oversight

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)

                                                               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