OFFICE OF AUDIT REGION 6 FT. WORTH, TX City of New Orleans, LA Recovery Act Homelessness Prevention and Rapid Re-Housing Program [Type text] 2013-FW-1008 [Type text] [Type text] SEPTEMBER 24, 2013 Issue Date: September 24, 2013 Audit Report Number: 2013-FW-1008 TO: Cheryl S. Breaux, Director, Office of Community Planning and Development, 6HD //signed// FROM: Gerald Kirkland Regional Inspector General for Audit, Ft. Worth Region, 6AGA SUBJECT: The City of New Orleans, LA, Did Not Have Adequate Financial and Programmatic Controls To Ensure That It Expended and Reported Funds in Accordance With Program Requirements Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), final results of our review of the City of New Orleans’ American Recovery and Reinvestment Act of 2009 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 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. September 24, 2013 The City of New Orleans, LA, Did Not Have Adequate Financial and Programmatic Controls To Ensure That It Expended and Reported Funds in Accordance With Program Requirements Highlights Audit Report 2013-FW-1008 What We Audited and Why What We Found In accordance with our goal to review The City did not have adequate financial and American Recovery and Reinvestment programmatic controls over its Program to ensure that Act of 2009 funds, we reviewed the it expended and reported funds in accordance with City of New Orleans’ Homelessness requirements. Specifically, the City (1) paid Program Prevention and Rapid Re-Housing costs with administrative funds, (2) exceeded its Program. Our objective was to administrative budget, (3) charged costs incurred for determine whether the City had its other grant programs to the Program, (4) did not adequate financial and programmatic always ensure that its subgrantee supported participant controls to meet Program requirements. eligibility determinations, (5) did not ensure that its subgrantee properly tracked and recorded participant What We Recommend data in HMIS, (6) did not ensure that its subgrantee maintained approved budget revisions or amended its contracts to ensure that it did not exceed contract costs, We recommend that the Director of the and (7) did not ensure that its or its subgrantee’s U. S. Department of Housing and Urban financial records reconciled to the expenditures in Development’s (HUD) New Orleans IDIS. These conditions occurred because the City (1) Office of Community Planning and did not adequately maintain and track its budget to Development require the City to (1) ensure that it made payments from the correct cost repay $134,770; (2) support or repay category and within budgeted amounts, (2) more than $159,000; (3) review the circumvented controls to pay expenditures from remaining $192,681 charged to the incorrect cost categories, (3) had no written policy to administrative cost category for process expenditures until 2 months after the Program eligibility; (4) correct $28,430 in data ended, and (4) did not always provide adequate entry errors in the homeless oversight to its subgrantee. As a result, the City management information system incurred $134,770 in ineligible and $159,987 in (HMIS); (5) review potential duplicate unsupported costs. It also allowed $28,430 in data assistance shown in its HMIS, correct entry errors in the HMIS and potentially paid $465,506 the data as warranted, and repay any in duplicate financial assistance. Thus, the City could duplicate amounts, thereby putting not provide reasonable assurance that it had access to $465,506 to better use; and (6) require accurate information about the use of Recovery Act the City to reconcile its financial funds. records to its subgrantee and the Integrated Disbursement and Information System (IDIS). TABLE OF CONTENTS Background and Objective 3 Results of Audit Finding: The City Did Not Have Adequate Financial and Programmatic Controls Over Its Program To Ensure That It Expended and Reported Funds in Accordance With Program Requirements 4 Scope and Methodology 12 Internal Controls 14 Appendixes A. Schedule of Questioned Costs and Funds To Be Put to Better Use 15 B. Auditee Comments and OIG’s Evaluation 16 2 BACKGROUND AND OBJECTIVE On February 17, 2009, the President signed the American Recovery and Reinvestment Act of 2009 (Recovery Act), which included $1.5 billion for the Homelessness Prevention and Rapid Re-Housing Program administered by the U. S. Department of Housing and Urban Development’s (HUD) Office of Community Planning and Development. Funding for the program was distributed based on the formula used for the Emergency Shelter Grants program. The purpose of the Program was to provide homelessness prevention assistance for