oversight

The City of Bayonne, NJ Did Not Adequately Administer Its Economic Development Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-11-12.

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

                                                                Issue Date
                                                                     November 12, 2010

                                                                Audit Report Number
                                                                     2011-NY-1002




TO:        Christine Soucy, Acting Director, Community Planning and Development, 2FD


                          for
FROM:      Edgar Moore, Regional Inspector General for Audit, New York/New Jersey,
                                                       2AGA


SUBJECT: The City of Bayonne, NJ, Did Not Adequately Administer Its Economic
         Development Program

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the City of Bayonne, NJ’s (City) Community Development Block
             Grant (CDBG) economic development activities in response to a complaint (HL-
             09-1015) that contained four allegations. Our audit objectives were to determine
             whether the City (1) disbursed CDBG economic development funds efficiently
             and effectively in accordance with its submission to HUD and with the applicable
             rules and regulations, (2) used CDBG economic development funds to meet one
             of the three national program objectives, and (3) had a financial management
             system in place to adequately safeguard the funds.

 What We Found


             The City did not adequately administer its economic development program.
             Specifically, it (1) did not adequately monitor its subrecipient, (2) made
             disbursements for ineligible items, (3) made disbursements for technical
             assistance and salary costs that were not reasonable, (4) did not maintain
             documentation to support accomplishment of the CDBG national objectives, and
           (5) did not reprogram unused economic development funds in a timely manner
           when its loan program ended. These deficiencies occurred because the City did
           not have adequate controls in place to ensure that its economic development
           activities were administered in accordance with HUD regulations. As a result, (1)
           $5,335 was disbursed for ineligible consulting costs; (2) $640,266 was disbursed
           for technical assistance, salaries, and payroll taxes that did not appear to be
           reasonable; (4) documentation was not maintained to support accomplishment of
           the CDBG national objectives; and (5) $196,292 in unused economic
           development funds needs to be reprogrammed.

What We Recommend
           We recommend that the Director of HUD’s New Jersey Office of Community
           Planning and Development instruct the City’s Department of Community
           Development to (1) strengthen procedures to monitor its subrecipients to ensure
           compliance with HUD rules and regulations; (2) repay from non-Federal funds
           the $5,335 in ineligible consultant costs and parking fees charged to the CDBG
           economic development program; (3) strengthen controls to ensure that costs
           charged to the CDBG program are eligible according to HUD regulations; (4)
           provide documentation to support the eligibility of $640,266 in unreasonable
           technical assistance costs, salaries, and payroll taxes charged to the economic
           development program so that HUD can make an eligibility determination; and (5)
           provide documentation to show that the City reprogrammed $196,292 in
           remaining economic development funds so that these funds can be put to better
           use.

           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.


Audi tee’s Response


           We discussed the results of our review during the audit and at an exit conference
           held on October 25, 2010. On October 25, 2010, City officials provided their
           written comments, along with various attachments, which were provided to the
           HUD CPD field office for their use and evaluation. The City generally disagreed
           with the draft report findings. The complete text of the City’s response, along
           with our evaluation of that response, can be found in appendix C of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
      Finding : The City Did Not Adequately Administer Its Economic Development   5
                 Program

Scope and Methodology                                                             11

Internal Controls                                                                 12

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use              14
   B. Evaluation of Complaint Allegations                                         15
   C. Auditee Comments and OIG’s Evaluation                                       16




                                            3
                     BACKGROUND AND OBJECTIVES

The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974 (Public Law 93-383). The program provides
grants to State and local governments to aid in the development of viable urban communities.
Governments are to use grant funds to provide decent housing and suitable living environments and
to expand economic opportunities, principally for persons of low and moderate income. To be
eligible for funding, every CDBG-funded activity must meet one of the program’s three national
objectives. Specifically, every activity, except for program administration and planning, must

       Benefit low- and moderate-income persons,
       Aid in preventing or eliminating slums and blight, or
       Address a need with a particular urgency because existing conditions pose a serious and
       immediate threat to the health or welfare of the community.

