oversight

HUD's Office of Healthy Homes and Lead Hazard Control Awarded Grants to Ineligible Applicants

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-01-11.

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

                                                                 Issue Date
                                                                  January 11, 2010
                                                                 Audit Report Number
                                                                    2010-HA-0001




TO:          Jon Gant, Director, Office of Healthy Homes and Lead Hazard Control, L
                //s//
FROM:        Saundra G. Elion, Director, Headquarters Audit Division, GAH

SUBJECT:     HUD’s Office of Healthy Homes and Lead Hazard Control Awarded Grants to
             Ineligible Applicants

                                    HIGHLIGHTS

What We Audited and Why

           We audited the U.S. Department of Housing and Urban Development’s (HUD)
           Office of Healthy Homes and Lead Hazard Control’s (OHHLHC) selection
           procedures used to award American Recovery and Reinvestment Act of 2009
           (Recovery Act) grants. This audit was mandated by the Office of Management and
           Budget and was part of our fiscal year 2009 audit plan. Our objective was to
           determine whether OHHLHC awarded (1) Recovery Act funds in accordance with
           the selection criteria specified in the fiscal year 2008 notices of funding availability
           (notices) and the Recovery Act and (2) fiscal year 2008 funds in accordance with
           the selection criteria.

What We Found

           OHHLHC did not have adequate controls to ensure that only qualified applicants
           were selected to receive grant funds. As a result, OHHLHC improperly awarded
           $1.9 million in Recovery Act funds to the City of Greenville, NC (Greenville), and
           $874,821 to Healthy Homes Resources. In addition, OHHLHC awarded $3 million
           in fiscal year 2008 funds to the City of Cincinnati, OH (Cincinnati).

           In reviewing OHHLHC grant selection procedures, we identified other deficiencies
           in OHHLHC’s operations that need to be addressed. These deficiencies relate to the
           selection official’s approval of the selected grantees, maintaining documentation on
          creating and retaining jobs, conducting initial screening reviews within the
          prescribed timeframe, and maintaining an audit trail of deficiencies found during the
          initial screening review process (see Appendix C).

What We Recommend


          We recommend that the Director of OHHLHC rescind the $2.8 million in Recovery
          Act funding that was improperly awarded to Greenville and Healthy Homes
          Resources, ensure that the selection procedures are followed, and take appropriate
          actions against employees.

          We also recommend that the Director of OHHLHC rescind the $3 million in fiscal
          year 2008 funding that Cincinnati received, ensure that the application review
          panels follow threshold review requirements when determining eligibility, and take
          appropriate action against employees.

          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.


HUD’s Response

          We provided the discussion draft report to OHHLHC on December 18, 2009, and
          held the exit conference on December 23, 2009. OHHLHC provided written
          comments on January 6, 2010. OHHLHC agreed with our findings and all
          recommendations except the recommendations to rescind the grants awarded to
          Greenville and Cincinnati.

          The complete text of OHHLHC’s written response, along with our evaluation of
          that response, is in appendix B of this report.




                                            2
                             TABLE OF CONTENTS

Background and Objectives                                                           4

Results of Audit
   Finding 1: OHHLHC Awarded $2.8 Million in Recovery Act Funds to Ineligible       6
              Applicants
   Finding 2: OHHLHC Awarded a $3 Million Fiscal Year 2008 Grant to an Ineligible   9
              Applicant

Scope and Methodology                                                               12

Internal Controls                                                                   13

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use                14
   B. Auditee Comments and OIG’s Evaluation                                         15
   C. Other Matters                                                                 21




                                             3
                             BACKGROUND AND OBJECTIVES

The Recovery and Reinvestment Act of 2009 (Recovery Act), signed on February 17, 2009, made
supplemental appropriations to (1) preserve and create jobs and promote economic recovery, (2)
assist those impacted by the recession, (3) provide investments needed to increase economic
efficiency and provide long-term economic benefits, and (4) stabilize State and local government
budgets. This act appropriated $100 million to the U.S. Department of Housing and Urban
Development’s (HUD) Office of Healthy Homes and Lead Hazard Control (OHHLHC) for its lead
hazard reduction programs. The funds were to be awarded first to applicants that had applied
under the lead hazard reduction program notices of funding availability for fiscal year 2008
(notices) that were found to be qualified for an award but were not awarded because of funding
limitations. Any remaining funds were to be added to the fiscal year 2009 lead hazard reduction
program appropriations.

