oversight

HUD's Disaster Recovery Grant Reporting System Can Collect the Basic Information Needed to Monitor the Neighborhood Stabilization Program (Amended Report)

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-06-25.

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

                                                                         Issue Date
                                                                           June 25, 2009
                                                                         Audit Report Number
                                                                           2009-FW-0001 (Amended)1




TO:             Nelson Bregón
                General Deputy Assistant Secretary for Community Planning and Development, D

                //signed//
FROM:           Gerald R. Kirkland
                Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: HUD’s Disaster Recovery Grant Reporting System Can Collect the Basic
         Information Needed to Monitor the Neighborhood Stabilization Program


                                           HIGHLIGHTS

    What We Audited and Why

                 As part of the our plan to review the Neighborhood Stabilization Program
                 (program), we reviewed whether the U. S. Department of Housing and Urban
                 Development’s (HUD) Disaster Recovery Grant Reporting system (DRGR) can
                 collect program data at the level of detail necessary to adequately monitor the
                 program. We limited the review to the program established by the Housing and
                 Economic Recovery Act of 2008 (HERA). However, HUD will also use DRGR
                 to administer the program’s expansion pursuant to the American Recovery and
                 Reinvestment Act of 2009 (ARRA).

    What We Found


                 As designed, DRGR can collect the basic information that HUD needs to monitor
                 the program. HUD was in the process of developing monitoring guidance for
                 field staff that separately addresses on-site monitoring and review of grantees’
                 DRGR action plans and quarterly performance reports. HUD needs to ensure its
1
     We amended this report to clarify that HUD will use DRGR to administer the expanded program and its
     additional funding pursuant to ARRA.
           monitoring guidance includes critically reviewing grantee reports to identify
           potential noncompliance issues, including unreported program income.

           HUD has an opportunity to do more with data collection and analysis, particularly
           with the transparency and reporting requirements attached to additional program
           funds provided under ARRA. However, HUD should not substitute data
           collection for aggressive monitoring.

What We Recommend


           We recommend that the General Deputy Assistant Secretary for Community
           Planning and Development (1) continue to develop and implement detailed on-
           site monitoring guidance that incorporates information in DRGR, (2) continue to
           develop and implement detailed guidance requiring field staff to aggressively
           review grantee quarterly performance reports and drawdown vouchers, (3) require
           grantees to include the addresses of properties assisted under the program in
           quarterly performance reports, and (4) consider adding data fields to DRGR that
           require grantees to report compliance-related information.

           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 issued a draft report to HUD on May 27, 2009, and held an exit conference on
           June 8, 2009. HUD generally agreed with the content of the report and the
           recommendations and declined to provide written comments on the draft report.




                                            2
                          TABLE OF CONTENTS

Background and Objective                                                    4

Results of Audit
      Finding: The DRGR System Can Collect the Basic Information That HUD   6
               Needs to Monitor the Program

Scope and Methodology                                                       11

Internal Controls                                                           12




                                         3
                          BACKGROUND AND OBJECTIVES

The Housing and Economic Recovery Act of 2008 (HERA) appropriated $3.92 billion in fiscal year
2008 funding for emergency assistance for the redevelopment of abandoned and foreclosed homes.2
The purpose of the program was to provide assistance to states and units of general local
government for the redevelopment of abandoned and foreclosed-upon homes and residential
properties.

Grant recipients were required to target areas with the greatest need by engaging in one or more of
the following eligible uses: (1) financing mechanisms for purchase and redevelopment of
foreclosed-upon homes, (2) purchase and rehabilitation of homes and residential properties that
have been abandoned or foreclosed upon, (3) establishment of land banks for homes that have been
foreclosed upon, (4) demolition of blighted structures, and (5) redevelopment of demolished or
vacant properties. Recipients were required to obligate the funds within 18 months after receipt and
use them within four years.

