Issue Date
July 8, 2011
Audit Report Number
2011-AT-1012
TO: José R. Rivera, Director, Community Planning and Development, San Juan Field
Office, 4ND
//signed//
FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA
SUBJECT: The Office of the Commissioner for Municipal Affairs, San Juan, PR, Did Not
Always Ensure Compliance With Block Grant Recovery Act Program
Requirements
HIGHLIGHTS
What We Audited and Why
We audited the Office of the Commissioner for Municipal Affairs’ (OCAM 1)
State Community Development Block Grant (Block Grant) funds that it received
under the American Recovery and Reinvestment Act of 2009 (Recovery Act). We
selected OCAM for review as part of our strategic plan, based on the amount of Block
Grant Recovery Act funds allocated. The objectives of this audit were to determine
whether OCAM (1) disbursed Block Grant Recovery Act funds in accordance with
applicable requirements and for eligible purposes and (2) reported to HUD
accurate and supported information on program accomplishments.
What We Found
OCAM did not always charge the Block Grant Recovery Act program for
supported disbursements or ensure that its funds were used in a timely manner in
accordance with HUD regulations. In addition, it did not always report accurate
and supported information on program accomplishments. HUD lacked assurance
that more than $135,000 in Block Grant Recovery Act program expenditures was
1
OCAM for its acronym in Spanish
allowable and allocable, and more than $42,000 in drawdowns remained
unexpended. In addition, OCAM reported inaccurate information to HUD when it
overstated program expenditures by at least $450,000 and lacked support for the
number of jobs created or retained. As a result, HUD lacked assurance that the
expenditures were reasonable, allocable, and used for authorized purposes in a
timely manner and that reported program accomplishments were accurate and
complete.
What We Recommend
We recommend that the Director of the San Juan Office of Community Planning
and Development require OCAM to submit documentation to adequately support
the allowability and allocability of $135,445 charged to the Block Grant Recovery
Act program associated with administrative costs. The Director should also
require OCAM to ensure that $42,829 associated with unexpended drawdowns is
used for the approved activity or reprogrammed for other eligible purposes.
The Director should also require OCAM to review all Block Grant Recovery Act
spending and job information in the Federal reporting Web site and correct any
inaccurate information. We further recommend that the Director require OCAM to
establish adequate internal controls and procedures to ensure that all Block Grant
Recovery Act expenditures are supported, disbursed in a timely manner, properly
accounted for, and reconciled with HUD’s information system and that they
comply with HUD requirements. In addition, the Director should require OCAM
to establish and implement internal control measures to ensure that accurate and
supported Block Grant Recovery Act data are reported.
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 HUD and OCAM during the audit and at the exit
conference on June 15, 2011. OCAM provided its written comments to our draft
report on June 20, 2011. In its response, OCAM generally agreed with the
findings.
The complete text of OCAM’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: OCAM Did Not Fully Comply With Block Grant Recovery Act 5
Program Requirements
Scope and Methodology 9
Internal Controls 11
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 13
B. Auditee Comments and OIG’s Evaluation 14
3
BACKGROUND AND OBJECTIVES
The American Recovery and Reinvestment Act of 2009 (Recovery Act) (Public Law 111-5)
appropriated $1 billion in Community Development Block Grant (Block Grant) funds to States
and local governments to carry out, on an expedited basis, eligible activities under the Block
Grant program. These funds were to be distributed to grantees that received Block Grant funding
in fiscal year 2008 in accordance with the provisions of 42 U.S.C. (United States Code) 5306.
The Block Grant program under Title XII of the Recovery Act is commonly referred to as the
CDBG-R program. Funding available under the Recovery Act has clear purposes—to stimulate
the economy through measures that modernize the nation’s infrastructure, improve energy
efficiency, and expand educational opportunities and access to health care.
The Office of the Commissioner for Municipal Affairs (OCAM) was created by Act number 81 of
August 30, 1991, known as the Commonwealth of Puerto Rico Autonomous Municipalities Act of
1991 as amended. This act states that one of the responsibilities of OCAM is to regulate, advise,
and give technical and professional assistance to the municipalities in the areas related to their
organization, administration, and operations. OCAM was the lead agency charged by the
governor of Puerto Rico with the responsibility of overseeing the administration of the State
allocation of Block Grant Recovery Act program funds.
OCAM is the largest recipient of Block Grant Recovery Act funds in Puerto Rico. HUD awarded
OCAM more than $12.7 million in Block Grant funds in August 14, 2009, which OCAM
distributed among the 51 nonentitlement municipalities (subrecipients) within Puerto Rico.
