oversight

Washington State Did Not Disburse Its Homelessness Prevention and Rapid Re-Housing Funds in Accordance With Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-08-31.

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

                                                                 Issue Date
                                                                          August 31, 2010
                                                                 
                                                                 Audit Report Number
                                                                              2010-SE-1001




TO:         Jack Peters, Director, Office of Community Planning and Development, Seattle,
               Region X, 0AD

            //signed//
FROM:       Ronald J. Hosking, Regional Inspector General for Audit, Seattle, Region X,
               0AGA


SUBJECT: Washington State Did Not Disburse Its Homelessness Prevention and Rapid Re-
           Housing Funds in Accordance With Program Requirements


                                   HIGHLIGHTS

 What We Audited and Why

             We audited Washington State Department of Commerce (State) because it was
             the largest recipient of the Homelessness Prevention and Rapid Re-Housing
             Program (HPRP) grant in Region 10. The State received more than $11.1 million
             or 23.8 percent of the more than $46.7 million awarded to Region 10. Our
             objective was to determine whether the State disbursed HPRP funding in
             accordance with American Recovery and Reinvestment Act of 2009 (Recovery
             Act) requirements.

 What We Found


             The State paid for HPRP services for ineligible participants and participants
             whose eligibility was not supported. One participant’s income exceeded HUD’s
             minimum income level requirement. Three other participants did not meet the
             State’s or its subgrantee’s more strict requirements. In addition, 88 of the 101
           participant case files we reviewed at the five subgrantees visited did not include
           adequate documentation of participant eligibility.

           The State also made a duplicate payment to one of its subgrantees for HPRP
           services. The subgrantee submitted invoices that included identical services for
           five participants in November and December 2009.

What We Recommend


           We recommend that the State reimburse its HPRP $3,435 from non-Federal funds
           for the ineligible participant whose income exceeded HUD’s minimum income
           level requirement and either provide supporting documentation for the
           participants lacking adequate documentation or reimburse its program $166,785
           from non-Federal funds for those affected participants. We also recommend that
           the State determine and reimburse any amounts that have been spent since April
           2010 for the ineligible or unsupported participants. Further, we recommend that
           the State develop and implement procedures to ensure that the subgrantees are
           verifying and documenting participant eligibility in accordance with the HPRP
           Notice.

           We also recommend that the State reimburse its HPRP $7,034 from non-Federal
           funds for the duplicate payment to its subgrantee. Additionally, we recommend
           that it develop and implement procedures to detect duplicate invoicing from its
           subgrantees to prevent duplicate payments.

           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 the discussion draft of the audit report to the State on August 3,
           2010, and requested its comments by August 18, 2010. The State provided its
           written comments on August 18, 2010. It generally disagreed with the findings
           and recommendations.

           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 1: The State Paid for Ineligible and Unsupported Participants   5

      Finding 2: The State Made a Duplicate Payment for HPRP Services         8

Scope and Methodology                                                         10

Internal Controls                                                             11

Appendixes
   A. Schedule of Questioned Costs                                            12
   B. Auditee Comments and OIG’s Evaluation                                   13
   C. Table of Deficiencies for Finding 1                                     27




                                             3
                       BACKGROUND AND OBJECTIVE

The Homelessness Prevention and Rapid Re-Housing Program (HPRP) is a new program under
the U.S. Department of Housing and Urban Development’s (HUD) Office of Community
Planning Development. It was funded under the American Recovery and Reinvestment Act of
2009 (Recovery Act) on February 17, 2009. Congress has designated $1.5 billion for
communities to provide financial assistance and services to either prevent individuals and
families from becoming homeless or help those who are experiencing homelessness to be
quickly rehoused and stabilized. HPRP funding was distributed based on the formula used for
the Emergency Shelter Grant program.

The purpose of HPRP is to provide homelessness prevention assistance to households that would
otherwise become homeless, many due to the economic crisis, and to provide assistance to
rapidly rehouse persons who are homeless as defined by Section 103 of the McKinney-Vento
Homeless Assistance Act (42 U.S.C. (United States Code) 11302). HUD allows grantees the
discretion to develop prevention and/or rapid rehousing programs that meet locally defined
needs. At the same time, HUD expects that these resources will be targeted and prioritized to
serve households that are most in need of this temporary assistance and more likely to achieve
stable housing, whether subsidized or unsubsidized, outside HPRP after the program concludes.

Grantees should take this opportunity to develop strategies to identify eligible program
participants, review existing models for prevention and rapid rehousing programs, and create a
plan that uses all resources available through the Recovery Act to provide a comprehensive list
of services to assist eligible program participants.

HUD’s Region 10 received more than $46.7 million or 3.13 percent of the nearly $1.5 billion
appropriated for HPRP. HUD awarded more than $24.9 million to various entities throughout
the State of Washington, of which almost 45 percent or more than $11.1 million went to the
Washington State Department of Commerce (State). The State was required by HPRP to
distribute all of its grant funds, less a small administrative fee, to local governments and private
nonprofits in Washington State.

The State awarded more than $10.8 million to 28 local governments and private nonprofits
beginning in August 2009. The subgrantees began spending the funds in September 2009, and
the total HPRP funds spent as of March 10, 2010, were almost $715,000 or about 6.5 percent of
the total grant funds awarded to the subgrantees.

The objective of our review was to determine whether the State disbursed HPRP funding in
accordance with Recovery Act requirements.




                                                  4
                                RESULTS OF AUDIT

Finding 1: The State Paid for Ineligible and Unsupported Participants
The State paid for HPRP services for ineligible participants and participants whose eligibility
was not supported. This condition occurred because the State did not require its subgrantees to
provide documentation showing that the participants were eligible. Consequently, it spent more
than $170,000 on ineligible participants and participants for whom eligibility was not supported.
These funds could have been made available to other eligible participants.



