oversight

Mecklenburg County, NC, Mismanaged Its Shelter Plus Care Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-01-21.

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

                                                                   Issue Date
                                                                         January 21, 2011
                                                                   Audit Report Number
                                                                         2011-AT-1004




TO:        Gary Dimmick, Director, Office of Community Planning and Development,
            Greensboro, NC, 4FD

           //signed//
FROM:      James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT: Mecklenburg County, NC, Mismanaged Its Shelter Plus Care Program

                                    HIGHLIGHTS

 What We Audited and Why

             At the request of the U.S. Department of Housing and Urban Development’s
             (HUD) Greensboro, NC, Director of Community Planning and Development, we
             reviewed Mecklenburg County’s (County) administration of its Shelter Plus Care
             program (program). The Greensboro Office of Community Planning and
             Development staff performed onsite monitoring during August 2010 and found
             many indications of deficiencies in the County’s administration of the program.

             Our objectives were to determine whether the County paid for only eligible
             program administrative expenses; housed its participants in decent, safe, and
             sanitary units; and properly documented its program participant files.

 What We Found


             The County mismanaged its program. It paid program administration expenses
             without adequate supporting documentation; housed participants in units that
             were not decent, safe, and sanitary; and failed to ensure that participant files were
             properly documented in compliance with HUD’s requirements. These
             deficiencies occurred because the County failed to develop and implement a
             system of internal controls, including controls needed to ensure that the contractor
             hired to administer the program complied with HUD’s requirements. As a result,
             the County spent $441,100 for unsupported program costs, $11,047 for ineligible
           costs, and $14,028 in housing assistance payments for units that were in material
           noncompliance with housing quality standards.

What We Recommend


           We recommend that the Director of the Greensboro Office of Community
           Planning and Development require the County to develop and implement an
           adequate system of internal controls to ensure that it complies with all program
           requirements. These controls must be designed to ensure that

                     Only eligible and adequately supported administrative expenses are paid
                     with program funds,
                     Housing units comply with HUD’s housing quality standards, and
                     Participant files are documented to show compliance with HUD’s program
                     requirements.

           The County must repay $25,075 in ineligible expenses from non-Federal funds. It
           must also provide documentation showing that $441,100 in unsupported expenses
           was eligible or repay that amount from non-Federal funds.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We discussed the findings with County and HUD officials during the audit. We
           provided the draft report to the County on December 22, 2010, and discussed the
           findings with County officials at an exit conference on January 5, 2011. The
           County provided its written comments on January 13, 2011. County officials
           expressed general agreement with the findings and recommendations but had
           several comments regarding the wording of the report.

           The complete text of the County’s response, along with our evaluation of that
           response, can be found in appendix B of this report.




                                             2
                          TABLE OF CONTENTS

Background and Objectives                            4

Results of Audit
      Finding 1: The County Mismanaged Its Program   5

Scope and Methodology                                12

Internal Controls                                    13

Appendixes
   A. Schedule of Questioned Costs                   15
   B. Auditee Comments and OIG’s Evaluation          16




                                          3
                      BACKGROUND AND OBJECTIVES

Mecklenburg County (County) was created in 1868 under the North Carolina State constitution.
The County is governed by a nine-member county commission and a county manager. The
current county manager is Harry Jones. Mecklenburg County Area Mental Health is the
County’s human service agency which manages and provides an array of mental illness,
substance abuse, and developmental disability services. It is also the County agency responsible
for the administration of the U.S. Department of Housing and Urban Development’s (HUD)
Shelter Plus Care program (program). The County’s program records are located at the Samuel
Billings Center, 429 Billingsly Road, Charlotte, NC.

The County contracted with Mecklenburg Open Door, a subrecipient, from October 2005
through August 2010 to administer its 15 program grants. The subrecipient was to

                   Pay participant rents, utilities, and security deposits;
                   Perform housing quality standards inspections;
                   Review and certify initial applications and annual certifications;
                   Determine rent reasonableness and annually update the fair market rents;
                   Determine participant income and rental share; and
                   Maintain documentation.

As compensation, the subrecipient received up to 4 percent of the rents for housing quality
standards inspections and up to an additional 4 percent for the other administrative costs.

Regulations at 24 CFR (Code of Federal Regulations) 582.400 require HUD to hold the County
responsible for the overall administration of the program, including the oversight of
subrecipients. Thus, the County cannot contract away its responsibility for following program
requirements.

The County received HUD funds to administer 199 housing units under the program. It used the
funds to provide rental assistance to eligible families. During fiscal years 2008 through 2010,
HUD provided the County with about $4 million in program funding.

HUD’s Greensboro, NC, Office of Community Planning and Development is responsible for
overseeing the County’s program. A monitoring report issued by HUD on December 3, 2010,
indicated that HUD had placed the latest grant on hold until the County decided whether it
wanted to continue to administer the program.