The City of Bayonne, NJ (City), has been an entitlement recipient of CDBG funds since the
inception of the program in 1974 and has received Emergency Shelter Grant funds as well. The
City of Bayonne was awarded a total of $2.8 million in CDBG funding during the program years
1995 through 2008. During the audit period, the City executed a subrecipient agreement with the
Bayonne Economic Development Corporation (subrecipient) to administer the small business
loan program, as well as to provide technical assistance to Bayonne small business owners.
Another economic development activity administered by the subrecipient was a planning
activity, which included various projects. As of June 30, 2009, the subrecipient had begun a
liquidation process and no longer receives CDBG funding for administering the economic
development program. The City’s Department of Community Development services the
economic development loan repayments.

The City’s Department of Community Development has a full-time director and a part-time
assistant. It is located at City Hall, 630 Avenue C, Bayonne, NJ.

We audited the City’s CDBG economic development activities in response to a complaint (HL-
09-1015) that contained four allegations. The audit objectives were to determine whether the
City (1) disbursed CDBG economic development funds efficiently and effectively in accordance
with its submission to HUD and with the applicable rules and regulations, (2) used CDBG
economic development funds to meet one of the three national program objectives, and (3) had a
financial management system in place to adequately safeguard the funds.




                                                4
                                 RESULTS OF AUDIT

Finding : The City Did Not Adequately Administer Its Economic
           Development Program
The City did not adequately administer its economic development program. Specifically, it (1)
did not adequately monitor its subrecipient, (2) made disbursements for ineligible items, (3)
made disbursements for technical assistance and salary costs that were not reasonable, (4) did not
maintain documentation to support accomplishment of the CDBG national objectives, and (5)
did not reprogram unused economic development funds in a timely manner when its loan
program ended. These deficiencies occurred because the City did not have adequate controls in
place to ensure that its economic development activities were administered in accordance with
HUD regulations. As a result, (1) $5,335 was disbursed for ineligible consulting costs; (2)
$640,266 was disbursed for technical assistance, salaries, and payroll taxes that did not appear to
be reasonable; (3) documentation was not maintained to support accomplishment of the CDBG
national objectives; and (4) $196,292 in unused economic development funds needs to be
reprogrammed.


 Inadequate Monitoring of
 Subrecipient

               The City did not have adequate controls to ensure that its economic development
               loan program was conducted in accordance with CDBG requirements and did not
               adequately monitor its subrecipient responsible for administering the economic
               development activities. According to the subrecipient agreement signed and
               executed by the City and its subrecipient, section 4, entitled Monitoring, the City had
               the right to inspect all records, books, accounts, and ledgers for the purpose of
               ensuring the appropriateness of all program expenditures. The City’s lack of
               monitoring led to disbursements for ineligible, unsupported, and unreasonable costs.
               As a result, the City could not assure HUD that all CDBG economic development
               disbursements complied with HUD rules and regulations.

               Review of the economic development activities, which consisted of small
               business loans, technical assistance, and planning, disclosed that the City did not
               conduct monitoring reviews or properly implement control procedures to ensure
               compliance with HUD requirements and ensure that loan recipients complied with
               loan provisions.

               Regulations at 24 CFR (Code of Federal Regulations) 570.506(b) (5) (i) and (6)
               require that the City maintain records to demonstrate compliance with CDBG job
               creation and retention requirements. However, the City did not monitor its
               subrecipient to ensure that it collected and maintained documentation from loan
               recipients to ensure compliance with the regulations. The documentation required



                                                 5
           to show job creation included identification of the job titles and documentation
           showing that the employees hired were categorized as being low or moderate
           income, based on earnings, family size, or a residence at an address in a census
           tract labeled as low or moderate income. The subrecipient only provided a
           memorandum to the City, which included job creation numbers without
           supporting documentation for the jobs. Due to the City’s lack of monitoring, no
           assurance could be placed on the number of jobs included in the memorandum.

