OFFICE OF AUDIT REGION 2 NEW YORK-NEW JERSEY Nassau County, NY HOME Investment Partnerships Program 2013-NY-1006 MAY 13, 2013 Issue Date: May 13, 2013 Audit Report Number: 2013-NY-1006 TO: Vincent Hom, Director, Community Planning and Development, 2ADMI FROM: Edgar Moore, Regional Inspector General for Audit, New York-New Jersey Region, 2AGA SUBJECT: Nassau County, NY, Did Not Administer It’s HOME Investment Partnerships Program in Accordance With HUD Requirements Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), final results of our review of the Nassau County Office of Community Development’s administration of its HOME Investment Partnerships Program. HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on recommended corrective actions. For each recommendation without a management decision, please respond and provide status reports in accordance with the HUD Handbook. Please furnish us copies of any correspondence or directives issued because of the audit. The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its publicly available reports on the OIG Web site. Accordingly, this report will be posted at http://www.hudoig.gov. If you have any questions or comments about this report, please do not hesitate to call me at 212-264-4174. May 13, 2013 Nassau County, NY, Did Not Administer Its HOME Investment Partnerships Program in Accordance With HUD Requirements Highlights Audit Report 2013-NY-1006 What We Audited and Why What We Found We audited the Nassau County Office County officials did not commit HOME funds in of Community Development’s accordance with HUD rules and regulations, disburse administration of its HOME Investment HOME funds for eligible activities, and use HOME Partnerships Program. We selected the funds for eligible administrative and planning costs. County for review based on a risk Specifically, they did not provide supporting assessment conducted by the U.S. documents showing that all funds were adequately Department of Housing and Urban committed, charged ineligible and unsupported costs to Development’s (HUD) New York City the program, had weaknesses in their administrative Office of Community Planning and controls, did not monitor subrecipients and home Development. The objectives of the buyers, and published inaccurate criteria on the audit were to determine whether the County’s HOME Web site. These deficiencies are County committed and obligated attributed to County officials’ failure to follow Federal HOME funds in a timely manner, regulations and in some instances, their own policies disbursed HOME funds for eligible and procedures. Consequently, HUD could not be activities, and used HOME funds for assured that the County properly committed $2.35 eligible administrative and planning million in HOME funds for fiscal years 2009 and costs in accordance with HUD rules 2010, disbursed $269,116 in HOME expenditures, and and regulations. administered its HOME program in accordance with requirements. What We Recommend We recommend that the Director of HUD’s New York City Office of Community Planning and Development instruct County officials to (1) provide documentation to justify the $190,586 in unsupported administrative, planning, and project delivery costs; (2) reimburse from non-Federal funds $78,530 for ineligible home-buyer rehabilitation and demolition costs; (3) provide contracts to support commitments of over $2.3 million in HOME funds; and (4) strengthen administrative and monitoring controls. TABLE OF CONTENTS Background and Objectives 3 Results of Audit Finding 1: Unsupported and Ineligible Costs Were Charged to the HOME Program 4 Finding 2: There Were Weaknesses in Administrative Controls 8 Finding 3: Subrecipients and Home Buyers Were Not Adequately Monitored 12 Finding 4: Inaccurate Criteria Were Publicized on the County’s HOME Web Site 14 Scope and Methodology 16 Internal Controls 18 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 20 B. Auditee Comments and OIG’s Evaluation 21 2 BACKGROUND AND OBJECTIVES The HOME Investment Partnerships Program is authorized under Title II of the Cranston- Gonzalez National Affordable Housing Act, as amended, and program regulations are at 24 CFR (Code of Federal Regulations) Part 92. In general, under the HOME program, the U.S. Department of Housing and Urban Development (HUD) allocates funds by formula among eligible State and local governments to strengthen public-private partnerships and expand the supply of decent, safe, sanitary, and affordable housing, with primary attention to rental housing, for low- and very low-income families. HOME funds must be matched by non-Federal resources. State and local governments that become participating jurisdictions 1 may use HOME funds to carry out multiyear housing strategies through acquisition, rehabilitation, and new construction of housing and tenant-based rental assistance. Participating jurisdictions may provide assistance in a number of eligible forms, including loans, advances, equity investments, interest subsidies, and other forms