oversight

The Alabama Department of Economic and Community Affairs, Montgomery, AL, Used Homelessness Prevention and Rapid Re-Housing Program Funds for Ineligible and Unsupported Purposes

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-28.

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

                                                                Issue Date
                                                                    September 28, 2011
                                                                Audit Report Number
                                                                     2011-AT-1019




TO:        Charles Franklin, Director, Community Planning and Development Division,
             4CD


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

SUBJECT: The Alabama Department of Economic and Community Affairs, Montgomery,
           AL, Used Homelessness Prevention and Rapid Re-Housing Program Funds
           for Ineligible and Unsupported Purposes


                                  HIGHLIGHTS

 What We Audited and Why

            We audited the State of Alabama Homelessness Prevention and Rapid Re-
            Housing Program in Montgomery, AL. The audit was part of the U.S.
            Department of Housing and Urban Development (HUD), Office of Inspector
            General’s (OIG) annual audit plan to review grant activities funded by the
            American Recovery and Reinvestment Act of 2009. We selected the grantee
            because it received $13.3 million, which was the largest single Program grant
            awarded within Alabama under the Recovery Act. In addition, the HUD
            Birmingham Office of Community Planning and Development had not conducted
            a monitoring review of the grantee.

            The objective of our audit was to determine whether the grantee administered the
            grant in compliance with the Recovery Act and other applicable regulations to
            ensure that (1) it properly reported results on the Recovery.gov Web site, (2) it
            properly monitored its subgrantees, and (3) program participants and activity
            expenditures were eligible and their eligibility was supported.
What We Found


           The grantee adequately reported results on the Recovery.gov Web site. However,
           it did not ensure that its subgrantees’ Program participants and activity
           expenditures were eligible and their eligibility was supported. As a result, the
           grantee missed opportunities to detect and prevent errors by its subgrantees on a
           timely basis. Consequently, Program funds totaling $69,036 were paid for
           participants who were not eligible or whose eligibility was not supported.

What We Recommended


           We recommend that the Director for Community Planning and Development
           require the grantee to (1) repay the U.S. Treasury account from non-Federal funds
           the ineligible costs of $1,075 charged to its Program and (2) properly support the
           $67,961 charged to its Program or repay the U.S. Treasury account from non-
           Federal funds the amount that it cannot support.

           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 our review results with HUD officials, grantee officials, and
           subgrantee officials during the audit. We provided a copy of the draft report to
           the grantee on August 29, 2011, for its comments and discussed the report with
           grantee officials at the exit conference on September 1, 2011. The grantee
           provided written comments on September 12, 2011. It agreed with our findings.

           The complete text of the grantee’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: The Grantee Did Not Ensure That Program Participants and Activities   5
               Were Eligible and Their Eligibility Was Supported

Scope and Methodology                                                                9

Internal Controls                                                                    11

Appendixes
   A. Schedule of Questioned Costs                                                   12
   B. Auditee Comments and OIG’s Evaluation                                          13




                                            3
                      BACKGROUND AND OBJECTIVE

The State of Alabama Department of Economic and Community Affairs (grantee), located in
Montgomery, AL, is responsible for ensuring that each entity that administers all or a portion of
its Homelessness Prevention and Rapid Re-Housing Program funds to carry out Program
activities fully complies with Program requirements.

The U.S. Department of Housing and Urban Development (HUD) awarded the grantee a
Program grant of $13.3 million. HUD signed the grant agreement on August 27, 2009. The
grantee selected nine subgrantees to administer its Program. The American Recovery and
Reinvestment Act of 2009 established the Program, which is regulated by HUD and monitored
by HUD’s Office of Community Planning and Development.

The purpose of the Recovery Act is to (1) preserve and create jobs and promote economic
recovery; (2) assist those most impacted by the recession; (3) provide investments needed to
increase economic efficiency by spurring technological advances in science and health; (4) invest
in transportation, environmental protection, and other infrastructure that will provide long-term
economic benefits; and (5) stabilize State and local government budgets to minimize and avoid
reductions in essential services and counterproductive State and local tax increases. The
Program provides homelessness prevention assistance to households that would otherwise
become homeless, many due to the economic crisis, and provides 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).

Subgrantees collaborate with members of local continuums providing mainstream resources to
prevent and end homelessness by assisting households at or below 50 percent of the area median
income. Although the Community Development Block Grant program, the Emergency Shelter
Grant program, the Housing Opportunities for Persons With AIDS program, and the HOME
Investment Partnerships Program address the needs of low- to moderate-income persons within
the State, Homelessness Prevention and Rapid Re-Housing Program grant funds are to provide
short- or medium-term financial assistance to Program participants who might benefit from
similar assistance by allowing eligible participants to remain in their homes and help decrease
the incidence of homelessness in the State. The rapid rehousing component of the Program is
used to place those households that are already homeless into affordable, sustainable housing
units.

