OFFICE OF AUDIT
REGION 2
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NEW YORK-NEW JERSEY
City of Paterson, NJ
Housing Opportunities for Persons With
AIDS Program
2013-NY-1004 FEBRUARY 25, 2013
Issue Date: February 25, 2013
Audit Report Number: 2013-NY-1004
TO: Anne Marie Uebbing
Director, Office of Community Planning and Development, Newark Field
Office, 2FD
FROM: Edgar Moore
Regional Inspector General for Audit, New York-New Jersey Region, 2AGA
SUBJECT: The City of Paterson, NJ, Had Weaknesses in the Administration of Its Housing
Opportunities for Persons with AIDS Program
Enclosed 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 Paterson, NJ officials’
administration of their Housing Opportunities for Persons with AIDS (HOPWA) Program
conducted to determine whether Authority officials administered the HOPWA Program in
accordance with HUD 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.
February 25, 2013
The City of Paterson, NJ, Had Weaknesses in the
Administration of Its Housing Opportunities for
Persons with AIDS Program
Highlights
Audit Report 2013-NY-1004
What We Audited and Why What We Found
We audited the City of Paterson, NJ’s City officials did not always administer the City’s
Housing Opportunities for Persons With HOPWA program in accordance with Federal
AIDS (HOPWA) program in support of regulations and HOPWA program requirements.
the Office of Inspector General’s (OIG) Specifically, HOPWA funds were expended for
goal to contribute to improving HUD’s ineligible and unsupported costs, subgrantee
execution of its fiscal responsibilities. monitoring was inadequate, and waiting list
We selected the City after a risk analysis maintenance had weaknesses. These conditions
of HOPWA grantees administered by existed because of City officials’ unfamiliarity with
the HUD Newark, NJ, field office that HUD program regulations and weaknesses in
considered funding, the U.S. Department financial and management controls. Consequently,
of Housing and Urban Development’s (1) $483,502 was not disbursed in a timely manner;
(HUD) 2011 risk assessment score, and (2) $15,776 was expended on ineligible costs; (3)
HUD monitoring of the grantees. The $357,800 was expended on unsupported costs; and (4)
audit objective was to determine $480,179 in HOPWA funds would be put to better use
whether City officials had implemented if adequate financial and management controls were
adequate controls to ensure that implemented over tenant recertification, unit
HOPWA funds were obligated and inspections, classification and recording of costs, and
expended in accordance with HUD subgrantee adminsitration and monitoring.
regulations for eligible activities.
.
What We Recommend
We recommend that the Director of
HUD’s New Jersey Office of Community
Planning and Development instruct City
officials to (1) expend or deobligate
$483,502; (2) reimburse $15,776
disbursed for ineligible expenses; (3)
provide documentation to adequately
support expenditures of $357,800; and (4)
strengthen controls over subgrantee
monitoring, tenant certification, and
compliance with HUD’s housing quality
standards.
1
TABLE OF CONTENTS
Background and Objective 3
Results of Audit
Finding 1: Funds Were Not Always Expended in Compliance With HUD
Regulations 4
Finding 2: Weaknesses in Monitoring Subgrantees Resulted in Improper
and Unsupported Expenses 8
Finding 3: Program Implementation Did Not Always Comply With HOPWA
Requirements 14
Scope and Methodology 16
Internal Controls 18
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 20
B. Schedule of Project-Based Rental Subsidies Obligated but Not Disbursed 21
C. Schedule of Tenant-Based Rental Subsidies To Be Paid Before Tenants’
Recertification 22
D. Auditee Comments and OIG’s Evaluation 23
2
BACKGROUND AND OBJECTIVE
The Housing Opportunities for Persons With AIDS (HOPWA) program was authorized by the
AIDS Housing Opportunity Act, Subtitle D of Title VIII of the Cranston-Gonzalez National
Affordable Housing Act of 1990 (42 U.S.C. (United States Code) 12901). The HOPWA
program provides formula and competitive grants to eligible States, cities, and nonprofit
organizations to provide housing assistance and related supportive services to meet the housing
needs of low-income persons and their families living with HIV-AIDS. HOPWA assistance
helps beneficiaries maintain housing stability, avoid homelessness, and gain improved access to
healthcare and other supportive services.
