oversight

The City of Saginaw, Michigan, Lacked Adequate Controls over Its Community Development Block Grant-Funded Demolition Activities

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-11-03.

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

                                                                   Issue Date
                                                                            November 3, 2009
                                                                   Audit Report Number
                                                                            2010-CH-1002




TO:        Jeanette Harris, Director of Community Planning and Development, 5FD


FROM:      Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The City of Saginaw, Michigan, Lacked Adequate Controls over Its Community
           Development Block Grant-Funded Demolition Activities

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the City of Saginaw’s (City) Community Development Block Grant
             (Block Grant) program-funded demolition activities. The audit was part of the
             activities in our fiscal year 2009 annual audit plan. We selected the City based
             upon a request from the U.S. Department of Housing and Urban Development’s
             (HUD) Detroit Office of Community Planning and Development. Our audit
             objective was to determine whether the City effectively administered its Block
             Grant program-funded demolition activities.

 What We Found

             The City did not effectively administer its Block Grant program-funded
             demolition activities. It lacked sufficient information for demolition activities to
             support nearly $138,000 in Block Grant funds used for demolition activity costs,
             did not request reimbursement from property owners and/or place liens on
             properties for more than $80,000 in Block Grant funds used for demolition
             activities, and did not provide sufficient documentation to support that it was not
             required to request reimbursement from property owners and/or place liens on
             properties for nearly $51,000 in Block Grant funds used for demolition activities.
           We informed the director of the City’s Department of Development (Department)
           and the Director of HUD’s Detroit Office of Community Planning and
           Development of a minor deficiency through a memorandum, dated November 3,
           2009.

What We Recommend

           We recommend that the Director of HUD’s Detroit Office of Community
           Planning and Development require the City to (1) provide sufficient supporting
           documentation or reimburse its Block Grant program from nonfederal funds for
           the nearly $138,000 in Block Grant funds used for unsupported expenses, (2)
           reimburse its Block Grant program more than $80,000 from nonfederal funds for
           the demolition activities for which the City did not request the property owners to
           reimburse the City or place liens on the properties, (3) provide sufficient
           supporting documentation or reimburse its Block Grant program from nonfederal
           funds for the nearly $51,000 in Block Grant funds used for the demolition
           activities for which the City did not provide sufficient documentation to support
           that it was not required to request reimbursement from property owners and/or
           place liens on properties, and (4) implement adequate procedures and controls to
           address the finding cited in this audit report.

           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 provided our discussion draft audit report and supporting schedules to the
           director of the City’s Department, the City’s mayor, and HUD’s staff during the
           audit. We held an exit conference with the City’s director on September 22, 2009.

           We asked the City’s director to provide comments on our discussion draft audit
           report by September 28, 2009. The director provided written comments, dated
           September 25, 2009. The director partially agreed with the finding. The complete
           text of the written comments, except for two attachments that were not necessary to
           understand the director’s comments, along with our evaluation of that response, can
           be found in appendix B of this audit report. We provided the Director of HUD’s
           Detroit Office of Community Planning and Development with a complete copy of
           the City’s written comments plus the two attachments.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                            4

Results of Audit
      Finding: Controls over the City’s Block Grant-Funded Demolition Activities
               Were Inadequate                                                      5

Scope and Methodology                                                               9

Internal Controls                                                                  10

Appendixes
   A. Schedule of Questioned Costs                                                 12
   B. Auditee Comments and OIG’s Evaluation                                        13
   C. Federal, State, and City Requirements                                        25




                                            3
                      BACKGROUND AND OBJECTIVE

The Block Grant program. Authorized under Title 1 of the Housing and Community Development
Act of 1974, as amended, the Community Development Block Grant (Block Grant) program is
funded to assist in the development of viable urban communities by providing decent housing and a
suitable living environment and expanding economic opportunities, principally for persons of low
and moderate income. All Block Grant activities must meet one of the following national
objectives: benefit low- and moderate-income persons, aid in the prevention or elimination of slums
and blight, or meet certain community development needs having a particular urgency.

