Housing (§570.601)
                    § 570.601 Public Law 88–352 and Public Law 90–284; affirmatively furthering fair
                    housing; Executive Order 11063.
                    (a) The following requirements apply according to sections 104(b) and 107 of the Act:
                            (1) Public Law 88–352, which is title VI of the Civil Rights Act of 1964 (42 U.S.C.
                            2000d et seq.), and implementing regulations in 24 CFR part 1.
                            (2) Public Law 90–284, which is the Fair Housing Act (42 U.S.C. 3601–3620). In
                            accordance with the Fair Housing Act, the Secretary requires that grantees
                            administer all programs and activities related to housing and community
                            development in a manner to affirmatively further the policies of the Fair Housing
                            Act. Furthermore, in accordance with section 104(b)(2) of the Act, for each
                            community receiving a grant under subpart D of this part, the certification that the
                            grantee will affirmatively further fair housing shall specifically require the grantee
                            to assume the responsibility of fair housing planning by conducting an analysis to
                            identify impediments to fair housing choice within its jurisdiction, taking
                            appropriate actions to overcome the effects of any impediments identified
                            through that analysis, and maintaining records reflecting the analysis and actions
                            in this regard.
                    (b) Executive Order 11063, as amended by Executive Order 12259 (3 CFR, 1959–1963
                    Comp., p. 652; 3 CFR, 1980 Comp., p. 307) (Equal Opportunity in Housing), and
                    implementing regulations in 24 CFR part 107, also apply.

                    Civil Rights (§570.602)
                    § 570.602 Section 109 of the Act.




                                                   15
Ref to OIG Evaluation                           Auditee Comments


Comment 7           Section 109 of the Act requires that no person in the United States shall on the grounds
                    of race, color, national origin, religion, or sex be excluded from participation in, be denied
                    the benefits of, or be subjected to discrimination under any program or activity receiving
                    Federal financial assistance made available pursuant to the Act. Section 109 also directs
                    that the prohibitions against discrimination on the basis of age under the Age
                    Discrimination Act and the prohibitions against discrimination on the basis of disability
                    under Section 504 shall apply to programs or activities receiving Federal financial
                    assistance under Title I programs. The policies and procedures necessary to ensure
                    enforcement of section 109 are codified in 24 CFR part 6.
                    [64 FR 3802, Jan. 25, 1999]
                    Employment and Contracting opportunities (§570.607)
                    § 570.607 Employment and contracting opportunities.
                    To the extent that they are otherwise applicable, grantees shall comply with:
                    (a) Executive Order 11246, as amended by Executive Orders 11375, 11478, 12086, and
                    12107 (3 CFR 1964–1965 Comp. p. 339; 3 CFR, 1966–1970 Comp., p. 684; 3 CFR,
                    1966–1970., p. 803; 3 CFR, 1978 Comp., p. 230; 3 CFR, 1978 Comp., p. 264 (Equal
                    Employment Opportunity), and Executive Order 13279 (Equal Protection of the Laws for
                    Faith-Based and Community Organizations), 67 FR 77141, 3 CFR, 2002 Comp., p. 258;
                    and the implementing regulations at 41 CFR chapter 60; and
                    (b) Section 3 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701u) and
                    implementing regulations at 24 CFR part 135.
                    [68 FR 56405, Sept. 30, 2003]
                    Handicapped Accessibility (§570.614)
                    § 570.614 Architectural Barriers Act and the Americans with Disabilities Act.
                    (a) The Architectural Barriers Act of 1968 (42 U.S.C. 4151–4157) requires certain Federal
                    and Federally funded buildings and other facilities to be designed, constructed, or altered
                    in accordance with standards that insure accessibility to, and use by, physically
                    handicapped people. A building or facility designed, constructed, or altered with funds
                    allocated or reallocated under this part after December 11, 1995, and that meets the
                    definition of “residential structure” as defined in 24 CFR 40.2 or the definition of “building”
                    as defined in 41 CFR 101–19.602(a) is subject to the requirements of the Architectural
                    Barriers Act of 1968 (42 U.S.C. 4151–4157) and shall comply with the Uniform Federal
                    Accessibility Standards (appendix A to 24 CFR part 40 for residential structures, and
                    appendix A to 41 CFR part 101–19, subpart 101–19.6, for general type buildings).
                    (b) The Americans with Disabilities Act (42 U.S.C. 12131; 47 U.S.C. 155, 201, 218 and
                    225) (ADA) provides comprehensive civil rights to individuals with disabilities in the areas
                    of employment, public accommodations, State and local government services, and
                    telecommunications. It further provides that discrimination includes a failure to design and
                    construct facilities for first occupancy no later than January 26, 1993, that are readily
                    accessible to and usable by individuals with disabilities. Further, the ADA requires the
                    removal of architectural barriers and communication barriers that are structural in nature
                    in existing facilities, where such removal is readily achievable—that is, easily
                    accomplishable and able to be carried out without much difficulty or expense.
                    [60 FR 56917, Nov. 9, 1995]


