OFFICE OF AUDIT
REGION 5
CHICAGO, IL
City of Toledo, OH
Community Development Block Grant Program
2013-CH-1002 JUNE 7, 2013
Issue Date: June 7, 2013
Audit Report Number: 2013-CH-1002
TO: Jorgelle Lawson, Director of Community Planning and Development, 5ED
FROM: Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
SUBJECT: The City of Toledo, OH, Lacked Adequate Controls Over Its Community
Development Block Grant-Funded Code Violation Abatement Program
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), results of our review of the City of Toledo’s Community Development
Block Grant-funded Code Violation Abatement Program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
(312) 913-8684.
June 7, 2013
The City of Toledo, OH, Lacked Adequate Controls Over
Its Community Development Block Grant-Funded Code
Violation Abatement Program
Highlights
Audit Report 2013-CH-1002
What We Audited and Why What We Found
We audited the City of Toledo’s The City did not ensure that Federal regulations and its
Community Development Block Grant- own policies were followed in the administration of the
funded Code Violation Abatement Program. Specifically, the City did not ensure that the
Program as part of the activities in our Toledo Municipal Court (1) conducted independent
fiscal year 2013 annual audit plan. We cost estimates and obtained sufficient price quotes for
selected the City’s Program based upon housing rehabilitation services and (2) completed work
recent media attention regarding the specifications that sufficiently detailed the services for
City’s programs, a request by the Program projects.
Honorable Marcy Kaptur, and a referral
from the Office of Inspector General’s It also did not ensure that (1) contractors properly
Office of Investigation. Our objectives performed or provided services, (2) the cost of services
were to determine whether the City was reasonable, (3) HUD’s regulations regarding lead-
complied with Federal regulations and based paint were followed, and (4) households were
its own policies in its use of Block income eligible.
Grant funds for Program projects.
As a result, the City used more than $73,000 in Block
What We Recommend Grant funds for 23 projects for which the housing
rehabilitation services were either improperly
performed or not provided or the cost of the services
We recommend that the Director of was not reasonable. Further, the Court did not
HUD’s Columbus Office of Community maintain sufficient documentation to support the use of
Planning and Development require the nearly $24,000 in Block Grant funds for services
City to (1) ensure that housing associated with 10 projects. Additionally, the City
rehabilitation services cited in this audit provided nearly $9,000 in Block Grant funds to assist
report are properly completed or two households that were not income eligible.
reimburse its Block Grant program
nearly $73,000, (2) provide sufficient
supporting documentation or reimburse
its Block Grant program nearly
$24,000, (3) reimburse its Block Grant
program more than $9,000, and (4)
implement adequate procedures and
controls to address the findings cited in
this audit report.
TABLE OF CONTENTS
Background and Objectives 3
Results of Audit
Finding 1: The City Lacked Adequate Controls Over the Court’s Contracting Processes
and Housing Rehabilitation Services Provided to Program Projects 5
Finding 2: The City Did Not Always Ensure That Assisted Households Were Income
Eligible 15
Scope and Methodology 18
Internal Controls 20
Appendixes
A. Schedule of Questioned Costs 22
B. Auditee Comments and OIG’s Evaluation 23
C. Federal Regulations and the City’s Policies 25
D. Schedule of Program Projects’ Deficiencies 28
2
BACKGROUND AND OBJECTIVES
The Block Grant program. Authorized under Title I of the Housing and Community
Development Act of 1974, as amended, the Community Development Block Grant program is
funded to assist in the development of viable urban communities by providing decent housing, a
suitable living environment, and expanding economic opportunities, principally for persons of
low and moderate income. All Block Grant activities must meet one of the following national
objectives: (1) benefit low- and moderate-income persons, (2) aid in the prevention or
elimination of slums and blight, or (3) meet certain community development needs having a
particular urgency.
