oversight

The Lower Manhattan Development Corporation, New York, New York, Generally Administered CDBG Disaster Recovery Assistance Funds in Accordance with Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-10-06.

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

                                                                 Issue Date
                                                                          October 6, 2009
                                                                 Audit Report Number
                                                                         2010-NY-1001




TO:         Nelson R. Bregon, General Deputy Assistant Secretary for Community Planning
                                 and Development, D



FROM:       Edgar Moore, Regional Inspector General for Audit, New York/New Jersey
                                    Region, 2AGA

SUBJECT: The Lower Manhattan Development Corporation, New York, New York, Generally
            Administered CDBG Disaster Recovery Assistance Funds in Accordance with Regulations



                                    HIGHLIGHTS

 What We Audited and Why

             This is the thirteenth in our series of congressionally mandated audits of the
             Lower Manhattan Development Corporation’s (auditee) administration of
             Community Development Block Grant (CDBG) Disaster Recovery Assistance
             funds awarded to the State of New York in the aftermath of the September 11,
             2001, terrorist attacks on the World Trade Center in New York City. During the
             audit period, October 1, 2008, through March 31, 2009, the auditee disbursed
             $50.3 million of the $2.783 billion administered.

             Our audit objectives were to determine whether the auditee (1) disbursed CDBG
             Disaster Recovery Assistance funds in accordance with the guidelines established
             under U.S. Department of Housing and Urban Development (HUD)-approved
             partial action plans and applicable laws and regulations, (2) expended CDBG
             Disaster Recovery Assistance funds for eligible planning and administrative
             expenses in accordance with applicable laws and regulations, and (3) had a
             financial management system in place that adequately safeguarded funds and
             prevented misuse.
What We Found
           The auditee generally (1) disbursed CDBG Disaster Recovery Assistance funds in
           accordance with the guidelines established under HUD-approved partial action
           plans and applicable laws and regulations, (2) expended CDBG Disaster
           Recovery Assistance funds for eligible planning and administrative expenses in
           accordance with applicable laws and regulations, and (3) had a financial
           management system in place that adequately safeguarded funds and prevented
           misuse. Therefore, for the period reviewed, HUD was assured that CDBG
           Disaster Recovery Assistance funds were properly administered.


What We Recommend
           There are no recommendations.


Auditee’s Response
           We discussed the results of our audit with the auditee during the audit. We
           provided a draft report to the auditee on September 24, 2009 and received its
           written comments that day. The auditee agreed with the report.
           The complete text of the auditee’s response can be found in appendix A of this
           report.




                                            2
                           TABLE OF CONTENTS

Background and Objectives                                                    4

Results of Audit
      The Auditee Generally Administered CDBG Disaster Recovery Assistance   5
      Funds in Accordance with HUD Regulations

Scope and Methodology                                                        7

Internal Controls                                                            8

Appendixes

   A. Auditee Comments                                                       9
   B. Schedule of Disbursements as of March 31, 2009                         10




                                           3
                            BACKGROUND AND OBJECTIVES
The Lower Manhattan Development Corporation (auditee) was created in December 2001 as a
subsidiary of the Empire State Development Corporation to function as a joint city-state
development corporation. A 16-member board of directors, appointed equally by the governor
of New York State and the mayor of New York City, oversees the auditee’s affairs. The Empire
State Development Corporation performs all accounting functions for the auditee, including
payroll, payments to the auditee’s vendors, and drawing down funds from the U.S. Department
of Housing and Urban Development (HUD).

The State of New York designated the auditee to administer $2.783 billion1 of the $3.483 billion
in Community Development Block Grant (CDBG) Disaster Recovery Assistance funds
appropriated by Congress following the September 11, 2001 terrorist attacks on the World Trade
Center to assist with the recovery and revitalization of Lower Manhattan. Planned expenditures
of the funds are documented in action plans that receive public comment and are approved by
HUD. HUD had approved 15 partial action plans as of March 31, 2009, that allocated the $2.783
billion to various programs and activities (see appendix B). As of March 31, 2009, the auditee
had disbursed approximately $1.61 billion, or 58 percent, of the $2.783 billion allocated.

During this audit, we tested procurements, monitoring, and financial management procedures
and disbursements related to the following programs:

World Trade Center Memorial and Cultural program: As of March 31, 2009, HUD had
approved approximately $690 million2 to fund the planning, selection, coordination, and
construction of a memorial. In addition, funds were earmarked for planning and possible
construction of memorial-related improvements and museum and cultural uses on the World
Trade Center site and adjacent areas.

Lower Manhattan Enhancement Fund program: As of March 31, 2009, HUD had approved
approximately $88.9 million for this program to provide grants through a competitive selection
process to not-for-profit and government organizations for projects that address cultural and
community needs in Lower Manhattan and demonstrate the ability to spur long-term
revitalization of the area benefiting area residents, workers, businesses, and visitors. This
program includes the Cultural Enhancement and Community Enhancement Fund programs.