of investment that HUD approves. Participating jurisdictions identify their HOME activities’ status by using HUD’s Integrated Disbursement and Information System (IDIS). Nassau County, NY, has been participating in HUD’s Community Development Block Grant (CDBG) program since its inception in 1975. The county executive established the Nassau County Office of Community Development as the administrative agency to implement and monitor programs such as the HOME program and other Federal grants initiated by HUD. The County is dedicated to building a stronger community through CDBG, HOME, the Neighborhood Stabilization Program, and the Lead Hazard Reduction Demonstration Grant, as well as other programs. Participating jurisdictions are required to commit HOME funds within 24 months and expend the funds within 5 years after the last day of the month in which HUD notifies the participating jurisdiction of HUD’s execution of the HOME agreement. The County received $7.8 million in HOME funds, $3.9 million each in fiscal years 2009 and 2010. Our audit objectives were to determine whether the County committed and obligated HOME funds in a timely manner, disbursed HOME funds for eligible activities, and used HOME funds for eligible administrative and planning costs in accordance with HUD rules and regulations. 1 Participating jurisdiction is the term given to any State or local government that HUD has designated to administer a HOME program. The State or local government must meet the funding thresholds, notify HUD that it intends to participate in the program, and obtain HUD’s approval of its consolidated plan. 3 RESULTS OF AUDIT Finding 1: Unsupported and Ineligible Costs Were Charged to the HOME Program Contrary to Federal requirements, County officials disbursed $269,116 in HOME program funds for unsupported and ineligible expenditures. The unsupported costs consisted of $189,322 in administrative and planning costs and $1,264 in project delivery costs. The ineligible expenditures were associated with $78,530 in home-buyer rehabilitation and demolition costs related to the improper procurement of a contractor by a subrecipient 2 and an unapproved change order. In addition, the contract between the County and the same subrecipient was not executed properly. We attribute these deficiencies to the County’s failure to maintain adequate supporting documentation and implement oversight controls over disbursements that were sufficient to ensure compliance with applicable regulations. Consequently, County officials could not assure HUD that reasonable and necessary costs were charged to the HOME program. Unsupported Administrative and Planning Costs County officials were unable to provide sufficient documentation to support $189,322 in administrative and planning costs that was disbursed for employees’ salaries and fringe benefits. Specifically, the documentation provided by County officials, such as the annual employee salaries, in-house-generated electronic employee payroll checks, HUD’s IDIS administrative drawdown amounts, and its cost allocation plans, did not support the amounts charged. After we completed our fieldwork, County officials provided additional documentation, such as manually completed Excel employee timesheets and the time allocation procedures used to support the actual hours worked for the administrative and planning costs; however, the additional documentation did not fully support the percentages that were included in the cost allocation plan. After several meetings with County officials, as recent as the end of January 2013, the officials had not been able to reconcile the administrative costs in our sample. In addition, administrative and planning cost drawdowns associated with the two grants for fiscal years 2009 and 2010 were not provided. This deficiency occurred because County officials used an allocation method based on undocumented conversations with employees. Consequently, County officials could not assure HUD that the $189,322 in administrative and planning costs represented the actual eligible costs incurred. 2 A subrecipient is a public agency or nonprofit selected by the participating jurisdiction, in this case the County, to administer all or a portion of the participating jurisdiction’s HOME program. 