OFFICE OF AUDIT
REGION 5
CHICAGO, IL
Community Advocates
Milwaukee, WI
Supportive Housing Program and Homelessness
Prevention and Rapid Re-Housing Program
2013-CH-1008 SEPTEMBER 17, 2013
Issue Date: September 17, 2013
Audit Report Number: 2013-CH-1008
TO: Sernorma L. Mitchell, Director of Community Planning and Development, 5ID
//signed//
FROM: Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
SUBJECT: Community Advocates, Milwaukee, WI, Did Not Properly Administer Its Program
and Recovery Act Grant Funds
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of Community Advocates’ Supportive
Housing Program and Homelessness Prevention and Rapid Re-Housing 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 8M, 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) 353-7832.
September 17, 2013
Community Advocates, Milwaukee, WI, Did Not
Properly Administer Its Program and Recovery Act
Grant Funds
Highlights
Audit Report 2013-CH-1008
What We Audited and Why What We Found
We audited Community Advocates’ Community Advocates did not properly administer its
Supportive Housing Program and Program and Recovery Act grant funds. Specifically,
American Recovery and Reinvestment it did not (1) ensure that Program funds were used for
Act Homelessness Prevention and eligible activities and (2) maintain documentation to
Rapid Re-Housing Program grants.1 support required match contributions. It also (1) failed
We selected Community Advocates to maintain a financial management system that
based on a hotline complaint alleging separately tracked the source and application of
misuse of Program grant funds. Our Recovery Act funds and (2) lacked sufficient
objective was to determine whether documentation to support the allocation of operating
Community Advocates properly costs. As a result, HUD and Community Advocates
administered its Program and Recovery lacked assurance that more than $1.7 million in funds
Act grants in accordance with U.S. for Community Advocates’ Program and Recovery Act
Department of Housing and Urban grants were used in accordance with Federal
Development (HUD), Recovery Act, requirements.
and its own requirements.
What We Recommend
We recommend that HUD require
Community Advocates to provide (1)
supporting documentation or reimburse
HUD more than $632,000 from non-
Federal funds and (2) supporting
documentation or reimburse HUD
nearly $1.1 million for transmission to
the U.S. Treasury. We further
recommend that HUD ensure that
Community Advocates implements
adequate procedures and controls to
address the issues identified.
1
The Cities of Milwaukee and West Allis were
the grantees for the Recovery Act grant funds
received by Community Advocates.
TABLE OF CONTENTS
Background and Objective 3
Results of Audit
Finding: Community Advocates Did Not Properly Administer Its Program
and Recovery Act Grant Funds 5
Scope and Methodology 13
Internal Controls 15
Appendixes
A. Schedule of Questioned Costs 17
B. Auditee Comments and OIG’s Evaluation 18
C. Federal Regulations and Community Advocates’ Policies 28
2
BACKGROUND AND OBJECTIVES
Supportive Housing Program. Authorized under Title IV of the McKinney-Vento Homeless
Assistance Act of 1987, as amended, the Supportive Housing Program is funded for the purpose
of promoting the development of transitional and permanent supportive housing and supportive
services for homeless households. Funds are available for (1) new construction, acquisition,
rehabilitation, and leasing of buildings to provide transitional and permanent supportive housing
for homeless households; (2) supportive services for homeless persons; (3) operating costs; and
(4) technical assistance.
Homelessness Prevention and Rapid Re-Housing Program. Authorized under Title XII of the
American Recovery and Reinvestment Act of 2009, the Homelessness Prevention and Rapid Re-
Housing Program authorized the use of $1.5 billion for homelessness prevention by providing
financial assistance and services to prevent individuals and families from becoming homeless
and to help those experiencing homelessness to be quickly rehoused and stabilized. Funds are
available for the provision of short-term or medium-term rental assistance; housing relocation
and stabilization services, including housing search, mediation or outreach to property owners,
credit repair, security or utility deposits, utility payments, rental assistance for a final month at a
location, moving cost assistance, and case management; or other appropriate activities for
homelessness prevention and rapid rehousing of persons who have become homeless.
Community Advocates. Incorporated under chapter 181 of the Wisconsin Statutes, Community
Advocates is a nonprofit organization, the mission of which is to provide individuals and
families with advocacy and services that meet their basic needs so they may live in dignity.
Community Advocates is managed by an 18-member board of directors, and its records are
located at 728 North James Lovell Street, Milwaukee, WI.
From October 1, 2009, through September 30, 2012, Community Advocates administered 16
Program grants. The U.S. Department of Housing and Urban Development’s (HUD) Line of
Credit Control System Program report for the 16 Program grants showed that Community
Advocates was authorized to use nearly $13.7 million and had drawn nearly $12.6 million in
Program funds for its Project Bridge, Autumn West Permanent Housing, Autumn West Safe
Haven, Protective Payment, and Milwaukee Women’s Center projects as of January 11, 2013.
The Cities of Milwaukee and West Allis, WI, allocated more than $3.1 million and nearly
$560,000 in Recovery Act funds to Community Advocates, respectively. According to HUD’s
Integrated Disbursement and Information System, Community Advocates was awarded and had
drawn down all its Recovery Act funds for its 11 administrative, operating, and service-related
activities.
HUD’s Milwaukee field office performed an onsite monitoring review of Community
Advocates’ permanent supportive housing project, grant number WI39B601001, from May 12
through May 14, 2009. HUD provided the financial monitoring review report to Community
Advocates on July 9, 2009. According to the report, the areas reviewed included audit, match,
cash management, budget controls, accounting records and source documentation, procurement,
3
cost allowability, and internal controls. The monitoring resulted in 10 findings and no concerns.
On December 7, 2009, Community Advocates submitted a letter to HUD in response to HUD’s
financial monitoring review. According to the letter, a copy of the new accounting manual for
Community Advocates was enclosed. The manual was provided to address the findings, which
HUD closed on February 11, 2010. Further, to close the monitoring review finding related to
unsupported and ineligible expenses, HUD reduced Community Advocates’ grant by the
questioned amount of $4,202.
Our objective was to determine whether Community Advocates properly administered its
Program and Recovery Act grants in accordance with HUD, Recovery Act, and its own
requirements. Specifically, we wanted to determine whether Community Advocates (1) used
Program and Recovery Act grant funds for eligible expenses, (2) complied with HUD’s Program
match requirements, and (3) met the Recovery Act expenditure deadline.
4
RESULTS OF AUDIT
Finding: Community Advocates Did Not Properly Administer Its
Program and Recovery Act Grant Funds
Community Advocates did not properly administer its Program and Recovery Act grant funds.
Specifically, it did not (1) ensure that Program funds were used for eligible activities and (2)
maintain documentation to support required match contributions. It also (1) failed to maintain a
financial management system that separately tracked the source and application of Recovery Act
funds and (2) lacked sufficient documentation to support the allocation of operating costs. These
weaknesses occurred because Community Advocates failed to implement adequate financial
accounting procedures and controls to ensure compliance with Federal requirements. As a result,
HUD and Community Advocates lacked assurance that more than $1.7 million in funds for its
Program and Recovery Act grants were used in accordance with Federal requirements.
A Complaint Alleged Misuse of
Program Funds
We received an anonymous complaint alleging that Community Advocates
misused Program funds and expressing concern about similar misuse of its
Recovery Act grant funds. The complainant provided documentation as examples
to support the allegations. We reviewed the documentation and determined that
the complaint was substantiated.
Ineligible and Unsupported Program Expenditures
Community Advocates did not adequately support Program expenses totaling
more than $39,000 or use nearly $450 for eligible expenses in accordance with
Office of Management and Budget’s (OMB) guidance at 2 CFR 230, appendix A,
or comply with the provisions of appendix B for salaries and wages, fringe
benefits, donations, entertainment, interest, and lobbying.
