oversight

HUD's Office of Healthy Homes and Lead Hazard Control Grant Selection Procedures Used for the Lead Hazard Reduction Demonstration Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-09-29.

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

                                                                    Issue Date
                                                                             September 29, 2010
                                                                    Audit Report Number
                                                                                 2010-HA-0002




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 Grant Selection
           Procedures Used for the Lead Hazard Reduction Demonstration Program


                                     HIGHLIGHTS


   What We Audited and Why
      We completed an audit of the Office of Healthy Homes and Lead Hazard Control
      (OHHLHC) grant selection procedures for awarding the fiscal year 2009 Lead Hazard
      Reduction Demonstration (LHRD) grants. This audit was initiated based on a complaint
      to our hotline alleging that the managers of OHHLHC changed the scores assigned by the
      application review panel to award grants to applicants that were not ranked high enough
      to receive funding under the 2009 notice of funding availablity (notice). Our objective
      was to determine whether (1) OHHLHC awarded grants in accordance with the selection
      criteria specified in the fiscal year 2009 notice and (2) the allegation in the complaint had
      merit.


   What We Found

      We found no intent to change scores in order to fund certain applicants thus the allegation
      could not be substantiated. Some LHRD applicants’ scores were changed to correct an
      error made during the threshold review but the error was not documented during the
      application review process. However, changes made to correct scoring errors ensured the
      correct ranking of the LHRD applicants. We also found that OHHLHC incorrectly
     awarded two bonus points to five applicants that were not in designated empowerment
     zones, enterprise communities, or renewal communities. However, these errors did not
     affect the final ranking and awarding of applicants.

What We Recommend
     We recommend that HUD’s OHHLHC Director ensure that (1) the Programs Division
     Director verifies the accuracy of the threshold reviews before sending the applications to
     the application review panel, (2) the quality control reviews are completed and
     documented before submitting the application review panel report for approval, and (3)
     the review panel members do not perform quality control reviews of applications that
     they reviewed. We also recommend that the OHHLHC Programs Division Director
     adhere to new procedures requiring the reviewers to verify that applicants are in
     designated empowerment zones, enterprise communities, or renewal communities.

     The HUD OHHLHC Director stated that his office has taken additional steps to
     implement these recommendations. Therefore, we plan to close the recommendations
     upon issuance of the report.


Auditee’s Response


     We provided the discussion draft to OHHLHC for comment on September 20, 2010. We
     revised the discussion draft based on comments and information provided at the exit
     conference on September 22, 2010. We received written comments from OHHLHC on
     September 22, 2010, that agreed with our findings and recommendations. The complete
     text of OHHLHC’s response, along with our evaluation of that response, can be found in
     appendix B of this report.




                                              2
                         TABLE OF CONTENTS

Background and Objectives                                                      4

Results of Audit
     Finding 1: OHHLHC Controls Over Its Grant Awards Process Had Weaknesses   6
     Finding 2: OHHLHC Did Not Verify Empowerment Zones Before Awarding        10
                Points

Scope and Methodology                                                          12

Internal Controls                                                              13

Appendixes
  A. Match and Leverage Resources Point Tables                                 14
  B. Auditee Comments and OIG’s Evaluation                                     15




                                        3
                        BACKGROUND AND OBJECTIVES

The mission of the Office of Healthy Homes and Lead Hazard Control (OHHLHC) is to reduce
health and safety hazards in a comprehensive and cost-effective manner, with particular focus on
protecting the health of children and other sensitive populations in low-income households.
OHHLHC currently oversees seven grant programs: Lead-Based Paint Hazard Control, Lead
Hazard Reduction Demonstration, Healthy Homes Demonstration, Lead Outreach, Lead
Technical Studies, Operation Lead Elimination Action, and Healthy Homes Technical Studies.