The U.S. Department of Housing and Urban Development (HUD) awarded the City of Paterson,
NJ, more than $1.3 million in HOPWA funds in each of program years 2010 and 2011. The City
of Paterson Department of Health and Human Services administers the program for the City, and
Department officials annually award HOPWA funds to six subgrantees: two public housing
authorities, Bergen County and Paterson, NJ, and four nonprofit organizations, CAPCO,
BUDDIES of New Jersey, Alliance of Passaic, and Straight and Narrow. These subgrantees
carry out different housing activities, including tenant- and project-based rental assistance, and
provide various counseling, nutritional, legal, and transportation services to recipients.
The objective of the audit was to determine whether City officials had established and
implemented adequate controls to ensure that HOPWA funds were obligated and expended in
accordance with HUD regulations for eligible activities.
3
RESULTS OF AUDIT
Finding 1: Funds Were Not Always Expended in Compliance With
HUD Regulations
City officials did not ensure that HOPWA funds were always disbursed in a timely manner for
adequately supported costs and properly accounted for in accordance with HUD regulations. We
attribute these conditions to City officials’ unfamiliarity with HUD regulations and inadequate
controls over program operations. As a result, available funds of $483,502 were not expended
for eligible activities in a timely manner as required, $20,160 was disbursed for inadequately
supported costs, and obligations reported in HUD’s Integrated Disbursement and Information
System did not reconcile with the grant amounts awarded.
Available Funds Not Expended
in a Timely Manner
City officials did not always disburse funds in a timely manner. As shown below,
HUD’s Integrated Disbursement and Information System1 disclosed that funding
award amounts from 2007 to 2009 of $483,502 had not been disbursed within 3
years of an executed grant agreement.
Program HUD Funds not Funds not
year award spent as of spent within
08/30/2012 3 years
2007 $ 1,250,000 $80,101 $80,101
2008 1,286,736 14,763 14,763
2009 1,301,766 388,638 388,638
2010 1,404,206 335,519 1/
2011 1,381,032 1,381,032 1/
2012 1,380,000 1,380,000 1/
Totals $3,580,053 $483,502
Note: 1/ These funds had been awarded within the last 3 years and were not
yet required to be expended.
As a result, the City’s latest timeliness ratio2 was 2.59 percent as compared to
HUD’s national goal ratio of 1.5 percent or lower. Disbursement of the $483,502
1
HUD’s Integrated Disbursement and Information System is a nationwide database of current information regarding
community planning and development activities underway across the Nation, including funding and accomplishment
data. HUD uses this information to report to Congress and to monitor grantees
2
The timeliness ratio is computed by dividing the amount of undisbursed funds from the present and all prior years
by the grantee’s latest funding award. Based upon Integrated Disbursement and Information System data as of
August 31, 2012, the ratio was computed at 2.59 percent ($3,580,053/$1,380,000).
4
in a timely manner would provide targeted recipients needed assistance.
Regulations at 24 CFR (Code of Federal Regulations) 574.540 provide that HUD
may deobligate any amount of grant funds that have not been expended within 3
years of the signing of a grant agreement. HUD’s HOPWA Grantee Oversight
Resource Guide notes that the pace of spending is a key indicator of project
progress and spending rates that seem too slow or are erratic may indicate
problems with project or financial management. During our audit, the HUD field
office advised City officials of the potential for recapture of the unspent funds and
asked them to provide specific reasons for the delay in spending the funds and a
timetable for when they would be spent. At the time of our audit, the City had not
responded.
In addition, none of the more than $2.7 million awarded in 2011 and 2012 had
been obligated. City officials said that eligible activities were not obligated in
HUD’s Integrated Disbursement and Information System for program years 2011
and 2012 since the City’s legal department had been unable to provide them with
copies of executed subgrantee agreements. Consequently, these funds were not
made available for eligible activities in a timely manner.
Funds Disbursed for
Unsupported Costs
City officials lacked adequate support that $20,160 was properly charged to the
HOPWA program. Drawdowns of $17,450 recorded as direct program costs in
the City’s general ledger were inadequately supported as direct program costs.
Regulations at 24 CFR 574.3 provide that administrative costs are expenses for
general management, oversight, coordination, evaluation, and reporting on
eligible activities and do not include costs directly related to carrying out eligible
activities, since those costs are eligible as activity delivery costs. The $17,450
represents six disbursements for general supplies and computer information
technology services that lacked adequate support to be used to determine whether
they were properly classified as direct program costs rather than administrative
expenses. Misclassifying these costs as direct program costs would prevent their
use for eligible direct program activities.
