Issue Date
May 07, 2010
Audit Report Number
2010-LA-1010
TO: Maria F. Cremer, Acting Director, San Francisco Office of Community Planning
and Development, 9AD
FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA
SUBJECT: Arizona Department of Housing’s Administration of Its Recovery Act Grant:
Homelessness Prevention and Rapid Re-Housing Program
HIGHLIGHTS
What We Audited and Why
We audited the Homelessness Prevention and Rapid Re-Housing Program at the State of
Arizona Housing Department (Department) because it was the largest single
Homelessness Prevention and Rapid Re-Housing Program grant awarded within Arizona
under the American Recovery and Reinvestment Act of 2009 (Recovery Act). In
addition, the State Office of the Auditor General excluded the State’s homeless programs
from its planned reviews of Recovery Act programs. Our audit is part of the U.S.
Department of Housing and Urban Development (HUD), Office of Inspector General’s
(OIG) national mandate to monitor grant activities funded by the Recovery Act.
Our objective was to determine whether the Department administered the grant in
compliance with Recovery Act and other applicable regulations. Specifically, we wanted
to determine whether the Department had adequate policies and procedures in place to
ensure that (1) Recovery Act funds were accounted for separately and reporting
requirements were met, (2) program participants and activities were eligible, (3) Federal
accounting documentation requirements were met, and (4) subrecipients were adequately
trained and monitored for compliance.
What We Found
The Department had adequate policies and procedures to ensure that Recovery Act funds
were accounted for separately and reporting requirements were met. However, it did not
have adequate policies and procedures to ensure that its subrecipients properly
established eligibility for program participants and activities and maintained source
documents for program expenditures in accordance with the applicable documentation
requirements for Federal grants. Further, the Department’s policies and procedures were
not adequate to ensure that subrecipients received adequate training and monitoring to
ensure compliance with the specific Homelessness Prevention and Rapid Re-Housing
Program regulations.
What We Recommend
We recommend that HUD require the Department to provide supporting documentation
or repay unsupported amounts for $75,543 in program expenditures. We also
recommend that HUD require the Department to provide adequate training and
monitoring to its subrecipients to ensure that they have implemented policies and
procedures to comply with Homelessness Prevention and Rapid Re-Housing Program
requirements and to maintain appropriate source documentation for program
expenditures. By ensuring that its subrecipients properly establish and document that
program participants and activities are eligible, the Department will reduce the risk of
waste, fraud, and abuse for its remaining Recovery Act funds under the program.
For each recommendation without a management decision, please respond and provide
status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us
copies of any correspondence or directives issued because of the audit.
Auditee’s Response
We provided a draft report to the Department on April 21, 2010, and held an exit
conference with Department officials on May 3, 2010. The Department provided written
comments on April 29, 2010. The Department generally agreed with our report
recommendations.
The complete text of the auditee’s response, along with our evaluation of that response,
can be found in appendix B of this report.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: The Department Did Not Ensure That Its Homelessness Prevention and 6
Rapid Re-Housing Program Was Administered in Accordance With
Recovery Act Regulations
Scope and Methodology 14
Internal Controls 15
Appendixes
A. Schedule of Questioned Costs 17
B. Auditee Comments and OIG’s Evaluation 19
C. Criteria 23
D. Schedule of Deficiencies 27
3
BACKGROUND AND OBJECTIVE
The American Recovery and Reinvestment Act
The American Recovery and Reinvestment Act of 2009 (Recovery Act) became Public Law 111-
5 on February 17, 2009. The purpose of the Recovery Act is to (1) preserve and create jobs and
promote economic recovery, (2) assist those most impacted by the recession, (3) provide
investments needed to increase economic efficiency by spurring technological advances in
science and health, (4) invest in transportation, environmental protection, and other infrastructure
that will provide long-term economic benefits, and (5) stabilize State and local government
budgets to minimize and avoid reductions in essential services and counterproductive State and
local tax increases. The Recovery Act established the Homelessness Prevention and Rapid Re-
Housing Program, which is regulated by the U.S. Department of Housing and Urban
Development (HUD) and administered by HUD’s Office of Community Planning and
Development.
The Homelessness Prevention and Rapid Re-Housing Program
The purpose of the Homelessness Prevention and Rapid Re-Housing Program is to provide
homelessness prevention assistance to households that would otherwise become homeless, many
due to the economic crisis, and to provide assistance to rapidly rehouse persons who are
homeless as defined by section 103 of the McKinney-Vento Homeless Assistance Act (42 U.S.C.
(United States Code) 11302). The program provides temporary financial assistance and housing
relocation and stabilization services to individuals and families that are homeless or would be
homeless but for this assistance. Accordingly, eligible program activities are intended to target
the following two populations of persons facing housing instability:
Homelessness prevention activities assist individuals and families that are currently in
housing but are at risk of becoming homeless and needing temporary rent or utility
assistance to prevent them from becoming homeless or assistance to move to another
unit.
Rapid rehousing activities assist individuals and families that are experiencing
homelessness (residing in emergency or transitional shelters or on the street) and need
temporary assistance to obtain housing and retain it.