All funds must benefit families whose incomes do not exceed 120 percent of area median income.
Further, not less than 25 percent of the funds are to be used for the purchase and redevelopment of
homes that will be used to house families whose incomes do not exceed 50 percent of area median
income. The U.S. Department of Housing and Urban Development (HUD) must ensure the
properties remain affordable to families earning less than 120 percent of area median income for the
longest feasible term.

HUD issued a Federal Register notice on October 6, 2008,3 in which it advised the public of its
allocation formula and amounts, the list of grantees, alternative requirements, and the waivers of
regulations it granted related to the program. It referred to the program as the Neighborhood
Stabilization Program (program). In the notice, HUD established the basic program rules and
required grantees to submit action plan substantial amendments to apply for and receive the funds.
Each grantee was required to complete and submit the substantial amendment by December 1,
2008. Grantees could submit the amendments to HUD on paper or electronically using the Disaster
Recovery Grant Reporting system (DRGR). Grantees that chose to submit their amendments on
paper were required to set up their action plans in DRGR before the deadline for the first required
performance report after receiving a grant.

HUD stated it used DRGR for the program because no other existing application and reporting
system was sufficiently flexible to deal with the alternative requirements. The emergency nature of
this legislation and corresponding statutory timeframes did not give HUD sufficient time to develop
a new system or modify an existing system to perfectly fit the program.




2
    Public Law 110-289, Division B, Title III.
3
    Docket No. FR–5255–N–01.


                                                 4
The American Recovery and Reinvestment Act of 2009 (ARRA) revised some of the program
rules and appropriated an additional $2 billion for the program, to be competitively awarded.4
HUD plans to use DRGR to administer the program’s expansion pursuant to ARRA.

Our audit objective was to determine whether the DRGR system collects program data at the
level of detail necessary for HUD staff to effectively monitor program funds, grantee activities
and assets, program income, and program outcomes. The audit addressed the system’s capability
to administer the program established under HERA.




4
    Public Law 111-005

                                                5
                                RESULTS OF AUDIT

Finding: The DRGR System Can Collect the Basic Information That
         HUD Needs to Monitor the Program
Coupled with detailed guidance and vigorous monitoring, DRGR can collect sufficient
information to enable HUD to effectively monitor the program. However, because of the
legislative requirement to quickly implement the program, HUD has not developed final
guidance requiring staff to use the information in the system to monitor the program. HUD
needs to establish and implement guidance that will allow it to use the data in DRGR to augment
its monitoring activities.



 HUD Can Use DRGR to
 Control Program Funds and
 Monitor Grantee Activities

              Although DRGR was designed to accommodate disaster recovery grants, HUD
              considered it flexible enough to use for the program grants. According to staff,
              HUD designed the program rules specifically so that the program would work in
              DRGR. HUD revised DRGR to include program-specific national objectives and
              activities.

              HUD entered the grant information into DRGR and required grantees to set up
              their action plans in the system. Once HUD approves the action plan, it will
              unlock the grants to allow grantees to submit draw down requests or create
              quarterly performance reports.

              The action plans contain descriptions of grantee recovery needs and plans.
              Grantees organized their action plans by eligible activity, including budgets and
              performance measures for each activity. HUD closely reviewed grantee action
              plans to ensure they were properly organized by activity and assisted grantees
              with the process when necessary. Once HUD approves the action plan in DRGR,
              the action plan establishes the basis for grantee drawdown requests and quarterly
              performance reports. Figure 1 depicts this process.




                                               6
                 Figure 1: Grant setup process


                     HUD sets up                      Grantee enters                    HUD unblocks
                    grant in DRGR                      action plan                         grant

                                                               HUD reviews                   Grantee may enter
                              Grantee
                                                              action plan and                   drawdown
                            information
                                                            approves or rejects                  requests


                                                               If rejected,
                                                                                             Grantee may enter
                                                               returned to
                           Grant amount                                                        performance
                                                               grantee for
                                                                                                  report
                                                                 revision


                                                            Approved plan
                             Drawdown                      establishes basis
                              accounts                   for drawdowns and
                                                               reports


                 Grantee quarterly performance reports will include the activities and budget
                 information from the grantee’s approved action plan and expenditures reflected in
                 the drawdown module. Performance reports also include space for grantees to
                 provide narratives and report on activity performance measures.

