oversight

The City of Altoona, Pennsylvania, Made Unsupported Community Development Block Grant Payments

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-10-02.

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

                                                                  Issue Date
                                                                         2010-PH-1001
                                                                  Audit Report Number
                                                                         October 2, 2009




TO:        John E. Tolbert III, Director, Office of Community Planning and
            Development, Pittsburgh Field Office, 3ED

FROM:      John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
            3AGA

SUBJECT:   The City of Altoona, Pennsylvania, Made Unsupported Community
            Development Block Grant Payments


                                  HIGHLIGHTS

 What We Audited and Why

           We audited the City of Altoona’s (City) U.S. Department of Housing and Urban
           Development (HUD)-funded programs based on a citizen complaint. The
           objective of the audit was to determine whether the City properly paid a
           subrecipient for eligible Community Development Block Grant (CDBG)
           activities.

 What We Found

           The City paid a subrecipient $914,335 for activities that it could not demonstrate
           were eligible. Specifically, the City could not demonstrate that it paid a
           subrecipient for eligible activities that met a national objective under its Blighted
           Property Maintenance Program.
What We Recommend

           We recommend that the Director of the Pittsburgh Office of Community Planning
           and Development require the City to provide documentation to demonstrate that
           $914,335 was used for eligible activities that met a national objective of the
           CDBG program or repay HUD from nonfederal funds. We further recommend
           that the Director require the City to establish and implement written policies and
           procedures requiring it to maintain records that (1) provide a full description of
           each activity undertaken; (2) demonstrate that each activity undertaken meets a
           national objective of the CDBG program; (3) determine the eligibility of the
           activities; and (4) document the acquisition, improvement, use, or disposition of
           real property acquired or improved with CDBG assistance. Lastly, the City
           should evaluate its subrecipient in terms of compliance risk, performance, and
           funding levels at least on an annual basis.

           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 discussed the findings with the City during the audit. We provided a copy of
           the draft report to City officials on August 28, 2009, for their comments and
           discussed the report with the officials at the exit conference on September 3,
           2009. The City provided its written comments to our draft report on
           September 10, 2009. It generally disagreed with our findings.

           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: The City Paid a Subrecipient for Unsupported CDBG Activities   5

Scope and Methodology                                                         9

Internal Controls                                                             11

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use          13
   B. Auditee Comments and OIG’s Evaluation                                   14




                                            3
                         BACKGROUND AND OBJECTIVE

The City of Altoona (City), an entitlement community, receives grant funds for community
development, housing, and homeless programs directly from the U.S. Department of Housing
and Urban Development (HUD) under Title I of the Housing and Community Development Act
of 1974, as amended; Title II of the National Affordable Housing Act; and the Stewart B.
McKinney Homeless Assistance Act. The funds are provided on a formula-allocation basis.
HUD headquarters in Washington, DC, performs a mathematical calculation, which takes into
account many demographic, economic, and housing factors, to determine funding allocation
amounts for local entitlement grantees throughout the nation.

The City was incorporated in 1868 under the provisions of the Commonwealth of Pennsylvania.
The City is a third-class city organized under a council-manager form of government in which
the seven-member council, including the mayor and controller, are elected officials. The council
appoints the city manager, who in turn, appoints department heads. The council, on behalf of the
City, makes policy decisions, borrows money, levies local taxes, and authorizes expenditures in
accordance with the third-class city code of the Commonwealth of Pennsylvania. In addition, the
City provides the following services as authorized by its charter: public safety (police and fire),
streets, sanitation, health and social services, culture-recreation, public improvements, planning
and zoning, and general administrative services.

The City’s community development programs are administered through its Department of
Planning and Community Development. The City administers three programs, which include the
Community Development Block Grant (CDBG) program, the HOME Investment Partnerships
(HOME) program, and the Emergency Shelter Grant (ESG) program. The City has received the
following HUD program grants over the past six years:1

                                     Program                                  Amount
                CDBG                                                         $13,208,843
                HOME                                                          $2,657,793
                ESG                                                             $531,049
                Total                                                        $16,397,685

The objective of our audit was to determine whether the City properly paid its subrecipient for
eligible CDBG expenditures.2




1
 The City’s program year runs from July 1 through June 30.
2
 During the survey phase of this audit, audit tests did not indicate significant weaknesses within the City’s
administration of its HOME program. However, significant weaknesses were found in the City’s CDBG program.