Arizona Department of Housing
The Arizona Department of Housing (Department) was established in 2001 to allow for greater
coordination and innovation of housing-related services at the State level. The Department
serves as the grantee and responsible administrative agency for many of HUD’s community
planning and development programs, including the Community Development Block Grant,
HOME Investment Partnerships, and Housing Opportunities for Persons With AIDS programs.
The Department also administers the Section 8 Housing Choice Voucher Program for Yavapai
County and several State-funded homeless programs. HUD allocated more than $7 million in
Homelessness Prevention and Rapid Re-Housing Program funds to the Department for the period
October 1, 2009, through September 30, 2012. The Department retained $211,006 in
4
administrative funds and allocated the rest to 10 subrecipients,1 which are administering the
program as follows:
Town of Springerville $203,200
New Hope Ranch $203,200
SouthEastern Arizona Community Action Programs, Inc. $947,339
Coconino County Community Services $576,751
Gila County Community Services $243,590
Western Arizona Council of Governments $1,042,095
Mohave City Community & Economic Development $892,651
White Mountains Catholic Charities $590,850
Community Action Human Resources Agency $1,179,759
Catholic Charities Yavapai Region $943,079
Subtotal $6,822,514
Arizona Department of Housing Administrative Funds $211,006
Total $7,033,520
Audit Objective
The objective of our audit was to determine whether the Department administered the grant in
compliance with Recovery Act and other applicable regulations. Specifically, we wanted to
determine whether the Department had adequate policies and procedures in place to ensure that
(1) Recovery Act funds were accounted for separately and reporting requirements were met, (2)
program participants and activities were eligible, (3) Federal accounting documentation
requirements were met, and (4) subrecipients were adequately trained and monitored for
compliance.
1
These agencies serve cities, counties, towns, townships, etc., that do not qualify to receive Community Development Block Grant entitlement
funds.
5
RESULTS OF AUDIT
Finding 1: The Department Did Not Ensure That Its Homelessness
Prevention and Rapid Re-Housing Program Was
Administered in Accordance With Recovery Act
Regulations
The Department did not ensure its Homelessness Prevention and Rapid Re-Housing Program
was administered in accordance with Recovery Act and other applicable Federal regulations.
Although the Department had adequate policies and procedures to account separately for
Recovery Act funds and meet reporting requirements, it did not ensure that its subrecipients
Established that program participants and activities were eligible,
Maintained adequate accounting documentation, and
Received adequate training and monitoring for compliance with Federal requirements.
These conditions occurred because the Department did not follow the State of Arizona’s General
Accounting Office guidance specific to Recovery Act risk assessment and subrecipient
monitoring. Instead, the Department followed its usual procedures for monitoring the
subrecipients’ administration of another State (non-Federal) program that provided homelessness
prevention services. Because all of the subrecipients successfully administered the State
program, officials believed these same agencies were capable of administering the Homelessness
Prevention and Rapid Re-Housing Program with minimal guidance. However, the Department’s
inadequate oversight of its Homelessness Prevention and Rapid Re-Housing Program did not
ensure that participants and activities were eligible or that HUD’s reimbursements to the State
for $75 thousand in grant expenditures were adequately supported.2 Until the Department
requires its subrecipients to follow the Federal program’s requirements, the remaining program
grant funds could be at risk.
The Department Did Not
Ensure That Its Subrecipients
Properly Established Eligibility
The Department did not ensure that its subrecipients determined, verified, and
documented participant and/or activity eligibility in accordance with Recovery Act and
other applicable Federal regulations (see criteria in appendix C). It contracted with 10
subrecipients throughout Arizona to administer its Homelessness Prevention and Rapid
Re-Housing Program. However, none of the 10 subrecipients had adequate written
2
At the time of this audit the Department had administered the program for six months of the 3-year term, and had
been reimbursed by HUD for $75 thousand, or about 1 percent of the total grant amount.
6
policies and procedures. Specifically, the policies and procedures were not sufficient to
address the Federal program’s regulations and did not provide a step-by-step process or
other guidance with enough detail to enable a caseworker to properly establish participant
eligibility. Further, the subrecipients we visited had not established participant eligibility
in accordance with HUD’s requirements (see criteria F through U, appendix C).
During our review of 15 client files from 3 of the subrecipients, we were unable to
determine if program participants/activities were eligible or ineligible by using the
documents contained within the files. For example, we were unable to establish (1) how
annual income was calculated or compared to the area median income levels and (2)
homelessness or risk of homelessness. Every file reviewed contained similar
deficiencies. Several client files also lacked adequate documentation to support activity
funding, or third-party verification when required. The consistently high rate of
deficiencies in all files reviewed demonstrated that the problem was systemic. The
specific deficiencies are summarized below and presented by case in appendix D:
15 of 15 files did not contain the required documentation to determine the area
median income level for the household;
15 of 15 files did not contain the required income/asset supporting
documentation needed to determine income eligibility for the household;
15 of 15 files did not contain third-party verification of income and/or asset
documentation or failed to provide the required explanation for its absence;
14 of 15 files did not contain the required documentation to support
homelessness or risk of homelessness; and
9 of 15 files did not contain required documentation to show that the
assistance (activity) funded had been paid (for example, receipts, vouchers,
etc.)
