Issue Date:
January 4, 2010
Audit Report Number
2010-AO-1002
TO: Nelson Bregon, General Deputy Assistant Secretary, D
FROM: Tracey Carney, Acting Regional Inspector General for Audit, Gulf Coast
Region, GAH
SUBJECT: State of Louisiana, Baton Rouge, LA, Did Not Always Ensure Compliance
Under Its Recovery Workforce Training Program
HIGHLIGHTS
What We Audited and Why
We performed an audit of the State of Louisiana, Office of Community
Development (State), Recovery Workforce Training Program (Program)
administered by the State’s subrecipient, Louisiana Workforce Commission
(LWC). We initiated the audit as part of the Office of Inspector General (OIG)
Gulf Coast Region’s audit plan and examination of relief efforts provided by the
Federal Government in the aftermath of Hurricanes Katrina and Rita. Our audit
objectives were to determine whether the LWC, as the State’s subrecipient, (1)
ensured that its subrecipients under agreement expended Program funds for
eligible expenses and (2) adequately monitored its subrecipients under agreement.
What We Found
The LWC did not always ensure that its subrecipients under agreement expended
Program funds for eligible and supported expenses. In addition, it did not
maintain adequate internal controls over the Program’s financial management.
Specifically, the LWC did not (1) ensure that reimbursements were consistent
with approved budgets before disbursing funds, (2) review its subrecipients’
1
reimbursements for compliance with agreement requirements or Federal
regulations, or (3) maintain adequate records to support the eligibility of
reimbursed costs. These conditions occurred because the State did not ensure that
the LWC fully complied with the terms of its interagency agreement or applicable
Federal requirements. As a result, the State misspent $147,681 for ineligible and
unsupported costs.
Although the State generally provided technical assistance, the LWC did not
always adequately monitor its subrecipients under agreement. In addition, the
LWC did not submit quarterly reports to the State that included all required
performance data. These conditions occurred because the State did not (1) ensure
that the LWC had adequate staff to conduct on-site monitoring visits before June
2008, (2) ensure that the LWC prioritized on-site monitoring after July 2008, (3)
clearly convey its expectations to the LWC regarding the frequency of on-site
monitoring, and (4) ensure that the LWC complied with the terms of its
interagency agreement. Without this monitoring and compliance assurance, the
State could not (1) effectively monitor the Program’s progress and (2) ensure that
Program goals were met and deliverables were provided as required.
What We Recommend
We recommend that HUD’s General Deputy Assistant Secretary for Community
Planning and Development require the State to repay ineligible costs totaling
$2,289 and support or repay unsupported costs totaling $145,392. In addition, the
State must ensure that the LWC (1) completes its subrecipient agreement
amendments in a timely manner; (2) ensures that its subrecipients comply with the
approved budgets; (3) receives periodic reviews to ensure that it maintains
documentation that accurately and adequately identifies and accounts for all
Program funds disbursed; (4) implements adequate internal controls to ensure that
sufficient reimbursement reviews are conducted; and (5) implements procedures
to ensure that its subrecipients comply with laws, regulations, and agreement
terms. Further, the State must (1) ensure the LWC conducts and maintains
documentation of on-site monitoring for all subrecipients; (2) ensure the LWC
maintains adequate staffing levels to ensure that sufficient on-site monitoring
visits are conducted; (3) clearly convey and document its expectations to the
LWC pertaining to on-site monitoring; and (4) ensure the LWC submit quarterly
report data required by the interagency agreement or formally amend the
reporting 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.
2
Auditee’s Response
During the audit, we provided the results of our review to the State’s management
staff and HUD. We conducted an exit conference with the State and HUD on
November 23, 2009.
We asked the State to provide comments on our draft report by November 30,
2009. We gave the State an extension until December 11, 2009, to respond, and it
provided written comments on that day. The State generally agreed with our
results and recommendations. The complete text of the auditee’s written
response, along with our evaluation of that response, can be found in appendix B
of this report.