households that would otherwise become homeless and rapid rehousing assistance for persons who were homeless as defined by Section 103 of the McKinney Vento Homeless Assistance Act.1 The Program provided temporary financial assistance and housing relocation and stabilization services to individuals and families who were homeless or would be homeless but for this assistance. Other eligible Program activities included data collection and evaluation and administrative services. On July 31, 2009, HUD entered into a Program grant agreement with the City of New Orleans, awarding the City more than $7.5 million. HUD allowed the City to distribute funds to subrecipients, such as local governments or private nonprofit organizations, to carry out Program activities. As part of the grant agreement, HUD required the City to ensure that each subrecipient fully complied with Program requirements. To assist in executing the Program, the City entered into a subgrant agreement with Unity of Greater New Orleans on November 30, 2009. In turn, Unity selected 10 project sponsors to carry out Program activities and provide resources to the community. Unity’s project sponsors included Travelers Aid, Total Community Action, Hope House, Community Service Center, Alternative Living, Family Services of Greater New Orleans, Episcopal Community Services, Odyssey House, the Salvation Army, and Southeast Legal Services. HUD required the City to obligate funds by September 30, 2009, and report demographic information on homeless people served, as well as the exact dates that they entered and exited the Program in the Homeless Management Information System (HMIS).2 In turn, the City required Unity and its project sponsors to enter the Program’s participant data into HMIS. The Recovery Act required the City to expend 60 percent of Program funds by July 31, 2011, and 100 percent of funds by July 31, 2012. HUD allowed the City to continue drawing down funds, until October 29, 2012, from its Integrated Disbursement Information System (IDIS)3 to reimburse expenditures incurred before July 31, 2012. Our objective was to determine whether the City had adequate financial and programmatic controls to meet Program requirements. 1 42 U.S.C. (United States Code) 11302 2 HMIS is the primary tool for obtaining data on the use of Program funds awarded and persons served. 3 The IDIS is a nationwide database that provides HUD with current information regarding the program activities including funding data which is used to monitor grantees. HUD required grantees to use IDIS to drawdown Program funding and report on grant expenditures. 3 RESULTS OF AUDIT Finding: The City Did Not Have Adequate Financial and Programmatic Controls Over Its Program To Ensure That It Expended and Reported Funds in Accordance With Program Requirements The City did not have adequate financial and programmatic controls over its Program to ensure that it expended and reported funds in accordance with Program requirements. Specifically, the City (1) paid Program costs with administrative funds, (2) charged costs to the Program that were incurred for its other grant programs, (3) exceeded its maximum 5 percent administrative budget, (4) did not ensure that Unity made adequately supported participant eligibility determinations, (5) did not ensure that Unity and its project sponsors adequately tracked and recorded participant data in the HMIS, (6) did not ensure that Unity maintained documentation supporting approved budget revisions or amended its contracts to ensure that its project sponsor and contractor costs did not exceed the contracted amount, and (7) did not ensure that its or Unity’s financial records reconciled to the expenditures in IDIS. These conditions occurred because the City did not take the appropriate steps to safeguard funds, as it (1) did not adequately maintain and track its budget to ensure that it made payments from the correct cost category and within budgeted amounts; (2) circumvented accounting controls to pay expenditures from incorrect cost categories; (3) did not have a written policy in place on how to process reimbursement requests for Program expenditures until September 2012, 2 months after the Program ended; and (4) did not always provide adequate oversight of Unity. As a result, the City incurred $134,770 in ineligible and $159,987 in unsupported costs. It also allowed $28,430 in data entry errors in the HMIS. Further, the City potentially paid $465,506 in duplicate financial assistance. Thus, it could not provide reasonable assurance to HUD and the public that it had access to accurate information about the use of Recovery Act funds. The City Charged Ineligible Administrative Fees A review of 10 