oversight

The U.S. Department of Housing and Urban Development, Washington, DC, Controls Over the Timeliness of CDBG Entitlement Spending

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-07-19.

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

OFFICE OF AUDIT
REGION 2
NEW YORK-NEW JERSEY




      The U.S Department of Housing and Urban
           Development, Washington, DC

          Controls Over the Timeliness of CDBG
                  Entitlement Spending




2013-NY-0003                           JULY 19, 2013
                                                        Issue Date: July 19, 2013

                                                        Audit Report Number: 2013-NY-0003


TO:            Yolanda Chavez
               Deputy Assistant Secretary for Grant Programs, DG



FROM:          Edgar Moore
               Regional Inspector General for Audit, New York-New Jersey, 2AGA


SUBJECT:       HUD Officials Did Not Always Monitor Grantee Compliance With the CDBG
               Timeliness Spending Requirement


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our internal audit of HUD’s monitoring of grantee
compliance with the Community Development Block Grant (CDBG) timeliness spending
requirements.

    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
(212) 264-4174.
                                          July 19, 2013
                                          HUD Officials Did Not Always Monitor Grantee
                                          Compliance with the CDBG Timeliness Spending
                                          Requirement


Highlights
Audit Report 2013-NY-1003




 What We Audited and Why                           What We Found

We audited the U.S. Department of Housing         HUD’s guidance for ensuring compliance with
and Urban Development’s (HUD) monitoring          the CDBG timeliness spending requirement
of grantee compliance with the Community          was not always implemented effectively by
Development Block Grant (CDBG) timeliness         local HUD offices. Although there was an
spending requirement. The objectives of the       increase in the number of grantees not
audit were to determine whether HUD’s             complying with HUD’s CDBG timeliness test,
guidance for ensuring compliance with the         HUD officials did not always formally identify
CDBG entitlement spending requirement had         and notify grantees. In addition, HUD officials
been implemented effectively by the field         did not adequately document their rationale for
offices; specifically, whether HUD needs to       not sanctioning untimely grantees. We
implement additional program guidance to          attribute this deficiency to the untimely
ensure a standardized process by which            preparation of timeliness monitoring reports by
grantees are monitored by their field offices.    HUD’s Entitlement Communities Division, a
                                                  lack of prioritization of responsibilities at the
 What We Recommend                                local HUD field office level , and inadequate
                                                  procedures pertaining to HUD’s sanctioning
                                                  policy for untimely grantees. As a result, more
We recommend that the Deputy Assistant            than $8.3 million in CDBG funds that could
Secretary for Grant Programs (1) strengthen       have been reduced from the subsequent years
controls over procedures relating to the HUD      funding of ten untimely grantees was not.
Entitlement Communities Division monthly          Therefore, if the ten untimely grantees’
timeliness report, (2) strengthen CDBG            subsequent year’s funding is reduced following
timeliness spending grantee notification          a decision made by HUD officials after an
procedures to ensure that the notification of     informal consultation with the grantees, and
new untimely grantees becomes a higher            OIG recommendations to improve procedures
priority, (3) establish procedures requiring      to prevent this condition from recurring are
documentation of its rationale for not            implemented, these funds can be put to better
sanctioning grantees not complying with the       use.
CDBG timeliness spending requirement, and
(4) establish procedures pertaining to grantees
that minimally do not comply with the
timeliness spending requirement.
                           TABLE OF CONTENTS

                                                                               3
Background and Objectives

Results of Audit
    Finding: HUD Procedures To Ensure Grantee Compliance With the Timeliness
             Spending Requirement Had Weaknesses                               4

Scope and Methodology                                                          12

Internal Controls
                                                                               13
Appendixes
A. Schedule of Funds To Be Put To Better Use                                   15
B. Auditee Comments and OIG’s Evaluation                                       16