The City. Organized under the laws of the State of Michigan, the City of Saginaw (City) is
governed by a mayor and an eight-member council, elected to four-year terms. The council
designated the City’s Department of Development (Department) as the lead agency to administer
the City’s Block Grant program. The Department includes the Community Development and Block
Grant Division, which administers federal funds to carry out a wide range of community
development activities directed toward revitalizing neighborhoods, economic development, and
providing improved community facilities and services. The City’s program records are located at
1315 South Washington Avenue, Saginaw, Michigan.

The following table shows the amount of Block Grant funds the U.S. Department of Housing and
Urban Development (HUD) awarded the City for its program years 2007 through 2009.

                                   Program         Block
                                     year        Grant funds
                                     2007          $2,558,091
                                     2008           2,556,090
                                     2009           2,461,205
                                    Total          $7,575,386

Our audit objective was to determine whether the City effectively administered its Block Grant
program-funded demolition activities.




                                                4
                                RESULTS OF AUDIT

Finding: Controls over the City’s Block Grant-Funded Demolition
                     Activities Were Inadequate
The City did not maintain an adequate system of controls over its Block Grant-funded demolition
activities. It lacked sufficient information for demolition activities to support the Block Grant
funds used for demolition activity costs, did not request reimbursement from property owners
and/or place liens on properties for the Block Grant funds used for 23 demolition activities, and
did not provide sufficient documentation to support that it was not required to request
reimbursement from property owners and/or place liens on properties for the Block Grant funds
used for 16 demolition activities. This condition occurred because the City lacked adequate
procedures and controls to ensure that it followed federal requirements and its code of
ordinances. As a result, it was unable to support its use of nearly $138,000 in Block Grant funds
for demolition activity expenses, lost more than $80,000 in Block Grant program income from
demolition activities, and was unable to support that it was not required to request
reimbursement from property owners and/or place liens on properties for nearly $51,000 in
Block Grant funds used for demolition activities.



 The City Lacked Information to
 Support Nearly $138,000 in
 Demolition Activity Costs

              We selected for review 110 of the City’s Block Grant-funded demolition activities
              completed from July 1, 2007, through December 31, 2008. The City drew down
              $362,784 in Block Grant funds for the 110 demolition activities. It lacked
              sufficient information for 91 of the 110 demolition activities to support nearly
              $138,000 in Block Grant funds used for demolition activity expenses. HUD’s
              regulations at 24 CFR (Code of Federal Regulations) 570.506(h) require grantees
              to maintain evidence to support how Block Grant funds are expended, and Office
              of Management and Budget Circular A-87 requires all costs to be necessary,
              reasonable, and adequately documented.

              The City could not provide documentation to support the measurements for the
              demolition work and/or that buildings, below-grade concrete, debris, asbestos,
              garages, and/or exterior concrete existed. The following table shows the type of
              demolition work, the number of demolition activities, and the amount of Block
              Grant funds for which the City lacked sufficient documentation for the demolition
              work and/or that buildings, below-grade concrete, debris, asbestos, garages,
              and/or exterior concrete existed.




                                               5
                                                        Demolition       Block
                         Type of demolition work         activities    Grant funds
                         Buildings                          37             $71,426
                         Asbestos                           35              26,592
                         Below-grade concrete               35              20,452
                         Debris                             27                8,108
                         Exterior concrete                  36                7,464
                         Garages                            12                3,492
                                   Total                                  $137,534


The City Did Not Request
Reimbursement for Nearly
$131,000 in Block Grant Funds
Used for Demolition Activities

