oversight

The City of Pittsburgh, PA, Can Improve Its Administration of Its Community Development Block Grant Recovery Act Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-01-31.

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

                                                               Issue Date
                                                                      January 31, 2011
                                                               Audit Report Number
                                                                      2011-PH-1006




TO:        John E. Tolbert III, Director, Office of Community Planning and Development,
            Pittsburgh Field Office, 3ED

           //signed//
FROM:      John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
             3AGA

SUBJECT:   The City of Pittsburgh, PA, Can Improve Its Administration of Its Community
           Development Block Grant Recovery Act Funds


                                  HIGHLIGHTS

 What We Audited and Why

           We audited the City of Pittsburgh’s (City) administration of its Community
           Development Block Grant (CDBG) funds that it received under the American
           Recovery and Reinvestment Act of 2009 (Recovery Act). We selected the City for
           audit because it received a $4.5 million grant, which was the third largest CDBG
           Recovery Act grant awarded in the State of Pennsylvania and it had disbursed
           more than half of the grant funds as of July 12, 2010. Our objective was to
           determine whether the City administered its street resurfacing and neighborhood
           business and economic development activities funded with Recovery Act funds
           according to the requirements of the Recovery Act and applicable U.S. Department
           of Housing and Urban Development (HUD) rules and regulations.

 What We Found


           Although the City generally administered its street resurfacing and neighborhood
           business and economic development activities funded with Recovery Act funds
           according to the requirements of the Recovery Act and applicable HUD rules and
          regulations, it can improve its administration of the funds. The City (1) did not
          comply with HUD guidance for implementing the “buy American” provision of
          the Recovery Act, (2) could not demonstrate that jobs created in part by $400,000
          in loaned funds benefitted or will benefit low- and moderate-income persons, (3)
          did not include a statement of work in its subrecipient agreement with the Urban
          Redevelopment Authority (Redevelopment Authority), and (4) did not accurately
          enter the number of jobs created or retained into the Federal reporting Web site.

What We Recommend


          We recommend that HUD require the City to (1) develop and implement controls to
          ensure that a “buy American” provision is included in requests for applications or
          proposals, subrecipient agreements, bidding documents, and contracts funded with
          Recovery Act funds; (2) provide documentation to demonstrate that $400,000 loaned
          to two companies will comply with national objective criteria and benefit low- and
          moderate-income persons; (3) amend its subrecipient agreement with the
          Redevelopment Authority to include a specific description of the work to be
          performed, a schedule for completing the work, and a detailed budget; and (4)
          develop and implement controls to ensure that Recovery Act job creation data it
          enters into the Federal reporting Web site are accurate.

          For each recommendation without a management decision, please respond and
          provide status reports in accordance with HUD Handbook 2000.06, REV-3.
          Please furnish us copies of any correspondence or directives issued because of the
          audit.

Auditee’s Response


          We provided a draft audit report to the City on January 12, 2011, and discussed it
          with the City at an exit conference on January 18, 2011. The City provided written
          comments to the draft report on January 24, 2011. It agreed with the conclusions
          and recommendations in the report. The complete text of the City’s response can
          be found in appendix B of this report.




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                           TABLE OF CONTENTS

Background and Objective                                                  4

Results of Audit
      Finding: The City Can Improve Its Administration of Its Community   6
      Development Block Grant Recovery Act Funds

Scope and Methodology                                                     12

Internal Controls                                                         14

Appendixes
    A. Schedule of Questioned Costs                                       16
    B. Auditee Comments                                                   17




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                      BACKGROUND AND OBJECTIVE

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009 (Recovery Act). The purpose of the Recovery Act was to jumpstart the Nation’s ailing
economy, with a primary focus on creating and saving jobs in the near term and investing in
infrastructure that will provide long-term economic benefits. This legislation included a $1
billion appropriation of community development funds to carry out Community Development
Block Grant (CDBG) programs as authorized under Title 1 of the Housing and Community
Development Act of 1974.

The City of Pittsburgh, PA (City), is a CDBG program entitlement grantee. The U.S.
Department of Housing and Urban Development (HUD) annually 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. The City manages its community development programs through its
Department of City Planning. The Department of City Planning pursues community
development by facilitating community planning processes, supporting community-based and
technical assistance organizations and programs, and administering CDBG funds.

The Urban Redevelopment Authority (Redevelopment Authority) is a subrecipient of the City’s
CDBG funds. It administers economic development loans on behalf of the City. The loans
provide capital and stimulate growth for new and growing businesses in Pittsburgh.

