Issue Date November 8, 2010 Audit Report Number 2011-PH-1002 TO: Nadab O. Bynum, Director, Office of Community Planning and Development, Philadelphia Regional Office, 3AD //signed// FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia Region, 3AGA SUBJECT: The City of Scranton, PA, Did Not Administer Its Community Development Block Grant Program in Accordance With HUD Requirements HIGHLIGHTS What We Audited and Why We audited the City of Scranton, PA’s (City), Community Development Block Grant (CDBG) program. We selected the City for audit because of the size of its program, its high U.S. Department of Housing and Urban Development (HUD) risk analysis score, and a citizen’s complaint alleging misuse of HUD funds. The objectives of the audit were to determine whether the City (1) maintained records and documentation to identify the source and application of funds to demonstrate that funded activities were eligible and met program requirements, (2) established and maintained an effective system of budget controls for proper management of its CDBG program, and (3) properly monitored its subrecipients, in accordance with applicable HUD requirements. What We Found The City failed to adequately administer its CDBG funds and could not demonstrate that it used more than $11.7 million in CDBG funds in accordance with applicable HUD requirements. Specifically, it (1) failed to maintain adequate records identifying the source and application of funds for its HUD- sponsored activities, (2) did not maintain required documentation and budget controls demonstrating that its expenditures complied with program requirements, (3) did not use proper subrecipient agreements, and (4) failed to adequately monitor its subrecipients. Additionally, it did not ensure that its activities complied with program requirements and allowed an apparent conflict-of-interest situation to exist. What We Recommend We recommend that the Director of HUD’s Philadelphia Office of Community Planning and Development (1) perform additional monitoring and provide technical assistance to the City, as needed, to ensure that the City properly administers the CDBG funding in accordance with applicable requirements; and (2) evaluate issues in this report and if appropriate, initiate appropriate administrative action against responsible officials. We further recommend that the Director direct the City to (1) provide documentation to demonstrate that more than $11.7 million was used for eligible activities that met the intent of its HUD-approved budget line items or repay HUD from non-Federal funds; and (2) improve its financial management system and implement improved accounting procedures to ensure that it meets the requirements of regulations at 24 CFR (Code of Federal Regulations) 85.20, Office of Management and Budget Circular A-87, and 24 CFR 570.506. At a minimum, the financial management system should maintain accounting records and other supporting documents that (1) distinguish expenses paid by HUD from those paid through other funding sources; (2) demonstrate that expenditures paid were for eligible activities; (3) determine and adequately document the reasonableness, allocability, and allowability of costs; and (4) demonstrate that expenditures meet HUD-approved budget line items. We also recommend that the Director direct the City to (1) develop and implement controls to ensure that it monitors its subrecipients as required and maintains adequate documentation to support its monitoring efforts, and (2) revise its subrecipient agreement to comply with HUD requirements. 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 discussion draft audit report to the City on September 23, 2010, and discussed it with the City at an exit conference on October 4, 2010. The City provided a written response to the draft audit report on October 12, 2010. It 2 disagreed with some conclusions and recommendations in the report. The written response consisted of a 5-page letter and 6 exhibits that were an additional 77 pages. We considered the exhibits in our evaluation of the City’s response. The complete text of the City’s response, without the exhibits, along with our evaluation of that response, can be found in appendix B of this report. 3 TABLE OF CONTENTS Background and Objectives 5 Results of Audit Finding: The City Did Not Administer Its CDBG Program in Accordance With 6 HUD Requirements Scope and Methodology 13 Internal Controls 14 Appendixes A. Schedule of Questioned Costs 16 B. Auditee Comments and OIG’s Evaluation 17 C. CDBG Activities 25 4 BACKGROUND AND OBJECTIVES The Community Development Block Grant (CDBG) program provides annual grants on a formula basis to entitled cities and counties to develop viable urban communities by providing decent housing and a suitable living environment and by expanding economic opportunities, principally for low- and moderate-income persons. The program is authorized under Title 1 of the Housing and Community Development Act of 1974, Public Law 93-383 as amended, 42 U.S.C. (United States Code) 5301. The U.S. Department of Housing and Urban Development (HUD) awards grants to entitlement community grantees to carry out a wide range of community development activities directed toward revitalizing neighborhoods, economic development, and providing improved community facilities and services. Entitlement communities develop their own programs and funding priorities. To be eligible for funding, every CDBG-funded activity, except for program