Disbursement of $2,710 for legal and travel-related expenses lacked
documentation to determine whether these administrative expenses represented
eligible HOPWA program costs. Regulations at 24 CFR 574.300 provide that
HOPWA funds may be used for all forms of housing designed to prevent
homelessness, including emergency housing, shared housing arrangements,
apartments, single-room occupancy dwellings, and community residences, and for
administrative costs related to general management, oversight, coordination,
evaluation, and reporting. Without adequate supporting documentation, City
officials could not be assured that the costs were for eligible program activities.
5
In addition, the City lacked a cost allocation plan to assign costs among the
various programs the Department administered, particularly between the HOPWA
and Ryan White programs.3 Regulations at 2 CFR Part 225, subpart C(3)(d),
provide that Federal awards pay their fair share of costs and that a cost allocation
plan is required when there is an accumulation of indirect costs that will
ultimately result in charges to a Federal award. City officials said that indirect
costs were allocated to the HOPWA program when the administrative cost
allotment for the Ryan White program administered by the Department had been
exhausted. Consequently, the lack of a cost allocation plan lessened assurance
that indirect costs were allocated to the HOPWA program in a reasonable and
timely manner.
Funds Not Properly Reconciled
Obligations reported in HUD’s Integrated Disbursement and Information System
by City officials did not always reconcile with the City’s accounting records.
Regulations at 24 CFR Part 85, subpart C, require that grantees maintain effective
control and accountability, compare expenditures with budgeted amounts, and
provide accurate, current, and complete disclosure of the financial results of
financially assisted activities. As shown in the table below, obligations reported
in the City’s records did not reconcile with those reported in HUD’s Integrated
Disbursement and Information System in the last 11 years.
Program year Amount in Amount in Difference
IDIS* City records
2010 $1,109,087 $1,404,206 ($295,119)
2009 1,332,977 1,301,766 31,211
2008 1,484,221 1,286,736 197,485
2007 1,591,127 1,250,000 341,127
2006 1,274,398 1,282,000 (7,602)
2005 1,303,934 1,265,000 38,934
2004 0 0 0
2003 1,118,042 1,368,000 (249,958)
2002 1,350,000 1,333,000 17,000
2001 1,166,371 1,252,000 (85,629)
2000 1,160,306 1,148,000 12,306
* HUD’s Integrated Disbursement and Information System
Consequently, City officials could not assure HUD that they provided accurate
and reliable data on the use of the City’s grant funds.
3
The Ryan White HIV-AIDS Program, administered by the U.S. Department of Health and Human Services, is the
largest Federal program focused exclusively on HIV-AIDS care and is for individuals living with HIV-AIDS who
have no or insufficient health care coverage or lack financial resources to get needed HIV disease care.
6
Conclusion
City officials had not established and implemented adequate controls to ensure that
HOPWA funds were disbursed for eligible costs and accounted for in accordance
with HUD regulations. We attribute these deficiencies to the officials’ unfamiliarity
with HUD regulations and inadequate monitoring of the City’s subgrantees (see
finding 2). As a result, funds available for eligible activities were not expended in a
timely manner as required, and City officials lacked assurance that HOPWA funds
expended were adequately supported or accurately reported.
Recommendations
We recommend that the Director of HUD’s Newark, NJ, Office of Community
Planning and Development instruct City officials to
1A. Develop a timetable for the disbursement of the $483,502 in unspent prior
year HOPWA funds before drawing down additional funds from subsequent
years’ allotments; if a timetable for acceptable disbursement is not provided,
the funds should be deobligated so that they can be made available to other
grantees, thus being put to better use.
1B. Establish and implement controls to ensure that funds under a particular
program year are expended in a timely manner before drawing down
subsequent years’ funding as required.
1C. Provide documentation to support that $17,450 was properly charged as
direct program administrative costs, and if support cannot be provided,
reclassify the amount as administrative expenses, thus ensuring that direct
program funds will be put to better use.
1D. Provide documentation to support that the $2,710 was expended for eligible
HOPWA activities; if supporting documentation cannot be obtained, the
HOPWA program should be reimbursed from non-Federal funds.
1E. Strengthen controls to ensure that expenses are properly supported and
correctly charged to appropriate accounts.
1F. Establish and implement controls to ensure that obligated balances are
periodically reconciled to annual HOPWA award amounts.
1G. Develop and implement a cost allocation plan to ensure that indirect costs
are reasonably allocated to the HOPWA program.