For example, one client file reviewed had multiple deficiencies. The file contained a
rental agreement for the client but not an eviction letter. Both documents are required to
establish a risk of homelessness. Accordingly, we were unable to determine the risk of
homelessness because the client was only $12 in rental arrears and documentation of an
eviction notice was missing. Additionally, regulations state that if utility bills are to be
paid under the program, the utility notice must show that shut-off is imminent. However,
the utility bill in the file showed a past-due amount of zero; therefore, we were unable to
establish whether utility payments were an eligible activity. Documentation of current
employment for the client and one additional household member consisted of only one
pay stub for a 2-week period. There was no other supporting documentation or third-
party verification for the two employed household members. Therefore, we were unable
to determine that the household’s gross income met program requirements. Further, the
subrecipient did not have eligibility determination procedures that we could follow.
Therefore, we could not locate documentation to show what income the caseworker used
or how the subrecipient calculated, annualized, and compared the income to the area
median income limits. Finally, the file did not contain adequate proof that rent and
utility payments had been forwarded to responsible third parties in care of the client.
7
Another client file illustrated that multiple deficiencies were typical. File documentation
showed that the client had been living in a friend’s room, apartment, or house. In this
circumstance, HUD requirements state that a copy of an eviction letter from the friend
who owns or rents the housing and a copy of the lease naming the friend as the
leaseholder must be included in the participant file. However, the file did not contain a
lease or an eviction notice, which caused us to question the risk of homelessness. In
addition, although payments for utility service deposits are allowed under the
Homelessness Prevention and Rapid Re-Housing Program, because the risk of
homelessness was not fully substantiated, we questioned the eligibility of the rent and
utility payments. The preliminary tracking form showed a 13-month employment period
for the client; however, no pay stubs or employer verification documentation was in the
file. On December 22, 2009, we contacted the employer listed on the documentation and
were informed that the client currently worked for the company. The documentation
showed that the client was working, but the income from employment was not included
in the file. Accordingly, we were not able to determine income eligibility for the client.
As in the case described above, the subrecipient did not have eligibility determination
procedures that we could follow. Therefore, we could not locate documentation to show
what income the caseworker used or how the subrecipient calculated, annualized, and
compared the income to the area median income limits. Finally, the file did not contain
adequate proof that rent and utility payments had been forwarded to responsible third
parties in care of the client.
The Department Did Not
Require Adequate Accounting
Documentation
The Department did not request or review supporting documentation from any of its 10
subrecipients to ensure that amounts disbursed for Recovery Act activities were properly
supported. Specifically, the Department did not examine source documentation for
reimbursement requests submitted by its subrecipients for Homelessness Prevention and
Rapid Re-Housing Program activities. A Department official stated that subrecipients
maintained appropriate supporting documentation because the same 10 subrecipients
administered the State’s own program to prevent homelessness and the Department’s prior
monitoring of the State program had consistently found satisfactory compliance with the
program requirements. However, we determined that the State program--Eviction
Prevention Emergency Housing--had fewer requirements than the Federal Homelessness
Prevention and Rapid Re-Housing Program and did not incorporate the Federal
requirements for financial management systems.
All of the subrecipient files we reviewed contained instances of inadequate source
documentation. As discussed above, case files typically failed to include documents to
establish risk of homelessness (eligibility), such as complete leases, eviction notices and
utility shut-off notices. These same documents were necessary to support the amount of
program assistance that could be paid to the appropriate third party, such as the landlord or
8
utility company. For example, a valid lease was necessary to establish the amount of rent in
arrears or the amount of late fees due. Otherwise, a landlord could simply claim an arbitrary
amount for overdue rent and late fees. Without the appropriate source document (the valid
lease combined with the eviction notice), program officials could not be certain the
Homelessness Prevention and Rapid Re-Housing Program was not overcharged.
Federal grant requirements for financial management systems are set forth in 24 CFR (Code
of Federal Regulations) 85.20 (see criterion D in appendix C). Paragraph (a) of this
regulation provides that a State (and its subgrantees) must account for [Federal] grant funds
in accordance with State laws and procedures for expending and accounting for its own
funds. Accordingly, we determined that Arizona generally expected State agencies either to
examine source documents submitted by subrecipients with requests for grant
reimbursement or to examine source documents during onsite monitoring.3 The Department
did neither. In May 2009, the State of Arizona General Accounting Office issued a
technical bulletin entitled Recovery Act Risk Assessment and Subrecipient Monitoring.4
The monitoring procedures referred to under the technical bulletin include, among other
things, determining whether the subrecipient’s accounting records are supported by source
documentation (e.g., canceled checks, paid bills, payrolls, contract and subgrant award
documents, etc.) (see criterion V in appendix C).