                 Grantees report program income5 in performance reports and expense it in the
                 drawdown module. They draw grant funds by activity in the drawdown module.
                 The drawdown module prevents grantees from drawing more funds than budgeted
                 for a particular activity in the approved action plan and from drawing more grant
                 funds than the grant total. Figure 2 demonstrates the program income cycle.

                 Figure 2: Program income cycle

                                                               Reported on        Reflected in       Expensed in
                    Program income           Earned            performance        drawdown            drawdown
                                                                  report            module             module




                 The DRGR system administrator can generate reports to assist in overseeing the
                 program, including reports showing grantee obligations and expenditures
                 compared with grant amounts and the submission status of action plans and
                 performance reports. HUD planned to add a reporting module to DRGR in May

5
    Program income, in general, means gross income received by the recipient or a subrecipient directly generated
    from the use of program funds.


                                                        7
or June 2009 that will allow field staff to generate the reports independently.
HUD delayed implementation of the module because the vendor was in the
process of installing a new version of the reporting software. HUD preferred to
complete testing using the new version of the software before implementation.
HUD should implement its planned reporting module, which will provide an
accessible tool to assist field staff in monitoring the program. Figure 3 depicts the
processes for quarterly performance reports, drawdowns, and management
reports.

Figure 3: Quarterly performance reports, drawdowns, and management reports

      Quarterly
                                Drawdown                 Management
    performance
                                 module                    reports
    report (QPR)

      Activities, budgets,                                 Data from action
                                  Activity budgets
       and performance                                     plan, drawdown
                                   received from
      measures received                                    module, QPR, and
                                    action plan
       from action plan                                     admin screens


       Obligations and
                                  Limits obligations       Currently, system
         expenditures
                                 and drawdowns to          administrator runs
        received from
                                 budgeted amounts               reports
      drawdown module


                                                           HUD plans to add a
                                 Passes obligation
        Input property                                      reporting module
                                  and drawdown
          addresses                                          for field staff in
                                 amounts to QPR
                                                                   2009


       Provide progress
       narratives, report        Receives program
        on performance           income from QPR
           measures



       Record program
           income




DRGR can collect and report addresses for properties assisted under the program
in quarterly performance reports. HUD should require that grantees include this
information to assist it and others in evaluating the effectiveness of the program
and monitoring for indications of fraud, waste, and abuse.

Additional fields or performance measures may be beneficial in overseeing
grantee compliance with program requirements. For example, grantees are
required to provide home-buyer counseling for certain eligible activities. A

                                  8
             performance measure associated with the number of home-buyer courses
             provided would prompt grantees to ensure they were in compliance with the
             requirement. HUD should consider adding fields to DRGR that require grantees
             to report compliance-related information. This information might address
             continued affordability periods and certifications that grantees met local
             rehabilitation standards. HUD should confer with its office of legal counsel in
             making determinations about what additional information to collect to ensure it
             complies with the Privacy Act and related laws.

HUD Continues to Develop
Monitoring Guidance


             HUD’s preliminary focus for the program was establishing the program rules,
             executing grant agreements, and setting up grants and action plans in DRGR.
             HUD is in the process of developing monitoring guidance for both on-site review
             of grantee activities and for review of grantee drawdown requests and quarterly
             performance reports. Such monitoring activities are essential for proper oversight
             of the program. While the information grantees will enter into DRGR will be
             helpful in assessing grantee progress in carrying out the program, it is not a
             substitute for on-site monitoring. Field staff should use the information to
             supplement vigorous monitoring activities.