            Contrary to the City’s code of ordinances, the City did not request reimbursement
            from the property owners or place liens on the properties for the costs of the
            demolition work. Section 151.117 of the City’s code of ordinances states that a
            property owner will reimburse the City for the cost of the demolition work or the
            City will place a lien on the property, or any other property the property owner has
            in the state of Michigan, for the cost of the demolition work. Section 151.131 allows
            the chief inspector of the Department’s Inspection Division to grant modifications of
            the requirements in chapter 151 of the code of ordinances for individual cases.
            However, no modification shall be approved unless the chief inspector shall find that
            a special individual reason makes the strict letter of chapter 151 impractical and that
            the modification is in conformity with the intent and purpose of chapter 151. The
            details of any modification shall be recorded and entered in the files of the
            Inspections Division.

            Of the 110 demolition activities reviewed, the Saginaw County Land Bank, Saginaw
            County, or the City owned 71 of the properties at the time or soon after the
            demolition work was completed. The remaining 39 properties were owned by
            individuals or companies. Further, the property owners of at least 26 of the 39
            properties owned additional properties in the state of Michigan. However, the City
            did not request the property owners to reimburse the City or place liens on the
            properties for the $130,835 in Block Grant funds used for the 39 demolition
            activities. In addition, the City had 16 of the 39 property owners sign waivers
            relinquishing their rights to receive notices and hearings required by the City’s
            Dangerous Building Office in exchange for not being held liable for the costs of the
            demolition work. The City used $50,691 in Block Grant funds for demolition work
            at the 16 properties. The director of the Department stated that in cases where health
            and safety have been viewed as a significant risk, the City utilized the modification
            exemption in section 151.131 of the City’s code of ordinances for the 16 properties.
            However, the City did not provide documentation to support the chief inspector
            found that special individual reasons made the strict letter of section 151.117 of the


                                              6
             code of ordinances impractical and that the modification was in conformity with the
             intent and purpose of chapter 151 of the code of ordinances. Further, one property
             owner signed a waiver relinquishing their rights to receive notices and hearings
             required by the City’s Dangerous Building Office and agreed to pay for the costs
             incurred by the City to have the building demolished.

             Of the nearly $131,000 in Block Grant funds used for demolition activities for which
             the City did not request the property owners to reimburse the City or place liens on
             the properties, $35,608 was also included in the nearly $138,000 in Block Grant
             funds used for demolition activity costs for which the City lacked sufficient
             information.

The City Lacked Adequate
Procedures and Controls

             These weaknesses occurred because the City lacked adequate procedures and
             controls to ensure that it followed federal requirements and its code of ordinances.

             The City did not have policies and procedures that included the type of
             documentation (1) required to be maintained in the City’s files for demolition
             activities or (2) covered under section 151.117 of the City’s code of ordinances. The
             code of ordinances requires a property owner to reimburse the City for the cost of
             the demolition work or the City will place a lien on the property, or any other
             property the property owner has in the State of Michigan, for the cost of the
             demolition work. The City had the property owners sign waivers relinquishing their
             rights to receive notices and hearings required by the City’s Dangerous Building
             Office in exchange for not being held liable for the costs of the demolition work to
             save on court and publishing costs.

Conclusion

             As previously mentioned, the City lacked adequate procedures and controls for its
             Block Grant-funded demolition activities. It lacked sufficient information for 91
             demolition activities to support the Block Grant funds used for demolition activity
             costs , did not request reimbursement from property owners and/or place liens on
             properties for the Block Grant funds used for 23 demolition activities, and did not
             provide sufficient documentation to support that it was not required to request
             reimbursement from property owners and/or place liens on properties for the Block
             Grant funds used for 16 demolition activities. As a result, it was unable to support
             its use of nearly $138,000 in Block Grant funds for demolition activity costs, lost
             more than $80,000 in Block Grant program income from demolition activities, and
             was unable to support that it was not required to request reimbursement from
             property owners and/or place liens on properties for nearly $51,000 in Block Grant
             funds used for demolition activities.