We reviewed 43 transactions totaling $106,171 in Program funds that Community
Advocates used from January 2011 through September 2012. Of the 43
transactions, Community Advocates lacked sufficient documentation to support
that it used $39,694 for 34 eligible expenses, and it used $449 for four ineligible
Program expenses. The following table shows the cost category, period during
which Program funds were paid, and amount of Program funds paid for the
unsupported and ineligible expenses.
5
Period of Number of Unsupported Ineligible
Cost category disbursement transactions expenses expenses
Appraisal fees June 2011 1 $438
Audit fees April 2011 1 364
November 2011
through September
Consulting 2012 9 645
Donations April 2012 1 $23
Entertainment December 2011 2 392
Food and beverage November 2011 1 18
Interest December 2011 1 78
Lobbying September 2012 1 34
Meetings and
conferences April 2012 1 682
Miscellaneous May 2012 1 203
Mortgage interest September 2011 1 905
March 2011 through
Salaries and wages September 2012 14 35,583
April through
Taxes September 2011 2 221
Telephone December 2011 1 105
Utilities August 2011 1 452
Total 38 $39,694 $449
On August 16, 2013, Community Advocates wrote out a check payable to HUD
for the ineligible expenses of $449 cited above. As of September 4, 2013, HUD
was working on properly processing the check received from Community
Advocates.
Community Advocates Lacked
Documentation To Support
Match Requirements
Community Advocates could not provide sufficient documentation to support
whether it complied with HUD’s match requirements for 10 Program grants
totaling nearly $3.7 million that started and ended during our audit period.
Community Advocates drew down more than $2.2 million in Program funds from
HUD’s Line of Credit Control System for operating and supportive service costs.
It was required to provide match funds for 33.3 and 25 percent of the Program
funds it drew down for operating and supportive services costs, respectively. 2
Therefore, it was required to provide nearly $593,000 in match funds for its
Program grants.
2
Program grantees may request no more than 80 percent of the total cost for the provision of supportive services and
Program funds may be used to pay up to 75 percent of the operating costs. Therefore, Program grantees must
provide match funds for 33.3 and 25 percent of the Program funds drawn down for operating and supportive services
costs, respectively (see Scope and Methodology section).
6
The following table shows Community Advocates’ drawdowns, operating
expenses, supportive services, and contributions.
Program Required contributions
Program grant funds Supportive Reported
number drawn Operating services Total contributions
WI0036B5I010800 $456,522 $12,577 $34,933 $47,510 $30,737
WI0038B5I010802 387,092 58,562 26,955 85,517 90,691
WI0038B5I011003 403,631 58,562 29,605 88,167 88,173
WI0054B5I010801 82,496 0 19,429 19,429 19,429
WI0054B5I010802 101,389 0 24,141 24,141 24,141
WI0054B5I011003 95,058 0 22,633 22,633 22,633
WI0061B5I010802 362,187 0 85,831 85,831 85,831
WI0061B5I011003 396,486 0 94,401 94,401 94,401
WI0107B5I010901 693,053 14,903 47,454 62,357 63,367
WI0107B5I011002 693,053 17,314 45,646 62,960 62,962
Totals $3,670,967 $161,918 $431,028 $592,946 $582,365
Community Advocates reported more than $582,000 in match contributions in its
annual performance reports to HUD. However, it reported that 3 of its 10 grants
lacked more than $22,600 ($16,774 + $2,822 + $3,027 = $22,623) in required
contributions. Specifically, Community Advocates’ annual performance reports
show that it provided $2,822 less than the required operating contributions for
grant number WI0038B5I010802, and provided $16,774 and $3,027 less than the
required supportive services contributions for grant numbers WI0036B5I010800
and WI0107B5I010901, respectively.
According to Community Advocates’ chief operating officer, from October 1,
2009, through September 30, 2010, Community Advocates used a single checking
account as its primary operating account. All checks, including payroll
disbursements, were written from this account. Beginning on October 1, 2010, it
moved its primary operating account to another bank and eventually created a
separate checking account for payroll. However, it continued to use a single
account for nonpayroll disbursements related to its Program operations.
Funds required to cover the operating expenses, including sources used to meet
HUD’s contribution requirements, were commingled in the primary checking
account. Therefore, the commingled funds could not be tracked. Further, during
our audit period, the general ledger included only 18 disbursements from
Community Advocates’ two operating bank accounts that were charged to its
Program grants totaling approximately $4,500. These disbursements included
health, dental, and 401K service allocations totaling nearly $4,400 and
miscellaneous transactions and fees totaling $135. Therefore, we could not
determine the source of funds used from the primary checking accounts.
Community Advocates also could not provide sufficient documentation to
substantiate whether income posted to its general ledger revenue accounts was
eligible as match contributions. According to Community Advocates’ chief
operating officer, match contributions for its Program consisted of United Way
7
grants, client rent, and unrestricted donations. Community Advocates posted
more than $297,000 in non-Program revenue to its general ledger revenue
accounts for the 10 Program grants selected for review. The sources of revenue
included United Way receipts, Project Bridge and Autumn West rent receipts,
back-to-school fair revenue, and accrued revenue. However, Community
Advocates could not provide sufficient documentation to substantiate whether the
revenue was eligible as match contributions. No documentation was provided to
support the receipt of the income or its required use. Therefore, we could not
confirm the receipts posted to the general ledger or determine whether the posted
revenue was eligible as match contributions.
Community Advocates’ costs did not always meet the total amount of funds it
was required to use for the projects. According to Community Advocates’ chief
executive officer, each of its Program projects ran a deficit, which was covered by
its unrestricted fund balance, resulting in sufficient contributions to meet HUD’s
requirements. Community Advocates’ financial management system identified
expenses associated with its Program grants; however, its net expenditures did not
meet its total required expenditures for 6 of its 10 grants. Therefore, according to
Community Advocates’ financial management system, it failed to meet HUD’s
match requirements for 6 of its 10 Program grants as required by HUD’s notices
of funding availability. The following table shows the total Program funds
disbursed, required match, required expenditures, and total actual expenditures
throughout the grant term for its 10 Program grants selected for review.
Grant Term Funds Required Required Actual
Grant number term end disbursed match expenditures expenditures
WI0036B5I010800 4/1/10 3/31/12 456,522 47,510 504,032 526,587
WI0038B5I010802 5/1/10 4/30/11 387,092 85,517 472,609 439,484
WI0038B5I011003 5/1/11 4/30/12 403,631 88,167 491,798 278,572
WI0054B5I010801 10/1/09 9/30/10 82,496 19,429 101,925 118,951
WI0054B5I010802 10/1/10 9/30/11 101,389 24,140 125,529 146,090
WI0054B5I011003 10/1/11 9/30/12 95,058 22,633 117,691 97,139
WI0061B5I010802 4/1/10 3/31/11 362,187 85,831 448,018 309,032
WI0061B5I011003 4/1/11 3/31/12 396,486 94,401 490,887 367,604
WI0107B5I010901 9/1/10 8/31/11 693,053 62,358 755,411 801,810
WI0107B5I011002 9/1/11 8/31/12 693,053 62,960 756,013 748,813
Totals $3,670,967 $592,946 $4,263,913 $3,834,082
Community Advocates Did Not
Separately Track Recovery Act
Funds
Community Advocates’ did not separately track and report its Recovery Act funds
in accordance with OMB’s guidance at 2 CFR 215.21.3 Instead, it reported
Recovery Act funding in its general ledger under housing department code 200,
3
OMB’s guidance at 2 CFR (Code of Federal Regulations) Part 215 was formerly located at OMB Circular A-110.