OHHLHC has administered a Lead Hazard Control program since 1993. The mission of
OHHLHC is to reduce health and safety hazards in a comprehensive and cost effective manner,
with a particular focus on protecting the health of children and other sensitive populations in low-
income households. It supports this mission by assisting states and local governments to remedy
the unsafe housing conditions and the acute shortage of decent and safe dwellings for low-income
housing.

OHHLHC has seven lead hazard grant programs but has restricted the Recovery Act funds to the
following four programs: Lead-Based Paint Hazard Control, Lead Hazard Reduction
Demonstration, Healthy Homes Demonstration, and Healthy Homes Technical Studies. OHHLHC
believed that these programs were most likely to create or retain jobs and gave priority to the lead
hazard grants because those grants “account for the highest number of housing units rehabilitated
or improved, and thus are most likely to create jobs for lead-based paint and housing
rehab/construction professionals.” By using these more restrictive criteria, OHHLHC developed a
plan and quickly allocated the $99.5 million1 in supplemental Recovery Act funds to 53 grantees.
As specified in the Recovery Act, OHHLHC selected the 53 grantees from the fiscal year 2008
applicants that were not funded but had competitively ranked applications that received a
minimum score of 75 points.

Historically, HUD has made grant awards based on applications submitted in response to notices
of funding availability. The notices were published in the Federal Register and announced
publicly the type and amount of grants available within HUD. They included the requirements for
competing for the available funds. Like all other HUD program offices, OHHLHC appointed an
application review panel comprised of program representatives to score each grant application.

Under the fiscal year 2008 notices, OHHLHC received a total of 202 applications for its seven
grant programs. Decisions on the applications were as follows:

                     OHHLHC’s fiscal year 2008 and Recovery Act funds grant awards


1
    The remaining $500,000 will be used to administer the grants.

                                                            4
   Grant         Applications   Qualified
                                             Fiscal year 2008 awards      Recovery Act awards
  program         received      applicants
Lead-Based
Paint Hazard         67            55          25          $70,379,218      30        $77,949,463
Control
Lead Hazard
Reduction            21            14          13          $44,087,870      1          $2,616,843
Demonstration
Lead
Elimination
                     13             9           9          $17,500,000      0                   $0
Action
Program
Lead Outreach        36            18           5           $1,463,725      0                   $0
Lead Technical
                     11             5           5           $2,200,000      0                   $0
Studies
Healthy
Homes                36            25           5           $4,374,761      20        $17,167,142
Demonstration
Healthy
Homes
                     18            10           4           $2,100,000      2          $1,766,552
Technical
Studies
Total                202           136         66       $142,105,574        53       $99,500,000



The objective of our audit was to determine whether OHHLHC awarded (1) Recovery Act funds in
accordance with selection criteria specified in the fiscal year 2008 notices and the Recovery Act
and (2) fiscal year 2008 funds in accordance with the selection criteria.




                                               5
                                        RESULTS OF AUDIT

Finding 1: OHHLHC Awarded $2.8 Million in Recovery Act Funds to
           Ineligible Applicants

OHHLHC awarded $2.8 million in Recovery Act funds to two applicants despite their applications
not meeting the minimum threshold score of 75 points established in the fiscal year 2008 notice.
These awards were made because the application review panel incorrectly awarded two bonus
points to both applicants’ overall application scores. As a result, the City of Greenville, NC
(Greenville) and Healthy Homes Resources incorrectly received $2.8 million in Recovery Act
funds that should have been awarded to other qualified applicants.


    Two Grantees Were Ineligible To
    Receive Recovery Act Funding


                   The Healthy Homes and Lead Hazard Control Programs’ fiscal year 2008 notice,
                   dated May 12, 2008, states that the “The application must receive a total score of at
                   least 75 points to be considered for funding.” In addition, “Applicants are eligible
                   for two (2) bonus points to each application that includes a valid form HUD-2990
                   certifying that the proposed activities/projects in the application are consistent with
                   the strategic plan for an empowerment zone2 (EZ) designated by HUD or the U.S.
                   Department of Agriculture (USDA), the tax incentive utilization plan for an urban
                   or rural renewal community designated by HUD (RC), or the strategic plan for an
                   enterprise community designated in round II by USDA (EC-II), and that the
                   proposed activities/projects will be located within the RC/EZ/EC-II identified above
                   and are intended to serve the residents.”

                   The application review panel is responsible for rating and scoring applications and
                   recommending applicants for funding. To maintain consistency in scoring,
                   OHHLHC develops an evaluation form that is based on requirements contained in
                   the specific grant program notice.

                   In scoring the applications submitted in response to the fiscal year 2008 OHHLHC
                   notices, the application review panel awarded bonus points to Greenville and
                   Healthy Homes Resources without verifying that the applicants were in a
                   designated zone or obtaining a valid certification form.




