oversight

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)

                                                                  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.
                                              1
           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




                                          3
                      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.




                                                4
                                 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.




                                                5
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
                                             6
           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.




                                            7
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.



                                              8
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.




                                 9
                        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.




                                               10
                              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).


                                               11
                                   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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