Department of Housing and Urban Development, Office of Inspector General | Housing and Urban Development | The State of Arkansas Has the Capacity to Manage Recovery Act Funding

The State of Arkansas Has the Capacity to Manage Recovery Act Funding

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-12-15.

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

U.S. Department of Housing and Urban Development
Office of Inspector General, Region VI
819 Taylor Street, Suite 13A09
Fort Worth, Texas 76102

(817) 978-9309 FAX (817) 978-9316
http://www.hud.gov/offices/oig/
OIG Fraud Hotline 1-800-347-3735

MEMORANDUM NO:
December 15, 2009 2010-FW-1801

MEMORANDUM FOR: James E. Slater
Director, Office of Community Planning and Development, 6FD

//signed//
FROM: Gerald R. Kirkland
Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The State of Arkansas Has the Capacity to Manage Recovery Act Funding

INTRODUCTION

The State of Arkansas (State) is scheduled to receive more than $15.67 million under the
American Recovery and Reinvestment Act of 2009 (Recovery Act). As part of our
organization’s commitment to ensure the proper use of these funds, we reviewed the State’s
operations. The objective was to determine whether the State has the capacity to account for
Recovery Act funding and the controls to ensure that its recipients1 expend those funds for
eligible program activities. Our review did not result in any adverse reportable conditions or
recommendations.

METHODOLOGY AND SCOPE

Under the State’s grant agreement with HUD, the State accepts responsibility for ensuring that
its recipients carry out program activities consistent with the Recovery Act. Therefore, our
review focused on the capacity, policies, and procedures the State has in place to ensure that its
grant recipients comply with Recovery Act requirements.

The review period covered 2009 activities administered during the 9-month period ending
September 30, 2009, and policies and procedures in place at the time of the audit. The review
work started on August 18, 2009, and ended on November 3, 2009. We gathered information
from officials and staff at the Little Rock, AR, offices of the U. S. Department of Housing and
Urban Development’s (HUD) Office of Community Planning and Development, the Arkansas
Economic Development Commission, and the Arkansas Department of Human Services.

1
The recipients are the cities, counties, and continuums of care lead agencies that enter into grant agreements
with the State.
To accomplish the objective, we

Obtained an understanding of Recovery Act legislation, relevant program guidance and
criteria, and the State’s grant agreements with HUD.
Interviewed HUD and State management and staff regarding the State’s operations for
carrying out Federal grant programs.
Assessed the adequacy of State policies and procedures for administrating HUD
Recovery Act funding.
Reviewed the planned grant activities to ensure consistency with Recovery Act
requirements.
Reviewed the State’s Community Development Block Grant (CDBG) financial and
monitoring files to see how the State processed funding and monitored projects.2
Although the State had not disbursed Recovery Act funds, it had disbursed funds for
similar CDBG activities.3 We traced one request for CDBG funds from the State’s
receipt of the request for payment through the electronic payment to the recipient. We
also reviewed documents supporting the monitoring and procurement of the most
recently closed State CDBG project, which totaled more than $3 million.4 While the two
samples were not statistical, they exhibited the financial, procurement, and monitoring
activities for recent State CDBG projects that the State will use to control similar
Community Development Block Grant - Recovery (CDBG-R) activities.

BACKGROUND

Congress enacted the Recovery Act to provide funds for States to help the homeless or those in
danger of becoming homeless.5 It included a $1.5 billion appropriation for Homelessness
Prevention and Rapid Re-Housing Program (HPRP) activities and a $1 billion appropriation in
community development funds to State and local governments to expedite carrying out eligible
activities under the CDBG program. The Recovery Act required a stringent standard of
accountability and transparency and short deadlines for obligating and expending funding.
Therefore, Recovery Act recipients must have demonstrated the capacity to administer funding
and provide timely and reliable program data.