Department officials stated that they reviewed the subrecipients’ documentation during
onsite monitoring. However, as of December 8, 2009, the Department had not conducted
monitoring specifically for its Homelessness Prevention and Rapid Re-Housing Program.
As a result, it had not examined supporting documentation or reviewed subrecipient policies
and procedures for eligibility determinations and expenditure reimbursements under the
Federal program.
The Department Did Not
Provide Adequate Oversight of
Its Subrecipients
The Department did not provide its subrecipients with adequate training or monitoring
that specifically addressed the Federal requirements for the Homelessness Prevention and
Rapid Re-Housing Program. This condition occurred because the Department had
confidence in the capacity of its subrecipients to administer the new program and did not
follow the State’s guidance for Recovery Act risk assessment and subrecipient
monitoring.
3
Before May 2009, the State’s guidance to its agencies regarding reimbursement of subrecipient grant expenditures
was general in nature. We relied upon statements from the State Auditor General’s office to determine what would
be expected during its audits of grant payments.
4
The State of Arizona General Accounting Office issued Technical Bulletin 10-05 on April 16, 2010, which
superceded the initial Recovery Act guidance in the May 2009 bulletin.
9
Initial Training Was Not Provided
The Department did not provide its subrecipients with initial training to ensure
compliance with all applicable regulations. Our interviews with all 10 subrecipients,
along with later reviews of requested documents, disclosed that none of them had
adequate written policies and procedures for establishing, documenting, or verifying
client/activity eligibility. Officials at all subrecipients also thought that the Department
had not provided adequate training for the Homelessness Prevention and Rapid Re-
Housing Program. The subrecipients stated that the Department had merely supplied
them with a copy of the Federal Register notice (see criterion C, appendix C). Further,
one subrecipient official stated that the Department informed the subrecipient that the
notice was flexible and as new regulations were posted, the Department would inform the
subrecipient. The grant contracts between the Department and its subrecipients included
a copy of the notice as a standard part of each contract, but no other regulations or
guidelines for the program were present.
Department officials explained that they had not provided additional guidelines because
the program regulations kept evolving and were not complete. Nevertheless, the HUD
Homeless Resource Exchange Web site had posted the complete program requirements
(see criteria F through U, appendix C) on October 16, 2009, and the regulations had not
changed.5 The grant contracts also specified that the Department would provide enough
assistance to ensure that the subrecipients complied with program requirements. The
Department did not fulfill this part of its own contract because it only supplied the notice
and relied on the subrecipients to administer the program in compliance with all
applicable regulations and requirements.
Department officials further stated that initial training for the Federal program would be a
waste of administrative funds because the Department believed that the agencies were
low risk and all of them had successfully administered the State’s Eviction Prevention
Emergency Housing program. Yet, a Department official stated that the State program’s
only real requirements were that the beneficiary be at or below 80 percent of area median
income. We obtained a document that proclaimed the purpose and intent of the State’s
program and a checklist used by the subrecipients to determine eligibility. According to
both documents, the State program required far less documentation for eligibility
determination than the Federal Homelessness Prevention and Rapid Re-Housing
Program.
During the audit we informed Department officials of the documentation deficiencies,
and they immediately took steps to remedy the problem. The Department held a training
conference call with the subrecipients to establish documentation requirements for the
program. At least six6 of the subrecipients responded to the new guidance by going back
through the client files to determine whether all documents were in accordance with the
requirements and to gather missing documentation. One subrecipient stated that
caseworkers were unable to locate a few of the clients that had received assistance.
5
The Web site information had not changed at the time of our review.
6
Some of the subrecipients had not yet submitted requests for reimbursement.
10
Specific Monitoring Was Not Performed
The Department’s past subrecipient monitoring did not effectively ensure compliance
with all applicable regulations for the new program. The subrecipients informed us that
the Department had been on site within the last 6 months to review other programs but
not the Federal Homelessness Prevention and Rapid Re-Housing Program. The
subrecipients also stated that the Department’s program specialists were always available
for questions and that there was constant contact. According to the Department, it had
not conducted monitoring specific to the Federal program because policy was to conduct
onsite visits every 2 years and several of the subrecipients had not started administering
the program when their scheduled monitoring visit occurred. Again, the Department
officials stated that they felt confident that the subrecipients would be able to administer
the Federal program with little or no assistance. If the Department had conducted early
onsite monitoring of the new program, it would have found that subrecipient policies and
procedures did not ensure compliance with the Federal requirements.
The Department Failed To Follow State Guidance for Oversight of Recovery Act
Subrecipients
In May 2009, the State’s General Accounting Office issued the Recovery Act technical
bulletin requiring that its agencies use two monitoring tools to ensure compliance with
the Recovery Act: (1) the Financial and Administrative Monitoring Tool and (2) the Risk
Assessment Monitoring Tool, both published by the Association of Government
Accountant’s Partnership for Intergovernmental Management and Accountability (a
partnership effort with the U.S. Office of Management and Budget). (Agencies could use
their own tool as long as all of the same topics were addressed and were substantially the
same.)7 However, the Department did not use the Financial and Administrative
Monitoring Tool (or an equivalent) and allowed its subrecipients to complete the Risk
Assessment Monitoring Tool themselves.