administration and planning, must Benefit low- and moderate-income persons, Aid in preventing or eliminating slums or 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 Scranton, PA (City), is a CDBG entitlement grantee. HUD awarded the City $3.4 million in CDBG funding in fiscal years 2008 and 2009 and $3.7 million in 2010.1 The City operates under a mayor-council form of government and provides the following services: public safety, roads, sanitation, health, culture and recreation, and general government services. The City administers its CDBG program through its Office of Economic and Community Development. In addition to the programs administered in-house, the City works with a number of outside nonprofit organizations to carry out its CDBG-funded programs. The director manages the daily operations of the office, which maintains its records at 538 Spruce Street, Scranton, PA. Our audit objectives were to determine whether the City (1) maintained records and documentation to identify the source and application of funds to demonstrate that funded activities were eligible and met program requirements, (2) established and maintained an effective system of budget controls for proper management of its CDBG program, and (3) properly monitored its subrecipients, in accordance with applicable HUD requirements. 1 The City’s fiscal year is January 1 through December 31. 5 RESULTS OF AUDIT Finding: The City Did Not Administer Its CDBG Program in Accordance With HUD Requirements The City (1) failed to maintain adequate accounting records identifying the source and application of funds for its HUD-sponsored activities, (2) did not maintain adequate documentation and budget controls to demonstrate that its expenditures complied with program requirements, (3) failed to execute proper agreements with its subrecipients, and (4) did not adequately monitor its subrecipients. Additionally, it did not ensure that its activities complied with program requirements and allowed an apparent conflict-of-interest situation to exist. These problems occurred because responsible City officials did not fully understand HUD requirements. Therefore, HUD had no assurance that more than $11.7 million in CDBG funds the City drew down from its grants was used for eligible activities that met the intent of the program. The City Failed To Support $11.7 Million in CDBG Expenditures The City did not maintain adequate accounting records and supporting documentation showing that its expenditures of CDBG funds complied with program requirements. HUD’s Integrated Disbursement and Information System showed that the City drew down more than $11.7 million in funds for 150 CDBG activities (see appendix C) during its fiscal years 2008, 2009, and 2010. Contrary to HUD and Federal requirements, however, the City’s own accounting records and supporting documents did not distinguish expenses paid by HUD from those paid through other funding sources such as the State of Pennsylvania and other non-Federal sources. Additionally, the City’s accounting records for 2008 and 20092 showed disbursements of more than $10.6 million for its CDBG program, which was nearly $2.8 million more than the amount of CDBG funds that the City drew down during this period. This overstatement occurred because the City’s CDBG accounting records included funding from sources other than HUD, which were not separately identifiable in its accounting records. Regulations at 24 CFR 85.20 require the City to maintain records which adequately identify the source and application of HUD funds provided for its CDBG activities. These records should contain information pertaining to each grant or subgrant award and authorization, obligations, unobligated balances, 2 The CDBG activity report audited was for the period January 1, 2008, through September 10, 2009. 6 assets, liabilities, outlays or expenditures, and income. The regulations also state that accounting records must be supported by such source documentation as cancelled checks, paid bills, payrolls, time and attendance records, and contract and subgrant award documents. Additionally, 24 CFR 570.506 requires the City to maintain documentation to demonstrate compliance with program requirements. Such records should include but not be limited to records providing a full description of each activity undertaken and records demonstrating that each activity undertaken met one of the national objectives of the CDBG program. Office of Management and Budget (OMB) Circular A-87, attachment A(C)(1)(j), further requires that to be allowable under Federal awards, costs must be adequately documented. As shown by the audit, the City failed to adequately maintain support for its CDBG expenditures with accounting records detailing expenditures and failed to maintain adequate supporting documents such as invoices, receipts, canceled checks, and employee payroll records tied to these expenditures. The City Did Not Maintain Required Budget Controls The City failed to prepare the required budget for its CDBG-funded activities with a comparison of budgeted with actual expenditures for each category. Regulations at 24 CFR 85.20(b)(4) state that actual expenditures or outlays must be compared with budgeted amounts for each grant or subgrant. To compare and control expenditures against approved budgets, the City must Maintain records of the amounts budgeted for eligible activities. Include unexpended/unobligated balances for budgeted categories. Compare planned versus actual