U.S. Department of Housing and Urban Development
Wanamaker Building, Suite 1005
100 Penn Square East
Philadelphia, PA 19107-3380
Regional Inspector General for Audit
MEMORANDUM NO:
2009-PH-1802
September 23, 2009
MEMORANDUM FOR: John E. Tolbert III, Director, Office of Community Planning and
Development, Pittsburgh Field Office, 3ED
FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia
Region, 3AGA
SUBJECT: The City of Altoona, Pennsylvania, Needs to Strengthen Its
Capacity and Controls to Adequately Administer American
Recovery and Reinvestment Act of 2009 Funding
INTRODUCTION
The City of Altoona (City) is scheduled to receive $1.3 million under the American Recovery
and Reinvestment Act of 2009 (Recovery Act). The Recovery Act requires swift obligation and
expenditure deadlines with stringent emphasis on accountability and transparency. As part of the
U.S. Department of Housing and Urban Development’s (HUD) commitment to ensure the proper
use of these funds, we performed a review of the City’s operation to evaluate its capacity and
controls to administer this funding. We selected the City for this audit because it is scheduled to
receive significant Recovery Act funds and because we are also performing related audit work
with the City as a result of a previous citizen complaint. Our objective for this report was to
determine whether the City had adequate capacity and controls to adequately administer
Recovery Act funds.
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.
METHODOLOGY AND SCOPE
To accomplish our objective, we obtained and reviewed
Public Law 111-5, the American Recovery and Reinvestment Act of 2009, dated
February 17, 2009;
HUD regulations at 24 CFR [Code of Federal Regulations] Parts 85, 570, and 576;
Office of Management and Budget (OMB) Circular A-122;
Visit the Office of Inspector General’s World Wide Web site at http://www.hud.gov/offices/oig/
HUD’s Notice of Allocations, Application Procedures, and Requirements for
Homelessness Prevention and Rapid Re-Housing Program Grantees under the American
Recovery and Reinvestment Act of 2009, dated March 19, 2009, and Notice of Program
Requirements for Community Development Block Grant Program – Funding under the
American Recovery and Reinvestment Act of 2009, dated May 4, 2009;
HUD Handbook 6500, Community Development Block Grant Program – Entitlement
Grant Regulations, and HUD Handbook 6510.2, REV-2, Community Development Block
Grant Program: Entitlement Grantee Performance Report Instructions;
The City’s fiscal years 2003 through 2007 audited financial statements;
HUD’s program grant agreements with the City;
HUD’s Pittsburgh Office of Community Planning and Development’s monitoring reports
from 2006 through 2008;
The City’s 2008 action plan and substantial amendments for Recovery Act programs;
The City’s Community Development Block Grant (CDBG) and HOME Investment
Partnerships Program (HOME) consolidated annual performance and evaluation report
for program year 2007;
The City’s accounting controls, procurement policies and practices, and monitoring
policies to ensure that they were consistent with HUD requirements;
The staffing of the City’s Department of Community and Economic Development and
corresponding employee job responsibilities; and
Audit workpapers from the HUD Office of Inspector General’s (OIG) ongoing audit of
the City of Altoona’s CDBG program.
We conducted the audit from April through August 2009 at the City’s offices located at 1301
12th Street, Altoona, Pennsylvania. The audit covered the period January 2006 through March
2009. We expanded the scope of the audit as necessary. We discussed the City’s operations and
our audit results with City officials and staff and officials from HUD’s Pittsburgh Office of
Community Planning and Development. Under the Recovery Act, inspectors general are
expected to be proactive and focus on prevention.
BACKGROUND
The Recovery Act became Public Law 111-5 on February 17, 2009. It established supplemental
appropriations for job preservation and creation, infrastructure investment, energy efficiency and
science, assistance to the unemployed, and state and local fiscal stabilization for the fiscal year
ending September 30, 2009, and for other purposes.
Authorized under Title XII of the Recovery Act, HUD allocated $1 billion in CDBG-Recovery
(CDBG-R) funds to states and local governments to carry out, on an expedited basis, eligible
activities under the CDBG program. Also under Title XII of the Recovery Act, HUD allocated
$1.5 billion in Homelessness Prevention Rapid Re-Housing Program (HPRP) funds to grantees
to provide financial assistance and services to either prevent individuals and families from
becoming homeless or help those who are experiencing homelessness to be quickly rehoused and
stabilized.
