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)