The City. Organized under the laws of the State of Ohio, the City of Toledo is governed by a
mayor and a 12-member council, elected to 4-year terms. The City’s Department of
Neighborhoods is responsible for administering the City’s Block Grant program funded by the
U.S. Department of Housing and Urban Development (HUD). The overall mission of the
Department is to responsibly, efficiently, and with citizen input plan, administer, allocate, and
monitor the Federal dollars received by the City as an entitlement city to ensure compliance with
HUD’s national objectives. The Department provides Block Grant funds to subrecipients in an
effort to address the needs within the community. The Toledo Municipal Court, a subrecipient,
established the Code Violation Abatement Program in 2001 to assist low- and moderate-income
households in bringing their owner-occupied homes into compliance with the City’s housing
code. The Program provided households Block Grant-funded grants of up to $4,500 to correct
housing code violations that had been cited by the Court. As a result of our audit, effective
November 30, 2012, the Court ceased operation of the Program. The Court’s Program records
are located at 555 North Erie Street, Toledo, OH.
The following table shows the amount of Block Grant funds that the City awarded the Court for
program years 2009 through 2011.
Block Grant
Program funds for the
year Program
2009 $102,131
2010 100,000
2011 100,000
Totals $302,131
We reviewed all 39 of the Program projects that the City reported as complete in HUD’s
Integrated Disbursement and Information System from July 1, 2009, through February 28,
2012. We reviewed two additional projects that the Court completed but the City had not
reported as complete in HUD’s System as of February 28, 2012. The City reported the two
projects as complete in HUD’s System on June 12, 2012. It drew down $181,745 in Block Grant
funds for the 41 projects.
3
Our objectives were to determine whether the City complied with Federal regulations and its
own policies in its use of Block Grant funds for Program projects. Specifically, our objectives
were to determine whether the City ensured that (1) all housing rehabilitation services were
properly performed and provided, (2) sufficient documentation was maintained to support the
use of Block Grant funds, and (3) services were provided only to eligible households.
4
RESULTS OF AUDIT
Finding 1: The City Lacked Adequate Controls Over the Court’s
Contracting Processes and Housing Rehabilitation Services Provided to
Program Projects
The City did not ensure that the Court (1) conducted independent cost estimates and obtained
sufficient price quotes for housing rehabilitation services and (2) completed work specifications
that sufficiently detailed the services for Program projects. It also did not ensure that (1)
contractors properly performed or provided services, (2) the cost of services was reasonable, and
(3) HUD’s regulations regarding lead-based paint were followed. These weaknesses occurred
because the City lacked adequate procedures and controls regarding the Court’s contracting
processes and services to ensure compliance with Federal requirements and its own procurement
policies. As a result, the City used more than $73,000 in Block Grant funds for 23 projects for
which the services were either improperly performed or not provided or the cost of the services
was not reasonable. Further, the Court did not maintain sufficient documentation to support the
use of nearly $24,000 in Block Grant funds for services associated with 10 projects.
The City Did Not Ensure That
Independent Cost Estimates
Were Made and Sufficient Price
Quotes Were Obtained for
Housing Rehabilitation Services
The City did not ensure that the Court determined a basis for the contract price for
housing rehabilitation services associated with all 41 of the Program projects.
The Court did not independently estimate the cost of services before receiving
price quotes as required by HUD regulations at 24 CFR (Code of Federal
Regulations) 85.36(b)(9) and (f)(1).
The City also did not ensure that the Court obtained price quotes from at least
three contractors for the housing rehabilitation services. Contrary to the City’s
policies, the Court obtained a price quote from only 1 contractor for 37 projects
and price quotes from 2 contractors for the remaining 4 projects. Further, the
Court did not maintain sufficient records as required by HUD’s regulations at 24
CFR 85.36(b)(1) to detail the rationale for not following the City’s policies in the
procurement of services for the 41 projects.
5
The City Did Not Ensure That
Work Specifications Sufficiently
Detailed the Housing
Rehabilitation Services To Be
Provided
Contrary to HUD’s regulations at 24 CFR 85.36(c)(3)(i), the City did not ensure
that the Court completed work specifications that sufficiently detailed the housing
rehabilitation services to be provided for the 41 Program projects. The work
specifications lacked an accurate description of the technical requirements,
including measurements, dimensions, or other specific details related to the
housing rehabilitation services. The Court provided its work specifications to the
contractors that were selected to provide the services.
The contractors also completed work specifications for the services to be provided
based on the Court’s work specifications. However, the contractors’ work
specifications also did not sufficiently detail the services to be provided for 40 of
the 41 projects. Further, although the contractors’ work specifications included a
total cost for the services, the work specifications for 22 of the 41 projects did not
include a cost for the individual items.