The Lead Hazard Reduction Demonstration (LHRD) grant program was established in fiscal year
2003 to focus on major urban areas where children are disproportionately at risk for lead
poisoning. The grants were awarded on a competitive basis to areas with the highest lead
abatement needs. There remains a significant lead risk in privately owned housing, particularly
in unsubsidized low-income units. The LHRD grant program assists State, tribal, and local
governments in identifying and controlling lead-based paint hazards in privately owned housing
that is owned by or rented to low- or very low-income families.

The U.S. Department of Housing and Urban Development’s (HUD) fiscal year 2009 LHRD
grant program was authorized $48 million under the Omnibus Appropriations Act of 2009
(Public Law 111-8). Of the 31 applicants eligible for an LHRD grant, 15 were selected for
funding on October 1, 2009.

Each LHRD grant application was scored based on responses to the following five rating factors:

    ∗   Rating factor 1:   Capacity of the applicant and relevant organizational experience (20
        points)
    ∗   Rating factor 2:   Need/extent of the problem (15 points)
    ∗   Rating factor 3:   Soundness of approach (40 points)
    ∗   Rating factor 4:   Leveraging resources (10 points)
    ∗   Rating factor 5:   Achieving results and program evaluation (15 points)

In addition to the five rating factors, applicants could receive two bonus points if their planned
activities were in a designated empowerment zone. 1

Beginning in fiscal year 2008, the Consolidated Appropriations Act of 2008 allowed HUD to
waive the 25 percent matching requirement for qualified LHRD applicants. LHRD applicants
with waiver requests approved by the OHHLHC Director had to provide a matching contribution
of at least 10 percent of the requested grant amount to be eligible to apply for an LHRD grant.

The application review panel is responsible for rating and scoring applications and
recommending applicants for funding. To maintain consistency in scoring, OHHLHC develops

1
 Empowerment zones as used in this report include enterprise communities and renewal communities. All are
programs that were established by Congress in 1993 to reduce unemployment and generate economic growth in
selected census tracts.

                                                      4
an evaluation form that is based on requirements contained in the specific grant program notices
of funding availability (notice).

The objective of our audit was to determine whether (1) OHHLHC awarded grants in accordance
with the selection criteria specified in the fiscal year 2009 notice for the LHRD grants and (2) the
allegation in the complaint had merit.




                                                 5
                                       RESULTS OF AUDIT

Finding 1: OHHLHC’s Controls Over Its Grant Award Process Had
Weaknesses
OHHLHC’s controls over its grant award process had weaknesses. Specifically, (1) some
applicants were awarded 10 points for the LHRD match waiver although they had not requested
or been approved for a waiver, (2) the quality control process was not adequately documented
until nearly 3 months after the grants had been awarded, and (3) the final application review
panel report contained incorrect scores and statements. These errors occurred because a
documented quality control review was not completed before the application review panel report
was prepared. As a result, HUD did not have adequate assurance that the application scoring
was accurate, nor that an adequate audit trail existed to support its determination for funding.



    Improved Quality Controls
    Needed

         According to the OHHLHC Grants Management Desk Guide, dated June 2003, “Prior to
         being submitted to the ARP [application review panel] for scoring, each application
         undergoes a Threshold Review to ensure completeness and consistency in the application.
         During the Threshold Review, ARP members and/or advisors review applicant forms to
         ensure that consistent information is provided to HUD and deficiencies are noted on a
         Threshold Review checklist that is completed for each application. The Threshold
         Review checklist is developed for each NOFA [notice] to reflect required elements of the
         application.”

         For the LHRD grant applications, OHHLHC used Excel workbooks 2 to complete the
         threshold review sheet. The threshold reviewers extracted information from the
         applications, put it into the Excel workbook, and awarded points to applicants for rating
         factors 2 (need/extent of the problem) and 4 (leveraging resources). Consequently, the
         application review panel was only responsible for evaluating and scoring rating factors 1,
         3, 5, and the bonus points.