                                           2
                         BACKGROUND AND OBJECTIVES

The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974, Public Law 93-383 as amended, 42 U.S.C.
(United States Code) 5301, to provide communities with resources to address a wide range of
unique community development needs. The program provides grants on a formula basis to
entitled States, cities, and counties to develop viable urban communities by providing decent
housing, suitable living environments, and expanding economic opportunities, principally for
persons of low and moderate income. Entitlement grantees1 have the flexibility to develop their
own programs and funding priorities. However, to be eligible for funding, every CDBG-funded
activity, other than program administration and planning, must meet one of the program’s three
national objectives: (1) benefit low- and moderate-income persons, (2) aid in preventing or
eliminating slums or blight, or (3) address a need with a particular urgency that poses a serious
and immediate threat to the health and welfare of the community for which other financial
resources are not available to meet such needs. The CDBG program provides annual grants on a
formula basis to 1,209 general units of local government and States.

A January 2001 CDBG Timeliness Bulletin provides that as part of the mandate from Congress
to administer the CDBG program, U.S. Department of Housing and Urban Development (HUD)
officials are required to determine annually whether each CDBG entitlement grantee is carrying
out its activities “in a timely manner.” HUD officials became concerned when the number of
grantees not complying with the timeliness provision significantly increased since slow
implementation of activities delays the delivery of program benefits to the neediest in the
community. As a result, HUD officials implemented the following controls to address the
CDBG timeliness spending concern: (1) advising grantees and HUD staff of the priority HUD
places on the timely drawdown of CDBG funds, (2) creating a mechanism in HUD’s computer-
based Integrated Disbursement and Information System (IDIS)2 that grantees can use to check up
on their own timeliness, (3) providing technical assistance to grantees to improve the timely
performance of their individual grant programs, and (4) convening a series of conferences with
workshops on various topics that affect timely performance. Additional guidance was issued in
2004 by the Deputy Assistant Secretary for Grant Programs pertaining to the notification of
grantees that become noncompliant with the timeliness spending requirement. This guidance
stressed the importance of untimely grantee notification by the local HUD offices and the
sanctioning policy for consecutive-year untimely grantees.

The objectives of the audit were to determine whether HUD’s guidance for ensuring compliance
with the CDBG entitlement spending requirement had been implemented effectively by the field
offices. Specifically, we wanted to determine whether HUD needs to implement additional
program guidance to ensure a standardized process by which grantees are monitored by their
field offices.

1
  Entitlement grantees are the applicable State, City, or County recipients of HUD CDBG entitlement funds awarded
on a formula basis.
2
  HUD’s Integrated Disbursement and Information System (IDIS) is a nationwide database of current information
regarding CDBG activities across the nation, including funding and accomplishment data. HUD uses this
information to report to Congress and to monitor grantees.

                                                       3
                               RESULTS OF AUDIT
Finding:      HUD Procedures To Ensure Grantee Compliance With the
              Timeliness Spending Requirement Had Weaknesses
HUD’s guidance for ensuring compliance with the CDBG timeliness spending requirement was
not always implemented effectively by local HUD offices. Although there was an increase in the
number of grantees not complying with HUD’s CDBG timeliness test, HUD officials did not
always formally identify and notify grantees. In addition, HUD officials did not adequately
document their rationale for not sanctioning untimely grantees. We attribute this deficiency to
the untimely preparation of timeliness monitoring reports by HUD’s Entitlement Communities
Division, a lack of prioritization of responsibilities at the local HUD field office level, and
inadequate procedures pertaining to HUD’s sanctioning policy for untimely grantees. As a
result, more than $8.3 million in CDBG funds that could have been reduced from the subsequent
years funding of ten untimely grantees as part of HUD’s sanctioning policy was not. Therefore,
if the ten untimely grantees’ subsequent year’s funding is reduced following a decision made by
HUD officials after an informal consultation with the grantees, and OIG recommendations to
improve procedures to prevent this condition from recurring are implemented, these funds can be
put to better use.