obligations and expenditures. To efficiently manage its CDBG program, the City should document and maintain effective budget controls. An effective system of budget controls requires a periodic comparison of actual obligations and expenditures against planned obligations and expenditures and against projected accomplishments for such outlays. The City Did Not Execute Proper Subrecipient Agreements The City’s standard subrecipient agreement did not comply with HUD requirements. Regulations at 24 CFR 570.503 require that subrecipient agreements include a description of the work to be performed, a schedule for 7 completing the work, and a budget. These items must be in sufficient detail to provide a sound basis for the recipient to effectively monitor performance under the agreement. Our review of nine standard agreements the City signed with its subrecipients showed that the City’s subrecipient agreements and files did not contain adequate statements of work, schedules for completing the work, or required budgets. Additionally, two agreements did not contain the same national objective as those the City reported to HUD and were not updated with change orders and HUD requirements for each program year. Moreover, since the City’s record keeping was inadequate, it could not demonstrate the exact amount of CDBG funds that it disbursed to its subrecipients. The City estimated that about $2.8 million of the $11.7 million in CDBG funds it drew down went to nine subrecipients during fiscal years 2008, 2009, and 2010. The City Failed To Adequately Monitor Its Subrecipients The City could not demonstrate that it properly monitored its subrecipients as required. Subrecipient monitoring is required by regulations found at 24 CFR 85.40, which state that grantees are responsible for managing the day-to-day operations of grant- and subgrant-supported activities. The City was further required to carry out its responsibility to review its subrecipient performance by 24 CFR 570.501. Our review of the City’s onsite monitoring of its nine reported subrecipients showed that the monitoring was not sufficient. The City was able to provide some evidence that it performed some limited monitoring reviews during March and April 2009. However, for three of the nine subrecipients, it could not provide a monitoring checklist. The six completed checklists lacked documentation to support the monitoring conclusions. For three of the nine subrecipients, the City could not provide a completion letter. For two of the nine subrecipients, no monitoring information was provided by the City. City officials acknowledged that for one of these two subrecipients, they did not know what services the subrecipient performed with the CDBG funds. The City provided an internal written procedure which required it to carry out its statutorily mandated responsibility to review subrecipient performance as cited in the CDBG regulations at 24 CFR 570.501. However, the audit results showed that the City apparently did not fully understand its own internal written policy. CDBG Activities Did Not Comply With Program Requirements We reviewed six of the City’s CDBG activities shown in HUD’s Integrated Disbursement and Information System to determine whether activities contained documentation to demonstrate compliance with national objective and eligibility criteria and eligibility and support for disbursements. We found problems with all six activities. The following paragraphs provide details. 8 Four of the six activities were missing required documentation to demonstrate that the City completed required environmental reviews. The City must reevaluate its environmental findings to determine whether the original findings are still valid as required by 24 CFR 58.47 for each CDBG-assisted activity. The City did not determine the level of environmental review and designate whether it was exempt, the project required an environmental statement only, or an environmental review was necessary. As part of the environmental review, the City could not provide all of the letters from the Pennsylvania State Historical Preservation Office for the addresses acquired, rehabilitated, or demolished with CDBG funding. Section 106 of the National Historic Preservation Act requires the City to take into account the effects of its undertakings on historic properties and afford the council a reasonable opportunity to comment on such undertakings. Three of six activities had a national objective of addressing slum and blight on a spot basis. Documentation requirements are described at 24 CFR 570.506(b)(10) (i) and (ii) and include (1) a description of the specific condition of blight or physical decay treated; (2) for rehabilitation carried out under this category, a description of the structure, including the specific conditions detrimental to public health and safety that were identified; and (3) details and scope of the CDBG-assisted rehabilitation. The City’s files did not adequately demonstrate how this national objective was being met. For two of the six activities, it was noted that during construction, damage occurred to two adjacent buildings. OMB Circular A-87, attachment B, section 22(c) states that actual losses, which could have been covered by permissible insurance (through a self-insurance program or otherwise), are unallowable. The City paid the owners $49,500 each without adequate documentation to support the payments in its files. For one activity, there was no evidence of approval for