Disbursements Made for
Ineligible Items

           During the audit period, the City made disbursements to its subrecipient for
           ineligible items totaling $5,335. These payments were to a consultant for
           preparing an application for a New Jersey State grant and parking fees for the
           staff of its subrecipient. Office of Management and Budget (OMB) Circular A-
           87, section C, Basic Guidelines, parts 1a and 1d, specifies that costs must be
           necessary and reasonable for proper and efficient performance and administration
           of Federal awards and conform to any limitation or condition of the award or
           applicable regulations. Further, regulations at 24 CFR 570.207 provide that any
           costs not authorized under the regulations at 24 CFR 570.201-206 are ineligible
           costs. Therefore, expenses for consultant services related to services to obtain
           State grants and parking fees are not an authorized Federal expense. This
           condition occurred because the City and its subrecipient did not have adequate
           controls to ensure that the costs reimbursed were eligible CDBG costs. As a
           result, the program was deprived of $5,335 in CDBG funds, which could have
           been used for other eligible CDBG expenses.

Unreasonable Technical
Assistance Costs


           Technical assistance costs charged to the CDBG economic development program
           for program years 2002 through 2007 did not appear to be reasonable.
           Specifically, the City disbursed a total of $195,000 for a consultant to provide
           technical assistance to individuals and small businesses in preparing business
           plans and applications for loans. However, the subrecipient did not have a written
           executed agreement or contract on file for the services provided. OMB Circular
           A-87, section C, Basic Guidelines, parts 1a and 1d, specify that costs must be
           necessary and reasonable for proper and efficient performance and administration
           of Federal awards and conform to any limitation or condition of the award or
           applicable regulations. In addition, the City and its subrecipient did not comply
           with the regulations at 24 CFR 85.20(b)(4), which provide that financial
           information must be related to performance or productivity data and
           570.200(a)(3), which require entitlement recipients to ensure that CDBG funds
           are expended for activities that benefit low and moderate income people. For



                                            6
           example, technical assistance provided by the consultant did not result in
           economic development loans being awarded by the subrecipient and there was no
           evidence to suggest that these services benefited low and moderate income
           people. As a result, we question the total $195,000 disbursed for technical
           assistance as unreasonable costs. We also recommend that this amount be repaid
           to the program with non-Federal funds so that the funds can be used for other
           eligible CDBG activities.

Unreasonable Salary Costs

           A total of $445,266 was disbursed for salary and payroll taxes during the
           subrecipient’s fiscal years 2006 through 2008 for the administration of the
           economic development loan program. However, these salary costs did not appear
           to be reasonable because the economic loan activity was minimal during this
           period. The subrecipient only awarded one loan during the fiscal year ending
           October 31, 2006, three loans during the year ending October 31, 2007, and no
           new loans during the year ending October 31, 2008.

                                                                    Number of economic
              Fiscal year ending                Salaries             development loans
                                                                          awarded
               October 31, 2006                 $150,508                     1
               October 31, 2007                 $155,410                     3
               October 31, 2008                 $139,348                     0
                             Totals             $445,266                     4

           Regulations at 24 CFR 570.206 require that costs charged for administration of
           the program include reasonable costs to carry out the program. Before 2005, the
           loan awards fluctuated between one and seven loans per year. Additionally,
           limited monitoring was conducted for the few loans that were awarded, and loan
           proceeds were not reinvested during the period 2006 and 2007. This condition
           occurred because the City did not provide adequate oversight of its subrecipient to
           ensure that salary costs charged were sufficient in relation to the number of loans
           awarded. As a result, the City could not assure HUD that $445,266 in salary and
           payroll taxes charged to the economic development activities were reasonable due
           to the minimal loan awards during the period.


Documentation Not Maintained
To Support CDBG National
Objectives

           The City and its subrecipient did not maintain documentation to ensure that the
           economic development loan program met the CDBG national objective of job
           creation. Regulations at 24 CFR 570.209(b)(1)(i) provide that a recipient that


                                            7
          used CDBG funds for special economic development activities must create or
          retain at least one full-time-equivalent permanent job per $35,000 in CDBG funds
          used. The City did not have policies and procedures in place to ensure
          compliance with the CDBG national objective for job creation. As a result, it
          could not assure HUD that it complied with HUD rules and regulations. More
          than $1.1 million in economic development loans was granted from fiscal years
          2000 through 2008. Therefore, approximately 32 full-time-equivalent jobs should
          have been created. However, there was no documentation provided to show that
          any eligible jobs had been created as a result of issuing the economic
          development loans.