                                               7
Recommendations

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

          1A.     Provide sufficient supporting documentation or reimburse its Block Grant
                  program from nonfederal funds, as appropriate, for the $137,534 in Block
                  Grant funds used for unsupported costs cited in the finding.

          1B.     Reimburse its Block Grant program $80,144 ($130,835 in Block Grant
                  funds used for the 39 demolition activities less $50,691 in Block Grant
                  funds used for the 16 demolition activities in which the City had the
                  property owners sign waivers relinquishing their rights to receive notices
                  and hearings required by the City’s Dangerous Building Office in
                  exchange for not being held liable for the costs of the demolition work)
                  from nonfederal funds for the 23 demolition activities for which the City
                  did not request the property owners to reimburse the City or place liens on
                  the properties and did not have property owners sign waivers.

          1C.     Provide sufficient documentation to support that the chief inspector
                  granted modifications of the requirements in section 151.117 of the City’s
                  code of ordinances for the 16 properties in which the City had the property
                  owners sign waivers relinquishing their rights to receive notices and
                  hearings required by the City’s Dangerous Building Office in exchange for
                  not being held liable for the costs of the demolition work. The
                  documentation must also support that the chief inspector found that special
                  individual reasons made the strict letter of section 151.117 impractical and
                  that the modification was in conformity with the intent and purpose of
                  chapter 151 of the code of ordinances. If the City cannot provide
                  sufficient supporting documentation, it should reimburse its Block Grant
                  program $50,691 from nonfederal funds for the 16 demolition activities
                  for which the City did not request the property owners to reimburse the
                  City or place liens on the properties.

          1D.     Implement adequate procedures and controls to (1) ensure that Block
                  Grant funds are used for eligible demolition activity costs and (2) request
                  property owners to reimburse the City and/or place liens on the properties
                  for Block Grant funds used for demolition activities. The procedures and
                  controls should include but not be limited to implementing adequate
                  written policies and procedures to ensure that the City (1) maintains
                  sufficient information for demolition activities to support the Block Grant
                  funds used for eligible demolition activity costs and (2) requests
                  reimbursement from property owners and/or places liens on properties for
                  the Block Grant funds used for demolition activities, as appropriate.




                                           8
                        SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

           •   Applicable laws; HUD’s regulations at 24 CFR Parts 5, 58, 85, and 570; the
               United States Environmental Protection Agency’s regulations at 40 CFR Part 61;
               Office of Management Budget Circular A-87; HUD’s Environmental Review
               Guide for Block Grant Programs; Michigan Compiled Laws; and HUD’s Block
               Grant agreements with the City.

           •   The City’s accounting records, annual audited financial statements for 2008, data
               from HUD’s Integrated Disbursement and Information System, demolition
               activity files, computerized databases, policies and procedures, code of
               ordinances, council meeting minutes, consolidated community development plan,
               annual action plans, consolidated community development organization charts,
               and consolidated annual performance and evaluation reports.

           •   HUD’s files for the City.

We also interviewed the City’s employees, State of Michigan staff, a demolition activity
contractor’s employee, and HUD’s staff.

We selected 110 of the City’s 154 Block Grant-funded demolition activities completed from July
1, 2007, through December 31, 2008. The 110 demolition activities were selected to determine
whether the City used Block Grant funds for demolition activities in accordance with HUD’s
requirements and effectively administered its Block Grant program-funded demolition activities.

We performed our on-site audit work from February through August 2009 at the City’s offices
located at 1315 South Washington Avenue, Saginaw, Michigan. The audit covered the period
July 2007 through December 2008 and was expanded as determined necessary.

We performed our 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 reasonable basis for our finding and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our finding and
conclusions based on the audit objective.




                                               9
                              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. 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 procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

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

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

              •       Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

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




                                               10
Significant Weaknesses


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

           •   The City lacked adequate procedures and controls to ensure that it complied
               with federal requirements and its code of ordinances in regard to (1) providing
               sufficient information for demolition activities to support the Block Grant
               funds used for demolition activity costs and (2) requesting reimbursement
               from property owners and/or placing liens on properties for the Block Grant
               funds used for demolition activities (see finding).

