Issue Date
June 16, 2011
Audit Report Number
2011-FW-1012
TO: Jerry Hyden
Acting Director, Community Planning and Development Division, 6ID
Craig T. Clemmensen
Director, Departmental Enforcement Center, CACB
//signed//
FROM: Gerald R. Kirkland
Regional Inspector General for Audit, Fort Worth Region, 6AGA
SUBJECT: The City of Tulsa, OK, Mismanaged Its Recovery Act Funding
HIGHLIGHTS
What We Audited and Why
In accordance with our goal to review funds provided under the American
Recovery and Reinvestment Act of 2009 (Recovery Act) and based on the U. S.
Department of Housing and Urban Development’s (HUD) concerns about the
capacity of the City of Tulsa’s (City) subrecipient, we audited the City’s
Community Development Block Grant Recovery (CDBG-R) program. Our
objective was to determine whether the City complied with HUD’s CDBG-R
obligation, procurement, expenditure, and reporting requirements.
What We Found
The City poorly managed its Recovery Act activities by selecting a subrecipient
that did not have the capacity to complete the project within the required time
limit. Further, the City did not adequately monitor the subrecipient, did not
comply with federal requirements, and did not practice good financial controls.
This condition occurred because the City did not ensure that a subrecipient had
the capacity to complete an activity and lacked the required policies and
procedures. As a result, it committed more than $3 million in federal funds for a
project that it might not complete.
Further, the City disregarded procurement requirements, did not have policies or
procedures regarding the disposal of hazardous waste, and did not implement
sound controls over the grant. As a result, it could not comply with regulations or
ensure that its contractors followed requirements
What We Recommend
We recommend that the Acting Director, Community Planning and Development
Division, Oklahoma City, OK, require the City to select a subrecipient that has the
capacity, both financially and administratively, to complete and operate the
Shoppes on Peoria and to provide documentation by November 30, 2011. If the
City cannot obtain a subrecipient that can complete the project, it should select
another project that it can complete by September 30, 2012. Further, the City
should support or repay more than $49,000 that it spent without a contract and
improve its controls for its grants. Also, HUD should seek administrative
sanctions against the Greenwood Community Development Corporation and its
related entities to protect HUD and the City from future instances of
noncompliance.
For each recommendation without a management decision, please respond and
provide status reports in accordance with HUD Handbook 2000.06, REV-3.
Please furnish us copies of any correspondence or directives issued because of the
audit.
Auditee’s Response
We provided a draft report to the City and HUD on May 26, 2011, and requested
written comments by June 13, 2011. We held an exit conference with the City on
June 2, 2011. The City provided written comments on June 10, 2011. It
generally agreed with the report.
The complete text of the City’s response, along with our evaluation of that
response, can be found in appendix B of this report. We did not include the
attachment submitted with the response. The attachment is available for review
upon request.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding: The City Mismanaged Its Recovery Act Funding 5
Scope and Methodology 12
Internal Controls 14
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 16
B. Auditee Comments and OIG’s Evaluation 17
3
BACKGROUND AND OBJECTIVE
The City of Tulsa (City) incorporated as a municipality on January 8, 1898. The City operates
under a mayor-council form of government with the city council serving as the legislative and
governing body. For the 2010 to 2011 program year, the City received almost $7 million in
community planning and development funding from the U. S. Department of Housing and Urban
Development (HUD) to provide support for low- and moderate-income households with
community development needs. The City’s Department of Grants Administration was
responsible for administering these grants.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (Recovery Act)
was enacted. The Recovery Act appropriated $1 billion for State and local governments to
complete eligible activities under the Community Development Block Grant Recovery (CDBG-
R) program. Due to the urgency, the Recovery Act required truncated deadlines for expending
funds and established strict standards of accountability and transparency. Therefore, Recovery
Act recipients must have demonstrated the capacity to administer funding quickly and provide
timely and reliable program data.