On August 5, 2009, HUD authorized more than $10 million in Recovery Act funding for the
State6 to carry out its HPRP. According to the State’s HPRP grant agreement with HUD, it must

2
Eligible CDBG program activities include a wide variety of community and economic development activities
such as neighborhood revitalization, economic development and the provision of improved community
facilities and services.
3
The State must comply with CDBG Federal regulations for the CDBG-R program under the Recovery Act.
4
The project was the construction of a public water facility, which was similar to 5 of the 13 CDBG-R projects
under the Recovery Act. The sample represented more than half of the $5.1 million awarded to the State for the
CDBG-R program.
5
The Recovery Act became Public Law 111-5 on February 17, 2009. It makes supplemental appropriations for
job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the
unemployed, and State and local fiscal stabilization, for fiscal year ending September 30, 2009, and for other
purposes.
6
For the purpose of this report, we did not differentiate between the State and its individual departments that
carry out the programs.
2
spend at least 60 percent of the funds within 2 years, and 100 percent by August 4, 2012. The
purpose of HPRP is to provide rental assistance and housing relocation and stabilization
services. The State indicated that it would use the funding to provide financial assistance and
services to prevent eligible individuals and families from becoming homeless. It also planned to
provide housing and stabilization with prompt efficiency to eligible homeless individuals and
families. Lead agencies from each of Arkansas’ 13 continuums of care planned to enter into
grant agreements with the State to carry out the program activities.

On August 17, 2009, HUD authorized the State more than $5 million to carry out the CDBG-R
program. The Arkansas Economic Development Commission, which will administer the
program, must spend the funds no later than September 30, 2012. The Recovery Act requires
that the State use its CDBG-R program funds to retain and create jobs, provide economic
benefits, and promptly carry out infrastructure improvements. By signing the CDBG-R grant
agreement with HUD, the State agreed to comply with Federal regulations. The regulations
require the State to develop viable communities by providing decent housing and a suitable
living environment. The State aimed to accomplish this by entering into grant agreements with
10 cities and 3 counties to carry out construction projects that will improve economic
opportunities, principally for persons of low and moderate income.

RESULTS OF REVIEW

Based upon the limited review, the State has the capacity and controls to (1) properly account for
Recovery Act funding and (2) ensure that its recipients expend the funds on eligible program
activities. HUD has not had significant problems with the State regarding the administration of
its HUD grants. For fiscal year 2009, the State’s community planning and development
programs had an average rating of low risk. HUD based its rating of the program area on the
State’s past performance in carrying out all community planning and development programs that
did not include any Recovery Act programs. However, HUD rated the State’s CDBG program at
the lower end of high risk, not because of performance, but mainly because the State received a
large amount of CDBG funds in 2009. It rated all other community planning and development
programs as low risk. In addition, State officials’ preliminary accomplishments demonstrated an
awareness of Recovery Act requirements and a good working relationship with local HUD
officials.

The State appears to have the capacity and controls necessary to complete HPRP

The State has sufficient controls to fulfill its obligations under its HPRP agreement with HUD.
State officials have taken steps to ensure that it completes HPRP as required by HUD
regulations. For example, the State established an internal audit group to carry out oversight
consistent with prepared monitoring policies and procedures,7 and it did hire a grant coordinator
to oversee the program.8

7
As of September 21, 2009, internal auditors had completed initial on-site reviews at 3 of 11 lead agencies.
8
According to the State’s response to this memorandum, it has scheduled the coordinator to begin work on
December 14, 2009.
3
The State is working with recipients to decrease the risk to HPRP. Many recipients that will
manage the program activities will receive funds that greatly exceed the funds of prior Federal
grants completed. One of the lead agencies had agreed to oversee more than $541,000 for five
counties, when it had previously managed funds for only two counties. Other agencies managed
programs that received no more than $15,000 in Federal funds per year. Now, they could receive
up to $285,000 per year for 3 years under HPRP. As a result, there is a high risk of not
completing the program as planned. Acknowledging this risk, the State is reducing the risk by
ensuring that the recipients have adequate information, training, and resources to carry out the
program activities. For instance, the State provided information to its recipients on
administrating the grant programs and held training sessions in August and September of 2009,
which HUD followed with further training in October of 2009.

In addition, the State’s office of quality assurance had policies and procedures for monitoring the
grant recipients. During calendar years 2010 and 2011, it planned to spend 1,200 hours each
year to monitor the agencies running the grant programs. The monitoring plan included
reviewing agencies for effective cash management, allowable grant activities, eligible
participants, Davis-Bacon Act wage rate compliance, property and equipment controls, eligible
procurements, accurate reporting, and subrecipient monitoring.

The State has the capacity and controls necessary to complete the CDBG-R program

The State has demonstrated sufficient capacity and internal controls to complete the CDBG-R
activities under its grant agreement. Its CDBG-R activities will be similar to CDBG activities
completed in the recent past. As a result, the State will use the same sound controls it has for
financial and procurement activities. The monitoring policies and procedures in place provide
(1) assurance that recipients comply with the executed grant agreements and governing
requirements in carrying out the projects and (2) a mode to resolve problem issues. From
information provided, the State has enough staff to oversee the planned CDBG-R activities of the
13 cities and counties that will receive the grant funds and carry out the projects.

