Issue Date June 26, 2009 Audit Report Number 2009-FW-1011 TO: Sandra H. Warren Director, Community Planning and Development, 6ED FROM: Gerald R. Kirkland Regional Inspector General for Audit, Fort Worth Region, 6 AGA SUBJECT: The City of Houston, Texas, Did Not Adequately Monitor Its HOPWA Project Sponsors HIGHLIGHTS What We Audited and Why We conducted an audit of the City of Houston’s (City) Housing Opportunities for Persons with AIDS (HOPWA) program, which is managed by its Housing and Community Development Department (Department), as part of our strategic plan and regional goals. Our objective was to determine whether the City and its project sponsors complied with U. S. Department of Housing and Urban Development (HUD) HOPWA regulations, requirements and its grant agreements. Specifically, we determined whether (1) expenditures and reimbursements paid by and submitted to the Department were eligible and supported, (2) project sponsors maintained adequate client file documentation to support eligibility, (3) project sponsors’ sites complied with HOPWA housing quality standards, and (4) the Department adequately monitored project sponsors. What We Found The City’s Department and its project sponsors generally complied with its HOPWA grant requirements and HUD regulations as testing on expenditures, reimbursement requests, client file documentation, and site conditions did not disclose any eligibility or compliance issues. However, in violation of its HOPWA grant agreement, the City did not consistently monitor 15 of 18 project sponsors. Monitoring did not occur because the City’s Department did not have the necessary personnel with the experience needed to conduct the required monitoring. The City’s failure to monitor the project sponsors put $7.5 million in HUD funds at risk. What We Recommend We recommend that the Director of HUD’s Houston Office of Community Planning and Development require the City to (1) consistently monitor its project sponsors in compliance with its grant agreements and (2) ensure that project sponsors submit the required monthly and quarterly reports in a timely manner or enforce its grant agreements, including declaring breach and withholding funding, if the project sponsors fail to submit them. 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 discussed the finding with the City during the audit. We provided a copy of the draft report to the City on May 20, 2009, for its comments and discussed the report with City and HUD officials at the exit conference on June 9, 2009. The City provided its written comments to our draft report on June 19, 2009. In its response, the City generally agreed with the finding and recommendations. The City provided several corrective measures that it will implement. The complete text of the auditee’s response, along with our evaluation of that response, can be found in appendix A of this report. The City also provided additional attachments, which are not included as they are voluminous but are available upon request. 2 TABLE OF CONTENTS Background and Objective 4 Results of Audit Finding: The City Did Not Adequately Monitor Its HOPWA Project Sponsors 6 Scope and Methodology 10 Internal Controls 11 Appendix A. Auditee Comments and OIG’s Evaluation 12 3 BACKGROUND AND OBJECTIVE For fiscal years 2006 through 2008, the City of Houston (City) received formula-based Housing Opportunities for Persons with AIDS (HOPWA) grants of more than $6 million per year from the U. S. Department of Housing and Urban Development (HUD). The City’s Housing and Community Development Department (Department) administers the HOPWA grants including providing program management and oversight. Eligible HOPWA participants must reside within the Houston eligible metropolitan statistical area, which includes the cities of Houston, Baytown, Pasadena, and 10 counties: Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, San Jacinto, and Waller. The City’s HOPWA grants provide (1) tenant-based rental assistance; (2) short-term rent, mortgage, and utility assistance; (3) facility-based housing assistance, including leasing certain facilities; and (4) other supportive services, consisting of mental health assessment, drug and alcohol abuse treatment and counseling, nutritional services, and case management. During the 2006-07 program year, the City reported that, through 171 project sponsors, it provided short-term rent, mortgage, and/or utility assistance to 1,558 individuals and their families; tenant-based rental assistance payments to 273 individuals and their families; supportive services to an additional 1,479 individuals and their families; and facility-based housing to 522 individuals and their families by providing funding for 147 units in community residences. Additionally, the City reported that during the 2007-08 program year, through 162 project sponsors, it provided short-term rent, mortgage, and/or utility assistance payments to 903 households; tenant-based rental assistance payments to 307 households; supportive services to 134 households; and facility-based housing to 300 households by providing funding for 250 units in community residences. Funding is reported below. HOPWA project sponsors 2006 2007 A Caring Safe Place, Inc. $384,855 $394,255 AIDS Coalition Coastal Texas $384,999 $384,999 AIDS Foundation Houston $2,500,000 $2,190,135 Bering Omega Community Services $745,790 $1,136,500 Bonita Street House of Hope $416,727 $350,000 Bread of Life $542,911 N/A Brentwood E.C.D.C. $412,207 $444,050 Career & Recovery Resources $64,233 $64,233 Catholic Charities Diocese of Galveston-Houston $350,000 $350,000 Educational Program Inspiring Communities N/A $75,009 Houston Area Community Services $642,000 $1,045,000 Houston HELP/Corder Place $288,096 $310,000 Houston SRO Housing Corp. N/A $78,728 New Hope Counseling Center $138,971 $169,595 SEARCH, Inc. $591,724 $54,768 Volunteers of America Texas $476,194 $485,000 WAM Foundation $411,373 N/A Donald R. Watkins Memorial Foundation $431,700 N/A 1 One project sponsor, River Oaks, did not receive funding during our audit period. 