oversight

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)

                                                                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