CONCLUSION

Based on our review, the State has the capacity and management controls to account for
Recovery Act funding and ensure that its recipients spend the funds for eligible program
activities within the allotted time. Under the Recovery Act, HUD awarded the State more than
$15.67 million for the HPRP and CDBG-R programs that recipients must spend within 3 years.
At the time of the review, the State had not disbursed funds. However, it had internal controls in
place. It was working towards hiring new staff as needed and training its recipients so that they
know their responsibilities for carrying out the programs. We encourage State officials to
continue to work with the grant recipients and HUD to ensure that recipients carry out program
activities as required. Our review did not result in any reportable conditions or controllable
recommendations.

Should you or your staff have questions, please contact me at 817-978-9309 or William W.
Nixon, Assistant Regional Inspector General for Audit, at 817-978-9318.

4
Appendix A

AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation Auditee Comments

December 9, 2009

William R, Nixon
Assistant Regional Inspector General for Audit
US Department of Housing and Urban Development
Office of Inspector General, Region VI
819 Taylor Street, Suite 13A09
Fort Worth, Texas 76102

Dear Mr. Nixon:

We have received the report of the Office of the Inspector General regarding the review of the Arkansas
CDBG-R and HPRP programs funded under the American Recovery and Reinvestment Act (ARRA). This
report was prepared following a review visit by  and , Senior Auditors with the Region
VI Office of the Department of Housing and Urban Development (HUD).

The State of Arkansas concurs with the review opinion that the state has adequate capacity to manage
both the HPRP program and the CDBG-R program.

Comment 1 The State would also like to extend its appreciation to the Office of the Inspector General for the
courteous and professional manner in which the review was conducted. and 
were both knowledgeable and punctual in their audit. While they did conduct a complete and thorough
audit of the state programs, their questions and suggestions appeared to be offered in the spirit of
Comment 2 helping the state officials to understand the requirements of ARRA under the HUD programs.

If you require any further information as response from the State of Arkansas regarding this review,
please feel free to contact me.

Sincerely,

cc: Maria Luisa M. Haley, AEDC
Mike Gaines, AEDC
Thomas Green, DHS
James Slater, HUD


5
December 8, 2009

Mr. Gerald R. Kirkland, Regional Inspector General for Audit
U.S. Department of Housing and Urban Development
Office of Inspector General, Region VI
819 Taylor Street, Suite 13A09
Fort Worth, TX 76102

RE: MEMORANDUM NO: 2010-FW-1801

Dear Mr. Kirkland:

We thank you for the draft audit memorandum containing the results of the review for the State
of Arkansas. We are pleased with the results confirming the State has the capacity and controls
necessary to manage Recovery Act funds and to complete the Homelessness Prevention and
Rapid Re-housing Program. We are also pleased that there were no adverse reportable
conditions or recommendations. We concur with the review.

As part of our written comments regarding the review of HPRP, we want to update your office
on two items that took place after the conclusion of the review:

Comment 3 1) An additional training was provided to HPRP grant recipients in October 2009, by
HUD, during the statewide Homeless Conference. The purpose of the training was to
further clarify the grant recipients’ responsibilities for carrying out the program and to
provide technical assistance.

Comment 4 2) An HPRP Grants Coordinator has been selected. The new staff person is scheduled to
begin work on Monday, December 14, 2009, in the Office of Community Services.

Again, we thank you and your staff for the positive review, as well as the follow-up exit
conference call. We are continuing to work with HPRP grant recipients and HUD on the
implementation of HPRP and look forward to continued success.

If you have any questions, please advise.

Sincerely,

Thomas E. Green, Assistant Director
Office of Community Services

cc: William Nixon, Assistant Regional Inspector General
, Senior Auditor

6
OIG Evaluation of Auditee Comments

Comment 1 We appreciate the hospitality offered during the review.

Comment 2 The review was limited to the stated objective and programs and should not be
considered a "complete and thorough audit of the state programs."

Comment 3 We commend the State for completing its planned training events that provide its
grant recipients with the information needed to carry out the HPRP programs as
required. We have revised the memorandum accordingly.

Comment 4 We applaud the State for hiring a grant administrator to oversee the HPRP
program. We have revised the memorandum accordingly.