Our objectives were to determine whether the County paid for only eligible program
administrative expenses; housed its participants in decent, safe, and sanitary units; and properly
documented its program participant files.




                                                 4
                                RESULTS OF AUDIT

Finding 1: The County Mismanaged Its Program

The County mismanaged its program. It paid program administration expenses without adequate
supporting documentation; housed participants in units that were not decent, safe, and sanitary;
and failed to ensure that participant files were properly documented to show compliance with
HUD’s requirements. These deficiencies occurred because the County failed to develop and
implement a system of internal controls for the program, including controls needed to ensure that
the contractor hired to administer the program complied with HUD’s requirements. As a result,
the County spent $441,100 for unsupported program costs, $11,047 for ineligible costs, and
$14,028 in housing assistance payments for units that were in material noncompliance with
housing quality standards.



 The County Spent Grant Funds
 for Unsupported and Ineligible
 Costs

              The County used program funds for administrative costs that were not supported by
              adequate documentation or were in excess of contract limits. Mecklenburg Open
              Door (subrecipient) submitted invoices to the County for approval, and the County
              used the invoices to obtain reimbursement for program costs. The County accepted
              the subrecipient’s invoices although they lacked adequate supporting documentation
              showing that they were for eligible grant activities. It also failed to enforce contract
              terms limiting the amount of reimbursable administrative costs. As a result, the
              County used $441,100 in HUD funds for unsupported program costs and another
              $11,047 for excessive administrative costs.

              The County Used Grant Funds for Unsupported Costs
              The County spent program funds for administrative costs based on unsupported
              subrecipient invoices. Federal policies in Office of Management and Budget
              (OMB) Circular A-87 require that costs for administering Federal grants be
              necessary, reasonable, and adequately documented. The initial contract required
              the subrecipient to complete and submit detailed documentation for payroll and
              other administrative costs such as postage, mileage, and phone charges.
              We reviewed all 60 monthly invoices, valued at about $6 million, dated from
              October 2005 through September 2010. The County improperly paid program
              administrative costs totaling $418,127 for 59 invoices. The invoices either had no
              support or lacked adequate support to determine eligibility for administrative
              costs. The County drew down an additional $22,973 in program funds for which
              it had no invoice. For the lone September 2010 invoice, the County claimed no
              administrative costs.


                                                 5
          The County paid unsupported program costs because it had failed to develop and
          implement a system of internal controls to ensure that it only reimbursed
          adequately supported and eligible program costs. County staff members stated
          that they processed the subrecipient’s invoices without adequate supporting
          documentation because the County had no procedures defining what was
          acceptable. A staff member who processed the invoices stated that he was not
          aware that the contracts required the subrecipient to support its administrative
          costs.

          The County Spent Grant Funds for Ineligible Costs
          The County spent program funds for administrative costs that exceeded its
          subrecipient contract limits. Federal requirements at 24 CFR 582.105 limited
          administrative costs to a maximum 8 percent of the grant funds. The subrecipient
          contracts specified that the 8 percent limit would be split equally, up to 4 percent
          each, between the housing quality standards inspections and other administrative
          costs. The subrecipient charged a single 8 percent rate on all invoices instead of
          applying the two separate 4 percent rates. From January through August 2010,
          the County paid invoices that exceeded the 4 percent maximum for other
          administrative costs by $11,047.


The County’s Program Units
Did Not Meet HUD’s Housing
Quality Standards

          Summary of Inspection Results
          During September 2010 we inspected a random sample of 10 program units from
          the County’s 199 units under lease. We selected the units from among those that
          the subrecipient had inspected and passed between June and August of 2010.
          Eight of the units failed to meet HUD’s housing quality standards and all were in
          material noncompliance. As a result, tenants lived in units that were not decent,
          safe, and sanitary, and the County paid property owners $14,028 in housing
          assistance for units that did not meet standards.

          HUD regulations at 24 CFR 582.305 require that assisted units meet housing
          quality standards as prescribed under 24 CFR 982.401. Therefore, assisted
          program units must meet housing quality standards throughout the assisted
          tenancy.

          The 10 units inspected had a total of 49 housing quality standards violations, and
          the 8 failed units were in material noncompliance because they had 1 or more
          material deficiencies that existed at the time of the previous inspection. Electrical
          violations were the most frequently occurring deficiency. Seven of the eight
          failing units had one or more such deficiencies. The following table lists the most
          frequently occurring deficiencies.



                                            6
       Type of         Number of Number Percentage
     deficiency        deficiencies of units of units
 Electrical hazards         14         7        70
 Miscellaneous
 Fail items                 7            4            40
 Windows                    6            4            40
 Exterior surfaces          6            3            30
 Floors                     4            4            40


The following pictures represent fail conditions that existed
at the time of the subrecipient’s previous inspection.