             HUD should ensure its monitoring guidance directs field staff to review quarterly
             performance reports for indications of problems. For example, if a grantee reports
             activities such as the resale of rehabilitated homes, HUD should ensure the
             grantee reports program income related to the sale if applicable. Likewise, HUD
             staff should periodically review grantee obligation and expenditure amounts in
             DRGR to assess whether grantees will meet legislative obligation and expenditure
             deadlines.


Conclusion


             HUD worked to ensure DRGR’s functionality would accommodate program
             requirements. DRGR collects sufficient data to assist HUD management in
             assessing grantee performance. HUD should continue this proactive approach in
             its monitoring activities and ensure that those activities verify and make use of the
             information in DRGR.

             The audit did not identify additional concerns related to HUD's plan to use DRGR
             to monitor grantee performance and activities under the ARRA program. The
             audit did not review the system's adequacy to comply with specific ARRA
             transparency and reporting requirements. HUD should continue to closely review



                                               9
          grantees’ action plans and create additional fields in DRGR as necessary to assist
          its efforts to satisfy mandated reporting requirements.

Recommendations



          We recommend that the General Deputy Assistant Secretary for Community
          Planning and Development

          1A. Develop and implement detailed on-site monitoring guidance for the program
              that incorporates information in DRGR.

          1B. Develop and implement detailed guidance requiring field staff to aggressively
              review grantee quarterly performance reports and drawdown vouchers to
              identify potential noncompliance issues or missing information, including
              reasonableness and timeliness of obligations and expenditures and unreported
              or unused program income.

          1C. Require grantees to include the addresses of properties assisted under the
              program in quarterly performance reports.

          1D. Consider adding additional fields to DRGR that require grantees to report
              compliance-related information.




                                          10
                         SCOPE AND METHODOLOGY

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.

The report covers information available through April 30, 2009. We conducted the audit at the
Fort Worth Office of Community Planning and Development, the headquarters Office of
Community Planning and Development, and our office in Fort Worth, Texas. To address the
audit objectives, we

       Reviewed applicable laws and program guidance.
       Reviewed DRGR system training materials available online and participated in a training
       session provided by the system administrator.
       Using the relevant criteria, determined what data elements are required/necessary for
       HUD to effectively monitor program funds, grantee activities and assets, program
       income, and program outcomes.
       Obtained and reviewed draft monitoring review guidance and draft action plan review
       guidance.
       Interviewed HUD staff in headquarters and the field.
       Accessed the DRGR system and reviewed the content and format of grantee plans,
       reports, and drawdown vouchers. We also obtained lists identifying the national
       objectives, performance measures, and activities available for selection in DRGR action
       plans and reports.

The audit addressed the system’s capability to administer program funds appropriated by HERA.
We did not review the system's adequacy to comply with additional transparency and reporting
requirements of ARRA.

We did not rely on data in DRGR to form our conclusions and recommendations. Accordingly,
we did not assess and do not express an opinion on information systems controls or the reliability
of the data in the DRGR system.




                                               11
                              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
              objective:

                  Effectiveness and efficiency of program operations - policies and procedures
                  implemented to provide reasonable assurance that a program meets its objectives
                  while considering cost effectiveness and efficiency.
                  Relevance and reliability of information - policies, procedures, and practices
                  implemented to provide reasonable assurance that operations and financial
                  information used for decision making and reporting are relevant, reliable, and
                  fairly disclosed in reports.
                  Compliance with applicable laws, regulations, and provisions of contracts or
                  grant agreements - policies and procedures implemented to provide reasonable
                  assurance that program implementation is in accordance with applicable laws,
                  regulations, and provisions of contracts or grant agreements.
                  Safeguarding of assets - policies and procedures implemented to reasonably
                  prevent or promptly detect unauthorized acquisition, use, or disposition of assets
                  and resources.

              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.




                                                12
Significant Weaknesses


           We did not identify any significant weaknesses in the controls we assessed.




                                            13