 Increase in Grantee
 Noncompliance With the
 Timeliness Spending
 Requirement

              Nationwide, there was an increase in the number of grantees not complying with
              the CDBG timeliness spending requirement; however, HUD officials did not
              always effectively monitor these grantees and identify the grantees that were
              noncompliant. Specifically, 4 of 37 new untimely grantees, or about 11 percent,
              that became noncompliant with the timeliness spending requirement were not
              notified of their noncompliance by the local HUD office.

              Using IDIS, we identified an increase in the number of CDBG grantees exceeding
              the timeliness spending requirement nationwide compared to the prior 3 program
              years. Regulations at 24 CFR (Code of Federal Regulations) 570.902 state that
              before the funding of the next annual grant and absent contrary evidence
              satisfactory to HUD, HUD will consider an entitlement recipient to be failing to
              carry out its CDBG activities in a timely manner if (1) 60 days before the end of
              the grantee’s current program year, the amount of entitlement grant funds
              available to the recipient under grant agreements but undisbursed by the U.S.
              Treasury is more than 1.5 times the entitlement grant amount for its current
              program year and (2) the grantee fails to demonstrate to HUD’s satisfaction that



                                              4
            the lack of timeliness has resulted from factors beyond the grantee’s reasonable
            control.

            For the grantees’ program year 2011 timeliness tests in IDIS, which occurred
            between November 2011 and October 2012, more than 13 percent of HUD’s
            grantees exceeded this requirement. This was more than twice the amount for
            each of the prior 3 years’ tests: 4.6 percent in program year 2010, 6.6 percent in
            program year 2009, and 5.7 percent in program year 2008.

            In 2001, HUD officials issued guidance, which highlighted the reasons grantees
            were untimely. The guidance provided that there was no single reason why
            CDBG grantees were untimely in carrying out activities and that a variety of
            reasons caused untimeliness, including (1) staff turnover and vacancies in key
            positions, (2) inexperienced operating agencies, (3) bankrolling of CDBG funds
            for larger projects, (4) failure to draw funds regularly, and (5) complicated local
            review or approval processes required for CDBG draws. Our review of 15
            untimely grantees administered by four different local HUD field offices
            determined that the same causes for untimeliness continued to exist with
            additional factors, including the lack of proper prioritization of responsibilities at
            the local HUD field office level and reduced annual CDBG entitlement awards.
            Competing priorities and a lack of proper emphasis on grantee oversight for
            compliance with the timeliness spending requirement contributed to this
            nationwide increase. Also, the grantee’s reduced annual funding level resulted in
            higher timeliness ratios, as the denominator for computing the timeliness ratio had
            decreased due to lower annual funding.


Grantees Not Notified of
Noncompliance With the
Timeliness Spending
Requirement

            According to the instructions for HUD’s Monthly Timeliness Report for CDBG
            Program Entitlement Grantees, dated October 2006, HUD’s Entitlement
            Communities Division is responsible for generating a monthly timeliness report to
            assist the local HUD field offices in the monitoring of grantees for compliance
            with the timeliness spending requirement. In reviewing this report, we
            determined that four grantees were not adequately monitored by their local HUD
            field offices for compliance with the timeliness spending requirement. As a
            result, HUD officials could not pursue HUD’s sanctioning policy. Specifically, 4
            of 37 new untimely grantees, or about 11 percent, were not notified by the local
            HUD field office of their noncompliance with the requirements of 24 CFR
            570.902. According to HUD policy, if a grantee is not notified within 30 days of
            its timeliness test, legally, HUD cannot pursue sanctions. The four local HUD
            field offices that did not properly notify grantees included New York,
            Philadelphia, Miami, and Greensboro.

