oversight

The State of Louisiana's, Baton Rouge, LA, Subrecipient Generally Ensured Costs Were Supported Under Its Tourism Marketing Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-04-30.

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

                                                                  Issue Date
                                                                      April 30, 2010
                                                                  
                                                                  Audit Report Number
                                                                      2010-AO-1003




TO:         Scott G. Davis, Director, Disaster Recovery and Special Issues Division, DGBD


FROM:       Rose Capalungan, Regional Inspector General for Audit, Gulf Coast Region,
              GAH


SUBJECT: The State of Louisiana’s, Baton Rouge, LA, Subrecipient Generally Ensured
           Costs Were Supported Under Its Tourism Marketing Program


                                    HIGHLIGHTS

 What We Audited and Why

             We performed a review of the State of Louisiana, Office of Community
             Development’s (State), Louisiana Tourism Marketing Program (Program),
             administered by the State’s subrecipient, the Department of Culture, Recreation
             and Tourism (DCRT). We initiated the review as part of the Office of Inspector
             General (OIG) Gulf Coast Region’s audit plan and examination of activities
             related to Gulf Coast hurricane disaster relief efforts. Our objective was to
             determine whether the DCRT, as the State’s subrecipient, ensured that Program
             disbursements were adequately supported.

 What We Found


             The DCRT generally ensured that Program disbursements were adequately
             supported. However, in a few instances, it did not maintain adequate records to
             support the eligibility of costs. In addition, the DCRT did not always ensure that
             supporting documentation was readily available for review. These conditions
             occurred because the State did not ensure that the DCRT (1) complied with the

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           terms of its agreement as related to the maintenance of records, or (2) had
           adequate written Program policies and procedures for the review and approval of
           Program disbursements. As a result, the State was unable to support $82,752 of
           Program costs.

What We Recommend


           We recommend that the HUD’s Director for the Disaster Recovery and Special
           Issues Division require the State (1) support or repay its Program $82,752 in
           unsupported costs, (2) consider reviewing a sample of the remaining 128
           disbursements, related to the five subrecipients, to provide reasonable assurance
           that the disbursements are adequately supported, and (3) ensure that the DCRT’s
           invoice file records are readily available for review.


Auditee’s Response


           We provided a copy of the draft report to the State and HUD on March 15, 2010.
           We held an exit conference with the State and HUD on March 17, 2010. Based
           on the State’s comments, we made tone changes and provided a revised draft
           report on March 25, 2010. We asked the State to provide written comments to the
           draft report by March 31, 2010. The State requested an extension until April 14,
           2010 and it provided written comments on that day. The State generally agreed
           with our results, but disagreed with one of our recommendations. The complete
           text of the State’s response, along with our evaluation of the response, can be
           found in appendix B of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                         4

Results of Audit
      Finding 1: The DCRT, as the State’s Subrecipient, Generally Ensured That   5
      Costs Were Adequately Supported

Scope and Methodology                                                            8

Internal Controls                                                                9

Appendixes
   A. Schedule of Questioned Costs                                               11
   B. Auditee Comments and OIG’s Evaluation                                      12




                                            3
                            BACKGROUND AND OBJECTIVE

The Louisiana Tourism Marketing Program (Program), a $28.5 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 Department of Recreation and
Tourism (DCRT). The Program was created to bring out-of-state travelers back to the New
Orleans region, Southeast Louisiana, and Southwest Louisiana, with its primary objective to
increase the number of visitors to the disaster-impacted areas. The Program’s initiatives
included but were not limited to (1) convention and interactive marketing, promotions to travel
agents, and related activities; (2) an awareness campaign focusing on New Orleans, Southeast
Louisiana, and Southwest Louisiana; (3) niche marketing programs designed to promote family
activities and festivals and cultural attractions unique to areas most affected by the storms; and
(4) coordinated marketing efforts between the DCRT and the Louisiana Department of Economic
Development to regain investor confidence in spending money and creating jobs in Louisiana.

The State and the DCRT entered into an interagency agreement (agreement), effective November
2006 through June 2008, to administer the Program. The DCRT functioned in two capacities—
as a grant recipient, for those funds used directly by the DCRT in its Program, and as a sub-grant
administrator, for those grant proceeds provided to subrecipients.