On August 14, 2009, HUD authorized $989,720 in Recovery Act funding for the City 1 to carry
out the CDBG-R program. The Recovery Act required that the City use its CDBG-R program
funds to retain and create jobs, provide economic benefits, and promptly complete infrastructure
improvements. The City aimed to meet this requirement by completing two projects, each using
$445,374. 2
Table 1: City of Tulsa CDBG-R-funded projects
Recipient Project Authorized funds
Greenwood Community Development The Shoppes on Peoria (Shoppes) $445,374
Corporation (Corporation)
City of Tulsa – Working in Neighborhood Revitalization Project $445,374
Neighborhoods Department (WIN)
• The City planned to construct a retail building, the Shoppes, in North Tulsa and create
minority-owned businesses and 62 permanent jobs for low-income persons. 3
• The City planned to reduce the number of blighted properties in three low- to moderate-
income neighborhoods by conducting code enforcement, rehabilitation, and demolition
activities. The City would complete this project under three existing memorandums of
understanding with WIN.
The audit objective was to determine whether the City complied with HUD’s CDBG-R
obligation, procurement, expenditure, and reporting requirements.
1
For the purpose of this report, we did not differentiate between the City and its individual departments and
subrecipients that carry out the programs.
2
The remaining $98,972 in CDBG-R funds was for administrative costs.
3
The City entered into a December 28, 2009 agreement with the Corporation that ended on January 31, 2011.
4
RESULTS OF AUDIT
Finding: The City Mismanaged Its Recovery Act Funding
The City poorly managed its Recovery Act activities by selecting a subrecipient that did not have
the capacity to complete the project within the required time limit. Further, it did not adequately
monitor the subrecipient, did not comply with federal requirements, and did not practice valid
financial controls. These conditions occurred because the City did not ensure that a subrecipient
had the capacity to complete an activity and lacked the required policies and procedures. As a
result, it committed more than $3 million in federal funds for a project that it might not complete.
The Corporation Lacked the
Financial Capacity to Complete
the Project
The City selected the Corporation as its subrecipient to construct the Shoppes.
The City relied upon the Corporation to manage the construction and complete the
Shoppes within the budget and according to federal requirements. However, the
Corporation did not have the capacity to complete the Shoppes. Initially, the
Corporation planned to fully fund the Shoppes with more than $3 million in
Community Development Block Grant (CDBG) funds. It had no other source of
funding in the event that it did not receive the CDBG funds that it anticipated. 4
Table 2: Source of funds – City’s original estimate
Source Amount
CDBG entitlement funds $1,452,107
CDBG Section 108 loan guarantee 5 951,584
CDBG-R grant 445,374
CDBG land gift 270,000
Total CDBG funds 6 $3,119,065
The Corporation could not fully fund the Shoppes. Specifically, HUD would not
authorize a Section 108 loan guarantee for the project because the Corporation
could not show that it had the capacity to complete the Shoppes 7 and repay the
4
The Corporation entered into a grant agreement for the CDBG-R funds and a contract for the sale of land
purchased with CDBG funds. The City allocated the other CDBG funds for this project.
5
Section 108 is the loan guarantee provision of the CDBG program. Section 108 provides communities with a
source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical
development projects. The City guarantees the Section 108 loan by pledging its CDBG funding.
6
As of May 10, 2011, it had spent $237,358 CDBG-R funds on pre-construction services.
7
The Corporation mismanaged the construction, which had not begun as of April 8, 2011.
5
loan from the Shoppes’ income. 8 Further, it could not show that it could borrow
funds needed to complete the project. As a result, the Corporation could not hire
a bonded contractor. 9 The Corporation did not provide evidence that it could
meet HUD requirements for a Section 108 loan and finance any shortfall.
Increasing its financial problems, the Corporation did not communicate clearly its
plans and federal requirements to its architect. Specifically, the architect wrongly
believed the construction budget to be $3.1 million and designed the building
accordingly. However, the planned construction budget was $500,000 less at $2.6
million. As a result, the construction bids were higher than the budget.
Therefore, the architect had to redesign the building. This effort not only delayed
the project, but also will increase the construction cost. The Corporation should
have communicated clearly its plans and budgets to the architect to avoid such
unnecessary delays and costs.
The Corporation Did Not
Originally Plan to Complete the
Shoppes on Time
The Corporation initially did not plan to complete the Shoppes on time and did
not have the funding in place to complete it. In its agreement with HUD, the City
certified that it would select projects for which it could award contracts within
120 days from the date that HUD made the funds available to the City. Instead,
the City entered into a subrecipient agreement with the Corporation to complete
the Shoppes. HUD made funds available to the City on June 5, 2009. The City
did not enter into an agreement with the Corporation until December 28, 2009.
