oversight

HUD's Region VII Office of Community Planning and Development Complied With HUD's Monitoring Requirements for Recovery Act Recipients

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-06-23.

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

                                                               Issue Date
                                                                        June 23, 2011
                                                               
                                                               Audit Report Number
                                                                            2011-KC-0002




TO:        Theresa M. Porter, Director, Office of Community Planning and Development,
             Kansas City, KS, 7AD

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT: HUD’s Region VII Office of Community Planning and Development Complied
            With HUD’s Monitoring Requirements for Recovery Act Recipients


                                  HIGHLIGHTS

 What We Audited and Why

            We audited the U.S. Department of Housing and Urban Development’s (HUD)
            Region VII Office of Community Planning and Development (CPD) based on the
            American Recovery and Reinvestment Act of 2009 (Recovery Act) funding
            levels. The Region VII CPD office is responsible for monitoring more than $17.6
            million in Recovery Act Community Development Block Grants (CDBG-R) and
            more than $28.2 million in Recovery Act Homelessness Prevention and Rapid Re-
            Housing Program grants. Our objective was to determine whether HUD’s Region
            VII CPD office complied with HUD’s monitoring requirements for Recovery Act
            recipients.

 What We Found


            HUD’s Region VII CPD office complied with HUD’s monitoring requirements
            for Recovery Act recipients. The regional CPD office appropriately established
            and implemented a risk assessment process to target Recovery Act grantees for
            review, and it appropriately monitored grantees.
What We Recommend


           This report contains no formal recommendations, and no further action is
           necessary.


Auditee’s Response


           HUD’s Region VII CPD office chose not to have an exit conference or to provide
           formal written comments in response to this report.




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                         TABLE OF CONTENTS

Background and Objective                                           4

Results of Audit
      HUD’s Region VII CPD Office Complied With HUD’s Monitoring
      Requirements for Recovery Act Recipients                     5

Scope and Methodology                                              7

Internal Controls                                                  8




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                      BACKGROUND AND OBJECTIVE

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009 (Recovery Act). U.S. Department of Housing and Urban Development’s (HUD)
Recovery Act funds support three themes that align with the broader goals of the Recovery Act:
(1) promoting energy efficiency and creating green jobs, (2) unlocking the credit markets and
supporting shovel-ready projects, and (3) mitigating the effects of the economic crisis and
preventing community decline. HUD’s overriding objective in support of these goals is the
creation and preservation of jobs.

The Recovery Act includes a $1 billion appropriation for Community Development Block Grants
(CDBG-R) to be used to assist States, local governments, and insular areas in funding a wide
range of community development activities. The expected benefits of CDBG-R are to stabilize
property values and prevent neighborhood blight. In addition, the Recovery Act established a
new program to provide homelessness prevention assistance for households who would
otherwise become homeless and rapid rehousing assistance for persons who are homeless. The
Recovery Act appropriated $1.5 billion for the Homelessness Prevention and Rapid Re-Housing
Program (HPRP). The overall goal of HPRP is for participants to achieve housing stability.

Each Office of Community Development (CPD) field office is responsible for developing
monitoring strategies and an office work plan encompassing CPD grantees and programs to be
monitored during the fiscal year based on a risk assessment. Headquarters establishes the
completion dates for the risk analysis and work plan each fiscal year. The purpose of a
monitoring strategy is to define the scope and focus the monitoring efforts, including establishing
a framework for determining the appropriate level of monitoring for CPD grantees consistent
within available resources. The work plan documents the field office decisions regarding where
to apply staff and travel resources for monitoring, training and technical assistance.

The Region VII CPD office was responsible for monitoring 17 CDBG-R grant recipients that
received about $17.5 million in CDBG-R grants, which is approximately 1.76 percent of the total
amount appropriated, and 8 HPRP grant recipients that received about $28.2 million in HPRP
grants, which is approximately 1.88 percent of the total amount appropriated. All of the HPRP
grant recipients also received CDBG-R funds.

Our objective was to determine whether HUD’s Region VII CPD office complied with HUD’s
monitoring requirements for Recovery Act recipients.




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                            RESULTS OF AUDIT

HUD’s Region VII CPD Office Complied With HUD’s Monitoring
  Requirements for Recovery Act Recipients


The Regional CPD Office
Complied With HUD’s
Monitoring Requirements


           HUD’s Region VII CPD office complied with HUD’s monitoring requirements
           for entities that received Recovery Act funding. HUD required each grantee to
           submit a substantial amendment to their action plans and weekly activity reports
           to the regional CPD office. HUD also required each regional CPD office to
           establish and implement a risk assessment process to target Recovery Act
           grantees for review and to monitor grantees in compliance with Recovery Act
           requirements.

           HUD required that each program participant’s past performance be analyzed by
           the regional CPD office and compared against the full spectrum of formula and
           competitive program participants and programs. This method ranked program
           participants in descending order, from highest to lowest risk. Three categories
           were used: high, medium, and low risk based on the risk score. HUD required all
           monitoring to be based on the risk analysis process. It also required the regional
           CPD office to plan its annual monitoring efforts based on the risk assessment, and
           it required all high-risk grantees to be monitored in depth.