The DCRT’s funding for the Program was provided solely through Community Development
Block Grant (CDBG) disaster recovery funds administered by the State. The agreement allowed
the DCRT to execute agreements to aid in implementing the Program. Therefore, it executed 14
subrecipient agreements for the purpose of implementing 171 programs. The agreement required
the DCRT to (1) provide financial oversight of its subrecipients, (2) track its subrecipient
agreements via budget projections, (3) review and approve budget amendments, (4) have a
contract monitor to work directly with its subrecipients and monitor performance measures, (5)
perform site visits to monitor or audit subrecipient expenditures, and (6) prepare and submit
quarterly progress reports for all subrecipient activities.

As of June 2008, the Program had ended, and all Program funds had been expended. Our
objective was to determine whether the DCRT, as the State’s subrecipient, ensured that Program
disbursements were adequately supported.




1
    Three subrecipients implemented two different programs.

                                                         4
                                RESULTS OF AUDIT

Finding 1: The DCRT, as the State’s Subrecipient, Generally Ensured
That Costs Were Adequately Supported
The DCRT generally ensured that Program disbursements were adequately supported. However,
in a few instances, it did not maintain adequate records to support the eligibility of reimbursed
costs. In addition, the DCRT did not always ensure that supporting documentation was readily
available for review. These conditions occurred because the State did not ensure that the DCRT
(1) complied with the terms of its agreement as related to the maintenance of records, or (2) had
adequate written Program policies and procedures for the review and approval of Program
disbursements. As a result, the State was unable to support $82,752 of Program costs.



 $82,752 Paid for Unsupported
 Costs

              A file review of 64 disbursements for 5 subrecipients determined that costs in 5 (8
              percent) disbursements were unsupported because the files were missing
              supporting documentation, such as invoices or receipts. For example, one
              subrecipient incurred newspaper or internet advertisements, which were not
              supported by a receipt, invoice, or other documentaion. Another subrecipient
              incurred costs for staff hours, which were not supported by timesheets or a
              breakdown of the hours per employee. Although required by its agreement with
              the State, the DCRT did not maintain adequate documentation to support these
              costs.

              As a result, the State could not support $82,752 of program costs. The remaining
              59 subrecipient disbursements were adequately supported.

              The State must either support or repay $82,752 in questioned costs. In addition,
              the State should consider reviewing a sample of the remaining 128 disbursements
              for the five subrecipients reviewed, to provide reasonable assurance that the
              disbursements are adequately supported.


 Supporting Documentation Not
 Readily Available


              Although the DCRT provided supporting documentation for most of the
              disbursements, documentation was not always readily available as required by its
              agreement with the State. Specifically, complete documentation was not always


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            maintained in the DCRT’s local files. In some instances, the DCRT had to obtain
            requested invoices or supporting documentation either directly from the
            subrecipients or from its off-site archived files.

            To allow the clear and quick determination of the eligibility of Program costs
            during audits or other reviews, adequate supporting documentation should be
            readily available and maintained with each disbursement. The State must ensure
            that the DCRT’s complete files are readily available for review.


Program Policies Not Sufficient


            The DCRT provided copies of slides to document its Program procurement and
            record-keeping policies and procedures. It also provided a one-page document,
            which reflected its cost reporting policies and procedures. However, those
            documents did not address what records should be maintained with disbursements
            or the process for reviewing and determining the eligibility of costs. Specifically,
            as related to invoice reviews, the procedures did not

                  Identify the persons responsible for the review and approval of invoice
                   reimbursement requests,
                  Describe what documentation served as sufficient support for
                   disbursements, or
                  Describe how to process exceptions in the absence of required
                   documentation or the identification of ineligible costs.

            Although the Program has ended, detailed written policies and procedures may
            have assisted the State and the DCRT in ensuring that costs were adequately
            supported.


State Taking Action


            During an update meeting with the State, we informed the State of the
            unsupported costs and the issues regarding the maintenance of adequate
            documentation. To address the issues, the State was coordinating with the DCRT
            to resolve the unsupported costs and ensure that adequate documentation is
            maintained and readily available. We acknowledge the State’s and the DCRT’s
            efforts toward resolving these issues.