On July 17, 2009, the City received a $4.5 million grant of CDBG funds under the Recovery
Act. The City planned to use the grant funds on the following nine activities:

                                                                Amount
                                      Activity                  obligated
                Street resurfacing                             $1,350,000
                Neighborhood business and economic development 1,000,000
                Bridge repairs                                    657,500
                Wall, step, and fence                             540,000
                Capital equipment purchase                        478,251
                Neighborhood street improvement                   190,000
                Disabled and public sidewalk                      137,500
                Slope failure remediation                           75,000
                Police zone renovation                              50,000
                Total                                          $4,478,251

The Recovery Act imposed additional reporting requirements and more stringent obligation and
expenditure requirements on the grant recipients. For example, the City was required to obligate
100 percent of its CDBG Recovery Act funds by September 30, 2011, and it was required to
expend 100 percent of these funds by September 30, 2012. As of August 2010, the City had

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obligated $2.5 million (56 percent) of its grant and expended $2.4 million (53 percent) of it.
Transparency and accountability were also critical priorities in the funding and implementation
of the Recovery Act.

Our objective was to determine whether the City administered its street resurfacing and
neighborhood business and economic development activities funded with Recovery Act funds
according to the requirements of the Recovery Act and applicable HUD rules and regulations.




                                                5
                                RESULTS OF AUDIT

Finding: The City Can Improve Its Administration of Its Community
Development Block Grant Recovery Act Funds
Although the City generally administered Recovery Act grant funds for its street resurfacing and
neighborhood business and economic development activities in accordance with the
requirements of the Recovery Act and HUD rules and regulations, it can improve its
administration of the funds. It did not (1) comply with HUD guidance for implementing the
“buy American” provision of the Recovery Act, (2) maintain documentation to demonstrate that
jobs created in part with $400,000 loaned to two companies benefitted or would benefit low- and
moderate-income persons, (3) include a statement of work in its subrecipient agreement with the
Redevelopment Authority, and (4) accurately enter the number of jobs created or retained into
the Federal reporting Web site. This condition occurred because the City (1) overlooked
guidance to include the “buy American” provision in its street resurfacing contracts and the
subrecipient agreement with the Redevelopment Authority, (2) was waiting to obtain
documentation to demonstrate that loaned funds benefitted low-and moderate-income persons,
(3) was unaware of HUD requirements for subrecipient agreements, and (4) was uncertain of
how to report job creation information for neighborhood business and economic development
loans. By improving its administration of these Recovery Act funds, the City will increase its
assurance that the funds are being used and reported in accordance with applicable Recovery Act
and HUD requirements.


 The City Submitted an
 Amended Action Plan as
 Required


              In June 2009, the City submitted a substantial amendment to its fiscal year 2008
              annual action plan as required. The annual action plan outlines the activities the
              City will undertake using the CDBG funds it received. The substantial
              amendment to the fiscal year 2008 annual action plan was required to record the
              activities the City planned to undertake using its CDBG Recovery Act funds. All
              of the activities that the City included in its amended action plan were eligible to
              be funded with its Recovery Act grant, including street resurfacing and
              neighborhood business and economic development activities. The following
              pictures show some of the work completed by the City with its Recovery Act funds.




                                                6
                                 Resurfacing of Ashley Street (completed)




                               Resurfacing of South 19th Street (completed)


The City Generally Complied
With Procurement
Requirements


           The City generally followed HUD procurement regulations and guidance. We
           reviewed two street resurfacing contracts valued at $780,000 and found that the
           City

                  Received an adequate number of bids to ensure that it awarded contracts
                  competitively as required by 24 CFR (Code of Federal Regulations) 85.36.


                                             7
                           The City advertised and competitively awarded each contract and had
                           sufficient documentation to support the procurement.

                           Ensured that contractors complied with Davis-Bacon Act requirements.
                           The Recovery Act required that all laborers and mechanics be paid in
                           accordance with the prevailing wage rates in accordance with the Davis-
                           Bacon Act. HUD Handbook 1344.1, REV-1, required the City to perform
                           wage interviews, review contractors’ weekly payrolls, and ensure that the
                           required Davis-Bacon Act poster and pertinent wage rates were posted in a
                           common area at the job site.