7
Finding 2: Weaknesses in Monitoring Subgrantees Resulted in Improper
and Unsupported Expenses
Inadequate monitoring of subgrantees caused improper and unsupported expenses to be incurred.
Specifically, some subgrantees disbursed HOPWA funds for ineligible and incorrectly calculated
rental assistance payments, tenants whose eligibility was not adequately supported, and units that
failed to meet HUD’s housing quality standards. We attribute this condition to inadequate
monitoring by the grantee and subgrantee officials’ unfamiliarity with HUD regulations. As a
result, $353,416 was disbursed for ineligible and unsupported rental assistance payments, and
$186,786 could be put to better use if stronger management controls were implemented
involving the recertification of tenants, compliance with housing quality standards, and
monitoring subgrantees.
Ineligible and Unsupported
Rental Assistance
Officials at one subgrantee disbursed $990 for a tenant’s monthly rental assistance
at a unit from which the tenant had moved, while paying $1,500 for another unit
to which the same tenant had relocated. Subgrantee officials said that recovery of
the ineligible payment had been made; however, no evidence was provided for the
repayment. Since the City did not provide adequate supporting documentation
that the $990 was recovered, we regarded it as an ineligible payment.
Officials at another subgrantee incorrectly calculated both the maximum rental
assistance and the tenants’ share of the rent. The subgrantee received project-
based rental assistance to operate a six-bedroom project, which was administered
as shared housing.4 Regulations at 24 CFR 574.320 provide that the amount of
grant funds used to pay shared housing monthly rental assistance for an eligible
person may not exceed the difference between the lower of the rent standard or
reasonable rent for the unit and the resident’s rent payment calculated under 24
CFR 574.310(d). Regulations at 24 CFR 574.310(d) provide that the tenant
payment, including rent and utilities, should be the higher of 30 percent of the
family’s monthly adjusted income or 10 percent of the family’s monthly gross
income or the portion of welfare payments received that is designated for housing
costs. Further, regulations at 24 CFR 574.320 provide that rental assistance paid
for shared housing arrangements should be in relation to the size of the private
space allotted to an assisted individual in comparison to other private space in the
shared unit, excluding common space.
4
Shared housing arrangements include one or more eligible participants living in the same unit who may be
assigned a pro-rata portion of the unit cost based on the ratio of the number of bedrooms in their private space to
the number of bedrooms in the unit.
8
Contrary to these regulations, project officials computed each resident’s monthly
subsidy by dividing the project’s total monthly operating budget5 by six tenants
(currently set at $911.68 per month per tenant) and did not offset the budget by
the tenants’ share of the rent. In addition, project officials calculated the tenants’
share of the rent by multiplying the tenants’ monthly gross income by 30 percent.
By incorrectly calculating the tenants’ maximum subsidy and share of the rent,
City officials could not assure HUD that the subsidy and tenants’ share of the rent
were correct. As a result, the $96,868 in project-based rental subsidies paid from
July 2009 through June 2011 was unsupported, and the $71,830 incurred but not
drawn down for the period July 2011 to October 2012 could be put to better use if
calculated correctly (see appendix B).
Inadequately Supported Rental
Assistance Payments
Tenant files at one of two subgrantees administering tenant-based rental
assistance did not always contain adequate documentation to support tenant or
unit eligibility or both. Regulations at 24 CFR 574.3 require grantees to ensure
that their project sponsors carry out activities in compliance with all applicable
requirements, including recordkeeping and reports for program monitoring and
evaluation purposes. The six tenant files reviewed at one subgrantee contained
the following documentation deficiencies:
Number of files
Deficiency with a deficiency
Annual recertification missing 6
Lacking an HQS* inspection report 6
Lacking an annual rent reasonableness 6
HAP** contract or lease missing 6
Lacking a utility allowance calculation 5
Incomplete HUD form 50058 3
Other documentation inconsistencies 3
Unsupported income documentation 3
Tenant income not included 2
Inadequate family member support 1
Under-occupied unit 1
* HUD’s housing quality standards
** Housing assistance payment
Without adequate support in the subgrantee tenant files, HUD could not be
assured that program participants were eligible for the amount of tenant-based
rental assistance provided. As a result, $225,021 disbursed for tenant-based rental
5
The monthly operating budget included the following direct and administrative costs: salaries and fringe benefits
of case and resident managers; project supplies; travel expenses of the project case manager; contracts and other
costs; and administrative personnel, fringe, and other costs.