 Four Participants Were Not
 Eligible for the Program


               The State paid for HPRP services for four ineligible participants

               One participant’s income level exceeded HUD’s area median income
               requirement. This participant’s household income of $51,108 exceeded 50
               percent of the county’s area median income of $48,900 for a six-member
               household. The income calculation used did not include the income of both of the
               adults in the household. The gross income calculation for both adults indicated on
               the provider screening tool was higher than the allowable area median income.

               The other three participants did not meet the State’s or its subgrantee’s
               requirements, which were stricter than HUD’s requirements. One participant’s
               income did not meet the subgrantee’s income level policy requirement to be at or
               below 30 percent of the county’s area median income. This participant received
               $562 in monthly benefits through Temporary Assistance to Needy Families and
               $926 in monthly employment wages. Therefore, the participant’s total annual
               income of $17,859 exceeded the area median income for a three-member
               household of $14,700 or the 30 percent of the area median income limit the
               subgrantee required other households to meet. However, the participant would
               have qualified under HUD’s 50 percent of area median income level requirement.

               Two other participants did not qualify under the two risk factors identified by the
               subgrantee and required by the State. For one participant, the case worker
               selected the severe housing cost burden risk factor. However, the participant’s
               lease amount was $700 per month, and the combined household income was
               $2,089 per month. These amounts did not qualify as a severe housing cost burden
               risk factor since the lease amount was not greater than 50 percent of income for
               housing cost. Consequently, the file did not document that the participant
               qualified under both of the two State required risk factors. The other participant
                                                5
            had income of less than 50 percent of area median income, but the case file
            identified only one risk factor instead of the State required two. This participant
            would have qualified under HUD’s requirements.

            In addition, the above three participants’ case files did not include the required
            documentation for HPRP eligibility. Consequently, we included these three
            participants with the participants whose eligibility was not supported in the
            section below and in appendix C.


Subgrantee Files Did Not
Include Adequate Support for
Eligibility

            The State paid for HPRP services for 88 participants whose eligibility was not
            supported. Questioned files of all five subgrantees we visited did not include
            adequate documentation of participant eligibility. For example, 63 files reviewed
            did not include documentation of the case worker’s assessment and verification of
            the participants’ lack of other housing options, insufficient financial support,
            and/or lack of support networks.

            Examples of other deficiencies included case files that lacked documentation to
            support the calculation of assistance provided and/or included a case manager
            signature where a third party should have signed to provide verification of
            homelessness. Other case files lacked adequate documentation of income
            verification or included incomplete financial documentation. Deficiencies also
            included files that did not demonstrate that physical inspections of the rental
            property were completed before the rental/lease agreements were signed (see
            appendix C for a full listing of deficiencies).


The State Did Not Review
Eligibility Documentation

            The State did not require its subgrantees to provide documentation showing that
            the participants were eligible. It only required the subgrantees to submit an
            invoice with backup documentation including a list of participants, the type of
            HPRP services, and the dollar amount of services provided. The State’s
            substantial amendment to its consolidated action plan for 2008 stated, “On
            occasion, backup documentation for a random sampling of invoice charges will be
            reviewed to verify eligible charges to the program.” The State should have
            randomly verified participant eligibility by requiring subgrantees to submit
            eligibility documentation for selected participants for review.




                                              6
          Consequently, the State spent more than $170,000 on ineligible participants and
          participants for whom eligibility was not supported. These funds could have been
          made available to other eligible participants.

Recommendations



          We recommend that the Director of the HUD Seattle Office of Community Planning
          and Development


          1A.     Require that the State reimburse the program $3,435 from non-Federal
                  funds for the one ineligible participant who exceeded HUD’s income level
                  requirement and determine and reimburse any amounts that have been
                  spent since April 2010 for this participant.

          1B.     Require that the State either provide supporting documentation for
                  participants’ eligibility or reimburse its program accounts $166,785 for
                  participants lacking adequate documentation and determine and reimburse
                  any amounts have been spent since April 2010 for these participants.

          1C.     Require the State to develop and implement procedures to ensure that its
                  subgrantees are verifying and documenting participant eligibility in
                  accordance with the HPRP Notice.




                                           7
                                RESULTS OF AUDIT

Finding 2: The State Made a Duplicate Payment for HPRP Services
The State made a duplicate payment to one of its subgrantees for HPRP services. This error
occurred because the State did not have a mechanism to identify duplicate invoicing by its
subgrantees. Consequently, $7,034 in HPRP funding was not available to serve households in
need of assistance.


 The State Paid for Identical
 Charges in November and
 December 2009


              The State made a duplicate payment to one of its subgrantees for HPRP services.
              One subgrantee submitted invoices that included identical services for five
              participants in November and December 2009. A subgrantee submitted its
              December 2009 invoice to the State, which included the same charges that had
              been submitted on its November 2009 invoice. On December 7, 2009, the State
              received the November 2009 invoice, which included December’s adjustments.
              The State’s staff reviewed the invoice and approved it for payment on December
              15, 2009. The State reimbursed the subgrantee on December 16, 2009, for the
              entire amount on the November 2009 invoice. On January 6, 2010, the State
              received the subgrantee’s December 2009 invoice for services, which also
              included December’s adjustments, billed in November. The State reimbursed the
              subgrantee on January 11, 2010, for the full amount on the December 2009
              invoice.


 The State Did Not Adequately
 Track Amounts It Reimbursed
 to the Subgrantee

              The State did not have a mechanism to identify duplicate invoicing by the
              subgrantees.

