oversight

The City of Rome, New York, Did Not Always Administer Its Community Development Block Grant Program in Accordance with HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-01-26.

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

                                                               Issue Date
                                                                  January 26, 2009
                                                               Audit Report Number
                                                                  2009-NY-1006




TO:        Nancy Peacock, Director, Community Planning and Development, 2CD



FROM:      Edgar Moore, Regional Inspector General for Audit, 2AGA


SUBJECT: The City of Rome, New York, Did Not Always Administer Its Community
         Development Block Grant Program in Accordance with HUD Requirements


                                  HIGHLIGHTS

 What We Audited and Why

            We audited the operations of the City of Rome, New York (City), pertaining to its
            administration of its Community Development Block Grant (CDBG) program.
            We selected the City for review based upon U.S. Department of Housing and
            Urban Development (HUD) monitoring reports, risk scores, and indicators
            identified from our internal audit of HUD’s monitoring of the CDBG program,
            which identified concerns with the City’s administration of the program. The
            objectives of our audit were to determine whether the City (1) administered its
            CDBG program effectively, efficiently, and economically in accordance with
            applicable rules and regulations and (2) expended CDBG funds for eligible
            activities that met a national objective of the program.

 What We Found
            The City did not always carry out its activities effectively, efficiently, and
            economically in compliance with HUD regulations. Further, it expended CDBG
            funds for activities that did not meet a national objective of the program.
            Specifically, the City did not adequately monitor a subrecipient-administered
            economic development revolving loan fund activity to ensure that performance
           goals were achieved. As a result, the revolving loan fund activity expended
           program funds in an inefficient manner that did not effectively address program
           objectives. Consequently, the activity was deprived of program income that could
           have been used to make additional loans and create more jobs.

           In addition, the City did not establish adequate administrative and management
           controls to ensure that costs associated with a public facilities subrecipient and
           self-administered street improvement activities were eligible and met a national
           objective of the CDBG program. As a result, it expended funds for ineligible and
           unsupported costs for the planned renovation of a building previously owned by a
           subrecipient and for the purchase of ornamental streetlights. Consequently, the
           City’s ability to administer its programs efficiently and effectively and ensure that
           CDBG program objectives were met was diminished.

           The City also did not establish adequate controls to ensure that performance goals
           for subrecipient-supported activities were achieved. As a result, no progress had
           been made on a subrecipient rehabilitation and preservation activity, and a
           national program objective was not met, thus depriving other worthwhile
           activities of program resources.

What We Recommend
           We recommend that the Director of HUD’s Buffalo Office of Community Planning
           and Development instruct the City to (1) reimburse the CDBG program from
           nonfederal funds the $140,523 paid for ineligible program expenditures, (2)
           provide supporting documentation to justify the eligibility of $58,036 in
           questionable CDBG disbursements or reimburse the program from nonfederal
           funds any amounts not supported, (3) establish procedures to ensure adequate
           monitoring of subrecipient-administered activities, and (4) comply with CDBG
           program requirements.

           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 results of our review during the audit, provided a copy of the
           draft report to City officials, and requested their comments on January 5, 2009.
           City officials agreed with our findings and provided their written comments
           during the exit conference held on January 15, 2009. The complete text of the
           auditee’s response, along with our evaluation of that response, can be found in
           appendix B of this report.




                                             2
                                   TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
      Finding 1: The City Did Not Adequately Monitor a Subrecipient-Administered   5
                 Economic Development Revolving Loan Fund Activity

      Finding 2: The City Expended CDBG Funds for Ineligible Public Facilities     8
                 Activity Costs

      Finding 3: Questionable Street Improvement Costs Were Charged                11
                 to the CDBG Program

      Finding 4: The City Did Not Ensure That a Subrecipient Rehabilitation and    14
                 Preservation Activity Was Administered Effectively


Scope and Methodology                                                              16

Internal Controls                                                                  17

