oversight

Broward County, FL, Needs To Strengthen Controls Over Its Neighborhood Stabilization Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-03-31.

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

                                                                Issue Date
                                                                       March 31, 2010
                                                                Audit Report Number
                                                                        2010-AT-1002




TO:        Maria R. Ortiz, Director of Community Planning and Development, Miami Field
            Office, 4DD


           //signed/
FROM:      James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT: Broward County, FL, Needs To Strengthen Controls Over Its Neighborhood
          Stabilization Program


                                   HIGHLIGHTS
 What We Audited and Why

             We audited the Neighborhood Stabilization Program (Program) administered by
             Broward County, FL (County). We performed the audit because Housing and
             Economic Recovery Act of 2008 (HERA) reviews are part of the Office of
             Inspector General’s (OIG) annual audit plan and we identified the program as
             high risk. In addition, the County received more than $17.7 million in Program
             funds under HERA.

             Our objective was to determine whether the County had the necessary controls to
             administer its Program in accordance with HERA. Specifically, we evaluated
             whether the County had adequate (1) management controls to ensure that
             activities met Program objectives and (2) financial controls to ensure that
             obligations were timely and valid and expenditures were allowable and properly
             reported.
What We Found

           The County had (1) adequate management controls to ensure that activities met
           Program objectives and (2) adequate financial controls to ensure that obligations
           were timely and valid and expenditures were allowable. However, it needs to
           strengthen some controls over its Program. The County did not accurately report
           Program financial information to the U.S. Department of Housing and Urban
           Development (HUD) and incorrectly posted Program expenditures to the wrong
           fiscal year in its financial management system. In addition, it did not post first
           and second quarter Program performance reports to its Web site in a timely
           manner. These conditions occurred because the County (1) had inadequate
           controls to ensure that administration costs were properly reported to HUD and
           Program costs were appropriately recorded in its financial management system
           and (2) was unaware of the Web site requirements. As a result, HUD has no
           assurance of the County’s actual financial progress of its Program and the County
           overstated its obligation and expenditures in its financial management system. In
           addition, the citizens of Broward County were not informed in a timely manner
           regarding the use of Program funds.

What We Recommend

           We recommend that the Director of the Miami Office of Community Planning
           and Development require the County to (1) establish controls to reconcile
           Program obligations and expenditures between HUD’s Disaster Recovery Grant
           Reporting system (system) and the County’s financial management system, (2)
           strengthen controls to ensure that all Program activities are properly reported in
           HUD’s system and their financial management system on a timely basis, and (3)
           post its Program quarterly performance reports on its Web site in a timely manner.

           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 our review results with County and HUD officials during the audit.
           We provided a copy of the draft report to County officials on March 4, 2010, for
           their comments and discussed the report with the officials at the exit conference
           on March 16, 2010. The County provided written comments on March 15, 2010,
           and generally agreed with our finding.

           The complete text of the County’s response, along with our evaluation of the
           response, can be found in appendix A of this report.


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                           TABLE OF CONTENTS


Background and Objective                                                   4

Results of Audit
       Finding 1: The County’s Controls Over Its Program Had Weaknesses    5

Scope and Methodology                                                      9

Internal Controls                                                         11

Appendixes
   A. Auditee Comments and OIG’s Evaluation                               12




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                      BACKGROUND AND OBJECTIVE

The Neighborhood Stabilization Program (Program) was authorized under Title III of the
Housing and Economic Recovery Act of 2008 (HERA) and was established for the purpose of
stabilizing communities that have suffered from foreclosures and abandonment. The goal of the
Program is to purchase and redevelop foreclosed-upon and abandoned homes and residential
properties. The funding is provided through the U.S. Department of Housing and Urban
Development (HUD) Community Development Block Grant program. HUD allocated $3.92
billion on a formula basis to States, territories, and local governments.

On February 27, 2009, HUD awarded Broward County (County) more than $17.7 million in
Program funds. The County’s Environmental Protection and Growth Management Department
was created in 2008 when the County merged its urban redevelopment and planning functions
with those of environmental protection, emergency management, and consumer protection.
Within this department, the Housing Finance and Community Development Division is
responsible for administering the program. The primary purpose of the division is to provide
affordable housing to persons and families of low, moderate, or middle income and provide
capital for investment in such housing.