         During the threshold review, 10 applicants were awarded the maximum 10 points for the
         LHRD match waiver under rating factor 4 although they had neither applied for nor
         received the waiver. For example,


2
  The Excel workbook contains all scoring documents and separate tabs with required supporting documentation.
The separate tabs include the threshold review, Application for Federal Assistance (Standard Form 424),
documented blood lead levels (rating factor 2 – need/extent of problem), leveraging resources point table, prior-year
awards and the names of the applicants with waiver requests, applicant review panel review team summary scoring
report, and review team’s individual score sheets.

                                                          6
    •   The City and County of San Francisco, Mayor’s Office of Housing, initially
        received the maximum 10 points for its 25.25 percent matching share although it
        was not entitled to any points because it only met the 25 percent requirement (see
        appendix A for point table),
    •   The Kansas Department of Health and Environment initially received the
        maximum 10 points for its 28.28 percent matching share when it was only
        entitled to 3 points, and
    •   The State of New Jersey initially received the maximum 10 points for its 29.31
        percent matching share when it was only entitled to 4 points.

OHHLHC did not find the scoring errors pertaining to the waivers until after the
application review panel had completed its final scores. The error was discovered during
the writing of the application review panel’s report. However, there was no
documentation (audit trail) in any of the application files or the application review
panel’s notes explaining why the match waiver scores were changed. When we initially
showed the changes in the scores to the panel members, they stated that they were due to
a typing error.

According to the fiscal year 2009 notice’s evaluation guide, “When problems are
identified at any level … the application is returned to the review team for correction.”
However, the LHRD applications were not returned to the application review panel; the
application review panel chair and vice chair corrected the scores just 2 days before they
sent the final report to the OHHLHC Director for approval.

According to the Programs Division Director the quality control review for the LHRD
applications was conducted throughout the application review process, however it was
not documented until after the grants were awarded. It was not until December 17, 2009,
nearly 3 months after the grants had been awarded, that the quality control review was
documented. In addition to the delay, the application review panel vice chair conducted
the quality control review of an application he had reviewed and scored. Given that the
duties of the reviewers are to ensure the quality of the application reviews, these duties
(reviewing applications and quality control) should be separated. Separation is important
because an independent verification of the forms validates the completeness and accuracy
of scores awarded to each applicant.

According to the application review panel vice chair, the quality control review could
have caught the waiver request error earlier. Although, the OHHLHC guide does not
require a quality control review, we believe that the OHHLHC Programs Division should
have documented that such a review occurred before submitting the scores for the final
report.

Because a quality control review was not conducted timely, the final report contained
incorrect scores and conflicting statements. Specifically, the recommendation section of
the report stated, “This recommendation fully funds the highest-ranking 12 applicants
whose scores range from 97.7 to 84.9, with the total recommendation amount of
$48,000,000, and partially funds one applicant” for a total of 13 applicants recommended

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         for funding. This statement should have been revised after the final application review
         panel report. However, the table in the same report showed that 15 applicants were
         awarded LHRD grants. The table reflected the corrected scores for those applicants that
         were funded, but statements in the recommendation section describing the awards did not
         correspond with the table in the report. Specifically, there was no applicant in the table
         that scored 84.9 as stated in the recommendation section because the Programs Division
         Director had reduced the applicant’s score by 6 points to correct the waiver request error.
         Also, the scores in the table for two other applicants were incorrect. One applicant’s
         score did not match the team summary score, 3 and the other applicant’s score was
         rounded up although the guidance clearly states that it should not be rounded.

         These errors occurred because established internal controls were not followed. The
         reviewers did not verify that the applicants had been approved for waivers for the match
         percentage requirement. Also, some of the inconsistencies in the application review
         panel report were attributed to multiple revisions that were made within the last 2 days
         before the report was submitted for approval.

         Without adequate controls, HUD did not have sufficient assurance that the scores were
         accurate and an adequate audit trail to support its determination for funding. Because
         OHHLHC used the threshold review to filter rating factors 2 and 4 scores into the panel
         members’ review scoring sheets the accuracy of all the scoring sheets was affected.
         Several of the applicants initially received higher scores than they were entitled to
         because of the incorrect information on the threshold review; had this error not been
         corrected, applicants could have improperly received funding.