a $50,000 change order transaction between the City and the subrecipient. The City indicated that it was an error and proactively started processing the required documentation during our review. The City also provided a 2004 subrecipient agreement for this activity, but the agreement was out of date and incomplete. For one economic development initiative grant, the City did not obtain required appraisals before the purchase and demolition of eight residential properties. Regulations at 24 CFR 570.606(e) reference 49 CFR part 24, subpart B for the acquisition of real property for an assisted activity. Regulation 49 CFR 102(d), requires that for real property, the (1) offer of compensation be no less than the appraisal amount, (2) the closing statement identify all incidental expenses, and (3) there is evidence that 9 the owner received all of the net proceeds due from the sale. The City’s files contained no documentation to demonstrate that the value of the properties was appraised. The City Allowed an Apparent Conflict-of-Interest Situation To Exist The audit identified an apparent conflict-of-interest situation, whereby the executive director of the Scranton Redevelopment Authority, who was responsible for administering its CDBG funds, was also the president of a consulting company that did business with the redevelopment authority. The consulting company received more than $130,000 in CDBG funds from the redevelopment authority. As a subrecipient, the redevelopment authority was required to comply with the provisions of 24 CFR 570.611 with regard to conflicts of interest, but it did not do so. Contrary to the regulations, the executive director had a significant financial interest in the consulting firm while also serving as the executive director of the redevelopment authority. The regulations at 24 CFR 570.489(h)(4) do allow, upon written request, an exception to the of conflict-of- interest provisions when approved by HUD on a case-by-case basis. However, neither the City nor the redevelopment authority contacted HUD to request an exception. The City Informed Us It Was Working To Correct Problems Identified Officials in the City’s Office of Economic Community Development informed us that the conditions identified by the audit occurred because responsible City employees did not fully understand all of the HUD requirements and, therefore, did not follow them. They informed us that going forward, they intended to ensure that the City’s records properly identified CDBG funding and funding from sources other than HUD, which were not separately identifiable during the audit period. Officials also agreed that they needed to maintain adequate supporting documentation tied to the accounting records and adequately monitor their subrecipients. Officials also stated that they were hopeful that this audit report would help responsible personnel understand the importance of these requirements. Conclusion As discussed above, the City could not demonstrate that it used more than $11.7 million in CDBG funds for eligible activities that met the intent of the program. 10 Although HUD regulations and its grant agreements required the City to adequately maintain records to demonstrate that funds were spent on eligible activities, execute proper subrecipient agreements, and adequately monitor its subrecipients, it did not fully understand these requirements. It also failed to maintain budget controls and accounting procedures to support the reasonableness, allocability, and allowability of costs charged to the grants. Therefore, HUD had no assurance that CDBG funds, totaling more than $11.7 million, met the intent of its CDBG program. By improving its financial management system and adequately supporting CDBG expenditures and complying with HUD requirements, the City can ensure that future funds will be used for the purposes intended. Recommendations We recommend that the Director of HUD’s Philadelphia Office of Community Planning and Development 1A. Perform additional monitoring and provide technical assistance to the City, as needed, to ensure that the City properly administers its CDBG funding in accordance with applicable requirements. 1B. Evaluate issues in this report, including the apparent conflict-of-interest issue, and if appropriate, initiate appropriate administrative action against responsible officials. We further recommend that the Director of HUD’s Philadelphia Office of Community Planning and Development direct the City to 1C. Provide documentation to demonstrate that $11,735,924 was used for eligible activities that met the intent of its HUD-approved budget line items or repay HUD from non-Federal funds. 1D. Improve its financial management system and implement improved accounting procedures to ensure that it meets the requirements of regulations at 24 CFR 85.20, OMB Circular A-87, and 24 CFR 570.506. At a minimum, the financial management system should maintain accounting records and other supporting documents that (1) distinguish expenses paid by HUD from those paid through other funding sources; (2) demonstrate that expenditures paid were for eligible activities; (3) determine and adequately document the reasonableness, allocability, and allowability of costs; and (4) demonstrate that expenditures meet HUD- approved budget line items. 11 1E. Develop and implement controls to ensure that it monitors its subrecipients as required and maintains adequate documentation to support its monitoring efforts. 