The table in appendix D of this report shows the 40 Program projects for which
both the Court’s and the contractors’ work specifications did not sufficiently
detail the housing rehabilitation services to be provided.
The City Did Not Ensure That
Contractors Properly
Performed or Provided Housing
Rehabilitation Services
We also selected all 41 Program projects for inspection. We inspected the housing
rehabilitation services associated with 40 of the 41 projects to determine whether (1)
the services were provided, (2) the services were properly performed, and (3) the cost
of the services was reasonable. We were unable to inspect the services associated
with project number 3489 since the home was demolished as a result of a fire.
Contrary to HUD’s regulations at 24 CFR 85.36(b)(2), the City did not always
ensure that contractors performed in accordance with the terms, conditions, and
specifications of their agreements with the homeowners.
The work specifications for the 40 projects included 143 items to be completed.
However, 25 items for 20 of the projects were improperly performed, and 8 items for
6 of the projects were not provided. The following table categorizes the services that
were either improperly performed or not provided for the 22 projects (4 of the 6
projects for which items were not provided also had items that were improperly
performed).
6
Number
Category of items
Exterior painting 14
Gutters and downspouts 3
Overhangs and soffits 3
Chimneys 3
Windows 3
Siding 3
Garage doors 2
Porches 2
Total 33
Further, although the work specifications for Program project number 3490
included (1) repairing the front overhang and soffit; (2) power washing, scraping,
and painting the front of the house; and (3) installing new facer and gutter for
front porch, the contractor (1) installed vinyl siding on the front of the house,
including the fascia and soffits; (2) installed gutters and downspouts; and (3)
painted the lower front porch foundation.
The City inappropriately used $72,501 in Block Grant funds for the 22 projects.
The following pictures are examples of exterior painting, overhang and soffit,
chimney, window, and garage door work that was not properly performed or
provided.
Exterior painting
Project number 3592:
Existing paint not
properly scraped, paint
applied over existing
peeling paint, and paint
peeling
7
Project number 3692:
Existing paint not
properly scraped, paint
applied over existing
peeling paint, and paint
peeling
Overhangs and soffits
Project number 3835:
Overhang and soffit
material not properly
secured
8
Chimneys
Project number 3684:
Chimney not properly
tuckpointed
Project number 3707:
Chimney not reflashed or
resealed
9
Windows
Project number 3605:
Window installed without
proper weather sealing
Project number 3704:
Window sash not
repaired or completely
painted
10
Garage doors
Project number 3714:
Plywood barn style doors
installed rather than
overhead garage doors
We provided our inspection results to the Director of HUD’s Columbus Office of
Community Planning and Development and the director of the City’s Department
of Neighborhoods. The table in appendix D of this report shows for the 22
Program projects, the amount of Block Grant funds used for housing
rehabilitation services that were not properly performed or provided.
The City Did Not Ensure That
the Cost of Housing
Rehabilitation Services Was
Reasonable
Of the $181,745 in Block Grant funds the City used for the 41 projects, $147,854
of the estimated costs included in the contractors’ price quotes for housing
rehabilitation services was reasonable. 1 However, contrary to Federal regulations
at appendix A, section C, of 2 CFR Part 225, the City did not ensure that the
remaining costs of services were reasonable. Specifically, it used $680 in Block
Grant funds for services provided to project number 3494 that was not reasonable.
Further, it lacked sufficient support to determine the reasonableness of $33,211
(($181,745 - $147,854) - $680) in costs for services associated with 15 of the
projects.
1
Although neither the Court’s nor the contractors’ work specifications were sufficient to detail the services to be
provided for 40 of the projects, we were able to determine that some of the estimated costs included in the
contractors’ price quotes were reasonable by estimating the cost of the individual items in the work specifications
that we confirmed were completed during the inspections.
11
The table in appendix D of this report shows for the 15 projects, the amount of
Block Grant funds used for services for which the Court lacked sufficient
documentation to support that the cost of the services was reasonable.
The City Did Not Ensure That
HUD’s Regulations Regarding
Lead-Based Paint Were
Followed
The City did not ensure that the Court maintained sufficient documentation to
support that HUD’s regulations at 24 CFR 35.175 and 35.930 regarding the
possible presence of lead-based paint were followed. The Court lacked sufficient
documentation to support that (1) a determination was made that painted surfaces
would not be disturbed, (2) paint testing was completed on painted surfaces that
were to be disturbed or replaced, or (3) it was presumed that painted surfaces
contained lead-based paint for 16 Program projects that included housing
rehabilitation services that involved either the painting of homes or scraping of
paint on and painting of homes that were built before 1978. The Court also could
not provide documentation to support that a clearance examination was conducted
after the housing rehabilitation work was completed.