The Financial and Administrative Monitoring Tool is a questionnaire intended to be used
by State agencies as a guide in establishing subrecipient monitoring programs. Its use
should assist with the following:
Determining that the Federal grant purposes are being met,
Identifying and remedying problems before an audit, and
Ensuring that recipients and subrecipients understand program requirements and
have policies and procedures in place to meet them.
7
The State of Arizona General Accounting Office issued Technical Bulletin 10-05 on April 16, 2010, which
superceded the initial Recovery Act guidance in its May 2009 bulletin. The new guidance consolidated policies and
procedures issued under several previous technical bulletins, and was intended to assist agencies meet Federal
accounting and reporting obligations. The guidance replaced the monitoring and risk assessment tools that were the
guidance effective at the time of the audit.
11
As noted above, if the Department had used this tool, it could have determined, among
other things, that the source documentation supporting grant expenditures was
insufficient.
The Risk Assessment Monitoring Tool is designed to be used in conjunction with the
Financial and Administrative Monitoring Tool to evaluate which subrecipients may
require further, more intensive monitoring. It is a comprehensive questionnaire with
general questions to assess risk in the areas such as legal matters, financial systems and
stability, and program requirements. The introduction states that offices using the
programmatic assessment questions should develop specific program risk assessment
questions based upon the governing compliance statutes, rules, and supplements for the
program. The Department did not develop questions specific to the Homelessness
Prevention and Rapid Re-Housing Program but directed its subgrantees to complete the
risk assessment tool, keeping in mind that ―although HPRP [Homelessness Prevention
and Rapid Re-Housing Program] is a new program, it is similar to EPEH [the State’s
Eviction Prevention Emergency Housing program].‖ Subrecipients were to fax or e-mail
the completed questionnaire to the Department.
Department officials allowed each subrecipient to fill out its own risk assessment report
before administering the program because it was confident the subrecipients would be
able to administer the Federal program with little or no assistance. Although the
Department had good intentions, it should have conducted its own initial assessment of
the subrecipients’ capabilities to administer the Federal program and provided necessary
training and/or monitoring to ensure compliance with applicable regulations. Had it
done so, the extreme number of deficiencies might have been avoided.
Conclusion
The Department did not ensure that it’s Homelessness Prevention and Rapid Re-Housing
Program was administered in accordance with Recovery Act and other applicable
regulations. Because it failed to conduct initial risk assessments and monitoring of
subrecipients as required by the State of Arizona for its Recovery Act grants, it was not
aware that subrecipients (1) had inadequate policies and procedures to establish
participant or activity eligibility and (2) maintained inadequate source documentation to
support program reimbursements. Accordingly, HUD reimbursed the State for $75,543
in unsupported expenditures at the time of our review (see appendix A-1). By ensuring
that its subrecipients properly establish and document that program participants and
activities are eligible, the Department will reduce the risk of waste, fraud, and abuse for
its remaining Recovery Act funds under the program.
Recommendations
We recommend that the Director of the San Francisco Office of Community Planning
and Development require the Department to
12
1A. Provide supporting documentation for $75,543 in unsupported program
expenditures or reimburse the Recovery Act Homelessness Prevention Fund for
any unsupported amounts.
1B. Provide adequate training and monitoring to its subrecipients to ensure that they
implement policies and procedures which include (1) retention of adequate source
documentation for program expenditures and (2) compliance with Homelessness
Prevention and Rapid Re-Housing Program requirements, including requirements
to properly establish the eligibility of participants and activities for assistance
under the program.
13
SCOPE AND METHODOLOGY
We performed our onsite audit work from November 23, 2009, through February 5, 2010, at the
Department’s office in Phoenix, AZ. The audit generally covered the period October through
December 2009. We expanded our audit period as needed to accomplish our objective. We
reviewed both the Department and its subrecipients for compliance with applicable laws and
HUD regulations. Our methodology included
Interviews with pertinent personnel at HUD, the Department, other State offices, and the
subrecipients;
Review of the Homelessness Prevention and Rapid Re-Housing Program grant
agreement between HUD and the Department;
Review of the contract between the Department and its subrecipients;
Review of accounting policies and procedures and accounting records of the Department
and the State to ensure compliance with Recovery Act regulations;
Review of policies and procedures for eligibility, verification, and monitoring of the
program for both the Department and its subrecipients;
Review of the Department’s policies and procedures for reimbursement requests and
drawdowns;
Review of the subrecipient’s client files to determine whether determination of
eligibility and/or activity was in compliance with applicable regulations; and
Review of applicable laws and regulations, including guidance issued by HUD and
Office of Management and Budget circulars.
We conducted telephone interviews and requested policies and procedures from all 10
subrecipients. Because the subrecipients were all located in rural parts of Arizona and a short
time was allowed to complete Recovery Act audits, we were unable to review files from all 10
subrecipients. Therefore, we selected and visited the three subrecipient agencies that received
the most funding and were relatively centrally located. The three subrecipients had not yet
assisted many clients under the Homelessness Prevention and Rapid Re-Housing Program;
therefore, we selected 15 nonrepresentative files, which represented more than half of the three
subrecipients’ program activities to date.