                                              5
The HUD Entitlement Communities Division monthly timeliness report is one of
two reports available to local HUD field officials to use in monitoring grantees for
compliance with the timeliness spending requirement. The other is the CDBG
Entitlement Communities Timeliness Report (PR56) from IDIS. While the
CDBG Entitlement Communities Timeliness Report is always available to HUD
field officials in IDIS, the monthly timeliness report is prepared by HUD
headquarters officials and is not always sent to local HUD field officials in a
timely manner. For example, the May 2011 report was not prepared by
Entitlement Communities Division officials until the last day of the month. In
addition, the reports were not sent for the months of June, July, or August 2011.
While some local HUD offices rely primarily on the CDBG Entitlement
Communities Timeliness Report in IDIS to monitor grantees’ spending, others
consider the monthly timeliness report from headquarters to be the official record
for determining a grantee’s timeliness. A delay in the receipt of this report would
delay officials in notifying a grantee of its untimeliness. For example, the County
of Montgomery, PA, was a new untimely grantee in August 2011 and had not
been notified of its untimeliness by the local HUD office. The August 2011
monthly timeliness report was not prepared for the local HUD field offices in
2011. More than 20 percent of HUD’s CDBG entitlement grantees had tests in
June through August, the period when HUD Entitlement Communities Division
officials did not prepare monthly timeliness reports.

As a result of inadequate monitoring of these four untimely grantees, more than
$5.6 million in CDBG entitlement funds that could have been subject to a
reduction in the grantees’ subsequent years’ funding following a decision made
by HUD officials after an informal consultation with the grantees, was not. As
shown below, the four grantees exceeded the timeliness requirement for the
program year 2011 timeliness test in IDIS by more than $5.6 million, which
included the tests conducted during the period November 2011 through October
2012.




                                 6
                 Grantees that were not notified of untimely CDBG spending

                                      Local          60- day       Grant         Total funds       Amount
            Grantee        State     HUD field        ratio3      amount4         available        over 1.55
                                      office
          Kingston         NY       New York         1.56           $742,330       $1,161,202         $44,540
          Winston-         NC       Greensboro       2.08         $1,703,423       $3,538,136        $987,985
          Salem
          Montgomery       PA       Philadelphia     1.92         $3,332,776       $6,396,230      $1,399,766
          County
          Miami            FL       South            1.93         $7,503,156      $14,481,091      $3,226,357
                                    Florida
                                                                                          Total    $5,658,648



    Inadequate Documentation of
    Reasons for Exempting
    Grantees from Sanctions

                 We reviewed the 11 grantees that were consecutive-year noncompliant with the
                 timeliness spending requirement as of the program year 2011 timeliness test in
                 IDIS. For these grantees, we reviewed the briefing packages for informal
                 consultation with the Deputy Assistant Secretary and the postconsultation letter
                 from the Deputy Assistant Secretary to grantee officials regarding sanctions.

                 HUD officials did not adequately document the rationale for not sanctioning
                 untimely grantees. Specifically, HUD’s postconsultation letters to its grantees did
                 not explain why the Deputy Assistant Secretary exempted grantees from HUD’s
                 sanctioning. Although HUD officials had procedures in place to address grantees
                 not complying with the timeliness spending requirement, these procedures did not
                 require documentation of the Deputy Assistant Secretary’s justification for not
                 sanctioning grantees and, therefore, were not adequate. This documentation is of
                 particular importance in instances in which local HUD field office staff
                 recommends that grantees be subject to sanctioning but the Deputy Assistant
                 Secretary deems the grantee qualified for an exception. This condition occurred
                 in 3 of the 11 grantee briefing packages reviewed.


3
  This IDIS program year 2011 60-day ratio was computed between November 2011 and October 2012. It
represents the amount of funds available to the grantee 60 days before its program year end and is calculated by
dividing the grantee’s total funds available by its grant amount.
4
  This represents the grantees’ program year 2011 CDBG grant award amount (the most recent award at the time the
IDIS program year 2011 test was conducted).
5
  The amount over 1.5 times the grantees funding award is calculated by subtracting 1.5 from the grantee’s 60-day
ratio, then multiplying the difference by the grant amount.

