oversight

The Cherokee Nation Generally Administered Its Recovery Act Funds According to Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-03-12.

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

OFFICE OF AUDIT
REGION 6
FORT WORTH, TX




                    Cherokee Nation
                    Tahlequah, OK

          Native American Housing Block Grant,
         American Recovery and Reinvestment Act




2013-FW-1001                             MARCH 12, 2013
                                                        Issue Date: March 12, 2013

                                                        Audit Report Number: 2013-FW-1001




TO:            Wayne Sims, Administrator, Southern Plains Office of Native American
               Programs, 6IPI

               //signed//
FROM:          Gerald R. Kirkland, Regional Inspector General for Audit, Fort Worth Region,
               6AGA

SUBJECT:       The Cherokee Nation Generally Administered Its Recovery Act Funds According
               to Requirements


     Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the Cherokee Nation’s administration of
its formula Native American Housing Block Grant awarded under the American Recovery and
Reinvestment Act of 2009.

    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
817-978-9309.
                                             March 12, 2013
                                             The Cherokee Nation Generally Administered Its
                                             Recovery Act Funds According to Requirements




Highlights
Audit Report 2013-FW-1001


 What We Audited and Why                      What We Found

We audited the Cherokee Nation in            The Nation generally administered its $11.8 million
accordance with the U.S. Department          grant according to Recovery Act requirements.
of Housing and Urban Development             However, it did not obligate $215,000 of the grant
(HUD), Office of Inspector General’s         award by the obligation date because Nation officials
goal to review funds provided under the      did not completely understand the obligation
American Recovery and Reinvestment           requirements. As a result, it incorrectly certified that it
Act of 2009. Our objective was to            had obligated its funds. Additionally, the Nation did
determine whether the Nation complied        not keep adequate trip log reports to support that it
with Recovery Act requirements for           used 8 of 17 vehicles as required. This condition
procuring, expending, and reporting its      occurred because staff and management did not
formula Native American Housing              comply with the Nation’s policies and procedures. As
Block Grant funds received under the         a result, management could not support that $16,902
Recovery Act.                                spent on one vehicle was an eligible cost.

 What We Recommend

We recommend that HUD require the
Nation to (1) implement policies and
procedures that are consistent with
HUD requirements when obligating
funds to subrecipients, (2) support that a
vehicle was used as required or repay
$16,902 to the U.S. Department of the
Treasury from non-Federal tribal funds
and (3) ensure that its staff and
management fully comply with its
procedures for completing trip log
reports.
                           TABLE OF CONTENTS

Background and Objective                                                  3

Results of Audit
      The Cherokee Nation Generally Administered Its Recovery Act Funds
      According to Requirements                                           4

Scope and Methodology                                                     7

Internal Controls                                                         9

Appendixes
A.    Schedule of Questioned Costs                                        10
B.    Auditee Comments and OIG’s Evaluation                               11




                                           2
                       BACKGROUND AND OBJECTIVE

Under the American Recovery and Reinvestment Act of 2009, the U.S. Department of Housing
and Urban Development (HUD) awarded $255 million in formula Native American Housing
Block Grants. These grants were authorized under Title I of the Native American Housing
Assistance and Self-Determination Act of 1996.

HUD awarded $11.8 million to the Cherokee Nation, the second largest recipient of these
Recovery Act funds, on March 16, 2009. The Nation’s jurisdiction is comprised of 14 counties
in northeast Oklahoma covering about 7,000 square miles. HUD provided the Recovery Act
funds as a supplement to the 2008 Indian Housing Block Grant allocation, which required the
Nation to amend its 2008 Indian housing plan.

The Nation used its Recovery Act funding to rehabilitate and replace homes for low-income
families, modernize its low-rent units, and purchase vehicles used for those activities. Further, it
entered into an agreement with the Housing Authority of the Delaware Tribe of Oklahoma to use
$215,000, about 2 percent of the $11.8 million awarded to the Nation, to modernize the Tribe’s
low-rent units.

