oversight

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)

                                                                 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