The Corporation needed to complete the Shoppes by September 30, 2012, to meet
its grant requirements. As of March 17, 2011, there was no contract for the
Shoppes’ development.
The Corporation did not plan to complete the Shoppes by the federal deadline.
On June 23, 2009, 10 the Corporation prepared a timeline showing that it would
not complete the Shoppes until January 2013, four months after the deadline. 11
The City may not have known that the Corporation planned to complete the
project after the deadline, as it did not have this timeline. The Corporation
changed its timeline in July 2010 but had not met any of the target dates. For
instance, according to the timeline, it should have started construction on
September 20, 2010. However, as of June 2, 2011, there was no visible evidence
that construction had started on the vacant land. As a result, it did not have a
viable plan to complete the project by September 30, 2012.
8
The Corporation estimated that the Shoppes would have a negative cash flow during the first 5 years of
operation.
9
The contractor needed evidence that the Corporation could pay for the contract.
10
Approximately 2 months before the City entered into its grant agreement with HUD.
11
The timeline did not show when the Corporation planned to get businesses set up and ready to provide jobs.
6
The Corporation Poorly
Procured Sewer Work
Due to a lack of internal control, the Corporation did not perform a cost analysis of
the Shoppes’ sewer work or have a written contract with the contractor. Originally,
it used a competitive bidding process to select the lowest bidder at $34,865. After
the bids, the engineer changed the specifications. Instead of putting the revised work
scope out to bid or solicitation, the Corporation had the contractor resubmit its
proposal. The proposal increased the cost to $49,089,12 which was paid on
January 27, 2010. The Corporation effectively sole-sourced the contract and did not
know whether it paid a reasonable amount for the contract. Further, it did not have a
written agreement with the contractor. As a result, it did not document the
contractor’s duties as required by City law13 and federal regulations.14 The City
should determine whether the work was needed and the cost was reasonable.
The Corporation Lacked
Financial Controls
The Corporation lacked financial controls that would allow it to manage its
grants. As of April 22, 2011, the Corporation had not provided financial
statements for the CDBG-R program. Federal regulations 15 require the
Corporation to keep records that clearly identify the source and application of
funds. Those records must contain data on unobligated balances, assets, revenues,
and expenses. The president of the Corporation explained that the Corporation
did not have a balance sheet and income statement because the building was not
yet in service. 16 The Corporation should have been able to present the financials
at any time. However, it was not able to present statements that showed cash on
hand, accounts receivable, accounts payable, and income. Further, the
Corporation commingled CDBG-R program funds. It deposited and expended
CDBG-R program funds from a bank account used for other activities. The
general ledger used for CDBG-R contained financial transactions of other projects
and did not clearly describe the transactions. This condition occurred because the
Corporation did not understand the importance of effective control over and
responsibility for CDBG funds.
Additional evidence that the Corporation lacked financial controls was that it
attempted to incorrectly charge $5,900 in payroll costs to the grant based on an
undocumented procedure not approved by HUD. 17 The Corporation did not keep
12
The increase in cost was 41 percent.
13
City’s purchasing ordinance (title 6, chapter 4)
14
24 CFR (Code of Federal Regulations) 85.36(i)
15
24 CFR 84.21
16
The Corporation had capitalized all costs into a building account until the end of construction.
17
The Corporation applied the same method used by its apparent parent company, Greenwood Chamber of
Commerce.
7
time sheets that clearly showed the time spent on each of its projects as required by
HUD.18 Instead, it used an estimated percentage of time to charge the costs. This
condition occurred because the Corporation did not have policies and procedures for
tracking and charging costs to federal programs.
The Corporation Did Not
Submit the Required Recovery
Act Reports to the City
The Corporation did not submit the required progress reports to the City. Its
agreement with the City required it to submit monthly and quarterly reports.
Further, the Corporation was required to provide records to the City until project
completion to verify that it was constructing facilities according to Recovery Act
guidelines. However, as of December 2010, the Corporation had only submitted
to the City 2 of 20 required reports. Because of the Corporation’s noncompliance,
the City could not provide accurate reports to the Recovery.gov Web site as
required. 19 For example, the City’s December 31, 2009 quarterly Recovery.gov
report showed that the City would not use Recovery Act funds to finance the
sewer relocation. However, in January 2010, the City paid for the sewer
relocation using Recovery Act funds. The City also reported that it expected
construction to begin in January 2010.