Separate Communication of
Minor Deficiency

           We informed the director of the City’s Department and the Director of HUD’s
           Detroit Office of Community Planning and Development of a minor deficiency
           through a memorandum, dated November 3, 2009.




                                            11
                                    APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                   Recommendation
                       number            Ineligible 1/    Unsupported 2/
                          1A                                    $137,534
                          1B                   $80,144
                          1C                                     $50,691
                         Totals                $80,144          $188,225


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     polices or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                             12
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         13
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




Comment 3




Comment 4

Comment 2




Comment 5
Comment 2




                         14
Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 7


Comment 6




                         15
Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 9




Comment 10




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 10




Comment 7
Comment 11




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 2




Comment 2




                         18
Ref to OIG Evaluation   Auditee Comments




Comments 2
 and 12




Comment 3




Comment 12
Comments 2
 and 12




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 13


Comment 14




Comment 10




Comment 13
Comment 14




                         20
                        OIG’s Evaluation of Auditee Comments

Comment 1   The City did not provide us with additional revisions to its policies and
            procedures during the audit.

Comment 2   We removed from the report that the City’s code of ordinances did not contain
            language authorizing the waiving of the requirements in Section 151.117 of the
            code regarding reimbursement for the cost of demolition work or placement of a
            lien for the cost of demolition work.

            We revised the report to state the following:

            •   Section 151.131 of the City’s code of ordinances states that whenever there
                are practical difficulties involved in carrying out the provisions of chapter 151
                of the code of ordinances, the chief inspector of the Department’s Inspection
                Division may, as the chief inspector deems to be appropriate under the
                circumstances, grant modifications for individual cases. No modification
                shall be approved unless the chief inspector shall first find that a special
                individual reason makes the strict letter of chapter 151 impractical and that the
                modification is in conformity with the intent and purpose of chapter 151.
                Such modification may be granted only when the modification does not lessen
                any fire protection requirements, compromise structural integrity, or otherwise
                adversely affect any other safety requirements. The details of any
                modification shall be recorded and entered in the files of the Inspections
                Division.

            •   The City used $50,691 in Block Grant funds for demolition work at the 16
                properties. The director of the Department stated that in cases in which health
                and safety have been viewed as a significant risk, the City used the
                modification exemption in section 151.131 of the City’s code of ordinances
                for the 16 properties. However, the City did not provide documentation to
                support that the chief inspector found that special individual reasons made the
                strict letter of chapter 151 impractical and that the modification was in
                conformity with the intent and purpose of chapter 151.

            We revised recommendation 1B to state, “Reimburse its Block Grant program
            $80,144 ($130,835 in Block Grant funds used for the 39 demolition activities less
            $50,691 in Block Grant funds used for the 16 demolition activities in which the
            City had the property owners sign waivers relinquishing their rights to receive
            notices and hearings required by the City’s Dangerous Building Office in
            exchange for not being held liable for the costs of the demolition work) from
            nonfederal funds for the 23 demolition activities for which the City did not
            request the property owners to reimburse the City or place liens on the properties
            and did not have property owners sign waivers.




                                             21
            We moved recommendation 1C to recommendation 1D and added a new
            recommendation 1C to state the following:

            •   Provide sufficient documentation to support that the chief inspector granted
                modifications of the requirements in section 151.117 for the 16 properties for
                which the City had the property owners sign waivers relinquishing their rights
                to receive notices and hearings required by the City’s Dangerous Building
                Office in exchange for not being held liable for the costs of the demolition
                work. The documentation must also support that the chief inspector found
                that special individual reasons made the strict letter of section 151.117
                impractical and that the modification was in conformity with the intent and
                purpose of chapter 151. If the City cannot provide sufficient supporting
                documentation, it should reimburse its Block Grant program $50,691 from
                nonfederal funds for the 16 demolition activities for which the City did not
                request the property owners to reimburse the City or place liens on the
                properties.

