oversight

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)

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.




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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.




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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 nfmuse@nola.gov.

            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



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                         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.




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