The Corporation Exposed the
City to Significant Potential
Liability
The Corporation’s actions could expose the City to significant potential liability.
As shown in table 3, the City revised its estimates 20 to show that the Shoppes
project would cost more than $3.7 million, of which at least $3.5 million would
come from the City’s CDBG funds. The City and Corporation did not explain
why the amount had increased by $600,000. 21
Additionally, the Corporation might default on its agreement with Tulsa
Development Authority (Authority) for the sale of land used for the Shoppes’
development if it cannot meet the conditions. The land contract would give the
Corporation ownership of the land previously purchased with CDBG funds.
According to the contract, the Authority would waive the $270,000 cost of the
land when the Corporation completed the project. If the Corporation did not carry
out urban renewal activities on the land, the agreement would not be enforceable.
18
OMB (Office of Management and Budget) Circular A-122, attachment B, paragraph 8.m
19
Recovery Act, Title XII of Division A, Section 1512, required the City to submit quarterly reports showing a
detailed list of all projects for which it had expended recovery funds, including an assessment of the completion
status of the project.
20
As of April 5, 2011
21
Refer to Table 2 for the original estimate of $3.1 million.
8
Further, the Corporation would be in default of its agreement with the Authority if
it did not provide evidence of adequate financing within 60 days after the
Authority approved the final construction plans. There was no evidence that the
Corporation had the funds to complete the construction. Further, the Corporation
must complete construction within 24 months after the Authority has approved
the construction plans. As of April 8, 2011, the Corporation had not started the
development of the Shoppes.
Table 3: Source of funds –City’s new estimate
Source Amount
CDBG entitlement funds $1,452,107
CDBG Section 108 loan guarantee 1,146,600
CDBG-R grant 445,374
Proposed letter of credit secured by the 274,162
Corporation’s president (no evidence of
securitization)
CDBG land gift 270,000
CDBG carryover funds from program year 2008 200,000
Total estimated costs $3,788,243
Another concern for the City should be the Corporation’s capacity to operate the
Shoppes if it is completed. As previously mentioned, the City and Corporation did
not anticipate having a positive cash flow for the first 5 years.
Based upon the Corporation’s lack of capacity and progress on the Shoppes, the City
should terminate its agreements with the Corporation22 and attempt to find a
subrecipient that can access funding and complete the project in a timely manner.
The City should also ensure that it contracts with a capable entity to operate the
Shoppes when completed. If the City cannot find a subrecipient capable of
completing the Shoppes by the deadline and within budget, it should immediately
reprogram the CDBG-R funds to a project that it can complete by September 30,
2012. By either locating another subrecipient that can complete the Shoppes or
reprogramming the funds to another project, the City will put to better use
approximately $2.3 million in CDBG funds.23 Further, HUD should seek
administrative sanctions against the Corporation and its related entities to protect
HUD and the City from future instances of noncompliance and mismanagement of
federal funds.
The City’s WIN Department
Did Not Follow Requirements
for its Project
22
Including the agreement related to the land transfer
23
We computed the amount by adding CDBG-R funds ($445,374) with the CDBG land gift ($270,000) and
CDBG funds allocated, both entitlement and carryover funds, ($1,452,107 and $200,000) for a total CDBG
allocated amount of $2,367,481. We did not include the Section 108 loan guarantee as it was not approved and
would not be reprogrammed. From the $2,367,481, we deducted questioned costs of $49,089 so as not to
double count these funds for a total of $2,318,392.
9
WIN did not have policies and procedures for the proper disposal of hazardous
waste. WIN’s contracts for nuisance abatement required the contractor to comply
with federal regulations and State and local laws and regulations. However, the
contracts did not mention which specific requirements applied to the contractor’s
work. As a result, they did not specify what requirements the contractor needed
to comply with when disposing of hazardous waste. While the contract did
identify costs to dispose of tires, it did not contain costs for disposal of other
hazardous waste. WIN did not keep records tracking the disposal of hazardous
debris or unidentifiable waste. The City could not explain how the WIN
department ensured that its contractors disposed of debris in accordance with
applicable State and local requirements. The City should ensure that its contracts
on abatement and demolition contain abatement requirements and costs for all
hazardous materials.