    Conclusion


         Some LHRD applicants’ scores were changed after the application review panel
         completed its review of applications. As a direct result of errors in the threshold scoring,
         and subsequent failure to identify those errors through quality control review in a timely
         manner, the final application review panel report contained avoidable errors. These
         errors were corrected thus validating the applicants that were awarded. We found no
         intent to raise scores so that specific applicants would be funded. The scores were
         changed to correct errors in the waiver matching requirement percentage that were made
         during the threshold review. Nonetheless, OHHLHC needs to improve the quality
         control for the grant application review process.




3
 The team summary score is the consensus score averaged between the two application reviewers. This is the final
score for the applicant and should be used in the application review panel report.

                                                       8
Recommendations


    We recommend that HUD’s Director of OHHLHC

    1A. Ensure that the Programs Division Director verifies the accuracy of the threshold
       reviews before sending the applications to the application review panel.

    1B. Ensure that the quality control reviews are completed and documented on all
       applications before submitting the application review panel report for approval.

    1C. Ensure that the review panel members do not provide quality control reviews on
       applications they reviewed.




                                            9
Finding 2: OHHLHC Did Not Verify Empowerment Zones Before
Awarding Points
Five LHRD applicants were incorrectly awarded two bonus points to their overall application
scores. The two points were awarded because the reviewers did not verify that the applicant was
in an empowerment zone designated by HUD or the U.S. Department of Agriculture (USDA).
As a result, applicants received scores higher than they were entitled to for their application.
Although none of the LHRD applicants was affected by these additional points, similar
discrepancies found during our previous audit showed that grantees did improperly receive
funding based on bonus points.



Empowerment Zone Not
Verified

       The fiscal year 2009 notice states that two bonus points will be given 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 zone designated
       by HUD or USDA.

       In scoring the applications submitted in response to the fiscal year 2009 OHHLHC
       notice, the application review panel awarded bonus points without verifying that the
       applicants were in a designated zone or obtaining a valid certification form.

       The application review panel incorrectly awarded two points to five applicants without
       verifying the form HUD-2990 with the Web sites that list the areas included in designated
       empowerment zones. The table below shows the applicants’ corrected scores if they had
       not been awarded the two bonus points.

                                                                        Application
                                                                                    Corrected
                                     Grant name                        review panel
                                                                                      score
                                                                           score
         Nassau County                                                         90.2       88.2
         City of Erie, Redevelopment Authority                                 87.4       85.4
         City of Portland                                                     84.05      82.05
         Kansas Department of Health and Environment                           80.3       78.3
         City and County of San Francisco, Mayor's Office of Housing           80.4       78.4


       To receive the bonus points, the form HUD-2990 had to be signed by a certifying official
       in the empowerment zone. However, Nassau County’s HUD-2990 was marked “not
       applicable” on the line for the name of the empowerment zone yet the review panel
       awarded the applicant the two points. Another reason the applicants should not have
       been awarded the bonus points was the planned activities/projects were not within the
       empowerment zone. The Web sites that list the designated empowerment zones also
       describe the specific geographical areas within each State that are included in the

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     designated zone; therefore, the reviewers could have easily verified whether the applicant
     was in an empowerment zone.

     The reviewers acknowledged that they checked the forms for signatures only; they did
     not verify the HUD-2990 with the HUD and USDA Web sites that list the empowerment
     zones.

     Although none of the fiscal year 2009 LHRD applicants’ funding was affected by the
     bonus points, this same finding was reported in HUD Office of Inspector General (OIG)
     Audit Report No. 2010-HA-0001, “HUD’s Office of Healthy Homes and Lead Hazard
     Control Awarded Grants to Ineligible Applicants,” dated January 11, 2010. As a result of
     that review, OHHLHC implemented changes in its policies and procedures to address
     those deficiencies. However, those changes had not been implemented at the time the
     LHRD applications were reviewed.


