Issue Date May 11, 2010 Audit Report Number 2010-PH-1008 TO: Frances Bush, Director, Office of Community Planning and Development, Washington, DC, Field Office, 3GD //signed// FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia Region, 3AGA SUBJECT: Sasha Bruce Youthwork, Incorporated, Washington, DC, Did Not Support More Than $1.9 Million in Expenditures HIGHLIGHTS What We Audited and Why We audited Sasha Bruce Youthwork, Incorporated (Youthwork, Inc.), based on a referral from the District of Columbia’s Office of the Inspector General and a citizen complaint alleging that the organization misused Federal funds. Our objective was to determine whether Youthwork, Inc., used its Youthbuild and Supportive Housing program grant funds in acccordance with U.S. Department of Housing and Urban Development (HUD) regulations and its grant agreements. What We Found Youthwork, Inc., could not demonstrate that it used more than $1.9 million in grant funds in accordance with HUD regulations and its grant agreements. Specifically, it failed to maintain adequate records identifying the source and application of funds for its HUD-sponsored activities. What We Recommend We recommend that the Director of HUD’s Washington, DC, Office of Community Planning and Development require Youthwork, Inc., to provide documentation to demonstrate that more than $1.9 million was used for eligible activities or repay HUD from non-Federal funds. We further recommend that the Director require Youthwork, Inc., to improve its financial management system and implement improved accounting procedures to ensure that it meets the requirements of regulations at 24 CFR (Code of Federal Regulations) 84.21 and Office of Management and Budget Circular (OMB) A-110. At a minimum, the financial management system should maintain accounting records that (1) track expenses paid by HUD versus expenses paid through other funding sources; (2) demonstrate that expenditures paid were for eligible activities; (3) determine and adequately document the reasonableness, allocability, and allowability of costs; and (4) demonstrate that expenditures meet HUD-approved budget line items, thereby ensuring that more than $686,342 in program funds will be used for eligible purposes. 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 provided a copy of the draft report to Youthwork, Inc., on March 24, 2010. We discussed the audit results with its officials during the audit and at an exit conference on April 16, 2010. Youthwork, Inc., provided its written comments to our draft report on April 23, 2010. It disagreed with the results of our audit. 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: Youthwork, Inc., Did Not Support the Eligibility of More Than $1.9 Million 5 in Expenditures Scope and Methodology 8 Internal Controls 10 Appendixes A. Schedule of Questioned Costs and Funds To Be Put to Better Use 11 B. Auditee Comments and OIG’s Evaluation 12 C. Potential Ineligible Costs 22 3 BACKGROUND AND OBJECTIVE Sasha Bruce Youthwork, Incorporated (Youthwork, Inc.), received grant funds for its Youthbuild and Supportive Housing Programs directly from the U.S. Department of Housing and Urban Development (HUD) under Title IV, Subtitle D, of the National Affordable Housing Act and Title IV, Subtitle C, of the McKinney-Vento Homeless Assistance Act of 1987. Youthwork, Inc., is a private, nonprofit youth and family services organization established and incorporated in 1974. It is governed by a 20-member board of directors. The executive director is responsible for the day-to- day operations of the organization. Youthwork, Inc.’s mission is to provide comprehensive and coordinated services that meet the urgent needs of “at-risk” youths and their families. Its goals are to provide cost-effective and responsive services through 21 residential and nonresidential programs directed at homeless, runaway, and abandoned children; troubled youths referred by juvenile courts; teenage mothers and their babies; and other young people who are at risk. Between 2005 and 2009, Youthwork, Inc., entered into grant agreements with HUD to carry out activities associated with its programs. Of the more than $2.6 million in grant funds awarded, it has received $1.9 million via HUD’s Line of Credit Control System (LOCCS) for its program expenditures as shown below. Grants awarded Year of award Authorized amounts Disbursed amounts Youthbuild 2006 $700,000 $700,000 Supportive Housing Program 2005 386,279 $386,279 Supportive Housing Program 2006 386,279 386,279 Supportive Housing Program 2007 386,278 386,278 Supportive Housing Program 2008 386,278 86,214 Supportive Housing Program 2009 386,278 0 Totals $2,631,392 $1,945,050 Youthwork, Inc., was required to provide transitional housing to homeless youths and mothers with young children under its Supportive Housing Program. In addition to transitional housing, it was required to provide the following supportive services to the participants: outreach, life skills, alcohol and drug counseling, mental health care, other health care, education, and employment assistance. Under its Youthbuild grant, it was to enroll and train 30 participants in vocational education and on-site construction, assist at least 12 participants in obtaining a general education or high school diploma, and place at least 15 participants in jobs or apprenticeships. Participants in the program were also going to construct five new housing units for low-income individuals. The age requirement for the participants was between 16 and 19 years of age. The objective of the audit was to determine whether Youthwork, Inc., used its Youthbuild and Supportive Housing Program grant funds in accordance with HUD regulations and its grant agreements. 