oversight

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)

                                                                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.”




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