oversight

Allegations of Lutheran Social Services of Northern California's Misuse of Homelessness Prevention and Rapid Re-Housing Program Funds Were Unsubstantiated

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-02-08.

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

                                                               Issue Date
                                                                       February 8, 2011
                                                               Audit Report Number
                                                                        2011-LA-1007




    TO:                 Maria Cremer, Acting Director, Office of Community Planning and
                        Development, San Francisco, Region IX, 9AD



    FROM:               Tanya E. Schulze, Regional Inspector General for Audit, Region IX,
                        9DGA

    SUBJECT:            Allegations of Lutheran Social Services of Northern California’s
                        Misuse of Homelessness Prevention and Rapid Re-Housing Program
                        Funds Were Unsubstantiated

                              HIGHLIGHTS

What We Audited and Why

    We audited Lutheran Social Services of Northern California (auditee) in response to a
    hotline complaint. The complaint alleged that the auditee misused Homelessness
    Prevention and Rapid Re-Housing Program (HPRP) funds. The specific allegations
    included (1) ineligible purchases using employee credit cards, (2) unreasonable rental of
    storage units, (3) caseworkers qualifying family and friends for HPRP who were not
    eligible, (4) diversion of HPRP funds, and (5) forged documents for check disbursements
    from the auditee’s Sacramento office. Our objective was to determine whether these
    allegations could be substantiated.


What We Found

    The audit results showed that the allegations of misuse of HPRP funds were
    unsubstantiated.
We provided the auditee a discussion draft report on January 28, 2011, and held an exit
conference with appropriate officials on February 3, 2011. The auditee provided written
comments on February 4, 2011, in which it agreed with the report. The complete text of
the auditee’s response can be found in appendix A of this report.




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                              TABLE OF CONTENTS

Background and Objective                                         4

Results of Audit
      Allegations of Misuse of HPRP Funds Were Unsubstantiated   6
Scope and Methodology                                            8

Internal Controls                                                9

Appendix
      A.   Auditee Comments                                      11




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                          BACKGROUND AND OBJECTIVE

The Homelessness Prevention and Rapid Re-Housing Program

The Homelessness Prevention and Rapid Re-Housing Program (HPRP) is a new program under
the U.S. Department of Housing and Urban Development’s (HUD) Office of Community
Planning and Development. It was funded under the American Recovery and Reinvestment Act
of 2009 (Recovery Act) on February 17, 2009. Congress designated $1.5 billion for
communities to provide financial assistance and services to either prevent individuals and
families from becoming homeless or help those who are experiencing homelessness to be
quickly rehoused and stabilized. HPRP funding was distributed based on the formula used for
the Emergency Shelter Grant program.

The City and the County of Sacramento, CA, and Sacramento Housing and
Redevelopment Agency

HUD allocated program funds for communities to provide financial assistance and services to
either prevent individuals and families from becoming homeless or help those who are
experiencing homelessness to be quickly rehoused and stabilized. HUD used its Emergency
Shelter Grant formula to allocate program funds to metropolitan cities, urban counties, and
States. On August 4, 2009, HUD entered into a grant agreement with the Sacramento Housing
and Redevelopment Agency (Agency), on behalf of the City and the County of Sacramento
(City/County), for more than $2.3 million in program funds for each of the jurisdictions. The
agreements were pursuant to the provisions under the Homelessness Prevention Fund, Division
A, Title XII, of the Recovery Act. The Agency is responsible for ensuring that each entity that
administers or receives all or a portion of the program funds or to carry out activities, fully
complies with the program requirements. On October 1, 2009, the Agency entered into a
subgrant agreement with Lutheran Social Services of Northern California (auditee) to carry out
the program. This subgrant agreement, which totaled more than $2.4 million, is funded by a
combination of Federal, State, and local sources. Under this subgrant agreement, the Agency is
to provide the auditee more than $718,000 from the City HPRP and more than $725,000 from the
County HPRP. By the end of October 2010, the Agency had drawn down more than $341,000
via the City HPRP grant and nearly $165,000 via the County HPRP grant for the auditee.

Lutheran Social Services of Northern California

The auditee is a public benefit corporation and a 501(c)(3) charitable organization. It is funded
by donations, government contracts, and grants and through the support of Lutheran churches
and congregations. The auditee is governed by a 14-member board of directors. It has three
office locations: Concord, Sacramento, and San Francisco. Its Sacramento office provides
HPRP services to homeless individuals and families and those in jeopardy of losing their current
housing. This program focuses on rapid rehousing for those who are homeless and stabilization
for those who are housed but in need of short-term assistance.