Reprogramming of Remaining
Funds Needed

          In June of 2009, the City’s subrecipient went out of business and no longer
          administers the economic development program. Accordingly, the economic
          development loan program was no longer funded, and the remaining funds were
          not reprogrammed in a timely manner. Regulations at 24 CFR 85.20, (3) entitled
          “Internal control”, provide that effective control and accountability must be
          maintained for all grant and subgrant cash, real and personal property, and other
          assets. Grantees and subgrantees must adequately safeguard all such property and
          must assure that it is used solely for authorized purposes. The City had $196,292
          in unspent economic development funds at the start of our audit in January 2010.
          Since the funds were not being used to make economic development loans, there
          was no benefit to low and moderate income people, therefore these funds should
          have been reprogrammed for other eligible community development block grant
          activities. This deficiency occurred because the City did not have adequate
          controls in place to ensure timely disbursement of funds and the timely
          reprogramming of the unexpended economic development funds for other eligible
          community development activities.

          On May 7, 2010, City officials stated that $50,000 in remaining economic
          development activity funds would be used for planning the redevelopment of
          phase 2 of its scattered-site project. However a timeframe for when the funds
          would be used was unknown at the end of our fieldwork in July 2010. Based on
          our inquiry on the status of the remaining funding, City officials also made an
          amendment to reprogram $134,075 from funding years 2006 and 2007 to the
          CDBG commercial façade program. At the end of our fieldwork, City officials
          stated that they planned to use $12,217 in funds for technical assistance, as the
          contract for the consultant that provided technical assistance was being reviewed.
          Nevertheless, the City needs to ensure that the entire $196,292 in unspent
          economic development funds have been put to better use by reprogramming these
          funds to other eligible CDBG activities.




                                           8
Conclusion

             The City did not adequately administer its economic development program in
             accordance with CDBG requirements. Consequently, $5,335 was disbursed for
             ineligible items, and $640,266 was disbursed for unreasonable technical
             assistance, salary, and payroll tax expenses. Further $196,292 in unused
             economic development funds needs to be reprogrammed so that these funds can
             be put to better use. This noncompliance occurred because the City did not
             implement adequate controls and procedures to oversee the economic
             development activities administered by its subrecipient.

Recommendations

             We recommend that the Director of HUD’s Newark Office of Community
             Planning and Development instruct the City’s Department of Community
             Development to

             1A. Implement adequate controls and procedures to ensure that subrecipients are
                 monitored to ensure compliance with HUD rules and regulations.

             1B. Repay from non-Federal funds the $5,335 in ineligible costs charged to the
                 CDBG economic development program, related to payments to a consultant
                 for the preparation of an application for a New Jersey State grant and parking
                 fees for the staff of its subrecipient.

             1C. Strengthen controls to ensure that all costs charged to the CDBG program are
                 eligible as provided by HUD regulations.

             1D. Provide documentation in relation to the technical assistance activities
                 carried out for program years 2002 through 2008 so that HUD can determine
                 compliance with HUD regulations and the eligibility and reasonableness of
                 the $195,000 in technical assistance costs charged. Any amounts determined
                 to be ineligible should be reimbursed to the CDBG program from non-
                 Federal funds.

             1E. Obtain and provide supporting documentation for the CDBG activities
                 carried out and jobs created for program years 2006 through 2008 so that
                 HUD can determine compliance with HUD regulations and the eligibility and
                 reasonableness of $445,266 in salary and payroll costs charged for
                 administering the economic development activities during that period. Any
                 amounts determined to be ineligible should be reimbursed to the CDBG
                 program from non-Federal funds.




                                              9
1F. Provide documentation to HUD that demonstrates that the total $196,292 in
    unused economic development funds have been reprogrammed and put to
    better use on other eligible CDBG activities.




                               10
                         SCOPE AND METHODOLOGY

The audit focused on the City’s economic development activities during the fiscal years beginning
November 1, 2005, and ending October 31, 2008, and was expanded when necessary. Audit
fieldwork was conducted between January and July 2010. The review was conducted at the offices
of the Department of Community Development at City Hall, Bayonne, NJ.