The City used $56,518 in Block Grant funds for the 16 projects. The table in
appendix D of this report shows for the 16 projects, the amount of Block Grant
funds used for services that involved either the painting of homes or scraping of
paint on and painting of homes, for which the Court lacked documentation to
support that HUD’s regulations regarding the possible presence of lead-based
paint were followed.
The City Lacked Adequate
Procedures and Controls
The City lacked adequate procedures and controls to ensure that it appropriately
followed Federal requirements and its own policies. Specifically, the City’s
Department of Neighborhoods did not adequately monitor the Program to ensure
that Federal regulations and its own policies were followed regarding the Court’s
contracting processes for the Program and housing rehabilitation services
associated with Program projects. The Department’s monitoring did not include a
review as to whether the Court’s contracting processes met Federal regulations
and the City’s policies. Further, both the former and current Department program
monitoring specialists said that their monitoring of the Program did not include
site visits to the homes or conversations with the homeowners to ensure that the
services were properly performed and provided.
The Court’s senior housing specialist said that the Court was not aware that it was
required to independently estimate the cost of the housing rehabilitation services
12
before receiving price quotes for the services because the City’s Department of
Neighborhoods did not inform the Court that it needed to estimate the cost of the
services. Further, the Court often contacted only one contractor, which it knew
would want and could provide the services. Since the services to be provided for
each home were $4,500 or less, the senior housing specialist believed that the
Court could deviate from the City’s policies that required at least three quotes
from at least three different vendors or suppliers. In addition, the Court was not
aware that it was required to complete work specifications that sufficiently
detailed the services to be provided because it was not brought to the Court’s
attention through the Department’s monitoring.
Further, a housing specialist with the Court and a neighborhood development
specialist, who was previously a program monitoring specialist, with the City’s
Department said that the Court was trying to maximize the amount of housing
rehabilitation services provided with the available Block Grant funds. The
Court’s senior housing specialist said that the Court’s review of the services
completed at the homes was not thorough.
Conclusion
The City lacked adequate procedures and controls regarding the Court’s
contracting processes for the Program and housing rehabilitation services
associated with projects to ensure that it appropriately followed Federal
regulations and its own policies. As a result, the City used more than $73,000 in
Block Grant funds for 23 projects for which the services were either improperly
performed or not provided or the cost of the services was not reasonable. Further,
the Court did not maintain sufficient documentation to support the use of $83,562
in Block Grant funds for rehabilitation services. 2
Recommendations
We recommend that the Director of HUD’s Columbus Office of Community
Planning and Development require the City to
1A. Ensure that the housing rehabilitation services cited in this finding are
properly completed using non-Federal funds or reimburse its Block Grant
program $72,501 from non-Federal funds for the Block Grant funds used for
the 22 Program projects for which housing rehabilitation services were
either improperly performed or not provided.
2
The $83,862 in Block Grant funds consists of $56,518 for housing rehabilitation services for which the Court did
not maintain documentation to support that HUD’s regulations regarding the possible presence of lead-based paint
were followed, plus $33,211 for which the Court did not have sufficient documentation to demonstrate that the
services were reasonable, less $6,167 that was included in both of the costs above (($56,518-$6,167) + $33,211).
13
1B. Reimburse its Block Grant program from non-Federal funds for the $680 in
Block Grant funds used for Program project number 3494 for which the cost
of the housing rehabilitation services was not reasonable.
1C. Provide sufficient supporting documentation or reimburse its Block Grant
program from non-Federal funds, as appropriate, for the $23,719 in Block
Grant funds used for 10 Program projects for which the Court did not have
sufficient documentation to demonstrate that the use of Block Grant funds for
housing rehabilitation services was reasonable or that HUD’s regulations
regarding the possible presence of lead-based paint were followed. 3
1D. Implement adequate procedures and controls, including training for the City’s
employees, to ensure that it appropriately monitors subrecipients that provide
housing rehabilitation services to ensure that the subrecipients (1) complete
estimates for the cost of services before price quotes are received for the
services, (2) obtain price quotes for services from at least three contractors, (3)
complete work specifications that sufficiently detail the services to be provided,
(4) require contractors’ price quotes for services to include a cost for the
individual items, (5) require contractors to properly perform and provide
services, and (6) maintain documentation to support that HUD’s regulations
regarding the possible presence of lead-based paint were followed.
