oversight

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)

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.

                                                 18
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).




                                              19
                                      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.



                                             20
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




                                     21
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.



                                             28
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