Hudson River Park Improvements program: As of March 31, 2009, HUD had approved
approximately $72.6 million for extensive renovations to the Hudson River waterfront in Lower
Manhattan, including public recreational and ecological piers and an adjacent upland park.

Our audit objectives were to determine whether the auditee (1) disbursed CDBG Disaster
Recovery Assistance funds in accordance with the guidelines established under HUD-approved
partial action plans and applicable laws and regulations, (2) expended CDBG Disaster Recovery
Assistance funds for eligible planning and administrative expenses in accordance with applicable
laws and regulations, and (3) had a financial management system in place that adequately
safeguarded funds and prevented misuse.


1
    The Empire State Development Corporation administers the remaining $700 million.
2
    Of this amount, $37.5 million is from the supplemental funding appropriation of $783 million.
                                                           4
                             RESULTS OF AUDIT

The Auditee Generally Administered CDBG Disaster Recovery
Assistance Funds in Accordance with HUD Regulations
The auditee generally (1) disbursed CDBG Disaster Recovery Assistance funds in accordance
with the guidelines established under HUD-approved partial action plans and applicable laws and
regulations, (2) expended CDBG Disaster Recovery Assistance funds for eligible planning and
administrative expenses in accordance with applicable laws and regulations, and (3) had a
financial management system in place that adequately safeguarded funds and prevented misuse.
Therefore, for the period reviewed, HUD was assured that CDBG Disaster Recovery Assistance
funds were properly administered.


 Funds Disbursed in Compliance
 with Guidelines

          For the items tested, the auditee generally disbursed the CDBG Disaster Recovery
          Assistance funds reviewed during the audit period in accordance with HUD-approved
          partial action plans and applicable laws and regulations.

          The auditee implemented multilevel review and approval procedures to ensure that
          funds were disbursed to subrecipients for eligible, reasonable, and necessary expenses
          that followed agreements and applicable laws and regulations. The auditee had
          established procedures to ensure that subrecipients were selected in compliance with
          HUD regulations and required its subrecipients to procure all materials, property, or
          services through a fair and open process. Through interviews, desk reviews, and site
          visits, the auditee continuously monitored the performance of subrecipients against
          the goals and performance standards prescribed in subrecipient agreements.
          Subrecipients were required to submit monthly status reports on the projects and
          supporting documentation for cost reimbursements. Monthly monitoring reports were
          issued for each project, documenting the project status, communication with the
          subrecipient, problems identified, and corrective action.

          No material deficiencies were identified in our testing of the $5.94 million disbursed
          under the World Trade Center Memorial and Cultural, the Lower Manhattan
          Enhancement Fund, and the Hudson River Park Improvements programs during this
          audit period.


 Funds Expended for Eligible
 Planning and Administrative
 Expenses

          The auditee generally expended CDBG Disaster Recovery Assistance funds for eligible
          planning and administrative expenses in accordance with applicable laws and
          regulations. As of March 31, 2009, $86 million of the total budgeted $112 million for
                                               5
        general planning and administrative activities had been disbursed. During the audit
        period, the auditee disbursed $3.5 million for general planning and administrative
        expenses, and no exceptions were noted.


Financial System Adequate to
Safeguard Funds

        The auditee had a financial management system in place that adequately safeguarded
        funds and prevented misuse. The auditee and its parent company, the Empire State
        Development Corporation, had developed and implemented adequate fiscal controls
        and accounting procedures that ensured accurate, current, and complete reporting of
        financial data. Specifically, the auditee received and approved incoming invoices
        from subrecipients for payment and submitted the approved invoice packages to the
        Empire State Development Corporation, which processed the payments to vendors.
        Thus, the auditee had implemented an adequate management review and approval
        structure to ensure the accuracy and completeness of financial disbursements.


Conclusion

        The auditee properly disbursed and administered CDBG Disaster Recovery
        Assistance funds.


Recommendations


        There are no recommendations




                                             6
                      SCOPE AND METHODOLOGY

During the audit period, October 1, 2008, through March 31, 2009, the auditee disbursed $50.3
million of the $2.783 billion in Disaster Recovery Assistance funds for activities related to the
rebuilding and revitalization of Lower Manhattan. To achieve our audit objectives, we reviewed
applicable laws, regulations, and program requirements; HUD-approved partial action plans, and
the auditee’s accounting books and records. We obtained and analyzed the disbursements
recorded during the audit period in both HUD’s Line of Credit and Control System and Disaster
Recovery Grant Reporting System. Our audit focused on three programs, based upon a risk
assessment, for which $32.4 million was disbursed. For these programs, we obtained a general
understanding of the auditee’s system of internal controls and tested, on a nonstatistcal basis,
$5.94 million, representing 12 percent of the $50.3 million disbursed for the period, as follows:

                                    Amount disbursed October 1,
                                  2008, through March 31, 2009             Amount tested
      Program                             (in millions)                     (in millions)

World Trade Center Memorial
and Cultural                                 $21.67                               $ 2.85

Lower Manhattan Enhancement
Fund                                          5.56                                  1.67

Hudson River Park Improvements                5.21                                  1.42

           Total                             $32.44                               $ 5.94

In addition, we reviewed 10 of the 35 community enhancement projects under the Lower
Manhattan Enhancement Funds program to determine whether the subrecipients were procured
and monitored by the auditee according to the applicable laws and regulations, as well as the
eligibility of $529,939 disbursed in April 2009 for these projects.

We performed our on-site work at the auditee’s office in Lower Manhattan and at the auditee’s
parent company, the Empire State Development Corporation, in Midtown Manhattan from April
through August 2009.

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.




                                                7
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls 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:

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

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

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

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

              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


              There were no significant weaknesses identified.


                                                8
                        APPENDIXES

Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation      Auditee Comments




                             9
    Appendix B
    SCHEDULE OF DISBURSEMENTS AS OF March 31, 2009
                                                                        Audit period
                                                                                            Cumulative          Balance
                                                    Budget as of       disbursements
                     Program                                                              disbursed as of    remaining as of
                                                    Mar. 31, 2009      Oct. 1, 2008 –
                                                                                          Mar. 31, 2009       Mar. 31, 2009
                                                                       Mar. 31, 20093
Business Recovery Grant program                          218,946,000          (24,152)         218,859,310             86, 690
Job Creation and Retention                               143,000,000                           104,803,730         38,196,270
Small Firm Attraction                                     29,000,000            (8,629)         27,883,505          1,116,495
Residential Grant (housing assistance program)           237,500,000                           236,180,810          1,319,190
Employment Training Assistance                               346,000                               337,771               8,229
Memorial Design & Installation                               315,000                               309,969               5,031
Columbus Park Renovation                                     998,571                                                  998,571
Marketing History and Heritage Museums                     4,664,000                             4,612,620              51,380
Downtown Alliance Streetscape                              4,000,000                             4,000,000                   0
New York Stock Exchange Area Improvements                 25,160,000              (265)          5,478,733         19,681,267
Parks and Open Space                                      46,981,689            (5,802)         17,782,926         29,198,763
Hudson River Park Improvements                            72,600,000         5,210,094          63,280,416          9,319,584
West Street Pedestrian Connection                         22,955,811         1,914,244          20,660,559          2,295,252
Lower Manhattan Communications Outreach                    1,000,000                             1,000,000                   0
Green Roof Project                                           100,000                                                  100,000
Chinatown Tourism & Marketing                              1,160,000                               999,835            160,165
Lower Manhattan Information program                        2,570,000                             1,752,391            817,609
World Trade Center Memorial and Cultural
program4                                                 690,017,180        21,674,466         450,047,780        239,969,400
Lower Manhattan Tourism                                    4,176,000         (156,650)           3,950,000            226,000
East River Waterfront Project                            150,000,000             4,559           1,597,222        148,402,778
Local Transportation and Ferry Service                     9,000,000         1,151,033           3,327,627          5,672,373
East Side K-8 School                                      23,000,000                                28,703         22,971,297
Filterman Hall Reconstruction                             15,000,000                                 1,784         14,998,216
Chinatown Local Development Corporation                    7,000,000         1,042,005           2,348,867          4,651,133
Affordable Housing                                        54,000,000        10,221,709          22,472,048         31,527,952
Public Services Activities                                 6,796,900            72,828           6,479,434            317,466
Administration & Planning                                112,262,000         3,504,444          86,130,254         26,131,746
Disproportionate Loss of Workforce                        33,000,000                            32,999,997                  3
Utility Restoration and Infrastructure Rebuilding        697,500,000                           270,545,615        426,954,385
Lower Manhattan Enhancement Fund                          88,950,849         5,558,737          19,100,950         69,849,899
Drawing Center                                             2,000,000                                                2,000,000
Fulton Corridor Revitalization                            38,000,000           102,258             800,921         37,199,079
Economic Development – Other                               7,000,000                                 2,040          6,997,960
Transportation Improvements                               31,000,000                                               31,000,000
Education – Other                                          3,000,000                                                3,000,000
                      Total                            2,783,000,000        50,260,879       1,607,775,817      1,175,224,183


    3
        Negative amounts represent recoveries to the program.
    4
        On September 2, 2008, HUD approved the reallocation of $37.5 million from the Utility Restoration and
        Infrastructure Rebuilding program to the World Trade Center Memorial and Cultural program.
                                                             10