Issue Date
September 17, 2009
Audit Report Number
2009-DE-1005
TO: LeRoy Brown, Director, Denver Office of Community Planning and
Development, 8AD
//signed//
FROM: Ronald J. Hosking, Regional Inspector General for Audit, 8AGA
SUBJECT: Adams County, Colorado, Did Not Have Adequate Controls over Its Block
Grant Funds
HIGHLIGHTS
What We Audited and Why
We audited Adams County’s Community Development Block Grant (Block
Grant) program due to weaknesses in internal controls found during our review of
Adams County’s HOME Investment Partnerships Program. We reported these
weaknesses in our audit report 2009-DE-1001, issued February 11, 2009.
The objective of the audit was to determine whether Adams County’s Community
and Economic Opportunity Department (Department) had adequate controls over
the administration of its Block Grant funds.
What We Found
The Department did not have adequate controls over its Block Grant funds.
Specifically, it did not (1) have written policies and procedures for the
administration of its Block Grant funds, (2) monitor the use of its Block Grant
funds, (3) maintain documentation showing that its activities met national
objectives, (4) compare disbursement requests to existing contracts to ensure that
Block Grant funds were spent in accordance with the contract, and (5) have a
process in place to eliminate known conflicts of interest.
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As a result, Adams County spent more than $1.2 million on ineligible Block
Grant activities, awarded $307,912 in Block Grant funds without amending its
written agreements with the subrecipients, and did not ensure that more than $1.6
million in Block Grant activities met a national objective.
What We Recommend
We recommend that the U.S. Department of Housing and Urban Development
(HUD) ensure that Adams County reimburses its Block Grant funds from
nonfederal funds for any ineligible Block Grant expenditures, provides supporting
documentation showing that the Block Grant funds met a national objective,
implements an acceptable internal control structure by preparing and
implementing effective policies and procedures, and receives technical assistance
from HUD to ensure compliance.
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 Adams County on August,
26, 2009, and requested its comments by September 10, 2009. Adams County
provided its written response on September 9, 2009. It concurred with the
findings and recommendations.
The complete text of Adams County’s response can be found in appendix B of
this report.
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TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding: The Department Did Not Have Adequate Controls over Its Block Grant 5
Funds
Scope and Methodology 10
Internal Controls 11
Appendixes
A. Schedule of Questioned Costs 12
B. Auditee Comments 13
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BACKGROUND AND OBJECTIVE
Title I of the Housing and Community Development Act of 1974 established the Community
Development Block Grant (Block Grant) program. Adams County and the U.S. Department of
Housing and Urban Development (HUD) signed a funding approval/agreement each year that
established the funding and terms for the Block Grant program. HUD awarded more than $4
million in Block Grant funds to Adams County for the 2007 and 2008 grant years combined.
Grant year Grant amount
2007 $ 2,066,399
2008 $ 2,013,040
Total $ 4,079,439
Adams County participates in the Block Grant program as an “urban county” under 24 CFR
[Code of Federal Regulations] 570.307. As an urban county, Adams County entered into
intergovernmental agreements to administer the Block Grant funds for the following cities and
towns within its jurisdiction (urban entities): the Cities of Brighton, Commerce City, Federal
Heights, Northglenn, and Thornton and the Towns of Bennett and Watkins.
HUD regulations require that all Block Grant activities 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 certain community development needs having a particular urgency.
Adams County’s Block Grant program was administered by its Community and Economic
Opportunity Department (Department). The Department’s offices are located in Westminster,
Colorado, and Adams County’s main offices are located in Brighton, Colorado.
The objective of our review was to determine whether the Department had adequate controls
over the administration of its Block Grant funds.
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RESULTS OF AUDIT
Finding: The Department Did Not Have Adequate Controls over Its
Block Grant Funds
The Department did not have adequate controls over its Block Grant funds. This condition
occurred because Adams County did not provide adequate oversight of the Department. As a
result, Adams County spent more than $1.2 million on ineligible Block Grant activities, awarded
$307,912 in Block Grant funds without amending its written agreements with the subrecipients,
and did not ensure that more than $1.6 million in Block Grant activities met a national objective.
The Department Lacked
Internal Controls
The Department did not have adequate controls over its Block Grant funds.