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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
14
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are achieved:
Program operations,
Relevance and reliability of information,
Compliance with applicable laws and regulations, and
Safeguarding of assets and resources.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objectives:
Policies and procedures for tracking and reporting Recovery Act funds,
Policies and procedures for compliance with program eligibility requirements,
Policies and procedures for the review and/or retention of source
documentation for program expenditures, and
Policies and procedures for subrecipient training and monitoring.
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 items are significant weaknesses:
The Department did not have adequate policies and procedures to ensure that
Its subrecipients adequately established, verified, and documented participant
and/or activity eligibility;
Its subrecipients submitted or retained adequate source documentation for
expenditures; and
15
It trained and monitored is subrecipients to enable them to administer the
Federal program in accordance with all regulations.
16
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation number Unsupported 1/
1A $75,543
1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
17
Appendix A-1
Table of Questioned Costs by Subgrantee
Remaining
Amount Unsupported
program funds
Subgrantee/grantee Award allowed for Amount for amount disbursed
available
name amount administrative program use by HUD for
use program activities
Town of Springerville $ 203,200 $ 4,190 $ 199,010 $ $ 199,010
New Hope Ranch 203,200 4,190 199,010 6,511 192,499
SouthEastern Arizona 947,339 19,533 927,806 8,044 919,762
Community Action
Programs, Inc.
Coconino County 576,751 11,892 564,859 564,859
Community Services
Gila County Community 243,590 5,021 238,569 238,569
Services
Western Arizona Council 1,042,095 21,487 1,020,608 1,020,608
of Governments
Mohave City Community 892,651 18,405 874,246 37,065 837,181
& Economic
Development
White Mountains 590,850 12,182 578,668 578,668
Catholic Charities
Community Action 1,179,759 24,324 1,155,435 22,350 1,133,085
Human Resources
Agency
Catholic Charities 943,079 19,445 923,634 1,573 922,061
Yavapai Region
Arizona Department of 211,006 211,006
Housing (administrative
funds)
Total $7,033,520 $ 351,675 $ 6,681,845 $ 75,543 $ 6,606,302
18
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
19
Comment 3
Comment 4
Comment 5
Comment 6
20
OIG Evaluation of Auditee Comments
Comment 1 We agree that the Department followed its usual procedures with its subrecipient
partners because it believed that the Recovery Act program was substantially
similar to a State funded program. However, we disagree that the State’s
program provided identical services to the Recovery Act program. A document
provided by the Department showed the State program’s purpose included a
statement that said, ―The intention is to allow qualified local agencies to propose
a menu of eligible services that EPEH [the State funded program] funds can be
used for…based on local needs and experience.‖ Further, we reviewed the
requirements for both programs and found that only two of seven requirements
for the State program were the same as the Homelessness Prevention and Rapid
Re-Housing Program requirements.
Comment 2 We agree that the subrecipients did not adequately establish written policies and
procedures to ensure compliance with the program. However, according to
Federal regulations, it was the responsibility of the grant recipient to manage
day-to-day activities of its subrecipients. Additionally, the Department’s
contract with its subrecipients stated that it would provide reasonable technical
assistance to assist the subrecipient to comply with program requirements. The
Department did not supply initial training in regard to program eligibility and
documentation requirements because it thought its subrecipients were low risk.
Nevertheless, because the Federal program was new and expired after three
years, prudent oversight should include a close review of the program
requirements and provision of early training or monitoring specific to the Federal
requirements.
Comment 3 We agree that the Recovery Act’s rapid timelines for program implementation
are challenging, however, we disagree that HUD’s guidance for the
Homelessness Prevention and Rapid Re-Housing Program was delayed until
March of 2010. The HUD Homeless Resource Exchange web site had posted the
full guidance for determining and documenting eligibility for program
participants on October 16, 2009. The March 2010 guidance referred to in the
Department’s response is a revised version that clarified some of the October 16,
2009 guidance and made minor changes.
Comment 4 We stand by our conclusion that the State was reimbursed by HUD for
unsupported program expenses of $75,543. Drawdown reports from HUD’s grant
disbursement information system confirmed this amount. The timing of the
Departments’ reimbursements to its subrecipients is not relevant because the
Department had already approved the payment requests for submission to HUD.
Further, some of the reimbursed funds were requested to make program advances
(which were allowable under certain circumstances). The report recognized that,
upon notice of the deficiencies we identified during the audit, the Department
immediately sought the appropriate back up documentation. However, it is the
responsibility of the HUD Office of Community Planning and Development to
21
evaluate the sufficiency of any back up documentation provided in response to
our finding.
