oversight

The City of Thornton, Colorado, Did Not Sufficiently Document That Its Community Development Block Grant Projects Met a National Objective

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-14.

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

                                                                                Issue Date
                                                                           August 14, 2009
                                                                           Audit Report Number
                                                                            2009-DE-1004




TO:        LeRoy Brown, Director, Office of Community Planning and Development, 8AD

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 8AGA

SUBJECT: The City of Thornton, Colorado, Did Not Sufficiently Document That Its
           Community Development Block Grant Projects Met a National Objective


                                     HIGHLIGHTS

   What We Audited and Why

             We audited the City of Thornton (City) to determine whether it used its
             Community Development Block Grant (CDBG) funds for projects that met a
             national objective. We audited the City because it receives its CDBG funding
             from Adams County, Colorado, and our recent audit of Adams County identified
             significant deficiencies that could have also been present in the City.

        What We Found


             The City did not maintain sufficient records demonstrating that each CDBG
             activity met a national objective. Of the 10 CDBG projects reviewed, the City
             sufficiently documented that five of the projects met a national objective.
             However, for four projects that the City certified met the national objective based
             on area benefit, it did not identify the specific area to be benefited by the activity,
             it did not document that at least 51 percent of the residents in the area were low-
             and moderate-income persons, and it did not document that the area was primarily
             residential. For the remaining project, it did not certify what national objective the
             project would meet and did not document that a national objective was ultimately
             met.
What We Recommend
      We recommend that HUD require the City to provide documentation supporting
      that the five CDBG projects met a national objective. We also recommend that
      HUD require the City to establish and implement effective policies and
      procedures to ensure that it maintains adequate documentation to support
      compliance with the CDBG national objective requirements.

      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 the discussion draft of the audit report to the City on July 30, 2009,
      and requested its comments by August 13, 2009. The City provided its written
      response on August 10, 2009. The City generally concurred with the finding and
      recommendations.

      The complete text of the auditee’s response, along with our evaluation of that
      response, can be found in the appendix of this report.




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                           TABLE OF CONTENTS

Background and Objective                                                           4

Results of Audit
      Finding: The City Did Not Maintain Sufficient Records Documenting That Its   5
                   CDBG Projects Met National Objectives

Scope and Methodology                                                              7

Internal Controls                                                                  8

Appendix                                                                           9
      Auditee Comments and OIG’s Evaluation




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                       BACKGROUND AND OBJECTIVE

The purpose of the Community Development Block Grant (CDBG) program is to provide
assistance to grantees to ensure decent affordable housing, to provide community services, and to
create jobs through expansion and retention of businesses. All CDBG activities must meet one of
the following national objectives:

   1) Benefit low- and moderate-income persons,
   2) Aid in the prevention or elimination of slums and blight, or
   3) Meet community development needs having a particular urgency.

In 2007 and 2008 the U.S. Department of Housing and Urban Development (HUD) allocated
more than $3.7 billion and more than $3.5 billion, respectively, in CDBG funds nationwide.
Approximately 5 percent of the CDBG funding was allocated to Colorado grantees, more than $2
million of which was allocated annually to Adams County. Through participation in the Adams
County Urban County Consortium, the City of Thornton (City) receives an annual allocation of
CDBG funding from Adams County. Since 2004, Adams County has allocated approximately
30 percent of its CDBG funds to the City. Between January 1, 2007, and March 31, 2009, the
City expended more than $1.4 million in CDBG funds.

The objective of the audit was to determine whether the City used its CDBG funds for projects
that met national objectives.




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                                 RESULTS OF AUDIT

Finding : The City Did Not Maintain Sufficient Records Documenting
            That Its CDBG Projects Met National Objectives
The City did not maintain sufficient records demonstrating that each CDBG activity met a
national objective. This condition occurred because the City did not develop written policies and
procedures to ensure that each project met a national objective. As a result, the City did not have
assurance that its CDBG projects benefited the intended low- and moderate-income persons.