expenditure files, containing support for 10 disbursements totaling more than $198,000 from the administrative funds, determined that for 7 disbursements, the City (1) paid Program costs with administrative funds, (2) charged costs to the Program that were incurred for different grant programs, and (3) exceeded its maximum 5 percent administrative fee threshold. Specifically, In four instances, the City paid a total of $100,416 for ineligible costs4 related to Program costs that were unallowable charges to the administrative cost category. These charges included Unity’s and project sponsors’ staff salaries, 4 According to Federal regulations these costs were not allowed to be charged to the administrative cost category. Since the charges were to the administrative costs category, we evaluated them to determine their eligibility as administrative costs. We did not evaluate their eligibility as a Program cost. 4 utility arrearages, participant rental assistance, and data collection activities. Federal Register 5307-N-01, section IV, part A, prohibited the City from using its administrative funds to pay these costs. The City paid the New Orleans Music Hall of Fame and Luther Speight for costs not related to the Program but related to two of its other grant programs.5 Federal Register 5307-N-01, section IV, part A, and section V, part F, held the City responsible for ensuring that it administered its Program funds in accordance with the requirements and charged only eligible Program activity costs. Of the $9,248 erroneously charged to the Program, the City repaid $8,692 on April 29, 2013, leaving $556 in ineligible costs. The City paid costs that caused it to exceed its 5 percent administrative budget threshold limited by Federal Register 5307-N-01, section IV, part A. Specifically, instead of charging $378,908 (5 percent) to its administrative cost category, it charged $390,687 (5.15 percent). The $11,779 overage was ineligible. With the $8,692 repayment previously discussed, the City reduced its ineligible overage to $3,087. Participant Files Lacked Support for Eligibility A review of 23 participant files with disbursements totaling $293,432 determined that for 14 participants, the City did not ensure that Unity fully supported its eligibility determinations, thereby incurring almost $45,000 in unsupported and ineligible costs as shown in table 1. Some files contained multiple deficiencies. 5 The City charged the costs to its State of Louisiana Homeless Prevention and Rapid Re-Housing Program and Community Development Block Grants. 5 Table 1: Number of files Ineligible Unsupported Deficiency with deficiencies costs costs Lacked annual habitability inspection6 12 $29,451 0 Assistance received before approval into the 1,260 0 Program7 3 Assistance paid in excess of monthly lease 219 0 amount8 1 Assistance paid for more than 18 months10 1 49511 0 Inadequate income documentation12 1 0 $ 2,250 No documentation supporting area median 0 11,990 income requirement13 1 Totals $30,711 $14,240 In addition, although it did not affect eligibility, Unity’s participant files did not always contain documentation required by its policies14 as shown in table 2. Table 2: Number of files with Deficiency deficiencies Inadequate utility documentation 12 Inadequate exit documentation 11 Inadequate identification information 4 Inadequate homeless verification letter 1 Lack of rent reasonableness documentation 4 Lack of lead-based paint inspection 1 Lack of income documentation or staff affidavits at 1 recertification HMIS Contained Duplicate Payments and Did Not Reconcile to Unity’s Records A review of the HMIS, the primary data collection tool for the Program, determined that amounts paid for participants contained potential duplicate payments and did not reconcile to Unity’s financial records. Specifically, of 1,322 participants listed in the HMIS, with financial assistance totaling more than $4.3 million, the HMIS listed potential duplicate assistance for 447 participants (34 percent) totaling $493,936. Review of the payment history for six participants 6 Federal Register 5307-N-01, section VII, part C 7 HUD’s Eligibility Determination and Documentation Guidance, Section 5-Documentation Standards 8 Federal Register 5307-N-01, section IV, part A 9 Amount included in $29,451 above 10 Federal Register 5307-N-01, section IV, part A 11 Amount included in $29,451 above 12 HUD’s Eligibility Determination and Documentation Guidance, Section 5-Documentation Standards 13 Federal Register 5307-N-01, section IV, part D 14 Unity’s Guide to Paperwork, Procedures, and Policies 6 with potential duplicate assistance totaling $28,430 showed that Unity made data entry errors, but no duplicate