3
TABLE OF CONTENTS
Background and Objectives 5
Results of Audit
Finding 1: The LWC, As the State’s Subrecipient, Did Not Always Ensure That 6
Funds Were Spent for Eligible and Supported Expenses
Finding 2: The LWC Did Not Always Adequately Monitor Its Subrecipients and 10
Submit Its Quarterly Reports As Required
Scope and Methodology 15
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs 18
B. Auditee Comments and OIG’s Evaluation 19
C. Reimbursement Results From Sample Review
21
4
BACKGROUND AND OBJECTIVES
The Recovery Workforce Training Program (Program), a $38 million economic development
program, was established by the Louisiana Recovery Authority, in conjunction with the State of
Louisiana, Office of Community Development (State), and the Louisiana Workforce
Commission (LWC). Through collaborative efforts, the Program provides workforce
recruitment, training, and retention strategies for sectors identified as having key roles in the
physical and economic recovery of the State and the hurricane-affected parishes in particular.
Those sectors include (1) construction, (2) healthcare, (3) transportation, (4) advanced
manufacturing, (5) oil and gas, and (6) cultural. The Program addresses the loss of jobs and the
reemployment of the State’s workforce as a top priority in the recovery of the hurricane-
impacted areas.
The State and LWC, which operated under the office of Louisiana’s governor, entered into an
interagency agreement in October 2006 to administer the Program. The State terminated that
agreement, effective June 30, 2008.1 The State then entered into an interagency agreement2 with
the new LWC, formerly known as the Department of Labor, to administer the Program.3 The
LWC’s mission is to lead the development of the system that delivers the workforce that
Louisiana’s current and future employers need.
The LWC’s funding for the Program is provided solely through Community Development Block
Grant (CDBG) disaster recovery funds administered by the State. The interagency agreement
allowed the LWC to execute subrecipient agreements to aid in implementing the Program.
Therefore, it executed 18 subrecipient agreements which were divided among the six sectors.
The interagency agreement required the LWC to (1) monitor its subrecipient performance
measures; (2) monitor and track its subrecipient agreements via budget projections; (3) review
and approve budget amendments; and (4) perform site visits to monitor its subrecipient
expenditures, invoices, progress, completion of services, etc.
As of December 31, 2008, the State had allocated $38 million to the LWC for Program related
expenses incurred by the 18 subrecipients. Of this amount, the LWC had paid more than $13.1
million to the subrecipients. Our audit objectives were to determine whether the LWC, as the
State’s subrecipient, (1) ensured that its subrecipients under agreement expended Program funds
for eligible expenses and (2) adequately monitored its subrecipients under agreement.
1
The agreement was terminated due to Act 743 of the 2008 Regular Session of the Louisiana Legislature, transferring the administration of the
Program from the LWC (under the office of the Louisiana governor) to a new LWC (formerly known as the Department of Labor).
2
Effective July 1, 2008.
3
Therefore, any references concerning activities before July 1, 2008, refer to the former LWC, and any references to the LWC after July 1, 2008,
refer to the newly named LWC.
5
RESULTS OF AUDIT
Finding 1: The LWC, As the State’s Subrecipient, Did Not Always
Ensure That Funds Were Spent for Eligible and Supported Expenses
The LWC did not always ensure that its subrecipients under agreement expended Program funds
for eligible and supported expenses. In addition, it did not maintain adequate internal controls
over the Program’s financial management. Specifically, the LWC did not (1) ensure that
reimbursements were consistent with approved budgets before disbursing funds, (2) review its
subrecipients’ reimbursements for compliance with agreement requirements or Federal
regulations, or (3) maintain adequate records to support the eligibility of reimbursed costs.
These conditions occurred because the State did not ensure that the LWC fully complied with the
terms of its interagency agreement or applicable Federal requirements. As a result, the State
misspent $147,681 for ineligible and unsupported costs.
State Requirements
As HUD’s grantee, the State is responsible for administering and monitoring its CDBG
disaster-related programs. To aid in its efforts, the State executed an interagency
agreement with the LWC. According to the interagency agreement, the State required the
LWC to
• Comply with 24 CFR (Code of Federal Regulations) 84.25 and follow accounting
principles and procedures, use adequate internal controls, and maintain necessary
source documentation for all costs incurred;
• Administer the Program in conformance with Office of Management and Budget
(OMB) Circulars A-21, A-87, or A-122 as applicable;
• Review and analyze its subrecipients’ cost reports and other documentation to
ensure that (1) reimbursements were consistent with approved budgets, (2) the
agreements were complied with, (3) costs were eligible and reasonable, and (4)
requested funds did not exceed immediate need; and
• Maintain accounts and project records, including financial records, adequate to
identify and account for all costs pertaining to the agreement and such other
records deemed necessary by the State.