HUD required the Nation to obligate all of the funds by April 21, 2010, 1 year after the funds
were available. The Nation had to expend at least 50 percent of the funds by April 21, 2011
(within 2 years) and 100 percent of the funds by April 21, 2012 (within 3 years).

Our objective was to determine whether the Nation complied with Recovery Act requirements
for procuring, expending, and reporting its formula Native American Housing Block Grant funds
received under the Recovery Act.




                                                 3
                                      RESULTS OF AUDIT


Finding: The Cherokee Nation Generally Administered Its Recovery
Act Funds According to Requirements
The Nation generally administered its Recovery Act formula grant according to applicable rules
and regulations. However, it did not obligate $215,000, about 2 percent of the $11.8 million
awarded to the Nation, by the obligation date and did not keep adequate mileage records to
support that it used vehicles for eligible activities. This condition occurred because the Nation’s
staff and management did not fully understand HUD requirements and fully comply with its
vehicle use procedures. Accordingly, the Nation incorrectly certified that it had obligated all of
its funds and could not fully support $16,902 spent on 1 of 17 vehicles purchased with Recovery
Act funds.



    The Nation Did Not Obligate
    $215,000 by the Obligation
    Deadline

                  The Housing Authority of the Delaware Tribe, the only subrecipient, did not
                  obligate $215,000 that it received in Recovery Act funding from the Nation by the
                  obligation date of April 21, 2010. The Nation entered into an agreement with the
                  Tribe to use the $215,000 on the Tribe’s own project. Nation officials incorrectly
                  used the agreement to support the Nation’s certification that it had obligated its
                  Recovery Act funds. HUD’s Notice PIH 2000-26 (TDHEs) 1 specifically stated
                  that an obligation did not exist for a subrecipient when the agreement was signed.
                  Rather, the obligation was created when the subrecipient began work on an
                  eligible activity. The Nation’s management apparently did not understand this
                  HUD requirement. However, the Nation did recognize that the Tribe would not
                  be able to spend the funds by the deadline. The Nation recaptured the Recovery
                  Act funds and spent them by the required date on eligible activities.

                  Since the audit, Nation officials have approved a formal subrecipient monitoring
                  policy, which identifies requirements for subrecipients to comply with grant
                  requirements. The Nation plans to provide a copy of HUD Notice PIH 2000-26 to
                  all programs that administer HUD funds that it sub-grants to other organizations. 2




1
     PIH is an acronym for Public and Indian Housing. TDHEs are tribally designated housing entities.
2
     We did not review the new policy, as the Nation had not implemented it during the audit.

                                                        4
    The Nation Did Not Fully
    Support That It Used One
    Vehicle for Eligible Activities

                   Under 24 Code of Federal Regulations 85.32, HUD required the Nation to use
                   vehicles purchased with Recovery Act funds for its Native American Block Grant
                   program. When no longer needed for its program, the Nation was required to use
                   the vehicles for activities currently or previously supported by a Federal agency,
                   with first priority to HUD programs. The Nation developed a trip log report that
                   showed the programs that benefited from the mileage. When completed correctly,
                   the reports showed whether the drivers used the vehicles for eligible activities.
                   Contrary to the Nation’s procedures for tracking mileage, management did not
                   ensure that its trip log reports supported that the Nation used vehicles as required.
                   For 8 of the 17 vehicles purchased with Recovery Act funds, staff did not report
                   for which program activities vehicle mileage was incurred. The program activity
                   information was missing on 27 (48 percent) of 56 trip log reports reviewed. As a
                   result, the trip log reports did not support that staff used the vehicles for eligible
                   activities.

                   Management provided additional information to support that the Nation used
                   seven of the eight vehicles for HUD grant programs as required. However, the
                   information provided by management showed that the employees who drove the
                   remaining vehicle 3 worked for both Federal and non-Federal programs. As a
                   result, the $16,902 cost of the vehicle is unsupported.