payments occurred.15 According to Unity, it believed that all of the potential duplicate payments were data entry errors. However, since Unity’s project sponsors also entered data into the HMIS and Unity did not have access to its project sponsors’ financial records, it could not provide certainty that the remaining $465,506 did not represent duplicate payments. In addition, an analysis of Unity’s financial records as compared to the HMIS determined that Unity’s total financial assistance expenditures of more than $5 million exceeded the amount of financial assistance reported in the HMIS of more than $4.3 million, a $679,100 discrepancy. Unity could not provide an explanation regarding the discrepancy. Project Sponsors and Contractors Exceeded Contract Amounts A review of Unity’s financial records compared to project sponsor and contractor agreements determined that the amount of funding paid to three project sponsors and one contractor16 exceeded the agreement amounts by $145,747 as shown in table 3. Table 3: Unity general ledger Contract Entity Contracted amount payments overage Hope House $ 576,537 $ 643,520 $ 66,983 The Salvation Army 674,471 725,878 51,407 Southeast Legal Services 155,178 172,238 17,060 VIA Link 118,500 128,797 10,297 Total $1,524,686 $1,670,433 $145,747 Any revisions to the project sponsors’ or contractors’ budgets or agreements required written approval from the City. However, neither Unity nor the City could provide written documentation approving the contract overages. 15 These six participants were assisted by Unity during the Program. We reviewed these participants because they were within our participant eligibility sample. Thus, we had all landlord and Unity transaction data needed to trace all of the payments for duplicates. We did not review participants who were assisted by other project sponsors. 16 Hope House, The Salvation Army, and Southeast Legal Services were project sponsors. VIA Link was a contractor. 7 Financial Records Did Not Reconcile to IDIS Expenditures An analysis of the City’s internal budget and cost control statements17 compared to IDIS expenditures determined that the budgets and expenditures did not reconcile, generating misclassified funds as shown in table 4. Table 4: City budgeted IDIS expended Cost category amount amount Difference Housing relocation and stabilization $ 1,829,315 $ 1,993,417 $ 164,102 Financial Assistance 5,142,600 5,092,902 (49,698) Unity administrative costs 265,235 261,235 (4,000) City administrative costs18 113,673 129,451 15,778 Data collection and evaluation 227,345 101,163 (126,182) Total $7,578,168 $7,578,168 Federal Register 5307-N-01, section V, part F, required the City to ensure that it administered Program funds in accordance with Program requirements and other applicable laws. When asked, the City asserted that the data did not reconcile because the City needed to move funding from the data collection cost category to other categories to serve more clients who were in need. However, the City could not provide documentation supporting this assertion or that it had an authorized budget revision. Also, reducing the data collection cost category to $101,163 caused the City to misclassify funds. For example, as previously discussed, the City paid unallowable data collection costs with administrative funds. In addition, IDIS expenditures did not reconcile to Unity’s expenditures reflected in its cost control statement. A comparison of the IDIS expenditures to Unity’s expenditures showed that none of the expended amounts reconciled as shown in table 5. Table 5: IDIS expended Unity expended Cost category amount amount Difference Housing relocation and stabilization $1,993,417 $1,961,414 $ 32,003 Financial assistance 5,092,902 5,013,946 78,956 Unity administrative costs 261,235 227,345 33,890 Data collection and evaluation 101,163 257,791 (156,628) Total $7,448,717 $7,460,496 ($11,779) 17 Cost control statements are documents the City used to track Program budgets and costs. 18 Although the City did not have budget cost control statement documentation supporting the amount, the City indicated that it reserved $113,673 for its Program administrative costs. 