3
We did not include $59,843 in Block Grant funds used for 17 projects for which the Court did not have sufficient
documentation to demonstrate that the use of Block Grant funds for housing rehabilitation services was reasonable
or that HUD’s regulations regarding the possible presence of lead-based paint were followed since we included it in
recommendation 1A ($55,343) and recommendation 2A ($4,500) of this report.
14
Finding 2: The City Did Not Always Ensure That Assisted Households
Were Income Eligible
The City did not always ensure that assisted households were income eligible. This weakness
occurred because the City lacked adequate procedures and controls in its administration of the
Program to ensure that it appropriately followed HUD’s regulations. As a result, it
inappropriately provided nearly $9,000 in Block Grant funds to assist two ineligible households.
The City Provided $9,000 in
Block Grant Funds for
Ineligible Households
Contrary to HUD’s regulations at 24 CFR 570.208(a)(3), the City drew down
$9,000 in Block Grant funds to assist two households that were not income
eligible. The Block Grant funds were used to provide housing rehabilitation
services for the two projects ($4,500 per project). The household income
exceeded HUD’s income guidelines by $2,898 (5.9 percent) and $1,803 (5.2
percent) for project numbers 3362 and 3492, respectively.
Further, although the Court maintained sufficient documentation to determine that
the households for the remaining 39 Program projects were income eligible, it
could not provide its estimated projected annual income for 36 households. The
table in appendix D of this report shows the 36 projects for which the Court could
not provide its estimated projected annual income calculations for the households.
The City Lacked Adequate
Procedures and Controls
The City’s Department of Neighborhoods did not adequately monitor the Program
projects to ensure that the Court accurately calculated households’ estimated
projected annual income and maintained documentation to support the estimated
projected annual income that it calculated for households. A neighborhood
development specialist, who was previously a program monitoring specialist, with
the City’s Department said that when he performed onsite monitoring reviews of
the projects, he would ensure that income documentation was available and
calculate the households’ estimated projected annual income to determine
whether it met HUD’s income guidelines. However, the former program
monitoring specialist did not (1) inform the Court that it needed to document the
estimated projected annual income that it calculated for the households or (2)
document the estimated projected annual income that was calculated for the
households.
15
The Court did not use the prevailing rate of income when calculating the annual
income for one member of the household associated with Program project number
3362. A housing specialist with the Court said that the previous year’s Internal
Revenue Service Form W-2 wage and tax statement was used to calculate the
annual income for the household member since the household member’s job was
seasonal. However, the Court could not provide documentation to support that
the job was seasonal. Further, the household member’s September 2009 weekly
pay statements did not support that the job was seasonal. The average of the gross
pay in the pay statements multiplied by the number of weeks that had elapsed for
the year as of the last pay statement totaled nearly the year-to-date gross pay on
the last pay statement. The housing specialist also said that the Court mistakenly
used the monthly income listed on the household’s application for another
household member rather than the income shown on the household member’s
bank statement. Regarding project number 3492, the Court determined that the
household income exceeded HUD’s income guidelines. The housing specialist
said that the Court made an exception for the household after discussing the issue
with staff from the City’s Department of Neighborhoods. However, neither staff
from the Court nor the Department could explain why an exception was made for
the household.
Conclusion
The City lacked adequate procedures and controls in its administration of the
Program to ensure that it appropriately followed HUD’s regulations. As a result,
it inappropriately provided nearly $9,000 in Block Grant funds to assist the two
ineligible households.
Recommendations
We recommend that the Director of HUD’s Columbus Office of Community
Planning and Development require the City to
2A. Reimburse its Block Grant program $8,691 from non-Federal funds for the
Block Grant funds inappropriately used to assist Program project numbers
3362 and 3492. 4
2B. Implement adequate procedures and controls, including training for the
City’s employees, to ensure that it appropriately monitors subrecipients that
provide housing rehabilitation services to ensure that the subrecipients (1)
accurately calculate households’ estimated projected annual income, (2)
maintain documentation to support the estimated projected annual income
4
We did not include $309 in Block Grant funds used for Program project number 3362 for which the household was
not income eligible since we included it in recommendation 1A of this report.