Conclusion


     OHHLHC incorrectly awarded two bonus points to five LHRD applicants whose
     proposed activities/projects were not in designated empowerment zones. However, none
     of the applicants’ funding was affected by these additional points. In the future,
     OHHLHC should ensure that the review panel verifies that applicants’ proposed
     activities/projects are in a designated empowerment zone before awarding the bonus
     points.


Recommendations

     We recommend that HUD’s Director of OHHLHC

     2A.     Adhere to new procedures requiring the reviewers to verify that applicants are in a
             designated empowerment zones, enterprise communities, or renewal
             communities.




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                        SCOPE AND METHODOLOGY

We performed an audit of the selection procedures used by OHHLHC because we received a
hotline complaint alleging that OHHLHC managers changed the scores assigned by the
application review panel. Scores for the LHRD grants were purportedly changed to award grants
to applicants that were not ranked high enough to receive funding under the 2009 notice.

The audit period covered May through October 2009. We performed the audit from May
through August 2010 at HUD headquarters in Washington, DC.

To accomplish our objectives, we

   •   Reviewed applicable HUD regulations, including the fiscal year 2009 notice relating to
       the administration of the LHRD grant program.

   •   Conducted interviews with OHHLHC employees to determine their roles and
       responsibilities during the fiscal year 2009 application review process.

   •   Obtained an understanding of OHHLHC grant programs.

   •   Examined the 31 applications submitted for the LHRD grant program under the 2009
       notice.

We conducted the audit in accordance with generally accepted government audit 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 a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls 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:

       •   Effectiveness and efficiency of 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 deficiency in internal control exists when the design or operation of a control does not
       allow management or employees, in the normal course of performing their assigned
       functions, the reasonable opportunity to prevent, detect, or correct (1) impairments to
       effectiveness or efficiency of operations, (2) misstatements in financial or performance
       information, or (3) violations of laws and regulations on a timely basis.

 Significant Deficiency


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

       •   OHHLHC did not have adequate procedures in place to ensure that the threshold
           review process properly identified applicants that received a waiver for the required
           matching amounts or that the quality control process was completed before the
           application review panel’s report was finalized.

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                                   APPENDIXES

Appendix A

 MATCHED AND LEVERAGED RESOURCES POINT TABLES

                            LHRD (without match waiver)
                      match and leveraged resources point table
             Match and leveraged resources
                as percent of requested           Points awarded
                    Federal amount
                       26 percent                        1
                       27 percent                        2
                       28 percent                        3
                       29 percent                        4
                       30 percent                        5
                       31 percent                        6
                       32 percent                        7
                       33 percent                        8
                       34 percent                        9
                 35 percent or greater                   10



                              LHRD (with match waiver)
                      match and leveraged resources point table
             Match and leveraged resources
                as percent of requested           Points awarded
                    Federal amount
                       11 percent                        1
                       12 percent                        2
                       13 percent                        3
                       14 percent                        4
                       15 percent                        5
                       16 percent                        6
                       17 percent                        7
                     18-19 percent                       8
                     20-21 percent                       9
                 22 percent or greater                   10




                                         14
Appendix B

         AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




Comment 1




                           15
Comment 2



Comment 3




Comment 4




Comment 5




            16
Comment 6




            17
                            OIG Evaluation of Auditee Comments

Comment 1     We issued the final audit report on September 29, 2010.

Comment 2     Audit Report Number 2010-HA-0001, dated January 11, 2010, reviewed the
              selection process for the fiscal year 2008 applicants.

Comment 3     We concur with OHHLHC’s action. However, we encourage OHHLHC to verify
              that only qualified applicants receive the appropriate number of points for the
              waiver matching requirement.

Comment 4     We concur that OHHLHC has taken additional steps to ensure that quality
              assurance reviews are documented in an accurate and timely manner.

Comment 5     We concur that OHHLHC’s Director directed that the application review panel
              chair and co-chair not review applications to ensure separation of duties.

Comment 6     We concur that OHHLHC implemented new procedures requiring the application
              reviewers to verify that applicants are in designated empowerment zones.

We appreciate the courtesies OHHLHC extended to us during this audit.




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