8
which contained nine different funding sources. The commingled funds were
used to pay expenses related to its Recovery Act grants as well as non-Recovery
Act-related expenses. The following table shows the funding source, awarding
agency, program name, and number of grants reported in department 200 of the
general ledger.
Funding Number of
source Awarding agency Program grants
HUD City of Milwaukee Emergency Solutions 2
Homelessness Prevention and Rapid
HUD City of Milwaukee Re-Housing Program 2
HUD City of Milwaukee Community Development Block Grant 3
Milwaukee County
County Department of Health Division of Housing - Emergency
tax levy & Human Services Shelter Care 1
Federal Emergency Solutions & Homelessness
& State State of Wisconsin Prevention Program 1
Total 9
Community Advocates’ general ledger contained 12 expense accounts that were
specifically used for the Recovery Act grants to identify expenses paid on behalf
of clients as direct aid.4 Using these expense accounts, we determined that
Community Advocates expended all of the more than $2.6 million in Recovery
Act grant funds drawn down for direct aid. However, we were unable to trace the
nearly $1.1 million in grant funds drawn for operating costs using the ledger
expense accounts. This occurred because transactions posted to general operating
expense accounts for items such as travel and salaries are allocated by department
code and the ledger did not provide for a method of identifying costs associated
with specific grants or awards within a department that contained multiple
funding sources, such as department 200.
Community Advocates Used Budget Estimates To Support Expenses
The Recovery Act grant cost reports5 also do not support how nearly $1.1 million
in grant funds was used. In reviewing the reports, we determined that Community
Advocates used estimated amounts to support operating expenses paid with
Recovery Act grant funds. For instance, employees’ salaries, fringe benefits, and
direct costs for travel were charged to the Recovery Act grants based on estimated
percentages rather than actual cost incurred. Community Advocates did not
maintain sufficient documentation to support the allocable portion of mileage
4
Recovery Act funds used for expenses such as rental payments, storage and moving expenses, utilities, security
deposits, and hotel rooms
5
Cost reports are reports submitted by Community Advocates along with supporting documentation for
reimbursement of expenses incurred for its Recovery Act grant. These reports are then reviewed by the grantee and
compared to HUD’s quarterly reports to ensure that the costs are in line with the approved budget.
9
expenses incurred or an after-the-fact determination of the actual work activity
performed by each employee that were related to the grants. According to
paragraph 8 of OMB’s guidance at 2 CFR 230, appendix B, budget estimates
(estimates determined before the services are performed) do not qualify as support
for charges to awards.6 Further, section A(2) of OMB’s guidance at 2 CFR 230,
appendix A, requires cost to be reasonable for the performance of the award,
allocable, and adequately documented to be allowable under an award.
Community Advocates also did not maintain sufficient documentation to support
the actual expenses for indirect costs charged to the Recovery Act grants. It
allocated indirect expenses to the grants using a rate of 22 percent of the total
expenses charged for direct costs including salaries, fringe benefits, and travel
during a particular period. However, it was unable to provide documentation to
support the actual costs and whether they were allowable in accordance with
Federal requirements. Further, the 22 percent was applied to the estimated
percentage of cost allocated to the Recovery Act grants rather than to actual costs
incurred.
Community Advocates Lacked
Adequate Procedures and
Controls
The weaknesses discussed above occurred because Community Advocates lacked
adequate procedures and controls to ensure that it appropriately followed Federal
requirements. Specifically, it lacked adequate procedures and controls to ensure
that its
Financial management system adequately identified the source and
application of funds for federally sponsored activities.
Operating costs were reasonable for and allocable to the Recovery Act
grant and adequately documented.
Expenses charged to its Program and Recovery Act grants were reasonable
and allocable to the programs and adequately documented and complied
with the provisions for select items of cost in accordance with Federal
requirements.
Community Advocates hired an accounting firm in January 2005 to manage its
financial operations. The firm developed its accounting and financial policies and
procedures manual in response to HUD’s 2009 onsite financial monitoring review
(see Background and Objective section). Although the manual included sections
for evaluating the reasonableness, allocability, and allowability of costs;
separately accounting for Federal awards; and adequately documenting salaries
and wages and match contributions, Community Advocates had not formally
approved the manual and the manual was not fully implemented by its staff.
6
OMB’s guidance at 2 CFR Part 230 was formerly located at OMB Circular A-122.
10
According to Community Advocates, although the manual had not been formally
approved, it expected the accounting firm to fully implement the procedures
outlined in the manual. In addition, Community Advocates considered it the
responsibility of the accounting firm to bring the manual before Community
Advocates’ board for approval because the accounting firm was the administrator
of its accounting function and author of the manual.
The treasurer of the board of directors said that the entire accounting and financial
function was outsourced to the accounting firm. In addition, the board was
generally not involved with the day-to-day operations of the entity, and it did not
realize that it was required to approve the policies and procedural manual.
Therefore, the board did not establish policies or ensure that the agency’s fiscal
resources were properly managed in accordance with the by-laws.
Community Advocates Initiated
Corrective Actions
On September 30, 2011, Community Advocates had terminated its contract with
the accounting firm, and decided to bring the accounting function in-house. In
January 2013, Community Advocates hired a new chief financial officer, who was
responsible for revising and implementing the manual. According to Community
Advocates’ chief financial officer, in addition to drafting a new accounting and
financial policies and procedures manual, Community Advocates had developed
new indirect costs allocation methods and a new general ledger department code
to separate costs unrelated to or unallowable for Federal awards and was
reclassifying all costs starting January 1, 2013, in accordance with its revised
policies. On June 19, 2013, the final version of the accounting and financial
policies and procedures manual was formally approved by the board of directors.
Conclusion
Community Advocates failed to implement adequate financial accounting
procedures and controls to ensure compliance with Federal requirements. As a
result, HUD and Community Advocates lacked assurance that more than $1.7
million in funds for its Program and Recovery Act grants was used in accordance
with Federal requirements. Further, these weaknesses prevented us from
determining whether Community Advocates met the Recovery Act grant
expenditure deadline.
Since Community Advocates’ Homelessness Prevention and Rapid Re-Housing
Program (Recovery Act) grant funds have been fully disbursed, we do not make a
recommendation for establishing and implementing adequate procedures and
controls to ensure that it separately tracks and reports Recovery Act funds as
required and funds are used for eligible activities and in a timely manner.
11
Recommendations
We recommend that the Director of HUD’s Milwaukee Office of Community
Planning and Development require Community Advocates to
1A. Provide sufficient supporting documentation or reimburse HUD from non-
Federal funds, as appropriate, for the $39,694 in Program funds used for
unsupported expenses.
1B. Provide sufficient documentation for $592,946 in required contributions for
its Program grants or reimburse HUD from non-Federal funds for the
unsupported contributions.
1C. Implement adequate procedures and controls to ensure that its matching
contributions are verifiable and comply with Federal requirements.
1D. Provide sufficient documentation to the Cities of West Allis and Milwaukee
to support the eligibility of $1,077,928 in operating costs allocated to its
Recovery Act grants or reimburse HUD from non-Federal funds for
transmission to the U.S. Treasury.
We also recommend that the Director of HUD’s Milwaukee Office of Community
Planning and Development
1E. Ensure that Community Advocates implements adequate procedures and
controls regarding its financial management system, including but not limited
to developing supportable methods for evaluating whether indirect and
operating costs charged to Federal grants are reasonable, allocable, and
adequately documented.