Further, the City’s WIN department did not obtain independent estimates for
abatement and demolition work before receiving bids as required. 24 The WIN
department had not obtained independent estimates for this work since 1984.
However, it did properly bid the work, which would support the reasonableness of
the price that it paid. Nonetheless, the City needs to have procedures to ensure it
obtains independent estimates before receiving bids or proposals.
Conclusion
The City mismanaged its Recovery Act activities by selecting a subrecipient that
did not have the capacity to complete the Shoppes within the required time limit.
The Corporation did not have the funding or ability to complete the Shoppes.
Further, the City did not adequately monitor its programs. It violated federal
requirements and practiced questionable financial controls. This condition
occurred because the City and its subrecipient either lacked adequate policies and
procedures or did not have systems in place to ensure that they followed those
policies and procedures. As a result, the City’s ability to complete its Recovery
Act project with this subrecipient is questionable.
Further, the City’s WIN department did not have procedures in place for the
disposal of hazardous wastes and compliance with procurement requirements.
24
24 CFR 85.36(f)1
10
Recommendations
We recommend that the Acting Director, Office of Community Planning and
Development, Oklahoma City, OK, require the City to
1A. Terminate its agreements, including the transfer of the land, with the
Corporation and either contract with a subrecipient that can complete the
Shoppes or reprogram the funds to projects that it can complete within
Recovery Act timeframes and according to Recovery Act requirements. By
doing so, the City can put to better use approximately $2,318,400 in CDBG
funds that it committed to this project. 25
1B. Support or repay from non-federal funds $49,089 that the Corporation paid
on an agreement without a formal written contract.
1C. Ensure that the Corporation does not incorrectly charge labor costs to the
grant.
1D. Improve its process for selecting and monitoring subrecipients.
1E. Implement procedures to ensure that it complies with all relevant
procurement requirements.
1F. Implement policies and procedures for independent estimates and proper
disposal of hazardous waste, which would include steps to follow up on
hazardous waste disposal and contract provisions that require contractors to
comply with State and local laws and regulations.
We recommend that the Director of HUD’s Departmental Enforcement Center
1G. Seek administrative sanctions against the Corporation and its related
entities, including its current president, to protect HUD and the City from
future instances of noncompliance.
25
We computed the amount by adding CDBG-R funds ($445,374) with the CDBG land gift ($270,000) and
CDBG funds allocated, both entitlement and carryover funds, ($1,452,107 and $200,000) for a total CDBG
allocated amount of $2,367,481. We did not include the Section 108 loan guarantee as it was not approved and
would not be reprogrammed. From the $2,367,481, we deducted the questioned costs of $49,089 so as not to
double count these funds for a total of $2,318,392.
11
SCOPE AND METHODOLOGY
We conducted the audit at the City’s grant department, the Corporation’s office in Tulsa, OK,
and our office in Oklahoma City, OK, from January 24 to April 22, 2011. The scope of the audit
was the City’s CDBG-R obligations, procurements, expenditures, program results, and reporting
made between June 1, 2009, and January 15, 2011. We expanded the scope to February 16,
2011, for WIN activities. We reviewed the proposed source of funds for the Shoppes and the
WIN timeline prepared in April 2011. The methodology included these procedures:
• Reviewed relevant laws, regulations, and HUD guidance.
• Reviewed Corporation audited financial statements, bank records, general ledger,
invoices, and checks.
• Reviewed City and Corporation policies and procedures to carry out its activities.
• Reviewed grant agreements, memorandums of understanding, and contracts.
• Reviewed the City’s board meeting minutes, dated March 13, 2008, and May 28, 2009.
• Reviewed the City’s monitoring report of the Corporation, dated November 18, 2010.
• Interviewed HUD, City, and Corporation staff, contractors, engineers, and the architect.
• Reviewed and analyzed 100 percent of the Corporation’s requests for funds for the period
December 31, 2009, to February 28, 2011. 26
• Reviewed and analyzed the City’s and Corporation’s project timelines and budgets.
• Conducted site visits and photographed the WIN abatement and demolition properties in
North Tulsa and the planned Shoppes’ tract.