9
assistance from September 2009 through October 2012 for the six tenants was
regarded as unsupported. Since the amount of tenant-based rental assistance
provided to these six tenants was unsupported, the corresponding administrative
fee earned of $15,751 received by the subgrantee was also unsupported.
Rental Assistance Payments for
Units That Did Not Comply
With Housing Quality
Standards Deficiencies
Tenant- and project-based rental assistance was disbursed for units that did not
always comply with HUD’s housing quality standards. Regulations at 24 CFR
574.310(b) provide that units for which rental assistance is paid must meet HUD’s
housing quality standards, which require safe and sanitary housing that complies
with all applicable State and local housing codes and other requirements.
Inspections conducted of 10 units receiving tenant-based rental assistance from
two subgrantees disclosed that 8 units did not comply with one or more of HUD’s
housing quality standards, with 7 units exhibiting at least 1 exigent violation
requiring correction within 24 hours. In addition, six of the eight failed units had
three or more material deficiencies.6 The deficiencies encountered during the
inspections were as follows:
Total Units
Deficiency area occurrences affected
Windows 5 2
Doors 5 2
Egress 3 2
Water leaks-damage 5 3
Security 2 1
Fire hazards 2 1
Electrical hazards 27 7
Inoperable stove 1 1
Furnace 2 1
Kitchen-bathroom cabinets 2 1
Wall-ceiling-floor 15 5
Steps-railing hazards 3 2
In response to our inspections, subgrantee officials certified that all material
deficiencies had been corrected, thus ensuring that the remaining tenant-based
rental assistance of $54,639 and $3,825 in administrative fees to be paid for the
6
A material deficiency exists if (1) the condition causing the deficiency was present for an extended period, (2) the
condition existed but was not noted in a prior inspection, (3) deferred maintenance consistently failed the unit, and
(4) the serious deficiency is non-tenant caused.
10
six tenants during their current certification period would be disbursed for units
that complied with HUD’s housing quality standards (see appendix C).
In addition, the project-based unit administered as shared housing did not follow
housing quality standards regarding space and security. Regulations at 24 CFR
574.310(b)(2)(iii) provide that there should be adequate space and security for
each resident and his or her belongings, as well as an acceptable area in which to
sleep. Inspection of the project disclosed that two bedrooms shared the same
doorway and were separated by a nonpermanent structure functioning as a door.
As a result, security was compromised for one tenant. Consequently, the $14,786
in project-based rental assistance disbursed from July 2009 through June 2011
was ineligible, and the $14,366 in project-based rental assistance earned by but
not paid for the period June 2011 through October 2012 should be deobligated,
thus ensuring that the funds are put to better use.
Inadequate Subgrantee
Monitoring
City officials had not conducted annual monitoring reviews of two of their six
subgrantees and were unable to provide documentation of the results of reviews
they said were conducted for the other four subgrantees during our audit period.
Regulations at 24 CFR 85.40 provide that grantees are responsible for managing
the day-to-day operations of grant- and subgrant-supported activities. Grantees
must monitor grant- and subgrant-supported activities to ensure compliance with
applicable Federal requirements and that performance goals are achieved.
Grantee monitoring must cover each program, function, or activity. In addition,
the City’s 2011 action plan states that the City’s Department of Community
Development will make at least one onsite monitoring visit to each subgrantee
funded to ensure compliance with fiscal, programmatic, and regulatory controls
and requirements.
Not conducting required monitoring reviews increases the risk that subgrantees
are not complying with Federal regulations and those deficiencies will continue to
go undetected. City officials informed us that they were drafting a subgrantee
monitoring handbook and that they had conducted a site visit to one subgrantee at
the end of our fieldwork. However, annual monitoring reviews are required for
all subgrantees. Therefore, we determined that the grantee’s administrative fee of
$42,126, earned from program year 2010 funds, would be put to better use if the
grantee strengthens its controls and adequately monitors its subgrantees.
Conclusion
City subgrantees had incorrectly determined and documented tenant eligibility
and rental subsidy calculations. We attribute this error to inadequate guidance
and monitoring by City officials and the subgrantee’s unfamiliarity with HUD
11
regulations. As a result, HOPWA funds were disbursed for ineligible and
incorrectly calculated rental assistance payments, tenants whose eligibility was
not adequately supported, and units that failed to meet HUD’s housing quality
standards.
Recommendations
We recommend that the Director of HUD’s Newark, NJ, Office of Community
Planning and Development instruct City officials to
2A. Provide support for the deobligation and recovery of the ineligible $990
housing assistance payment or reimburse the HOPWA program from non-
Federal funds.
