Issue Date October 18, 2011 Audit Report Number 2012-NY-1002 TO: Vincent Hom, Director, Community Planning and Development, 2ADM1 FROM: Edgar Moore, Regional Inspector General for Audit, 2AGA SUBJECT: The City of New York, NY, Charged Questionable Expenditures to Its Homelessness Prevention and Rapid Re-Housing Program HIGHLIGHTS What We Audited and Why We audited the City of New York, NY’s (City) administration of its Homelessness Prevention and Rapid Re-Housing Program (HPRP) funded under the American Recovery and Reinvestment Act of 2009. We selected the City for review based upon a recommendation from the Director of the U.S. Department of Housing and Urban Development’s (HUD) New York City Office of Community Planning and Development and because it was the largest grantee in New York State. The objectives of the audit were to determine whether City officials (1) disbursed HPRP funds efficiently and effectively in accordance with HUD and other applicable requirements; (2) had a financial management system in place to adequately safeguard the funds; and (3) adequately monitored their subgrantees to ensure compliance with Recovery Act requirements, HPRP guidelines, and other applicable HUD regulations. What We Found City officials did not always follow applicable HUD regulations in administering the City’s HPRP. Specifically, they (1) disbursed HPRP funds for questionable rental assistance payments and salary expenditures, and (2) did not adequately monitor subgrantees. As a result, program funds were used for ineligible rental assistance and unsupported administrative salaries. Consequently, City officials could not assure HUD that all HPRP disbursements complied with HUD rules and regulations. We attribute these deficiencies to City officials’ failure to establish adequate controls over disbursements and monitoring of subgrantees to ensure compliance with regulations. What We Recommend We recommend that the Director of HUD’s New York City Office of Community Planning and Development instruct City officials to (1) reimburse from non- Federal funds $93,436 for ineligible costs pertaining to questionable rental assistance, (2) provide documentation to justify $329,937 in unsupported salary expenses, and (3) strengthen subgrantee monitoring procedures to ensure that all policies and procedures are implemented, thus complying with HPRP 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 discussed the results of the review during the audit, provided a copy of the draft report to City officials, and requested their comments on August 18, 2011. City officials provided their written comments on September 15, 2011. We held an exit conference on September 16, 2011, at which time City officials generally disagreed with the finding. The complete text of the auditee’s response, along with our evaluation of that response, can be found in appendix B of this report. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding: City Officials Charged Questionable Expenditures to the City’s 5 Homelessness Prevention and Rapid Re-Housing Program Scope and Methodology 9 Internal Controls 10 Appendixes A. Schedule of Questioned Costs 12 B. Auditee Comments and OIG’s Evaluation 13 3 BACKGROUND AND OBJECTIVES The Homelessness Prevention and Rapid Re-Housing Program (HPRP) is a new housing program under the U.S. Department of Housing and Urban Development’s (HUD) Office of Community Planning and Development. It was funded on February 17, 2009, under the American Recovery and Reinvestment Act of 2009, which provided $1.5 billion in funding. The purpose of HPRP is to provide homelessness prevention assistance to households that would otherwise become homeless, many due to the economic crisis, and to provide assistance to rapidly rehouse persons who are homeless, as defined by Section 103 of the McKinney-Vento Homeless Assistance Act (42 U.S.C. (United States Code) 11302). The program provides temporary financial assistance and housing relocation and stabilization services to individuals and families that are homeless or would be homeless but for this assistance. Eligible program activities are intended to target the following two populations of persons facing housing instability: Individuals and families that are currently in housing, but are at risk of becoming homeless and needing temporary rent or utility assistance to prevent them from becoming homeless or assistance to move to another unit. Individuals and families that are experiencing homelessness (residing in emergency or transitional shelters or on the street) and need temporary assistance to obtain housing and retain it. The City of New York was awarded $74 million in HPRP funds in July of 2009, and it is the largest HPRP grant recipient in New York State. The City’s HPRP grant funds are administered by the New York City Department of Homeless Services, which uses 23 subgrantees to provide services to HPRP participants. As of July 25, 2011, the Department has disbursed a total of $47.1 million in HPRP funds. The mission of the Department is to prevent and address homelessness in New York City. In collaboration with other public agencies and not-for-profit partners in the private sector, the Department works to prevent homelessness before it occurs, reduces street homelessness, and assists residents transitioning from shelters into appropriate permanent housing. The objectives of the audit were to determine whether City officials (1) disbursed HPRP funds efficiently and effectively in accordance with HUD and other applicable requirements; (2) had a financial management system in place to adequately safeguard the funds; and (3) adequately monitored subgrantees to ensure compliance with Recovery Act requirements, HPRP guidelines, and other applicable HUD regulations. 