2
    An empowerment zone is a distressed area in need of sustainable community development.

                                                          6
Greenville

OHHLHC awarded $1.9 million in Recovery Act funds to Greenville because the
review panel had scored Greenville’s application for the fiscal year 2008 notice at
75.73 points. This score included two bonus points for submitting a valid Form
HUD-2990 (RC/EZ/EC-II). To be valid, the form had to be signed by a Greenville
official certifying that the city was in or the proposed activities would be provided
in a designated empowerment zone. However, the form contained in Greenville’s
official grant file had not been signed. More importantly, neither Greenville nor the
State of North Carolina had been determined to be in one of the designated zones.
Further, it was only after we made inquiries about Greenville’s form in October
2009 that the review panel chair requested a signed form. He requested that a city
official provide him a signed form “with last year’s [sic] date of 08/04/2008.” Such
a request to backdate official forms is an ethical violation.

Thus, Greenville was not entitled to receive the additional points, and its actual total
score of 73.75 was 1.25 points less than the minimum score needed for funding. In
effect, Greenville was not a qualified applicant under the fiscal year 2008 notice.

Healthy Homes Resources

OHHLHC awarded Healthy Homes Resources $874,821 in Recovery Act funds
because the application review panel incorrectly determined that Healthy Homes
Resources was qualified under the fiscal year 2008 notices. The review panel
scored Healthy Homes Resources’ application at 75.77 points. This score included
two bonus points for submitting a valid Form HUD-2990. Healthy Homes
Resources actually submitted two HUD-2990 forms, one with the designated zone
as City of Pittsburgh and the other as Allegheny County. Upon further review, we
determined that neither the City of Pittsburgh nor Allegheny County had been
designated as an empowerment zone. Therefore, the two bonus points for being in
a designated zone should not have been awarded. The final score should have been
73.77 instead of 75.77.

Ultimately, Healthy Homes Resources’ final application score was less than the
minimum score of 75 needed for funding consideration. Therefore, this applicant
should not have been awarded the $874,821 in Recovery Act funds.

Determining whether a grantee is in a designated zone is a matter of searching two
Internet links. However, no one on the review panel searched these links before
awarding bonus points to these two applicants.




                                   7
                     By awarding the $2.8 million to unqualified applicants, Greenville and Healthy
                     Homes Resources, more qualified applicants3 were deprived of the opportunity to
                     receive grant funding under the Recovery Act.

     Conclusion

                     OHHLHC did not have adequate controls to ensure that only qualified applicants
                     were selected to receive grant funds. This condition occurred because the
                     application review panel incorrectly awarded two bonus points to Greenville’s and
                     Healthy Homes Resources’ overall scores. OHHLHC needs to rescind the $1.9
                     million given to Greenville and the $874,821 to Healthy Homes Resources because
                     neither applicant met the minimum qualifications to receive funding for OHHLHC
                     grants. Also, the Director of OHHLHC should ensure that selection procedures are
                     followed and grants are awarded in accordance with established criteria.


     Recommendations


                     We recommend that HUD’s Director of OHHLHC

                     1A.      Rescind $2.8 million in Recovery Act funding that was improperly awarded
                              to Greenville ($1.9 million) and Healthy Homes Resources ($874,821) and
                              award the funds to qualified applicants.

                     1B.      Ensure that the procedures for selecting grantees are made in accordance
                              with established criteria.

                     1C.      Review the application review panel chair’s behavior and take appropriate
                              action.




3
    Qualified applicants are those applicants that received at least 75 points on their application.

                                                               8
Finding 2: OHHLHC Awarded a $3 Million Fiscal Year 2008 Grant to an
           Ineligible Applicant
OHHLHC awarded a $3 million grant to the City of Cincinnati, OH (Cincinnati), in fiscal year
2008 although it was deemed ineligible during the threshold review. The grant was funded
because the Director of OHHLHC’s Programs Division assumed that the city intended to apply for
a different grant program and allowed Cincinnati to resubmit its application after the deadline had
expired. OHHLHC adversely affected the competitive process by allowing Cincinnati to resubmit
its application. As a result, the $3 million grant awarded to Cincinnati should have been awarded
to a qualified applicant.




 Cincinnati Was Ineligible To Receive
 an Award Under the Fiscal Year
 2008 Notice

               In fiscal year 2008, Cincinnati submitted an application for the lead hazard control
               program and requested funding of more than $3.7 million. Applying for the lead
               hazard control grant and requesting such a large amount rendered Cincinnati
               ineligible for funding consideration. Cincinnati was ineligible because (1) it had
               received a lead hazard control grant in fiscal year 2007 and (2) the requested
               funding level of $3.7 million exceeded the $3 million maximum funding limit.