8 The City Did Not Take the Appropriate Steps To Safeguard Funds The City did not take the appropriate steps to safeguard funds. Specifically, it did not have a written policy in place for processing expenditures until September 2012, 2 months after the Program ended. This contributed to its inability to consistently pay expenditures from the correct cost category and within budgeted amounts. According to the City, it began to run out of funding in its cost categories. Thus, it began paying expenditures from whatever category had funds remaining. In doing this, the City disregarded appropriate accounting procedures and violated Program requirements. In addition, although the City monitored and communicated with Unity and its project sponsors during the Program, its oversight was sometimes lacking as (1) Unity was not always aware of the Program requirements, and (2) Unity and its project sponsors disregarded requirements. Further, according to the City, it had several meetings with Unity to reconcile its accounting records and believed that, when reconciling the funds, Unity’s accounting records should be used and not its cost control statements. However, Unity contradicted the City’s assertion, stating that (1) in its accounting records it did not categorize Program expenditures in line with the four Program cost categories used by the City, and (2) its final cost control statement reflected the final expenditure amounts and should be used in determining expended funds by category. When we informed the City of the potential duplicate assistance payments in HMIS, it stated that it did not have access to the HMIS during the Program and it was difficult to obtain HMIS information from Unity. Without access to the data, the City could not have provided adequate oversight to ensure that Unity and its project sponsors adequately tracked and recorded participant data in the HMIS. Conclusion Because the City did not take the appropriate steps to safeguard Program funds, it (1) paid Program costs with administrative funds; (2) charged costs to the Program that were incurred for the City’s other grants; (3) exceeded its maximum 5 percent administrative budget; (4) did not ensure that Unity made eligibility determinations that were adequately supported; (5) did not ensure that Unity and its project sponsors adequately tracked and recorded participant data in the HMIS, which resulted in either duplicate payments made on behalf of these participants or material inaccuracies reported to HUD; (6) did not ensure that Unity maintained documentation supporting approved budget revisions or amended its contracts to ensure that its project sponsor and contractor costs did not exceed the contracted amount; and (7) did not ensure that its or Unity’s financial records reconciled to the City’s expenditures in IDIS. 9 As a result, the City incurred $134,770 in ineligible and $159,987 in unsupported costs. It also allowed $28,430 in data entry errors in the HMIS and potentially made $465,506 in duplicate financial assistance payments reflected in its HMIS for 441 participants. Thus, the City could not provide reasonable assurance to HUD and the public that it had accurate information about the use of Recovery Act funds. Since the City’s Program ended July 31, 2012, we did not recommend corrective actions for its internal controls. Recommendations We recommend that the Director of HUD’s New Orleans Office of Community Planning and Development require the City to 1A. Repay to HUD for its transmission to the U.S. Treasury $100,416 for ineligible costs charged to the administrative cost category. 1B. Repay to HUD for its transmission to the U.S. Treasury $556 for ineligible costs that the City erroneously paid from Program funds that were chargeable to the City’s subgrant from the State of Louisiana’s Program. 1C. Repay to HUD for its transmission to the U.S. Treasury $3,087 for ineligible costs that the City incurred as a result of its exceeding the maximum 5 percent administrative budget. 1D. Perform a detailed review of the remaining $192,68119 charged to the administrative cost category in IDIS to ensure that these costs were chargeable to this category and repay to HUD for its transmission to the U.S. Treasury any unallowable or unsupported costs. 1E. Repay to HUD for its transmission to the U.S. Treasury $30,711 for ineligible costs paid on behalf of 14 Program participants. 1F. Provide support regarding the income eligibility of two participants or repay the $14,240 paid on behalf of the participants to HUD for its transmission to the U.S. Treasury. 1G. Correct HMIS data entry errors totaling $28,430 for the six participants reviewed so that the HMIS payments will accurately reflect the amounts paid in the financial records. 19 $390,687 (total administrative costs) - $198,006 (total administrative costs reviewed) = $192,681 (remaining administrative costs) 10 1H. Review potential duplicate assistance identified in HMIS associated with 441 Program participants, correct the HMIS data based on actual financial records, or repay to HUD for its transmission to the U.S. Treasury any amounts paid that were duplicate payments, thereby potentially putting $465,506 to better use. 1I. Support that it either (1) provided written approval to undertake actions that allowed the project sponsors and contractors to exceed contract amounts or (2) maintained documentation evidencing authorized revisions to the project sponsor and contractor budgets or repay $145,747 to HUD for its transmission to the U.S. Treasury for Program funds paid to three project sponsors and one contractor that exceeded the contract amounts. 