To accomplish our objectives, we

   Reviewed regulations at 24 CFR Part 570 relating to the economic development activities and
   other relevant rules and regulations;

   Reviewed the City’s consolidated plan, action plans, and independent auditors’ reports for fiscal
   years 2006, 2007, and 2008;

   Interviewed appropriate personnel of HUD’s Office of Community Planning and Development
   Newark field office and reviewed field office monitoring reports;

   Interviewed the complainant, City officials, a consultant for the subrecipient, the accountant for
   the subrecipient/City, the consultant for the Department of Community Development, and the
   attorney for the subrecipient to obtain an understanding of the City’s administration of the
   economic development activities;

   Reviewed and tested the City’s/subrecipient’s policies and procedures; files; and records related
   to the loan program, planning, and technical assistance to determine whether costs charged were
   eligible, reasonable, necessary, and adequately supported as required by HUD CDBG rules and
   regulations.

   Selected a non-statistical sample of 4 loans out of a universe of 11 loan files amounting to
   $548,000 to ensure that the loans met one of the CDBG national objectives. The sample of
   loans amounted to $228,000 or 41.6 percent of the universe. Loans were sorted by dollar
   value and selected based on the high dollar value from each category, which included
   current, paid off and defaulted loans.

   Verified all drawdowns made during the audit period. The universe of economic
   development activity drawdowns amounted to $507,392, which was tested to ensure that the
   disbursements were for eligible, reasonable, and necessary expenditures in accordance with
   HUD rules and regulations.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.



                                                 11
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

       Effectiveness and efficiency of operations,
       Reliability of financial reporting, and
       Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations, as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls
               We determined that the following internal controls were relevant to our audit
               objectives:

                      Effectiveness and efficiency of operations- Policies and procedures that
                      management has implemented to reasonably ensure that a program meets its
                      objectives.
                      Compliance with applicable laws and regulations- Policies and procedures
                      that management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

               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 City did not have adequate controls over the effectiveness and efficiency
                      of operations and compliance with laws and regulations, as it did not
                      adequately administer its economic development program or comply with


                                                 12
HUD regulations with regard to disbursement of CDBG funds and
monitoring of its subrecipient responsible for administering the economic
development activities (see finding).




                         13
                                       APPENDIXES

Appendix A

                  SCHEDULE OF QUESTIONED COSTS
                 AND FUNDS TO BE PUT TO BETTER USE

 Recommendation                            Unreasonable or      Funds to be put
        number               Ineligible 1/ unnecessary 2/        to better use 3/


                 1B               $5,335
                 1D                               $195,000
                 1E                               $445,266
                 1F                                                   $196,292
 Total                            $5,335          $640,266            $196.292


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/       Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
         prudent, relevant, and/or necessary within established practices. Unreasonable costs
         exceed the costs that would be incurred by a prudent person in conducting a competitive
         business.

3/       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. In this instance, if the City implements our
         recommendation and provides HUD evidence that it reprogrammed the unused CDBG
         funds remaining for economic development activities, these funds can be used for other
         eligible CDBG activities.




                                                14
    Appendix B

               EVALUATION OF COMPLAINT ALLEGATIONS

Allegation 1

                The complaint alleged misappropriation of CDBG funds by the City’s
                subrecipient.

                Evaluation - This allegation had merit. We noted that CDBG funds were not
                disbursed in accordance with HUD requirements, as funds were disbursed for
                ineligible and unreasonable items (see finding).

Allegation 2
                The complaint alleged that loan proceeds were not reinvested in the
                economic development loan program and there was no accountability for the
                loan proceeds.

                Evaluation - This allegation had merit during our audit period. However, since
                the City’s Department of Community Development has taken responsibility for
                incoming loan proceeds, program income is being reinvested into the CDBG
                program.

Allegation 3
                The complaint alleged that there was a failure to make loans and
                monitor/report the job creation for the economic development loans.