              The State’s program manager only reviewed the invoice and backup for the type
              of charges, level of spending, and performance against monthly goals. Staff
              matched backup documentation provided with the invoices to what was recorded
              in the client database each month but did not track amounts it reimbursed to the
              subgrantee by the date on which the services were provided. Consequently, the
              State did not realize that the subgrantee had submitted an invoice that included
              costs the subgrantee had incurred and the State had paid in the previous month.


                                              8
          The program manager should have tracked the services and amounts reimbursed
          to its subgrantees monthly so that a duplicate request for the same service and
          amount would have been detected.

          As a result, $7,034 in HPRP funding was not available to serve households in
          need of assistance. When we informed the State of the issue, it immediately
          initiated action to resolve the problem.

Recommendations


          We recommend that the Director of the HUD Seattle Office of Community
          Planning and Development

          2A.     Require that the State reimburse its HPRP $7,034 from non-Federal funds,
                  and confirm that the State has done so during audit resolution.

          2B.     Require the State to develop and implement procedures to detect duplicate
                  invoicing from its subgrantee to prevent future duplicate payments.




                                            9
                         SCOPE AND METHODOLOGY

We reviewed HPRP expenditures to ensure that the State and its subgrantees disbursed HPRP
funding in accordance with Recovery Act requirements. To accomplish our objective, we
reviewed applicable laws, regulations, HUD requirements, State requirements, and subgrantee
requirements. We also interviewed HUD staff, State staff, and subgrantee staff to obtain further
knowledge of program specificity for the subgrantees we visited.

We selected 5 of the State’s 28 subgrantees for review of participant case files to ensure that only
eligible participants received eligible HPRP services. We selected the three subgrantees with the
highest dollar amount spent as of March 10, 2010, one subgrantee because it was awarded the
largest grant, and the last subgrantee based on its location to conserve travel costs.

We selected and reviewed representative samples of participant case files at each of the five
subgrantees:

       For the subgrantee with the highest dollars spent, we selected the 19 files (out of 44) that
        included costs for services that we determined to be at high risk for being improperly
        used.
       For the subgrantee with the highest grant award, we reviewed the files for all of the 14
        participants it had served as of the time of our review.
       For the subgrantee with the second highest dollars spent, we randomly selected 29 of its
        90 files.
       For the subgrantee with the third highest dollars spent, we randomly selected 21 of 73
        files with HPRP services exceeding $1,400.
       For the last subgrantee, we randomly selected 18 of its 25 completed files.

We reviewed all HPRP invoices that the selected subgrantees submitted to the State to ensure
that reimbursements were for HPRP activities. We also reviewed the quarterly performance
report for the period ending December 31, 2009, to ensure that it was accurate and submitted on
time to HUD.

Our audit period was from October 2009 through March 2010. We performed our audit on site
at the State of Washington, Department of Commerce, 128 10th Avenue SW, Olympia, WA; at
the offices of the five subgrantees selected for review in Aberdeen, Bremerton, Everett, Kent,
and Wenatchee, WA; and at the HUD OIG (Office of Inspector General) office in Seattle, WA,
from March 2010 through June 2010.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
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
              objectives:

                     Controls to ensure that subgrantees follow applicable laws and regulations
                      with respect to the eligibility of HPRP participants and activities.
                     Controls to ensure that the State pays only for services provided.

              We assessed the relevant controls identified above.

              A deficiency in internal control exists when the design or operation of a control does
              not allow management or employees, in the normal course of performing their
              assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
              impairments to effectiveness or efficiency of operations, (2) misstatements in
              financial or performance information, or (3) violations of laws and regulations on a
              timely basis.

 Significant Deficiencies


              Based on our review, we believe that the following items are significant deficiencies:

                     The State did not have adequate controls in place to ensure that its
                      subgrantees followed Federal requirements for the eligibility of HPRP
                      participants (see finding 1).
                     The State did not have controls in place to ensure that it did not make
                      duplicate payments (see finding 2).
                                                11
                                     APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                  Recommendation            Ineligible 1/   Unsupported 2/
                         number

                                1A                $3,435
                                1B                                $166,785
                                2A                 7,034


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.

2/   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.




                                             12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                         Auditee Comments




             August 17, 2010



             Ronald J. Hosking
             Regional Inspector General of Audit
             U.S. Department of Housing and Urban Development
             909 First Avenue, Suite 126
             Seattle, Washington 98104-1000

             Dear Mr. Hosking:

             Enclosed are our comments to the audit of the Washington State Department of Commerce
             Homeless Prevention and Rapid Re-Housing Program (HPRP). For the majority of findings,
             the Department of Commerce disagrees with the auditor’s findings and we have provided
             additional detail and information in the enclosed document.

             If you have any questions on the materials provided, please contact Kathy Kinard, Program
             Manager, at (360) 725-2939 or by email at Kathy.Kinard@commerce.wa.gov, or Annie
             Conant, Managing Director, at (360) 725-2919 or by email at
             Annie.Conant@commerce.wa.gov.

             Sincerely,



             Dan McConnon
             Assistant Director

             Enclosure

             cc:     Jack Peters, Director, Office of Community Planning and Development (OCPD)
                     Steven Washington, Deputy Director, Seattle Office of Public Housing, OCPD
                     Jan Marie Ferrell, Deputy Director, Department of Commerce
                     John Thomas, Internal Auditor, Department of Commerce



                                                 13
  Comment to the Regional Inspector General
          on the Audit of the federal
American Recovery and Reinvestment Act of 2009

                Homeless Prevention
           and Rapid Re-Housing Program

            Grant No. S09-DY-53-0001


                 August 17, 2010


    




        




                  14
            Finding 1: The State paid for ineligible and unsupported participants - four participants were
Comment 1   not eligible for the program

            Participant Number 1

            The Audit Report states: One participant’s household income of $51,108 exceeded 50 percent
            of the county’s area median income of $48,900 for a six-member household. The income
            calculation used did not include the income of both of the adults in the household. The gross
            income calculation for both adults indicated on the provider screening tool was higher than
            the allowable area median income.
Comment 2   Commerce’s Response: We disagree with this Audit Report Finding. The calculation
            used should not include the husband’s income because, at enrollment, the husband had
            not yet received any wages.