2B. Recertify and properly calculate the rental subsidy for the five7 project-based
tenants so that the rental subsidy of $96,868 paid on behalf of these tenants for
the period July 2009 through June 2011 is properly supported and the $71,830
obligated but not yet expended for the period July 2011 through October 2012
will be put to better use.
2C. Obtain documentation to support the $225,021 rental subsidy and $15,751 in
administrative fees paid on behalf of the six tenants whose files lacked
adequate documentation of the tenants’ eligibility; if adequate support cannot
be obtained, officials should reimburse the $240,772 from non-Federal funds.
2D. Strengthen controls to ensure that annual tenant recertifications are conducted
as required and that tenants’ eligibility and rental subsidies are properly
determined and adequately documented.
2E. Implement adequate controls to ensure that the six tenant-based units with
material deficiencies comply with HUD’s housing quality standards, thus
ensuring that $58,464 in housing assistance payments and administrative fees
($54,639 and $3,825, respectively) to be earned within the remaining annual
certification period represent funds to be put to better use.
2F. Reimburse the program for housing assistance payments of $14,786 paid for
an ineligible bedroom in a six-bedroom unit for the period July 2009 through
June 2011 and deobligate the $14,366 budgeted but not disbursed for this unit
for the period July 2011 through October 2012, thus ensuring that the funds
will be put to better use.
2G. Strengthen controls over unit inspection procedures to ensure that all units are
inspected annually for compliance with HUD’s housing quality standards.
7
While the project housed six tenants, we regarded the subsidy for five as unsupported; the sixth is regarded as
ineligible, as noted in recommendation 2F, since the unit did not comply with HUD’s housing quality standards.
12
2H. Strengthen controls over subgrantee monitoring to ensure that periodic
monitoring is conducted and documented and follow-up is conducted for any
required corrective action, thus ensuring that the grantee’s administrative fee
of $42,126 obligated but not drawn down for program year 2010 is properly
earned, thus ensuring that the funds are put to better use.
13
Finding 3: Program Implementation Did Not Always Comply With
HOPWA Requirements
City officials did not ensure that the HOPWA program was always implemented in accordance with
program requirements. Specifically, subgrantee agreements were not always executed, and waiting
lists were not efficiently maintained. These conditions occurred because City officials were
unfamiliar with HUD regulations and did not establish adequate management controls to provide
assurance that HOPWA-funded activities administered directly by the City or through its
subgrantees complied with program regulations. Consequently, they could not adequately assure
HUD that subgrantee activity costs were for eligible activities and that HOPWA applicants were
fairly and consistently selected for assistance.
Subgrantee Agreements Not
Executed
City officials were unable to provide executed subgrantee agreements with their
six subgrantees for program years 2009 and 2010. Regulations at 24 CFR
85.20(b)(6) provide that accounting records must be supported by such source
documentation as canceled checks, paid bills, payrolls, time and attendance
records, contracts, and subgrant award documents. Executing a subgrantee
agreement ensures that a subgrantee is made aware of applicable HOPWA
regulations and provides a basis for the grantee to recover funds expended for
ineligible or unsupported costs. City officials noted that subgrantee agreements
were executed, but the City’s legal department had been unable to provide them.
Executed subgrantee agreements would ensure that the subgrantees’
responsibilities and the City’s and HUD’s interest in the $293,393 obligated but
not yet expended is protected.
Waiting List Procedures Not
Sufficient
City officials did not maintain a central waiting list for tenant- and project-based
rental assistance applicants, but, rather, multiple waiting lists were maintained and
were used by three of its six subgrantees that provided tenant- or project-based
rental assistance. HUD’s Housing Choice Voucher Program Guidebook
7420.10G, chapter 4, provides that Housing Choice Voucher program
administrators are responsible for establishing an application and selection
process that treats applicants fairly and consistently regarding which applicants
should be placed on a waiting list and issued a voucher for rental assistance.
While the HOPWA program does not have a similar regulation, maintenance of a
waiting list in a similar manner would be reasonable to provide City officials
assurance that HOPWA applicants are chosen for assistance in a fair and
consistent manner. During our review, one applicant was chosen from one
14
subgrantee’s waiting list while other subgrantees’ lists contained eligible
applicants certified before that applicant. City officials were unaware of this
situation and stated that a central waiting list should be maintained by the City.