                                                        7
In addition, HUD’s procedures did not address grantees that were minimally over
the timeliness spending requirement on the grantee’s test date. For example, the
City of Winchester, VA, exceeded the timeliness spending requirement for its
timeliness test occurring on May 2, 2011. On this date, it had entitlement funds
available of 1.57 times its annual CDBG award. However, HUD officials did not
consider it to be noncompliant with the timeliness spending requirement for this
test. HUD officials measured this grantee’s spending level later in May 2011,
after the grantee had become compliant. According to HUD officials, the grantee
had a timeliness ratio of 1.39 when its timeliness was measured on May 23, 2011,
and this became the ratio that was used to measure the grantee’s timeliness in
2011. Allowing additional time for grantees minimally over the timeliness test on
their test date was not addressed in the procedures, nor did the procedures identify
an acceptable threshold that would be considered minimally over the timeliness
spending requirement.

As shown below, there was more than $2.7 million in CDBG entitlement funds
from six untimely grantees that were either recommended by the local HUD field
office for sanctioning or should have been scheduled for an informal consultation
with HUD officials for possible sanctioning.




                                 8
Grantees with untimely spending that were either recommended for sanctioning or should
have had an informal consultation for possible sanctioning

                   Local HUD        Reason for       60-      Grant         Total       Amount
    Grantee        field office     questioned       day     amount7       funds        over 1.58
                                       cost         ratio6                available
    Mount           New York,      Lack of          2.07     $1,650,649    $3,421,422    $940,870
    Vernon            NY           documentation
                                   supporting
                                   exemption
    Paterson       Newark, NJ      Lack of          1.84     $2,683,971    $4,936,543    $912,550
                                   documentation
                                   supporting
                                   exemption
    Newark         Newark, NJ      Lack of          1.60     $7,835,598   $12,549,511    $783,560
                                   documentation
                                   supporting
                                   exemption
Winchester Richmond, VA            Grantee was      1.76      $229,176      $403,294       $59,586
                                   not subjected
                                   to sanctioning
                                   policy because
                                   it was
                                   minimally
                                   over the
                                   requirement
    Passaic        Newark, NJ      Grantee was      1.52      $950,250     $1,448,252      $19,005
    County                         not subjected
                                   to sanctioning
                                   policy because
                                   it was
                                   minimally
                                   over the
                                   requirement
    Boynton        South Florida   Grantee was      1.51      $479,344      $722,185        $4,793
     Beach                         not subjected
                                   to sanctioning
                                   policy because
                                   it was
                                   minimally
                                   over the
                                   requirement
                                                                                Total   $2,720,364




6
  See footnote 3
7
  See footnote 4
8
  See footnote 5

                                                       9
Conclusion

             HUD officials did not adequately identify grantees that did not comply with the
             timeliness spending requirement and did not adequately document their rationale
             for not sanctioning untimely grantees. Specifically, 10 grantees that became
             noncompliant with the timeliness spending requirement were either not notified of
             their noncompliance by the local HUD field office, or HUD officials did not
             adequately document their rationale for not sanctioning the grantees. HUD’s
             postconsultation letters to its grantees did not explain why HUD officials
             exempted grantees from sanctioning. We attribute these deficiencies to the
             untimely preparation of timeliness monitoring reports by HUD Entitlement
             Communities Division officials, a lack of proper prioritization of responsibilities
             at the local HUD field office level, and inadequate procedures pertaining to
             HUD’s sanctioning policy for untimely grantees. As a result, more than $8.3
             million in CDBG entitlement funds that could have been reduced from the
             subsequent years’ funding of the 10 untimely grantees was not. Therefore, if
             these grantees’ subsequent years’ funding is reduced, following a decision made
             by HUD officials after an informal consultation with the grantees, and our
             recommendations to improve procedures to prevent this condition from recurring
             are implemented, these funds can be put to better use.

Recommendations

             We recommend that the Deputy Assistant Secretary for Grant Programs

             1A.    Strengthen controls over the existing procedures relating to the HUD
                    Entitlement Communities Division monthly timeliness report. Procedures
                    should require the timeliness report to be sent to the local HUD field
                    offices by a specific date each month. If our recommendations to improve
                    procedures are implemented and grantees’ subsequent years’ funding is
                    reduced, following a decision made by HUD officials after an informal
                    consultation with the grantees, $5,658,648 in questioned CDBG
                    entitlement funds from the four untimely grantees can be put to better use.