            After reviewing the participant case file, we note the household is 6 persons and were
            determined eligible for assistance on December 15, 2009.

                    Pay stub indicates wife’s employment wage on the date of eligibility was $816.64 
                     per month for an annual income of $9,799.68.  

                    The 2009 area median income for a six‐member household at 50 percent of the area 
                     median income for the participant’s county is $48,900. 

                    It was noted on the sub grantee’s income eligibility form that the husband was to 
                     start a job shortly after entering the program; his projected income was not counted 
                     at program entry because he had not received any wages and subsequently had no 
                     pay stubs for proof of income because had he not started working.  

            HUD Guidance states that grantees must use current gross income:

                             Gross Income is the amount of income earned before any deductions (such
                              as taxes and health insurance premiums) are made.

                             Current Income is the income that the household is currently receiving at 
                              the time of application for HPRP assistance. 

                             The definition of income for the HPRP program reflects an applicant 
                              household’s income at the time of application (see definition of “Current 
                              Income” above). Accordingly, documents and information collected to 
                              verify income should be recent. 

            Participant Number 2

            The Audit Report states: One participant’s income did not meet the sub grantee’s income level
            policy requirement to be at or below 30 percent of the county’s area median income. This
            participant received $562 in monthly benefits through Temporary Assistance to Needy
            Families and $926 in monthly employment wages. Therefore, the participant’s total annual
            income of
                                                                                Commerce Comments to HUD IG
                                                                                Audit Report for HPRP
                                                                                August 17, 2010
                                                                                Page 1




                                            15
            $17,859 exceeded the area median income for a three-member household of $14,700 or the 30
            percent of the area median income limit the subgrantee required other households to meet.

Comment 3   Commerce’s Response: We disagree with this Audit Report Finding. We disagree the
            household income was $926 in monthly employment wages.

            After reviewing the participant file, we note the household is 3 persons and were determined
            eligible for assistance on February 3, 2010. At the time of program entry the participant was a
            homeless single parent with two children living in an emergency shelter.

                 The participant’s monthly benefit through Temporary Assistance to Needy Families is 
                  $562. Annualized income from TANF is $6,744 (562*12=6744). 
                   
            HUD Guidance states that grantees must annualize wages and periodic payments:

            When calculating income based on hourly, weekly or monthly payment information, add the
            gross amount earned in each payment period that is documented and divide by the number
            of payment periods. This provides an average wage per payment period. Depending on pay
            periods used by the employer or the schedule of periodic payments, the following
            calculations convert the average wage into annual income: Semi-Monthly Wage (twice a
            month) multiplied by 24 semi-monthly periods

                    Pay stubs indicate the participant’s employment wage for the following two work 
                     week periods as $196.65 for the period 11/22/09‐12/05/09 and $474.35 for the 
                     period 12/06/09‐12/19/09. Annualized income from employment is $8,052 (196.65 
                     + 474.35= 671/2 = 335.50*24 = 8,052) 

                    The annualized TANF benefit ($6744) and the employment wage ($8052) indicate 
                     the total annual income for the participant is $14,796.00.  


                    The 2009 area median income for a three‐member household at 30 percent of the 
                     area median income for the participant’s county is $14,700. Participant’s income is 
                     over by $96.00. 

            The sub grantee stated they were using the 2009 area median income chart at the time they
            assisted the applicant household and because they would be able to move the mother and her
            two children from a homeless shelter into a house, the supervisor made an exception to their
            policy of only serving households at 30 percent of the area median income (the applicant
            household was $96 over income) and approved rent payment. The sub grantee stated they
            inadvertently did not make a note about approving the exception to their policy in the
            participant case file.

Comment 4   While, at first glance it might appear the household did not meet the sub grantee’s more
            stringent policy, this household was enrolled in February 2010 and subsequent 2010 income
            limits indicate the participant household was below 30% area median income. The 2010 area
            median income for a three-member household at 30 percent of the area median income for the
            participant’s county is $14,950. Participant was eligible.

                                                                           Commerce Comments to HUD IG
                                                                           Audit Report for HPRP
                                                                           August 17, 2010
                                                                           Page 2



                                            16
            NOTE: While the sub grantee set a policy that they would only serve participants whose
            income was 30 percent or below area median income, the participant was also income eligible
            according to HUD’s HPRP Income Eligibility requirement. In other words, if this participant
            was being served in another county she would have met the 50 percent or below area median
            income requirement.

            Participant Number 3

            The Audit Report States: For one participant household, the case worker selected the “severe
            housing cost burden” risk factor. However, the participant’s lease amount was $700 per
            month and the combined household income was $2,089 per month. These amounts did not
            qualify as a “severe housing cost burden”… Consequently the file did not document that the
            participant qualified under both of the two risk factors.

Comment 5   Commerce’s Response: We disagree with this Audit Report Finding. Commerce only
            requires risk factors to be noted in case files, no further documentation is required. We
            also disagree that the household income was $2,089 per month.

            The Commerce HPRP Guidelines state the following:

                    Case notes about these risks combined with verification and documentation of the 
                     two required circumstances [1. no subsequent housing options, 2. no support 
                     networks and no financial resources] above should indicate that their loss of 
                     housing is imminent without assistance.  