                                                1A-P5: Land Banking

              CCDPD is in the process of formalizing procedures for maintaining land banks.
              This eligible activity would include maintaining (-i.e. grass cutting and waste
              collection) land banks. CCDPD will further develop procedures as needed, and
              will forward a copy to HUD.




                                                   16
Ref to OIG Evaluation                         Auditee Comments


                                           1A-P6: Guidance from HUD

              As a point of clarification, HUD has provided guidance to CCDPD as follows:

                 •   Summit on Housing – October 2008
                 •   HUD Implementation Session – February 2009
                 •   HUD Implementation Session/Conference Call – February 2009
                 •   HUD NSP Implementation Session – July 2009

              Additionally, HUD has provided CCDPD a bridge notice to the NSP NOFA which
              provides further clarification as to the Neighborhood Stabilization Program
              regulations. HUD has also provided technical assistance via telephone and
              through its website.

              CCDPD, as part of its response to the audit request for information, provided
              HUD OIG with a binder which contains all of the training materials and guidance
              provide to CCDPD by HUD. CCDPD has combined all of the information,
              including HUD’s program modifications and updates in an effort to create policies
              and procedures for the operation of CCDPD’s Neighborhood Stabilization
              Program.

                                             1A-P7: Program Income

              CCDPD original draft of its HOME Manual references program income, however,
              CCDPD has updated to include additional program income language to Chapter
              2 of the HOME Manual.

                        HOME PROGRAM ALLOCATION AND GENERAL USE OF FUNDS


                                 2 (a).      Level of Funding
                        CCDPD Home Investment Partnerships Program (HOME) anticipates receiving an
                        allocation of $5,599,793 for Program Year 2008 for use in eligible activities. CCDPD
                        HOME has also received an allocation of $44,853 for the American Dream Down
                        Payment Initiative (ADDI).

                        The CCDPD has been designated by the Cook County Board of Commissioners as
                        the lead agency and administrator of the Cook County HOME Program. The Cook
                        County Board of Commissioners has allocated $925,000 in corporate funds for
                        eligible activities pursuant to the federal regulations governing local matching funds
                        requirements. Additionally, the HOME Program generates approximately $
                        1,700,523 in program income from loan repayments and payoffs. CCDPD is allowed
                        to utilize up to 10% of the Entitlement Grant and Program Income ** towards
                        Administrative Costs. (see Department of Planning and Development’s Finance staff
                        for further detail regarding special rules governing Program Income- which must be
                        spent prior to expending Home Entitlement Funds, and rules governing
                        Administrative Costs).




                                                 17
Ref to OIG Evaluation                         Auditee Comments


                        Funding Sources                        Estimated Amount
                        HOME Entitlement Grant                 $5,599,793
                        Corporate                                 925,000

                        Program Income                          1,700,523
                        ADDI                                       44,853
                        Total Funding                          $8,270,129




                        ** Program Income


                        It is important to ensure that HOME Program Income is utilized first for eligible
                        activities, before drawing down HOME Program funds from Cook County’s treasury
                        account.