2
The City is governed by a mayor and a six-member council, elected to four-year terms. The
City’s Department of Planning and Community Development administers the City’s community
planning and development (CPD) programs. The City had received the following HUD program
grants over the past six years:1
Program Amount
CDBG $13,208,843
HOME $2,657,793
Emergency Shelter Plus Grant (ESG) $531,049
Total $16,397,685
In addition to previous years’ funding, the City will receive more than $1.3 million in Recovery
Act funding allocations for two HUD programs:
Program Amount
HPRP $819,718
CDBG entitlement grants $535,897
Total $1,355,615
The City reported that it plans to use its HPRP funding for financial assistance and housing
relocation/stabilization services through eligible activities approved by HUD.2 All four of the
subrecipients that will receive HPRP funds have previously received grant funds under the City’s
ESG program. The City also reported that it plans to use its CDBG-R funds to provide sidewalk
infrastructure and single-family homeowner rehabilitation projects in CDBG-eligible
census/block groups.
RESULTS OF REVIEW
The City needs to strengthen its capacity and controls to effectively administer funds provided to
it under the Recovery Act. Our ongoing audit of the City’s CDBG program disclosed that the
City improperly paid a subrecipient $914,335 for expenditures that it could not demonstrate were
eligible and it failed to adequately monitor the activities of the subrecipient. As stated above, the
Recovery Act requires swift obligation and expenditure deadlines with stringent emphasis on
accountability and transparency. Therefore, the City’s controls and monitoring procedures
would not ensure that the Recovery Act funds would be used for eligible activities. The City
also needs to evaluate its staffing to make sure it is adequate to administer Recovery Act funds
properly.
1
The City’s program year runs from July 1 through June 30.
2
HUD’s Notice of Allocations, Application Procedures, and Requirements for Homelessness Prevention and
Rapid Re-Housing Program Grantees under the American Recovery and Reinvestment Act of 2009, dated
March 19, 2009, details eligible program activities.
3
The City Paid $914,335 for Unsupported CDBG Expenditures
A related concurrent audit, being performed as a result of a citizen complaint, disclosed that the
City paid its subrecipient $914,335 from January 1, 2003, through December 31, 2008, for
expenditures that it could not demonstrate were eligible. The subrecipient was required to
perform a variety of activities associated with the City’s CDBG program. Some of the activities
included administering the City’s Economic Development Loan Fund Program, economic
development monitoring, and the Blighted Property Maintenance Program.3 The subrecipient
was to provide staffing to carry out activities of the City’s Blighted Property Maintenance
Program. The subrecipient’s agreements with the City required it to maintain records providing
a full description of each activity undertaken and financial records as required by 24 CFR
570.502.
Regulations at 24 CFR 570.506 also state that recipients must ensure that records (1) provide a
full description of each activity undertaken; (2) demonstrate that each activity undertaken meets
one of the national objectives of the CDBG program; (3) determine the eligibility of the
activities; and (4) document the acquisition, improvement, use, or disposition of real property
acquired or improved with CDBG assistance.
Lastly, OMB Circular A-122 requires non-profit organizations to maintain reports reflecting the
distribution of activity of each employee whose compensation is charged, in whole or in part,
directly to awards. The Circular requires that the reports must reflect an after-the-fact
determination of the actual activity of each employee. Each report must account for the total
activity for which employees are compensated and which is required in fulfillment of their
obligations to the organization.
The City did not require the subrecipient to maintain this information. It could not provide
records showing which properties were maintained or demolished by the subrecipient’s Blighted
Property Maintenance crew, what type of work was performed at each property, which staff did
the work, how much time was charged to the work at each property, when the work was
performed, and how the salaries were calculated for the staff who worked on the program
activities. The City’s CDBG manager acknowledged that the City did not require this
information and trusted the subrecipient to perform eligible activities.
We will be addressing this matter in greater detail in a formal audit report on the City’s CDBG
program to be issued after this memorandum report.
The City’s Controls Could Not Ensure That Recovery Act Funds Would Be Used for
Eligible Activities
As discussed above, the City could often not support the eligibility of the activities of its CDBG
program. The documentation it used to pay its subrecipient included timesheets for salaries paid
and invoices for other miscellaneous expenditures (e.g., gas, vehicle leases, supplies, etc.).
3
The $914,335 paid to the subrecipient was for the activities associated with the City’s Blighted Property
Maintenance Program.
4
However, the supporting documentation did not include information about the work performed
or how the activities performed prevented slum and blight or met a national objective.
The City explained that it did not require the documentation because it trusted the subrecipient to
perform eligible activities. Given the problems the ongoing audit identified and the City’s
explanation, we are concerned that the City may lack adequate capacity and controls to ensure
accountability and transparency regarding the $1.3 million it is scheduled to receive under the
Recovery Act.
Previous HUD Monitoring Identified Ineligible Activity
The Pittsburgh Office of Community Planning and Development’s monitoring of the City’s
CDBG program in March 2006 also identified ineligible use of HUD funds. HUD determined
that the City paid more than $87,000 for an activity that did not meet a national objective. The
City agreed to reimburse HUD because it was unable to demonstrate that its installation of
heating, ventilation, and air conditioning equipment at a transportation center complied with a
HUD national objective.