1F. Revise its subrecipient agreement to comply with HUD requirements. 12 SCOPE AND METHODOLOGY We conducted our onsite work from January through August 2010 at the City’s office located at 538 Spruce Street, Scranton, PA, and at our offices located in Pittsburgh, PA. The audit covered the period January 2008 through December 2009 but was expanded when necessary to include other periods. We relied in part on computer-processed data in the City’s computer system. Although we did not perform a detailed assessment of the reliability of the data, we did perform a minimal level of testing and found the data to be adequate for our purposes. To accomplish our objectives, we Obtained relevant background information. Reviewed applicable HUD regulations and Federal guidelines. Reviewed the applicable City policies, financial records, subrecipient agreements, subrecipient monitoring reports, environmental reviews, and reports from its independent auditors. Interviewed officials from HUD’s Philadelphia Office of Community Planning and Development and members of the City’s staff. Reviewed HUD files including Integrated Disbursement and Information System reports and grantee monitoring reports. Obtained a listing of CDBG-funded activities administered by the City from January 2008 through September 2009. Nonstatistically selected and reviewed 6 of the 119 CDBG activities listed to verify compliance with national objective and eligibility criteria and eligibility and support for disbursements. We selected the six activities because they either had a large amount of disbursements or were associated with the Scranton Redevelopment Authority. The total dollar value of disbursements for the 6 activities during our audit period was $908,000, of the 119 activities valued at $7.8 million. Analyzed general ledger and disbursement information from the City’s computer system. Obtained a legal opinion from the Office of Inspector General’s (OIG) Office of General Counsel regarding the apparent conflict-of-interest situation involving the Scranton Redevelopment Authority. Counsel opined that that a conflict of interest existed. 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. The audit included tests of internal controls that we considered necessary under the circumstances. 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: Effectiveness and efficiency of operations – Policies and procedures that management has implemented to reasonably ensure that a program meets its objectives. Reliability of financial data – Policies and procedures that management has implemented to reasonably ensure that valid and reliable data are obtained, maintained, and fairly disclosed in reports. 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. Safeguarding of resources – Policies and procedures that management has implemented to reasonably ensure that resources are safeguarded against waste, loss, and misuse. 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 14 financial or performance information, or (3) violations of laws and regulations on a timely basis. Significant Deficiencies Based on our review, we believe that the following items are significant deficiencies: The City did not ensure compliance with applicable laws and regulations concerning record-keeping requirements, budget controls, and supporting source documentation that is to be maintained in its activity files. The City did not ensure compliance with applicable laws and regulations regarding subrecipient monitoring and procurement of services based on full and open competition by its subrecipients, allowing a conflict of interest to exist. 15 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation number Unsupported 1/ 1C $11,735,924 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. 16 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments 17 Comment 1 Comment 2 18 Comment 3 Comment 4 19 Comment 5 Comment 6 Comment 7 20 Comment 8 21 OIG Evaluation of Auditee Comments Comment 1 As stated in the audit report, we concluded that the City could not demonstrate that it used more than $11.7 million in CDBG funds in accordance with applicable HUD requirements because its accounting records did not distinguish between expenses paid by HUD funds and those paid by other funds. The City did not dispute that it failed to maintain adequate accounting records and did not develop procedures to track expenses paid by HUD versus expenses paid through other funding sources. We commend the City for taking action to improve controls by discontinuing the practice of commingling funds and opening two additional bank accounts to segregate funds, modifying its Quick Book system to track expenditures by activity, and pledging to provide documentation to HUD for each activity identified in the audit report. Comment 2 As stated in the audit report, regulations at 24 CFR 85.20 state that grantees and subgrantees must maintain records which adequately identify the source and use of funds provided for financially-assisted activities. Actual expenditures or outlays must be compared with budgeted amounts for each grant or subgrant. To compare and control expenditures against approved budgets, the City must maintain records of the amounts budgeted for eligible activities, include unexpended/unobligated balances for budgeted categories, and compare planned versus actual obligations and expenditures. We determined that the City did not prepare and process a $50,000 change order for additional architectural/engineering costs that