               The Healthy Homes and Lead Hazard Control Programs fiscal year 2008 notice
               clearly states that recipients who received a lead hazard control grant in fiscal year
               2007 cannot receive another grant for the same program the following year. Also,
               the maximum amount of the award in fiscal year 2008 was limited to $3 million.
               Applications meeting these criteria should not have been referred to the application
               review panel for scoring.

               Although the initial application review concluded that Cincinnati was not eligible
               for the grant it applied for, an OHHLHC director changed Cincinnati’s application
               to a different grant program. The director sent a letter to Cincinnati stating: “It
               appears that you intended to submit to the Lead Hazard Reduction Demonstration
               instead of the Lead-Based Paint Hazard Control Program.” Cincinnati’s response
               did not indicate that it intended to apply for the lead hazard reduction program, but
               it resubmitted its application for the lead hazard reduction grant and reduced the
               requested amount.

               The application Cincinnati resubmitted on August 6, 2008, (27 days after the
               deadline) only included changes relative to the budget. It did not include significant
               changes to the descriptions of the rating factors; in fact, the term “lead hazard
               control” was used throughout the resubmitted application. Upon closer examination
                                                  9
             of the resubmitted application, we determined that Cincinnati clearly showed that it
             intended to apply for the lead hazard control grant program. Specifically, in
             response to factor 3 in its application, Cincinnati stated, “The Program Manager
             will file all HUD required monthly, quarterly, and annual reports of Lead Based
             Paint Hazard Control activities, and distribute quarterly and annual reports to the
             partnership agencies.”

             OHHLHC acknowledged that “a subsequent review of the application materials
             does not indicate that the applicant intended to apply for any other program than the
             LBPHC [lead hazard control] Program” and the city should have been deemed
             ineligible for funding under the fiscal year 2008 notice. Despite this
             acknowledgement, OHHLHC believed that it was acceptable to rate the application
             under a different grant program and award Cincinnati a $3 million grant for the
             Lead Hazard Reduction Demonstration program.

             We believe that OHHLHC did not act prudently in permitting Cincinnati to switch
             from the lead hazard control program to the lead hazard reduction program after
             submitting its initial application. OHHLHC considered the switching of programs
             to be a technical deficiency and, therefore, correctable. However, submitting an
             application for the wrong program cannot be corrected by submitting new
             information. Based on the fiscal year 2008 notices, HUD may not seek clarification
             of items or responses that improve the substantive quality of the applicant’s
             response to any rating factor.

             In effect, OHHLHC adversely affected the competitive process by allowing
             Cincinnati to submit an application after the deadline had expired and steering
             Cincinnati to a grant program for which it could receive funding. Both actions were
             opportunities not given to any other applicant. Furthermore, the $3 million grant
             awarded to Cincinnati should have been awarded to a qualified applicant.


Conclusion

             Since Cincinnati was not qualified for the grant it applied for in fiscal year 2008,
             OHHLHC should not have initiated actions to switch the application to another
             grant program. The actions of OHHLHC gave an undue advantage to Cincinnati
             that was not given to other applicants. The evidence supports rescinding the grant.

Recommendations


             We recommend that HUD’s Director of OHHLHC

             2A.    Rescind the $3 million in fiscal year 2008 funding that was improperly
                    awarded to Cincinnati and award the funds to qualified applicants.



                                              10
2B.   Ensure that the application review panels follow threshold review
      requirements when determining eligibility and only rate applications under
      the programs for which applicants apply.

2C.   Review the Programs Division Director’s behavior during the fiscal year
      2008 selection process and take appropriate action as deemed necessary.




                               11
                         SCOPE AND METHODOLOGY


We performed an audit of the selection procedures used by OHHLHC because under the Recovery
Act, inspectors general are expected to be proactive and focus on prevention.

The audit period covered March 2008 through February 2009; however, we expanded the scope
when necessary to include other periods. We performed the audit from August through November
2009 at HUD headquarters in Washington, DC.