Comment 5 We stand by our conclusion that unless the Department provides adequate training
and monitoring to its subrecipients, the remaining Recovery Act funds available
through its Homelessness Prevention and Rapid Re-Housing Program would be at
risk. In 100 percent of the file reviews we conducted, documentation was
insufficient to establish either the eligibility or ineligibility of the participant
and/or activity. Further, the Department’s procedures were to request HUD’s
reimbursement for these expenditures without examining the supporting
documentation. The fact that the State could compel its subrecipients to repay
any unallowable expenses did not mitigate this risk. We modified the report
language to reflect that our review was performed in the early phase of the three
year program and, therefore, if our recommendations are adopted, the remaining
Recovery Act funds under this program will be expended in compliance with the
program purpose.
Comment 6 In accordance with HUD’s audit resolution procedures, officials in the HUD
Office of Community Planning and Development will evaluate the auditee’s
proposed plan.
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Appendix C
CRITERIA
A. American Recovery and Reinvestment Act of 2009 – Public Law 111-5 establishes the
Homelessness Prevention Fund. The homelessness prevention portion of the Recovery
Act falls under Title XII, Transportation, Housing and Urban Development, and
Related Agencies.
B. In accordance with Title IV of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, an alien (a person who is not a U.S. citizen or national)
may be eligible for assistance under the Homelessness Prevention and Rapid Re-
Housing Program only if he or she is a ―qualified alien‖ (defined in 8 U.S.C.1641).
Nonprofit organizations that administer HPRP [Homelessness Prevention and Rapid
Re-Housing Program] assistance are not required to but may verify that an alien is a
qualified alien in order to provide him or her with HPRP assistance. However, if a
nonprofit organization pursues verification, it must follow the requirements set forth in
the interim guidance published by the Department of Justice.
C. HUD Federal Register Notice FR-5307-N-01 advised the public of the allocation
formula and allocation amounts, the list of grantees, and requirements for the
Homelessness Prevention Fund, hereafter referred to as the ―Homelessness Prevention
and Rapid Re-Housing Program,‖ under Title XII of the Recovery Act. Congress has
designated $1.5 billion for communities to provide financial assistance and services to
either prevent individuals and families from becoming homeless or help those who are
experiencing homelessness to be quickly rehoused and stabilized.
D. Regulations at 24 CFR 85.20(a) state, ―A State must expend and account for grant
funds in accordance with State laws and procedures for expending and accounting for
its own funds. Fiscal control and accounting procedures of the State, as well as its
subgrantees and cost-type contractors must be sufficient to—(2) Permit the tracing of
funds to a level of expenditures adequate to establish that such funds have not been
used in violation of the restrictions and prohibitions of applicable statutes.‖
E. Regulations at 24 CFR 85.40(a) state, ―Grantees are responsible for managing the day-
to-day operations of grant and subgrant supported activities. Grantees must monitor
grant and subgrant supported activities to assure compliance with applicable Federal
requirements and that performance goals are being achieved. Grantee monitoring must
cover each program, function or activity.‖
F. HUD eligibility and documentation guidance states that grantees and subgrantees are
responsible for verifying and documenting the eligibility of all HPRP applicants before
providing HPRP assistance. They are also responsible for maintaining this
documentation in the HPRP participant case file once approved for assistance.
Grantees with insufficient case file documentation may be found out of compliance
with HPRP program regulations during a HUD monitoring.
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G. HUD Homelessness Prevention and Rapid Re-Housing Program eligibility and
documentation requirements state that the household must be either homeless (for
rapid rehousing assistance) or at risk of losing its housing (for homelessness
prevention assistance) and meet both of the following circumstances: (1) no
appropriate subsequent housing options have been identified and (2) the household
lacks the financial resources and support networks needed to obtain immediate housing
or remain in its existing housing.
H. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that documentation standards, in order of preference,
are written third-party verification, oral third-party verification, and applicant self-
declaration.
I. HUD Homelessness Prevention and Rapid Re-Housing Program eligibility and
documentation requirements for persons at risk of homelessness state that a copy of an
eviction notice from the landlord/property manager of the unit or a court order based
on eviction action that notifies the applicant that he or she must leave and a copy of the
lease naming the applicant as the leaseholder must be in the client file.
J. HUD Homelessness Prevention and Rapid Re-Housing Program eligibility and
documentation requirements for persons at risk of homelessness state that a copy of an
eviction letter from the host family or friend who owns or rents the housing that
notifies the applicant that he or she must leave and a copy of the lease naming the host
family/friend as the leaseholder must be in the client file.
K. HUD Homelessness Prevention and Rapid Re-Housing Program eligibility and
documentation requirements for persons at risk of homelessness state that a copy of a
utility shut-off notice from utility company must be included in the participant file.
L. HUD Homelessness Prevention and Rapid Re-Housing Program eligibility and
documentation requirements for persons at-risk of homelessness state that a self-
declaration of housing status is acceptable if no other documentation can be obtained.
M. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that income from employment must be documented
by the most recent pay stub(s) and the signed and dated verification of income from
employer(s) must be in the client file.
N. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that income from employment may be documented
by self-declaration only if written documentation or oral third-party verification cannot
be obtained.
O. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that business income must be verified by obtaining a
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copy of the most recent Federal or State tax return showing net business income and
must be included in the client file.
P. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that interest and dividend income must be
documented by obtaining a copy of the most recent interest or dividend income
statement and must be included in the client file.
Q. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that unemployment and disability income must be
verified by obtaining a copy of most recent unemployment, worker’s compensation,
SSI [Supplemantal Security Income], SSDI [Social Security Disability Insurance], or
severance payment statement or benefit notice and must be included in the client file.
R. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that TANF [Temporary Assistance for Needy
Families]/public assistance income must be documented by obtaining a copy of the
most recent welfare payment or benefit notice and must be included in the client file.
S. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that alimony, child support, or foster care payments
must be documented by obtaining a copy of the most recent alimony, foster care, child
support, or other contributions or gift payment statements, notice, or order and must be
included in the client file.
T. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that to be eligible to receive rental assistance or
other Homelessness Prevention and Rapid Re-Housing Program assistance, an
applicant household must have a gross annual income that is at or below 50 percent of
the area median income, which is determined by the State and by the local jurisdiction
in which a household resides and is dependent on the size of the household (i.e.,
number of household members).
U. HUD Homelessness Prevention and Rapid Re-Housing Program income eligibility
documentation requirements state that the household’s income must be annualized and
documentation of a household’s annual income relative to area median income and
indicating HPRP eligibility (50 percent of area median income or less) should be
maintained in the participant file.
V. Technical Bulletin Arizona Department of Administration General Accounting Office
for Recovery Act Risk Assessment and Subrecipient Monitoring, effective May 27,
2009, states, ―The Financial and Administrative Monitoring Tool, and Risk
Assessment Monitoring Tool, or their equivalent must be utilized for all Recovery Act
dollars. Agencies should review these tools to ensure compliance with the Recovery
Act. Agencies may utilize their own tools as long as all areas in the attached
documents are addressed and are substantially the same. Agencies should consider
25
utilizing these tools to ensure compliance with risk assessment and subrecipient
monitoring requirements for all Federal funds.‖
W. Financial and Administrative Monitoring Tool states, ―This Financial and
Administrative Monitoring Tool is the result of an intergovernmental partnership
established by AGA [Association of Government Accountants] in cooperation with the
US Office of Management and Budget. The purpose of this tool is to provide uniform
guidance for subrecipient monitoring. It is designed to be applicable across federal
granting authorities as well as across state entities. It is intended to be used by state
agencies as a guide in establishing subrecipient monitoring programs and should be
used in conjunction with the Risk Assessment Monitoring Tool.‖
X. Risk Assessment Monitoring Tool states, ―This risk assessment monitoring tool is the
result of an intergovernmental partnership established by AGA in cooperation with the
US Office of Management and Budget. It is intended to provide states with a method
for assessing subrecipient risk and to be applicable across federal granting authorities,
as well as across monitoring authorities.‖ And, ―This tool is designed to be used in
conjunction with the Financial and Administrative Monitoring Tool to evaluate which
subrecipients may require further, more intensive monitoring.‖
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Appendix D
SCHEDULE OF DEFICIENCIES
Homelessness Prevention and Rapid Re-Housing Program documentation requirements not met
Area median Activity
Type of Assistance Homeless or Income/ Income/
Client file income at or funded
assistance amount at risk asset asset verification
number below 50% eligible
provided (A) (B) (D) (E)
(C) (F)
Rental
X X X X
1 assistance $1,288
Rental
X X X X
2 assistance $2,800
Rental
X X X X
3 assistance $420
Rental
X X X X
4 assistance $1,575
Rental
assistance $936
X X X X
Utility
5 assistance $256.32
Rental
assistance $650.00
X X X X
Utility
6 assistance $119.06
Rental
X X X X X
7 assistance $2,008
Rental
assistance $999.00
X X X X X
Utility
8 assistance $140
Rental
assistance $750
Utility X X X X X
assistance $842.17
9 Hotel voucher $130.26
Rental
assistance $738.10
X X X X X
Utility
10 assistance $33
Rental
assistance $650
X X X X
Utility
11 assistance $159.07
Rental
assistance $1,250
X X X X X
Utility
12 assistance $541.86
Rental
X X X X X
13 assistance $500
Rental
assistance $1,370
X X X X X
Utility
14 assistance $67.95
Rental
assistance $1,650
X X X X X
Utility
15 assistance $167.74
Totals 14 15 15 15 9
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Legend
Column Description
A Amount provided to third party in care of program participant.
B Documentation must support the risk of homelessness or that the participant is currently homeless.
C Documentation must support that the total annual household income is at or below 50 percent of the area median income levels
established by HUD.
D Documentation must support that all income and assets were used during the calculation of annual household income.
E Documentation must show that all income was verified through third-party verification as established by program regulations, or the
reason why third-party verification was not conducted must be documented.
F Accounting records must support that the funding was paid to a third party in care of a program participant and that the activity paid
was an eligible activity.
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Arizona Department of Housing's Administration of its Recovery Act Grant Homelessness Prevention and Rapid Re-Housing Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-05-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)