Comment 3   We removed the following from the report:

            •   The City did not have a system in place that appropriately identified the amount
                of Block Grant funds used for each demolition activity under its Block Grant
                program. It maintained a spreadsheet that contained the total cost per demolition
                activity under its Block Grant program. However, of the 110 demolition
                activities reviewed, 103 were incorrectly recorded in its spreadsheet. The City’s
                spreadsheet inappropriately showed that the City used nearly $399,000 in Block
                Grant funds for the 110 demolition activities when it actually used more than
                $406,000 in Block Grant funds for those activities.

            We also revised recommendation 1D to reflect the revisions.

Comment 4   Of the 110 demolition activities reviewed, 54 were completed after February
            2008. The City lacked sufficient information for 38 of the 54 demolition
            activities completed after February 2008. The City could not provide
            documentation to support the measurements for the demolition work and/or that
            buildings, below-grade concrete, debris, asbestos, and/or exterior concrete
            existed.

Comment 5   The City lacked sufficient information for 91 demolition activities. It could not
            provide documentation to support the measurements for the demolition work
            and/or that buildings, below-grade concrete, debris, asbestos, garages, and/or
            exterior concrete existed.

Comment 6   We agree that after February 2008, the City significantly improved its procedures
            for maintaining documentation to support the measurements for demolition work
            regarding buildings and that buildings existed. However, the City lacked
            sufficient information for 38 of the 54 demolition activities completed after


                                             22
              February 2008. The City could not provide documentation to support the
              measurements for the demolition work and/or that buildings, below-grade
              concrete, debris, asbestos, and/or exterior concrete existed.

Comment 7     We did not question any of the demolition activities due to the City’s method of
              calculating demolition costs.

Comment 8     We did not question all of the Block Grant funds associated with asbestos work.
              We questioned $26,592 in Grant funds for which the City lacked sufficient
              documentation to support the amount of asbestos or that asbestos existed.

Comment 9     The City could not provide documentation to support the measurements for the
              demolition work on below-grade concrete and/or that below-grade concrete
              existed. Further, exterior measurements of a structure and evidence from the
              City’s Assessor’s Office indicating the presence of a basement or crawlspace are
              not sufficient documentation to support the measurements for the demolition work
              on below-grade concrete. In addition, the City did not provide documentation to
              support that buildings were not safe to enter to determine and document the actual
              measurements for the demolition work on below-grade concrete and/or that
              below-grade concrete existed.

Comment 10 The City previously provided documentation to support that it reduced subsequent
           payments to contactors for $4,010 of the Block Grant funds used for exterior
           concrete costs. Therefore, we revised the schedule on page 6 of the audit report to
           only include 36 demolition activities and $7,464 in Block Grant funds for which
           the City lacked sufficient documentation for the demolition work regarding
           exterior concrete and/or that exterior concrete existed.

              In addition, we revised the report to state that the City lacked sufficient
              information for 91 of the 110 demolition activities to support nearly $138,000 in
              Block Grant funds used for demolition activity expenses.

              We also revised recommendation 1A to reflect the revisions.

Comment 11 The City could not provide documentation to support the measurements for the
           demolition work on garages and/or that garages existed. Records from the City’s
           Assessor’s Office indicating the presence of garages and a lack of demolition
           permits are not sufficient documentation to support the measurements for the
           demolition work regarding garages and/or that garages existed.

Comment 12 The City’s commitment to place liens on the 23 properties may resolve the issue
           of the City not requesting the property owners to reimburse the City or placing
           liens on the properties. Therefore, the City may not have to reimburse its Block
           Grant program $80,144 from nonfederal funds for the 23 demolition activities.
           However, some of the properties may no longer be owned by the individuals or




                                              23
              companies who owned the properties at the time of the demolition work, and the
              City may not be able to place liens on all of the properties.