1J. Require the City to reconcile its financial records with those of Unity and IDIS. These records include but are not limited the City’s and Unity’s budgets and Unity’s expenditures. 11 SCOPE AND METHODOLOGY We conducted our audit at the City’s and Unity’s offices as well as the HUD Office of Inspector General’s (OIG) office in New Orleans, LA, between April and August 2013. To accomplish our objective, we Reviewed relevant laws, regulations, and program guidance. Reviewed City and Unity organizational charts and written policies for the Program. Reviewed the City’s Recovery Act-related obligations and expenditures. Reviewed the grant agreement between HUD and the City including the substantial amendment, contract agreements between the City and Unity, and contract agreements between Unity and its project sponsors or contractors. Reviewed Program participant files. Reviewed the City’s Program budgets as compared to the expenditures in IDIS and Unity’s budgets. Reviewed the City’s total IDIS expenditures per cost category as compared to Unity’s. Interviewed appropriate HUD, City, and subgrantee staff members. Analyzed the participant and disbursement data in the HMIS. The City had 60 Program disbursements totaling more than $7.5 million. It made 55 disbursements totaling $390,687 from the administrative cost category. Using a nonstatistical sample, we selected 10 of the 55 disbursements totaling more than $198,000 in order to review at least 50 percent of the administrative funds. We reviewed the disbursements to determine eligibility and whether the City disbursed the funds in accordance with Program requirements. Through file reviews, we assessed the reliability of computer processed data regarding disbursements and determined that the disbursement data were generally reliable. Of the 1,322 Program participants reflected in the City’s HMIS, 37 did not receive funding assistance. The remaining 1,285 participants, our revised universe of participants, received more than $4.3 million in Program financial assistance. Using a nonstatitical sample, we selected 23 participants whose assistance totaled $289,432 and who appeared to have received more than 18 months of assistance and potential duplicate rental payments. We reviewed the files for the participants to determine whether they met Program eligibility requirements and whether eligibility determinations were adequately supported. We assessed the reliability of computer processed data regarding the participant data. Through the file reviews we determined that the participant data were not reliable because of discrepancies identified related to the amount of Program assistance paid in the HMIS as compared to the supporting documentation. 12 Our audit scope covered July 31, 2009, through September 30, 2012. We expanded the scope as necessary to accomplish our audit objective. 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. 13 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: Financial controls intended to ensure that Program expenditures comply with HUD regulations, procedures, and instructions. Programmatic controls intended to ensure that participants meet Program eligibility requirements. 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. Significant Deficiency Based on our review, we believe that the following item is a significant deficiency: The City did not have adequate financial and programmatic controls over its Program to ensure that funds were expended and reported in accordance with Program requirements (finding). 14 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Ineligible 1/ Unsupported 2/ Funds to be put number to better use 3/ 1A $100,416 1B 556 1C 3,087 1E 30,711 1F $14,240 1H $465,506 1I 145,747 Totals $134,770 $159,987 $465,506 1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that the auditor believes are not allowable by law; contract; or Federal, State, or local policies or regulations. 