                                                      4
                                       RESULTS OF AUDIT

Finding: The City Paid a Subrecipient for Unsupported CDBG
Activities
The City could not demonstrate that the $914,335 it spent on its Blighted Property Maintenance
Program was for eligible activities that met a national objective. This condition occurred
because the City did not maintain supporting documentation required by 24 CFR [Code of
Federal Regulations] 570.506 and the subrecipient agreement. Therefore, HUD had no
assurance that the City’s expenditures met the intent of the CDBG program.


    The City’s Blighted Property
    Maintenance Program
    Expenditures Were
    Unsupported


                 The City initially entered into a one-year agreement with a subrecipient to carry out
                 activities of its Blighted Property Maintenance Program in July 2002. The
                 agreement required the subrecipient to secure and maintain blighted properties
                 located in Altoona. The City’s inspections department was required to handle the
                 daily coordination and supervision of the program. The agreement was renewed on
                 an annual basis; thus, the subrecipient carried out these activities from 2003 through
                 2008.3 From 2003 through 2008, the City paid the subrecipient $914,335 for
                 activities associated with the removal of slums and blight under the program. We
                 reviewed documentation maintained by the City to determine whether the
                 subrecipient was paid for eligible activities. Specifically, we reviewed the
                 supporting documentation for 112 checks issued to the subrecipient from January 1,
                 2003, through December 31, 2008. The table below summarizes the expenditures.

                                Salaries for staff                               $792,382
                                Uncategorized miscellaneous
                                expenditures                                       $69,381
                                Vehicle leases, gas, and insurance
                                premiums                                          $43,922
                                Administrative fees                                $8,650
                                Total expenditures                               $914,335




3
 The agreements for years 2007 and 2008 required that the subrecipient perform demolition activities in addition to
the maintaining and securing of the blighted properties.



                                                         5
                  Although the City was able to provide time sheets for salaries paid, gas receipts, and
                  other invoices used to support the expenses noted in the table, it failed to
                  demonstrate that the expenditures paid were for eligible activities.

                  Specifically, the documentation provided as support for the payment of salaries,
                  totaling $792,382, did not demonstrate eligibility. The time sheets of the staff
                  carrying out activities of the program did not disclose which properties were
                  maintained or demolished by the employee, what type of work was done at each
                  property, how much time was charged to the work at each property, and when the
                  work was done and did not always show how the salaries were calculated for the
                  staff who worked on the program activities. Without this information, we were
                  unable to determine whether the expenditures met eligibility requirements. Thus,
                  staff salaries, totaling $792,382, charged to the program were unsupported.

                  Also, the City paid $69,381 in miscellaneous expenditures. Some of the
                  miscellaneous expenditures included items such as payment of accounts for supplies,
                  utility expenses, cell phones, and other miscellaneous items. The City could not
                  provide documentation showing the properties assisted, for which the supplies were
                  used for the prevention of slums and blight. Thus, these expenditures, totaling
                  $69,381, charged to the program were unsupported.

                  In addition, the City charged $43,922 for vehicle leases, gas, and insurance
                  premiums. Specifically, from 2003 through 2005, the City leased a truck and owned
                  two trucks which were to be used by the maintenance crew to assist with activities
                  associated with the prevention of slums and blight. Thus, various expenses were
                  incurred and paid to the subrecipient including gas expenses and monthly insurance
                  premiums. We requested that the City provide documentation to show how the
                  vehicles were used, what properties were assisted, mileage used, and gas
                  expenditures. The City could not provide vehicle logs or other records that would
                  document the items noted above because it did not require such records to be
                  maintained. The City explained that it had always operated with an understanding of
                  trust with the crew; thus, it did not require records to be maintained. Without a
                  record showing how the vehicles were used and expenses paid were used to assist in
                  the prevention of slums and blight, the expenditures, totaling $43,922,4 charged to
                  the program were unsupported.

                  Lastly, although the subrecipient agreement did not require the payment of
                  administrative fees, the City paid $8,650 in unsupported administrative fees to the
                  subrecipient.

                  Overall, the City failed to follow HUD requirements for the CDBG program.
                  Regulations at 24 CFR 570.200(a) state that CDBG-funded activities must meet
                  one of the national objectives: benefit low- and moderate-income families,
                  prevent or eliminate slums or blight, or meet urgent community development

4
 The total paid for vehicles charged to the program was calculated by adding the total expenditures for each:
$43,922 = $25,111for vehicle leases+ $11,049 for gas expenses +$7,762 in vehicle insurance premiums.