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Conclusion


             In a few instances, the DCRT did not ensure that Program disbursements were
             adequately supported. In addition, it did not always ensure that documentation
             was readily available for review. These conditions occurred because the State did
             not ensure that the DCRT had sufficient controls in place. Specifically, the
             DCRT’s Program policies and procedures did not detail the invoice review and
             records maintenance process. As a result, the State could not support $82,752 of
             program costs, which it must either support or repay. The State should also
             consider reviewing a sample of the remaining 128 disbursements to provide
             reasonable assurance that adequate supporting documentation is maintained.
             Finally, the State must ensure that the DCRT’s records are readily available for
             review.

Recommendations

             We recommend that the HUD’s Director for the Disaster Recovery and Special
             Issues Division require the State to

             1A. Support or repay its Program $82,752 in unsupported costs.

             1B. Consider reviewing a sample of the remaining 128 disbursements, related to
                 the five subrecipients reviewed, to provide reasonable assurance that the
                 disbursements are adequately supported.

             1C. Ensure that the DCRT’s records are readily available for review.




                                              7
                         SCOPE AND METHODOLOGY

We conducted our review at the State’s and the DCRT’s office in Baton Rouge, LA, and the
HUD Office of Inspector General (OIG) office in New Orleans, LA. We performed our review
between November 2009 and February 2010.

To accomplish our objective, we used the disbursement data for 5 of 17 programs as of October
30, 2009. Through file reviews, we determined that the reimbursement data were generally
reliable. Between June 1, 2006 and October 30, 2009, our universe consisted of 192
disbursements for the five programs. We used a stratified statistical sampling approach to select
64 disbursements, totaling $17, 941,452, for review. We chose this method because it allowed
selections to be made, without bias, from the audit universe. We reviewed the hard-copy files, as
well as other documentation provided by the DCRT, to evaluate whether the disbursements met
the requirements of the executed agreements and Federal regulations.

As related to the 64 disbursements selected for review, we initially reviewed 10 to determine
whether the disbursements were eligible and supported. However, since we only identified
issues related to unsupported costs and not the eligibility of costs, we reviewed the remaining 54
disbursements to determine whether adequate documentation was included with the files to
support Program disbursements.

In addition to the disbursements file reviews, we

          Reviewed the HUD-approved action plan, HUD and State grant agreements, State
           and DCRT interagency agreement, DCRT and five subrecipient agreements and
           budgets, State and DCRT 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 the Louisiana Legislative Auditor’s office;
          Reviewed monitoring notes and a financial review report prepared by the State,
           quarterly progress reports prepared by the DCRT, and quarterly reports prepared by
           DCRT’s subrecipients; and
          Interviewed key HUD, State, and DCRT staff.

Our review period covered September 2006 through October 2009. We conducted the audit in
accordance with generally accepted government auditing standards. Those standards require that
we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objective. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions based on our
objective.




                                                8
                              INTERNAL CONTROLS

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

        Program operations,
        Relevance and reliability of information,
        Compliance with applicable laws and regulations, and
        Safeguarding of assets and resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls


              We determined that the following internal controls were relevant to our audit
              objective:

                     Program operations - Policies and/or procedures that management
                      implemented to reasonably ensure that Program expenditures were
                      adequately supported.

                     Validity and reliability of data - Policies and procedures that management
                      implemented to reasonably ensure that valid and reliable data, within the
                      management information system, were obtained, maintained, and fairly
                      disclosed in reports.

                     Compliance with laws and regulations - Policies and procedures that
                      management implemented to reasonably ensure that CDBG disaster fund
                      use was consistent with HUD’s laws and regulations.

                     Safeguarding resources - Policies and procedures that management
                      implemented to reasonably ensure that CDBG disaster funds were
                      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.

                                                9
Significant Weaknesses


           Based on our review, we believe that the following item is a significant weakness:

                  The State did not ensure that the DCRT (1) had adequate written Program
                   policies and procedures for the review and approval of disbursements, or
                   (2) complied with the terms of its subrecipient agreement as related to the
                   maintenance of records (see the finding).