2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of the audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures. 3/ Recommendations that funds be put to better use are estimates of amounts that could be used more efficiently if an OIG recommendation is implemented. These amounts include reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by implementing recommended improvements, avoidance of unnecessary expenditures noted in preaward reviews, and any other savings that are specifically identified. In this instance, it represents potential duplicate assistance identified in HMIS associated with 441 Program participants that if verified and corrected could put $465,506 to better use. 15 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION FACILITIES, INFRASTRUCTURE AND COMMUNITY DEVELOPMENT CITY OF NEW ORLEANS MITCHELL J. LANDRIEU CEDRIC S. GRANT MAYOR DEPUTY MAYOR September 13, 2013 Gerald R. Kirkland Regional Inspector General for Audit- Region 6 U.S. Department of Housing and Urban Development Office of Inspector General 819 Taylor Street, Suite 13A09 Fort Worth, TX 76102 RE: 2013 City of New Orleans Audit of LA Recovery Act Homelessness Prevention and Rapid Re-Housing Program Dear Mr. Kirkland: The City of New Orleans (the City) is in receipt of your discussion draft audit report of the Louisiana Recovery Act Homelessness Prevention and Rapid Re-Housing Program dated August 29, 2013 conducted by the U.S. Department of Housing and Urban Development, Office of Inspector General beginning on April 8, 2013. Enclosed please find the City's response to the findings and recommendation as noted: Misclassification of Expenditures Comment 1 The City requests that the finding be revised to reflect the costs described in number one (1) related to Unity's and project sponsors' staff salaries, utility arrearages, participant, rental assistance, and data collection activities be noted as eligible programmatic costs. There were no funds charged that were ineligible, instead costs were misclassified as administrative costs and therefore paid out of the incorrect reporting category. The City will request that HUD allows an adjustment be made to the HPRP program budget for a reclassification of Administrative and Program costs in lieu of the repayment request. Providing the reclassification is granted, the Comment 1 City would fall within the maximum 5 percent administrative fee threshold. Thereby, the finding number (3) repayment request would not be applicable. The City is requesting that all findings related to the administrative fee threshold being exceed be removed. Comment 2 Issues with Unity's Recordkeeping Due to the volume and nature of information that must be reviewed that City is not able to provide a response at this time. However, the City is working with Unity and HUD to resolve the aforementioned finding. Should the finding be deemed unresolvable, the City will seek repayment of funds from Unity to return to the U.S. Treasury. 16 Comment 3 Unreconciled Data in HMIS The City has requested from both HUD and Unity access to HMIS, however this request has been denied. In addition to access being denied, it was also difficult for the City to obtain HMIS information from Unity and Unity's Project Sponsors. Without access to HMIS the City does not have the capacity to review or reconcile the participant data and financial records that are recorded within for Unity and its project sponsors. The City will work with Unity to ensure they are conducting this review of their HMIS system to correct the financial records for the program participants sampled. The City will also ensure that Unity and their project sponsors compare financial records with the HMIS data. These corrections are expected to be made by October 1, 2013. Project Sponsors and Contractors Contract Amendments Comment 4 The City previously provided the amended contracts for the selected sample to support budget revisions. The documents have been included (see Attachment I) for review. The City of New Orleans would like to thank you for all the support provided throughout the audit process, moreover we note our continued sense of urgency to work with and beside HUD on all matters. If further information is required concerning the above corrective actions, please feel free to contact Natasha F. Muse, Director of Administrative Support at (504) 658-4208 or firstname.lastname@example.org. Sincerely, Cedric S. Grant Deputy Mayor Facilities, Infrastructure and Community Development CSG/mdw cc: Cheryl S. Breaux Tracey Carney Brian Lawlor Anthony Faciane Stacy Hom-Koch Natasha F. Muse Mia D. Wallace 1340 POYDRAS STREET SUITE 10001 NEW ORLEANS., LOUISIANA 70112 PHONE 504-658-8450 I FAX. 504-658-4238 17 OIG Evaluation of Auditee Comments Comment 1 The City requested that the finding concerning staff salaries, utility arrearages, participant rental assistance, and data collection costs that were charged to the administrative cost category and considered ineligible be revised and noted as eligible programmatic costs. The City asserted that the costs