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use               19
   B. Auditee Comments and OIG’s Evaluation                                        20




                                            3
                     BACKGROUND AND OBJECTIVES


The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974 (Public Law 93-383). The program provides
grants to state and local governments to aid in the development of viable urban communities.
Governments are to use grant funds to provide decent housing and suitable living environments
and to expand economic opportunities, principally for persons of low and moderate income. To
be eligible for funding, every CDBG-funded activity must meet one of the program’s three
national objectives. Specifically, every activity, except for program administration and planning,
must

               Benefit low- and moderate-income persons,
               Aid in preventing or eliminating slums or blight, or
               Address a need with a particular urgency because existing conditions pose a
               serious and immediate threat to the health or welfare of the community.

The City of Rome (City) is a CDBG entitlement recipient that administers more than $1 million
in CDBG funds annually. These funds are available to support a variety of activities directed at
improving the physical condition of neighborhoods by providing housing or public
improvements and facilities, creating employment, or improving services for low- and/or
moderate-income households.

In addition to programs administered in house by the City’s Department of Community
Development, the City works with several outside nonprofit organizations to carry out its
CDBG-funded programs. It is responsible for overseeing, monitoring, and supporting its CDBG
activities. The files and records related to the City’s CDBG programs are maintained in City
Hall, located at 198 North Washington Street, Rome, New York.

We audited the City’s CDBG program based on a review of HUD monitoring reports,
community planning and development risk scores, and indicators identified during our internal
audit of HUD's monitoring of the CDBG program. The objectives of our audit were to determine
whether the City (1) administered its CDBG program effectively, efficiently, and economically
in accordance with applicable rules and regulations and (2) expended CDBG funds for eligible
activities that met a national objective of the program.




                                                4
                                RESULTS OF AUDIT


Finding 1: The City Did Not Adequately Monitor a Subrecipient-
           Administered Economic Development Revolving Loan Fund
           Activity
The City did not adequately monitor a subrecipient to ensure that performance goals were
achieved for its economic development revolving loan fund activity, which is contrary to HUD
regulations. Approximately 60 percent of the loan funds disbursed were provided to businesses
that either failed to create the number of jobs anticipated or created no jobs at all. Further,
$192,328 in loan principal was written off as uncollectible, thus depriving the activity of
program income that could have been used to make additional loans and create jobs. We
attribute these deficiencies to the lack of adequate monitoring and oversight by the City of its
subrecipient. As a result, the loan fund activity expended program funds in an inefficient manner
that did not effectively address program objectives.



 Background

              In 1981, the City established the Rome Industrial Development Corporation
              (Corporation) Community Reinvestment Revolving Loan Fund (loan fund)
              activity as a subrecipient-administered economic development activity. The
              funding for the loan fund activity consists of revenues generated by loan
              repayments, as well as periodic investment of various program year funding
              allocations awarded through the City’s CDBG program. According to the City’s
              consolidated annual performance and evaluation report, the loan fund activity
              provides loans to new or existing businesses for plant rehabilitation, expansion,
              equipment, or operating capital. The national objective for the loan fund activity
              is to create jobs for low- and moderate-income individuals. Therefore, procedures
              established by the Corporation provide that all loans made must lead to the
              creation of employment. The goal is that at least 51 percent of the new jobs must
              be made available to low- and moderate-income individuals. Loan approvals are
              dependent upon the circumstances and the loan amount requested.

 Revolving Loan Fund Activity
 Deprived of Program Income

              As part of its administration of the CDBG program, the City is responsible for the
              monitoring of its subrecipients. Regulations at 24 CFR (Code of Federal
              Regulations) 85.40(a) provide that grantees are responsible for managing the day-
              to-day operations of grant- and subgrant-supported activities. Grantees must
              monitor grant- and subgrant-supported activities to ensure compliance with
                                                 5
             applicable federal requirements and that performance goals are achieved. Grantee
             monitoring must cover each program, function, or activity. Despite the
             requirements, the City did not adequately monitor the efficiency or effectiveness
             of the Corporation’s administration of the loan fund activity. The lack of
             monitoring allowed CDBG funds to be expended on loans which did not create
             jobs or further overall program objectives.