                                                         6
             needs. Further, regulations at 24 CFR 570.506, along with subrecipient
             agreements between the City and the subrecipient, required the subrecipient to
             establish and maintain sufficient records. Each document specifically stated that
             at a minimum, the records should (1) provide a full description of each activity
             undertaken; (2) demonstrate that each activity undertaken met one of the national
             objectives of the CDBG program; (3) determine the eligibility of the activities;
             and (4) document the acquisition, improvement, use, or disposition of real
             property acquired or improved with CDBG assistance. The City did not require
             these records; thus, it could not demonstrate that $914,335 in CDBG expenditures
             paid to its subrecipient was eligible.

The City Disregarded HUD
Requirements and Its Own
Policy and Procedures

             The City disregarded HUD requirements and failed to follow its own requirements.
             Regulations at 24 CFR 570.506 require the City to maintain records that would
             determine the eligibility of the activities. Additionally, the City’s subrecipient
             agreement required the subrecipient to maintain records to support eligibility. The
             City explained that it did not follow the requirements because the intent of the
             agreement met the national objective for the prevention of slums and blight; thus, it
             believed that all activities performed under the agreement would have been eligible.
             The City also disregarded its own monitoring policy governing HUD programs. The
             City’s monitoring policy required it to, at least on an annual basis, evaluate the
             subrecipient in terms of compliance risk, performance, and funding levels. Based on
             this evaluation, subrecipients should be monitored at least annually, by way of an
             on-site visit or a desk file review. A review of the City’s monitoring reports showed
             that the most recent fully documented evaluation of the subrecipient was completed
             more than five years ago (June 2004). The City stated that although an evaluation
             had not been performed since June 2004, it monitored the activities by way of
             completing desk reviews of the monthly invoices submitted for payment. However,
             audit evidence showed that the invoices and other documentation used to justify
             payment of expenditures did not demonstrate that the activities were eligible.

Conclusion


             The City paid a subrecipient for unsupported CDBG expenditures. Specifically,
             the City could not demonstrate that $914,335 was spent for eligible activities.
             Although regulations at 24 CFR 570.506 and the subrecipient agreement between
             the City and the subrecipient required that records be maintained to support
             eligibility, the City disregarded this requirement. As a result, HUD had no
             assurance that federal funds, totaling $914,335, met the intent of the CDBG
             program.




                                               7
          For the program year beginning July 1, 2009, the City planned to continue its
          program to remove blighted properties and planned to use the $458,700 in CDBG
          funds awarded. However, if the City continues not requiring records to determine
          eligibility, it cannot ensure that the $458,700 will be used for the purposes
          intended.

Recommendations



          We recommend that the Director of the Pittsburgh Office of Community Planning
          and Development require the City to

          1A.     Provide documentation to demonstrate that $914,335 was used for eligible
                  activities that met a national objective of the CDBG program or repay
                  HUD from nonfederal funds.

          1B.     Establish and implement written policies and procedures requiring the
                  City to maintain records that (1) provide a full description of each activity
                  undertaken; (2) demonstrate that each activity undertaken meets one of the
                  national objectives of the CDBG program; (3) determine the eligibility of
                  the activities; and (4) document the acquisition, improvement, use, or
                  disposition of real property acquired or improved with CDBG assistance,
                  thereby ensuring that $458,700 in program funds will be put to better use
                  in the next year.

          1C.     Evaluate its subrecipients in terms of compliance risk, performance, and
                  funding levels at least on an annual basis.




                                            8
                         SCOPE AND METHODOLOGY

To accomplish our objective, we

       Reviewed program requirements, including federal laws and regulations and Office of
       Management and Budget circulars.

       Reviewed HUD’s monitoring reports and funding awards for the City’s HUD-funded
       programs.

       Conducted interviews and inquiries with HUD’s Office of Community Planning and
       Development field officials to obtain an understanding of the City’s HUD-funded
       programs.

       Reviewed the City’s program policies and procedures, consolidated plan, annual action
       plans, consolidated annual performance and evaluation reports (CAPER), and audited
       financial statements.

       Conducted interviews with the City’s administrative and finance staff to gain an
       understanding of the internal controls related to the administration of the City’s HUD-
       funded programs.

       Selected and reviewed a survey sample of 10 expenditures out of the universe of 7,377
       CDBG and HOME expenditures.