Specifically, it did not
¾ Have written policies and procedures for the administration of its Block
Grant funds,
¾ Monitor the use of its Block Grant funds,
¾ Maintain documentation showing that its activities met national
objectives,
¾ Compare disbursement requests to existing contracts to ensure that Block
Grant funds were spent in accordance with the contract, and
¾ Have a process in place to eliminate known conflicts of interest.
The Department Had No
Written Policies and
Procedures
The Department did not have written policies and procedures for the
administration of its Block Grant funds. It provided a policies and procedures
manual for its administration of Block Grant funds at our entrance conference;
however, the manual was produced the week before the entrance conference and
did not exist during our audit period. Department staff had no other written
policies or procedures to aid them with their administration of Block Grant funds.
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The Department Did Not
Monitor Recipients
The Department did not adequately monitor the use of its Block Grant funds.
According to 24 CFR 570.501(b), a grantee is responsible for ensuring that Block
Grant funds are used in accordance with all program requirements. The use of
designated public agencies, subrecipients, or contractors does not relieve the
Department of this responsibility. The Department could not provide evidence
showing that it monitored the use of Block Grant funds for 46 of the 64 files (72
percent) reviewed.
The Department Did Not
Maintain Sufficient
Documentation
The Department did not maintain documentation showing that its activities met
national objectives. Regulations at 24 CFR 570.506(b) require grantees to
maintain records demonstrating that each activity undertaken meets one of the
national objectives. Adams County was not able to provide supporting
documentation for 24 of the 64 files (38 percent) reviewed to show that the Block
Grant activities met one of the required national objectives.
The Department Spent Funds
without Amending Contracts
The Department did not compare disbursement requests to existing contracts to
ensure that Block Grant funds were spent in accordance with the contract.
Regulations at 24 CFR 570.503 require a grantee to sign an agreement with the
subrecipient before disbursing funds to the subrecipient. In 10 of the 64 (15
percent) files reviewed, the Department either provided additional Block Grant
funds to subrecipients without amending the existing written agreements or
allowed Block Grant funds to be used for activities other than those approved in
the written agreement.
The Department Did Not
Eliminate Conflicts of Interest
The Department did not have a process in place to eliminate known conflicts of
interest. Block Grant regulations at 24 CFR 570.611 establish the Block Grant
conflict-of-interest provisions. Adams County awarded $76,790 in Block Grant
funds to a subrecipient, the executive director of which was the spouse of Adams
County’s Block Grant program manager. Adams County knew the conflict
existed; however, it did not have controls in place to ensure that the program
manager was removed from responsibility for the grant. We found documentation
in the project file and in the subrecipient’s files showing that the program
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manager was involved in the administration of the grant. In addition, an elected
official for one of Adams County’s urban entities was a paid contactor for the
same subrecipient. The elected official also served on Adams County’s Housing
Task Force and Community Development Advisory Board.
Adams County Did Not Provide
Adequate Oversight
Adams County did not provide adequate oversight of the Department.
Specifically, Adams County relied solely on the Department to ensure compliance
with all applicable federal regulations. It provided no oversight of the
Department to ensure that it had written policies and procedures or adequate
controls in place regarding the administration and disbursement of Block Grant
funds.
Intended Program Benefits
Might Not Be Realized
Adams County spent more than $1.2 million on ineligible Block Grant activities,
awarded $307,912 in Block Grant funds without amending its written agreements
with the subrecipients, and did not ensure that more than $1.6 million in Block
Grant activities met a national objective. Also, the Block Grant funds spent on
ineligible activities were not available to benefit low- and moderate-income
individuals.
Adams County spent more than $1.2 million on ineligible Block Grant activities.
Of the $1.2 million, $76,790 was awarded to a subrecipient while conflicts of
interest existed. In addition, Adams County spent nearly $1.18 million in Block
Grant funds to build a cedar fence along a four-lane arterial road. However, the
boundaries of the area served were not clearly defined, and the income survey
used by the urban entity only took into account the homes that directly abutted the
arterial road. The income survey did not take into account the individuals who
used the arterial road as commuters. Therefore, the nearly $1.18 million in Block
Grant funds spent on the fencing project was ineligible.
Adams County also awarded $307,912 in Block Grant funds without amending its
written agreements with the subrecipients. The $307,912 provided to
subrecipients or urban entities without amendments to the contracts were
ineligible Block Grant disbursements.
In addition, Adams County could not support that more than $1.6 million in Block
Grant funds was used to meet a national objective.