           The Region VII CPD office reviewed and approved the substantial amendments
           for all 17 of its Recovery Act grant recipients. In addition, the regional CPD
           office reviewed the weekly activity reports from each grantee and compared the
           information from each to data entered into HUD’s Integrated Disbursement and
           Information System.

           The regional CPD office also correctly implemented HUD’s risk assessment
           process and assessed a risk score to each of its grantees. The regional office then
           planned its monitoring efforts based on the risk score, which included indepth
           monitoring for the grantees it determined to be high risk. At the time of our
           review, the regional office was performing its first indepth monitoring of the
           entity that received the highest risk score. Regional CPD staff members told us
           that their ongoing monitoring process did not include approval of Recovery Act
           expenditures during the grant cycle and that the indepth monitoring was generally
           conducted after the money was spent.



                                            5
Recovery Act Grantees Had
Adequate Documentation

             We conducted our own limited monitoring of a sample of the region’s Recovery
             Act grantees. We conducted the testing in this manner because it would tell us
             whether the grantees adequately documented draws on the Recovery Act grants
             and whether the regional CPD office’s plan of monitoring the grantees after the
             grant funds had been expended was effective.

             We performed this testing at three grantees that had been assessed a high risk
             score. All three locations had adequate supporting documentation for the CDBG-
             R and HPRP grant draws. The following table represents the value of the grant
             transactions tested and the total dollars drawn on the Recovery Act grants as of
             February 17, 2011, for the CDBG-R grant and as of March 1, 2011, for the HPRP
             grant for the testing sites.

                                             CDBG-R            HPRP
                                             expended        expended
                     Grant number             amount          amount
                    B-09-MY-20-0001        $     134,791   $     526,393
                    B-09-MY-29-0003            1,150,903       2,332,148
                    B-09-MY-29-0004              305,384         494,015
                          Total            $ 1,591,078     $ 3,352,556


Conclusion


             HUD’s Region VII CPD office had established and implemented a risk
             assessment process to target Recovery Act grantees for review, and it monitored
             grantees in compliance with HUD’s Recovery Act monitoring requirements.
             Although the monitoring was generally conducted after the grant funds had been
             expended, our limited monitoring of Recovery Act grantees during the audit did
             not reveal material deficiencies.

Recommendations



             There is no formal recommendation, and no further action is necessary.




                                              6
                         SCOPE AND METHODOLOGY

Our survey generally covered the period February 1, 2009, through January 31, 2011. We
performed onsite work from January through May 2011 at the Region VII CPD office at 400
State Avenue, Kansas City, KS. We also performed limited onsite monitoring for three
Recovery Act grantees during the same period.

To accomplish the audit objectives, we

      Reviewed regulations pertaining to the Recovery Act, Office of Management and Budget
       guidance, CPD notices concerning the CDBG-R and HPRP programs, headquarters CPD
       guidance regarding risk assessments and monitoring, and local CPD guidance regarding
       risk assessments and monitoring.
      Conducted interviews with the Region VII CPD Director and staff.
      Reviewed a listing of the grantees monitored by the Region VII field office and the
       funding received for CDBG-R and HPRP grants.
      Reviewed the risk analysis prepared by the Region VII field office.
      Reviewed a listing of voucher draws from HUD’s Integrated Disbursement and
       Information System for CDBG-R and HPRP funds for grantees monitored by the Region
       VII field office.
      Performed a limited monitoring review of three grant recipients monitored by the Region
       VII field office for adequate documentation to support voucher expenditures made by the
       grantees and subgrantees.
      Conducted interviews of grant recipients.
We selected a sample of grantees for limited monitoring based on CPD’s risk assessment for
Region VII. We conducted testing at the three highest risk grantees in the region, based on the
combined CDBG-R and HPRP risk scores assigned by Region VII CPD staff, excluding the one
grantee that had already been monitored by HUD. We reviewed the grantee’s documentation to
determine whether the grant draws were generally supported with copies of invoices, payroll
journals, timesheets, paycheck stubs, HPRP client information, and other appropriate
documentation to support the expenditures by the grantees and subgrantees. We did not review
the supporting documentation to determine eligibility, nor did we check the supporting
documentation for mathematical errors. We verified that the documentation generally supported
the amount of the grant draws.

We relied on computerized data contained in HUD’s Integrated Disbursement and Information
System. We assessed the reliability of the data, performed sufficient tests of the data, and found
the data adequate to meet our audit objectives.

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 objective.


                                                7
                              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:

                     Controls to ensure that the Region VII CPD office implemented a risk
                      assessment process to target Recovery Act grantees for review

                     Controls to ensure that the Region VII CPD office monitored grantees in
                      compliance with Recovery Act requirements

               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.

               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government audit standards. Our evaluation of internal controls
               was not designed to provide assurance regarding the effectiveness of the internal
               control structure as a whole. Accordingly, we do not express an opinion on the
               effectiveness of Region VII CPD’s internal control.




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