                   For consistent tracking of vehicle use, the Nation’s policies and procedures
                   required the driver’s supervisor, before approving and signing each report, to
                   ensure that staff used the vehicle according to the department’s objectives.
                   Further, the Nation’s General Services Administration custodian 4 was required to
                   ensure that the driver completed all sections of the report. However, the
                   responsible staff members did not fully comply with the written procedures. As a
                   result, 43 (77 percent) of 56 trip log reports reviewed were missing information.
                   The incomplete reports could make it difficult for the Nation’s management to
                   oversee vehicle use. For example, no information on the time, activity, location,
                   or mileage would make it difficult for management to summarize vehicle use for
                   planning future activities and estimating needed vehicle purchases.

                   As a result of the audit, the Nation plans to discuss and emphasize the importance
                   of following its procedures for completing trip log reports during each of its
                   annual financial trainings. Further, it plans to review a sample of trip logs on a
                   quarterly basis to ensure compliance with Federal regulations. The quarterly
                   sample will include trip logs for vehicles purchased with HUD funds. 5

3
      A 2010 Ford Fusion, tag number 35347C
4
      The custodian is responsible for coordinating activities for obtaining and maintaining a Nation vehicle.
5
      We did not audit the Nation’s new procedures as they had not been implemented during the audit period.

                                                          5
Conclusion

             The Nation generally managed its Recovery Act funds as required. However, it
             incorrectly certified to HUD that it obligated its $11.8 million in funds by the
             obligation date when its subrecipient had not obligated $215,000. The Nation
             needs to ensure that applicable staff and management understand the obligation
             requirements for subrecipients. Additionally, the Nation’s staff did not follow its
             written procedures regarding documenting the use of 8 of the 17 vehicles
             purchased with Recovery Act funds. The Nation provided additional
             documentation supporting the eligible use of seven vehicles and provided
             documentation showing that the remaining vehicle, purchased for $16,902, could
             have been used for ineligible uses.

Recommendation

             We recommend that the Administrator of the Southern Plains Office of Native
             American Programs require the Nation to

             1A.    Implement policies and procedures to ensure that applicable staff and
                    management are aware of the requirements of HUD Notice PIH 2000-26.

             1B.    Support or repay the $16,902 that it used to purchase one vehicle.

             1C.    Ensure that staff fully complies with the Nation’s procedures for
                    completing trip log reports.




                                              6
                            SCOPE AND METHODOLOGY

We performed our fieldwork from September 17 through December 4, 2012, at the Nation’s
office located in Tahlequah, OK, and at our office located in Oklahoma City, OK. Our audit
scope was from March 16, 2009, through September 30, 2012. To achieve our audit objective,
we relied in part on computer-processed data from the Nation’s accounting system. We used the
computer-processed data to select the procurement and expenditure samples for our audit.
Although we did not perform a detailed assessment of the data reliability, we performed a
minimal level of testing and found the data to be adequate for our purposes.

To accomplish our objective, we performed the following related to the Nation’s Recovery Act
formula grant funds:

    •   Reviewed

        o Relevant background information;
        o Recovery Act requirements;
        o The Nation’s internal monitoring report, single audit reports, and comprehensive
          annual financial report for the fiscal year ending September 30, 2011;
        o HUD’s September 15, 2011, report from its monitoring of the Nation’s Indian
          Housing Block Grant, Native American Housing Block Grant, and Indian Community
          Development Block Grant;
        o The Nation’s grant agreement, subrecipient agreement, policies and procedures,
          accounting records, and trip log reports; and
        o The Nation’s Recovery Act Web site report for the quarter ending June 30, 2012.

    •   Interviewed the Nation’s staff and officials from HUD’s Southern Plains Office of Native
        American Programs.