                  However, it did not comply with HUD guidance for implementing the “buy
                  American” requirement of the Recovery Act. Under the Recovery Act, HUD’s
                  Office of Community Planning and Development (CPD) issued Notice CPD-09-
                  05, which required grant recipients to place a provision requiring compliance with
                  the “buy American”1 requirement in requests for applications or proposals,
                  subrecipient agreements, bidding documents, and contracts for the assisted
                  activity/project. The City did not include the provision in its street resurfacing
                  contracts and its subrecipient agreement with the Redevelopment Authority.
                  However, due to the nature of the street resurfacing work, there was no impact as
                  a result of the City’s noncompliance with the requirement. Conversely, the
                  Redevelopment Authority did not include the provision in its loan agreements.
                  As a result, due to the omission, there was no assurance that the companies
                  receiving loans complied with the requirement.

    The City Could Not
    Demonstrate Compliance With
    National Objective Criteria


                  Neither the City nor its subrecipient could demonstrate that funds loaned to two
                  companies resulted in or would result in jobs for low- and moderate-income
                  persons. The City provided $1 million in Recovery Act funds to the
                  Redevelopment Authority for the neighborhood business and economic
                  development activity. The Redevelopment Authority planned to make loans to at
                  least eight companies with the funds to continue the City’s small business loan
                  fund. We reviewed two loans the Redevelopment Authority made for $200,000
                  each. Neither the City nor the Redevelopment Authority could demonstrate that
                  the jobs the companies created benefitted or would benefit low- and moderate-
                  income persons, contrary to the loan agreements that the companies signed with
                  the Redevelopment Authority. Moreover, regulations at 24 CFR 570.208(a)(4)(i)
                  require that for an activity designed to create or retain permanent jobs in which at
                  least 51 percent of the jobs involve the employment of low- and moderate-income
1
 For Recovery Act-funded CDBG programs, the “buy American” requirement applies to eligible activities for the
construction, alteration, repair, or maintenance of public buildings or public works. For these activities with some
exception, all of the iron, steel, and manufactured goods used in the project must be produced in the United States.

                                                          8
                 persons, the recipient must document that at least 51 percent of the jobs would be
                 held by or made available to low- and moderate-income persons. Since neither
                 the City nor the Redevelopment Authority could demonstrate compliance with the
                 documentation requirement, we consider the $400,000 value of the two loans
                 unsupported.

    The City’s Subrecipient
    Agreement With the
    Redevelopment Authority Did
    Not Comply With
    Requirements


                 The City’s August 2008 subrecipient agreement with the Redevelopment
                 Authority, which was amended on November 9, 2009, to include an additional $1
                 million in Recovery Act funds for neighborhood business and economic
                 development, did not include a specific description of the work to be performed, a
                 schedule for completing the work, or a detailed budget. Regulations at 24 CFR
                 570.503 require subrecipient agreements to include a statement of work that
                 includes a description of the work to be performed, a schedule for completing the
                 work, and a budget. The regulations also provide that the statement of work
                 should be sufficiently detailed to provide a sound basis for the recipient to
                 effectively monitor the performance under the agreement. Without these
                 elements in the subrecipient agreement, the City cannot effectively monitor the
                 Redevelopment Authority. The City indicated that it was not aware of these
                 requirements.

    The City Did Not Report
    Accurate Job Creation
    Information


                 The City did not accurately report the number of jobs created or retained as a
                 result of its Recovery Act activities.2 For the reporting periods ending March 31,
                 2010, and June 30, 2010, the City reported 11.5 jobs created. The 11.5 jobs
                 created were related to the City’s street resurfacing activity. The City did not
                 report any jobs created or retained as a result of its neighborhood business and
                 economic development activity, although one of the companies that received a
                 loan using Recovery Act funds created four jobs during the period ending
                 June 30, 2010. The City was unsure of how to report job creation information
                 through its neighborhood business and economic development activity so as a
                 result, did not report any information. The City acknowledged that some jobs
                 should have been reported. Also, the City could not adequately justify its

2
 Grant recipients are required to report spending and performance data, including estimates of the number of jobs
created and retained, to the Federal reporting Web site, www.recovery.gov.

                                                         9
             estimate of jobs created for two contractors involved with the street resurfacing
             activity. The City claimed that the contractors did not use time sheets, and,
             therefore, it made a best guess estimate of the number of jobs created. The City
             did not go back to the contractors to request information, such as payroll
             information, to support its job creation estimate. Office of Management and
             Budget Memorandum M-09-21 states that data quality is an important
             responsibility of key stakeholders identified in the Recovery Act. The City, as the
             owner of the data submitted, has the principal responsibility for the quality of the
             information submitted. In an effort to meet the Recovery Act goal of achieving
             unprecedented levels of accountability and transparency in government spending,
             the City needs to develop and implement controls to ensure that Recovery Act job
             creation data it enters into the Federal reporting Web site are accurate.