12
SCOPE AND METHODOLOGY
We performed our onsite audit work from November 2012 through June 2013 at Community
Advocates’ office located at 728 North James Lovell Street, Milwaukee, WI, and HUD’s
Milwaukee field office located at 310 West Wisconsin Avenue, Suite 1380, Milwaukee, WI.
The audit covered the period of October 1, 2009, through September 30, 2012 and was expanded
when necessary.
To accomplish our objectives, we reviewed the following:
Applicable laws; HUD’s Homelessness Prevention and Rapid Re-Housing Program
(Recovery Act) notice, dated March 19, 2009; OMB’s guidance at 2 CFR 215 and 230;
HUD’s regulations at 24 CFR Parts 85 and 583; OMB Memorandum 09-15; HUD’s
Supportive Housing Program and Recovery Act grant agreements; and HUD’s 2009
financial monitoring review.
Community Advocates’ audited financial statements for 2009, 2010, and 2011; annual
reports for 2009, 2010, and 2011; general ledger reports from October 2009 through
September 2012; Recovery Act cost reports; financial records; checklists; client files;
board meeting minutes; policies and procedures; organizational charts; and job
descriptions.
In addition, we interviewed Community Advocates’ employees and board members and HUD’s
staff.
We evaluated expenses posted to Community Advocates’ general ledger reports. From January
1, 2011, through September 30, 2012, Community Advocates posted 17,802 debit transactions
totaling more than $10.2 million to the expense accounts for its administration, clerical, housing
(consisted of Federal, State, and local funding sources, including the Recovery Act), and
Program departments. We randomly selected for review 126 transactions posted to the general
ledgers from January 1, 2011, through September 30, 2012, totaling $289,311. Of the 126
transactions, we reviewed 43 transactions that were related to Community Advocates’ Program.
The remaining 83 transactions were related to its administration, clerical, and housing
departments.
For HUD’s systems, including the Integrated Disbursement and Information System7 and Line of
Credit Control System,8 although we did not perform a detailed assessment of the reliability of
the data, we did perform a minimal level of testing and found the data to be adequate for our
purposes. Our assessment of the reliability of the data in Community Advocates’ systems was
limited to the data sampled, which were reconciled to the Community Advocates’ records. We
7
The Integrated Disbursement and Information System is a nationwide database used as the draw down and
reporting system for HUD’s four Community Planning and Development formula grant programs. Grantees also
use the system for Recovery Act programs including the Homelessness Prevention and Rapid Re-housing program.
8
The Line of Credit Control System is used to disburse and track the payment of grant funds to grantees.
13
compared canceled checks and invoices to the payee, item description, date, amount, and
department in Community Advocates’ general ledger reports.
HUD’s requirements state that Program funds may be used to pay up to 75 percent of the
operating costs in each grant term. Further, Program grantees may request no more than 80
percent of the total cost for the provision of supportive services and grantees must match the
remaining 20 percent of the total costs with funds from other eligible sources. Therefore,
Community Advocates was required to provide 25 and 20 percent cash match for total operating
and supportive services costs, respectively.
We calculated the total required match based upon the amount of Program funds drawn down
from HUD for operating and supportive services costs, rather than the total cost, to ensure that
HUD provided no more than 75 and 80 percent of the total costs for operating and supportive
service costs, respectively. Using this calculation method, Community Advocates was required
to match 33.3 percent of Program funds drawn down for operating costs and 25 percent of the
Program funds drawn down for supportive services costs.
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.
14
INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
Effectiveness and efficiency of operations,
Reliability of financial reporting, and
Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objective:
Effectiveness and efficiency of operations – Policies and procedures that
management has implemented to reasonably ensure that a program meets its
objectives.
Reliability of financial 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.
15
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:
Community Advocates lacked adequate procedures and controls to ensure that it
complied with Federal requirements regarding the administration of its Program
and Recovery Act grants (see finding).
16
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Unsupported
number 1/
1A $39,694
1B 592,946
1D 1,077,928
Totals $1,710,568
1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
17
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments9
COMMUNITY ADVOCATES
Where Meeting Basic Needs Inspires Hope
August 19, 2013
Kelly Anderson
Regional Inspector General for Audit
Region 5
Dear Ms. Anderson:
Thank you for the opportunity to comment on the draft audit report entitled “Community Advocates Supporting
Housing and Homelessness Prevention and Rapid Re-Housing Program.
First, let me compliment the politeness and professionalism of the OIG staff assigned to this audit. OIG staff always
comported themselves in a professional manner.
Community Advocates is a local nonprofit which works with the most vulnerable in our society, those persons living on
the streets with mental illness, women and children escaping family violence, and other populations existing at the
margins.
Comment 1 It is our understanding that the reason for this audit originated with an anonymous complaint to the OIG hotline alleging
misuse of the $16.2 million in HUD funds that Community Advocates received from 2009-2012 and were the scope of
this audit. Thus, it is very important to point out that the OIG found only $449 in “misused funds” which were the result
of two coding errors and which has been remitted to HUD. Clearly the complaint of misuse of HUD funds was not
substantiated.
Comment 2 We would also like to note that there are no program findings contained in this audit. Indeed it is our understanding
that Community Advocates correctly administered both the HPRP and SHP programs according to HUD guidelines as it
relates to program procedure and eligibility.
From October 2009 through September 2012, Community Advocates administered just over $16.2 million to serve the
homeless and mentally ill through the Supportive Housing Program (SHP) and the American Recovery and Reinvestment
Act’s Homeless Prevention and Rapid Re-housing Program (HPRP).
Comment 3 Community Advocates received just over $12.6 million in SHP funding to assist homeless individuals with mental illness
to move off the streets, be accepting of treatment for their mental illness, and become stable while residing in
permanent housing. These SHP programs currently support 300 formerly homeless persons with mental illness in their
own apartments by providing rent assistance and case management services.
9
This excludes the sample time card, City of Milwaukee’s Comptroller’s letter, and Harvard study, which were not
necessary for understanding Community Advocates’ comments.
18
Ref to OIG Evaluation Auditee Comments
Kelly Anderson
Regional Inspector General for Audit
Region 5
Community Advocates used more than $3.6 million of the HPRP funds to help approximately 4,000 qualifying individuals
Comment 4 to pay back rent and avoid eviction. During the same period of time, nearly 3,000 people were denied assistance
because Community Advocates uses a rigorous review process to ensure that the right people were receiving funds.
From November 2012 through June 2013, the Office of the Inspector General (OIG) sent two auditors to review
Community Advocates use of the SHP and HPRP funding. Community Advocates cooperated fully with the process.
We do understand that at the time of the audit there was approximately $1.7 million in costs charged to HUD programs
for which the OIG said they could not determine eligibility of costs charged to the program at the time of the audit. The
Comments 5, vast majority of those costs had to do with employee time card documentation relating to HPRP ($1.1 million) and the
6, and 7 use of agency retained earnings as match for SHP ($570,000). In the case of both of these issues we respectfully believe
that we have met the regulatory requirements of both the HPRP and SHP program while acknowledging that the OIG has
Comment 8 offered advice as to how we can improve our documentation process going forward to meet the OIG standards.
Comments 9 In terms of the time card and documentation of employee effort on the HPRP grant Community Advocates believes that
1) Per OMB 122 Attachment B #8 a(1) our contracting agency, the City of Milwaukee, has approved in writing a system
and 6 of reporting for HPRP expenses and 2) that as the majority of employees working in the HPRP program were allocated
100% to that program our internal process meets the requirements of OMB122 .
For the HPRP grant it is very important to note that Community Advocates was a sub grantee to the City of Milwaukee.