The County plans to use Program funds to acquire and rehabilitate single-family and multifamily
units and provide downpayment assistance on foreclosed-upon properties. The County must
have all Program funds obligated by August 27, 2010. As of December 31, 2009, the HUD
Disaster Recovery Grant Reporting system (system) reported that the County had obligated more
than $2.1 million in Program funds. Approximately 56 percent of the time has elapsed, yet the
County has only obligated about 12 percent of the funds. The County has developed a plan to
obligate all funds by the deadline and has submitted it to HUD.

The County had obligated and expended more than $1.5 million in Program funds as of
September 30, 2009.

Our audit objective was to determine whether the County had the necessary controls to
administer its Program in accordance with HERA. Specifically, we evaluated whether the
County had adequate (1) management controls to ensure that activities met Program objectives
and (2) financial controls to ensure that obligations were timely and valid and expenditures were
allowable and properly reported.




                                                4
                                  RESULTS OF AUDIT


Finding 1: The County’s Controls Over Its Program Had Weaknesses
The County did not always comply with Program requirements. Specifically, it did not
accurately report Program financial information in HUD’s system and incorrectly posted
Program expenditures to the wrong fiscal year in its financial management system. In addition,
it did not post its first and second quarterly performance reports to its Web site in a timely
manner. A concern was also noted regarding the County not ensuring that the voluntary
acquisition notice is formally sent by certified or registered first class mail before an acquisition.
These conditions occurred because the County (1) had inadequate controls to ensure that
administration costs were properly reported and Program costs were appropriately recorded in its
financial management system and (2) was not aware that it had to post its performance reports on
its Web site. As a result, HUD has no assurance of the County’s actual financial progress of its
Program, the County overstated its obligation and expenditures in its financial management
system, and its citizens were not informed regarding the progress of Program funds in a timely
manner. Further, the owners of the property were not formally notified that the acquisition was
voluntarily.


 Administration Costs Not
 Accurately Reported to HUD


               The County did not accurately report Program financial information to HUD. As
               of September 30, 2009, it had reported to HUD approximately $1.5 million in
               total obligations and $1.5 million in expenditures for Program and administration
               costs. However, the County’s financial management system showed more than
               $1.6 million in obligations and expenditures. Regulations at 24 CFR (Code of
               Federal Regulations) 85.20 require that accurate, current, and complete disclosure
               of the financial results of financially assisted activities be in accordance with the
               financial reporting requirements of the grant.

               The obligated and expended amounts in the County’s financial management
               system exceeded the amounts reported to HUD by $111,941 and $107,859,
               respectively, as shown in the table below.

                                        Obligations                                  Expenditures
                Activity    County         HUD                           County          HUD
                   #         system       system          Difference     system         system      Difference
                  001      $ 584,769     $ 488,214        $ 96,555     $ 584,769      $ 488,214     $ 96,555
                  004      $1,002,183   $1,002,183                     $1,002,183     $1,002,183
                  006      $ 50,506     $ 35,120          $ 15,386     $    50,506    $ 39,202      $ 11,304
                Total      $1,637,458   $1,525,517        $ 111,941    $1,637,458     $1,529,599    $ 107,859



                                                      5
           For administration costs (activity 006), the difference of $15,386 in obligations
           and $11,304 in expenditures occurred because the County had inadequate controls
           to ensure that administration costs were properly reported. Specifically, the
           County did not reconcile administration costs between its system and what was
           reported to HUD.

           The County reported to HUD total administration expenditures in excess of
           obligations by $4,082 ($39,202 - $35,120). It was unable to provide a clear
           explanation of the difference. One County employee indicated that the amounts
           were based on the County’s financial management system, while another
           employee stated that it may have been based on preliminary estimates.
           Ultimately, staff was unsure how the amounts reported were derived.

           Although the County reported inaccurate expenditures of $39,202 and obligations
           of $35,120, it stated that the actual amount that should have been reported to
           HUD for total obligations and expenditures was $50,506. As a result, HUD has
           no assurance of the County’s actual financial progress of its Program. By
           reconciling financial information, the County can ensure that accurate information
           will be reported.

Program Costs Not Accurately
Recorded in Its Financial
Management System


           The County incorrectly recorded in its financial management system $96,555 in
           acquisition costs for a single-family acquisition (activity 001) in fiscal year 2009
           rather than posting it in fiscal year 2010. Regulations at 24 CFR 85.20 (b)(3)
           require that effective control and accountability be maintained for all grant and
           subgrant cash, real and personal property, and other assets. The $96,555
           expenditure was associated with a property acquisition located in Lauderdale
           Lakes, FL. The County did not authorize this acquisition until October 1, 2009.
           Its fiscal year ended on September 30, 2009. According to the County’s
           procedures, upon approval of the work authorization, the vendor may proceed to
           execute documentation and incur costs to carry out the acquisition. Therefore,
           this expenditure pertained to fiscal year 2010 acquisition costs. The County
           admitted that it mistakenly posted the $96,555 in acquisition costs to the wrong
           period; however, the amount reported in HUD’s system was accurate. As a result,
           the County overstated its Program acquisition obligation and expenditures in its
           financial management system.