4 RESULTS OF AUDIT Finding: Youthwork, Inc., Did Not Support the Eligibility of More Than $1.9 Million in Expenditures Youthwork, Inc., failed to maintain records identifying the source and application of funds for its HUD-sponsored activities as required by HUD regulations and its grant agreements. Youthwork, Inc.’s, accounting system did not separately track expenses paid by HUD versus expenses paid through other funding sources. This condition occurred because responsible officials disregarded HUD requirements. Therefore, HUD had no assurance that $1.9 million in grant funds it disbursed to Youthwork, Inc., were used for eligible activities that met the intent of its grant agreements. Youthwork, Inc., Did Not Support Its Use of HUD Funds We reviewed all 38 transactions, totaling $1,945,050 in LOCCS drawdowns, to determine whether requests were adequately supported and met eligibility requirements. Youthwork, Inc., did not support any of its expenditures of HUD funds under its Youthbuild Program ($700,000) and its Supportive Housing Program ($1,245,050). Although it usually maintained documentation such as employee payroll records, invoices, receipts, or canceled checks, these documents were not tied to specific HUD transactions in its general ledgers. Youthwork, Inc.’s general ledgers for these two programs showed disbursements of $4.7 million, which was significantly more than the $1.9 million that HUD provided Youthwork, Inc., during the audit period. This discrepancy occurred because the general ledgers included expenses paid from funding from sources other than HUD. Further, supporting documents and the general ledgers did not separately identify expenses paid by HUD versus expenses paid through its other funding sources, which were significant, including the U.S. Departments of Labor and Health and Human Services, private foundations, and other non-Federal sources. According to 24 CFR (Code of Federal Regulations) 84.21 and Office of Management and Budget (OMB) Circular A-110, a grantee must maintain complete and accurate grant records identifying the source and application of grant funds and ensure that grant expenditures are supported by source documentation and used solely for authorized purposes. Additionally, the regulation required Youthwork, Inc., to have written procedures for determining the reasonableness, allocability, and allowability of cost in accordance with the provisions of the applicable Federal cost principles and the terms and conditions of the award. Youthwork, Inc., failed to do so. 5 Additionally, both the Youthbuild and Supportive Housing grants required grant funds to be used in accordance with HUD-approved budgeted line items. Since the general ledgers did not separately identify expenses paid by HUD versus expenses paid by other funding sources, there was no assurance that Youthwork, Inc., spent grant funds in accordance with its HUD-approved budget. There was also an increased risk that the intended purposes and outcomes of the programs would not be achieved if grant expenses were improperly allocated. Some Expenditures Appeared Questionable As discussed above, Youthwork, Inc., did not track its expenditures of HUD funds separately, and, therefore, all of its HUD-related expenditures were unsupported. However, since the complaint alleged misuse of Federal funds, we attempted to perform a limited review of the transactions in Youthwork, Inc.’s general ledgers to determine whether they appeared reasonable under Federal grant awards. Our limited review of selected comments in the general ledger showed that Youthwork, Inc., charged tickets to the circus, food for Christmas parties, and other social activities not eligible under Federal grants totaling at least $4,091 (see appendix C). Due to the inadequate accounting system in place at Youthwork, Inc., we could not determine whether Federal funds were used to pay for these items. It is important to note, however, that if Federal funds were used, OMB Circular A-122 would apply. The circular requires that costs charged to Federal awards be reasonable, conform to limitations or exclusions set forth in these principles or in the award as to types or the amount of cost items, and be adequately documented. The circular further states in section 14 under attachment B that entertainment costs are unallowable. A Recommendation From HUD’s Monitoring Review Was Not Implemented In June 2007, HUD’s Washington, DC, Office of Community Planning and Development recommended that Youthwork, Inc., develop procedures to track expenses paid by HUD versus expenses paid through other funding sources based on problems it identified during one of its monitoring reviews. In a December 2007 follow-up letter, Youthwork, Inc., was again directed to develop these procedures and provide a copy of the procedures to HUD. The procedures were not developed, and Youthwork, Inc., could not demonstrate that it used its HUD funds for eligible activities. 