Conclusion
City officials did not establish adequate management controls to provide assurance
that HOPWA-funded activities administered directly by the City or through its
subgrantees complied with program regulations. We attribute these deficiencies to
the officials’ unfamiliarity with HUD regulations. Consequently, City officials
could not adequately assure HUD that subgrantee activity costs were for eligible
activities and that HOPWA applicants were fairly and consistently selected for
assistance.
Recommendations
We recommend that the Director of HUD’s Newark, NJ, Office of Community
Planning and Development instruct City officials to
3A. Document or execute agreements with the City’s six subgrantees to ensure
that the subgrantees’ responsibilities and the City’s and HUD’s interest in
the $293,393 obligated but not expended is protected. If these agreements
cannot be documented or executed, the funds should be deobligated, thus
ensuring that the funds will be put to better use.
3B. Establish procedures to ensure that HOPWA applicants are chosen for
assistance in a consistent and equitable manner.
15
SCOPE AND METHODOLOGY
The audit focused on whether officials of the City established and implemented adequate
controls to ensure that HOPWA funds were obligated and expended in accordance with HUD
regulations for eligible activities and adequately safeguarded.
To accomplish our objective, we
Reviewed relevant HOPWA program requirements and applicable Federal regulations to
gain an understanding of HOPWA administration requirements.
Interviewed staff from the HUD Newark, NJ, field office, the City, and its subgrantees to
further our understanding of the City’s HOPWA program.
Obtained an understanding of the City’s management controls and procedures through
reviewing the City’s responses to management control questionnaires.
Obtained an understanding of the management controls of the City’s subgrantees through
reviewing the subgrantees’ responses to management control questionnaires.
Reviewed the City’s program years 2009 and 2010 consolidated annual performance and
evaluation reports and action plans for the HOPWA program.
Reviewed the City’s audited financial statements for fiscal years ending June 30, 2009
and 2010, to identify any issues relevant to our audit.
Reviewed reports from HUD’s Integrated Disbursement and Information System to
identify the City’s disbursement activities. Our assessment of the reliability of the data in
these systems was limited to the data sampled, which were reconciled to the County’s
records.
Selected a nonstatistical sample of 10 units from each of 2 subgrantees with universes of
37 each based upon increments of 12 from tenant listings in alphabetical order to
determine compliance with tenant eligibility requirements and HUD’s housing quality
standards for tenant-based rental assistance. In addition, we reviewed the universe of six
tenant files from a third subgrantee to determine compliance with housing quality
standards for project-based rental assistance.
Reviewed grantee agreements between HUD and the City.
Reviewed city council resolutions for the City’s HOPWA program years 2009 through
2011.
Reviewed the City’s general ledger for its program years 2009 through 2011.
16
The audit generally covered the period July 1, 2009, through June 30, 2011, and was extended as
needed to accomplish our objective. We performed our audit fieldwork from March through
September 2012 at the City’s Department of Health and Human Services.
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(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
17
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:
Program operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives.
Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that resource use is
consistent with laws and regulations.
Safeguarding resources – Policies and procedures that management has
implemented to reasonably ensure that resources are safeguarded against
waste, loss, and misuse.
Validity and reliability of data – Policies and procedures that management
has implemented to reasonably ensure that valid and reliable data are
obtained, maintained, and fairly disclosed in reports.
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.
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Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
The City did not establish or implement adequate financial controls to ensure
that HOPWA funds were expended on eligible and supported activities (see
finding 1).
The City did not establish or implement adequate program controls to ensure
that subgrantees dispersed HOPWA funds for eligible and supported costs
(see finding 2).
The City did not establish or implement adequate management controls to
ensure that the City’s HOPWA program was always administered in
accordance with HOPWA program requirements and Federal regulations
(see finding 3).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds to be put
Ineligible 1/ Unsupported 2/
number to better use 3/
1A $483,502
1C $ 17,450
1D 2,710
2A $990
2B 96,868 71,830
2C 240,772
2E 58,464
2F 14,786 14,366
2H 42,126
3A 293,393
$15,776 $357,800 $963,681
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 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. If HUD requires the auditee to (1) deobligate or disburse
the $483,502 not spent, the funds will be available for eligible HOPWA purposes; (2)
implement adequate controls for unit inspections, tenant recertification, and subgrantee
monitoring, $186,786 ($71,830, 58,464, $14,366, and $42,126) would be disbursed for
eligible rental assistance and earned administrative fees, and (3) execute subgrantee
agreements then subgrantees’ responsibilities will be documented, thus protecting HUD’s
interest in the $293,393.