16
that the subrecipients calculate for households, and (3) do not provide
assistance to households that exceed HUD’s income guidelines.
17
SCOPE AND METHODOLOGY
We performed our onsite audit work from March through June 2012 at the City’s and Court’s
offices located at One Government Center, Suite 1800, Toledo, OH, and 555 North Erie Street,
Toledo, OH, respectively, and the locations of the 40 Program projects inspected. The audit
covered the period July 2009 through February 2012 and was expanded as determined necessary.
To accomplish our objectives, we reviewed
• Applicable laws; Federal regulations at 2 CFR Part 225; HUD’s regulations at 24
CFR Parts 35, 85, and 570; HUD’s Office of Block Grant Assistance’s “Basically
CDBG [Block Grant]” training manual from November 2007; and HUD’s
Columbus Office of Community Planning and Development’s monitoring review,
dated October 12, 2010.
• The City’s financial records; single audit reports for 2009 and 2010; municipal
code; data from HUD’s Integrated Disbursement and Information System;
Program project files; policies and procedures; organizational charts; consolidated
plan for 2010 through 2015; action plans from 2009 through 2012; and written
agreements with the Toledo Municipal Court from 2009 through 2012.
In addition, we interviewed the City’s and Court’s employees and HUD’s staff.
Findings 1 and 2
We reviewed all 39 of the Program projects that the City reported as complete in HUD’s System
from July 1, 2009, through February 28, 2012. We reviewed two additional projects that the
Court completed but the City had not reported as complete in HUD’s System as of February 28,
2012. The City reported the two projects as complete in HUD’s System on June 12, 2012. It
drew down $181,745 in Block Grant funds for the 41 projects.
Finding 1
We selected all 41 Program projects for inspection. We inspected the housing rehabilitation
services associated with 40 of the 41 projects from June 20 through 25, 2012, to determine
whether (1) the services were completed, (2) the services were properly performed, and (3) the
cost of the services was reasonable. We were unable to inspect the services associated with
project number 3489 since the home was demolished as a result of a fire.
We relied in part on data maintained by the City for the Block Grant-funded Program and data in
HUD’s system. Although we did not perform detailed assessments of the reliability of the data,
we performed minimal levels of testing and found the data to be adequately reliable for our
purposes.
18
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
19
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.
• Reliability of financial reporting – 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.
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.
20
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
The City lacked adequate procedures and controls to ensure that
• Federal regulations and its own policies were followed (1) in the Court’s
contracting processes for the Program and (2) for housing rehabilitation
services associated with Program projects (see finding 1).
• HUD’s regulations were not always followed in providing housing
rehabilitation services through the Program to only income-eligible
households (see finding 2).
21
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation
Ineligible 1/ Unsupported 2/
number
1A 72,501
1B 680
1C $23,719
2A 8,691
Totals $81,872 $23,719
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.
22
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
23
OIG’s Evaluation of Auditee Comments
Comment 1 We started our audit in March 2012. The audit covered the period July 2009
through February 2012 and was expanded as determined necessary.
24
Appendix C
FEDERAL REGULATIONS AND THE CITY’S POLICIES
Findings 1 and 2
HUD’s regulations at 24 CFR 85.40(a) state that grantees are responsible for managing the day-
to-day operations of grant- and subgrant-supported activities. Grantees must monitor grant- and
subgrant-supported activities to ensure compliance with applicable Federal requirements and that
performance goals are achieved. Grantee monitoring must cover each program, function, or
activity.
HUD’s regulations at 24 CFR 570.501(b) state that a recipient is responsible for ensuring that
Block Grant funds are used in accordance with all program requirements. The use of designated
public agencies, subrecipients, or contractors does not relieve the recipient of this responsibility.
The recipient is also responsible for determining the adequacy of performance under subrecipient
agreements and procurement contracts and for taking appropriate action when performance
problems arise.
HUD’s regulations at 24 CFR 570.502(a) state that recipients and subrecipients that are
governmental entities must comply with HUD’s regulations at 24 CFR 85.40(a).