6
$147,681 Paid for Ineligible and
Unsupported Costs
An expense eligibility review of 37 subrecipient reimbursement requests
(reimbursements) determined that costs in 23 (62 percent) were ineligible or unsupported
because the reimbursements
• Included costs that were not approved under the budget that was applicable at the
time of reimbursement;
• Did not agree with the subrecipient-approved budget amounts;
• Included costs that were not allowable or reasonable according to OMB Circular
requirements, such as costs related to entertainment and limousine services; and
• Were missing supporting documentation, such as receipts or invoices.
As a result, as of December 31, 2008, the State had misspent $2,289 in ineligible and
$145,392 in unsupported costs. The remaining 14 reimbursements were eligible and
supported (appendix C).
In addition, the LWC did not (1) ensure that reimbursements were consistent with
approved budgets, (2) ensure that its subrecipients complied with the agreement
requirements, and (3) maintain adequate financial records to identify and support the
eligibility of the reimbursed costs. This condition displays an internal control weakness,
as the State did not ensure that the LWC complied with the terms of the interagency
agreement. The State must (1) ensure that the LWC, supports or repays the $147,681 in
questioned costs; (2) ensure that subrecipients comply with their approved budgets; (3)
maintain adequate records that will accurately account for the costs being charged on the
reimbursements; and (4) implement adequate internal controls to ensure that sufficient
reviews are conducted before disbursing funds for the reimbursements.
Agreement Terms and
Regulations Not Followed
Although 14 of 37 reimbursements were eligible and supported, the LWC did not follow
the terms of the interagency agreement for five (13.5 percent), resulting in various
internal control weaknesses in its financial management of the Program. Specifically,
• The reimbursements contained support that inadequately accounted for the totals
charged on the reimbursements. For example, supporting documentation for
charges such as salaries or benefits conflicted with the reimbursement amount.
Although the supported amount was greater than the charged amount, the
reimbursements did not contain calculations, explanations, or timesheets to
support how the charges were derived or how they pertained to the Program. As a
result, the LWC did not adequately account for the reimbursements. However,
7
the State’s interagency agreement required that the LWC maintain accounts and
project records, including adequate financial records, to identify and account for
all costs pertaining to the agreement. (Appendix C)
• The reimbursements were not in accordance with the approved budget.
Specifically, some costs were either not included in the approved budget or were
included in the approved budget, but charged under the incorrect budget category.
To correct the issue, the LWC executed retroactive budget revisions, making
those costs eligible, as the costs were not eligible at the time of reimbursement.4
In doing this, the LWC and its subrecipients violated the terms of their
agreements, which required it to report deviations from budget and program
plans, and request prior approvals for budget and program plan revisions, in
accordance with Title 24 CFR Part 84.25.
These issues display internal control weaknesses, as the State did not ensure that the
LWC (1) properly safeguarded and accounted for Program funds and (2) complied with
applicable rules and regulations. The State should conduct periodic reviews of the LWC
to ensure that it maintains adequate documentation that accurately and adequately
identifies and accounts for all funds disbursed. The State also must ensure that the LWC
complies with the interagency agreement terms and Federal regulations.
State and LWC Taking Action
To address the issues, the LWC now requires its program managers to conduct a first-
level review of the reimbursements. In doing so, program managers can request
additional documentation and conduct recalculations of costs as deemed necessary. After
the first-level review, program managers provide the reimbursement to the fiscal manager
for second-level review and payment processing. In addition, as of August 20, 2009, the
LWC planned to implement a revised reimbursement request form to alleviate accounting
ambiguities. This form will require subrecipients to submit reimbursements according to
each specific task, instead of expense category as previously required.
Further, in an effort to provide additional clarifications and aid in developing additional
reimbursement requirements, the LWC has coordinated with the State and begun
amending subrecipient agreements. Specifically, the amendments were to include more
specific budget requirements. As of August 21, 2009, of 18 agreements, the LWC had
completed 10 amendments and was near the completion of six. The LWC had terminated
the remaining two agreements for poor performance. We acknowledge the State’s and
the LWC's steps toward improving the Program’s processes.
4
According to 24 CFR 570.480(c), the State has the authority to amend its agreements, requirements, policies, etc.,
as deemed necessary.