    •   Selected a nonstatistical sample 6 of procurements from the Nation’s purchase order list.
        Total procurements reviewed were $781,330, which was 8 percent of the $9.7 million
        purchase orders. We initially assessed a low risk for procurements and considered high
        dollar amounts as high risk. Thus, we selected the largest purchase orders for 3 of 86
        vendors that had the largest dollar amount of business with the Cherokee Nation for the
        Recovery Act formula grant. We also reviewed 100 percent of the vehicle procurements
        that used Recovery Act formula grant funds. We used a nonstatistical sample because we
        evaluated whether the Nation kept documentation that supported its procurements.

    •   Selected a nonstatistical sample of expenditures. The expenditures selected totaled
        $502,826, which was 4 percent of the $12 million total expenditures. 7 The sample
        consisted of the purchase orders for 11 (13 percent) of 86 vendors, which were the largest

6
    We did not project the results of any of the sample reviews to the population.
7
    The Nation spent more than $12 million, which included the more than $11.8 million grant and $151,766 in
    program income.

                                                       7
       purchase orders for each vendor selected. We initially assessed a low risk for
       expenditures. We used the purchase order list obtained from the Nation to select the
       expenditure sample because it included names of vendors compared to the expenditure
       list, which did not show all vendor names. Also, the expenditure list included indirect
       costs and salaries, which we did not consider high risks. We reviewed the vendor names
       that appeared questionable, such as names that included “consulting” in them and those
       that included the names of individuals in the company name. We used a nonstatistical
       sample because we evaluated whether the Nation maintained documentation supporting
       its expenditures.

   •   Selected and reviewed 56 (23 percent) of 242 trip log reports for 17 vehicles purchased
       with Recovery Act funds. We selected this nonstatistical sample to evaluate whether the
       Nation kept adequate documentation supporting the eligible use of vehicles.

   •   Selected and performed site visits to seven single-family homes rehabilitated or replaced
       using Recovery Act funds. We also reviewed the Nation’s participant files on these
       households. We made a targeted selection, which was a nonstatistical sample, of the
       Nation’s list of single-family homes that the Nation either rehabilitated or replaced.
       Since the Nation included 14 counties, we selected homes located in the counties near
       Tahlequah (Nation headquarters), which were Adair, Cherokee, and Muskogee. We
       determined that the higher dollar amounts for the rehabilitation or replacement costs were
       the high-risk factors. We also considered homes in which either the elderly or disabled
       dwelled as a contributing high-risk factor due to the HUD housing requirements for those
       individuals. As a result, we made the selection based on the highest dollar amounts of
       funds spent on the homes in which elderly or disabled families lived. We also considered
       in the selection whether the homeowners were available for our site visits. The sample
       consisted of $395,285 (7 percent) of the total population of more than $5.4 million spent
       on the rehabilitation or replacement of single-family homes. During the site visits to the
       single-family homes, we performed site visits to four low-income housing apartment
       complexes that the Nation modernized near the homes. We selected the apartment
       complexes for which the Nation used Recovery Act funds and which were in close
       proximately to the seven single-family homes. The sample consisted of $1,261,595 (27
       percent) of the total population of $4,627,886. The modernization included installing
       windows and doors at 16 of 24 sites, replacing the roofs at 11 sites, adding attic insulation
       at 11 sites, and replacing kitchen cabinets, vanities, appliances, carpet, and hot water
       tanks at 10 sites.

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




                                                8
                              INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

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

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


 Relevant Internal Controls

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

               •      Policies and procedures in place to reasonably ensure that the Nation’s
                      program met its objectives.
               •      Policies and procedures in place to reasonably ensure that the Nation and
                      its subrecipients complied with laws and regulations.
               •      Policies and procedures in place to reasonably ensure that the Nation’s
                      resource use was consistent with laws and regulations and that its
                      resources were safeguarded against waste, loss, and misuse.
               •      Policies and procedures in place to reasonably ensure that the Nation
                      properly reported its program progress in a timely manner.

               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.