The City Needs to Update and Follow Its Quarterly Monitoring Procedures
The City’s HUD grant monitoring plans state that it will perform either annual on-site visits or
desk reviews of its subrecipients. The City stated that it plans to monitor its Recovery Act funds
in the same way it monitors its regular HUD grant subrecipients. In the City’s substantial
amendment plan submitted to HUD, it stated that it would provide quarterly reporting and
monitoring sessions to be held with each Recovery Act subrecipient. However, its monitoring
plans did not require quarterly reporting and monitoring sessions to be held with each
subrecipient. The City needs to update its monitoring plans to include this requirement and
consistently perform quarterly monitoring to ensure accountability and transparency of its
Recovery Act funds.
The City Needs to Ensure That Its Staffing Is Adequate to Administer Recovery Act Funds
The City plans to have its fair housing officer administer its HPRP funds under the supervision
of its emergency shelter grant supervisor. In its substantial amendment plan submitted to HUD,
the City allocated $94,5764 for the administration of the CDBG-R and HPRP funds. Since the
City allocated $94,576 for the administration of the funds and the Recovery Act requires
grantees to use the funds in a manner that maximizes job creation, the City should evaluate its
staffing and consider hiring additional staff rather than requiring its fair housing officer to
perform additional duties.
Conclusion
The conditions found during our reviews provided strong evidence that the City lacked capacity
and controls to effectively administer its Recovery Act funds. By improving its capacity and
4
The City allocated $53,590 for the administration of the CDBG program and $40,986 for HPRP.
5
controls, the City can ensure that $1.3 million in Recovery Act funds will be used for the
purposes intended.
RECOMMENDATIONS
We recommend that the Director of HUD’s Pittsburgh Office of Community Planning and
Development require the City to
1A. Implement controls to ensure that the Recovery Act funded activities are
adequately supported and meet eligibility requirements.
1B. Update and implement written monitoring policies and procedures for all
subrecipients, to include detailed monitoring and documentation requirements for
Recovery Act funds, to ensure accountability and transparency.
1C. Evaluate its staffing and consider hiring additional staff to administer the funds.
AUDITEE RESPONSE
We provided the City a draft of this memorandum on August 24, 2009, and discussed it with the
City at an exit conference on September 3, 2009. The City provided a written response on
September 8, 2009. The City’s response, along with our evaluation of that response, is included
herein as appendix A.
6
Appendix A
REF TO OIG EVALUATION AUDITEE COMMENTS
Comment 1
Comment 2
7
Comment 1
Comment 3
Comment 3
OIG Evaluation of Auditee Comments
8
Comment 1 The City’s position is not clear because it states upfront that it will consider
implementing and updating its written monitoring policies and procedures and
later in its response to recommendation 1B, it states that this is not appropriate.
The audit evidence and previous HUD monitoring clearly showed that the City
needs to update and implement improved monitoring plans to ensure
accountability and transparency of its Recovery Act funding. It is also important
to note that our review of the City’s monitoring reports showed that its most
recent evaluation of the subrecipient was completed over five years ago (June
2004).
Comment 2 The audit evidence showed that the City paid a subrecipient $914,335 for
expenditures that it could not demonstrate were eligible. We agree that the
elimination of slum and blight meets a CDBG national objective and we are in
fact aware of federal regulations pertaining to the acquisition, demolition, and
maintenance of properties on a spot basis. However, the subrecipient’s
agreements with the City required it to maintain records providing a full
description of each activity undertaken and financial records as required by 24
CFR 570.502. Additionally, regulations at 24 CFR 570.506 state that recipients
must ensure that records (1) provide a full description of each activity undertaken;
(2) demonstrate that each activity undertaken meets one of the national objectives
of the CDBG program; (3) determine the eligibility of the activities; and (4)
document the acquisition, improvement, use, or disposition of real property
acquired or improved with CDBG assistance. Lastly, OMB Circular A-122
requires non-profit organizations to maintain reports reflecting the distribution of
activity of each employee whose compensation is charged, in whole or in part,
directly to awards. After the audit exit conference the City provided a listing of
properties that it demolished. However, the spreadsheet did not adequately
document what type of work was performed at each property, which staff did the
work, how much time was charged to the work at each property, when the work
was performed, and how the salaries were calculated for the staff who worked on
the program activities. The City explained that it did not require supporting
documentation because it trusted its subrecipient to charge only for eligible
activities. However, additional documentation is required to fully support these
expenditures.
Comment 3 Given the problems the audit identified with accountability and transparency, we
maintain that the City should evaluate its staffing and consider hiring additional
staff rather than requiring its fair housing officer to perform additional duties.
9
The City of Altoona, Pennsylvania, Needs to Strengthen Its Capacity and Controls to Adequately Administer American Recovery and Reinvestment Act of 2009 Funding
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)