       Selected and reviewed all 112 checks, totaling $914,335, issued in the administration of
       the City’s Blighted Property Maintenance Program from January 1, 2003, to
       December 31, 2008, to ensure compliance with program regulations and procedures.

       Compared the City’s expenditures recorded in its check register to the HUD-funded
       program expenditures the City reported in its audited financial statements and its
       CAPERs during 2003-2007.

We performed our audit fieldwork between February and August 2009 at the City’s Department
of Planning and Community Development office located at 1301 12th Street, Suite 400, Altoona,
Pennsylvania, and HUD’s Pittsburgh, Pennsylvania, field office. Our audit generally covered the
period January 1, 2003, to December 31, 2008.

To achieve our audit objective, we relied in part on computer-processed data at the City. Although
we did not perform a detailed assessment of the reliability of the data, we did perform a minimal
level of testing and found the data to be adequate for our purposes.

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


                                                 9
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.




                                               10
                              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
              objective:

                      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.




                                               11
Significant Weakness


           Based on our review, we believe that the following item is a significant weakness:

                  The City did not ensure compliance with laws and regulations as it did not
                  demonstrate that activities were eligible.




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                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE

                   Recommendation        Unsupported      Funds to be put
                          number                  1/      to better use 2/
                                  1A        $914, 335
                                  1B                             $458,700


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.

2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, by requiring records to document
     eligibility, the City will ensure that $458,700 will be used for eligible purposes in the
     next year.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




                         14
Comment 1




Comment 1




Comment 2




            15
Comment 3




Comment 1




            16
Comment 4




Comment 2



Comment 2




Comment 2


Comment 4




            17
Comment 5




Comment 1


Comment 1


Comment 1


Comment 3




Comment 3




            18
Comment 6




Comment 6




            19
                           OIG Evaluation of Auditee Comments

Comment 1     The elimination of slums and blight on a spot basis does in fact meet a CDBG
              national objective and the City has a Blighted Property Maintenance Program.
              That was never in dispute during the audit and it is not the issue discussed in this
              audit report. The issue in this report is that the City could not show that $914,335
              it paid to its subrecipient was used solely for its Blighted Property Maintenance
              Program. It could not adequately show it was used for individual properties or
              groups of individual properties determined to be blighted since it did not maintain
              documentation required by 24 CFR [Code of Federal Regulations] 570.506, OMB
              Circular A-122, and its subrecipient agreement.

Comment 2     The documentation the City provided during and after the audit to support 112
              checks it issued to the subrecipient from January 1, 2003, through December 31,
              2008, totaling $914,335 was not adequate to support the expenditures. The City
              was unable to provide documentation supporting its assertion that these funds
              were used solely to carry out activities of its Blighted Property Maintenance
              Program either for individual properties or groups of individual properties
              determined to be blighted.

Comment 3 We conducted the audit in accordance with generally accepted government
          auditing standards. The City’s assertion that documentation for properties
          acquired, improved, or disposed of was not requested or reviewed is incorrect.
          The audit team requested this information and informed the City several times
          during the audit that it would consider these expenditures unsupported unless the
          City provided additional documentation. After the audit exit conference the City
          was given another opportunity to provide documentation to support the
          expenditures. It then provided a listing of properties it had reportedly demolished.
          However, the listing did not adequately show or document what work was
          performed at each property or groups of properties, which staff did the work, how
          much time was charged to the work at each property or group of properties, when
          the work was performed, and how the salaries were calculated for the staff who
          reportedly worked on program activities.

Comment 4     The salaries are considered unsupported because the City did not provide
              documentation to substantiate its assertion that the salaries were paid solely to
              carry out activities of its Blighted Property Maintenance Program either for
              individual properties or groups of individual properties determined to be blighted.
              The City did not provide listings or any other information showing properties or
              groups of properties it may have safeguarded during any individual payroll
              period. The City told us during the audit that it did not require this supporting
              documentation because it trusted its subrecipient to charge only for eligible
              activities.

Comment 5     In some cases, timesheets were in fact not signed. Although the City should make
              every effort to ensure that timesheets are signed, this issue was not reported in the



                                               20
             audit report as it was not a major reason the salaries were considered unsupported
             (see comment 4).

Comment 6 While the City has acknowledged some of its monitoring deficiencies related to
          its subrecepient, it did not adequately address the problems and recommendations
          in this audit report.




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