OCAM’s quarterly progress report for the period ending December 31, 2010, at the Recovery Act
Web site reflected the following:
Description Amount/percentage
Total award $12,753,068
Total disbursements $5,099,693
Total infrastructure expenditures $4,972,989
Percentage of total awards
disbursed 39%
OCAM’s books and records are maintained at 255 Ponce de Leon Avenue, San Juan, PR. We
audited OCAM’s Block Grant Recovery Act program as part of the HUD Office of Inspector
General’s (OIG) strategic plan. OCAM was selected for review based on the amount of Block
Grant Recovery Act funds provided.
The objectives of this audit were to determine whether OCAM (1) disbursed Block Grant
Recovery Act funds in accordance with applicable requirements and for eligible purposes and (2)
reported to HUD accurate and supported information on program accomplishments.
4
RESULTS OF AUDIT
Finding 1: OCAM Did Not Fully Comply With Block Grant Recovery
Act Program Requirements
OCAM did not always charge the Block Grant Recovery Act program for supported
disbursements or ensure that its funds were spent in a timely manner in accordance with HUD
regulations. In addition, it did not always report accurate and supported information on program
accomplishments. These conditions occurred because OCAM did not have controls and
procedures to ensure that (1) Block Grant Recovery Act expenditures were properly supported
and only used for authorized purposes, (2) funds passed through to subrecipients were used in a
timely manner, and (3) reported program accomplishments were accurate and complete. As a
result, HUD lacked assurance that more than $135,000 in Block Grant Recovery Act program
expenditures was allowable and allocable, and more than $42,000 in drawdowns remained
unexpended. In addition, OCAM reported inaccurate and unsupported information in the Federal
reporting Web site when it overstated program expenditures by at least $450,000 and reported
unsupported job information.
Unsupported and Untimely
Expenditures
Unsupported program expenditures - Office of Management and Budget (OMB)
Circular A-87, attachment A, section C, provides that to be allowable under
Federal awards, costs must be necessary and reasonable for proper and efficient
performance and administration of Federal awards and be allocable to the Federal
award. It further provides that a cost is allocable to a particular cost objective if
the goods or services involved are chargeable or assignable to such cost objective
in accordance with relative benefits received.
OCAM did not always support the allocability and eligibility of expenditures
charged to the Block Grant Recovery Act program and did not ensure that
disbursed funds were used in a timely manner. It charged to the Block Grant
Recovery Act program more than $135,000 associated with rent and security
system expenses without maintaining adequate documentation evidencing the
allocability of these charges to the program. OCAM did not implement a cost
allocation plan to distribute its administrative expenses among all HUD and other
Federal and State programs it administered. The budget director informed us that
the charge to the Block Grant Recovery Act program was based on the availability
of funds to pay for these expenditures. OCAM did not maintain documentation
evidencing the reasonableness and allocability or the basis of these charges to its
Block Grant Recovery Act program. Therefore, HUD had no assurance of the
5
reasonableness, allowability, and allocability of more than $135,000 in
administrative expenses charged to the Block Grant Recovery Act program.
Untimely disbursements of funds - Regulations at 24 CFR (Code of Federal
Regulations) 85.21 allow the payment of advances to a subrecipient, provided it
demonstrates the willingness and ability to maintain procedures to minimize the
time elapsing between the transfer of the funds and the disbursement.
Contrary to HUD’s regulations, subrecipients failed to disburse drawdowns
totaling more than $470,000 in Block Grant Recovery Act funds in a timely
manner.
Days elapsed
between
Date of Date of deposit and
Activity Drawdown drawdown subrecipient disbursement
number amount deposit disbursement dates
12841 $225,6462 May 27, 2010 Oct. 6, 2010 132
12838 $245,000 Apr. 23, 2010 May 25, 2010 32
Total $470,646
OCAM did not have procedures and controls to ensure that the Block Grant
Recovery Act program drawdowns passed through to subrecipients were disbursed
in a timely manner. As a result, HUD lacked assurance that funds were adequately
accounted for, safeguarded, and solely used for authorized purposes in accordance
with Block Grant Recovery Act requirements.
Inaccurate Expenditure and
Unsupported Job Information
Public Law 111-5 Section 1512 requires grant recipients to report spending and
performance data, including estimates of the number of jobs created or retained, to
the Federal reporting Web site. OMB Memorandum M-09-21 states that data
quality is an important responsibility of key stakeholders associated with the
Recovery Act. OCAM did not report accurate and supported information related
to its spending and job created or retained data.