8
Conclusion
The LWC did not (1) ensure that reimbursements were consistent with approved budgets,
(2) ensure compliance with agreement requirements or Federal regulations, and (3)
maintain adequate records to support the eligibility of reimbursed costs. These
conditions display various internal control weaknesses regarding the LWC’s financial
management and its expenditure of funds. Therefore, the State must repay or support
$147,681 in ineligible and unsupported costs. The State must also ensure that the LWC
implements adequate internal controls to ensure that sufficient reviews are conducted
before disbursing funds and complies with applicable laws and regulations and the terms
of the interagency agreements.
Recommendations
We recommend that HUD’s General Deputy Assistant Secretary for Community
Planning and Development require the State to
1A. Repay its Program $2,289 in ineligible costs.
1B. Support or repay its Program $145,392 in unsupported costs.
1C. Ensure that the LWC ensures that its subrecipients comply with the approved
budgets and complete the subrecipient agreement amendments in a timely manner
to ensure that the subrecipient budgets related to allowable expenditures are clear.
1D. Conduct periodic reviews of the LWC to ensure that it maintains adequate
documentation to accurately and adequately identify and account for all funds
disbursed pertaining to the Program.
1E. Ensure that the LWC implements adequate internal controls to ensure that
sufficient reviews are conducted before disbursing funds for the reimbursement
requests and that its subrecipients maintain compliance with laws, regulations,
and terms prescribed in their respective agreements.
9
RESULTS OF AUDIT
Finding 2: The LWC Did Not Always Adequately Monitor Its
Subrecipients and Submit Its Quarterly Reports As Required
Although the State generally provided technical assistance, the LWC did not always adequately
monitor its subrecipients. In addition, the LWC did not submit quarterly reports which included
all required performance data. These conditions occurred because the State did not (1) ensure
that the LWC had adequate staff to conduct on-site monitoring visits before June 2008, (2)
ensure that the LWC prioritized on-site monitoring after July 2008, (3) clearly convey its
expectations to the LWC regarding the frequency of on-site monitoring, and (4) ensure that the
LWC complied with the terms of its interagency agreement. Without this monitoring and
compliance assurance, the State could not (1) effectively monitor the Program’s progress and (2)
ensure that Program goals were met and deliverables were provided as required.
State’s Monitoring
Requirements
As part of the interagency agreement, the State also required the LWC to
• Provide technical assistance to its subrecipients.
• Schedule and conduct on-site monitoring visits of its subrecipients. After the
visits, the State required the LWC to prepare written monitoring reports, receive
written responses to monitoring letters from subrecipients, and ensure that
subrecipients completed follow-up corrective actions in a timely manner.
• Prepare and submit quarterly progress reports for all subrecipient activities, which
included eight performance measures.5
Technical Assistance Provided
but On-Site Monitoring Not
Conducted
Although a review of 18 subrecipients determined that the State provided technical
assistance to 14, it also identified that these 18 (100 percent) subrecipients received
limited or no on-site monitoring from the LWC, as reflected in the table below.
5
The performance measures were (1) percentage of participants entering training who completed training, (2) percentage of participants recruited
that are placed in employment, (3) percentage of average earnings increase after job placement, (4) percentage of workers placed in jobs that
retain employment after 6 months of placement, (5) percentage of participants who were displaced by the storm, (6) number of participants who
completed training, (7) number of participants who were placed in employment, and (8) number of workers retained in jobs per quarter.
10
Number of Monitored Technical Comment
subrecipients (yes/no) assistance
(yes/no)
1 Yes No This subrecipient received limited on-site monitoring in
(limited) November 2007. The State explained that this was the
only on-site monitoring conducted for this subrecipient,
and at that time, the LWC staff did not have the
capacity to conduct on-site monitoring. Therefore, the
monitoring for this subrecipient was limited, as it had
not been monitored for more than a year.
1 No No This subrecipient had not received on-site monitoring
since its March 2007 agreement execution. The State
explained that the LWC, at that time, would not allow
monitoring of this subrecipient. As of August 2009,
this subrecipient had not received on-site monitoring.
1 No No This subrecipient appeared to have been monitored by
HUD but not the LWC.
1 No No For this subrecipient, the State indicated that
monitoring was conducted but could not provide
supporting documentation.
14 No Yes The State provided technical assistance documentation
for these 14 subrecipients. The purpose of the
technical assistance was not to monitor but to obtain an
update on the status of the Program.
According to the State and the LWC, monitoring was limited because the LWC, which
had administered the Program from its inception6 to June 2008, did not have the staff to
perform such reviews. As a result, on-site monitoring was not performed. The State
eventually coordinated with the LWC to initiate subrecipient on-site monitoring in June
2008. However, effective June 30, 2008, the Louisiana governor’s office terminated the
State’s agreement with the LWC and continued the Program with a new LWC, effective
July 1, 2008. Therefore, on-site monitoring was further delayed.