We reviewed a sample of the City’s abatement and demolition cases. As of February 16, 2011,
WIN had completed 159 abatements and 3 demolitions for a total of 162 cases. We selected a
sample of 11 cases, which included 8 abatements and all 3 demolitions. The eight abatements
consisted of the five most recently completed projects and three projects with the highest invoice
amounts. The sample totaled $18,427 and was 27 percent of the $67,461 in expenditures. We
did not project the results of procedures applied to items selected under this method to the
population that was not tested.
For administrative expenditures, we compared drawdowns reported in HUD’s Integrated
Disbursement and Information System (System) 27 to the City’s general ledger, which agreed.
We concluded the City’s System data was reliable as it related to our audit objective and
procedures. We reviewed the City’s drawdowns as reported in the System for costs that occurred
through January 15, 2011. We identified the drawdowns that had the highest dollar amounts,
which we considered high risk. We selected the four largest drawdowns totaling $9,260, which
were 80 percent of the $11,510 in total drawdowns for the audit period. We did not project the
results of procedures applied to items selected under this method to the population that was not
tested.
26
The expenditures reported on the requests for funds occurred within the audit scope period.
27
The drawdown and reporting system used by HUD for its community planning and development programs.
12
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.
13
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:
• Policies and procedures that the City’s management implemented to
reasonably ensure that its program met its objectives.
• Procurement policies and procedures established and followed by the City
including monitoring subrecipients and contractors for compliance with laws
and regulations.
• Policies and procedures that the City’s management implemented to
reasonably ensure that its resource use was consistent with laws and
regulations and that its resources were safeguarded against waste, loss, and
misuse.
We assessed the relevant controls identified above.
A deficiency in internal controls 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.
14
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
• The City did not have controls in place to ensure the completion of its
project or that it would meet program objectives (finding).
• The City lacked controls to ensure that it followed its monitoring policies by
ensuring that its subrecipient met Recovery Act requirements (finding).
• The City did not have a system in place to ensure that it followed federal and
City requirements (finding).
15
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Unsupported 1/ Funds to be put to
number better use 2/
1A $2,318,392
1B $49,089
Totals $49,089 $2,318,392
1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or
activity when we cannot determine eligibility at the time of the audit. Unsupported costs
require a decision by HUD program officials. This decision, in addition to obtaining
supporting documentation, might involve a legal interpretation or clarification of
departmental policies and procedures.
2/ Recommendations that funds be put to better use are estimates of amounts that could be used
more efficiently if an Office of Inspector General (OIG) recommendation is implemented.
These amounts include reductions in outlays, deobligation of funds, withdrawal of interest,
costs not incurred by implementing recommended improvements, avoidance of unnecessary
expenditures noted in preaward reviews, and any other savings that are specifically
identified. If HUD implements the recommendations, there will be $2,318,392 in funds and
resources available to the City to provide support for low- and moderate-income households
with community development needs. We computed the amount by adding CDBG-R funds
($445,374) with the CDBG land gift ($270,000) and CDBG funds allocated, both entitlement
and carryover funds, ($1,452,107 and $200,000) for a total CDBG allocated amount of
$2,367,481. We did not include the Section 108 loan guarantee as it was not approved and
would not be reprogrammed. From the $2,367,481, we deducted the questioned costs of
$49,089 so as not to double count these funds for a total of $2,318,392.
16
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
June 10, 2011
Gerald R. Kirkland
Regional Inspector General for Audit
U.S. Department of Housing and Urban Development
Office of Inspector General, Region VI
819 Taylor Street, Suite 13A09
Fort Worth, Texas 76102
Dear Mr. Kirkland:
Please find attached the City of Tulsa's response to HUD's Office of Inspector General,
Region VI draft audit report. We are in process of developing procedures and taking
corrective action to address each of the recommendations.
We appreciate the constructive approach and thoroughness the OIG staff demonstrated
in their review. Their recommendations will make our CDBG-R program stronger.
Should you have any questions or require additional information, please contact me at
(918) 596-7849.