To accomplish our objectives, we

       Reviewed applicable HUD regulations, including the fiscal year 2008 notices relating to the
       administration of the OHHLHC grant programs.
       Conducted interviews with OHHLHC employees to determine their roles and
       responsibilities during the fiscal year 2008 application review process.
       Obtained an understanding of OHHLHC’s grant programs.
       Examined 32 of the 202 applications submitted under the 2008 notices and

           o Randomly selected seven applications that received fiscal year 2008 funds to
             determine if the funds were awarded in accordance with the fiscal year 2008
             notices,
           o Randomly selected 16 applications that received Recovery Act funds to determine if
             the funds were awarded in accordance with the notices and the Recovery Act, and
           o Randomly selected nine applications that were not approved for funding during
             fiscal year 2008 to determine if they were scored in accordance with the fiscal year
             2008 notices.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




                                                12
                               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 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
               objectives:

                  Program operations – Policies and procedures that management has
                  implemented to reasonably ensure that a program meets its objectives.

                  Compliance with applicable laws and regulations – Policies and procedures that
                  management has in place to ensure that resource use is consistent with laws and
                  regulations.

               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:

                          OHHLHC did not have adequate procedures in place to ensure that only
                          qualified applicants were awarded grants (findings 1 and 2).



                                                 13
                                   APPENDIXES

Appendix A


               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE

            Recommendation                                    Funds to be put
                number                                        to better use 1/
                  1A                                            $2,774,821
                  2A                                            $3,000,000


1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, when HUD implements our
     recommendations, it will deobligate the funds that.




                                            14
              Appendix B

                              AUDITEE COMMENTS AND OIG’s EVALUATION

              Ref to OIG Evaluation                 Auditee Comments

                                 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                                   WASHINGTON, DC 20410-3000
OFFICE OF HEALTHY HOMES AND
LEAD HAZARD CONTROL




                                                      January 6, 2010


                 MEMORANDUM FOR:                  Saundra G. Elion, Director, Headquarters Audit Division,
                                                     HAH

                 FROM:                            Jon L. Gant, Director, Office of Healthy Homes and Lead
                                                     Hazard Control, L

                 SUBJECT:                         Response to Draft Report Findings Identified in OIG Audit
                                                     Report Number 2010-HA-0001 of FY 2008 Notice of
                                                     Funding Availability Announcement (NOFA) Review
                                                     Process

                         The Office of Inspector General’s (OIG’s), Headquarters Audit Division, conducted an
                 audit of the Office of Healthy Homes and Lead Hazard Control`s (OHHLHC’s) Fiscal Year
                 (FY) 2008 Notice of Funding Availability Announcement (NOFA) review process. The OIG
                 issued the draft Audit Report Number 2010-HA-0001 to OHHLHC for comment. During the
                 audit, potential discrepancies were brought to the attention of the OHHLHC concerning three
                 awardees, one under the permanent FY 2008 appropriation, the City of Cincinnati, OH, and two
                 awarded under the American Recovery and Reinvestment Act of 2009 (ARRA), the City of
                 Greenville, NC, and Healthy Homes Resources, Pittsburgh, PA. Two findings outlined in the
                 draft Report are addressed in this response.

                 Finding 1: OHHLHC Awarded $2.8 Million in Recovery Act Funds to Ineligible
                 Applicants

                      Based on the review conducted on awards made under the Recovery Act to the City of
                 Greenville, NC, (Lead-based Paint Hazard Control Grant) and Healthy Homes Resources,
                 Pittsburgh, PA, (Healthy Homes Demonstration Grant), the OIG determined that OHHLHC
                 awarded $2.8 million in Recovery Act funds to ineligible applicants and recommended the
                 following corrective actions:




                                                              15
     1D.     Rescind $2.8 million in Recovery Act funding that was improperly awarded to
             Greenville ($1.9 million) and Healthy Homes Resources ($874,821) and award the
             funds to qualified applicants.
     1E.     Ensure that the procedures for selecting grantees are made in accordance with
             established criteria.
     1F.     Review the application review panel chair’s behavior and take appropriate action.




Background

         Auditors discovered that the City of Greenville’s application did not contain a signed
Form HUD-2990 (Certification of Consistency with the RC/EZ/EC-II’s Strategic Plan).
During the threshold review process, OHHLHC reviewers noted that Greenville did not submit
the HUD-2990, as required by the NOFA and requested the applicant submit the form within the
14-day period allowed for curable deficiencies. The City of Greenville submitted the form as
“not applicable” and unsigned, however; the OHHLHC Application Review Panel (ARP) review
team erroneously gave bonus points to the applicant as if it had been signed and applicable.

      This error resulted in the Greenville application receiving a score of 75.73; because the
applicant’s score met the minimum qualifying score for award of 75 in accordance with the
General Section of the SuperNOFA, the City of Greenville was awarded an LBPHC grant under
the Recovery Act. However, the score should have been 73.73 without the bonus points, below
the minimum qualifying score. The application had met all minimum requirements to be
considered for review but not qualified for funding consideration.