4 Ineligible Home-Buyer Rehabilitation and Demolition Costs County officials improperly executed a contract in the amount of $110,000 with the Village of Freeport, NY (subrecipient), to rehabilitate and construct single- family public housing units to be sold to low-income residents. The contract agreement, dated February 15, 2002, was executed and committed on July 10, 2002, and detailed a time performance start date of September 1, 2001, until completion. County officials had reimbursed the subrecipient $78,530 for home- buyer rehabilitation and demolition expenditures. However, as confirmed by a site visit conducted on January 18, 2013, the project had not been completed. Further the contract did not (1) specify the number of home units to be created, (2) include a schedule for completing the task, and (3) include a cost budget. Accordingly, there was insufficient detail in the contract agreement to provide a sound basis for the County to effectively monitor performance according to 24 CFR 92.504(c)(1)(i). In addition, the subrecipient’s contractor improperly procured a subcontractor to perform the home-buyer rehabilitation and demolition services. Although the subrecipient had disclosed that the procurement of the subcontractor did not comply with Federal procurement requirements, as the subrecipient did not maintain procurement records and did not provide source documentation to support a change order, County officials reimbursed the subrecipient $78,530 for expenditures. They did not ensure that procurement regulations were followed, and there was a lack of documentation showing full and open competition. A sample review of $72,487 in vouchers disclosed that $70,900, consisting of two separate vouchers that included three invoices for three separate subcontracts in the amounts of $30,900, $17,000, and $18,000 and an unapproved change order in the amount of $5,000, was questionable. Specifically, procurement of the three separate subcontracts in the amounts of $30,900, $17,000, and $18,000 for home- buyer rehabilitation and demolition work did not provide full and open competition as required by 24 CFR 85.36(c)(1). Also, in procuring the subcontract for $18,000, County officials did not ensure that the reason for rejecting the lowest bid amount of $17,850 was documented. According to 24 CFR 85.36(d)(2)(ii)(E), any or all bids may be rejected if there is a sound documented reason. Two of the three proposals for the $30,900 subcontract were questionable. In one case, the selected proposal was dated January 23, 2003, which was past the deadline on the bid specification of January 10, 2003. The second proposal was dated March 2, 2001, about 2 years before the bid specification. There were three proposals on file for the $17,000 subcontract; however, all three proposals appeared to have been faxed from the same location, with fax headers containing the name of the contractor that was ultimately selected. 5 One of the three bids received for the $18,000 subcontract was not signed and dated. In addition, the subrecipient did not award the $18,000 subcontract to the lowest bidder and did not document the reasons for the rejection of the lowest proposal as required by 24 CFR 85.36(d)(2) and 24 CFR 85.36(d)(2)(ii)(E). Further, the County reimbursed a $5,000 change order that was not approved by the subrecipient. Further, the lack of a proper contract between the County and the subrecipient detailing specific terms left County officials with little recourse to require the subrecipient to complete the project in a timely manner, as evidenced by the fact that 10 years later, the project had not been completed. Thus, County officials did not ensure that the subrecipient followed procurement regulations, provided evidence of full and open competition when procuring the subcontracts, and provided the source documentation for the unapproved change order. As a result, the $78,530 in home-buyer rehabilitation and demolition costs charged to the HOME program was ineligible and should be repaid with non-Federal funds. This deficiency occurred because County officials did not implement the County’s policy and procedure for reviewing HOME program claim vouchers. Further, the contract agreement should be terminated in accordance with the terms detailed under the general conditions and time performance section of the contract. In terminating the contract agreement with the subrecipient, the remaining contract balance of $31,470 should be reprogrammed for other eligible HOME program activities. Unsupported Project Delivery Costs County officials also charged $1,264 in project delivery costs to the County’s HOME program without maintaining adequate supporting documentation. Specifically, the documentation, such as the County’s general ledger inquiry, account detail inquiry by grant, and transaction detail inquiry and HUD’s IDIS drawdown amount, provided by County officials for the project delivery expenditure was not descriptive in detailing the purpose and providing justification for the charges to the HOME program. Regulations at 24 CFR 92.206(d)(6) allow disbursements for eligible project costs, including staff and overhead costs directly related to carrying out the project, and services related to assisting potential owners, tenants, and home buyers. Regulations at 24 CFR 92.508(a)(3)(ii) require participating jurisdictions to maintain records demonstrating the source and application of funds, including supporting documentation, in accordance with 24 CFR 85.20(b)(2), which provides that grantees and subgrantees must maintain records which adequately identify the source and application of funds provided for financially assisted activities. These records must contain information pertaining to grant or subgrant awards and