Comment 13 We agree that after February 2008, the City significantly improved its procedures
           for maintaining documentation to support the measurements for demolition work
           regarding buildings, debris, and garages and that buildings, debris, and garages
           existed. However, the City lacked sufficient information for 38 of the 54
           demolition activities completed after February 2008. The City could not provide
           documentation to support the measurements for the demolition work and/or that
           buildings, below-grade concrete, debris, asbestos, and/or exterior concrete
           existed.

Comment 14 The City’s planned actions should improve its procedures and controls over its
           use of Block Grant funds for demolition activities if implemented.




                                             24
Appendix C

           FEDERAL, STATE, AND CITY REQUIREMENTS

HUD’s regulations at 24 CFR 85.20(b)(1) state that accurate, current, and complete disclosure of
the financial results of financially assisted activities must be made in accordance with the
financial reporting requirements of the grant. Section 85.20(b)(2) requires grantees to maintain
records that adequately identify the source and application of funds provided for financially
assisted activities. These records must contain information pertaining to grant or subgrant
awards and authorizations, obligation, unobligated balances, assets, liabilities, outlays or
expenditures, and income. Section 85.20(b)(4) states that financial information must be related
to performance or productivity data. Section 85.20(b)(6) states that accounting records must be
supported by such source documentation as cancelled checks, paid bills, payrolls, time and
attendance records, and contract and subgrant award documents.

HUD’s regulations at 24 CFR 85.22(b) state that allowable costs for state, local, or Indian tribal
governments will be determined in accordance with cost principles contained in Office of
Management and Budget Circular A-87.

HUD’s regulations at 24 CFR 85.36(b)(2) state that grantees and subgrantees will maintain a
contract administration system which ensures that contractors perform in accordance with the
terms, conditions, and specifications of their contracts or purchase orders.

HUD’s regulations at 24 CFR 85.40(a) state that grantees are responsible for managing the day-
to-day operations of grant- and subgrant-supported activities. Grantees must monitor grant- and
subgrant-supported activities to ensure compliance with applicable federal requirements and that
performance goals are being achieved. Grantee monitoring must cover each program, function,
or activity.

HUD’s regulations at 24 CFR 91.225(b)(8) state that for jurisdictions that seek funding under the
Block Grant program, the jurisdiction is required to certify that the jurisdiction will comply with
applicable laws.

HUD’s regulations at 24 CFR 570.302 state that in order for a grantee to receive its annual Block
Grant entitlement grant, a grantee must submit a consolidated plan in accordance with 24 CFR
Part 91.

HUD’s regulations at 24 CFR 570.303 state that the jurisdiction must make the certifications that
are set forth in 24 CFR Part 91 as part of the jurisdiction’s consolidated plan.

HUD’s regulations at 24 CFR 570.502(a) state that recipients that are governmental entities shall
comply with Office of Management and Budget Circular A-87. Section 570.502(a)(4) states that
recipients that are governmental entities shall comply with 24 CFR 85.20, except for section
85.20(a). Section 570.502(a)(6) states that recipients that are governmental entities shall comply
with 24 CFR 85.22. Section 570.502(a)(12) states that recipients that are governmental entities


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shall comply with 24 CFR 85.36, except for section 85.36(a). Section 570.502(a)(14) states that
recipients that are governmental entities shall comply with 24 CFR 85.40, except for sections
85.40(b) through (d) and (f).