                                            6
    Financial Information Not Posted
    on Its Web Site in a Timely
    Manner

                  The County did not post its Program quarterly performance reports on its Web
                  site in a timely manner. Federal Register Docket no. FR-5255-N-01, section O,
                  requires that the quarterly reports be submitted using HUD’s Web-based system
                  and, at the time of submission, be posted prominently on the grantee’s official
                  Web site. The County had not posted its first and second quarterly performance
                  reports on its Web site. This error occurred because the County was unaware of
                  this requirement. As a result, citizens were not informed in a timely manner
                  regarding the progress of Program funds. After we informed the County of the
                  requirement, it posted its quarterly reports on its Web site.

    Formal Written Notice Not
    Provided to Owner

                  The Uniform Relocation Act requires that before acquisition of any property, the
                  Agency provide written notice to the owner that the terms of the acquisition will
                  comply with voluntary acquisition provisions.1 The County sent this notice for
                  the acquisition of two multifamily properties after the properties were purchased.
                  The County said this occurred because at the time of this acquisition the County
                  had little to no guidance on how the Uniform Relocation Act would apply under
                  the Program. However, prior to these acquisitions, HUD explained in its website
                  that grantees must follow the regular Uniform Relocation Act voluntary
                  acquisition requirements2 and provided a link to the Uniform Relocation Act
                  sample guide form. The County provided us with e-mails to and from the owner
                  showing the elements needed to meet the voluntary acquisition requirements.
                  Although the County did in effect meet the requirements, the Uniform Relocation
                  Act requires the voluntary acquisition notice to be formally sent by certified or
                  registered first class mail before the acquisition. As a result, the owners of the
                  property were not formally notified that the acquisition was voluntarily.
                  Therefore, the County must provide the applicable former owners with a right to
                  withdraw notice, which clarifies that the acquisition is voluntary in nature.3




1
  49 CFR 24.101(b)(1)(iii) and (iv) of the Uniform Relocation Act require that the agency notify the owner of the
property in writing (iii) that it will not acquire the property if negotiations fail to result in an amicable agreement and
(iv) what it believes to be the market value of the property.
2
  49 CFR 24.5 requires that this notice be personally served or sent by certified or registered first class mail with
return receipt requested and documented in agency files.
3
  HUD Handbook 1378, CHG-8, paragraph 5-3(H), Noncompliance with Voluntary Acquisition Requirements.

                                                            7
Conclusion


             Despite having adequate management and financial controls to ensure that
             activities met Program objectives, obligations were timely and valid, and
             expenditures were allowable; the County had inadequate financial controls and
             was not aware that it had to post its performance reports on its Web site. In
             addition, the County was unaware that it had to formally send the voluntary
             acquisition notice by certified or registered first class mail before an acquisition.
             As a result, HUD has no assurance of the County’s actual financial progress of its
             Program, the County overstated its obligation and expenditures in its financial
             management system, and its citizens were not informed regarding the progress of
             Program funds in a timely manner. In addition, the owners of the property were
             not formally notified that the acquisition was voluntary.

Recommendations

             We recommend that the Director of the Miami Office of Community Planning and
             Development require the County to

             1A. Establish controls to ensure that Program obligations and expenditures for
                 administration costs are reconciled in a timely manner between HUD’s
                 system and the County’s financial management system.

             1B. Strengthen controls to ensure that all Program activities are properly
                 reported in HUD’s system and its financial management system on a timely
                 basis.

             1C. Ensure that its Program quarterly performance reports are posted on its Web
                 site in a timely manner.

             1D. Provide the required right to withdraw notice documentation to the owners
                 for the multifamily property acquisition.




                                               8
                         SCOPE AND METHODOLOGY

Our audit objective was to determine whether the County had the necessary controls to
administer its Program in accordance with HERA. Specifically, we reviewed whether the
County had adequate (1) financial controls to ensure that obligations were timely and valid and
expenditures were allowable and properly reported and (2) management controls to ensure that
activities met Program objectives.