Comments 5 As such Community Advocates had to comply with the strict procedures used by the City of Milwaukee Block Grant
6, and 10 Office and the City of Milwaukee Comptroller’s Office. A part of those requirements Community Advocates identified at
the beginning of the program those staff by name allocated to the program, the percent of their effort, and exact salary
and fringe benefits. Any subsequent staff changes had to be similarity detailed and approve in advance or costs for those
staff would be disallowed. In essence the City of Milwaukee approved the entirety of the transactions in the HPRP
program and audited same.
In implementing the HPRP grant the City of Milwaukee Community Development Grants Administration ( COM CDGA)
provided Community Advocates with eight contracts covering the following activities: HPRP Administration, HPRP Data
Collection & Evaluation, HPRP Housing Relocation & Stabilization Services Mediation, HPRP Housing Relocation &
Stabilization Services Rapid Rehousing – Families, HPRP Housing Relocation & Stabilization Services Rapid Rehousing –
Singles, HPRP Mediation Financial Assistance, HPRP Rapid Rehousing – Families Financial Assistance and HPRP Rapid
Rehousing – Singles Financial Assistance. The COM CDGA has standard policies and procedures for grant contracting
Comment 10 which are described below.
COM CDGA issues grant award letters and require a budget submission including Budget Justification and
Budget Forecast and Project Activity submission including Project Activity Reports detailing number of clients to
be served.
Contractor (Community Advocates, Inc.) submits Budget forms and Project Activity Forms to COM CDGA.
COM CDGA executes a contract with Contractor that includes approved budget forms and project activity forms.
19
Ref to OIG Evaluation Auditee Comments
Contractor submits cost reports and project activity reports consistent with approved contract and/or approved
budget amendment.
COM CDGA reviews and approves project activity reports. City of Milwaukee Comptroller's offices reviews and
approves cost reports.
CA receives reimbursement from City of Milwaukee along with Disbursements for Single Audit Purposes
indicating the disbursement amount, Cost Category Budget Amounts, Previous Month Cost Paid to Date, Current
Month Paid Cost, Cost Paid to Date and Budget Balance. Disallowed costs are identified along with reason for
disallowance.
HPRP was a multi-year program therefore Budget Amendments were required at the end of each calendar year.
Budget Amendments detailed the amount spent for the calendar year ending, a budget for the upcoming
calendar year and budget amounts for the remaining grant term.
Additional budget amendments were prepared during the calendar based on program and client needs.
Budget Amendment forms required by the COM CDGA include a Budget Amendment Request form indicating
the reason for the amendment, a revised budget justification and a revised budget forecast.
COM CDGA reviewed and approved budget amendment requests and issued a letter acknowledging budget
amendment approval.
Contract amendments also occurred during the HPRP grant term. Contract amendments were required when
the terms of the contract changed and/or if the amount of the contract increased or decreased. In the case of a
grant amount change revised budget documents were included in the contract amendment.
It is important to note that the Budget Justification form submitted and approved both at initial contract issuance as
well as with each budget amendment requires detailed information on how grant funds will be spent and personnel
allocated. The Personnel form, which must be included at contract issuance and with all subsequent budget
modifications, must identify the position title, employee name, employee home address, total salary and percentage
of salary covered by the grant. All other cost categories such as Fringe Benefits, Direct Costs i.e. local mileage and
Indirect Costs are linked to the employee percentages identified on the Personnel form.
Comments 5 Community Advocates believes that this stringent City of Milwaukee process insured the proper use of HPRP funds and
clearly constituted an approved City of Milwaukee system. Most important is that the Office of the Comptroller of the
and 6 City of Milwaukee recently audited the compliance of Community Advocates HPRP program for the entire three year
Comment 11 grant and concluded that all expenses charges to the grant were eligible. (Comptroller letter attached)
The majority of staff assigned to work in the HPRP program were allocated 100% to that program. Each pay period they
filled out a time sheet representing the hours worked, then signed and dated it. In our allocation system and payroll
system their 100% allocation to the grant was clear. In addition, for each employee, there was a detailed job description
on file detailing the job requirements and duties. Each employee working in the HPRP program had a supervisor who
supervised the employees assigned to HPRP, had control over employee overtime, approval of correct hours, approval
of correct coding, approval of correct employees assigned to the grant. The supervisor also had firsthand knowledge of
20
Ref to OIG Evaluation Auditee Comments
the activities performed by the employee and that supervisor signed each employee time card certifying that the
distribution of activity of that employee represented a reasonable estimate of the actual work performed by the
Comment 6 employee during the time period covered by the time card. Community Advocates believes that we have adequate
support for salaries and wages charged to the HPRP program in that we have met the test described in OMB122
Attachment B #8m a(1)(c) which states “ the reports must be signed by the individual employee, or by a responsible
supervisory official having firsthand knowledge of the activities performed by the employee, that the distribution of
activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by
the report.”
Finally in regards to HPRP during the three year grant term Community Advocates possessed 7,000 HPRP cases and
distributed nearly $2.5 million in direct aid. These 7,000 files exist; the OIG has examined the file room and has
individually reviewed many of those files. There are no programmatic findings contained in the OIG audit. Yet the OIG is
listing as unsupported the entire $1.1 million used to support the staff activity which disbursed that direct aid and the
staff activity which created those 7,000 files housed in our file room. Contained within those files is a clear audit trail of
Comment 6 staff activity which can be tied back to Community Advocates payroll records.
In regard to the SHP match Community Advocates used the following process.
1. In the technical submission process at the start of each grant year we provided to the local HUD field office a
statement that we were pledging the agency fund balance as match. The local field office has historically
accepted this pledge.
2. At the end of each month Community Advocates accounting staff would provide to our COO the actual expenses
by HUD approved budget category.
3. The COO would draw down from the LOCCS system ONLY 80% or 75% depending on the match requirement for
the budget category.
Comment 7 4. This would obviously create a budget deficit each year for each program which would have to be made up by
either private donations or retained earnings.
5. Match for the SHP permanent housing program comes from client rent which is allowable and for which we
have adequate documentation in the form of rent logs for each month with those funds being coded to the
separate permanent housing program department in the accounting system.
As we understand it the OIG objects to us using retained earnings (fund balance) from previous years as match
Comment 12 because it is unknown where those funds have come from. Community Advocates asserts that funds that make up
the audited unrestricted fund balance by definition are agency “owned” funds and thus can be used for whatever
purpose the agency deems necessary including match for HUD SHP programs.
During the past two years, with the oversight of its Board of Directors, Community Advocates has totally reorganized
its accounting system. From 2005 to late 2011 Community Advocates relied on an outside vendor to provide
accounting services. Beginning in early 2011 the Board of Directors determined that the accounting vendor was no
longer able to meet our needs and directed staff to plan to bring the accounting function “in house”. In October of
2011 Community Advocates began to directly operate our accounting functions. It is our sense that the OIG believes
our current accounting system is a vast improvement over what was being provided by the outside contract firm.
This change to an in house accounting function required considerable investment of funds by the Board of Directors
especially in light of the administration allowance of 2.5% for HPRP and 5% for SHP.
As stated earlier Community Advocates believes that it has complied with the regulations for HPRP regarding staff
effort documentation and SHP match requirement as evidenced by multiyear clean audits by our external auditor
21
Ref to OIG Evaluation Auditee Comments
WIPFLI and the City of Milwaukee Comptroller’s office. That said we agree with the OIG advice that we should
Comment 13 improve the way we account for staff effort and SHP match documentation. Please see the attachment which
represents a sample time card staff will be using to document their time spent on program. This revised time card
Comment 14 incorporates personal activity documentation directly into the form. In addition we are working with our local HUD
field office to better refine the way we track matching funds for SHP.