The audit objective was to determine whether the grantee administered the grant in compliance
with the Recovery Act and other applicable regulations to ensure that (1) it properly reported
results on the Recovery.gov Web site, (2) it properly monitored its subgrantees, and (3) program
participants and activity expenditures were eligible and their eligibility was supported.




                                                4
                                 RESULTS OF AUDIT

Finding: The Grantee Did Not Ensure That Program Participants and
Activities Were Eligible and Their Eligibility Was Supported
The grantee did not ensure that its subgrantees’ Program participants and activity expenditures
were eligible and their eligibility was supported. This condition occurred because the grantee
did not monitor its subgrantees on a timely basis. As a result, the grantee missed opportunities
for timely detection and prevention of errors by its subgrantees. Consequently, Program funds
totaling $69,036 were paid for participants who were not eligible or whose eligibility was not
supported.




 Participants and Activities Not
 Eligible and Eligibility Not
 Supported

               The grantee did not administer its grant in compliance with the Recovery Act and
               other applicable regulations to ensure that its subgrantees’ Program participants
               and activity expenditures were eligible and their eligibility was supported.
               Funding provided under the Recovery Act is intended in part for short-term or
               medium-term rental assistance and related activities for homelessness prevention
               and rapid rehousing of persons who have become homeless. Key minimum
               provisions of the HUD Federal Register Notice FR-5307-N-01, Requirements for
               Funding, Section IV.D.2(2) state that to receive any financial assistance or
               services funded by the Program, the household must be at or below 50 percent of
               area median income, be either homeless or at risk of losing its housing, and meet
               both of the following circumstances:

                      No appropriate subsequent housing options have been identified, and

                      The household lacks the financial resources and support networks needed
                      to obtain immediate housing or remain in its existing housing. The
                      defining question to ask is: “Would this individual or family be homeless
                      but for this assistance?”

               Regulations at 24 CFR (Code of Federal Regulations) 85.40(a) state that grantees
               are responsible for managing the day-to-day operations of grant-supported
               activities to ensure compliance with applicable Federal requirements. To
               document compliance with Program requirements, the grantee’s own Program
               policies and procedures required its subgrantees to maintain participant files.
               However, subgrantees did not maintain files containing all of the required

                                                5
     documentation to support that participants and activities met key requirements to
     receive Program assistance.

     Our review of 60 participant files determined that

             1 participant who received $1,075 was not eligible for Program assistance
             because the participant’s income exceeded the 50 percent area median
             income threshold and

             38 participants received a total of $67,961, although their files lacked
             required documentation to determine whether the participants and
             activities were eligible for Program assistance.

     All exceptions involved two of the three subgrantees reviewed. The following
     table provides specific results for each subgrantee reviewed.

                            Sample Number      Unsupported               Number Ineligible
Subgrantee    Award         size   unsupported costs                     ineligible costs
    1         $1,000,000       20      18         $28,889                     1       $1,075
    2         $1,000,000       20      20         $39,072                     0         $0
    3         $1,500,000       20       0            $0                       0         $0
  Totals      $3,500,000       60      38         $67,961                     1       $1,075

     For the 38 participants whose eligibility was unsupported, the files lacked
     documentation necessary to determine whether the participants and activities were
     eligible for Program assistance. For example, participant files lacked
     documentation to support that the subgrantees ensured the eligibility of the
     participant by evaluating assets, other housing options, duplicate assistance, and
     income. Participant files also lacked documentation to determine whether the
     activities paid for on behalf of the participants were eligible, such as inspections
     to determine the habitability of residences, lead-based paint screening and
     inspections, rent reasonableness determinations, and proper calculations of rental
     and utility assistance provided to participants.

     The grantee did not monitor its subgrantees on a timely basis. Although the
     grantee performed desk reviews and provided training and technical assistance to
     its subgrantees, it did not perform the required onsite monitoring. Federal
     Register Notice FR-5307-N-01, Post-Award Process Requirements, Section V.I
     requires grantees to follow the monitoring procedures established in its substantial
     amendment to its approved consolidated plan. The grantee’s substantial
     amendment required that it perform at least one onsite monitoring review of its
     subgrantees when each had drawn down at least 30 percent of the funds.

     However, the grantee did not monitor its nine subgrantees as required. As of
     April 1, 2011, the grantee had monitored three of its nine subgrantees. The
     number of days elapsed from the date the monitoring should have been scheduled

                                       6
for all nine subgrantees to April 1, 2011, ranged from 130 to 309 days. Also, after
each monitoring visit, the grantee was required to write a report to the subgrantee
to explain the results of the review and impose appropriate corrective measures.
The grantee had not issued any monitoring reports as of April 1, 2011.

The following table shows the individual status of the grantee’s onsite monitoring
as of April 1, 2011.