increased the total CDBG funding for a 2008 subrecipient activity. The City acknowledged this discrepancy and took immediate action to prepare the missing change order during the audit. However, this occurrence illustrates the City’s need to improve its budget controls. Further, on numerous occasions during the audit, we requested the City provide documentation to support expenditures. Documentation such as invoices, employee timesheets, property appraisals, receipts, or canceled checks to support expenditures were not located in the files. Comment 3 The subrecipient agreement the City provided as an attachment to its written response does not comply with HUD requirements. As stated in the audit report, regulations at 24 CFR 570.503 require subrecipient agreements to include a description of the work to be performed, a schedule for completing the work, and a budget. These items must be in sufficient detail to provide a sound basis for the City to effectively monitor performance under the agreement. The subrecipient agreement did not identify how the subrecipient planned to use the CDBG funds to assist 10 homeless families to move to apartments, when the assistance would be completed, and how much the subrecipient planned to spend for the type of assistance provided. Further, the agreement references a “grantee policy” concerning the purchase of equipment and maintenance of inventory records of all non-expendable personal property. However, the policy is not included as an addendum to the agreement and the City did not provided a copy of it to us when we requested it during the audit. 22 Comment 4 As stated in the audit report, the City could not demonstrate that it properly monitored its subrecipients. Regulations at 24 CFR 85.40 and 24 CFR 570.501 require the City to monitor its subrecipients. The City was able to provide some evidence that it performed some limited monitoring reviews during March and April 2009. However, for three of the nine subrecipients, it could not provide a monitoring checklist. The six completed checklists lacked documentation to support the monitoring conclusions. For two of the nine subrecipients, no monitoring information was provided by the City. The monitoring plan and HOME monitoring correspondence that the City provided as an attachment to its written response does not demonstrate adequate monitoring of its CDBG subrecipients. Comment 5 We commend the City for taking immediate action to create and process the change order. Although the change order has been processed, the City lacked documentation to demonstrate that the payment was made for only eligible expenses, that the expenses were reasonable in relation to the actual performance, and that the funds were not in excess of immediate needs. This lack of documentation is critical in light of the fact that the City made another $50,000 payment for another activity to the same contractor within 2 days without supporting documentation. Comment 6 The City provided copies of the HUD-1, deed, and notes from the files of the Scranton Redevelopment Authority for three of eight properties. However, there was no evidence demonstrating how the City took possession of the remaining five properties. Also, for activities determined to meet a community development need having a particular urgency, regulations at 24 CFR 507.506(b) require that the following records be maintained: documentation concerning the nature and degree of seriousness of the condition requiring assistance, evidence that the grantee certified that the CDBG activity was designed to address the urgent need, information on the timing of the development of the serious condition, and evidence confirming that other financial resources to alleviate the need were not available. The City’s files did not contain this documentation. Comment 7 Because the individual has a financial interest in his company, serves as the executive director of the redevelopment authority, and did not obtain an exception from HUD, an apparent conflict of interest arises from his submission of invoices from his company to the redevelopment authority for reimbursement with CDBG funds. Even if the vacant property reviews were authorized and were services independent from his role as the executive director at the redevelopment authority, to be compliant with the requirements of redevelopment authority’s agreement with the City, the individual, as the executive director of the redevelopment authority, should have solicited competitive proposals for the reviews pursuant to regulations at 24 CFR Part 570. Those rules require compliance with regulations at 24 CFR 85.36, which, in relevant part, require open competitive bidding in negotiation. This step does not appear to have been taken by the individual while he was acting as the redevelopment authority’s 23 executive director. In addition, an open competitive bidding process is one of the factors to be considered by HUD in determining whether to grant an exception under 24 CFR Part 570. Finally, assuming that the individual’s consultancy work was otherwise permissible under 24 CFR Part 570, here, the conflict rules take precedence over the consultancy rules and operate as a bar to the consulting activity at issue. Comment 8 The multi-year environmental review for demolition clearance that the City provided was not sufficient because it did not provide details. That is, it did not relate to a specific CDBG activity identified in the City’s 5-year plan and did not identify specific properties. CDBG-funded activities must comply with the environmental review requirements in 24 CFR Part 58. Environmental review guidance on HUD’s Web site states that a complete and clear project description is the first step in the environmental review process. The project description should provide location-specific information and geographic boundaries, as well as a delineation of all activities included in the overall scope of the project. 