2 One project sponsor, Bread of Life, cancelled its contract with the City in March 2007. 4 Our objective was to determine whether the City and its project sponsors complied with HUD HOPWA regulations and requirements. Specifically, we determined whether (1) expenditures and reimbursements paid by and submitted to the Department were eligible and supported, (2) project sponsors maintained adequate client file documentation to support eligibility, (3) project sponsors’ sites complied with HOPWA housing quality standards, and (4) the Department adequately monitored project sponsors. 5 RESULTS OF AUDIT Finding: The City Did Not Adequately Monitor Its HOPWA Project Sponsors Generally, the City complied with its grant requirements and HUD regulations as testing on expenditures, reimbursement requests, client file documentation, and site conditions did not disclose any eligibility or compliance issues. However, in violation of its grant agreement with the project sponsors, the City did not consistently monitor 15 of 18 HOPWA project sponsors during our review period, June 2006 through June 2008. The City’s failure to monitor 83 percent (15 of 18) of its project sponsors occurred because it did not have the necessary personnel with the experience needed to conduct the required monitoring. The City’s failure to monitor the project sponsors put $7.5 million in HUD funds at risk. The City Did Not Conduct Required Annual Monitoring Contrary to the requirements in the grant agreement between the City and its HOPWA project sponsors, the City did not conduct required annual monitoring of 15 HOPWA project sponsors during 2006 and 2007. The grant agreement between the City’s Department and project sponsors required that project monitoring take place at least annually to ensure compliance with the contract. Also, the City’s Department’s monitoring policy stated that a comprehensive review would be conducted annually on each HOPWA project to determine compliance with HOPWA regulations. Although the City’s Department was responsible for administering the City’s HOPWA grant, the City was responsible for ensuring compliance with its grant agreement with HUD. Further, HUD regulations require the City to administer the grant agreement accordingly.3 As figure 1 shows, during 2006, the City did not annually monitor 10 project sponsors that received a total of about $6.6 million in HOPWA funds. Figure 2 shows that in 2007, the City monitored more project sponsors, but it did not annually monitor five project sponsors that received a total of more than $900,000 in HOPWA funds. The City’s failure to annually monitor the project sponsors put $7.5 million in HUD funds at risk. 3 24 CFR (Code of Federal Regulations) 574.500. 6 Figure 1 - 2006 project sponsors Funding in thousands $0 $500 $1,000 $1,500 $2,000 $2,500 A Caring Safe Place, Inc. AIDS Coalition of Coastal Texas, Inc. AIDS Foundation of Houston, Inc. Bering Omega Community Services Bonita Street House of Hope Bread of Life Project sponsors Monitored Brentwood E.C.D.C. Not monitored Career & Recovery Resources Catholic Charities Houston Area Community Services Houston HELP/Corder Place New Hope Counseling Center SEARCH, Inc. Volunteers of America Texas WAM Donald R. Watkins Memorial Figure 2 - 2007 project sponsors Funding in thousands $0 $1,000 $2,000 $3,000 A Caring Safe Place, Inc. AIDS Coalition of Coastal Texas, Inc. AIDS Foundation of Houston, Inc. Bering Omega Community Services Bonita Street House of Hope Project sponsors Brentwood E.C.D.C. Monitored Career & Recovery Resources Not monitored Catholic Charities Educational Program Inspiring Houston Area Community Services Houston HELP/Corder Place Houston SRO Housing Corp. New Hope Counseling Center SEARCH, Inc. Volunteers of America Texas 7 Project Sponsors Did Not Submit Required Reports The City’s project sponsors failed to submit monthly and quarterly reports to the City, contrary to their grant agreement requirements. The City’s Department used these reports to meet HUD’s reporting requirements, measure the progress of the HOPWA program, evaluate the program’s impact, and exercise general monitoring of the program. This deficiency was a material breach of the project sponsors’ grant agreements with the City. However, the City did not enforce the terms of the grant agreements, which included withholding compensation and expense reimbursements to the project sponsors until they submitted the reports. Figures 3 and 4 show the significant percentages of project sponsors that did not submit or fully submit quarterly and monthly progress reports. Figure 3 - Project sponsors submitting Figure 4 - Project sponsor submitting monthly reports quarterly reports Not submitted Not 17% Submitted submitted 33% 72% Partially Submitted submitted 28% 50% Partially submitted 0% Annual monitoring and oversight of the project sponsors’ monthly and quarterly reports did not occur because the City’s Department lacked the necessary personnel with the experience needed to conduct the required monitoring. A City Department official agreed that project sponsor monitoring did not occur during the Department’s period of reorganization. The City’s Department disbanded its Monitoring and Evaluation Section several years ago, which negatively affected monitoring. Several employees were reassigned, retired, and/or dismissed. The current HOPWA program staff is relatively new to the division, including the HOPWA division manager, who was hired in February 2008. The City’s Department recently hired a former employee to assist with the monitoring. The HOPWA division manager stated that during his tenure as manager, every project sponsor had been monitored or scheduled for monitoring. 