6 Conclusion Youthwork, Inc., could not demonstrate that it used more than $1.9 million for eligible activities. Although HUD regulations and its grant agreements require it to adequately document that funds were spent on eligible activities, it disregarded this requirement. It also failed to maintain accounting procedures to support the reasonableness, allocability, and allowability of costs charged to the grants and disregarded this requirement. Therefore, HUD had no assurance that Federal funds, totaling more than $1.9 million, met the intent of HUD’s Youthbuild and Supportive Housing Programs. Youthwork, Inc., had $686,342 in Supportive Housing funds that had not been disbursed. By improving its financial management system to ensure that it meets the requirements of regulations at 24 CFR 84.21 and OMB Circular A-110, it can ensure that these funds will be used for the purposes intended. Recommendations We recommend that the Director of HUD’s Washington, DC, Office of Community Planning and Development 1A. Evaluate the issues in this report and if appropriate, initiate appropriate administrative actions against responsible officials of Youthwork, Inc. We also recommend the Director of HUD’s Washington, DC, Office of Community Planning and Development require Youthwork, Inc., to 1B. Provide documentation to demonstrate that $1,945,050 was used for eligible activities that met the criteria of its HUD-approved budget line items or repay HUD from non-Federal funds. 1C. Improve its financial management system and implement improved accounting procedures to ensure that it meets the requirements of regulations at 24 CFR 84.21 and OMB Circular A-110. At a minimum, the financial management system should maintain accounting records that (1) track expenses paid by HUD versus expenses paid through other funding sources; (2) demonstrate that expenditures paid were for eligible activities; (3) determine and adequately document the reasonableness, allocability, and allowability of costs; and (4) demonstrate that expenditures meet HUD-approved budget line items, thereby ensuring that $686,342 in program funds will be put to better use in the next year. 7 SCOPE AND METHODOLOGY To accomplish our objective, we • Reviewed grant agreements and requirements, including Federal laws and regulations and Office of Management and Budget circulars. • Reviewed HUD’s monitoring reports and funding awarded to Youthwork, Inc. • Conducted interviews and inquiries with HUD’s Washington, DC, Office of Community Planning and Development to obtain an understanding of its Youthbuild and Supportive Housing Programs. • Reviewed Youthwork, Inc.’s accounting records, audited financial statements, board meeting minutes, and progress reports. • Conducted interviews with Youthwork, Inc.’s administrative and finance staff to gain an understanding of the internal controls related to the administration of its Youthbuild and Supportive Housing Programs. • Selected and reviewed all 38 transactions, totaling $1.9 million in LOCCS drawdowns, to determine whether requests were adequately supported and met eligibility requirements. We performed our on-site work from August through October 2009 at Youthwork, Inc.’s office located at 741 8th Street, SE, Washington, DC, and HUD’s Washington, DC, Office of Community Planning and Development. Our audit generally covered the period June 2006 to November 2009 and was extended when necessary to include other periods. Youthwork, Inc., cannot demonstrate that it used $1,945,050 in accordance with HUD regulations and its grant agreements. For years 2008 and 2009, Youthwork, Inc., was awarded Supportive Housing Program funds totaling $772,556 and received $86,214 as of the date of this report. We determined that Youthwork, Inc., will put $686,342 ($772,556 minus $86,214=$686,342) to better use by improving its financial management system and implementing improved accounting procedures. Since Youthwork, Inc., currently does not account for HUD funds separately its unexpended HUD funds of $686,342 are currently at risk of being spent contrary to HUD requirements and its grant agreements. To achieve our audit objective, we relied in part on computer-processed data in Youthwork, Inc.’s databases. 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 evidence to provide a reasonable basis for our findings and conclusions based on our audit 8 objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. 