               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government auditing standards. We did not design our
               evaluation of internal controls to provide assurance regarding the effectiveness of the
               internal control structure as a whole. Accordingly, we do not express an opinion on
               the effectiveness of the Nation’s internal control.

                                                 9
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                            Recommendation
                                                  Unsupported 1/
                            number
                                1B.                     $16,902



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.




                                             10
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation                           Auditee Comments




             March 01, 2013



             Mr. William Nixon
             Assistant Regional Inspector General
             U. S. Department of Housing and Urban Development
             Office of Inspector General
             Office of Audit (Region 6)
             819 Taylor Street, Suite 13A09
             Ft. Worth, TX 76102

             Subject: Information Requested in relation to finding that the Cherokee Nation Generally
             Administered Its Recovery Act Funds According to Requirements.

             Dear Mr. Nixon:

             In response to the request for information in relation to Finding that Cherokee Nation Generally
             Administered Its Recovery Act Funds According to Requirements and the following is the
             information requested:

             1A.) Implement Policies and Procedures consistent with HUD requirements when obligating
             funds to sub-recipients:

Comment 1    RESPONSE: A formal sub-recipient monitoring policy has now been approved which identifies
             the requirement for sub-recipients to comply with grant requirements. Regarding specifically
             HUD funding, all Cherokee Nation programs administering HUD funds and sub-granting any
             part of those fund to another organization will be provided a copy of HUD Notice PIH 2000-26.

             1B.) Support that a vehicle was used as required or repay $16,902 to the Indian Housing Block
             Grant from non-Federal Tribal Funds:

Comment 2    RESPONSE: Cherokee Nation will repay a portion of the purchase price (a portion of the
             $16,902) of the 2010 Ford Fusion vehicle with tag number 353-47C to the Indian Housing Block
             Grant from non-Federal Tribal Funds. Support will be provided to substantiate the portion of
             that vehicle which remains as a direct cost to the Indian Housing Block Grant, and the portion
             that will no longer be allocated to the Indian Housing Block Grant will be refunded to the U.S.
             Treasury.

             1C.) Ensure that staff and management fully comply with procedures for completing trip log
             reports:
                                                   11
                            OIG Evaluation of Auditee Comments
Comment 3   RESPONSE: To fully comply with the procedures for completing trip log reports, during
            annual Cherokeethe
             We applaud       Nation financial
                                 Nation’s      training,
                                            plans        the necessity
                                                    to take  actions toforremedy
                                                                           this compliance will be discussed
                                                                                   the problem     identified.
            and emphasized. In addition, on a quarterly basis, a sample of Trip Logs (with that sample
             We  have   included   information     on  its training  and   monitoring    plans  in  the audit
            containing at least some portion of vehicles used by HUD Programs) will be reviewed to ensure
             report.
            compliance.

            Thank you for allowing Cherokee Nation to respond to this finding.

            Should you have any additional questions or need any further assistance, please contact Lacey
            Horn, Treasurer 918-207-3902 or by email at lacey-horn@cherokee.org.

            Sincerely,



            \\signed\\.
            Bill John Baker, Principal Chief

            Cc:      Lacey Horn, Treasurer
                     Jamie Cole, Controller
                     Diane S. Kelley, Executive Director, Career Services
                     Vickie Hanvey, Government Resources
                     Gary Cooper, Executive Director, Housing Authority
                     Ron Qualls, Executive Director, Community Services




                                                    12
                         OIG Evaluation of Auditee Comments

Comment 1   We acknowledge that the Nation agreed that errors occurred, and stated that it had
            implemented a subrecipient monitoring policy to comply with the requirements of
            HUD Notice PIH 2000-26. We have included the information in the audit report.

Comment 2   We agree that the Nation should repay from non-Federal funds any amount of the
            vehicle purchase price that it cannot support.

Comment 3   We agree with the Nation’s plans to take actions to remedy the conditions
            identified in the finding. We have included information on its training and
            monitoring plans in the audit report.




                                            13