                                        Date 30
              Award        Award        percent       Date          Days
Subgrantee    date         amount       expended      monitored     elapsed
    1         9/21/2009    2,065,363      10/22/2010       3/1/2011   130
    2         9/21/2009    1,500,000      11/16/2010 Not monitored    136
    3         9/21/2009    2,000,000       8/31/2010       2/1/2011   154
    4         9/21/2009    1,000,000      10/21/2010      3/29/2011   159
    5         9/21/2009    1,000,000         9/9/2010 Not monitored   204
    6         9/21/2009    1,000,000       8/20/2010 Not monitored    224
    7         9/21/2009      497,000       6/24/2010 Not monitored    281
    8         9/21/2009    2,500,000       6/14/2010 Not monitored    291
    9         9/21/2009    1,000,000       5/27/2010 Not monitored    309

Grantee officials stated that they did not monitor subgrantees in a timely manner
because they used the 30 percent drawdown mark as a guide not meant to be
viewed in absolute terms. Moreover, they stated that they were not comfortable
monitoring the Program subgrantees at an earlier date because it took
considerable time to gain an understanding of the Program. The officials felt that
it would have been worse to monitor subgrantees without being adequately
knowledgeable. They acknowledged that they could have scheduled the
monitoring earlier; however, they doubted that the monitoring would have been
thorough.

Timely monitoring could have detected and prevented errors by subgrantees in
properly documenting and determining whether participants and activities were
eligible to receive Program assistance and their eligibility was supported. As a
result of the untimely monitoring, Program funds totaling $1,075 were paid for
participants who were not eligible, and $67,961 was paid for participants whose
eligibility was not supported.

During the audit, the grantee completed its onsite monitoring for all nine
subgrantees and issued four monitoring reports with findings and results similar to
our results. The remaining monitoring reports were not final when we completed
our site work. Also, as we communicated the preliminary results during the audit,
the grantee and its subgrantees began corrective actions. For example, the grantee
conducted training for all of its subgrantees to advise them of issues detected by
the audit and instruct them on revised procedures intended to prevent their
recurrence. While we were onsite, the subgrantees we visited began corrective
actions to improve documentation and correct omissions in participant files.

                                 7
Recommendations



          We recommend that the Director, Office of Community Planning and
          Development,

          1A. Require the grantee to repay the U.S. Treasury account from non-Federal
              funds the ineligible costs of $1,075 charged to its Program.

          1B. Require the grantee to properly support the $67,961 charged to its Program
              or repay the U.S. Treasury account from non-Federal funds the amount that
              it cannot support.

          1C. Ensure that the grantee completes its written monitoring reports for its
              subgrantees and implements all appropriate corrective actions.




                                           8
                        SCOPE AND METHODOLOGY

To accomplish our objective, we

       Researched Public Law 111-5, “The Recovery Act,” which established the Program fund;
       Office of Management and Budget memorandum M-09-21, which implemented guidance
       for reporting for the Recovery Act fund; and the McKinney-Vento Homeless Assistance
       Act (42 U.S.C. 11032), which established guidelines for identifying homeless persons.

       Researched HUD Federal Register notices, HUD handbooks, and the Code of Federal
       Regulations.

       Researched HUD’s monitoring of its Program grantee.

       Researched the grantee’s substantial amendment to the consolidated plan that established
       its Program activities and the grantee’s policies and procedures for properly
       administering its Program funds.

       Researched the grantee’s agreements with its Program subgrantees and the monitoring of
       its subgrantees.

       Interviewed officials of the Birmingham HUD offices of Community Planning and
       Development, the Alabama Department of Economic and Community Affairs, and its
       subgrantees.

       Reviewed subgrantees’ Program records and costs to include board minutes, financial
       statements, case files, bank statements, and invoice support for selected Program
       participants.

       Researched data for this grant that was reported on the Recovery.gov Web site.

       Observed subgrantees’ procedures and staffing levels pertaining to jobs reported on
       Recovery.gov.

The review generally covered the period September 1, 2009, through March 31, 2011. We
performed the review from April through August 2011 at the offices of the grantee in
Montgomery, AL; three of its subgrantees located in Phenix City, AL, Thomasville, AL, and
Huntsville, AL; and HUD’s Office of Community Planning and Development. We adjusted the
review period when necessary.

We visited three of nine subgrantees responsible for administering the grantee’s Program. The
first subgrantee was awarded $1.5 million, of which we tested $165,824. The second subgrantee
was awarded $1 million, of which we tested $39,072. The third subgrantee was awarded
$1 million, of which we tested $31,274. The total awarded to the three subgrantees was $3.5
million, or 26 percent of the $13.3 million awarded to the grantee. We selected these three

                                               9
subgrantees because they received the largest individual grants among the subgrantees that the
grantee had not monitored. We randomly selected 60 of 695 participant files for review from the
three subgrantees. We designed the sample using nonstatistical methods to include case files
from all case workers at each subgrantee to ensure our review evaluated the performance of all
case workers. Because our sampling methods were nonstatistical the results cannot be projected
to the intended population.