Community Advocates would like to take note of the numerous times OIG staff mentioned to us how cooperative
we were in terms of providing requested documentation on a timely basis and in general cooperating with the audit
process. They mentioned that this is not always the case. Community Advocates is a nonprofit organization with
dedicated staff overseen by a Board of dedicated volunteers which tries to do the best it can to literally save the
lives of many of the people we serve. We will continue to do that and look forward to working with our local officials
at HUD, City of Milwaukee, and City of West Allis to resolve the remaining audit issues in the near future.
Finally, I would like to thank the Community Advocates staff who went far beyond the call of duty and really stepped
up to make both the SHP and HPRP program of Community Advocates successful. It is with much pride that we are
able to attach to this audit response a Harvard study of our HPRP prevention program which concluded that even at
the depths of the great recession the Community Advocates HPRP program reduced the number of evictions in
Milwaukee County.
Comment 15 We look forward to working with our local city and HUD officials to resolve any outstanding audit issues.
Sincerely,
Joseph L. Volk
Chief Executive Officer
Attachments
Sample time card
City of Milwaukee Comptroller letter
Harvard Study
22
OIG Evaluation of Auditee Comments
Comment 1 We agree the audit of Community Advocates’ Supportive Housing Program and
Recovery Act grant funds was initiated based on an anonymous complaint.
Therefore, we reviewed documentation received from the complainant as
examples to support the allegations and determined that the complaint was
substantiated.
Although we only cited $449 in ineligible Program costs in the report, of the 43
Program related transactions selected for review totaling $106,171, Community
Advocates lacked sufficient documentation to support that it used $39,694 for 34
expenses (37 percent of total funds reviewed).
According to Federal requirements, a recipient’s financial systems must provide
for records that adequately identify the source and application of funds for
federally-sponsored activities. These records shall contain information pertaining
to Federal awards, authorizations, obligations, unobligated balances, assets,
outlays, income and interest.10 Further, to be allowable under an award, costs
must be reasonable for the performance of the award, allocable, and adequately
documented.11
Based on the check payment totaling $449 from Community Advocates to HUD
on August 16, 2013, for the ineligible expenses cited in this report, we removed
Recommendation 1B of the discussion draft audit report, in which we
recommended that HUD require Community Advocates to reimburse HUD $449
from non-Federal funds for Program funds used for improper expenses.
Comment 2 While there are no program findings cited in this report, we have not concluded
that Community Advocates correctly administered both the Supportive Housing
Program and Homelessness Prevention and Rapid Re-housing Program in
accordance with HUD requirements as related to program procedure and
eligibility.
Our findings and conclusions are based upon audit evidence gathered within and
limited to the scope of our specific audit objectives, which were to determine
whether Community Advocates (1) used Program and Recovery Act grant funds
for eligible expenses, (2) complied with HUD’s Program match requirements, and
(3) met the Recovery Act expenditure deadline.
During our survey, we developed an understanding of Community Advocates’
internal controls, which included reviewing client application, intake, and
approval procedures; interviewing staff; and selecting a limited number of
Program and Recovery Act grant client files for review to determine whether the
participants selected for review met eligibility requirements. Although we did not
10
OMB’s guidance at 2 CFR 215.21(b)(2)
11
OMB’s guidance at 2 CFR 230, appendix A, Section A(2)(a) and (g)
23
identify any instances of noncompliance, the evaluation was designed to establish
a level of risk for noncompliance with eligibility requirements rather than draw
conclusions about whether Community Advocates complied with HUD
requirements.
Comment 3 Community Advocates drew nearly $12.6 million in Program funds for its Project
Bridge, Autumn West Permanent Housing, Autumn West Safe Haven, Protective
Payment, and Milwaukee Women’s Center projects as of January 11, 2013.
These funds were used in part to assist homeless individuals with mental illness
but also used to assist victims of domestic violence.
Comment 4 Community Advocates received nearly $3.7 million in Recovery Act grant funds
from the Cities of Milwaukee and West Allis, WI. The funds were used in part
for short term rental assistance such as payments for back rent in order to help
individuals avoid eviction. However, funds were also used for medium-term
rental assistance, security and utility deposits, utility payments, and hotel and
motel vouchers.
Comment 5 Community Advocates’ financial management system was required to provide for
records that adequately identify the source and application of funds for federally-
sponsored activities. These records must contain information pertaining to
Federal awards, authorizations, obligations, unobligated balances, assets, outlays,
income and interest.12 Additionally, allowable costs were required to be
reasonable for the performance of the award, allocable, and adequately
documented.13
However, contrary to Federal requirements, Community Advocates’ financial
management system did not separately track its Recovery Act grant funds.
Further, it used estimated amounts to support operating expenses paid with
Recovery Act grant funds. Employees’ salaries, fringe benefits, and direct costs
for travel were charged to the Recovery Act grants based on estimated
percentages rather than actual cost incurred, and indirect expenses were charged
to the grants using a rate of 22 percent of the total expenses charged for direct
costs during a particular period.
Comment 6 Contrary to Federal requirements, Community Advocates did not maintain
activity reports for its staff that charged time to the Program and Recovery Act
grants that reflect an after-the-fact determination of actual activity of each
employee. Instead, it maintained time sheets identifying the number of hours
worked but not the specific activities. As a result, we could not determine the
portion of salaries and fringe benefits that were allocable to the grants.
Paragraph 8(m) of OMB’s guidance at 2 CFR 230, appendix B, states that “(1)
The distribution of salaries and wages to awards must be supported by personnel
12
OMB’s guidance at 2 CFR 215.21(b)(2)
13
OMB’s guidance at 2 CFR 230, appendix A, Section A(2)(a) and (g)
24
activity reports, as prescribed in subparagraph 8(m)(2) of this appendix, except
when a substitute system has been approved in writing by the cognizant agency,
and (2) reports reflecting the distribution of activity of each employee must be
maintained for all staff members (professionals and nonprofessionals) whose
compensation is charged, in whole or in part, directly to awards. Reports
maintained by non-profit organizations to satisfy these requirements must meet
the following standards: (a) the reports must reflect an after-the-fact
determination of the actual activity of each employee. Budget estimates (i.e.,
estimates determined before the services are performed) do not qualify as support
for charges to awards.”
Paragraph 8(g) of OMB’s guidance at 2 CFR 230, appendix B, states that “(1)
Fringe benefits in the form of regular compensation paid to employees during
periods of authorized absences from the job, such as vacation leave, sick leave,
military leave, and the like, are allowable, provided such costs are absorbed by all
organization activities in proportion to the relative amount of time or effort
actually devoted to each, (2) Fringe benefits in the form of employer contributions
or expenses for social security, employee insurance, workmen's compensation
insurance, pension plan costs (see subparagraph h), and the like, are allowable,
provided such benefits are granted in accordance with established written
organization policies. Such benefits, whether treated as indirect costs or as direct
costs, shall be distributed to particular awards and other activities in a manner
consistent with the pattern of benefits accruing to the individuals or group of
employees whose salaries and wages are chargeable to such awards and other
activities.”
Comment 7 Community Advocates was required to provide nearly $593,000 in match funds
for its Program grants. However, Community Advocates could not provide
sufficient documentation to support whether it complied with HUD’s match
requirements. We could not track Program expenditures from Community
Advocates’ primary checking account because funds were commingled and its
financial management system did not adequately identify the source of funds used
for disbursements from the account. In addition, Community Advocates:
Reported to HUD that 3 of its 10 Program grants lacked necessary
contributions of more than $22,500,
Could not provide sufficient documentation to support whether nearly
$300,000 in revenue posted to its general ledger was eligible match, and
Did not meet its total required expenditures for 6 of its 10 Program grants.
