Issue Date
March 22, 2010
Audit Report Number
2010-NY-1008
TO: Jeanne VanVlandren, Acting 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, NY, Generally
Administered CDBG Disaster Recovery Assistance Funds in Compliance With
Regulations
HIGHLIGHTS
What We Audited and Why
This is the fourteenth 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, NY. During
the audit period, April 1 through September 30, 2009, the auditee disbursed $38.8
million of the $2.783 billion being 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 disbursements reviewed during the audit, HUD had
assurance that the CDBG Disaster Recovery Assistance funds were properly
administered.
What We Recommend
There are no recommendations.
Auditee’s Response
We discussed the results of our review with the auditee during the audit. We
provided the auditee with a copy of the draft report on March 4, 2010, and
requested a written response by March 11, 2010, which we received on March 5,
2010.
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 Compliance With Regulations
Scope and Methodology 7
Internal Controls 8
Appendixes
A. Auditee Comments 9
B. Schedule of Disbursements as of September 30, 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 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 Disaster Recovery Assistance funds are documented in action plans that receive public
comment and are approved by HUD. HUD had approved 15 partial action plans as of September
30, 2009, that allocated the $2.783 billion to various programs and activities (see appendix B).
As of September 30, 2009, the auditee had disbursed more than $1.64 billion, or 59 percent, of
the $2.783 billion allocated.
During this audit, we reviewed the following:
World Trade Center Memorial and Cultural program: As of September 30, 2009, HUD had
approved approximately $690 million 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.
Hudson River Park Improvement program: As of September 30, 2009, HUD had approved
approximately $72.6 million to complete extensive renovations to the Hudson River waterfront
in Lower Manhattan, including public recreational piers, an ecological pier, and an adjacent
upland park.
Local Transportation and Ferry Service program: As of September 30, 2009, HUD had approved
approximately $9 million for this program to restore and enhance transportation services,
eliminate deficiencies, and anticipate future needs so that Lower Manhattan can continue to lay
the foundation for its revitalization.
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.
4
RESULTS OF AUDIT
The Auditee Generally Administered CDBG Disaster Recovery
Assistance Funds in Compliance With 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 disbursements reviewed during the audit, HUD had assurance that the CDBG
Disaster Recovery Assistance funds were properly administered.
Funds Disbursed Were 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. We tested $2.46 million of the
approximately $27.6 million disbursed under the World Trade Center Memorial and
Cultural, Hudson River Park Improvement, and Local Transportation and Ferry
Service programs during this audit period, and no material deficiencies were
identified.
The auditee continued to operate the system of internal controls over its
disbursements that was documented in prior audits. It 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 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 review, and site visits, the auditee continuously monitored the
performance of subrecipients against the goals and performance standards prescribed
in the subrecipient agreement. Subrecipients were required to submit monthly status
reports on the projects and supporting documentation for cost reimbursements.
Auditee officials prepared monthly monitoring reports for each program that
documented the status of the program and identified problems, if any, and their
resolution.
5
Funds Were 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 September 30, 2009, $90.9 million of the $112.2 million budgeted for
general planning and administrative activities had been disbursed. During the audit
period, the auditee disbursed $2.9 million for general planning and administrative
expenses, and no exceptions were noted with the items tested.
The Auditee’s Financial System
Adequately Safeguarded 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, developed and implemented adequate fiscal controls and
accounting procedures that ensured accurate, current, and complete reporting of
financial data. Specifically, the auditee receives and approves incoming invoices
from subrecipients for payment and submits the approved invoice packages to the
Empire State Development Corporation, which processes the payments to vendors.
Thus, the auditee has implemented an adequate management review and approval
structure to ensure accurate and complete financial transactions.
Conclusion
HUD had assurance that the CDBG Disaster Recovery Assistance funds disbursed
during the audit period were administered in accordance with HUD regulations.
Recommendations
There are no recommendations.