        OIG auditors identified a similar issue associated with Healthy Homes Resources
(HHR), Pittsburgh, PA. Auditors discovered that HHR’s application contained two signed Form
HUD-2990s certifying that the City of Pittsburgh and Allegheny County were areas where
proposed activities/projects would be carried out within the respective jurisdiction’s RC/EZ/EC-
II and would be intended to serve the residents of the designated area by the applicant. The City
and County’s certifications were incorrect; neither jurisdiction included is within a RC/EZ/EC-II
area.

      The OHHLHC awarded HHR a grant based on the inaccurate information provided by the
applicant. The applicant certified that it met the requirements to receive bonus points for
working in a designated RC/EZ/EC-II zone, when it did not merit those bonus points regarding
either of the jurisdictions. This error resulted in the HHR application receiving a score of 75.77;
however, the score should have been 73.77, below the minimum qualifying score. Without the
bonus points, the application did not qualify for funding consideration.

Response to OIG Recommendation A1. Rescind $2.8 million in Recovery Act funding that was
improperly awarded to Greenville ($1.9 million) and Healthy Homes Resources ($874,821) and
award the funds to qualified applicants.



                                               16
Comment 1         The OHHLHC concurs with the OIG finding that $2.8 million in Recovery Act funding
            was improperly awarded to Greenville and Healthy Homes Resources due to errors in the
            OHHLHC ARP process. However, in the case of the City of Greenville, the OHHLHC does not
            concur with the OIG’s recommendation to rescind the Recovery Act funding. As previously
            outlined in my letter of October 30, 2009, I believe that Greenville is statutorily eligible to
            receive funding and is not at fault for the scoring error that occurred. Accordingly, I believe the
            City of Greenville should be permitted to keep its grant funding. As a consequence, the
            Department is not required to recapture grant funds that have been awarded and expended in
            furtherance of grant activities, a precedent that has been established by previous Office of
            General Counsel (OGC) decisions on matters of funding errors similar to this.

Comment 2         With respect to Healthy Homes Resources a different set of circumstances is presented.
            HHR provided inaccurate information and should be held accountable for the scoring error that
            resulted in funding. Due to the improper certification of the Form HUD-2990 by HHR, the
            OHHLHC will recapture all remaining unobligated funds effective the date of receipt of
            notification by the grantee’s authorizing official. The remaining unobligated balance, less any
            undisbursed obligations yet to be reimbursed, will be awarded to other eligible applicants.

            The specific applicants to be funded have yet to be determined.

            Response to OIG Recommendation A2. Ensure that the procedures for selecting grantees are
            made in accordance with established criteria.

                  The OHHLHC concurs with the OIG finding that procedures for selecting grantees should
            be reviewed and revised. If anything the timelines for completion of the ARP process were
            overly optimistic. In support of Recommendation A2, OHHLHC has established the following
            corrective actions:

            Threshold Review Process
                 Additional Quality Control (QC) measures have been included as part of the Threshold
                 Review process, including adding a second level of QC review to double-check for
                 potential deficiencies and ensure the application meets all of the eligibility requirements for
                 review.
                 The Threshold Review Work Sheet, which is used to ensure that the minimum
                 requirements for eligibility are met to allow the application to be reviewed, has been
                 revised to remove items that should not be considered curable deficiencies (i.e., Form
                 HUD-2990). The Form HUD-2990 will be reviewed during the application review process,
                 thus affording more time to verify the eligibility of applicants’ documentation.
                 Timeline for completing application intake and threshold review will change from 4 days to
                 10 business days.

            Application Review Process
                 If an applicant submits a complete Form HUD-2990, the ARP Review teams will verify if
                 the form provided adequate certification to award bonus points (i.e., verify if the
                 applicant’s target area is in the designated Renewal Communities and Urban Empowerment
                 Zones administered by the Department (www.hud.gov/cr) and/or Rural EZ/EC zones

                                                           17
     administered by the U.S. Dept. of Agriculture (www.ezec.gov)) and is properly signed and
     dated.
     The remediation actions outlined above will be incorporated in our NOFA Evaluation
     Guide. OHHLHC will provide copy of the revised Evaluation Guide once that has been
     completed.
     OHHLHC will notify the City of Pittsburgh and Allegheny County about the inaccurate
     certification made by their respective officials on HHR’s Form HUD-2990.



Response to OIG Recommendation A3. Review the application review panel chair’s behavior
and take appropriate action.
      The OHHLHC takes seriously the ethical behavior of all staff, in particular those given
responsibility over processes that demand the highest level of integrity such as the application
review process. OHHLHC senior management is reviewing the chain of events and the alleged
ethical violations of the application review panel chair and will take appropriate action as
necessary.