                        To ensure that this is accomplished, the HOME Program has eliminated the practice
                        of reserving program income funds for larger multifamily developments and has
Comment 8               returned to the practice of allocating program income funds to eligible activities at the
                        County Board of Commissioners ‘ recommendation phase for project awards.
                        Generally the activities that are awarded and funded come under the Single Family
                        Rehabilitation Program. The HOME Program staff working in tandem with the
                        assigned accountant identifies projects for which program income funds will be
                        utilized. A sub-award database is created in CCDPD’s database systems and
                        activities are deducted as they become due. Simultaneously, projects are submitted
                        utilizing the HOME Program’s set-up forms. Once they are received, the
                        administrative staff begins setting up the available activities, utilizing program income
                        as the source of funding.

                          Note: Program Income

                        A grantee must approve (a) whether a Subrecipient will be allowed to retain and use
                        program income, and (b) for what activities the program income may be used. The
                        use of such program income must be in compliance with all other applicable
                        program requirements and, upon the expiration of the Subrecipient Agreement, any
                        program income on hand or subsequently received by the Subrecipient must be
                        returned to the grantee.


                        1. The Subrecipient agrees that any proceeds from the use of HOME funds or from
                            the disposition of property acquired with HOME funds constitutes Program
                            Income. The Subrecipient further agrees to adhere to the provisions of this
                            Section 2. which defines Program Income.

                        2. The County is responsible to HUD for all income generated from the use of HOME
                            funds. Program income must be returned to the County upon its receipt by the
                            Subrecipient. The County will reissue the funds as needed for pre-approved,




                                                 18
Ref to OIG Evaluation                          Auditee Comments

                        eligible activities. The Subrecipient agrees to abide by the procedures outlined
                        below:

                        a. Definition: "Program Income" - gross income received by a Subrecipient and
                           directly generated from the use of HOME funds. Program income includes,
                           but is not limited to, the following:

                            i.   Repayment of loans for rehabilitation of private property, including
                                 installment loans or deferred payment forgivable loans.

                            ii. Proceeds from residential rehabilitation junior mortgages when title
                                transfers.

                            iii. Interest on loans made with HOME funds.

                            iv. Proceeds from the sale of property acquired or improved with HOME
                                funds pursuant the requirements set out in the Agreement.

                            v. Collection of liens, e.g., demolition costs funded with HOME funds,
                                including:

                                 1. Proceeds from the sale of property acquired through Quit Claim
                                    Deed voluntarily submitted by owner in lieu of demolition lien;
                                 2. Proceeds from the sale of property acquired at a Sheriffs Auction, as
                                    a Sheriffs Deed, upon foreclosure of a demolition lien;
                                 3. Cash payment by owner for the amount of the
                                    lien plus interest on the lien, if any;
                                 4. Mortgages collected as the result of the sale of property to a
                                    third party.

                            vi. Proceeds from the sale of HUD homes purchased and/or rehabilitated
                                 with HOME funds.

                            vii. Rental income realized from occupants of acquired property.

                            viii. Repayment proceeds from HOME loans.

                            ix. Proceeds from mortgage foreclosure and judgments on notes

                            NOTE: Since HOME funds cannot be deposited in interest-bearing
                            investment instruments or accounts, no program income can be realized
                            from such interest; however, in the event that such funds are deposited in an
                            interest bearing account. any funds derived therefrom shall be tendered to
                            CCDPD and shall be utilized to undertake additional HOME activities as
                            specified herein.

                        b. Program income from County-approved Revolving Funds for
                           Rehabilitation projects:

                            Record Keeping Requirements

                            i.   Program income must be accounted for separately
                                 from the




                                                   19
Ref to OIG Evaluation                      Auditee Comments


                                 grant amount from which it was generated. It shall
                                 not be added to the original amount.

                             ii. In all instances of the generation or return of
                                  program income/revolving loan funds, quarterly
                                  financial reports must be made to the County's
                                  Community Development Staff Accountant.

                             iii. A separate bank account should be used for
                                  program income.

                             iv. Program Income must be used first, before grant
                                  funds are drawndown from the County.

                        c.   Program Income may be used only for eligible activities. Eligible
                             activities are limited to those listed in the Handbook of Eligible
                             Activities and must be undertaken in accordance with all rules and
                             regulations governing the use of HOME funds.