4 RESULTS OF AUDIT Finding: City Officials Charged Questionable Expenditures to the City’s Homelessness Prevention and Rapid Re-Housing Program City officials charged questionable rental assistance expenditures and administrative salaries to its HPRP. Specifically, they (1) disbursed $93,436 for excess rental arrears and payments issued directly to participants, (2) made disbursements of $329,937 for unsupported administrative salary expenses, and (3) did not adequately monitor their subgrantees. Consequently, there was no assurance that HPRP funds were disbursed in accordance with HUD and other applicable requirements. We attribute these deficiencies to City officials’ failure to establish adequate controls over disbursements and subgrantee monitoring policies and procedures. As a result, $93,436 in ineligible rental assistance payments and $329,937 in unsupported salary expenses were charged to the program, and subgrantees were not adequately monitored. The Department of Homeless Services executed an agreement with HELP Social Service Corporation (HELP) to provide homeless prevention services to those individuals and families at imminent risk of homelessness and who were likely to seek shelter services from the Department and assist them in remaining stably housed or transitioning successfully back to their community without experiencing homelessness. During the audit period, August 1, 2009, to December 31, 2010, weaknesses in the City’s controls over disbursements and monitoring policies and procedures were noted as described below. Ineligible Rental Assistance During the audit period, City officials made disbursements to HELP for ineligible items totaling $93,436. Specifically, $59,430 was disbursed for rental arrears in excess of the 6-month eligibility requirement, and $34,006 was disbursed for payments issued directly to program participants. HUD’s HPRP Notice FR-5307-N-01, dated March 19, 2009, section IV (A), provides that rental assistance may be used to pay up to 6 months of rental arrears for eligible program participants. The program was intended to provide short- to medium-term rental assistance to HPRP participants for no more than 18 months. Rental arrears or back rent may be paid if the payment enables the program participant to remain in the housing unit for which the arrears are being paid. A review of the requests for financial assistance, checks issued, and participant leases revealed that 30 of 94 participants were provided $59,430 in rental 5 assistance to pay for rental arrears in excess of the 6-month eligibility requirement. City officials stated that the payments represented short- or medium-term rental assistance but could not provide documentation to support this assertion. This condition occurred because City officials had weaknesses in their controls over disbursements that prevented them from obtaining supporting documents before making payments. As a result, $59,430 in HPRP funds was expended for rental arrears in excess of the 6-month eligibility requirement and was, therefore, ineligible. Further review of disbursement controls revealed that documentation to support subgrantee invoices was not reviewed or monitored by City officials. This deficiency was evident when City officials could not provide requested documentation to support disbursements during the review. City officials stated that they would have to contact the subgrantees to obtain the information requested and that any information provided had not been reviewed by City officials. According to the City’s procedures, the subgrantee was required to submit a monthly bill to the City for each month that services were provided, including a certification made by the designated financial officer of the subgrantee, attesting to the accuracy of the bill and that supporting documents were in the files of the subgrantee. In addition, HELP issued checks directly to 21 participants, totaling $34,006 for the Work Advantage Savers program. The Work Advantage Savers program is a New York City program that provides rental support for 1 to 2 years to help domestic violence and homeless shelter residents obtain permanent housing. HPRP Notice FR-5307-N-01, dated March 19, 2009, section IV(B)(3), provides that HPRP funds used to support program participants must be issued directly to the appropriate third party, such as the landlord or utility company, and in no case are funds eligible to be issued directly to program participants. City officials stated that the Work Advantage