             Analysis of the Corporation’s loan fund portfolio showed that as of April 2008, 37
             loans were active during the audit period and/or had been written off since 2002,
             and 26 of the 37 loans failed to create the number of jobs anticipated. Further, 18
             of the 26 loans did not create any jobs. Statistics on the loan fund portfolio are
             detailed below.

             Number     Jobs          Jobs          Description          Loan     Percentage
             of loans   anticipated   created                            amount   of total funds
                                                                                  disbursed
                18           40          0          Loans with no job    $257,658      33%
                                                    creation
                8            29          14         Loans not meeting    $213,274       27%
                                                    job creation goals
                11           33          40         Loans that met job   $307,678       40%
                                                    creation goals
                37          102          54                              $778,610      100%

             As indicated in the table above, only 40 percent of the total funds disbursed met
             job creation goals. Nearly 60 percent of loan funds disbursed were provided to
             businesses that either created no jobs at all or failed to create the number of jobs
             anticipated. This is contrary to the Corporation’s procedure which provided that
             all loans made must lead to the creation of employment. The ineffective
             performance of the loan portfolio also jeopardized the City’s ability to continue to
             meet program national objectives.

             At the end of the audit, there were 10 active loans with outstanding principal
             balances due of $109,167 that could be used for other eligible activities. Since
             2002, the Corporation had written off as bad debt $192,328 in unpaid balances
             due for 15 of the 37 loans cited above. Consequently, the revolving loan fund
             was deprived of funding in the amount of $192,328 that could have been used to
             fund additional loans or other eligible activities.

Conclusion
             As evidenced by the deficiencies cited above, the Corporation’s loan fund activity
             was not administered effectively or efficiently to ensure that the goal of job
             creation was achieved. The City did not establish controls to ensure adequate
             monitoring and oversight of its subrecipient. Therefore, it should cancel this
             activity and reprogram the remaining $227,568 in available funds, representing
             $182,568 in undisbursed program funds held by the subrecipient plus $45,000 in
                                                6
          unexpended CDBG budgeted balances for program years 2004 and 2005, to be
          used for other eligible activities. In addition, the City should assume
          administration of the remaining 10 active loans with outstanding principal
          balances due of $109,167 plus interest and put these funds to better use for other
          eligible activities as the loan repayments are made.

Recommendations

          We recommend that the Director of HUD’s Buffalo Office of Community Planning
          and Development instruct the City to

          1A.     Cancel the loan fund activity and reprogram the remaining $227,568 in
                  available funds ($182,568 in undisbursed program funds held by the
                  subrecipient and $45,000 in unexpended CDBG budgeted balances for
                  program years 2004 and 2005) to be put to better use for other eligible
                  activities.

          1B.     Take over the administration of the remaining 10 active loans with
                  outstanding principal balances due of $109,167 plus interest and put these
                  funds to better use for other eligible activities as the loan repayments are
                  made.

          1C.     Establish and implement controls to ensure adequate monitoring of
                  subrecipient-administered activities.

          1D.     Establish and implement controls to ensure that CDBG funds are properly
                  safeguarded.




                                            7
Finding 2: The City Expended CDBG Funds for Ineligible Public
           Facilities Activity Costs
The City expended CDBG funds for ineligible public facilities activity costs, which is contrary to
HUD regulations. Specifically, over the course of several program years, the City provided
CDBG funding to the Mohawk Valley Community Action Agency (Agency) to assist in the
development and renovation of a former school building. The Agency expended $140,523 in
CDBG funds, primarily for professional services associated with the planned building
renovations. However, it sold the building to a third party and did not accomplish a national
objective of the CDBG program, thus effectively canceling the activity. This resulted because
the City did not establish adequate procedures to ensure that costs associated with a public
facilities subrecipient activity were eligible and met a national objective of the CDBG program.
Since the $140,523 was not reimbursed to the City by the Agency as required, the costs are
considered ineligible. Further, since the building was sold, the remaining unexpended budgeted
balance of $39,577 should be reprogrammed for other eligible CDBG program activities.