Finding 1
HUD’s regulations at 24 CFR 35.100(c) state that 24 CFR 35.930(b) is applicable to properties
receiving up to and including $5,000 in rehabilitation assistance.
HUD’s regulations at 24 CFR 35.175 state that a designated party, as specified in subparts C, D,
and F through M of 24 CFR Part 35, must keep a copy of each notice, evaluation, and clearance
or abatement report required by subparts C, D, and F through M of 24 CFR Part 35 for at least 3
years.
HUD’s regulations at 24 CFR 35.900(a)(3) state that for purposes of the Block Grant entitlement
program, the requirements of subpart J of 24 CFR Part 35 (24 CFR 35.900 through 35.940) apply
to all residential rehabilitation activities (except those otherwise exempted) for which funds are
first obligated on or after September 15, 2000.
HUD’s regulations at 24 CFR 35.930(a) state that a grantee or participating jurisdiction must
either perform paint testing on the painted surfaces to be disturbed or replaced during
rehabilitation activities or presume that all of the painted surfaces are coated with lead-based
paint. Section 35.930(b) states that for residential property receiving an average of up to and
including $5,000 per unit in Federal rehabilitation assistance, each grantee or participating
jurisdiction must (1) conduct paint testing or presume the presence of lead-based paint in
accordance with 24 CFR 35.930(a); (2) implement safe work practices during rehabilitation work
25
in accordance with 24 CFR 35.1350 and repair any paint that is disturbed; and (3) after
completion of any rehabilitation disturbing painted surfaces, perform a clearance examination of
the worksite(s) in accordance with 24 CFR 35.1340. If paint testing indicates that the painted
surfaces are not coated with lead-based paint, safe work practices and clearance are not required.
HUD’s regulations at 24 CFR 85.36(b)(1) state that grantees and subgrantees must use their own
procurement procedures, which reflect applicable State and local laws and regulations, provided
that the procurements conform to applicable Federal law and the standards identified in 24 CFR
85.36. Section 85.36(b)(2) states that grantees and subgrantees must maintain a contract
administration system, which ensures that contractors perform in accordance with the terms,
conditions, and specifications of their contracts or purchase orders. Section 85.36(b)(9) states
that grantees and subgrantees must maintain records sufficient to detail the significant history of
a procurement. These records include but are not necessarily limited to the following: rationale
for the method of procurement, selection of contract type, contractor selection or rejection, and
the basis for the contract price. Section 85.36(c)(1) states that all procurement transactions must
be conducted in a manner providing full and open competition consistent with 24 CFR 85.36.
Section 85.36(c)(3)(i) states that grantees must have written selection procedures for
procurement transactions to ensure that all solicitations incorporate a clear and accurate
description of the technical requirements for the material, product, or service to be procured.
Section 85.36(d)(1) states that when procurement by small purchase is used, price or rate
quotations must be obtained from an adequate number of qualified sources. Section 85.36(f)(1)
states that grantees and subgrantees must perform a cost or price analysis in connection with
every procurement action, including contract modifications. The method and degree of analysis
are dependent on the facts surrounding the particular procurement situation, but as a starting
point, grantees must make independent estimates before receiving bids or proposals.
HUD’s regulations at 24 CFR 570.200(f)(1)(i)(B) state that eligible activities may be undertaken,
subject to local law, by the recipient through procurement contracts governed by HUD’s
regulations at 24 CFR 85.36.
HUD’s regulations at 24 CFR 570.502(a) state that recipients and subrecipients that are
governmental entities must comply with Office of Management and Budget Circular A–87 and
HUD’s regulations at 24 CFR 85.36.
HUD’s regulations at 24 CFR 570.608 state that the Lead-Based Paint Poisoning Prevention Act,
the Residential Lead-Based Paint Hazard Reduction Act of 1992, and implementing regulations
of subparts A, B, J, K, and R of HUD’s regulations at 24 CFR Part 35 apply to activities under
the Block Grant program.
Appendix A, section C.1, of 2 CFR Part 225 5 requires all costs to be necessary, reasonable, and
adequately documented. Section C.2 states that a cost is reasonable if in its nature or amount, it
does not exceed that which would be incurred by a prudent person under the circumstances
prevailing at the time the decision was made to incur the cost. In determining the reasonableness
of a given cost, consideration must be given to (1) the restraints or requirements imposed by such
factors as sound business practices; (2) market prices for comparable goods or services; and (3)
5
Office of Management and Budget Circular A-87 was relocated to 2 CFR Part 225.