Savers program was funded by the City and should not have been paid with HPRP funds. However, since HPRP funds were issued directly to 21 participants for the Work Advantage Savers program, which was not an activity under the HPRP, this expense of $34,006 was ineligible and should be repaid with non-Federal funds and used for other eligible HPRP priorities. This deficiency occurred due to City officials’ failure to review the supporting invoice before disbursing HPRP funds to the subgrantee. Unsupported Salary Expenses A total of $329,937 in salary expenses was charged to HPRP for 30 HELP employees for the period June through September 2010 without adequate support. The salaries charged to the HPRP grant included the program director, program assistant, case manager, and case manager supervisor. However, HELP officials could not provide a basis for the salaries charged to the HPRP grant. Further, the officials could not provide adequate personnel activity reports or other supporting 6 documentation to substantiate that salary costs charged were allowable HPRP expenses. HELP officials stated that the salary costs charged were based on the approved budget provided by the Department of Homeless Services and not actual expenses. Office of Management and Budget (OMB) Circular A-87, attachment B, requires that when employees work on multiple activities, a distribution of their salaries or wages be supported by personnel activity reports or equivalent documentation. Consequently, since this information was not provided, City officials could not assure HUD that the $329,937 in unsupported salary expenses was used for HPRP grant expenses. This deficiency occurred because of weaknesses in the City’s monitoring procedures, which did not require a review of documentation to support subgrantee invoices. Inadequate Monitoring of Subgrantees City officials had inadequate monitoring procedures for the City’s subgrantees. They made disbursements to subgrantees without a review of supporting documentation for invoices provided by the subgrantees. Specifically, the subgrantees submitted monthly invoices, including a certification signed by their financial officer, and City officials paid the invoice. No further review of supporting documents, such as general ledgers, canceled checks, paid vendor invoices, and other source documents, was conducted. According to HUD HPRP Notice FR-5307-N-01, dated March 19, 2009, section V(I), grantees are responsible for monitoring all HPRP activities carried out by a subgrantee to ensure that program requirements are met. As a result of these inadequate monitoring procedures, City officials could not assure HUD that HPRP funds disbursed were for eligible expenditures and were in accordance with HUD rules and regulations. This deficiency occurred because of weaknesses in the City’s monitoring policies and procedures, which allowed approval of monthly subgrantee invoices without a review of source or supporting documents to substantiate the costs billed. According to City officials, Independent Public Accountant (IPA) firms were contracted to perform monitoring reviews for each of the subgrantees annually as part of the City’s compliance with the single audit requirement. However, as of September 16, 2011, a finalized audit report had not been issued; thus, city officials have no assurance as to whether expenditures to date are eligible and proper. City officials should have developed their own procedures for monitoring their subgrantees. This lack of adequate monitoring exhibited noncompliance with HPRP Notice FR-5307-N-01, section V(I), Monitoring, and placed HPRP funds at risk of being used for expenses that were not eligible and in accordance with HUD rules and regulations. 7 Conclusion City officials charged questionable rental assistance expenditures and unsupported salaries to the City’s HPRP. Specifically, they made disbursements of $93,436 for ineligible items, consisting of $59,430 related to payments for rental arrears over the 6-month eligibility requirement, $34,006 for payments issued directly to participants, and $329,937 in unsupported salary costs. These deficencies occurred because City officials had weaknesses in their controls over disbursements and subgrantee monitoring policies and procedures. As a result, $93,436 was disbursed for ineligible items, and $329,937 was disbursed for unsupported salary costs, which could have been used for other HPRP priorites. Recommendations We recommend that the Director of HUD’s New York City Office of Community Planning and Development instruct City officials to 1A. Reimburse from non-Federal funds $93,436 for ineligible costs charged to HPRP; specifically, $59,430 related to payments for rental arrears over the 6-month eligibility requirement and $34,006 for payments issued directly to participants. 1B. Provide documentation to justify the $329,937 in unsupported salary costs incurred between June and September 2010. Any unsupported costs determined to be ineligible should be reimbursed from non-Federal funds. 1C. Establish and implement adequate controls and procedures to ensure that subgrantees are monitored in compliance with all applicable requirements. 