Finding 2: OHHLHC Awarded a $3 Million Fiscal Year 2008 Grant to an Ineligible
Applicant

     During the review of the FY 2008 NOFA review process, OIG auditors determined that the
OHHLHC awarded a $3 million grant to the City of Cincinnati, OH, that was deemed ineligible
during the threshold review. The OIG report recommends the following:

     3A.     Rescind the $3 million in FY 2008 funding that was improperly awarded to
             Cincinnati and award the funds to qualified applicants.
     2B.     Ensure that the application review panels follow threshold review requirements
             when determining eligibility and only rate applications under the programs for
             which applicants apply.
     2C.     Review the Programs Division Director’s behavior during the FY 2008 selection
             process and take appropriate action as deemed necessary.

Background

      The OHHLHC received the City of Cincinnati’s application for the Lead-Based Paint
Hazard Control (LBPHC) Program, as identified in the SF-424, and began threshold review of
the application per the Office’s NOFA Evaluation Guide. During this review, it was noted that
Cincinnati requested a funding amount of $3,743,983, as indicated on line 18a of the SF-424,
which far exceeded the maximum funding amount of $3 million permitted under the NOFA
guidelines for the LBPHC Program. The NOFA stated that requests for funding in excess of the
maximum funding amount would render the application ineligible and would not be considered
for funding.

       Due to an apparently high funding request amount and to Cincinnati having received
LBPHC funding in the previous fiscal year, reviewers concluded that Cincinnati may have
erroneously applied for the LBPHC Program but intended to apply for the Lead Hazard

                                              18
            Reduction Demonstration (LHRD) Program, which has a maximum funding amount of $4
            million and one for which they were eligible.

                    The OHHLHC requested information from Cincinnati to clarify which program they
            intended to apply for. Cincinnati’s response clarified the funding request amount of $3 million
            ($743,983 in match and leverage contributions), but did not indicate that it had intended to apply
            for the LHRD Program. Nevertheless, Cincinnati’s application was reviewed competitively and
            awarded funding under the LHRD Program in the amount of $3 million. A subsequent review of
            the application materials does not indicate that the applicant intended to apply for any program
            other than the LBPHC Program and Cincinnati should have been ineligible for consideration as
            an LBPHC applicant due to receiving funding in the previous year under the same program.

            Response to Recommendation 2A. Rescind the $3 million in FY 2008 funding that was
            improperly awarded to Cincinnati and award the funds to qualified applicants.

Comment 3         Although the City did not resubmit its application but provided clarification via email
            regarding the original submission, the OHHLHC concurs that it erred in awarding Cincinnati a
            grant under the LHRD NOFA competition. However, because the City of Cincinnati, a
            statutorily eligible unit of local government, at no time intended to mislead reviewers into
            considering it for funding under the LHRD NOFA, I have determined not to recapture or rescind
            the $3 million award. As previously outlined, the Department is not required to recapture grant
            funds that have been awarded and expended in furtherance of grant activities, a precedent that
            has been established by previous OGC decisions on matters of funding errors similar to this.

            Response to Recommendation 2B. Ensure that the application review panels follow threshold
            review requirements when determining eligibility and only rate applications under the programs
            for which applicants apply.

                  OHHLHC concurs with the OIG Recommendation contained in 2B. In response,
            OHHLHC has implemented the following corrective actions regarding the Threshold Review
            Process:
                 Additional Quality Control (QC) measures have been included as part of the Threshold
                 Review process, including adding a second level of QC review for deficiencies and
                 whether the application meets all of the eligibility requirements for review.
                 Applications will be reviewed and considered for funding only for the grant program
                 indicated by the CFDA number on the SF-424. There will be no exceptions to this rule.
                 The OHHLHC NOFA Evaluation Guide is being reviewed and updated to include these
                 actions.

            Response to Recommendation 2C. Review the Programs Division Director’s behavior during
            the FY 2008 selection process and take appropriate action as deemed necessary.
                 OHHLHC takes seriously the professional behavior of all staff, in particular those given
            responsibility over processes that demand the highest level of integrity such as the application
            review process. OHHLHC senior management is investigating the chain of events related to the
            former Programs Division Director’s actions.



                                                          19
      Thank you for the thoroughness and time spent in assisting the OHHLHC to better steward
the application review process. Insights learned from the OIG audit will enhance the
OHHLHC’s ability to conduct a fair and open NOFA competition. If you have any questions,
please feel free to contact me at (202) 708-0310.