26
whether the individuals concerned acted with prudence in the circumstances, considering their
responsibilities to the organization, its employees, the public at large, and the Federal
Government.
Section I.E. of the City’s Administrative Policy and Procedure Number Five, effective January
31, 2008, states that purchases under $10,000 may be authorized only after the department or
division obtains at least three quotes from at least three different vendors or suppliers of the item
or service in the requisition. Section II refers to the City’s Purchasing Process and Procedures
Manual. Section III.A. states that all department, division, and agency heads are responsible for
observing and following the Administrative Policy and Procedure Number Five. The City’s
Purchasing Process and Procedures Manual states that the manual is provided to the City’s
employees to follow or reference when procuring commodities and services or entering into
contracts for the City. For purchases under $10,000, the requesting division obtains at least three
price quotes for the product or service desired and then selects the best vendor from the price
quotes submitted.
Finding 2
HUD’s regulations at 24 CFR 570.3 define a low- and moderate-income household as a
household having an income equal to or less than the Section 8 low-income limit established by
HUD. Grantees must estimate the annual income of a household by projecting the prevailing
rate of income of each member of the household at the time assistance is provided to the
household. Estimated annual income must include income from all household members.
HUD’s regulations at 24 CFR 570.208(a)(3) state that eligible housing activities carried out for
the purpose of providing or improving permanent residential structures must be occupied by low-
and moderate-income households upon completion.
HUD’s regulations at 24 CFR 570.506 state that each recipient must establish and maintain
sufficient records to enable HUD to determine whether the recipient has met the requirements of
24 CFR Part 570. Section 570.506(b) states that at a minimum, the recipient must maintain
records demonstrating that each activity undertaken meets one of the criteria set forth in 24 CFR
570.208. Section 570.506(b)(4)(iii) states that for each activity carried out for the purpose of
providing or improving housing which is determined to benefit low- and moderate-income
persons, the recipient must maintain records to support the size and income of the household.
27
Appendix D
SCHEDULE OF PROGRAM PROJECTS’ DEFICIENCIES
Housing Lacked
Work rehabilitation Lacked documentation to support that documentation to
specifications services not Cost of housing support estimated
Program not properly rehabilitation HUD’s lead-based projected annual
project sufficiently performed or services was paint regulations income was
number detailed provided reasonable were followed calculated
3241 X $656 $1,354 X
3242 X 275 X
3304 X $4,500
3305 X 4,270 $4,270 X
3306 X 4,500 $4,500 X
3362 X 309
3416 X X
3418 X
3419 X 2,900 $2,900 X
3420 X X
3421 X 4,500 $2,290 $4,500 X
3452 X X
3488 X 735 X
3489 X 4,500 X
3490 X 4,500 4,500 X
3491 X
3492 X 1,005 $4,500
3493 X X
3494 X X
3495 X 4,500 987 X
3592 X 3,380 1,981 $2,760 X
3601 X 3,300 875 $2,430 X
3602 X X
3603 X 3,017 X
3605 X 3,222 X
3684 X 4,500 $4,500 X
3685 X 2,710 X
3686 X X
3690 X 340 $2,850 X
3692 X 2,860 $2,860 X
3693 X X
3694 X X
3702 X 3,544 X
3703 X 3,085 834 3,085 X
3704 X 4,500 1,576 4,500 X
3707 X 4,500 X
3708 X 2,509 2,509 X
3714 X 4,500 3,498 X
28
SCHEDULE OF PROGRAM PROJECTS’ DEFICIENCIES
(CONCLUDED)
Housing Lacked documentation to support that Lacked
Work rehabilitation documentation to
specifications services not Cost of housing support estimated
Program not properly rehabilitation HUD’s lead-based projected annual
project sufficiently performed or services was paint regulations income was
number detailed provided reasonable were followed calculated
3715 X 4,500 4,500 X
3835 X 4,500 1,554 X
3841 X
Totals 40 $72,501 $33,211 $56,518 36
29
The City of Toledo, OH, Lacked Adequate Controls Over Its Community Development Block Grant-Funded Code Violation Abatement Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-06-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)