Sincerely,
Cathy Criswell, Interim Director
Department of Grants Administration
City of Tulsa
Enclosures
cc: William Nixon, Assistant Regional Inspector General
Jerry Hyden, Director, HUD OKC
Hillard Berry, CPD Representative, HUD OKC
Jim Twombly, Director of Administration, City of Tulsa
CITY HALL AT ONE TECHNOLOGY CENTER
175 E. 2nd St. Suite 480 • Tulsa, OK 74103
Email: GrantsAdmin@cityoftulsa.org
www.cityoftulsa.org
17
City of Tulsa's Response to OIG Findings and Recommendations
We agree with the following findings:
• The Corporation Lacked the Financial Capacity To Complete the Project
• The Corporation Did Not Originally Plan to Complete the Shoppes on Time
• The Corporation Poorly Procured Sewer Work
• The Corporation Lacked Financial Controls
• The Corporation Did Not Submit the Required Recovery Act Reports to the City
• The Corporation Exposed the City to Significant Potential Liability
We have provided additional documentation in Attachment A for the following finding:
• The City's WIN Department Did Not Follow Requirements for its Project
Responses to recommendations:
Comment 1 1 A (summarized) - Terminate agreement with Corporation and either contract
with a subrecipient that can complete the project or reprogram the funds.
The contract with the Corporation has expired and will not be renewed. We agree with
the OIG's recommendation to either contract with a subrecipient that can complete the
project or reprogram the funds. The City Council will discuss options during a meeting
scheduled for June 16, 2011. Due diligence will be performed on alternative
subrecipients and/or projects selected by the City Council.
Comment 2 1 B - Support or repay from non-Federal funds $49,089 that the Corporation paid
on an agreement without a formal written contract.
The City of Tulsa will repay $49,089 no later than September 30, 2011.
1C - Ensure that the Corporation does not incorrectly charge labor costs to the
grant.
The contract with the Corporation has expired. No payments were made for
Corporation's salaries and no payments will be made.
Comment 3 1D - Support or repay from non-Federal funds $42,221 that it paid for demolition
and nuisance abatement without an independent estimate.
We request the Acting Director, Office of Community Planning and Development,
Oklahoma City, OK consider the information in Attachment A in making a determination
of adequate support or repayment.
Comment 4 1 E -Improve its process for selecting and monitoring subrecipients.
To improve the process for selecting sub recipients, we will ensure the City Council is
informed of all subrecipient capacity and performance concerns during its selection
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process. We will request the City Council consider additional process improvements
during a discussion scheduled for June 16, 2011.
To improve the process for monitoring subrecipients, technical assistance to
subrecipients, especially any new or high risk agencies, will begin soon after
subrecipients have been identified through the selection process. This process change
will help to correct potential noncompliance issues before funds have been expended.
Policies and procedures will be updated to reflect these changes no later than
September 30, 2011.
Comment 2 1F - Implement procedures to ensure it complies with all relevant procurement
requirements.
Contracts with subrecipients will be changed to require preapproval of their procurement
processes before they take any procurement action. Additional technical assistance
with procurement will be provided to subrecipients. Policies and procedures will be
updated to reflect these changes no later than September 30, 2011.
Comment 2 1G (summarized) - Implement policies and procedures for independent estimates
and proper disposal of hazardous waste.
Policies and procedures revisions will be completed no later than September 30, 2011.
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OIG Evaluation of Auditee Comments
Comment 1 The City concurred with the finding. However, the City's response did not
address the land contract between the Corporation and Tulsa Development
Authority if the City continues with the Shoppes. The City will need to address
the land as it moves forward on the Shoppes or reprograms the land.
To protect HUD and the City from future instances of noncompliance, we added a
recommendation for HUD to seek administrative sanctions against the
Corporation and its related entities.
Comment 2 We appreciate the City’s actions toward addressing the recommendation.
Comment 3 We revised the finding based upon the City’s comments including removing the
recommendation requiring the City to support or repay funds spent on the
abatement and demolition work.
Comment 4 The City concurred with the finding. We commend the City for making plans to
revise its policies and procedures for selecting and monitoring subrecipients. The
City plans to inform city council concerning capacity and performance concerns
during its subrecipient selection process. This action would be a good start to
selecting capable subrecipients. However, informing city council alone will not
improve the selection process. The City will need to take further action to ensure
that it selects qualified subrecipients.
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The City of Tulsa, OK, Mismanaged Its Recovery Act Funding
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-06-16.
Below is a raw (and likely hideous) rendition of the original report. (PDF)