                                            20
                          OIG Evaluation of Auditee Comments

Comment 1   We agree that Greenville is “statutorily eligible” to apply for a grant because under
            the terms of the notices, states, cities and local governments are eligible to apply for
            lead-based paint grants. But, according to HUD’s regulations, applicants must meet
            a minimum score of 75 to be considered for funding. Greenville scored 73.73,
            which is less than the minimum. Waiving the minimum scoring requirements could
            have the appearance of favoritism. Therefore, OHHLHC should rescind the grant.

Comment 2   We agree that OHHLHC should recapture the unobligated balance from Healthy
            Homes Resources.

Comment 3   We disagree with OHHLHC’s decision not to recapture or rescind the grant to
            Cincinnati. The precedent Office of General Counsel decision that OHHLHC
            provided to us on January 7, 2010, does state “. . . the Department is not required to
            recapture funds that have been awarded to statutorily eligible applicants . . ..”
            However, we believe OHHLHC also set a precedent by recapturing the unexpended
            grant funds from the principal applicant described in the Office of General
            Counsel’s decision. That applicant, like Cincinnati, was ineligible to receive
            funding because it too had received a grant the previous year and the terms of the
            notice prohibited applicants from receiving the same type of grant in two
            consecutive years. Cincinnati was not eligible to receive funding consideration
            therefore their grant should be rescinded.




                                              21
Appendix C

                                  OTHER MATTERS

In reviewing OHHLHC grant selection procedures, we identified other deficiencies in OHHLHC’s
award process that need to be addressed. These deficiencies relate to the selection official’s
approval of the selected grantees, maintaining documentation on job creation and retention,
conducting initial screening reviews within the prescribed timeframe, and maintaining an audit
trail of deficiencies found during the initial application review process.



 The Selection Official Did Not
 Prepare a Written Statement
 Approving Grantees

              The Director of OHHLHC did not prepare a written statement indicating his
              approval of the grantees for fiscal year 2008. The OHHLHC Grants Management
              Desk Guide requires the Director to prepare a statement that is based on the
              grantees recommended by the review panels.

              Instead of preparing a separate statement, the Acting Director initialed the
              application review panel’s recommendations because he believed that his initials
              would suffice for the approval. As a result, the Acting Director did not provide the
              grant officer adequate documentation to negotiate and award funds to the grantees.
              This omission caused the grant officer to fund the grantees recommended by the
              application review panel report without proper documentation.

 OHHLHC Could Not Support How
 Job Creation and Retention Were
 Used for Selecting Recovery Act
 Grantees

              OHHLHC did not use job creation and retention as criteria for selecting Recovery
              Act grantees. Although OHHLHC stated that it gave priority to those grant
              programs that were most likely to create or retain jobs, we noted that creating and
              retaining jobs were not specifically used as criteria in selecting the Recovery Act
              grantees. OHHLHC management believed that the Lead-Based Paint Hazard
              Control, Lead Hazard Reduction Demonstration, and Healthy Homes
              Demonstration programs directly conducted construction activities and would yield
              job creation and retention the soonest. However, OHHLHC did not provide us with
              evidence that the programs selected to create and retain jobs could achieve this
              priority.

                                               22
OHHLHC Did Not Perform
Threshold Reviews on Applications
Within the Established 4-Day
Requirement

         OHHLHC did not perform threshold reviews on submitted applications within the
         period established by the 2008 OHHLHC NOFA [notice of funding availability]
         Evaluation Guide (evaluation guide). The evaluation guide states that the threshold
         reviews should be completed within 4 days of receipt of the application. Of the 32
         applications reviewed, 28 applications exceeded the 4-day requirement, and the
         other four applications did not include a date indicating when the threshold review
         was completed. For one applicant, the City of Sioux City, the number of days that
         had elapsed between the date the application was received and the threshold review
         was conducted was 55 business days.

  OHHLHC Was Not Consistent in
  Applying the Timeline for
  Correctable Deficiencies

         OHHLHC was not consistent in applying the timeline for correctable deficiencies.
         The Grants Management Desk Guide states, “If an application is found to be
         deficient, the applicant is notified of the deficiency and is given 14 working days to
         submit the correct documentation to HUD.”

         Of the 32 applicants reviewed, 8 had correctable deficiencies. Of the eight
         applicants, (1) four responded to the deficiency notice in a timely manner, but we
         could not find one applicant’s responses in the files; (2) two of the unsuccessful
         applicants had correctable deficiencies, but OHHLHC did not notify them; (3) one
         applicant’s response to the correctable deficiency exceeded the 14-day requirement;
         and (4) both the deficiency letter and response were missing from the grant files of
         another applicant.




                                           23