8 Testing Did Not Disclose Eligibility Issues Testing of expenditures, reimbursement requests, client files, and on-site inspections did not disclose any eligibility issues. Expenditure testing was performed on 41 transactions, which were found to be supported and eligible according to the City Department’s and HUD’s requirements. Reimbursement testing on 25 reimbursement requests found the expenses to be supported and eligible HOPWA expenses. Testing of 51 client files from six project sponsors showed that, overall, the client’s files complied with HOPWA regulations. In addition, on-site inspections were performed at five community residences operated by four project sponsors. The community residences appeared to be decent and sanitary, and no compliance issues were found. Conclusion Overall, the City and its project sponsors complied with HUD HOPWA regulations and requirements. However, the City did not monitor project sponsors that received at a total of $7.5 million in HOPWA funding. Further, the City did not require the project sponsors to submit required monthly and quarterly reports. The City’s Department acknowledged the deficiencies and agreed to implement improvements. Recommendations We recommend that the Director of HUD’s Houston Office of Community Planning and Development require the City to 1A. Provide reports showing that the City is consistently monitoring its project sponsors in compliance with its grant agreements. 1B. Ensure that project sponsors submit the required monthly and quarterly reports in a timely manner or enforce its grant agreements, including declaring breach and withholding funding, if the project sponsors fail to submit them. 9 SCOPE AND METHODOLOGY To accomplish our objective, we Researched HUD handbooks, the Code of Federal Regulations, and other requirements and directives that govern the City’s HOPWA program. Reviewed HUD’s July 20, 2007, monitoring report for the City’s Community Development Block Grant, HOME Investment Partnerships, and HOPWA programs. Reviewed June 2006 through June 2008 HOPWA grant agreements executed between the City and the HOPWA project sponsors. Reviewed the City’s annual audited financial statements, policies and procedures regarding the HOPWA program, and monitoring files for project sponsors. Reviewed a nonstatistical sample of 41 expenditure transactions from a universe of 1,366 and tested for eligibility and support. Reviewed a nonstatistical sample of 25 monthly payment requests from a universe of 142 monthly payment requests and tested for eligibility and support. Reviewed a nonstatistical sample of 51 client files from six of the 18 project sponsors and tested for compliance. Conducted on-site inspections of five nonstatistically selected community residences operated by four project sponsors. Performed certain tests on the computer-processed data obtained from the City. We determined the data to be sufficiently reliable to meet our objective. Interviewed personnel from HUD, the City’s Department, and project sponsors. The review generally covered the period June 1, 2006, through June 30, 2008. We performed our review from December 2008 through February 2009 at the City’s Department, the project sponsors’ offices, and OIG’s office, all of which are located in Houston, Texas. We adjusted the review period when necessary. 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 reasonable basis for our finding and conclusion 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 the following internal controls were relevant to our audit objectives: Policies and procedures that management has implemented to reasonably ensure that the uses of resources are consistent with laws and regulations. Policies and procedures that management has implemented to reasonably ensure that resources are safeguarded against waste, loss, and misuse. 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 comply with its HOPWA monitoring requirements. 11 Appendix A AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments 12 13 Comment 1 14 Comment 1 Comment 2 15 Comment 3 16 17 OIG Evaluation of Auditee Comments Comment 1 The City agreed that it should consistently monitor its project sponsors in compliance with the grant agreements and the procedures and guidelines. Further, it stated that the language in its monitoring procedures, which states that “a comprehensive review is conducted annually on each HOPWA project to determine compliance with HOPWA regulations,” was misunderstood by the City’s staff. The City indicated it would change the language in both the monitoring procedures and the project sponsor grant agreement to clearly state the City’s intent with regards to the monitoring requirements. We acknowledge the City’s decisions. Comment 2 The City disagreed with the results in figure 1 and figure 2. For 2006, the City responded that all project sponsors, with the exception of two, had been monitored. For 2007, the City stated all except one project sponsor had been monitored. We stand by our analyses and conclusions. Although the City did ultimately monitor the project sponsors, the figures show which project sponsors were not monitored on an annual basis as stated in the City’s monitoring policy for 2006 and 2007. Comment 3 The City agreed that project sponsor quarterly reports were not consistently being provided, aggressively tracked or pursued. Further, the City stated it would change the language in Article V of the grant agreements regarding the monthly and quarterly reports. We acknowledge the City's decision. 18
The City of Houston, Texas, Did Not Adequately Monitor Its HOPWA Project Sponsors
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-06-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)