1D. Develop a cost allocation plan for future salary costs charged to the program to ensure compliance with OMB Circular A-87, attachment B. 1E. Strengthen controls over disbursements to ensure that all costs charged to the program are eligible and adequately supported with source documentation in compliance with applicable requirements. 8 SCOPE AND METHODOLOGY We performed onsite audit work at the offices of the New York City Department of Homeless Services, located at 33 Beaver Street, New York, NY, between February and June 2011. The audit scope covered the period August 1, 2009, through December 31, 2010, and was expanded when necessary. We relied in part on computer-processed data primarily for obtaining background information on the City’s expenditure of HPRP funds. We performed a minimal level of testing and found the data to be adequate for our purposes. To accomplish the objectives, we reviewed relevant HUD regulations, program notices, grant agreements between the City and HUD, and the agreements between the City and its subgrantees. In addition, we reviewed accounting policies and procedures and accounting records to test for compliance with HUD rules and regulations. We conducted interviews with HUD officials to obtain an understanding of HUD’s concerns with the City’s administration of its program and interviewed key personnel responsible for the administration of the City’s HPRP. Further, we reviewed the City’s audited financial statements for fiscal year 2010 and tested disbursements selected to ensure compliance with HUD regulations. We selected a non-statistical sample of disbursements made to the City’s subgrantees. The universe of disbursements included 24 voucher payments for the period ending December 24, 2010. We selected every second voucher payment over $250,000 until the selection consisted of 3 voucher payments or 10 percent in total. We tested 3 of 24 voucher payments, which amounted to $1.97 million, or 20 percent of the total drawdown of $9.76 million to test for compliance with the HPRP notice, HUD rules and regulations, and other Federal guidelines. 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 finding and conclusion based on our audit objectives. 9 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. 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 financial or performance information, or (3) violations of laws and regulations on a timely basis. 10 Significant Deficiency Based on our review, we believe that the following item is a significant deficiency: City officials did not have adequate controls over compliance with laws and regulations, as well as with safeguarding resources, when they did not always comply with HUD regulations while disbursing program funds and monitoring program subgrantees to ensure that adequate supporting documents were obtained before making payments (see finding). 11 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Ineligible 1/ Unsupported 2/ number 1A $93,436 1B $329,937 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/ 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. 12 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 13 Ref to OIG Evaluation Auditee Comments Comment 1 Comment 2 14 Ref to OIG Evaluation Auditee Comments Comment 2 Comment 2 15 Ref to OIG Evaluation Auditee Comments Comment 2 16 Ref to OIG Evaluation Auditee Comments Comment 2 17 Ref to OIG Evaluation Auditee Comments Comment 2 18 Ref to OIG Evaluation Auditee Comments Comment 2 Comment 3 19 Ref to OIG Evaluation Auditee Comments Comment 3 20 Ref to OIG Evaluation Auditee Comments Comment 3 21 Ref to OIG Evaluation Auditee Comments Comment 3 22 Ref to OIG Evaluation Auditee Comments Comment 3 23 Ref to OIG Evaluation Auditee Comments Comment 3 24 Ref to OIG Evaluation Auditee Comments Comment 3 25 Ref to OIG Evaluation Auditee Comments Comment 3 Comment 4 26 Ref to OIG Evaluation Auditee Comments Comment 4 Comment 5 Comment 6 27 Ref to OIG Evaluation Auditee Comments Comment 6 28 Ref to OIG Evaluation Auditee Comments Comment 6 29 Ref to OIG Evaluation Auditee Comments Comment 6 30 Ref to OIG Evaluation Auditee Comments Comment 6 Comment 3 Comment 4 Comment 5 Comment 6 Comment 7 31 Ref to OIG Evaluation Auditee Comments Comment 8 32 OIG Evaluation of Auditee Comments Comment 1 City officials provided introductory background information pertaining to when the grant agreement was executed, terms of the agreement, and the dates of the OIG audit process. Comment 2 Officials for the City provided an Executive Summary of the draft audit report to which they disagree with the finding regarding the rental arrears. However, officials agree with the finding pertaining to payment for advantage savers program and the unsupported salary expenses. In addition, the officials’ response included background information on the HPRP program, which included an overview of the Homelessness Prevention and Rapid Re-Housing programs they are funding. In addition, officials also included an overview of contract provisions and training material that they provided to subgrantees. Lastly, Section