 Background

               The Agency is a human services organization established in 1966. It provides
               services pertaining to child development, family resources, runaway and homeless
               youth, and housing. In its CDBG funding applications to the City, the Agency
               proposed relocating its main office facilities to the vacant Columbus School site,
               improving the current site structure, modernizing the facility, and making it a
               more attractive, secure part of the neighborhood. The plans called for the vacant
               former school site to house the Agency’s headquarters, offering services and
               programs to all families in the community. It was to allow for the continuation
               and expansion of services and bring additional full-time professional jobs to the
               City. The facility was to be open to the public and available for use by
               community groups and businesses.

               In June 2002, the Agency purchased the vacant former Columbus School building
               (shown below) from the City of Rome School District.




                                                8
Public Facilities Subrecipient
Activity Funded under the
City’s CDBG Program

            As part of its administration of the CDBG program, the City awarded funding
            under the category of “public facilities and improvements” to its subrecipient, the
            Agency, to assist it in the development and renovation of a vacant former school
            building that it owned. The renovated building was to become Agency’s new
            headquarters. Shown below is a financial summary of the CDBG funds provided
            and expended for the renovation project.

               CDBG    Original Revised Expenditures Remaining
               program budget   budget               balance
               year
                 1999   $30,000 $30,000     $30,000          $0
                 2000    50,000   12,508     12,508           0
                 2001    50,000   87,492     87,492           0
                 2004    55,000   45,100     10,523      34,577
                 2005     5,000    5,000           0      5,000
                Totals $190,000 $180,100   $140,523     $39,577

            The funding provided by the City to the Agency was earmarked for several
            purposes, including demolition, construction, renovation, and related fees.
            However, $140,523 expended on the project was primarily for professional
            services costs associated with the planned development and renovation of the
            building.

Subrecipient Renovation
Project Activity Canceled

            The Agency was awarded a revised total amount of $180,100 in CDBG funds for
            its renovation project activity. During the period November 1999 through
            October 2004, the Agency expended $140,523 for various costs associated with
            the project. In 2004, its board of directors decided to abandon the renovation
            project. Accordingly, in February 2005, the Agency sought to dispose of the
            building and notified the HUD Buffalo field office of its desire to sell the former
            school building. On or about June 28, 2007, the building was sold, and the
            Agency transferred title to a third party.

            As a result of the Agency’s action to abandon the renovation project and transfer
            title of the building to a third party, the CDBG funds expended on this activity did
            not meet a national objective of the CDBG program. In December 2007, the City
            was advised by HUD that all project funds should be repaid since no national
            objective was met.


                                             9
             CDBG regulations at 24CFR 570.200(a)(2) provide that each recipient under the
             Entitlement and HUD-administered Small Cities programs must ensure and
             maintain evidence that each of its activities assisted with CDBG funds meets one
             of the three national objectives contained in its certification. The criteria for
             determining whether an activity addresses one or more of these objectives are
             provided in 24 CFR 570.208.

             The project agreement between the City and the Agency provides that the
             recipient agrees to refund to the City all community development funds expended
             by the recipient should the eligible use of the recipient property change by sale or
             disposal of said real property. The City’s corporation counsel contacted the
             Agency on several occasions regarding repayment of the $140,523 in CDBG
             funds expended; however, the Agency had not returned the funds to the City.
             Consequently, the $140,523 in costs incurred for this renovation activity was
             considered ineligible. Further, since the expenditures for this activity were
             ineligible, the remaining unexpended budgeted balance of $39,577 should be re-
             programmed for other eligible CDBG program activities.