Inaccurate expenditures - OCAM did not accurately report the amount of Block
Grant Recovery Act expenditures. For the reporting period ending December 31,
2010, the infrastructure expenditures were overstated by at least $450,000. For
example, OCAM used Block Grant funds to fund two subrecipient activities
totaling more than $450,000, but it incorrectly reported that Recovery Act funds
2
As of March 31, 2011, the subrecipient had disbursed only $182,817. Thus, $42,829 in Block Grant Recovery Act
funds remained unspent and OCAM must ensure the funds are put to better use for eligible activities.
6
were disbursed. In addition, it failed to report more than $51,000 paid to a
contractor for street resurfacing activities.
Unsupported job information - For the reporting period ending December 31,
2010, OCAM reported 7.14 jobs created. The 7.14 jobs created were related to
activities undertaken by five subrecipients. However, for four of five subrecipient
activities, OCAM reported the number of jobs created or retained as a result of its
Block Grant Recovery Act activities based on incomplete and inaccurate
information.
OCAM did not properly calculate the number of jobs created or retained. For a
partially funded Block Grant Recovery Act activity, it reported that 1.4 jobs
were created or retained when the correct number was .63 jobs. OCAM
incorrectly reported all of the jobs created as a result of its Recovery Act
activities without an allocation to the other sources of funds.
OCAM did not maintain adequate records to support 5.02 of the 7.14 jobs it
reported as created or retained for the period ending December 31, 2010.
As a result of the inconsistencies in the reporting of Block Grant Recovery Act
program accomplishments, the public did not have access to accurate and complete
information regarding the amount of Recovery Act funds OCAM received from
HUD that was expended for activities and the estimated number of jobs created or
retained with Block Grant Recovery Act program proceeds as required by Public
Law 111-5, Section 1512.
Conclusion
OCAM lacked procedures and controls to ensure that the Block Grant Recovery
Act expenditures were properly supported, funds were used in a timely manner,
and reported program accomplishments were accurate and complete. As a result,
HUD had no assurance that more than $178,000 Block Grant Recovery Act funds
were reasonable and allocable, and used solely for eligible purposes in a timely
manner and that reported accomplishments were accurate and complete.
Management must establish procedures and controls to ensure that it complies with
HUD and Recovery Act requirements.
Recommendations
We recommend that the Director of the San Juan Office of Community Planning
and Development
7
1A. Require OCAM to submit documentation to adequately support the
allowability and allocability of $135,445 charged to the Block Grant
Recovery Act program associated with administrative costs or reimburse
the Block Grant Recovery Act program from non-Federal funds.
1B. Require OCAM to ensure that $42,829 associated with unexpended
drawdowns is used for the approved activity or reprogrammed for other
eligible purposes.
1C. Require OCAM to review all Block Grant Recovery Act spending and job
information in the Federal reporting Web site, and correct any inaccurate
information.
1D. Require OCAM to establish adequate internal controls and procedures to
ensure that all Block Grant Recovery Act expenditures are supported and
that the Block Grant Recovery Act funds passed through to subrecipients
are disbursed in a timely manner.
1E. Require OCAM to establish and implement internal controls to ensure that
funds passed through to subrecipients are properly accounted for, are
reconciled with HUD’s information system, and comply with HUD
requirements.
1F. Require OCAM to establish and implement internal control measures that
include procedures and guidelines to appropriately collect and verify the
accuracy and completeness of the information reported quarterly, to ensure
that data reported is supported and Section 1512 reporting requirements
were met and to ensure the accuracy of its reported activities in HUD’s
information system.
8
SCOPE AND METHODOLOGY
The objectives of this audit were to determine whether OCAM disbursed Block Grant Recovery
Act funds in accordance with applicable requirements and for eligible purposes and whether
OCAM reported to HUD accurate and supported information on program accomplishments.
To accomplish our objectives, we
Reviewed the Recovery Act, applicable HUD regulations, and other OMB and HUD
program requirements;
Reviewed OCAM’s controls and procedures as they related to our objectives;
Interviewed HUD, OCAM, and subrecipient officials;
Reviewed independent public accountant report;
Reviewed OCAM’s and subrecipients’ files and records, including activity files and
accounting records;
Traced information reported in HUD’s information system to OCAM’s records, including
accounting records and executed agreements; and
Performed site inspections of activities.