Conclusion


             Although the City generally administered Recovery Act grant funds for its street
             resurfacing and neighborhood business and economic development activities in
             accordance with applicable requirements, it can improve its administration of the
             funds. The City needs to (1) develop and implement controls to ensure that a “buy
             American” provision is included in requests for applications or proposals,
             subrecipient agreements, bidding documents, and contracts funded with Recovery
             Act funds; (2) provide documentation to demonstrate that $400,000 loaned to two
             companies will comply with national objective criteria and benefit low- and
             moderate-income persons; (3) amend its subrecipient agreement with the
             Redevelopment Authority to include a specific description of the work to be
             performed, a schedule for completing the work, and a detailed budget; and (4)
             develop and implement controls to ensure that Recovery Act job creation data it
             enters into the Federal reporting Web site are accurate. By making these
             improvements, the City will increase its assurance that Recovery Act funds are being
             used and reported in accordance with applicable Recovery Act and HUD
             requirements.

Recommendations


             We recommend that the Director of HUD’s Pittsburgh Office of Community
             Planning and Development require the City to

             1A.   Develop and implement controls to ensure that a “buy American” provision is
                   included in requests for applications or proposals, subrecipient agreements,
                   bidding documents, and contracts funded with Recovery Act funds.

             1B.   Provide documentation to demonstrate that $400,000 loaned to two companies
                   will comply with national objective criteria and benefit low- and moderate-
                   income persons.

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1C.   Amend its subrecipient agreement with the Redevelopment Authority to
      include a specific description of the work to be performed, a schedule for
      completing the work, and a detailed budget.

1D.   Develop and implement controls to ensure that Recovery Act job creation data
      it enters into the Federal reporting Web site are accurate.

We also recommend that the Director of HUD’s Pittsburgh Office of Community
Planning and Development

1E.   Provide technical assistance to the City regarding entering job creation
      information into the Federal reporting Web site.




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                         SCOPE AND METHODOLOGY

We conducted the audit from August through November 2010 at the City’s offices located at 200
Ross Street, Pittsburgh, PA, and our office located in Pittsburgh, PA. The audit covered the period
February 2009 through September 2010 but was expanded when necessary to include other periods.

To achieve our audit objective, we

       Obtained relevant background information;

       Reviewed the Recovery Act;

       Reviewed Office of Management and Budget guidance for implementing the Recovery Act;

       Reviewed applicable HUD rules, regulations, and guidance;

       Reviewed the City’s policies and procedures related to procurement, monitoring/reporting of
       grant funds, expenditures, and disbursements;

       Reviewed the City’s fiscal year 2007 and 2008 audited financial statements;

       Interviewed relevant City staff;

       Interviewed officials from HUD’s Pittsburgh Office of Community Planning and
       Development;

       Reviewed relevant subrecipient agreements, monitoring/reporting records, financial records,
       and procurement records; and

       Physically inspected and photographed four streets that the City resurfaced using grant
       funds.

We audited two activities—street resurfacing and neighborhood business and economic
development—from the nine activities for which the City planned to use its grant funds. We
selected these activities for review because the $2.4 million the City obligated to them
represented 53 percent of the $4.5 million grant and as of August 2010, the City had expended
$2.2 million of the $2.4 million. We nonstatistically selected for detailed review the two largest
street resurfacing contracts with a combined value of $780,000 (of the $1.4 million obligated for
this activity) and two of four neighborhood business and economic development loans valued at
$200,000 each for a combined value of $400,000 (of the $1 million obligated for this activity).

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

                                                12
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               13
                              INTERNAL CONTROLS

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

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

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



 Relevant Internal Controls


               We determined that the following internal controls were relevant to our audit
               objective:

                      Policies and procedures that the City implemented to ensure that activities
                      met established program objectives and requirements.

                      Policies and procedures that the City implemented to ensure that resource
                      use was consistent with applicable 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


               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


                                                 14
internal control structure as a whole. Accordingly, we do not express an opinion on
the effectiveness of the City’s internal control.




                                 15
                                   APPENDIXES


Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                             Recommendation
                                 number           Unsupported 1/
                                    1B              $ 400,000



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.




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Appendix B

             AUDITEE COMMENTS




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