 The City Did Not Maintain
 Records

               The City did not maintain sufficient records demonstrating that each CDBG
               activity met a national objective. Of the 10 CDBG projects reviewed, the City
               sufficiently documented that five of the projects met a national objective.
               However, for four projects that the City certified met the national objective based
               on area benefit, it did not identify the specific area to be benefited by the activity,
               it did not document that at least 51 percent of the residents in the area were low-
               and moderate-income persons, and it did not document that the area was primarily
               residential. These four CDBG projects were

                              Project name                    Year     Expended amount
                Accessibility Improvements                    2006         $160,840
                                                              2007         $143,534
                                                              2008         $169,422
                Bus Stop Improvements                         2007          $7,856
                Streetscape Improvements                      2008         $61,288
                Neighborhood Association Development          2008          $32,479

               Additionally, the City did not certify what national objective one of the projects
               would meet and did not document that a national objective was met. This project
               was the 2006 Foreclosure Prevention project, which expended $4,070 in CDBG
               funds.

               The requirements for determining whether a CDBG project complies with a
               national objective and the documentation required are stated in 24 CFR (Code of
               Federal Regulations) 570.208 and 570.506. The grant recipient is required to
               document the area that is benefited, the income characteristics of the families in
               the service area, and that the area is primarily residential when the project is to
               benefit an area with at least 51 percent low- and moderate-income residents.




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           The intergovernmental agreement and the activity agreements between Adams
           County and the City require the City to maintain documentation in accordance
           with applicable federal laws and regulations and that supports compliance with a
           national objective.

The City Had No Written
Policies and Procedures

           The City did not develop written policies and procedures to ensure that each
           project met a national objective. Instead of developing its own policies and
           procedures, the City relied on Adams County to provide accurate guidance
           regarding its CDBG projects.

           During our audit, the City attempted to provide adequate documentation and had
           begun working with HUD to sufficiently document that a national objective was
           met.

The City Lacked Assurance


           The City did not have assurance that its CDBG projects benefited the intended
           low- and moderate-income persons. By not documenting the potential benefit
           before the start of the projects, the City could have expended $579,489 in CDBG
           funds to perform projects that did not meet a national objective or benefit low-
           and moderate-income persons.

Recommendations

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

           1A. Require the City to provide documentation supporting that the five CDBG
               projects met a national objective.

           1B. Require the City to establish and implement effective policies and
               procedures to ensure that it maintains adequate documentation to support
               compliance with the CDBG national objective requirements.




                                            6
                         SCOPE AND METHODOLOGY

Our audit period was April 1, 2007, to March 31, 2009. We expanded our scope as necessary to
evaluate all pertinent information. Between January 1, 2007, and March 31, 2009, the City had 10
CDBG projects with expenditures totaling more than $1.4 million. We reviewed the City’s
financial services division, contract and purchasing division, and neighborhood services division
records for all 10 of these CDBG projects.

To accomplish our objectives, we

    •   Reviewed HUD regulations and reference materials related to CDBG requirements.
    •   Reviewed the City’s accounting and contracting policies and procedures.
    •   Reviewed the intergovernmental agreement between Adams County and the City.
    •   Reviewed each CDBG project’s CDBG award letter/activity agreement between Adams
        County and the City.
    •   Interviewed the City’s staff to obtain information regarding its policies and procedures.
    •   Met with Denver HUD Office of Community Planning and Development staff.

We used data provided by the City to obtain a list of the CDBG-funded projects and the amount
of expenditures for our audit period. We did not rely on this list for any of our conclusions. All
conclusions were based on source documentation reviewed during the audit. We did not use
computer-generated data as audit evidence to support our audit conclusions.

We performed our on-site audit work from May through June 2009 at the City’s offices at 9500
Civic Center Drive, Thornton, Colorado.

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




                                                 7
                              INTERNAL CONTROLS

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

   •   Program operations,
   •   Relevance and reliability of information,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding of assets and resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



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

              •       Management’s controls for ensuring that CDBG funds were used to meet a
                      national objective.
              •       Management’s controls for ensuring that expenditures were for eligible
                      purposes and properly supported.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.

 Significant Weaknesses


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

              •       The City did not have adequate policies and procedures to ensure it
                      documented that its CDBG projects met a national objective.




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                        APPENDIX

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation     Auditee Comments




                         Comment 1

Comment 1




                             9
Comment 2




                         OIG Evaluation of Auditee Comments




                         OIG Evaluation of Auditee Comments

Comment 1   Even though Adams County provided incomplete, inaccurate, and/or deficient
            guidance, the City still had the responsibility to document the national objective
            and should have had its own policies and procedures.

Comment 2   We agree that the City has already begun working with HUD to ensure that their
            CDBG program meets HUD documentation requirements in the future.




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