We did not review and assess general and application controls over the grantee’s and its
subgrantees’ information system. We conducted other tests and procedures to ensure the
integrity of computer-processed data that were relevant to the audit objectives. The tests
included but were not limited to comparison of computer-processed data to written agreements,
contracts, and other supporting documentation. We did not place reliance on the grantee’s and
its subgrantees’ information and used other supporting documentation for the activities reviewed.

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(s). 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 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
               objective:

                      Compliance with laws and regulations.
                      Reliability of reported information.

               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 Deficiency


               Based on our review, we believe that the following item is a significant deficiency:

                      The grantee did not have adequate procedures and controls in place to ensure
                      that its subgrantees’ Program participants and activity expenditures were
                      eligible and their eligibility was supported (see finding 1).


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                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                   Recommendation            Ineligible 1/    Unsupported
                          number                                       2/
                                 1A                $1,075
                                 1B               ______          $67,961

                               Total              $1,075          $67,961


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

             OFFICE OF THE GOVERNOR                                                       ALABAMA DEPARTMENT OF ECONOMIC
                                                                                               AND COMMUNITY AFFAIRS

Comment 1      ROBERT BENTLEY                                                                            JIM BYARD, JR
                   GOVERNOR                                                                                  DIRECTOR

             September 6, 2011
             Mr. James D. McKay
             Regional Inspector General for Audit
             U.S. Department of Housing and Urban Development
             Region 4, Office of Inspector General
             Office of Audit, Box 42
             Richard B. Russell Federal Building
             75 Spring Street, SW, Room 330
             Atlanta, Georgia 30303-3388

             Dear Mr. McKay:

             I appreciate the courtesy shown by your staff during their recent audit of the State of
             Alabama's Homelessness Prevention and Rapid Re-Housing Program (HPRP) funded
             by the American Recovery and Reinvestment Act. The State's HPRP is implemented
             by the Alabama Department of Economic and Community Affairs (ADECA). ADECA
             has received your draft report, dated August 29, 2011, regarding the audit. Our
             comments, including specific actions to be taken to address your recommendations,
             appear below.

             The audit revealed that assistance in the amount of $1,075 was provided to a
             participant whose income exceeded the income limit for program eligibility. ADECA
             staff members will work with the subgrantee to ascertain the ineligibility of this
             participant. In the event that the participant is found to be ineligible, ADECA staff
             members will work with the subgrantee to ensure that the $1,075 will be repaid from
             non-Federal funds.

             The audit also revealed that supporting documentation for 38 participants was either
             incomplete or absent. The lack of supporting documentation resulted in $67,961 worth
             of unsupported assistance. ADCEA staff members will collaborate with the subgrantees
             to ensure that adequate supporting documentation is complete and present in the
             participants' files. For any assistance that cannot be adequately supported, ADECA
             staff members will work with the subgrantees to ensure that all unsupported costs will
             be repaid from non-Federal funds.

                            401 ADAMS AVENUE. SUITE 580. P.O. Box 5690. MONTGOMERY, ALABAMA 36103-5690. (344) 242-5100




                                                        13
Mr. James D. McKay
Page 2


Lastly, the audit disclosed that ADECA did not monitor its subgrantees in a timely
manner. When the audit began, only three subgrantees had been monitored. To date,
monitoring visits have been made for all nine subgrantees. Also, written monitoring
reports have been prepared and mailed to eight subgrantees. The ninth monitoring
could not be completed because the subgrantee's staff was not always available
throughout the monitoring. Upon completion of the monitoring, a written report will be
mailed to the subgrantee.

In closing, I would like to thank you for the professionalism shown by your staff during
the audit. They gave genuine consideration to the questions and concerns of my staff
members and those of our subgrantees. They remained accessible and available
throughout the audit. We look forward to working with our local HUD field office to
implement the recommendations contained in your report. It remains ADECA's goal to
ensure that our subgrantees adhere to practices that are in compliance with HPRP
requirements established by HUD. Should you have any questions, please contact Mr.
Shabbir Olia at (334) 242-5468.

Sincerely,



Jim Byard, Jr.
Director

JB:SHG:sj

c: Mr. Charles Franklin, HUD CPD
   Ms. Sonya Lucas, HUD OIG
   Mr. Rob Burgess, HUD OIG




                                   14
                        OIG Evaluation of Auditee Comments

Comment 1   The Grantee’s agreement with the finding and recommendations indicates its
            willingness to make necessary improvements to its Homelessness Prevention and
            Rapid Re-Housing Program.




                                          15