HUD’s information system reflected that OCAM had 24 activities with 67 drawdowns totaling
more than $4.6 million as of December 31, 2010. We reviewed eight drawdowns that were
greater than $200,000, totaling more than $1.8 million. We selected five additional drawdowns
associated with program administration expenditures in the amount of $135,445. We reviewed
these drawdowns to determine whether OCAM withdrew Block Grant Recovery Act funds in
accordance with Recovery Act and HUD requirements and for eligible purposes.
The progress report for the period ending December 31, 2010, reflected $4.9 million in Block
Grant Recovery Act expenditures associated with work performed by 25 subrecipients. We
reviewed a sample of seven subrecipients with disbursements totaling more than $1.6 million.
The progress report also showed that 7.14 jobs were created or retained related to activities
undertaken by five subrecipients. We reviewed the reported expenditures and job information to
determine whether OCAM reported accurate and supported information on program
accomplishments.
To achieve our audit objectives, we relied in part on computer-processed data contained in
OCAM’s database and HUD’s information system. Although we did not perform a detailed
assessment of the reliability of the data, we performed a minimal level of testing and found the
data adequate for our purposes. The results of the audit apply only to the items selected and
cannot be projected to the universe or population.
9
The audit generally covered the period August 1, 2009, through December 31, 2010, and we
extended the period as needed to accomplish our objectives. We conducted our fieldwork from
January through June 2011 at OCAM’s offices in San Juan, PR.
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.
10
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:
Program operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives,
while considering cost effectiveness and efficiency.
Compliance with applicable laws and regulations – Policies and procedures
that management has implemented to reasonably ensure that resource use is
consistent with laws and regulations.
Safeguarding of assets and resources – Policies and procedures that
management has implemented to reasonably prevent or promptly detect
unauthorized acquisition, use, or disposition of assets and resources.
Validity and reliability of data – Policies and procedures that management
has implemented to reasonably ensure that valid and reliable data are
obtained, maintained, and fairly disclosed in reports.
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
11
financial or performance information, or (3) violations of laws and regulations on a
timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:
OCAM did not have controls and procedures to ensure that (1) Block Grant
Recovery Act expenditures were properly supported and used only for
authorized purposes, (2) funds passed through to subrecipients were used in
a timely manner, and (3) reported program accomplishments were accurate
and complete (see finding 1).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds to be put
number Unsupported 1/ to better use 2/
1A $135,445
1B _________ $42,829
Total $135,445 $42,829
1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or
activity when we cannot determine eligibility at the time of the audit. Unsupported costs
require a decision by HUD program officials. This decision, in addition to obtaining
supporting documentation, might involve a legal interpretation or clarification of
departmental policies and procedures.
2/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an OIG recommendation is implemented. These amounts include
reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
implementing recommended improvements, avoidance of unnecessary expenditures noted
in preaward reviews, and any other savings that are specifically identified. In this
instance, if OCAM implements recommendation 1B, funds will be available for other
eligible activities consistent with Block Grant Recovery Act program requirements.
13
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
Comment 3
14
Comment 4
15
OIG Evaluation of Auditee Comments
OCAM generally agreed with the findings. However, it did not address recommendations 1D and
1E.
Comment 1 OCAM stated that the recovery Act activities were paid with CDBG funds because
of an error, and is working with HUD to make the appropriate corrections. It also
mentioned that it has made corrections in the Federal Reporting.gov Web site to
eliminate the overstated expenditures.
Although OCAM stated that it made corrections in the Federal Reporting. gov
Web site, we found that not all the necessary corrections have been made. The
vendor transactions section still reflects the incorrect amount of expenditures.
OCAM will need to provide HUD adequate documentation to show that all
corresponding amounts and sections reflect accurate information of program
accomplishments.
Comment 2 OCAM provided additional documentation related to the street resurfacing
expenditures.
We examined the documentation and determined that $35,448 was supported. We
removed the questioned costs and recommendations associated with the street
resurfacing activities.
Comment 3 OCAM stated that it will refer the matter to its advisory, regulatory and fiscal
interventions office and provide guidance to its subrecipeints. It also provided
additional documentation showing that the subgrantee established a separate bank
account for the Recovery Act funds and disbursed the $42,829.
The supporting documentation did not provide details showing the work or
services paid. OCAM did not provide us adequate support that could substantiate
their position. Accordingly, we did not modify the report.
Comment 4 OCAM stated that it will work with HUD to obtain proper technical assistance and
develop an indirect cost plan to ensure compliance with applicable HUD
requirements.
16
The Office of the Commissioner for Municipal Affairs Did Not Always Ensure Compliance With Block Grant Recovery Act Program Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-07-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)