Comment 6   After reviewing the participant file, we note the household is 2 persons who were determined
            eligible for assistance on November 30, 2009. At the time of program entry, the participant
            was an unemployed single parent facing eviction.

            Commerce believes the case manager clearly identified in the case file three risk factors for the
Comment 7   participant indicating that their loss of housing was imminent without HPRP assistance. This
            more than meets Commerce’s requirements.

Comment 8           At time of program entry the participant was unemployed and receiving a weekly 
                     unemployment check in the amount of $366. The Employment Security Department 
                     unemployment record showed that the client’s balance remaining was $732.00. 
                     Because  
                     the client’s benefits were going to end in two weeks, “extremely low income” and 
                     “sudden significant loss of income” are two eligible risk factors.  
                      
Comment 9           The client received a “three day pay or vacate notice” dated November 30, 2009. 
                     The “eviction notice” was an additional Risk Factor. 

            NOTE: If the Auditor’s income calculation was correct “the combined household income
            was $2,089 per month,” this participant would not have been income eligible for the
            program.



                                                                            Commerce Comments to HUD IG
                                                                            Audit Report for HPRP
                                                                            August 17, 2010
                                                                            Page 3



                                            17
Comment 5, 8           The total annual income for the participant is $ 17,568. The 2009 area median 
                        income for a two‐member household at 50 percent of the area median income for 
                        the participant’s county is $22,800. This household is clearly income eligible. 

               Participant Number 4

               The Audit Report States: The other participant had income of less than 50 percent of area
               median income, but the case file identified only one risk factor instead of the required two.

               Commerce’s Response: We disagree with this Audit Report Finding.

               After reviewing the participant file, we note the household is 3 persons who were determined
Comment 10     eligible for assistance on November 4, 2009.

               The sub grantee’s case notes indicate the following two risk factors for the participant
               household:

                       Risk Factor: “recent health crisis that prevented household from meeting its financial 
Comment 11
                        responsibilities” – case notes indicate that the participant was injured and had 
                        surgery in October. Because he could not work the household lost income which 
                        resulted in a late payment for rent. 
                         
Comment 12             Risk Factor: “sudden and significant loss of income” – income verification 
                        documentation and notes indicate that the employment wage for the injured 
                        program participant on pay dates 9/4 and 9/18 was $2460.51. The only income for 
                        October is Time Loss compensation of $560.70.  

               Finding 1 Recommendation:

               1. A. Auditor’s Recommendation: Require that the State reimburse the program $9,401 from
               non-federal funds for the four ineligible participants and determine and reimburse any
               amounts that have been spent since April 2010 for these participants.

               Commerce’s Response: We disagree with this Audit Report Recommendation. We asked
Comment 13     the Auditor for the client names for the four case files determined ineligible and
               requested photo copies of those files from the sub grantees. After reviewing the four case
               files, Commerce does not agree that the four participants were ineligible.

               1. B. Auditor’s Recommendation: Require that the State either provide supporting
               documentation for participant’s eligibility or reimburse its program accounts $171,071 for
               participants lacking adequate documentation and reimburse any amounts [that] have been
               spent since April 2010 for these participants.

               Commerce’s Response: We will work with the sub grantees the Auditor identified and
               will request any and all documentation that impact client eligibility. If the sub grantees
               cannot



                                                                               Commerce Comments to HUD IG
                                                                               Audit Report for HPRP
                                                                               August 17, 2010
                                                                               Page 4



                                               18
             produce the documentation required, Commerce will require reimbursement for grant
             amounts expended on ineligible participants.

Comment 14   However, we have significant concerns over the Auditor’s interpretation of the 1) Commerce
             Risk Factor requirement, and 2) HPRP assessment/verification of no housing option and no
             support networks.

             1.   Commerce Risk Factor requirement 
                      

                  Background: HUD recommended grantees consider several risk factors in order to ensure
                  the applicants to the program would be homeless but for the HPRP assistance. While
                  HUD did not require grantees to use their recommended risk factors, Commerce required
                  that HPRP case files include notes about two risks that further supported the sub grantee’s
                  decision to assist the participant with HPRP funds.

                      The Commerce HPRP Guidelines state the following:

                           o   Case notes about these risks combined with verification and 
                               documentation of the two required circumstances [1. no subsequent 
                               housing options, 2. no support networks and no financial resources] above 
                               should indicate that their loss of housing is imminent without assistance.  
                        
                       The Auditor states in Appendix C Table of Deficiencies of Finding 1 ”lack of evidence” 
                       or “documentation” for risk factors for 13 files.  
                        
Comment 15        Commerce’s response: The Commerce Guidelines do not require “evidence” or 
                  “documentation” of risk factors; case managers are required to “note” two risk factors 
                  in the participant case files. We are concerned that the Auditor misunderstood the 
                  Commerce HPRP Guidelines and developed an inaccurate conclusion and subsequent 
                  Finding.  


             2.   HPRP assessment/verification of no housing option and no support networks.  This is a 
                  HUD HPRP eligibility requirement that can be open to different interpretations.  We 
                  disagree with the Auditor’s interpretation and look to HUD for further guidance so we 
                  can better direct our sub grantees on the requirements. 

                  The initial HUD Notice for HPRP provided the following Guidance in March 2009:

                     HUD allows grantees significant discretion in program design and operation while
                      targeting those who are most in need of temporary homelessness prevention and
                      rapid re-housing assistance. When establishing local programs, grantees should
                      consider how their programs will identify eligible program participants.
                       