6
SCOPE AND METHODOLOGY
During the audit period, April 1 through September 30, 2009, the auditee disbursed $38.8 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 auditee disbursements during the audit period that were identified in
HUD’s Line of Credit and Control and Disaster Recovery Grant Reporting systems;
Used the software program Audit Command Language (ACL) to review the auditee’s
disbursements for any illogical and irregular disbursements;
Interviewed auditee staff to document information on any operational changes since
the last audit period;
Conducted a risk assessment of programs based upon expenditures and past audit
findings to identify areas that might warrant detailed testing during the audit;
Documented the system of controls implemented for the World Trade Center
Memorial and Cultural, Hudson River Park Improvement, and Local Transportation
and Ferry Service programs, for which $27.6 million was disbursed; and
Selected a nonstatistical sample of seven drawdowns in the three programs mentioned
above, totaling approximately $2.5 million, which represented 6.4 percent of the
$38.8 million disbursed during the audit period, to test compliance with internal
controls.
Amount disbursed April 1
through September 30, 2009 Amount tested
Program (in millions) (in millions)
World Trade Center Memorial
and Cultural $25.96 $ 1.56
Hudson River Park Improvement 0.93 0.63
Local Transportation and Ferry Service 0.67 0.27
Total $27.56 $ 2.46
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
November 2009 through February 2010.
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
Auditee Comments
9
Appendix B
SCHEDULE OF DISBURSEMENTS AS OF SEPTEMBER 30, 2009
Audit period
Cumulative Balance
Budget as of disbursements
Program disbursed as of remaining as of
Sept. 30, 2009 Apr. 1, – Sept.
Sept. 30, 2009 Sept. 30, 2009
30, 20092
Business Recovery Grant program 218,946,000 (15,749) 218,839,916 106,084
Job Creation and Retention 143,000,000 319,610 105,123,340 37,876,660
Small Firm Attraction 29,000,000 (160,215) 27,722,990 1,277,010
Residential Grant (housing assistance program) 237,500,000 236,057,064 1,442,936
Employment Training Assistance 346,000 337,771 8,229
Memorial Design & Installation 315,000 309,969 5,031
Columbus Park Renovation 998,571 0 998,571
Marketing History and Heritage Museums 4,664,000 4,612,619 51,381
Downtown Alliance Streetscape 4,000,000 4,000,000 0
New York Stock Exchange Area Improvements 25,160,000 5,477,869 19,682,131
Parks and Open Space 46,981,689 10,285 17,793,211 29,188,478
Hudson River Park Improvements 72,600,000 934,989 64,215,406 8,384,594
West Street Pedestrian Connection 22,955,811 18,327,501 4,628,310
Lower Manhattan Communications Outreach 1,000,000 1,000,000 0
Green Roof Project 100,000 0 100,000
Chinatown Tourism & Marketing 1,160,000 1,159,835 165
Lower Manhattan Information program 2,570,000 1,752,391 817,609
World Trade Center Memorial and Cultural 3 690,017,180 25,961,343 475,403,970 214,613,210
Lower Manhattan Tourism 4,176,000 3,950,000 226,000
East River Waterfront Project 150,000,000 28,231 1,625,453 148,374,547
Local Transportation and Ferry Service 9,000,000 668,435 3,996,060 5,003,940
East Side K-8 School 23,000,000 28,703 22,971,297
Fitterman Hall Reconstruction 15,000,000 1,784 14,998,216
Chinatown Local Development Corporation 7,000,000 2,188,867 4,811,133
Affordable Housing 54,000,000 22,464,895 31,535,105
Public Services Activities 6,796,900 18,289 6,497,721 299,179
Administration & Planning 112,262,000 2,940,222 90,880,002 21,381,998
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 8,075,480 26,921,871 62,028,978
Drawing Center 2,000,000 0 2,000,000
Fulton Corridor Revitalization 38,000,000 39,795 846,238 37,153,762
Economic Development – Other 7,000,000 2,040 6,997,960
Transportation Improvements 31,000,000 13,910 13,910 30,986,090
Education – Other 3,000,000 0 3,000,000
Total 2,783,000,000 38,834,625 1,645,097,008 1,137,902,992
2
Negative amounts represent recoveries to the program.
3
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
The Lower Manhattan Development Corporation, New York, NY, Generally Administered CDBG Disaster Recovery Assistance Funds in Compliance With Regulations
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-03-22.
Below is a raw (and likely hideous) rendition of the original report. (PDF)