                                                4
Our objective was to determine whether the allegations of misuse of HPRP funds could be
substantiated.




                                              5
                                    RESULTS OF AUDIT

Allegations of Misuse of HPRP Funds Were Unsubstantiated
The hotline complaint’s allegations of misuse of HPRP funds were unsubstantiated. Our review
did not identify the alleged ineligible employee credit card purchases, rented storage unit
expenses, diversion of HPRP funds, or forged documents.



 HPRP Funds Were Not Used
 for the Alleged Ineligible
 Purchases or Unreasonable
 Rental Storage Units


       The complainant alleged that HPRP funds were used to pay for employee credit card
       purchases of ineligible items such as aquarium supplies; meals; iPods; Wii, Xbox, and
       PSP games; camcorders; digital cameras; stereo systems; LCD TVs; trips; makeup;
       candy; jewelry; telephone minutes; and toys. Our review of a random sample of two
       monthly credit card statements for three employees (a total of six monthly statements)
       showed that most purchases, including rental of storage units, were not paid with HPRP
       funds. The few purchases that were paid for using HPRP funds were allowable expenses
       and did not include any of the alleged ineligible items.

 Caseworkers Qualifying
 Ineligible Family and Friends
 for HPRP Was Not
 Substantiated

       The allegation made was based on an employee’s comment that appeared to have been
       taken out of context. No specifics were available to show who might have violated
       program rules by qualifying family and friends for HPRP who were ineligible for the
       program. There was no indication that any caseworker qualified ineligible family and
       friends for HPRP.


  No Diversion of HPRP Funds
  Was Found

       The complainant alleged that the auditee used HPRP funds for other programs. We did
       not identify any diversions of HPRP funds. In addition to the Agency’s advances, the
       auditee advanced funds from its general operating account for direct financial assistance
       payments during the beginning months of HPRP. In April 2010, it began withdrawing


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     funds from the direct financial assistance account to pay back the advances to its general
     operating account. As of the end of October 2010, the auditee had not withdrawn more
     than it had previously advanced to HPRP.


No Forged Documents Were
Found

     The complainant alleged that documents were forged for check disbursements from the
     auditee’s Sacramento office. We examined accounting records, the general ledger, bank
     statements, credit card statements, and receipts within our audit scope but did not identify
     any documents that appeared to be altered or forged.

Conclusion

     Our review disclosed that the allegations of misuse of HPRP funds were unsubstantiated.




                                              7
                                  SCOPE AND METHODOLOGY

We performed our onsite audit work at the auditee’s offices in Sacramento and Concord, CA,
between November and December 2010. The audit generally covered the period October 1,
2009, through October 31, 2010.

To accomplish our objective, we interviewed HUD staff and the auditee’s staff, certified public
accountant, attorney, and board members. We also reviewed

         Applicable HUD requirements, including the Recovery Act and the revised HPRP notice,
         redline with corrections, issued June 8, 2009;
         The City and County’s substantial amendments to the 2008-2012 consolidated plan and
         the 2009 action plan for HPRP;
         The HPRP grant agreements between HUD and the City and County;
         The subcontract between the Agency and the auditee;
         The auditee’s policies and procedures for accounting and financial transactions; and
         The auditee’s accounting records, general ledger, bank statements, and credit card
         statements with supporting documents for the charges.

We selected and reviewed expenses charged against HPRP. We identified, from the general
ledger, the expense categories that could have contained the alleged ineligible purchases.
Random samples of three transactions were selected from each of these expense categories: cell
phone/pager expense (from 89 transactions1), Sacramento – travel and mileage expense (from 33
transactions2), office supplies expense (from 37 transactions3), and travel and mileage expense
(from 53 transactions4).

We also selected and reviewed random samples of two monthly credit card statements (from an
11-month period) from each of the three employees who could have made purchases for the
program.5

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 evidence obtained provides a reasonable basis for our findings and
conclusions based on our objective.




1
  $300 tested from a total of $7,169
2
  $323 tested from a total of $4,689
3
  $1,557 tested from a total of $16,798
4
  $291 tested from a total of $8,177
5
  $9,619 tested from a total of $41,054


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                                  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 to ensure that funds advanced from the Agency pay
                  only for direct financial assistance and
                  Policies and procedures to ensure that expenditures charged against HPRP are
                  allowable.

       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

       We evaluated internal controls related to the audit objective in accordance with generally
       accepted government auditing 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 auditee’s
       internal control.




                                                9
Separate Communication of
Minor Deficiencies

     Minor internal control and compliance issues were reported to the auditee in a separate
     memorandum.




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                 APPENDIX

Appendix A

             AUDITEE COMMENTS


                Auditee Comments




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