             1B.    Strengthen the existing CDBG timeliness spending grantee notification
                    procedures to ensure that the notification of new untimely grantees
                    becomes a higher priority and explain to staff the importance of the
                    notification process in the sanctioning policy.

             1C.    Document its rationale for not subjecting the six untimely grantees to its
                    sanctioning policy, which could have required that $2,720,364 in CDBG
                    entitlement funds from these six untimely grantees subsequent years grant



                                             10
      funding be reduced. If OIG recommendations to improve procedures are
      implemented, these funds can be put to better use.

1D.   Establish procedures requiring documentation of its rationale for not
      sanctioning grantees not complying with the CDBG timeliness spending
      requirement.

1E.   Establish procedures on how to handle grantees that are minimally
      noncompliant with the timeliness spending requirement.




                              11
                         SCOPE AND METHODOLOGY

We performed the audit fieldwork from October 2012 through May 2013 at the HUD OIG Office of
Audit in Buffalo, NY, HUD headquarters in Washington, DC, and various local HUD field offices.
Our review generally covered CDBG grantees’ program year 2011 timeliness tests in IDIS, which
covered tests occurring between November 2011 and October 2012. This period was extended as
necessary. To accomplish the objectives, we

      Reviewed applicable HUD regulations, the Code of Federal Regulations, and other
       requirements and directives that govern the CDBG program.

      Reviewed information systems data from IDIS for background and informational
       purposes. We performed a minimum level of testing and found the computer-processed
       data to be adequate for our purposes.

      Interviewed HUD and grantee officials to obtain an understanding of the timeliness
       spending requirement.

      Reviewed HUD’s correspondence with its grantees pertaining to the timeliness spending
       requirement.

      Reviewed grantee officials’ files pertaining to the timeliness spending requirement.

      Tested the four local HUD field offices that we determined did not notify grantees of their
       noncompliance with the timeliness spending requirement in 2011. We reviewed a non-
       representative sample of 15 of the 20 untimely grantees administered by these four field
       offices. We selected grantees from each field office but made a decision not to review
       all the untimely grantees due to time and travel cost constraints. We also reviewed the
       informal briefing packages for all 11 of HUD’s CDBG grantees that were consecutive-year
       noncompliant with the timeliness spending requirement as of the program year 2011
       timeliness test in IDIS, which was the most current year’s test data available at the time
       we started our audit.

      Coordinated with HUD OIG Financial Audit Division staff on its HUD financial statement
       review and the audit steps relating to CDBG timeliness spending. We reviewed its
       workpapers and documentation obtained from HUD officials pertaining to our audit.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on our audit objectives. We
believe that the evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.




                                                 12
                              INTERNAL CONTROLS

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

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

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



 Relevant Internal Controls

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

                     Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

                     Reliability of financial data – Policies and procedures that management has
                      implemented to reasonably ensure that valid and reliable data are obtained,
                      maintained, and fairly disclosed in reports.

                     Compliance with applicable laws and regulations – Policies and procedures
                      that management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                     Safeguarding of resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

               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.

                                                 13
Significant Deficiencies


             Based on our review, we believe that the following items are significant deficiencies:

                   HUD officials did not have adequate controls over the effectiveness and
                    efficiency of program operations when they did not establish adequate
                    administrative controls to ensure that CDBG entitlement grantees were
                    adequately monitored for compliance with the timeliness spending
                    requirement (see finding).

                   HUD officials did not have adequate controls over compliance with laws and
                    regulations, as they did not always comply with HUD regulations and
                    guidance pertaining to monitoring grantees for compliance with the
                    timeliness spending requirement and sanctioning them for noncompliance
                    (see finding).

                   HUD officials did not have adequate controls over the safeguarding of
                    resources regarding CDBG funds that could have been subject to a reduction
                    in the grantees subsequent year’s grant funding due to noncompliance with
                    the timeliness spending requirement (see finding).