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Appendix B
SCHEDULE OF PROJECT-BASED RENTAL SUBSIDIES
OBLIGATED BUT NOT DISBURSED
Project-based Project-based
subsidy for six subsidy for five of
Monthly period tenants six tenants
July 2011 $ 5,256 $ 4,380
August 2011 5,256 4,380
September 2011 5,256 4,380
October 2011 5,256 4,380
November 2011 5,256 4,380
December 2011 5,256 4,380
January 2012 5,466 4,555
February 2012 5,466 4,555
March 2012 5,466 4,555
April 2012 5,466 4,555
May 2012 5,466 4,555
June 2012 5,466 4,555
July 2012 5,466 4,555
August 2012 5,466 4,555
September 2012 5,466 4,555
October 2012 5,466 4,555
$ 71,830
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Appendix C
SCHEDULE OF TENANT-BASED RENTAL SUBSIDIES TO BE
PAID BEFORE TENANTS’ RECERTIFICATION
Funds to be paid
Months remaining to before next
Tenant Monthly HAP* amount next recertification recertification
1 $947 10 $9,470
2 670 3 2,010
3 802 12 9,624
4 1,500 6 9,000
5 $1,201 11 13,211
$1,193 1 1,193
6 921 11 10,131
HAP total $54,639
7 percent administrative fee 3,825
Total $58,464
* Housing assistance payment
22
Appendix D
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
23
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
Comment 2
Comment 2
24
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 2
Comment 2
Comment 3
25
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 4
Comment 5
Comment 6
Comment 7
Comment 2
Comment 8
Comment 2
26
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 2
Comment 9
Comment 2
27
AUDITEE COMMENTS AND OIG’S EVALUATION
OIG Evaluation of Auditee Comments
Comment 1 Grantee officials stated that they have reconciled their general ledger with IDIS
and have determined that all funds from program years 2007, 2008 and 2009 have
been expended. The action is responsive to the report recommendation and a
determination that the additional expenditures are in compliance with HOPWA
program regulations will need to be made by HUD during the audit resolution
process.
Comment 2 Grantee officials’ planned action is responsive to the report recommendation and
HUD will need to verify the actions taken during the audit resolution process.
Comment 3 Grantee officials stated that they plan to use the three percent administrative cost
allocation for the City of Paterson for HOPWA administrative staff. This action
is responsive to the report recommendation; however, if other grantee
administrative costs are allocated to the HOPWA program, the grantee would be
required to develop a cost allocation plan to ensure that any indirect costs and
salary costs of employees working on multiple programs are reasonably allocated
to the HOPWA program.
Comment 4 While grantee officials provided a voided check for $990 payable to the unit’s
owner, the grantee’s records documented that the $990 was paid to the subgrantee
and that the grantee was reimbursed from IDIS for the same amount. Therefore,
the $990 remains unsupported until the grantee provides documentation that the
$990 was reimbursed to the grantee and that the grantee credited its line of credit
in IDIS.
Comment 5 Grantee officials have requested documentation from the subgrantee to determine
whether tenant certifications and subsidy calculations complied with HUD
guidelines; verification of actions taken will be resolved during the audit
resolution process with HUD.
Comment 6 Grantee officials stated that files for six tenants reviewed that received project-
based rental assistance have been updated with applicable supporting
documentation. However, this recommendation relates to the six tenant files
reviewed that received tenant-based rental assistance. Therefore, grantee officials
need to provide HUD documentation to address this recommendation during the
audit resolution process.
Comment 7 The grantee will need to document that controls were strengthened that will
address the deficiencies noted in the six tenant-based rental units.
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Comment 8 Grantee officials have ensured that the housing quality standard deficiencies have
been corrected; therefore HUD officials will need to confirm this during the audit
resolution process.
Comment 9 During the exit conference, grantee officials provided subgrantee agreements for
their six subgrantees for program year 2010. However, the agreements were
executed on October 12, 2012, which is subsequent to the February 16, 2012 date
that 2010 HOPWA funds were initially drawndown. Thus, funds were
drawndown prior to grantee officials ensuring that subgrantees’ responsibilities
and the City’s and HUD’s interest was protected. However, since these
agreements have since been executed, those assurances have been obtained, thus
ensuring that $293,393 represents funds to be put to better use.
29
Housing Opportunities for Persons with AIDS
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-02-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)