HUD’s regulations at 24 CFR 570.506 state that recipients shall establish and maintain sufficient
records to enable HUD to determine whether the recipients have met the requirements of 24 CFR
Part 570. Section 570.506(a) states that recipients need to maintain records providing a full
description of each activity assisted with Block Grant funds; the amount of Block Grant funds
budgeted, obligated, and expended for the activities; and the provisions under which the
activities are eligible. Section 570.506(h) states that recipients need to maintain financial records
in accordance with the applicable requirements in section 570.502. Recipients shall maintain
evidence to support how Block Grant funds are expended. The documentation must include
invoices, schedules containing comparisons of budgeted amounts and actual expenditures,
construction progress schedules signed by appropriate parties, and/or other documentation
appropriate to the nature of the activity, as applicable.

Attachment A, section C.1, of Office of Management and Budget Circular A-87, revised May 10,
2004, requires all costs to be necessary, reasonable, and adequately documented.

In the City’s 2007 through 2008 and 2008 through 2009 action plans, which are part of its
consolidated plans, the city manager certified that for the City’s Block Grant program, it would
comply with applicable laws.

Section 125.541(5) of the Michigan Compiled Laws states that the cost of the demolition or
maintaining the grounds adjoining the building or structure incurred by the city to bring the property
into conformance with the Housing Law of Michigan Act shall be reimbursed to the city by the
owner or party in interest in whose name the property appears. Section 125.541(6) states that the
owner in whose name the property appears upon the last local tax assessment records shall be
notified of the amount of such cost by first class mail at the address shown on the records. If the
owner fails to pay the same within 30 days after mailing by the assessor of the notice of the amount
thereof, the city shall have a lien for the cost incurred by the city to bring the property into
conformance with the Housing Law of Michigan Act. Section 125.541(7) states that the city may
also bring an action against the owner of the property for the full cost. A city shall have a lien for
the amount of a judgment obtained under section 125.541.

Section 338.3207 of the Michigan Compiled Laws states that an asbestos abatement contractor
shall not engage in any activity involving the demolition, renovation, or encapsulation of friable
asbestos materials without first receiving a license from the State of Michigan’s Department of
Consumer and Industry Services. Section 338.3220 states that an asbestos abatement contractor
shall notify the State of Michigan’s Department of Consumer and Industry Services in writing at
least 10 days before beginning an asbestos abatement project exceeding 10 linear feet or 15
square feet, or both, of friable asbestos materials.

Section 151.117(B) of the City’s code of ordinances states that the cost of the demolition;
maintaining the grounds adjoining the building or structure; and mailing, recording, and publication
incurred by the City to bring the property into conformance with the subchapter in the City’s code



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of ordinances regarding dangerous buildings shall be reimbursed to the City by the owner or party
in interest in whose name the property appears. This includes owners who have an interest when
the proceedings commence or who acquire their interest during the pendency of the proceedings.
Section 151.117(C) states that the owner in whose name the property appears upon the last local tax
assessment records and within the records of the register of deeds shall be notified of the amount of
such cost by first class mail at the address shown on the records. If the owner fails to pay the same
within 30 days after mailing by the assessor of the notice of the amount thereof, the City shall have
a lien for the cost incurred by the City to bring the property into conformance with the City’s code
of ordinances regarding dangerous buildings. Section 151.117(D) states that the City may also
bring an action against the owner of the property. The City shall have a lien for the amount of the
judgment against the owner’s interest in all real property located in the state of Michigan that is
owned in whole or part by the owner of the property against whom the judgment is obtained.

Section 151.131 of the City’s code of ordinances states that whenever there are practical
difficulties involved in carrying out the provisions of chapter 151 of the code of ordinances, the
chief inspector of the Department’s Inspection Division may, as the chief inspector deems to be
appropriate under the circumstances, grant modifications for individual cases. No modification
shall be approved unless the chief inspector shall first find that a special individual reason makes
the strict letter of chapter 151 impractical and that the modification is in conformity with the
intent and purpose of chapter 151. Such modification may be granted only when the
modification does not lessen any fire protection requirements, compromise structural integrity, or
otherwise adversely affect any other safety requirements. The details of any modification shall
be recorded and entered in the files of the Inspections Division.




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