9 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 Control We determined that the following internal control was relevant to our audit objective: • Validity and reliability of data – Policies and procedures that management has implemented to reasonably ensure that resource use is consistent with laws and regulations. We assessed the relevant control 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 Weakness Based on our review, we believe that the following item is a significant weakness: • Youthwork, Inc., did not operate in compliance with laws and regulations to ensure that its grant activities were eligible. 10 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 1B $1,945,050 1C $686,342 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, if Youthwork, Inc., improves its financial management system to ensure that it meets the requirements of regulations at 24 CFR 84.21 and OMB Circular A-110, it will ensure that $686,342 will be used for eligible purposes in the next year. Since Youthwork, Inc., currently does not account for HUD funds separately its unexpended HUD funds of $686,342 are at risk of being spent contrary to HUD requirements and its grant agreements. 11 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 12 13 Comment 1 14 Comment 1 15 Comment 1 Comment 1 16 Comment 2 17 Comment 3 Comment 1 Comment 3 18 Comment 2 Comment 3 Comments 1, 2, and 3 19 20 OIG Evaluation of Auditee Comments Comment 1 On numerous occasions throughout the audit, we directed Youthwork, Inc., to provide documentation to support 38 individual LOCCS drawdowns of HUD funds totaling $1.9 million. Youthwork, Inc., provided only its general ledgers showing $4.7 million in expenditures which included $2.8 million funded through other sources such as the U.S. Department of Labor, U.S. Department of Health and Human Services, private foundations and other non-Federal sources. Youthwork, Inc., did not identify HUD specific transactions in its general ledgers and it failed to provide other necessary supporting documentation such as employee timesheets, payroll records, invoices, receipts, or cancelled checks. Youthwork, Inc., acknowledges the existence of this significant internal control weakness later in its reply when it states that for a variety of reasons, including prior reliance on accountants who were not adequately trained in terms of contract documentation requirements, the accounting details supporting its draws were not available. Comment 2 Youthwork, Inc., does not dispute the fact that it failed to develop written procedures to track expenses paid by HUD versus expenses paid through other funding sources in spite of two separate letters from HUD’s Washington, DC, Office of Community Planning and Development directing it to do so. Instead, Youthwork, Inc., states that it has achieved the “spirit of the recommendation.” Youthwork, Inc., further states that it will now in fact coordinate with HUD to memorialize its procedures in writing. The audit evidence demonstrated that Youthwork, Inc., has not achieved the spirit of the previous HUD recommendation and it is imperative for it to develop procedures to ensure the reasonableness, allocability, and allowability of costs charged to its HUD grants. Comment 3 The audit report does not state that the audit indentified evidence of wrongdoing or malfeasance. The audit report does state that Youthwork, Inc., could not demonstrate that it used more than $1.9 million for eligible activities. The audit report also states that it failed to maintain accounting procedures to support the reasonableness, allocability, and allowability of costs charged to the grants and that it disregarded this requirement. Youthwork, Inc., therefore now needs to work collaboratively with HUD’s Washington, DC, Office of Community Planning and Development to provide adequate support for its HUD expenditures and to implement improved accounting procedures. Administrative sanctions (see 24 CFR Part 24), are discretionary actions that may be taken to protect the public interest and sanctions may be appropriate based on HUD’s final evaluation of the problems identified in this audit report and Youthwork, Inc.’s response to these problems. 21 Appendix C POTENTIAL INELIGIBLE COSTS Ineligible expense* Date Amount Celebration for Inaugural Ball 1/21/2009 $519 Christmas dinner 12/12/2007 425 Joint celebration for Inaugural 11/17/2008 341 Food for Mother’s Day brunch 4/19/2007 300 Trip to Ocean City 6/21/2007 300 Graduation cookout 9/6/2007 250 Trip to Ocean City 7/6/2006 250 Third annual hip-hop seminar 4/4/2007 205 Christmas dinner 12/3/2006 200 Resident activity 1/29/2009 200 Food for black extravaganza 2/15/2007 150 Circus tickets and metro fare 3/6/2008 150 Pizza and bowling 8/16/2007 146 Tickets to Disney on Ice 2/4/2008 130 Circus tickets and metro fare 3/11/2009 120 Tickets to Disney on Ice 2/1/2007 120 Circus tickets 3/15/2007 120 Tickets to Kings Dominion amusement park 6/30/2009 100 Hip-hop workshops summit 4/12/2007 65 Total $4,091 * Office of Management and Budget Circular A-122, attachment B, section 14, states, “Costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities) are unallowable.” 22
Sasha Bruce Youthwork, Incorporated, Washington, DC, Did Not Support More Than $1.9 Million in Expenditures
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-05-11.
Below is a raw (and likely hideous) rendition of the original report. (PDF)