Conclusion

             The City used its CDBG program to pay for ineligible public facilities expenses,
             which diminished the attainment of program goals and deprived other worthwhile
             activities of needed program resources. We attribute these deficiencies to the fact
             that the City did not establish adequate administrative controls to ensure that
             proposed activities were feasible before funding the Agency’s application.
             Accordingly, the $140,523 in professional services associated with the planned
             building renovations was considered ineligible. In addition, the remaining
             unexpended budgeted balance of $39,577 should be reprogrammed for other
             eligible CDBG program activities, thus putting these funds to better use.

Recommendations

             We recommend that the Director of HUD’s Buffalo Office of Community Planning
             and Development instruct the City to

             2A.    Reimburse from nonfederal funds the $140,523 in ineligible costs pertaining
                    to professional services associated with the planned renovations of a building
                    previously owned by a subrecipient.

             2B.    Reprogram the remaining unexpended balance of $39,577 for the public
                    facilities activity and put the funds to better use for other eligible program
                    activities.

             2C.    Establish controls to ensure that funded activities are feasible and that costs
                    charged are eligible and meet a national objective of the CDBG program.
                                               10
Finding 3: Questionable Street Improvement Costs Were Charged to the
           CDBG Program
Questionable street improvement costs were charged to the CDBG program. Specifically, the
City purchased 24 ornamental street light units and bases at a cost of $58,036 that were
earmarked for installation on two different street projects. Sixteen of the units had not been
installed and had remained in storage for approximately two years, while the remaining eight
units were installed in an area zoned by the City as a business and industrial park. Contrary to
HUD regulations, the City did not establish adequate management controls to ensure that CDBG
purchases were fully supported and met a national objective of the program before expending
funds and charging the activity. As a result, unsupported costs were incurred, and the City’s
ability to ensure that CDBG program objectives were met were diminished.



 Unsupported Costs Charged for
 Ornamental Street Lights and
 Bases

              An examination of costs charged to the City’s 2004 street improvement activity
              found that while most of the costs appeared to be reasonable and adequately
              supported, two transactions totaling $58,036 for the purchase of ornamental street
              light units and bases were found to be questionable as to their eligibility.
              Specifically, in October 2006, the City purchased 24 ornamental street light units
              and bases at a cost of $58,036 that were earmarked for installation at two different
              street projects. Sixteen of the units were purchased for the South James Street
              project, but those units had not been installed and had remained in the City’s
              storage facility for 21 months, thus failing to meet a national objective of the
              program.

              CDBG regulations at 24 CFR 570.200(a)(2) provide that each recipient under the
              Entitlement and HUD-administered Small Cities programs must ensure and
              maintain evidence that each of its activities assisted with CDBG funds meets one
              of the three national objectives contained in its certification. The criteria for
              determining whether an activity addresses one or more of these objectives are
              provided in 24 CFR 570.208.

              The remaining eight street light units were installed as part of the City’s Mill
              Street project; however, they were installed in an area zoned by the City as a
              business and industrial park, based on the City’s district zoning map. A physical
              inspection of the installed streetlights on Mill Street showed that the lights were
              primarily installed on the street adjacent to the City’s Department of Public
              Works facility and other business facilities located in the area, as shown in the
              photographs below.



                                               11
Department of Public Works facility located on the right side of the photograph.




Local business facilities located on the left side of the photograph.


To be eligible as a low- and moderate-income person’s area benefit activity, the
purchased streetlights would have to be installed in a primarily residential area.
For the reasons cited, the $58,036 expended for the streetlights and bases is
considered unsupported pending a HUD eligibility determination.



                                 12
             Regulations at 24 CFR 570.208(a)(1) provides that for activities claiming to
             benefit low- and moderate-income persons as area benefit activities, the activity
             benefits must be available to all residents in a particular area in which at least 51
             percent of the residents are low- and moderate-income persons. Such an area
             need not have boundaries in common with census tracts or other officially
             recognized boundaries but must be the entire area served by the activity. An
             activity that serves an area that is not primarily residential in character does not
             qualify under this rule.