             The household must be either homeless or at risk of losing its housing and meet both of the
             following circumstances: (1) no appropriate subsequent housing options have been


                                                                             Commerce Comments to HUD IG
                                                                             Audit Report for HPRP
                                                                             August 17, 2010
                                                                             Page 5




                                              19
                     identified; AND (2) the household lacks the financial resources and support networks 
                      needed to obtain immediate housing or remain in its existing housing.  

                 A year later in March 2010 HUD provided updated Guidance with more clarification and
                 examples. Note HUD recognizes the initial assessment remains subjective.

                     In addition to assessing and documenting income and the current housing situation 
                      of applicant households, grantees and subgrantees must also assess whether the 
                      household would be homeless but for HPRP assistance. This is a critical piece of 
                      determining eligibility for HPRP and can be the most subjective.  

                     This includes looking at other housing options (i.e., could they stay with a family 
                      member until they are able to move into a new unit or get their first paycheck?), 
                      support networks, and other financial resources to obtain immediate housing or 
                      remain in current housing. 

             Commerce’s concern lies in the extent at which assessing “housing options” and “support
             networks” must be documented/verified and what that would look like in a participant case
             file.

                 A. For example, if a family is living in a homeless shelter and a case manager is able to 
Comment 16          find them an affordable unit, is the case manager required to then identify and 
                    interview the household’s other family members, friends/support networks and 
                    then document and verify they could not support the homeless household before 
                    the sub grantee could assist?  
                     
                 B. For example, if a family has an eviction notice and can stay in their unit with rental 
                    assistance, is the case manager required to identify and interview the household’s 
                    other family members, friends/support networks ability to either let the household 
                    move in with them or verify they could not support the homeless household by 
                    paying their rent before assisting them? (And why would you ever move a 
                    household from their home to double up with another family when that in itself is a 
                    HUD risk factor for homelessness?) 

             1. C. Require the State to obtain eligibility documents from its sub grantees for randomly
             selected participants and review those documents to verify the eligibility of participants.

             Commerce’s Response: We are already exercising due diligence in randomly reviewing
Comment 17   documents to verify participant eligibility.

             The State has randomly selected participant case files and reviewed eligibility documents on
             technical assistance (TA) visits to sub grantees. These visits occurred after the grant started in
             September 2009 and continued for several months until official monitoring site visits began.
             (Many sub grantees did not begin actively serving clients until late fall and early winter.) At
             each TA visit, random files were reviewed to verify the eligibility of participants. Currently we
             review participant files during on-site monitoring. Whenever there is missing or incomplete
             documentation, Commerce requires that sub grantees either produce the evidence or pay back
             the financial assistance made on behalf of the client.
                                                                             Commerce Comments to HUD IG
                                                                             Audit Report for HPRP
                                                                             August 17, 2010
                                                                             Page 6




                                             20
             In addition to verifying participant eligibility during site visits, Commerce employs several
             additional methods to ensure grant compliance.

                     Daily we review sub grantee participant data in HMIS to ensure that all of the 
                      required household data elements are captured and HPRP specific services are 
Comment 18
                      recorded before approving reimbursement for expenses. Sub grantees are required 
                      to send us a report from their bookkeeper that lists the participants served that 
                      month with Financial Assistance. Commerce reviews that list with what the sub 
                      grantee case manager has recorded in HMIS to ensure information has been 
                      recorded correctly and matches the reimbursement request. Commerce does not 
                      pay invoices until all client data in HMIS is accurate. 

                     Weekly  and monthly, Commerce reviews grantee projections of dollars spent and 
                      households served against actual dollars spent (from invoice requests) and 
Comment 19            households served (from HMIS). Projections were established to ensure grantees 
                      were on track to spend 60% of their allotted dollars within the first two years of the 
                      grant, per the HPRP grant requirement. Actual dollars spent and households served 
                      are monitored closely and any deviation greater than 10% of projections is followed 
                      up by Commerce staff with appropriate remedial action. Remedial actions thus far 
                      have included increased HMIS training, increased HPRP technical assistance, bi‐
                      weekly written documentation dissemination, and budget reductions. 

             Finding 2: the State made duplicate payment for HPRP services

             The Audit Report States: The State made a duplicate payment to one of its subgrantees for
             HPRP services.

             Commerce’s Response: We agree with this finding. The day the Auditor notified us of the
             potential overpayment we suspended the sub grantee’s grant activities and began
             investigating immediately. After reviewing back up documentation, the sub grantee
             verified the duplicate payment for December 2009. Commerce verified that duplicate
             payments were not made to landlords, but instead five Prevention Financial Assistance
             charges for rent were replicated on a revised invoice. We reduced the sub grantee’s next
             invoice by the $7,034 overpayment.

             Finding 2 Recommendations:

             2. A. Require the State reimburse its HPRP [grant] $7,034 from non-federal funds.

             Commerce’s Response: We required the sub grantee to reduce their next
Comment 20   reimbursement request to us by the December 2009 overpayment of $7,034. The
             overpayment has already been reconciled.




                                                                             Commerce Comments to HUD IG
                                                                             Audit Report for HPRP
                                                                             August 17, 2010
                                                                             Page 7



                                             21
             2. B. Require the State to develop and implement procedures to detect duplicate invoicing from
             its sub grantees to prevent future duplicate payments.

Comment 21   Commerce’s Response: When we initially received the grant, we developed several
             HPRP specific internal controls to review sub grantee invoices, detailed expenditure
             information and HMIS client data to ensure sub grantees were charging eligible costs
             and activities to the grant.

             Invoice and detailed expenditure review:

                 1.   Sub grantee invoices must also include an accounting ledger, spreadsheet or some 
                      other documentation from the bookkeeper which identifies the HPRP participant’s 
                      name, the amount of financial assistance made on their behalf, and who it was paid 
                      to (landlord, utility company etc).  
                       