OMB’s guidance at 2 CFR 215.21 (b) states that a recipient’s financial
management systems must provide for (2) records that adequately identify the
source and application of funds for federally-sponsored activities. These records
shall contain information pertaining to Federal awards, authorizations,
obligations, unobligated balances, assets, outlays, income and interest.
25
OMB’s guidance at 2 CFR 215.23(a) states that all contributions, including cash
and third party in-kind, must be accepted as part of the recipient’s cost sharing or
matching when such contributions meet all of the following criteria: (1) are
verifiable from the recipient’s records; (2) are not included as contributions for
any other federally assisted project or program; (3) are necessary and reasonable
for proper and efficient accomplishment of project or program objectives; (4) are
allowable under the applicable cost principles; (5) are not paid by the Federal
Government under another award, except where authorized by Federal statute to
be used for cost sharing or matching; (6) are provided for in the approved budget
when required by the Federal awarding agency; and (7) conform to other
provisions of this part, as applicable.
Section A(2) of OMB’s guidance at 2 CFR 230, appendix A, states that to be
allowable under an award, costs must meet the following general criteria: “(a) Be
reasonable for the performance of the award and be allocable thereto under these
principles” and “(g) Be adequately documented.”
HUD’s 2008 Supportive Housing Program Desk Guide states that project
sponsors are required to maintain detailed fiscal records during each year of the
project to ensure adequate documentation of all expenditures related to the grant,
including those paid through the use of cash match sources.
Comment 8 We did not offer advice as to how Community Advocates can improve their
documentation process to meet OIG’s standards. However during the audit, we
discussed (1) Federal requirements regarding the administration of Community
Advocates’ Program and Recovery Act grants and (2) our audit findings and
related recommendations.
Comment 9 Office of Management and Budget guidance requires written approval from the
cognizant agency for Community Advocates to use a substitute system to support
the distribution of salaries and wages. The City of Milwaukee is not Community
Advocates’ cognizant agency.
Paragraph 8(m) of OMB’s guidance at 2 CFR 230, appendix B, states that “(1)
The distribution of salaries and wages to awards must be supported by personnel
activity reports, as prescribed in subparagraph 8(m)(2) of this appendix, except
when a substitute system has been approved in writing by the cognizant agency.
(See subparagraph E.2 of Appendix A to this part.)”
Section E(2)(a) of OMB’s guidance at 2 CFR 230, appendix A, states that “Unless
different arrangements are agreed to by the different agencies concerned, the
Federal agency with the largest dollar value of awards with an organization will
be designated as the cognizant agency for the negotiation and approval of indirect
cost rates, and where necessary, other rates such as fringe benefit and computer
charge-out rates.”
26
Comment 10 The procedures outlined in Community Advocates’ response to our audit report
regarding grant contracting through the City of Milwaukee’s Community
Development Grants Administration contribute to internal controls for proper use
of funds; however, the procedures did not ensure Community Advocates
complied with OMB’s guidance regarding personnel activity reports.
Comment 11 Community Advocates did not provide sufficient documentation to support the
extent of the City of Milwaukee’s Office of the Comptroller review. According to
a letter dated July 31, 2013 from the Office of the Comptroller to Community
Advocates, the Comptroller’s Office reviewed records of Community Advocates’
Recovery Act grants for the months of January 2010 through December 2012.
The purpose of the review was to test costs incurred for compliance with the
provisions’ of the applicable contracts. However, there was no evidence that the
review tested compliance with Federal requirements in regards to maintaining
documentation to support the source and application of funds as required.
Comment 12 We do not object to Community Advocates using retained earnings (fund balance)
from previous years to meet its match contribution requirements. However,
Community Advocates did not maintain sufficient documentation to support its
match as required. Community Advocates stated that it only drew down 80 or 75
percent of actual Program expenses depending on the match requirement for the
related budget and concluded that this method would cause a budget deficit,
which would have been made up by private donations or retained earnings.
However, Community Advocates lacked adequate documentation to support that
private donations or retained earnings were used for the Program or that the
private donations and retained earnings complied with HUD’s match
requirements.
Comment 13 Community Advocates’ corrective action in maintaining personnel activity reports
that reflect an after-the-fact determination of actual activity of each employee, if
fully and appropriately implemented in accordance with OMB’s guidance, should
improve its procedures and controls.
Comment 14 Community Advocates’ commitment to working with the local HUD field office
should assist Community Advocates in adequately documenting Program match
contributions.
Comment 15 We acknowledge Community Advocates’ intent to work with its local city and
HUD officials to resolve any outstanding audit issues.
27
Appendix C
FEDERAL REGULATIONS AND COMMUNITY ADVOCATES’
POLICIES
Sections 3(b), 4(s), 4(u), and 4(u) of HUD’s 2006, 2008, 2009, and 2010 notices of funding
availability for continuum of care homeless assistance programs, respectively, state that since the
Supportive Housing Program by statute can pay no more than 75 percent of the total operating
budget for supportive housing, agencies must provide at least a 25 percent cash match of the total
annual operating costs. In addition, for all Program funding for supportive services and
homeless management information systems, applicants must provide a 20 percent cash match.
This means that of the total supportive services budget line item, no more than 80 percent may be
from Program grants.
Section III(D) of HUD’s 2011 notice of funding availability for continuum of care homeless
assistance programs states that for the Supportive Housing Program, match requirements must be
met by funds used to cover costs associated with eligible activities. The only exceptions to the
Program match requirement are leasing and administrative costs. Project applicants for Program
projects may request no more than 80 percent of the total supportive services costs in a project in
their application for funding. Project applicants must match the remaining 20 percent of the total
costs with cash match from other eligible sources. All matching funds must be used for eligible
service costs identified on the supportive services budget in the application or the technical
submission. HUD may pay no more than 75 percent of the total budget for operating a
supportive housing project. Agencies must provide at least a 25 percent cash match of the total
annual operating costs. In addition, for all program funding for homeless management
information systems, applicants must provide a 20 percent cash match. All matching funds must
be used for eligible costs identified in the project application budget, the grant agreement, and
the technical submission.
HUD’s Supportive Housing Program grant agreements with Community Advocates (grant
agreement numbers WI0107B5I010901, WI0107B5I011002, WI0036B5I010800,
WI0038B5I010802, WI0038B5I011003, WI0061B5I010802, WI0061B5I011003,
WI0054B5I010801, WI0054B5I010802, and WI0054B5I011003) state that the Program grant
agreements are governed by the McKinney-Vento Homeless Assistance Act, 24 CFR Part 583,
and applicable notices of funding availability.
HUD’s regulations at 24 CFR 583.330(c) state that the policies, guidelines, and requirements of
OMB Circular A-110 apply to the acceptance and use of assistance by nonprofit organizations,
except when inconsistent with the provisions of the McKinney Act, other Federal statutes, or 24
CFR Part 583.
OMB’s guidance at 2 CFR 215.21 (b) states that a recipient’s financial management systems
must provide for (2) records that adequately identify the source and application of funds for
28
federally-sponsored activities. These records shall contain information pertaining to Federal
awards, authorizations, obligations, unobligated balances, assets, outlays, income and interest.
OMB’s guidance at 2 CFR 215.23(a) states that all contributions, including cash and third party
in-kind, must be accepted as part of the recipient’s cost sharing or matching when such
contributions meet all of the following criteria: (1) are verifiable from the recipient’s records;
(2) are not included as contributions for any other federally assisted project or program; (3) are
necessary and reasonable for proper and efficient accomplishment of project or program
objectives; (4) are allowable under the applicable cost principles; (5) are not paid by the Federal
Government under another award, except where authorized by Federal statute to be used for cost
sharing or matching; (6) are provided for in the approved budget when required by the Federal
awarding agency; and (7) conform to other provisions of this part, as applicable.