   To accomplish the audit objective, we

       Reviewed and obtained an understanding of relevant HERA legislation, Federal Register
       and Code of Federal Regulations requirements, and other HUD regulations;

       Reviewed the County’s Program substantial amendment to the 2008 action plan and the
       special conditions placed on the County by HUD;

       Reviewed relevant County policies and procedures;

       Interviewed HUD and County officials;

       Reviewed County financial records;

       Reviewed County acquisition files and records for two activities;

       Reviewed reports from HUD’s system; and

       Reviewed agreements with contracted developers.

The County’s Program substantial amendment to its 2008 action plan indicated that the County
planned to use Program funds for five activities. We selected acquisition of single-family and
multifamily properties for rental activities for review because these two activities had progressed
further than the other activities. The single-family activity included purchasing foreclosed-upon
or abandoned single-family properties for sale to income-eligible households. The multifamily
properties for rental activity involved acquiring foreclosed-upon or abandoned multifamily
properties to rent to income-eligible persons.

As of September 30, 2009, the County had obligated and expended nearly $1.5 million for the
acquisition of single-family and multifamily rental properties. Based on their large dollar
amounts, we reviewed the acquisition of three properties with obligations and expenditures
totaling more than $1.1 million (or 78 percent of total Program obligations and expenditures).
For financial controls, we reviewed County records to determine whether Program obligations
and expenditures were allowable and adequate supporting documentation was maintained.

At the time of our review, the County was in the process of rehabilitating the acquired properties.
Thus, it had not achieved the Program objective to house income-eligible families because the

                                                 9
rehabilitation was incomplete. However, based on our limited review of existing policies and
procedures, interviewing County staff, and examining the contracts between the County and
property developer, we determined that the County had adequate management controls to ensure
that Program activities would meet program objectives. The results of our review apply only to
the items selected and cannot be projected to the universe or population.

We also assessed the reliability of computer-processed data reported in HUD’s system. To
assess the reliability of obligation and expenditure amounts reported in the system, we
interviewed County officials about data, reviewed existing documentation related to the data
source, and traced data to the County’s financial management system for accuracy and
completeness. We found that as of September 30, 2009, obligations and expenditures recorded
in the County’s financial management system exceeded the reported amount in HUD’s system
by $111,941 and $107,859, respectively. The discrepancy was due to the County’s incorrectly
recording Program costs in its financial management system. However, the correct amounts in
Program acquisition costs were reported to HUD. In addition, the County incorrectly reported
administrative costs to HUD because it had inadequate controls to ensure that administration
costs were properly reported.

Considering the results of our review, we relied on the obligation and expenditure amounts
reported for the Program in HUD’s system. However, we determined that administration costs
reported in the system were unreliable. Therefore, we recommend that the County ensure that all
Program activities are properly reported in the system.

Our review generally covered the period March through September 2009 and was extended as
necessary during the audit. Our review was conducted from October 2009 through January 2010
at the County’s Housing Finance and Community Development Division located at 110
Northeast 3rd Street, Fort Lauderdale, FL.

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 finding 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.




                                              10
                              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 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:

                  Controls over program operations;
                  Controls over the reliability of data;
                  Controls over compliance with laws and regulations; and
                  Controls over the safeguarding of resources against waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.

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

                  The County’s controls over its Program had weaknesses (see finding 1).




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                        APPENDIXES

        AUDITEE COMMENTS AND OIG’S EVALUATION


APPENDIX A

Ref to OIG Evaluation      Auditee Comments




                            12
Comment 1




            13
14
                         OIG Evaluation of Auditee Comments


Comment 1   The County did not agree that this issue should be a finding or concern. The
            billing for $96,555 in costs for the acquisition of a single-family property was
            dated September 30, 2009. While the County’s financial management system
            listed it as a fiscal year 2009 charge, the closing activity for the property did not
            occur until October 6, 2009. The expenditure was correctly reported to HUD and
            the funds drawn down in the quarter the activity occurred.

            We contend the County incorrectly recorded $96,555 for a single-family
            acquisition expense incurred in fiscal year 2010 rather than in 2009 in its financial
            management system. According to the County’s procedures, the County does not
            incur costs until it authorizes the work authorization. The work authorization was
            authorized on October 1, 2010, which pertains to fiscal year 2010. We
            acknowledge that the County reported accurate information to HUD as of
            September 30, 2009; however, it needs to ensure the information contained in its
            financial management system is accurate.




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