Two Missing breakers on right side of panel leaves high voltage
wiring exposed




Badly damaged foundation vent allows easy entry of vermin


                        7
                   Badly deteriorated ramp creates tripping/falling hazard

           The County paid property owners $14,028 in housing assistance for the eight
           failed units. County staff members stated that they were confused about their
           monitoring responsibilities and did not perform monitoring of the subrecipient’s
           housing quality standards inspections. We provided copies of our inspection
           forms to the County so that it could ensure that the property owners corrected all
           deficiencies.

The County Failed To
Adequately Document
Participant Files


           The County failed to maintain required program documents in the participant
           files. We reviewed a sample of 22 participant files and determined that all were
           missing some type of required documentation. The missing information included
           verifications of participant eligibility and annual income, housing quality
           standards documentation, rent calculations, and rent reasonableness information.
           As a result, the County could not assure HUD that its funds were used to assist
           eligible individuals and/or eligible housing units in accordance with program
           requirements.

           Participant Eligibility
           According to Federal guidance in 24 CFR 582.5, program eligibility is limited to
           persons who are homeless, disabled, and very low income. For 20 of the 22 files
           reviewed, the County failed to document that the participant was eligible.




                                            8
Housing Quality Standards
Of 22 participant files reviewed, 16 lacked documentation showing compliance
with housing quality standards requirements. Deficiencies included the failure to

       Perform annual inspections in a timely manner,
       Adequately complete the inspection forms,
       Document all inspections in the files,
       Fail units that had legitimate fail items noted during inspection,
       Document when or whether a failed unit passed upon reinspection,
       Indicate that all of the unit’s rooms were inspected,
       Accurately indicate the presence/absence of windows,
       Properly fail bathrooms for lack of ventilation when neither a window nor
       a vent fan was present, and
       Note that identified deficiencies were emergency items requiring repair
       within 24 hours.

Annual Income Verifications/Participant Rents/Housing Assistance Payments
Guidance in 24 CFR 582.310 requires grantees to verify each participant’s income
on an annual basis and calculate the participant’s share of the rent and HUD’s
housing assistance payment to the landlord. Of the 22 files reviewed, 17 lacked
documentation showing that the County had verified the participants’ income
annually. In addition, 19 files had either an incorrect tenant rent calculation or did
not contain adequate documentation to support the amount of either the
participant rent or housing assistance payment.

Rent Reasonableness
Federal regulations at 24 CFR 582.305(b) require that HUD only provide
assistance for units for which the rent is reasonable. It is the responsibility of the
grantee to determine whether the rent charged for the unit receiving rental
assistance is reasonable in relation to rents charged for comparable unassisted
units. Of 22 files reviewed, 20 lacked documentation showing that the County
performed a rent reasonableness determination before executing the participant’s
initial lease.

County staff members stated they were confused about their monitoring
responsibilities and did not perform monitoring of participant files until February
2010 after they received HUD training. The staff members also reported that they
only contacted the subrecipient regarding documentation in participant files when
they needed to gather information for annual reports to HUD.




                                   9
The County Recently
Implemented Program Policies
and Procedures


             In June 2010, the County implemented new program controls in the form of
             program policies and procedures. However, the controls were not comprehensive
             enough to ensure that the problems cited in this report would not be repeated. In
             addition, at the end of August 2010, the County cancelled the contract with its
             subrecipient and brought program administration in house. The County was
             considering alternative entities to administer the program.

Conclusion


             The County’s failure to develop and implement an adequate system of internal
             controls resulted in payment of program costs without adequate supporting
             documentation; housing participants in units that were not decent, safe, and
             sanitary; and failing to ensure that participant files were properly documented in
             compliance with HUD’s requirements. If the County continues to administer the
             program, it must implement an appropriate system of internal controls to better
             assure HUD that program funds are used in accordance with program
             requirements.

Recommendations

             We recommend that the Director of HUD’s North Carolina Office of Community
             Planning and Development require the County to

             1A. Develop and implement a system of internal controls to better ensure that the
                 County complies with HUD’s program requirements. Specifically, the
                 controls must be designed to ensure that (1) only eligible program costs are
                 paid, (2) program units meet housing quality standards, (3) housing assistance
                 payments are made on behalf of only eligible units, (4) program participants
                 are eligible, (5) participant income is verified annually, (6) participant rents
                 and housing assistance payments are calculated correctly, and (7) rents are
                 reasonable.

             1B. Provide support for $441,100 in unsupported program costs or repay its
                 program using non-Federal funds.

             1C. Repay its program $11,047 in ineligible program administrative costs from
                 non-Federal funds.