In addition, the new LWC staff prioritized disbursing funds for backlogged invoices and
amending subrecipient agreements, instead of monitoring. The lack of on-site monitoring
continued, and monitoring visits were not scheduled to commence until late April 2009.
Therefore, the State had not ensured that the LWC adequately monitored all subrecipients
as required by the interagency agreement. The State must ensure that the LWC (1)
conducts and maintains documentation of on-site monitoring for all 18 subrecipients and
(2) maintains adequate staffing levels to ensure that it conducts sufficient subrecipient
monitoring.
6
October 2006.
11
State’s Expectations Not
Specific
Although the interagency agreement between the State and the LWC required the LWC
to conduct on-site monitoring of its subrecipients, it did not specifically define the
expectations or requirements related to the frequency of those visits. Specifically, the
interagency agreement lacked clarity regarding the number of expected on-site
monitoring visits throughout the duration of the Program. Therefore, the State must
amend the interagency agreement to ensure that it clearly conveys and documents the
LWC’s expectations related to the frequency of on-site monitoring.
Reporting Not in Compliance
with Agreement
The State did not ensure that the LWC’s quarterly reports included all of the data
required by the interagency agreement. Between October 2006 and December 31, 2008,
the LWC submitted seven quarterly reports to the State.7 However, a review of the seven
reports determined that three did not include a significant amount of data required by the
interagency agreement.
Regarding the required data, the interagency agreement required the LWC to include
eight performance measures in its reports. However, on May 15, 2008, the State
instructed the LWC to amend the reports to include only three of the performance
measures. When asked, the State indicated that it did not provide a revised policy or
amendments to the interagency agreement that documented that the data were no longer
required and stated that the reporting was a “moving target” and continued to change.
Since there was no formal written documentation approving the changes, the LWC
should have provided the reports in accordance with the interagency agreement.
According to the State, the reports were one of the tools used to aid in monitoring the
LWC's compliance with the Program. Therefore, the State must ensure that the LWC
submits reports, including all required data, or amend its reporting requirements in the
agreements to ensure that all 18 subrecipients (1) follow the scope of work and establish
timetables, (2) accurately report levels of accomplishment, and (3) collect and correlate
all data.
The State’s and LWC’s
Progress
As of April 30, 2009, the State and the LWC had made progress and commenced on-site
monitoring. As of August 24, 2009, of 18 subrecipients, the LWC had completed on-site
monitoring visits for 15, with 3 remaining. For the 15 completed on-site monitoring
7
Quarters 2-4 for year 2007 and quarters 1-4 for year 2008.
12
visits, seven were conducted between April 30 and July 29, 2009, and the LWC had
completed the monitoring reports. For the remaining eight, the LWC was in the process
of drafting the monitoring reports.
Overall, the monitoring reports included concerns related to file management, financial
management, fiscal compliance, questioned costs, and procurement. The LWC's
recommendations included but were not limited to subrecipients (1) conducting steps to
resolve questioned costs, using a cost-price detail form and additional support
documentation, and (2) establishing cost reasonableness and deliverable information for
procured services, etc. Generally, it appeared that the LWC had determined that the
subrecipient files and financial data (e.g., general ledgers, payroll journals) were
adequately maintained and the internal controls over financial information complied with
applicable CDBG laws and regulation.
Conclusion
The State, through the LWC, did not always ensure that it adequately monitored
subrecipients under agreement or submitted quarterly reports in compliance with the
interagency agreement. Specifically, although technical assistance was provided to 14 of
18 subrecipients, a review determined that all 18 received limited or no monitoring as
required by the interagency agreement. Further, three of seven quarterly reports that
LWC submitted to the State did not contain all performance measure data required by the
interagency agreement. These conditions occurred because the State did not (1) ensure
that the LWC had adequate staff to conduct on-site monitoring visits before June 2008,
(2) ensure that the LWC prioritized on-site monitoring after July 2008, (3) clearly convey
its expectations to the LWC regarding the frequency of the on-site monitoring, and (4)
ensure that the LWC complied with the terms of its interagency agreement. Without this
monitoring and compliance assurance, the State could not (1) effectively monitor the
Program’s progress and (2) ensure that Program goals were met and deliverables were
provided as required.