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Conclusion
The Department did not have adequate controls over its Block Grant funds. This
condition occurred because Adams County did not provide adequate oversight of
the Department. Consequently, it needs to reimburse its Block Grant funds for
any ineligible Block Grant activities and provide supporting documentation to
HUD showing that the Block Grant funds met a national objective. In addition, it
should prepare and implement effective written policies and procedures to ensure
that it administers its Block Grant program in compliance with HUD regulations.
Recommendations
We recommend that the Director of the HUD Denver Office of Community
Planning and Development
1A. Ensure that Adams County reimburses its Block Grant fund from nonfederal
funds for the $1,178,032 in ineligible Block Grant expenditures related to the
fencing project.
1B. Ensure that Adams County reimburses its Block Grant fund from nonfederal
funds for any portion of the $307,912 in Block Grant funds already spent that
it awarded without entering into a written agreement with the subrecipient.
1C. Ensure that Adams County deobligates or puts under contract any portion of
the $307,912 in Block Grant funds not spent that it awarded without entering
into a written agreement with the subrecipient.
1D. Ensure that Adams County reimburses its Block Grant fund from nonfederal
funds for any portion of the $76,790 in Block Grant funds already spent that it
awarded to the subrecipient while conflicts of interest existed.
1E. Ensure that Adams County deobligates any portion of the $76,790 in Block
Grant funds not spent that it awarded to the subrecipient while conflicts of
interest existed.
1F. Require Adams County to provide supporting documentation for the
$1,605,407 in unsupported Block Grant funds, showing that the funds were
used to meet a national objective.
1G. Ensure that Adams County reimburses its Block Grant fund from nonfederal
funds for any portion of the $1,605,407 that it cannot support as meeting a
national objective.
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1H. Ensure that Adams County management and staff fully implement an
acceptable internal control structure by preparing and implementing effective
written policies and procedures for the administration of the Block Grant
program in compliance with Block Grant regulations.
1I. Provide technical assistance to Adams County to ensure that its management
and staff comply with Block Grant regulations.
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SCOPE AND METHODOLOGY
Our review covered the period January 1, 2007, to December 31, 2008. We expanded the period as
needed to evaluate historical and current information pertinent to our review. Our review was
limited to Block Grant program activities.
To achieve our objective, we reviewed HUD and Adams County criteria and contracts, met with
HUD and Adams County staff, and reviewed HUD and Adams County records.
We used Adams County Block Grant activity reports obtained from HUD’s Integrated
Disbursement and Information System to determine that Adams County spent funds on 64 Block
Grant activities administered by subrecipients during our review period. We did not rely on this
list for our conclusions. All conclusions were based on source documentation reviewed during
the audit. We did not use computer-generated data as evidence to support our audit conclusions.
We reviewed 100 percent of the Block Grant activity funds provided to and administered by
subrecipients.
For the 64 Block Grant activities administered by subrecipients, we reviewed each project file
for pertinent documentation such as contract applications, contract agreements, contract
approval, Block Grant fund drawdowns, Block Grant project monitoring performed by Adams
County, and project closeout.
We performed our audit work on site at Adams County’s Westminster office located at 12200
Pecos Street, Westminster, Colorado, and at Adams County’s Brighton office located at 450
South 4th Avenue, Brighton, Colorado, from February to June 2009. We briefed Adams County
management on the results of the review on March 11, May 21, and July 1, 2009. We also
briefed HUD’s Denver Office of Community Planning and Development management on May
11 and June 15, 2009.
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.
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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 Adams County’s overall internal controls over its administration
of Block Grant funds were relevant to our audit objectives, particularly with regard
to
• Controls over awarding Block Grant funds.
• Controls over monitoring the use of Block Grant funds.
• Controls over disbursing Block Grant funds.
• Controls over eliminating conflicts of interest.
• Controls over identifying compliance with Block Grant national objective
requirements.
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 Weakness
Based on our review, we believe that the following item is a significant weakness:
• Adams County did not provide adequate oversight of staff responsible for
administering Block Grant funds to ensure that staff managed the funds in
accordance with HUD requirements (finding).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation
number Ineligible 1/ Unsupported 2/
1A $1,178,032
1B $307,912
1D $76,790
1F $1,605,407
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
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Appendix B
AUDITEE COMMENTS
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Adams County, Colorado, Did Not Have Adequate Controls over Its Block Grant Funds
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)