                        b. Program Income should be made payable to:

                                     "COOK COUNTY TREASURER"
                                     and mailed to:
                                     Cook County Department of
                                     Planning and Development County
                                     Building - Room 824
                                     118 North Clark Street
                                     Chicago, Illinois 60602




                                              20
                           OIG’s Evaluation of Auditee Comments

Comment 1   We revised this memorandum to state the following:

            •   As of September 9, 2009, the County had not established sufficient policies
                and procedures for its Neighborhood Stabilization Program.

            •   On September 9, 2009, the County provided a revised financial grant
                management procedures manual (financial manual), dated September 2009.
                The financial manual included the sections mentioned above that were
                missing in the draft financial manual. However, the sections were incomplete.
                Appendix A.7 identified the following items for reconciliation: postage, petty
                cash, program income, project expenditures, draw down revenue, and HUD’s
                Integrated Disbursement and Information System and Disaster Recovery
                Grant Reporting system. It also stated that procedures for several of the items
                were contained throughout the financial manual. However, the financial
                manual only contained policies and procedures for the reconciliation of
                program income. In addition, the policies and procedures only referred to
                reconciling data with HUD’s Integrated Disbursement and Information
                System. Neighborhood Stabilization Program data is contained in HUD’s
                Disaster Recovery Grant Reporting system. The section covering allocation
                of administrative expenses stated administrative expenses that cannot be
                directly associated with one or more of the County’s grants will be allocated
                to all of the grants based on the percentage of time the County’s employees
                work on each grant. However, allocating costs based on employees’ time is
                not appropriate for all administrative expenses.

            •   The County’s policies and procedures for its Neighborhood Stabilization
                Program, if implemented, should address most of the issues we identified with
                the County’s HOME program that could impact the Neighborhood
                Stabilization Program.

            •   The policies and procedures for the County’s Neighborhood Stabilization
                Program income and administrative costs in its manuals did not address these
                issues identified for HOME program income and administrative costs to
                ensure that Neighborhood Stabilization Program funds are used appropriately.

Comment 2   The County’s commitment to assess its policies, procedures, and controls and
            revise its financial manual as appropriate, if fully implemented, should improve
            its capacity to effectively and efficiently administer its Neighborhood
            Stabilization Program.

Comment 3   The County's commitment to implement its revised staffing plan and budget for
            planning and administrative costs provided on August 5, 2009, and provide its
            new employees training on the Neighborhood Stabilization Program, if fully


                                            21
            implemented, should improve its capacity to effectively and efficiently administer
            its Neighborhood Stabilization Program.

Comment 4   The County’s commitment to update its draft Block Grant manual and policies
            and procedures manual for its single family rehabilitation program as appropriate,
            if fully implemented, should improve its capacity to effectively and efficiently
            administer its Neighborhood Stabilization Program.

Comment 5   The County did not provide its draft Block Grant manual to support that it
            included a departmental organizational chart and flow chart of its Neighborhood
            Stabilization Program design in the draft Block Grant manual. The County’s
            commitment to update its draft Block Grant manual as appropriate, if fully
            implemented, should improve its capacity to effectively and efficiently administer
            its Neighborhood Stabilization Program. We do not have the authority to provide
            the County a model of what a complete and accurate model. The County should
            make its request to HUD’s Chicago Office of Community Planning and
            Development.

Comment 6   The County’s commitment to update its draft Block Grant manual regarding
            performance reporting once it contracts with a computer service agency, if fully
            implemented, should improve its capacity to effectively and efficiently administer
            its Neighborhood Stabilization Program.

Comment 7   The County did not provide its draft Block Grant manual to support that it
            included policies and procedures for the civil rights and fair housing section in the
            draft Block Grant manual.

Comment 8   HUD’s regulations at 24 CFR 92.502(c)(3) state that a participating jurisdiction
            must disburse HOME program funds, including HOME program income, in its
            HOME investment trust fund local account (local account) before requesting
            HOME program funds from its HOME investment trust fund treasury account
            (treasury account). Allocating HOME program funds for eligible activities at the
            board’s recommendation for activity awards could lead to the County drawing
            down and disbursing HOME program funds from its treasury account before
            disbursing HOME program income from its local account.




                                             22