Conclusion

             The City had not established adequate management controls to ensure that
             purchases made with CDBG funds were fully supported and met a national
             objective of the program before expending funds and charging the activity. In
             particular, the City’s purchase of 24 ornamental street light units and bases at a
             cost of $58,036 did not meet a national objective of the program. Specifically, 16
             units that were placed in storage for 21 months provided no benefit to the
             community, while the remaining eight units were installed in a location that did
             not support the claimed low- to moderate-income area benefit. Therefore, the
             City’s ability to ensure that CDBG program objectives were met were diminished.
             We attribute these deficiencies to the City’s not having adequate management
             controls to ensure compliance with CDBG regulations.

Recommendations

             We recommend that the Director of HUD’s Buffalo Office of Community Planning
             and Development instruct the City to

             3A.    Provide additional documentation to justify the $58,036 in unsupported
                    ornamental streetlight costs incurred so that HUD can make an eligibility
                    determination. Any unsupported costs determined to be ineligible should be
                    reimbursed from nonfederal funds.

             3B.    Establish procedures to ensure that CDBG purchases are fully supported and
                    meet a national objective of the program before expending funds and
                    charging the activity.




                                               13
Finding 4: The City Did Not Ensure That a Subrecipient Rehabilitation
           and Preservation Activity Was Administered Effectively
The City did not ensure that a subrecipient rehabilitation and preservation activity was
administered effectively. Specifically, in establishing the Rome Capitol Theatre activity, the
City provided funding to repair and rehabilitate various aspects of the historic theatre. However,
the activity was slow in expending the $55,000 in CDBG funds awarded for program years 2003
and 2004. Contrary to HUD regulations, the City did not establish adequate controls to ensure
that performance goals for subrecipient-supported activities were achieved. As a result, no
progress had been made on the activity, and a national objective had not been met, thus depriving
other worthwhile activities of needed program resources. Accordingly, the $55,000 in
unexpended budgeted CDBG funds should be reprogrammed for other CDBG-eligible uses and
put to better use.



 Background

               The City established the Rome Capitol Theatre activity as a rehabilitation and
               preservation activity to provide funding to repair and rehabilitate various aspects
               of the historic structure that houses the theatre. Since 2002, the City had awarded
               the activity a total of $112,000 in CDBG funds but had expended only $20,000.
               Further, $35,000 awarded to the activity in 2003 and $20,000 awarded in 2004
               had not been drawn down by the subrecipient, although in 2006 the subrecipient
               identified priority needs for the intended use of funds for this activity as described
               in the City’s consolidated annual performance and evaluation report. City
               officials acknowledged that no progress had been made regarding the activity’s
               funding commitments for program years 2003 and 2004.

 City’s Oversight of
 Rehabilitation Activity Not
 Effective

               The City did not ensure the timely administration of its CDBG-funded
               rehabilitation and preservation activities as required. Regulations at 24 CFR
               85.40 provide that grantees are responsible for managing the day-to-day
               operations of grant- and subgrant-supported activities. Also, grantees must
               monitor grant- and subgrant-supported activities to ensure compliance with
               applicable federal requirements and that performance goals are achieved.

               Despite the Rome Capitol Theatre’s lack of progress for activities funded in 2003
               and 2004, the City awarded it an additional $37,000 from its 2007 CDBG
               program. However, unlike previous funding agreements, the 2007 agreement
               contained provisions for recapturing funds not expended within a specified time.
               City officials were aware of the problems associated with nonperforming


                                                 14
             activities and had received technical assistance from HUD regarding ways to
             address their slow-progressing and inactive activities.