The State must ensure that the LWC consistently conducts and maintains documentation
of on-site monitoring for all subrecipients, maintains adequate staffing levels to ensure
that sufficient subrecipient monitoring will be conducted, and submits the quarterly
reports with all required performance measures or formally amend the reporting
requirements to reflect the change. The State must also ensure that it clearly conveys and
documents the LWC’s expectations pertaining to the frequency of on-site monitoring.
Recommendations
We recommend that HUD’s General Deputy Assistant Secretary for Community
Planning and Development require the State to
13
2A. Ensure that the LWC conducts and maintains documentation of on-site
monitoring for all subrecipients.
2B. Ensure that the LWC maintains adequate staffing levels to ensure that sufficient
subrecipient on-site monitoring will be conducted.
2C. Clearly convey and document the LWC’s expectations pertaining to the frequency
of monitoring (e.g., number of visits to be conducted, frequency of those visits).
2D. Submit the quarterly reports with data required in the interagency agreement or
formally amend the reporting requirements to reflect the change.
14
SCOPE AND METHODOLOGY
We conducted our audit at the State’s and the LWC’s office in Baton Rouge, LA, and the HUD
Office of Inspector General (OIG) office in New Orleans, LA. We performed our audit work
between March and October 15, 2009.
To accomplish our objective related to expense eligibility, we used the LWC’s disbursement data
for 18 subrecipients as of December 31, 2008. Through file reviews, we determined that the
reimbursement data were generally reliable. Between June 26, 2007, and December 05, 2008,8
the reimbursement data contained a universe of 329 reimbursements. We conducted a
preliminary nonstatistical sample review of six invoices, based upon highest and average dollar
amount. Due to the results of the preliminary sample, we expanded our review to include a
stratified proportional statistical sample of 31 invoices pertaining to all 18 subrecipients,9 which
were randomly selected. Therefore, the reimbursements reviewed totaled 37 reimbursements.
We reviewed the hard-copy files, as well as additional documentation provided by the State and
LWC, for the 37 reimbursements to evaluate whether the reimbursement expenses were eligible
and supported according to the executed agreements and Federal regulations.
To accomplish our objective related to monitoring, we selected a 100 percent sample of the 18
subrecipients. We reviewed monitoring reports, technical assistance notes, and quarterly reports
to evaluate whether the State ensured that the LWC monitored the subrecipients through on-site
monitoring and submitted quarterly reports as required.
In addition to the reviews, we
• Reviewed the HUD-approved action plan, HUD and State grant agreements, State and the
LWC interagency agreement and amendments, the LWC and 18 subrecipient agreements
and budgets, State and the LWC written policies and procedures, the Code of Federal
Regulations, public laws, and other legal authorities relevant to the CDBG disaster
recovery grant;
• Reviewed reports issued by HUD and the Louisiana legislative auditor’s office; and
• Interviewed key HUD, State, and LWC staff.
Our audit period covered October 1, 2006, through December 31, 2008. 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 objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions based on our
audit objective.
8
Dates were based on the dates the draw requests were sent to the State.
9
For the stratification sample, we used 18 strata related to the 18 subrecipients.
15
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives 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. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations as well as the systems for
measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objective:
• Program operations - Policies and/or procedures that management has
implemented to reasonably ensure that subrecipients comply with the
monitoring and expense eligibility requirements.
• Validity and reliability of data - Policies and/or procedures that
management has implemented to reasonably ensure that data regarding
expensed invoices are valid and reliable.
• Compliance with laws and regulations - Policies and procedures that
management has implemented to reasonably ensure that CDBG disaster
fund use is consistent with HUD’s laws and regulations.
• Safeguarding resources - Policies and procedures that management has
implemented to reasonably ensure that CDBG disaster funds are
safeguarded against waste, loss, and misuse.
We assessed the relevant controls identified above.
A significant weakness exists if internal controls do not provide reasonable
assurance that the process for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
16
Significant Weakness
Based on our review, we believe that the following items are significant
weaknesses:
• The State did not ensure that the LWC (1) ensured that reimbursements
were consistent with approved budgets before disbursing funds, (2)
reviewed the subrecipients’ reimbursements for compliance with
agreement requirements or Federal regulations, and (3) maintained
adequate records to identify and/or account for reimbursed funds (see
finding 1).
• The State did not always ensure that the LWC monitored its subrecipients
(see finding 2).