             HMIS Review:

                 1.   The information from the bookkeeper is then reviewed against what the sub grantee 
                      case managers have entered into HMIS to cross check that financial assistance 
                      payment information has been recorded accurately.  

             Payment on the sub grantee reimbursement requests are not made until the invoice,
             expenditure detail and HMIS review are reconciled. Early on in the grant program we rarely if
             ever paid an invoice the first time it was received. Even almost a year into the grant, only
             about half of the sub grantee monthly invoices have this information complete and we
             continue to withhold payments until the information is reconciled.

             Each month Commerce staff have scheduled site visits with one or two sub grantees. All
             twenty eight sub grantees will receive at least one on site visit during the grant period.
             At each site visit, fiscal source documentation to substantiate charges is reviewed. We
             continue to look at ways to improve our systems with the resources we have available to
             ensure we are in compliance with HUD’s grant terms and conditions.




                                                                           Commerce Comments to HUD IG
                                                                           Audit Report for HPRP
                                                                           August 17, 2010
                                                                           Page 8



                                            22
                         OIG Evaluation of Auditee Comments

            We made minor changes to the Report to reflect the Office of Community
            Planning and Development’s comments.

Comment 1   The finding was reworded to reflect that one participant did not meet HUD’s
            requirement and three participants did not meet the State’s or its subgrantee’s
            stricter requirements.

Comment 2   The screening tool in-take form for the HPRP program indicated the husband was
            hired as of the intake date for a full-time position (forty-hour work week,
            $3459/month). This was shown in both the Household Income and the
            Employment History sections of the intake form. If the case worker had
            completed a verification of employment, the verification would have confirmed
            the husband’s current employment and current income. If the husband was not
            earning income, the case file would have needed a self-declaration of zero income
            as all adults within the household need income verification. This was not
            included in the case file. Timing of wages and cash flows does not determine
            participant’s gross current income. In addition, the participants were not
            homeless, and they did not have an eviction notice.

Comment 3   Using the same methodology as indicated in the cited HUD guidance within
            Commerce’s comments, the gross income sum should be divided by the number
            of payment periods to find the average pay and then multiply by the number of
            periods in a year for annual income. The guidance also states that bi-weekly
            wages should be multiplied by 26 pay periods. Thus, since the pay stubs clearly
            indicated bi-weekly payments, annual income from employment wages for this
            participant of $8723 ($335.50 * 26) plus annual TANF benefits received of $6744
            ($562 * 12) put the participant’s income at $15,467. This amount was greater
            than the subgrantee’s policy for a participant’s income to be less than 30 percent
            of the area median income for a three-person household in both 2009 and 2010
            ($14,700 and $14,950 respectively).

Comment 4   The area median income limit for 2010 was not an appropriate measure of income
            eligibility for the participant because the participant was admitted into the
            program in February 2010,but the FY2010 income levels were not effective until
            May 14, 2010. Thus, the participant was not eligible.

Comment 5   It appears Commerce misunderstood the finding. The finding was that the
            participants did not meet the “severe housing cost burden” with income at $2,089,
            not that the subgrantee did not document the risk factor. According to
            Commerce’s Program Guidelines, to qualify under the severe housing cost burden
            risk factor, housing costs had to have been greater than 50 percent of income.
            Consequently, housing costs would have needed to be $1,045 or more per month.

                                             23
              The participant did not qualify because the participant’s housing cost was only
              $700. Thus the participant did not meet the “severe housing cost burden” risk
              factor.

              In addition, Commerce disagreed with the Auditor’s income calculation.
              However, it appears Commerce reviewed a different case file (see comment 8).

Comment 6     It appears that Commerce reviewed a different case file. The file documentation
              did not support Commerce’s assertion that at the time of program entry the
              participant was an unemployed single parent facing eviction. The case file
              revealed a three-person household consisting of two adults with previous and
              current employment, and a child.

Comment 7     It appears that Commerce reviewed a different case file. The documentation did
              not support Commerce’s assertion. The case file revealed that the participant met
              only one risk factor for recent traumatic life event.

Comment 8     It appears that Commerce reviewed a different case file. The documentation did
              not support Commerce’s assertion. The case file revealed the participant was
              employed. There were six paystubs of the co-participant with a weekly average
              of $201.84 (52 weeks * $201.84 = $10,495.68 annual income) and bi-weekly
              time-loss benefits of $560.70 (26 pay periods * 560.70 = $14578.20 annual
              income). Therefore, total household annual income is $25,073.88 and total
              monthly income is $2,089 ($25,073.88/12 months = $2,089.49).

Comment 9     It appears that Commerce reviewed a different case file. The documentation did
              not support Commerce’s assertion. The case file did not include an eviction
              notice.

Comment 10 It appears that Commerce reviewed a different case file. The documentation in
           the case file did not support Commerce’s assertions. The intake application and
           case notes revealed a two-person household, the participant and a child. This was
           also substantiated in Commerce’s homeless management information systems
           database.

Comment 11 It appears that Commerce reviewed a different case file. Case notes did not
           indicate that the participant was injured and had surgery. Case notes revealed that
           the participant was receiving unemployment benefits since November 30, 2008,
           due to lack of work. Thus, the risk factor that Commerce identified as a “recent
           health crisis that prevented household from meeting its financial responsibilities”
           was not applicable to this case file.

Comment 12 It appears that Commerce reviewed a different case file. Case notes did not
           indicate that the participant experienced a sudden and significant loss of income.
           The unemployment benefit records revealed that the participant consistently
           received an average weekly benefit of $347 from November 2008 to November

                                              24
              2009. Thus the risk factor that Commerce identified as a “sudden and significant
              loss of income” was not applicable to the case file reviewed.