Conclusion

             Since the City did not ensure the timely administration of its CDBG-funded
             rehabilitation and preservation activities for program years 2003 and 2004, a
             national objective was not met. This deficiency was caused by the City’s not
             establishing adequate controls to ensure that performance goals for subrecipient-
             supported activities were achieved. Consequently, the $55,000 in unexpended
             CDBG funds budgeted for these activities should be reprogrammed for other
             CDBG-eligible uses and put to better use.


Recommendations

             We recommend that the Director of HUD’s Buffalo Office of Community
             Planning and Development instruct the City to

             4A.    Reprogram the $55,000 in unexpended program funds for the theatre
                    rehabilitation and preservation activity and put the funds to better use for
                    other eligible program activities.

             4B.    Establish controls to ensure that the performance goals for subrecipient-
                    supported activities are achieved in a timely manner.




                                              15
                         SCOPE AND METHODOLOGY

Our review focused on whether the City complied with HUD regulations, procedures, and
instructions related to the administration of its CDBG program. To accomplish our objectives, we
reviewed relevant HUD regulations, guidebooks, and files and interviewed HUD officials to obtain
an understanding of and identify HUD’s concerns with the City’s operations. In addition, we
reviewed the City’s policies, procedures, and practices and interviewed key personnel responsible
for the administration of the City’s CDBG program.

For fiscal years 2004 through 2007, the City received approximately $5 million in CDBG funding.
We selected a non statistical sample of five activities valued at $1.3 million and representing 26
percent of the program areas administered by the City for review from the City’s consolidated
annual performance and evaluation reports. We reviewed the expenditures and related supporting
documents for the activities to determine whether the expenditures met CDBG requirements, were
reasonable, and complied with the national objectives. We also examined the City’s internal
controls over its CDBG program.

The review covered the period January 1, 2004, through March 31, 2008, and was extended as
necessary. We performed audit work from April through September 2008 at the City’s offices
located at City Hall, 198 North Washington Street, Rome, New York. We performed our review 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 objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions based on our
audit objectives.




                                                16
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:

         Effectiveness and efficiency of operations,
         Reliability of financial reporting, and
         Compliance with applicable laws and regulations.

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:

                      Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

                      Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                      Safeguarding of resources – 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.




                                                17
Significant Weaknesses


           Based on our review, we believe that the following items are significant weaknesses:

                  The City did not have adequate controls over its program operations when it
                  did not establish adequate administrative controls to ensure that costs
                  associated with a public facilities subrecipient activity were eligible and
                  met a national objective of the CDBG program (see finding 2).

                  The City did not have adequate controls over compliance with laws and
                  regulations, as it did not always comply with HUD regulations while
                  disbursing CDBG funds (see findings 1, 2, 3, and 4).

                  The City did not have an adequate system to ensure that resources were
                  properly safeguarded when ineligible and unsupported costs were charged to
                  the program and when it did not maintain adequate supporting
                  documentation (see findings 2, and 3).




                                            18
                                     APPENDIXES

Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE

         Recommendation             Ineligible 1/     Unsupported      Funds to be put
                number                                         2/      to better use 3/
                        1A                                                    $227,568
                        1B                                                     109,167
                        2A             $140,523
                        2B                                                      39,577
                        3A                                 $58,036
                        4A            ________            _______               55,000
                      Total            $140,523            $58,036            $431,312


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
     polices 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.

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest subsidy costs not incurred by implementing recommended
     improvements, avoidance of unnecessary expenditures noted in preaward reviews, and
     any other savings that are specifically identified. In this instance, if the City implements
     our recommendations for reprogramming its unexpended balances for its revolving loan
     fund, public facilities, and rehabilitation and preservation activities and uses the funds for
     other eligible program activities, it will ensure a cost savings to its CDBG program.




                                              19
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         25
                  OIG Evaluation of Auditee Comments

Comment 1   Officials for the City agree with the audit report findings, conclusions, and
            recommendations, and have provided their comments to reflect general sentiment.




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