24 Appendix C CDBG ACTIVITIES Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 NHS – home buyer 527 counseling LMC $3,417 $3,417 Celtic Arms/W.T. 677 Hackett’s LMJ $809 $4,244 5,053 889 Jo Ellen Exeter LMH 7,577 7,577 East Mountain SBA Road 1087 reconstruction 4,900 4,900 Paving and reconstruction of 1236 streets LMA 6,584 6,584 Reconstruction of Lackawanna 1371 Avenue bridges LMA 67,395 67,395 Redevelopment of the 500 block of Lackawanna 1399 Avenue LMJ 129,879 10,588 5,786 146,253 Lackawanna 1426 Avenue garage LMJ 19,774 8,619 28,393 Northern Light 1430 Espresso Bar, Inc. LMJ 305 588 893 410-412 Spruce 1435 Street LMJ 3,896 5,318 83 9,297 1438 Knitney Lines, Inc. LMJ 1,685 525 2,210 119 Jefferson 1439 Associates, LLC LMJ 2,011 2,011 1456 K & A Imports LMJ 1,255 1,255 Cross the Pond, 1458 LLC LMJ 53 42 95 Redevelopment of 500 Lackawanna 1473 Avenue LMJ 50,000 50,000 Preferred Produce and Food Service, 1505 Inc. LMJ 758 758 25 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 Lackawanna 1508 Avenue bridge LMA $77,879 $78,762 $156,641 Rockwell Avenue 1509 bridge LMA 10,792 $419 11,211 West Lackawanna 1510 Avenue bridge LMA 5,000 5,000 1514 Johnson College LMC 41,200 41,200 DJK Ventures, 1538 LLP LMJ 1,827 1,827 North Scranton Junior High 1547 (Goodwill) LMJ 4,342 184 770 5,296 ED project 1559 delivery costs LMJ 24,485 24,485 Demolition of former Scranton 1560 Lace building LMJ 113 113 1562 Facade grants SBS 30,000 29,600 59,600 Lackawanna 1564 Avenue garage SBA 15,821 15,821 Providence Square 1566 phase II LMA 9,460 2,540 12,000 1581 Mr. James Gerrity LMH 825 825 UNC transitional/ 1602 condemnation LMC 2,143 2,143 Connell Park - 1606 restoration LMA 44,770 29,171 73,941 North Scranton 1608 little league LMC 59,400 59,400 1610 Blight initiative SBS 2,757 2,757 UNC permanent housing/ 1624 chronically ill LMC 19,196 19,196 Community development 1634 delivery cost 11,702 11,702 National Pastry 1638 bake shop LMJ 210 662 872 1652 Ipanema Grill, Inc. LMJ 1,270 1,334 4,796 7,400 Alexander’s Salon 1664 and Day Spa, Inc. LMJ 315 4,658 3,163 8,136 26 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 Program 1666 administration $315,548 $32,582 $348,130 1667 Hyde Park baseball LMA 15,113 600 15,713 Connell Park little 1668 league LMA 19,515 19,515 Reconstruction of Rockwell Avenue 1669 bridge LMA 1,985 1,985 UNC-Bellevue 1671 Center LMC 14,201 14,201 Salvation Army - emergency fuel 1677 assistance LMC 3,225 3,225 NEPA 1679 Philharmonic LMC 12,500 12,500 Healthy Northeast Pennsylvania 1680 Initiative LMC 10,000 10,000 Catherine 1685 McAuley Center LMC 2,000 2,000 North Scranton Neighborhood 1688 Association LMC 18,000 9,950 $1,265 29,215 West Scranton Neighborhood 1689 Association LMA 1,450 28,300 939 30,689 South Scranton 1690 junior football LMC 4,700 4,700 Westen Park senior 1693 league LMA 8,567 8,567 Weston Field/ Department of Parks and 1695 Recreation LMA 8,504 8,504 Neighborhood 1697 police patrol LMA 117,047 144,493 20,632 282,172 Scranton Mall 1699 Association 15,395 123,632 139,027 Scranton Hotel, 1700 LLP 93,539 17,488 111,027 27 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 SPA - Lackawanna Avenue parking 1701 garage LMJ $31,000 $7,279 $6,281 $44,560 Benjamin Franklin Fire Fighters and 1703 Police LMA 40,135 40,135 Plot Neighborhood 1704 Association LMA 37,309 37,309 Scranton Redevelopment 1705 Authority SBS 171,615 171,615 ARC of Lackawanna 1707 County LMC 18,500 18,500 Paul M. Nardone 1723 D/B/A/ Outrageous LMJ 205 420 625 Kelbri 1724 Development, LLC LMJ 1,491 79 1,570 1726 Blight Initiative SBS 247,987 247,987 Vida Tapas Bar 1728 and Grill, Inc. LMJ 914 4,204 1,797 6,915 Electric City 1729 Roasting Company LMJ 210 530 740 Parker Street 1731 bridge LMA 75,000 75,000 1737 SECCAS, LLC LMJ 263 578 841 1742 Bethel AMC LMC 87,484 24,525 112,009 Friendship House energy 1748 improvements LMC 163,885 127,750 291,635 Clover Field junior 1757 football LMA 9,325 9,325 Cedar Avenue revitalization area 1759 study SBS 90,000 90,000 Downtown senior 1760 center LMC 53,000 53,000 Sloan baseball 1761 association LMC 19,850 19,850 28 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 Tree planting 1763 project LMA $18,488 $34,540 $7,673 $60,701 Purchase of fire 1766 truck LMA 399,999 399,999 MTM Real Estate 1768 Company, LLC LMJP 252,394 252,394 Rejuven Essence Management 1771 Services, LLC LMJP 153,449 $609 154,058 Program 1780 administration 422,792 292,574 715,366 UNC 1782 condemnation LMC 115,409 54,591 170,000 1783 Friends of the Poor LMC 20,000 20,000 UNC - Bellvue 1784 Center LMC 9,000 9,000 UNC - Project 1785 HOPE LMC 67,500 67,500 Boys and Girls 1786 Club “Park-it” LMC 26,000 26,000 1787 Deutsch Institute LMC 50,000 50,000 UNC - Arts in the 1791 Park LMC 6,000 6,000 Scranton Comm. 1792 Concerts BBBS LMC 9,000 9,000 Scranton Public 1793 Theatre LMC 1,710 5,040 6,750 Healthy NEPA 1794 Initiative LMC 51,340 51,340 Salvation Army emergency fuel 1795 assistance LMC 9,000 9,000 Catholic Social Services – Perm. 1798 Housing LMC 4,500 4,500 Community Intervention