• The State did not always ensure that the Louisiana Workforce
Commission complied with the terms of the interagency agreement (see
findings 1 and 2).
17
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Ineligible 1/ Unsupported
number 2/
1A $2,289
1B $145,392
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
policies 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.
18
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
19
Comment 2
Comment 3
20
Comment 4
Comment 5
21
Comment 6
22
Comment 7
Comment 8
Comment 9
23
Comment 10
Comment 11
24
25
OIG Evaluation of Auditee Comments
Comment 1 The State and LWC concurred that the Program's processes and controls did not
always ensure that all funds were spent for eligible and supported expenses during
the HUD OIG's audit period. The State asserted that it had been working together
with the LWC to improve and correct the Program's processes and controls.
We acknowledge the State's actions to improve the Program’s processes and
controls.
Comment 2 In response to recommendation 1A, the State asserted that it and the LWC
reviewed the $4,041 in ineligible costs and would supply the HUD OIG with a
spreadsheet and documentation to support or justify all but $652 of the costs.
We reviewed the documentation provided by the State and agreed that $3,389 of
the ineligible costs were eligible and adequately supported. However, $652 of the
costs remained ineligible. In addition, based upon our review of supporting
documentation, provided by the State for disbursements deemed unsupported, we
determined that an additional $1,637 was ineligible. Specifically, the costs were
ineligible because the costs were either (1) not allowable under the subrecipient
agreements, (2) duplicate payments, or (3) overpayments. As such, we amended
our recommendation and Finding 1 to reflect $2,289 in ineligible costs.
Comment 3 In response to recommendation 1B, the State asserted that it and the LWC
reviewed the $248,500 in unsupported costs and would supply HUD OIG with a
spreadsheet and documentation to support all but $18,726 of these costs.
We reviewed the documentation provided by the State and agreed that $103,108
of the $248,500 of unsupported costs were eligible and adequately supported.
However, we determined that the remaining $145,392 of costs were still
unsupported. Specifically, the costs were unsupported because either (1) the State
referenced a budget revision to support the costs, but did not provide the approved
budget revision, or (2) costs could not be corroborated to the budget using the
additional supporting documentation. As such, we amended our recommendation
and Finding 1, to reflect $145,392 in unsupported costs.
Comment 4 In response to recommendation 1C, the State asserted it has been taking internal
measures to ensure subrecipient agreement amendments are completed in a timely
manner. In addition, the State stated that it monitored the LWC's amendment
process and was satisfied with the timeliness and effectiveness of this process.
Further, the State stated that as of February 2009, the Program staff had amended
all active agreements and all agreements were approved by the Division of
Administration, Office of Contractual Review. The State also indicated that
Program staff developed an internal policy to approve only reimbursements for
costs that are allowable under current and approved budgets.
26
We acknowledge the State's proactive measures in ensuring that (1) the
subrecipient agreements were amended and (2) the Program staff developed an
internal policy to approve only reimbursements allowable under current and
approved budgets.
Comment 5 In response to recommendation 1D, the State asserted that it monitored
subrecipients in conjunction with the LWC between April and September 2009.
The State stated that at that time, it provided technical assistance to ensure the
LWC either monitored or received enough documentation from subrecipients to
ensure funds were reimbursed for eligible and supported costs. The State asserted
that as a result, the LWC changed its internal approval process and the new
process is monitored continually by the State through draw requests.
We acknowledge the State's approach to ensuring that the LWC monitor and
receive enough documentation from subrecipients to ensure funds are reimbursed
for eligible and supported costs.
Comment 6 In response to recommendation 1E, the State recognized that additional controls
were needed. The State asserted that the staff structure for the Program was
redesigned to provide adequate internal controls and increase the amount of
technical assistance offered to subrecipients at each stage of the reimbursement
process. The State commented that this redesign adds assurance that only
allowable costs are reimbursed.
We acknowledge the State's approach to implementing adequate internal controls.
Comment 7 The State concurred that the LWC did not adequately monitor its subrecipients
and did not submit quarterly reports as required during the HUD OIG's audit
period. The State asserted that it developed responses to the recommendations in
which it believed would resolve the findings.
We acknowledge the State's proactive measures in resolving the findings.