                                              10
1D. Repay its program $14,028 from non-Federal funds for housing assistance
    payments made for units in material noncompliance with housing quality
    standards.

1E.   Reinspect the eight units failing minimum housing quality standards and
      verify that the landlords took appropriate corrective action to make the units
      decent, safe, and sanitary. If landlords failed to take appropriate action, the
      County should abate the rents or terminate the contracts.

1F.   Perform a special inspection of all program units to determine the extent of
      housing quality standards noncompliance. The County should report the
      results of these inspections to you, along with an explanation of how the
      results were used to develop its new internal control plan.




                                 11
                         SCOPE AND METHODOLOGY

Our objectives were to determine whether the County paid for only eligible program
administrative expenses; housed its participants in decent, safe, and sanitary units; and properly
documented its program participant files.

To accomplish our objectives, we reviewed

       Program regulations at 24 CFR 582 and 24 CFR 982.401, OMB Circular A-87, and HUD’s
       Greensboro Office of Community Planning and Development’s correspondence and files
       pertaining to the County’s program.

       The County’s policies and procedures manuals, list of program-assisted units, program
       participants’ files, Line of Credit Control System draw requests from October 2005 through
       August 2010, two latest audits, and organizational charts.

We also interviewed the County employees and HUD’s Greensboro staff involved with oversight of
the County’s program.

We tested the computer-processed data supplied by the County. The data tested (tenant register and
electronic spreadsheets related to program administrative costs) were not always reliable; therefore,
we placed no reliance on the information during the performance of the audit.

From a universe of 199 program units, we selected a random sample of 15 recently inspected units
for inspection (10 to inspect and 5 replacement units). We also selected a representative sample of
22 program participant files for general review. The results from these samples pertain only to the
units/files sampled and not to the universe as a whole.

We performed our onsite work from September 15 through November 5, 2010, at the Mecklenburg
County Area Mental Health office located at Samuel Billings Center, 429 Billingsly Road,
Charlotte, NC. The review generally covered the period July 1, 2008, through June 30, 2010, and
was expanded as necessary.

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
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                 12
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

       Effectiveness and efficiency of operations,
       Reliability of financial reporting, and
       Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls 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:

                      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                      Safeguarding of resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

               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.




                                                 13
Significant Deficiencies


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

                    The County did not have controls for effective program administration.

                    The County did not have internal controls in place to ensure that its program
                    units met housing quality standards.

                    The County did not have controls in place to ensure that participant files
                    were properly documented in compliance with HUD requirements.




                                              14
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                  Recommendation
                        number          Ineligible 1/     Unsupported 2/

                         1B                                      $441,100
                         1C                  $11,047
                         1D                  $14,028              _______

                        Total                $25,075             $441,100

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.




                                             15
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         16
17
Comment 1




Comment 2


Comment 3



Comment 4



Comment 5




Comment 6




Comment 7




            18
Comment 1




Comment 1




Comment 8




Comment 9




            19
20
21
22
23
24
                         OIG Evaluation of Auditee Comments


Comment 1   HUD regulations require that assisted units be decent, safe, and sanitary in order
            to qualify for assistance. The enforcement of HUD’s Housing quality standards
            through the performance of proper inspections is the mechanism for making that
            determination. Since the eight units were in material noncompliance with housing
            quality standards they could not be considered decent, safe, and sanitary. As
            requested by officials during our exit conference with the County, we added
            photographs to the report in order to illustrate the types of housing quality
            standards violations we found.

Comment 2   We corrected the cited spelling error.

Comment 3   We changed the total unsupported program cost amount in the cited sentence as
            requested. The original amount shown included only the unsupported program
            costs related specifically to administrative expenses, while the figure of $441,100
            includes all unsupported program costs. The paragraph following the questioned
            sentence makes clear that the time period for the questioned costs, October 2005
            through September 2010, was five years.

Comment 4   We changed the wording of the sentence to show that the County drew down the
            funds but had no invoice to support how the funds were used.

Comment 5   We revised the language in the cited paragraph, and our Scope and Methodology
            section, to clarify that our sample was selected from 199 program units and that
            the sample results pertained only to those units sampled, not the universe as a
            whole.

Comment 6   Although the homelessness definition and disability criteria may have changed
            during our audit period, the requirement for verification of both homelessness and
            disability did not change.

Comment 7   We commend the County’s efforts to correct its deficient program policies and
            procedures. The County's complete response detailing the steps it has taken, or
            plans to take, to improve its program is included in this report.

Comment 8   We inserted information in the cited paragraph to detail the specific computer
            processed data we reviewed and evaluated.

Comment 9   We made corrections to ensure that the table columns were properly aligned and
            that totals were consistent throughout the report.




                                             25