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                                   APPENDIXES
Appendix A

                  SCHEDULE OF QUESTIONED COSTS

 Recommendation                           Unsupported
        number                                     1/
             1A                                $82,752


1/   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.




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Appendix B

     AUDITEE COMMENTS AND OIG’S EVALUATION


                  Auditee Comments




                         12
Comment 1




Comment 2




Comment 3




Comment 4




            13
Comment 5




Comment 6




Comment 7




            14
                         OIG Evaluation of Auditee Comments

Comment 1   The State asserted that the $82,752 of unsupported costs reported by HUD OIG
            represented less than 0.5 percent of the total dollar amount of disbursements and
            conversely 99.5 percent of the disbursements were adequately supported. The
            State contended that this amount of unsupported costs was immaterial and should
            be considered an acceptable error rate.

            Although the State considers the amount of unsupported costs immaterial, the
            State must ensure that all costs are fully supported, as required by its grant
            agreement with HUD.

Comment 2   The State indicated that the DCRT provided both it and the HUD OIG a
            spreadsheet identifying total CDBG expenditures of $4,999,818 charged to the
            subrecipient’s $5 million budget. The State asserted that the DCRT identified a
            vendor invoice totaling $67,894.74 and; that only $43,201.20 of CDBG funds was
            used to pay the invoice and the balance was paid with other DCRT funds. The
            State also stated that it tracks all the DCRT draw requests, which total
            $4,999,818.

            We reviewed the documentation provided by the State, as well as the DCRT, and
            agreed that $24,511 of the unsupported costs were adequately supported. As
            such, we removed all reference to the one subrecipient reviewed that exceeded its
            approved budget from the final report.

Comment 3   The State agreed that complete documentation should be available in local files.
            However, the State asserted that this will not always occur because the level of
            supporting documentation is not always clearly defined and the documentation
            requirements of various audit entities may vary as to what is considered adequate,
            which will necessitate the need to obtain additional documentation from the
            subrecipients. The State also noted that the Program ended in June 2008, and it is
            understandable that the DCRT had archived files off-site since on-site storage was
            limited.

            During our review we noted that in some instances, the DCRT did not have any
            documentation to support certain costs, which in part, caused the unsupported
            costs. In addition, since the DCRT had to obtain invoices or supporting
            documentation either directly from the subrecipients or from its off-site archived
            files, our file reviews were delayed by more than three weeks. As such, the State
            must ensure that the DCRT maintains complete files that are readily available for
            review.

Comment 4   The State agreed that Program policies and procedures could have contained more
            detail, but believed that the DCRT had adequate Program policies and procedures
            in place, since the HUD OIG did not identify any ineligible costs and of the nearly
            $19 million of disbursements reviewed 99.5 percent were supported.


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            Although we did not identify any ineligible costs, we did identify unsupported
            costs in some instances. Therefore, we stand by original conclusion that more
            detailed written policies and procedures may have assisted the State and the
            DCRT in ensuring that all costs were adequately supported.

Comment 5   In response to recommendation 1A, the State stated that it and the DCRT would
            continue to obtain documentation to fully support the $107,263.

            We acknowledge the State’s efforts to support the $107,263 in unsupported costs.
            In addition, based upon our review of documentation provided by the State, as
            well as the DCRT, we revised this recommendation to reduce the unsupported
            costs from $107,263 to $82,752.

Comment 6   In response to recommendation 1B, the State requested that HUD OIG reconsider
            its recommendation to review the remaining 128 disbursements since less than
            one percent of the $17.9 million of disbursements reviewed were found to lack
            supporting documentation. The State further stated that it would be difficult to
            cost justify the man hours required to review the remaining 128 disbursements.

            Considering the percentage of unsupported costs and the State’s concern
            regarding available resources, we revised the recommendation for the State to
            consider reviewing a sample of the remaining 128 disbursements, related to the
            five subrecipients reviewed, to provide reasonable assurance that the
            disbursements are adequately supported.

Comment 7   In response to recommendation 1C, the State indicated that for future HUD OIG
            reviews, it will request the DCRT to retrieve all off-site archived files prior to the
            start of the review.

            We acknowledge the State’s approach to ensuring that the DCRT’s complete
            documentation is readily available for review.




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