Center permanent 1800 supervisor LMC 12,000 6,000 18,000 Catherine 1801 McAuley Center LMC 13,500 13,500 UNC – permanent 1802 housing LMA 5,287 16,520 5,193 27,000 29 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 Scranton Park 1804 enhancement LMA $45,000 $7,730 $52,730 Connell Park little 1805 league LMA 14,059 7,854 21,913 1806 Hyde Park baseball LMA 54,476 $9,333 63,809 Economic development 1807 projects LMJP 27,779 27,779 Architectural Heritage 1808 Association SBS 150,473 59,710 210,183 South Scranton 1810 little league LMC 36,628 23,139 4,990 64,757 Weston Park senior 1811 little league LMA 22,500 22,500 West Scranton 1812 little league LMA 3,858 1,938 5,796 1813 Blight initiative SBS 73,041 326,959 400,000 Paving and 1815 handicap curb cuts LMA 379,024 4,902 383,926 Scranton Hotel, 1818 LLP 330,000 276,671 606,671 Scranton Mall 1819 Association 68,330 68,330 It’s Outrageous, 1822 LLC LMJP 63,614 63,614 Cartegna Family 1824 Wines, LLC LMJP 37,764 772 3,288 41,824 Electric City 1842 Television LMJ 92,515 572 83 93,170 Weston Field fence 1843 and lights LMA 16,988 16,988 Weston Park pool 1844 lighting LMA 1,238 1,238 Capouse Avenue 1845 pool LMA 1,238 1,238 30 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 1846 Connell Park pool LMA $1,238 $1,238 Keyser Village, 1847 LLC LMJ 187,394 187,394 Jay’s Commons, 1859 LLP LMJ 88,321 $1,019 89,340 1864 John’s Signs LMJ 25,315 25,315 Danielle & 1876 Company LMJP 27,032 27,032 Gleason Custom 1888 Kitchens, Inc. LMJP 52,525 $1,315 53,840 Backyard Ale 1889 House, LLC LMJP 38,822 38,822 West Side Falcons 1897 field lighting LMC 2,500 2,500 CDBG 1902 administration 490,956 142,027 632,983 SRA Connell 1904 Building LMJP 501,236 853 502,089 Paving of streets and handicap curb 1910 cuts LMA 407,917 407,917 West Side Falcons 1911 junior football LMC 87,594 87,594 Neighborhood 1912 Polic Patrol LMA 35,679 35,679 United Neighborhood 1921 Centers LMC 3,500 7,500 11,000 United Neighborhood Centers-Project 1922 Hope LMC 67,500 67,500 Boys and Girls Club -“Park- it” 1923 Program LMC 25,000 25,000 1924 Friends of the Poor LMC 11,000 11,000 1925 Deutsch Institute LMC 35,000 35,000 Community 1927 Intervention Center LMC 15,000 5,000 20,000 31 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 UNC-Permanent Supportive 1928 Housing LMC $10,000 $10,000 Catherine Mcauley Center-Perm Supp 1929 Housing LMC 18,000 3,244 21,244 Salvation Army – 1930 Utility Services LMC 6,756 73,784 80,540 Condemnation – 1931 City of Scranton LMC 17,969 29,705 47,674 Lackawanna 1933 Avenue Bridge LMA 63,753 53,567 117,320 1934 Blight initiative SBS 93,545 93,545 1936 Scranton Hotel, LP 278,291 278,291 Scranton Mall 1937 Associates 170,000 170,000 Sidewalk & Period 1938 Lighting LMA 4,645 34,375 39,020 Connell Little 1945 League LMA 4,054 1,019 5,073 1967 Fitness 53, Inc. LMJ 25,000 1,680 26,680 Diversified Disaster Recovery 1982 Services, Inc. LMJ 50,000 3,275 53,275 Administration- 1996 CDBG 370,874 370,874 Sidewalks at Washington & 2012 Linden LMA 1,741 1,741 2024 Deutsch Institute LMC 23,761 23,761 United Neighborhood Centers Permanent Supportive 2027 Housing LMC 5,000 5,000 Scranton Mall 2032 Associates 8,238 8,238 Center for Independent 2044 Living Sidewalks LMC 1,322 1,322 32 Activity Nat. Funds drawn Funds drawn Funds drawn Activity name Total number obj.* in 2008 in 2009 in 2010 Repayment of 2052 Section 108 – 2010 $733,778 $733,778 Project Delivery Costs – Sordoni v 2053 OECD 3,300 3,300 500 Lackawanna 2055 Avenue - Park LMJ 49,000 49,000 Totals $4,797,874 $4,576,836 $2,361,226 $11,735,9363 *National objective codes: Code Description 24 CFR citation LMC Low/mod limited clientele benefit. Activities that benefit a limited clientele, at 570.208(a)(2) least 51 percent of whom are low/mod income. LMC activities provide benefits to a specific group of persons rather than to all the residents of a particular area. LMJ Low/mod job creation and retention. Activities undertaken to create or retain 570.208(a)(4) permanent jobs, at least 51 percent of which will be made available to or held by low/mod persons. LMJP Low/mod job creation, location-based. Activities in which a job is held by or 570.208(a)(4)(iv) made available to a low/mod person based on the location of the person’s residence or the location of the assisted business. Slum/blight area benefit. Activities undertaken to prevent or eliminate slums or SBA blight in a designated area. 570.208(b)(1) SBS Slum/blight, spot basis. Activities undertaken on a spot basis to address conditions 570.208(b)(2) of blight or physical decay not located in designated slum/blight areas. LMA Low/mod area benefit. Activities providing benefits that are available to all the 570.208(a)(1) residents of a particular area, at least 51 percent of whom are low/mod income. The service area of an LMA activity is identified by the grantee and need not coincide with census tracts or other officially recognized boundaries. LMH Low/mod housing benefit. Activities undertaken to provide or improve permanent 570.208(a)(3) residential structures that will be occupied by low/mod income households. 3 This amount is $12 more than the amount of unsupported costs shown in recommendation 1C due to the rounding of amounts for the 150 activities listed in the chart. 33
The City of Scranton, PA, Did Not Administer Its Community Development Block Grant Program in Accordance With HUD Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-11-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)