IV of the auditee comments details the officials’ response to the audit finding. Refer to comments 3 through 8 below. Comment 3 Officials of the City disagree with the finding regarding the rental arrears in the amount of $59,430 contending that the costs were for ongoing short and medium term rental assistance payments. Our testing showed that all payments questioned were for rental arrears as evidenced by rental payments being made after rent was due. However, officials were unable to provide adequate documentation during and after the audit field work was completed to support that the payments were made for short and medium term rental assistance payments and not rental arrears. City officials state that the subgrantee “HELP” entered into oral agreements with client landlords concerning the rental assistance payments during the period reviewed. Therefore, without a written agreement there is no assurance that the landlord did not consider the rents not paid as arrears. Further, the response includes all cases reviewed during the audit, however some dates were not correct, specifically, case number 4, listed November 11, 2010 when the correct date should have been November 16, 2009. Further, City officials included a footnote explaining that HELP mistakenly categorized some payments as rent arrears. When reviewing the files, OIG did not find any indication that the categories were incorrect. Therefore, the finding has not been revised and costs for rental arrears are considered ineligible and will have to be reimbursed from non-Federal funds. Comment 4 City officials generally agree with the context of the finding related to the $34,006 paid for the Advantage Savers program, a program funded by the City. Officials conclude that the supporting documentation will be submitted by its subgrantee to substantiate the payment or the officials will recoup the expenditures from its subgrantee and will reduce future HPRP claims. Therefore, the City officials’ effort to address the finding and the applicable section of recommendation 1A pertaining to the Advantage Savers program is responsive to the finding. 33 Comment 5 City officials agree with the finding related to the $329,937 in unsupported salary costs. The City has required its subgrantee to submit additional documentation to support the $329,927 in unsupported salary costs or they will recoup the expenditures and/or reduce future subgrantee claims. Thus, City officials’ actions are responsive to the finding and recommendation. Comment 6 City officials disagree with the finding related to the inadequate monitoring of its HPRP providers. City officials contend that the providers are adequately trained and monitored. Further, the officials have engaged an outside Certified Public Accounting (CPA) firm to conduct audits of its subgrantees, and disagree with the wording in the draft report stating otherwise contrary to their intentions. However, City officials did not review supporting documents to support payments made to subgrantees, and relied on a certification from the subgrantee when making payments from HPRP funding. This measure placed HPRP funding at risk of being used to pay for expenses that are ineligible and not in accordance with HUD rules and regulations. In addition, City officials provided that CPA firms conducted monitoring and financial review of the Homebase subgrantees. However, finalized reports were not completed at the time of our exit conference; thus, we have revised the draft to reflect the fact that since supporting documents for payments were not reviewed and the CPA’s reports were not yet issued, City officials have no assurance as to whether expenditures to date are eligible and proper. Consequently, City officials did not not adequately monitor its subgrantees for the HPRP program, a fact further supported by City officials response that should these CPA audits identify ineligible or improper expenditures, the provider will reimburse the City for those amounts. Comment 7 City officials disagree with the recommendation, however officials intend to reiterate to the subgrantee that they maintain separate ledgers for HPRP and non- HPRP funding. Nevertheless, although the City officials plan is responsive to the recommendation, it is imperative that this plan also comply with OMB Circular A-87, Attachment B when individuals work on more than one activitity. Comment 8 City officials disagree with the recommendation, contending that there are sufficient controls over disbursements. However, City officials failed to identify deficiencies regarding disbursement found during our audit and are awaiting the final audit reports from outside CPA firms to determine whether there are any disbursements made for ineligible expenses. Therefore, if the City implements OIG’s recommendation to strengthen controls, it will further prevent ineligible expenses from being paid from HPRP funding. 34
The City of New York, NY, Charged Questionable Expenditures to Its Homelessness Prevention and Rapid Re-Housing Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-10-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)