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)