Comment 8 In response to recommendation 2A, the State asserted that it (1) requested that the
LWC coordinate a series of on-site visits during April and September 2009, (2)
received copies of the reports and correspondence generated from the on-site
visits, and (3) monitored the LWC to ensure that the LWC is maintaining records
of the monitoring documents and responses in the files. Further, the State stated
that the LWC planned to conduct another series of on-site visits in 2010, since the
Program was extended another year.
We acknowledge the State's efforts to ensure subrecipients are monitored and
documentation is maintained.
Comment 9 In response to recommendation 2B, the State asserted that as of February 2009,
the LWC had reached its staffing goal and was able to conduct sufficient
27
monitoring, reviews, and provide sufficient technical assistance to its
subrecipients. The State noted, however, that the Program Director resigned as of
September 2009 and the LWC was operating with one less staff member. Finally,
the State agreed to recommend to the LWC the necessity to increase the Program
staff and noted that the LWC asked for additional funds to incorporate the LWC's
agency monitoring team to conduct frequent on-site monitoring visits of the
subrecipients.
We acknowledge the State's proactive measures for ensuring that the LWC
maintains adequate staffing levels.
Comment 10 In response to recommendation 2C, the State asserted that it will require the LWC
to submit a monitoring plan for its review and approval. In addition, the State
stated that it contracted with Reznick to create a comprehensive monitoring plan
for its Disaster CDBG activities. Further, the State stated that each CDBG
program received its own program specific monitoring plan that includes a risk
assessment, which will be used as a guide when the State determines the
frequency of monitoring visits. The State asserted that it will also use this for
assessing the LWC's monitoring plan.
We acknowledge the State's approach to ensuring that the frequency of on-site
monitoring visits is clearly conveyed to the LWC.
Comment 11 In response to recommendation 2D, the State asserted that the original agreement
for the Program had quarterly data deadlines that were two weeks later than the
required HUD deadline. The State also asserted that the amended agreements
require submissions by the tenth day of the month, thereby allowing the LWC
staff ample time to compile and submit data required in the interagency agreement
by the set deadline.
We acknowledge the State's actions regarding amending the quarterly report
submission deadlines. However, the State must ensure that either the LWC
submits quarterly reports that include the eight required performance measures; or
that it amend its reporting requirements by revising its policy or amending the
interagency agreement between it and the LWC.
28
Appendix C
RESULTS FROM REIMBURSEMENT SAMPLE REVIEW
Sample Grant # Request Paid amount OIG-identified OIG-identified OIG-identified
number eligible costs ineligible costs unsupported
costs
1 649069 8 $139,799 $139,799 $0 $0
2 649662 1 668,345 668,345 0 0
3 649661 39 8,670 8,596 0 74
4 649006 10 130,263 130,263 0 0
5 649668 4 49,231 48,376 0 855
6 649668 5 511,425 511,425 0 0
7 649066 6 34,540 23,302 0 11,238
8 649067 9 7,846 3,249 0 4,597
9 649068 2 73,639 26,243 142 47,253
10 649069 12 28,869 28,869 0 0
11 649069 19 97,597 97,598 0 0
12 649070 8 107,221 104,150 0 3,071
13 649103 10 819 819 0 0
14 649103 11 21,262 21,262 0 0
15 649203 3 61,647 61,026 621 0
16 649661 21 3,346 1,847 857 642
17 649661 7 13,370 0 0 13,370
18 649661 31 5,503 5,503 0 0
19 649661 15 3,820 3,779 41 0
20 649662 21 33,207 33,207 0 0
21 649662 12 65,077 50,282 0 14,795
22 649663 14 93,889 93,889 0 0
23 649664 6 110,988 99,498 0 11,490
24 649664 16 19,835 16,962 0 2,873
25 649665 10 155,553 155,553 0 0
26 649667 5 27,302 17,210 0 10,092
27 649668 1 5,781 5,781 0 0
28 649669 6 5,513 272 0 5,241
29 649669 1 6,441 293 0 6,148
30 649670 2 13,714 10,643 0 3,071
31 649671 4 7,383 7,383 0 0
32 649671 12 10,895 10,057 31 807
33 649672 13 6,580 4,497 0 2,083
34 649672 38 7,880 6,838 0 1,042
35 649672 2 28,528 24,405 597 3,526
36 649672 16 7,754 5,671 0 2,083
37 649672 30 1,791 750 0 1,041
Totals $2,575,323 $2,427,642 $2,289 $145, 392
29
State of Louisiana, Baton Rouge, LA, Did Not Always Ensure Compliance Under Its Recovery Workforce Training Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-01-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)