Section A(2) of OMB’s guidance at 2 CFR 230, appendix A, states that to be allowable under an
award, costs must meet the following general criteria: “(a) Be reasonable for the performance of
the award and be allocable thereto under these principles” and “(g) Be adequately documented.”
Section A(3) 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. The question of the reasonableness of specific costs must
be scrutinized with particular care in connection with organizations or separate divisions thereof
which receive the preponderance of their support from awards made by Federal agencies. In
determining the reasonableness of a given cost, consideration should be given to: “(a) whether
the cost is of a type generally recognized as ordinary and necessary for the operation of the
organization or the performance of the award.” Section A(4) states that “(a) a cost is allocable to
a particular cost objective, such as a grant, contract, project, service, or other activity, in
accordance with the relative benefits received. A cost is allocable to a Federal award if it is
treated consistently with other costs incurred for the same purpose in like circumstances and if it:
(1) is incurred specifically for the award; (2) benefits both the award and other work and can be
distributed in reasonable proportion to the benefits received; or (3) is necessary to the overall
operation of the organization, although a direct relationship to any particular cost objective
cannot be shown. (b) Any cost allocable to a particular award or other cost objective under these
principles may not be shifted to other Federal awards to overcome funding deficiencies, or to
avoid restrictions imposed by law or by the terms of the award.”
Paragraph 8(g) of OMB’s guidance at 2 CFR 230, appendix B, states that “(1) Fringe benefits in
the form of regular compensation paid to employees during periods of authorized absences from
the job, such as vacation leave, sick leave, military leave, and the like, are allowable, provided
such costs are absorbed by all organization activities in proportion to the relative amount of time
or effort actually devoted to each, (2) Fringe benefits in the form of employer contributions or
expenses for social security, employee insurance, workmen's compensation insurance, pension
plan costs (see subparagraph h), and the like, are allowable, provided such benefits are granted in
accordance with established written organization policies. Such benefits, whether treated as
indirect costs or as direct costs, shall be distributed to particular awards and other activities in a
manner consistent with the pattern of benefits accruing to the individuals or group of employees
whose salaries and wages are chargeable to such awards and other activities.”
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Paragraph 8(m) of OMB’s guidance at 2 CFR 230, appendix B, states that “(1) charges to awards
for salaries and wages, whether treated as direct costs or in-direct costs, will be based on
documented payrolls approved by a responsible official(s) of the organization. The distribution
of salaries and wages to awards must be supported by personnel activity reports, as prescribed in
subparagraph 8(m)(2) of this appendix, except when a substitute system has been approved in
writing by the cognizant agency, and (2) reports reflecting the distribution of activity of each
employee must be maintained for all staff members (professionals and nonprofessionals) whose
compensation is charged, in whole or in part, directly to awards. In addition, in order to support
the allocation of indirect costs, such reports must also be maintained for other employees whose
work involves two or more functions or activities if a distribution of their compensation between
such functions or activities is needed in the determination of the organization’s indirect cost
rate(s) (e.g., an employee engaged part-time in indirect cost activities and part-time in a direct
function). Reports maintained by non-profit organizations to satisfy these requirements must
meet the following standards: (a) the reports must reflect an after-the-fact determination of the
actual activity of each employee. Budget estimates (i.e., estimates determined before the
services are performed) do not qualify as support for charges to awards.”
Paragraph 12 of OMB’s guidance at 2 CFR 230, appendix B, states that “(a) contributions or
donations, including cash, property, and services, made by the organization, regardless of the
recipient, are unallowable.”
Paragraph 14 of OMB’s guidance at 2 CFR 230, appendix B, states that the cost of
entertainment, including amusement, diversion, and social activities and any costs directly
associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals,
transportation, and gratuities) are unallowable.
Paragraph 23 of OMB’s guidance at 2 CFR 230, appendix B, states that “(a) costs incurred for
interest on borrowed capital, temporary use of endowment funds, or the use of the non-profit
organization’s own funds, however represented, are unallowable. However, interest on debt
incurred after September 29, 1995, to acquire or replace capital assets (including renovations,
alterations, equipment, land, and capital assets acquired through capital leases), acquired after
September 29, 1995, and used in support of Federal awards is allowable.”
Paragraph 25 of OMB’s guidance at 2 CFR 230, appendix B, states that “(a) notwithstanding
other provisions of this Circular, costs associated with the following activities are unallowable:
(1) Attempts to influence the outcomes of any Federal, State, or local election, referendum,
initiative, or similar procedure, through in kind or cash contributions, endorsements, publicity, or
similar activity; (2) Establishing, administering, contributing to, or paying the expenses of a
political party, campaign, political action committee, or other organization established for the
purpose of influencing the outcomes of elections; (3) Any attempt to influence: (i) The
introduction of Federal or State legislation; or (ii) the enactment or modification of any pending
Federal or State legislation through communication with any member or employee of the
Congress or State legislature (including efforts to influence State or local officials to engage in
similar lobbying activity), or with any Government official or employee in connection with a
decision to sign or veto enrolled legislation; (4) Any attempt to influence: (i) The introduction of
Federal or State legislation; or (ii) the enactment or modification of any pending Federal or State
30
legislation by preparing, distributing or using publicity or propaganda, or by urging members of
the general public or any segment thereof to contribute to or participate in any mass
demonstration, march, rally, fund-raising drive, lobbying campaign or letter writing or telephone
campaign; or (5) Legislative liaison activities, including attendance at legislative sessions or
committee hearings, gathering information regarding legislation, and analyzing the effect of
legislation, when such activities are carried on in support of or in knowing preparation for an
effort to engage in unallowable lobbying.”
OMB Memorandum 09-15, dated April 3, 2009, paragraph 1.4, states that the provisions of this
guidance apply to all Federal departments and agencies involved in or impacted by the Recovery
Act or which otherwise perform services for agencies that receive such appropriations.
HUD’s 2008 Supportive Housing Program Desk Guide states that project sponsors are required
to maintain detailed fiscal records during each year of the project to ensure adequate
documentation of all expenditures related to the grant, including those paid through the use of
cash match sources.
Section 7 of Community Advocates’ Accounting and Financial Policies and Procedures Manual
provides written procedures for determining the reasonableness, allocability, and allowability of
costs in accordance with the provisions of the applicable Federal cost principles and the terms
and conditions of the award. Additionally, it states the following:
“Salaries and wages charged to Federal grants will be supported as follows: (2) every
staff member whose compensation is charged, in whole or in part, directly or
indirectly to Federal awards, will complete activity reports that account for the total
activity for which the employee is compensated, and (3) the reports will reflect an
after-the-fact determination of the actual activity of each employee. Budget estimates
will not be used as support for charges to awards.
After an award had been made, create new general ledger account numbers (or
segments). New accounts shall be established for the receipt and expenditure
categories in line with the grant or contract budget.
Community Advocates must claim contributions as meeting a cost sharing or
matching requirement of a Federal award only if all of they are verifiable from
Community Advocates’ records.”
Article V, paragraph 5.1 of Community Advocates’ by-laws states that the Board of Directors
must be responsible for overseeing the affairs of Community Advocates. It is the responsibility
of the Board to establish policies necessary to accomplish the agency’s mission; to evaluate
progress toward achievement of agency goals and objectives; to select, periodically evaluate and
if necessary replace the executive director; and to assure that the agency’s fiscal, staff, and
voluntary resources are properly organized and managed.
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Community Advocates, Milwaukee, WI, Did Not Properly Administer Its Program and Recovery Act Grant Funds
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)