Comment 13 The case files reviewed during the audit did not support Commerce’s assertions.
           Although OIG provided client names for the four case files determined ineligible,
           for Participants 3 and 4, Commerce did not review the proper case files. We
           maintain the participants were ineligible.

Comment 14 OIG followed Commerce’s risk factor requirements and HPRP’s requirement for
           assessment and verification of no housing options and no support networks as
           established by HUD’s Housing Status: Eligibility Determination and
           Documentation Requirements. HUD’s requirements clearly defined the required
           documentation and process for housing options and resources, financial resources,
           and support networks. The requirement explicitly stated that grantees/subgrantees
           must verify and document the assessment that no other appropriate subsequent
           housing options were available, and the lack of financial resources and support
           networks of the participant.

Comment 15 Commerce’s response stated, “Commerce required that HPRP case files include
           notes about two risks that further supported the subgrantee’s decision to assist the
           participant with HPRP funds.” Case files reviewed revealed that risk factors were
           not substantiated or consistent to support the subgrantee’s decision to assist the
           participant with HPRP funds as required by Commerce. When the audit stated
           that there was a “lack of evidence” or “documentation” of the risk factors, there
           was either no mention in the file of the required risk factor(s) or other information
           clearly showed the participant did not qualify under the selected risk factor.

Comment 16 HUD’s Housing Status: Eligibility Determination and Documentation
           Requirements states that the case manager must verify and include an assessment
           summary or other statement in the case file indicating that the applicant has no
           other appropriate housing options, lack of financial resources, and support
           networks. For example, in one case we reviewed, the participant indicated that
           s/he had strong family ties and support network on the intake application. The
           case manager should then have verified and assessed why the participant was not
           relying on his/her family for support. The case manager would then need to
           document the reason and follow up accordingly. We visited one subgrantee
           where a case manager called the parents to confirm that they were no longer going
           to support their adult child.

Comment 17 Commerce’s HPRP program manager told us that Commerce was reviewing case
           files on a random basis to verify eligible expenditures and not participant
           eligibility. Commerce did not plan to conduct its on-site monitoring until Fall
           2010, at which time Commerce would then review case files for participant
           program eligibility. It wasn’t until the exit conference that Commerce’s HAU
           managing director and its internal auditor told us that it is beginning to look at
           participant eligibility as well as at the eligibility of expenditures.

                                              25
Comment 18 OIG appreciates Commerce’s effort to review HMIS data daily as it may meet
           Commerce’s other objectives. However, these actions are ineffective in assessing
           participants’ eligibility. A reviewer would not be able to determine whether a
           case manager had properly verified and documented the eligibility of an HPRP
           applicant prior to providing HPRP assistance in HMIS. In addition, a reviewer
           would not be able to confirm that the required documentation is properly
           maintained in each participant’s case file.

Comment 19 Again, OIG appreciates Commerce’s effort in adopting these actions as they may
           meet Commerce’s other objectives; however, projection reviews do not allow
           Commerce to determine whether a subgrantee is providing HPRP assistance to
           eligible participants.

Comment 20 HUD’s Office of Community Planning and Development will need to verify,
           during audit resolution, that Commerce’s HPRP was reimbursed for the
           overpayment and that the funds were not Federal funds.

Comment 21 The procedures identified in Commerce’s comments were in place during the
           audit. There are weaknesses in the current procedures since they did not prevent
           or detect the duplicate invoice. Therefore, Commerce must further evaluate its
           current practice, and develop and implement procedures that will prevent or detect
           duplicate invoicing.




                                             26
Appendix C
         TABLE OF DEFICIENCIES FOR FINDING 1

                                                                         Number of case files per     Total 
                                                                          subgrantee that did not      # of 
                            Deficiencies                                comply with requirements:     case 
                                                                        A      B     C    D     E     files 

1. Lack of assessment/verification of no other housing                  14     4     8    16    9      51 
2. Lack of assessment/verification of insufficient financial support    14     4          3            21 
3. Lack of assessment/verification of no support network                14     4     4    16    10     48 
4. Lack of documentation of homelessness                                                  1     2       3 
5. Lack of documentation of income verification                                      5    4             9 
6. Lack of coapplicant's verification/assessment of needs                      1                        1 
7. Lack of eviction notice                                                     2     2                  4 
8. Lack of eviction notice before HPRP assistance                                    2                  2 
9. Improper issuance of motel/hotel voucher                                    2                2       4 
10. Risk factors not substantiated or inconsistent                             3     8                 11 
11. Lack of documentation of high medical bills                                      1                  1 
      Lack of documentation to show that family/friends were 
12.                                                                            2     3                  5 
      providing shelter                                                                           
13. Lack of verification of employment loss                                    1                        1 
14. Lack of jail release form                                                  1                        1 
15. Staff certification not dated or signed & dated by supervisor              3     1                  4 
16. Staff certification signed after receipt of HPRP benefits                             3             3 
17. Backdated staff certification                                              2                        2 
      Case manager signed participant’s verification of homelessness 
18.                                                                            3                        3 
      form in place of third party                                                                
19. Self‐declaration not signed by participant                                       2                  2 
20. Lack of lease agreement or complete lease agreement                        1     1          1       3 
21. Lack of documentation of assistance calculation                            7                        7 
22. Required documents signed after certification                                    2                  2 
23. Incomplete financial documentation                                               3                  3 
24. Inspections not completed before lease agreements                                     2     1       3 
      Income verification not completed before certification &  
25.                                                                                       1             1 
      assistance began                                                                            
26. Lack of housing inspection documentation                                              1             1 


                                                      27