                Evaluation - This allegation had merit. The economic development loan activity
                was minimal during the audit period, and the City did not have documentation to
                substantiate that it monitored the jobs created for the economic development loans
                (see finding).

Allegation 4

                The complaint alleged that funds for the economic development activities
                were not used for loans, but were improperly used for personal expenses,
                payroll, and benefits.

                Evaluation - This allegation had some merit. Economic development funds were
                used to pay for payroll and related expenses, which we included as an
                unreasonable cost (see finding). However, the review did not disclose that funds
                were used to pay for personal expenses.


                                                15
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 2



Comment 3



Comment 3




Comment 4

Comment 5


Comment 6




                         17
                                    OIG Evaluation of Auditee Comments

Comment 1     City officials stated that they did not have knowledge of the previous procedures
              and monitoring of the BEDC due to staff turnover, but that the CDBG files do
              document the business development and job retention for low and moderate
              income people for the audit period. City officials provided additional information
              per their attachment A regarding job creation related to the BEDC. City officials
              also stated that they contacted businesses that received CDBG financing and
              requested employment information and determined that 70 of 126 addresses were
              for low or moderated income families based on census track data. They
              mentioned that OIG staff indicated that each address with an eligibility ratio of
              42.2 percent or higher within the census track data would constitute a lower
              income job holder; however, OIG staff did not provide such information. Also,
              the documentation provided during the audit and with attachment A did not meet
              HUD requirements at 24 CFR 570.206(b)(5)(i) and (6). The documentation did
              not include a listing of the employees with the employees’ job title and
              documentation of the employees’ former status as low and moderate income.
              Therefore, the finding has not been revised and HUD will have to determine the
              sufficiency of any additional documentation regarding jobs created and eligibility
              of the related costs.

Comment 2 City officials indicate that the expenditures appeared to be appropriate because the
          costs were incurred in order to obtain funding from the State of New Jersey to
          leverage with CDBG and other resources. However, the costs related to the State
          of New Jersey grant application and parking are not eligible as they are not
          allowable under Federal regulations at 24 CFR 570.201-206.

Comment 3 City officials indicate that BEDC’s board had knowledge about the service
          provider because of the subrecipient agreement’s provisions allowed for technical
          assistance, and because the consultant provided monthly reports that was
          periodically monitored by HUD. Attachment B was a copy of the regulations at
          24 CFR 570.203(b). Attachment C was a copy of the subrecipient agreement
          between the City and the BEDC. Further, City officials indicated that the work
          was performed in the urban enterprise zone area where low and moderate job
          creation is not a requirement for CDBG eligibility. However, the City was unable
          to provide a copy of the contract with the consultant that was required by the
          subrecipient agreement between the City and the BEDC. Therefore, the City and
          BEDC did not comply with the regulations at 24 CFR 85.20(b)(4), which required
          financial information must be related to performance data and regulations at 24
          CFR 570.200(a)(3), which require entitlement recipients to ensure that CDBG
          funds are expended for activities that benefit low and moderate income people.
          Since economic development loans were not made and there was no evidence that
          the services benefited low and moderate income people the costs for technical
          assistance are questioned.




                                              18
Comment 4 City officials disagreed that salary costs were unreasonable and provided
          additional documentation. Attachment C is the subrecipient agreement between
          the City and the BEDC and Attachment D is a letter to HUD from the City which
          notes various economic development activities undertaken by the BEDC during
          the period audited. However, City officials were not able to provide
          documentation that supports that the salary costs were reasonable, as over
          $445,000 was paid for salaries when only four loans were awarded over a three
          year period.

Comment 5    City officials disagreed with the finding related to documentation not being
             maintained to support accomplishment of the CDBG national objective and
             indicated to see their responses to comments one and four. City officials were not
             able to provide documentation to support the national objective of job creation
             was accomplished as over $1.1 million of economic development loans had been
             made from 2000 through 2008 and 32 full time equivalent jobs should have been
             created, but there was no documentation that any eligible jobs had been created.

Comment 6    City officials indicated that they had reallocated the $196,292 in unspent
             economic development funding for listed activities. Nevertheless, the City
             officials’ actions are responsive to the finding and recommendation.




                                             19