were not ineligible but misclassified and charged to the incorrect cost category. The City also asserted that it planned to request that HUD allow an adjustment be made to the City’s Program budget to reclassify the administrative and Program costs in lieu of repaying the funds. The City stated that this reclassification would also amend the administrative costs total so that it would not exceed the 5 percent budget threshold and the repayment would not be needed. The City asked that we remove all findings related to the administrative costs threshold. We disagree that the costs should be considered eligible. FR-5307-N-01 specifically stated that administrative costs do not include the costs of issuing financial assistance, housing relocation and stabilization services, or data collection activities, such as staff salaries and other operating costs; these costs should be included under the three other eligible activity categories. However, these costs were charged to and paid from the administrative cost category despite being an unallowable practice under the Program; and therefore must be repaid. In addition, during the audit, we only evaluated the costs to determine whether they were eligible administrative costs. Thus, once determined unallowable administrative costs, we did not perform additional evaluations to determine their eligibility under another cost category. Based on the City’s request, we revised the report to include additional clarification. Further, FR-5307-N-01 states that no more than 5 percent of the total program grant may be spent on administrative costs. Although the City asserted that it would request and obtain approval from HUD to reclassify the funds in order to alleviate its administrative cost category overage, it did not provide a copy of the written request to HUD, or HUD’s written approval, to support that the administrative total should be reduced below 5 percent. In addition, the City’s Program ended July 31, 2012, and HUD closed this Recovery Act grant as of May 15, 2013. Therefore, we did not revise our conclusions, the questioned costs, or recommendations 1A and 1C. Comment 2 The City explained that due to the volume and nature of information that must be reviewed, it was unable to provide a response regarding Unity’s recordkeeping. However, the City asserted that it was working with Unity and HUD to resolve the aforementioned finding. The City stated that it would seek repayment of funds from Unity to return to the U.S. Treasury for any unresolved findings. We appreciate the City’s efforts in addressing the errors identified. The City should 18 work with HUD to resolve recommendations 1G and 1H pertaining to the reported conditions. Comment 3 The City asserted that its request for access to HMIS had been denied and that without access to HMIS, the City did not have the capacity to review or reconcile the participant data and financial records that were recorded in HMIS for Unity and its project sponsors. However, the City proposed to work with Unity to ensure that it conducts reviews of its and the project sponsors’ HMIS data in order to correct the financial records for the Program participants by October 1, 2013. We appreciate the City’s efforts in addressing the reported conditions. Comment 4 The City asserted that it previously provided the amended contracts to support budget revisions and provided the documents as an attachment to its comments. Due to its size, we did not include this documentation in the final report. While we agree that the City previously provided the applicable contracts in question, the documents did not support the overages paid to the project sponsors and contractor. The City also provided documentation of budget revisions for the four project sponsors discussed in the draft report. Based upon our review of the budget revisions, we agree that the documentation related to project sponsor Total Community Action was sufficient to support the City’s approval for the additional amounts paid under that contract. However, the budget revisions provided for the other three project sponsors did not support that the City approved the additional amounts paid under the contracts. Thus, we only amended the final report to remove the questioned costs for Total Community Action’s, which resulted in a reduction of the questioned costs from $151,519 to $145,747 in table 3 and recommendation 1I. The City should work with HUD to resolve the remaining questioned costs in recommendation 1I. 19
The City of New Orleans, LA, Did Not Have Adequate Financial and Programmatic Controls To Ensure That It Expended and Reported Funds in Accordance With Program Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)