                                              14
                                   APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                           Recommendation        Funds to be put
                                  number           to better use 1/
                                         1A           $5,658,648
                                         1C           $2,720,364
                                       Total          $8,379,012

1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (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 case, $8,379,012 in CDBG entitlement funds that
     could have been reduced from the subsequent years’ funding of the ten untimely grantees
     wasn't. Therefore, if these grantees’ subsequent years’ funding is reduced, following a
     decision made by HUD officials after an informal consultation with the grantees, and
     OIG recommendations to improve procedures to prevent this condition from recurring are
     implemented, these funds can be put to better use.




                                            15
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 4




Comment 5




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 7




                         18
                         OIG Evaluation of Auditee Comments

Comment 1   HUD officials state that the draft report makes four recommendations to CPD.
            However, the report contains five recommendations, 1A through 1E.

Comment 2   HUD officials concur with our recommendation to strengthen existing procedures
            relating to the monthly timeliness reports. However, HUD officials state that they
            do not concur with the recommendation to reduce grant funding for the four
            grantees that did not receive timely notification. HUD officials’ state that the
            current CPD sanctions policy does not require CPD to automatically reduce an
            untimely grantee’s CDBG allocation solely because of its failure to comply with
            24 CFR 570.902 and that the decision to reduce a future grant rests with the
            Deputy Assistant Secretary for Grant Programs. The draft audit report was
            revised to take into consideration these comments by HUD officials. Specifically,
            we revised the report to indicate that, as a result of inadequate monitoring of these
            four untimely grantees, more than $5.6 million in CDBG entitlement funds that
            could have been subject to a reduction in the grantees’ subsequent years’ funding
            following a decision made by HUD officials after an informal consultation with
            the grantees, was not.

Comment 3   HUD officials state that CPD cannot take the sanction of reducing a future grant
            without having fully complied with the due process spelled out in the regulations
            and that when a field office does not issue a timely deficiency letter to an
            untimely grantee, CPD has neither the statutory nor the regulatory authority to
            automatically reduce a CDBG allocation before or after an award has been made
            to the untimely grantee. The draft audit report was revised to take into
            consideration these comments by HUD officials. Specifically, we revised the
            report to indicate that more than $8.3 million in CDBG entitlement funds that
            could have been reduced from the subsequent years’ funding of the 10 untimely
            grantees was not. In addition, we revised the report to indicate that, following a
            decision made by HUD officials after an informal consultation with the grantees,
            the grantees’ subsequent years’ funding could be reduced.

Comment 4   HUD officials state that the decision to reduce a future grant rests with the Deputy
            Assistant Secretary, and if a consultation is not held, this does not mean the funds
            were not put to good use. The draft audit report was revised to take into
            consideration these comments by HUD officials. We revised the report to
            indicate that, following a decision made by HUD officials after an informal
            consultation with the grantees, the grantees’ subsequent years’ funding could be
            reduced. This cost savings would result in funds put to better use.

Comment 5   HUD officials concur with our recommendation to strengthen existing CDBG
            timeliness spending grantee notification procedures and recommendations 1C,
            1D, and 1E relating to the CPD timely expenditure sanctions policy.




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Comment 6   HUD officials state that the draft report suggests that the DAS should have
            sanctioned untimely grantees when HUD field office staff recommended
            sanctions. The draft audit report was revised to take into consideration these
            comments by HUD officials. Specifically, we revised the report to indicate that,
            there was more than $2.7 million in CDBG entitlement funds from six untimely
            grantees that were either recommended by the local HUD field office for
            sanctioning or should have been scheduled for an informal consultation with
            HUD officials for possible sanctioning.


Comment 7   HUD officials disagree that the issues identified in the draft audit report constitute
            significant deficiencies. Although the draft audit report was revised to take into
            consideration comments by HUD officials, the core issues identified in the report
            remain. Specifically, 10 grantees that became noncompliant with the timeliness
            spending requirement were either not notified of their noncompliance by the local
            HUD field office, or HUD officials did not adequately document their rationale
            for not sanctioning the grantees.




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