authorizations, obligations, unobligated balances, assets, liabilities, outlays or expenditures, and income. Therefore, since County officials did not provide adequate supporting documentation to substantiate that this expenditure was for 6 reasonable HOME expenses, we considered $1,264 in project delivery costs to be unsupported. Conclusion County officials generally committed HOME funds in accordance with HUD rules and regulations; however, they did not expend HOME funds for eligible activities and did not use HOME funds for eligible administrative and planning costs. County officials disbursed $269,116 in HOME program funds for unsupported and ineligible expenditures. We attribute these deficiencies to the County’s failure to maintain supporting documentation and implement oversight controls over disbursements that were sufficient to ensure compliance with applicable regulations. Recommendations We recommend that the Director of HUD’s New York Office of Community Planning and Development instruct County officials to 1A. Provide documentation to justify the $189,322 in unsupported administrative and planning costs that was disbursed for employee salaries and fringe benefits. Any unsupported costs determined to be ineligible should be reimbursed from non-Federal funds. 1B. Reimburse from non-Federal funds $78,530 for ineligible home-buyer rehabilitation and demolition costs charged to the HOME program. 1C. Terminate the contract between the County and the Village of Freeport to rehabilitate and construct single-family public housing units to be sold to low-income residents. The remaining contract balance of $31,470 should be put to better use by reprogramming it for other eligible purposes. 1D. Provide documentation to justify the $1,264 in unsupported project delivery costs. Any unsupported costs determined to be ineligible should be reimbursed from non-Federal funds. 1E. Require the County to maintain supporting documentation and implement oversight controls over disbursements that are sufficient to ensure compliance with applicable regulations. 7 Finding 2: There Were Weaknesses in Administrative Controls Weaknesses in the County’s administrative controls caused noncompliance with the County’s HOME program. Specifically, County officials did not (1) follow their own established procedures for the subrecipient application process, (2) maintain records and documentation in accordance with Federal regulations, (3) adequately support $2.35 million in grant commitments for fiscal years 2009 and 2010, and (4) establish formal debarment verification procedures. This condition occurred because of a lack of program oversight in the County’s Office of Community Development and the County’s failure to follow Federal regulations and in some instances, its own policies and procedures. Consequently, HUD could not be assured that County officials committed all of the County’s funds and properly administered their HOME program in accordance with requirements. Established Procedures for the Subrecipient Application Process Not Followed County officials did not always follow their own established procedures for the subrecipient application process in administering their HOME program. Specifically, County officials did not maintain adequate subrecipient award documentation to justify that the selection of the subrecipient was the most advantageous to the HOME program. For example, as part of the County’s procedures for selecting and awarding subrecipient contracts, the subrecipients’ application must be reviewed by an application review committee to ensure the reasonableness and fairness of the contract award. However, County officials did not provide documentation to support the existence of an application review committee, including the names of the members. In addition, officials did not provide evidence that committee meetings were held or that they evaluated and rated subrecipients or the resulting funding recommendations. Also, County officials did not provide evidence of established procedures that would have prevented the County from selecting subrecipients that were not recommended by the committee or committee members using their individual preferences or discretion to rank proposals. Although County officials stated that their subrecipient application process had been in place for at least the past 10 years, the process for awarding subrecipient contracts was not documented in writing. This deficiency occurred because County officials became complacent over the years due to a lack of program oversight and unfamiliarity with their own application process procedures. Thus, the contracts that the County officials awarded may not have been reasonable and may not have allowed for projects that were the most advantageous to the HOME program. 8 Records Not Maintained in Accordance With Federal Regulations Contrary to Federal regulations at 24 CFR 92.508 regarding record keeping, County officials did not maintain records and documentation to support whether the requirements of the HOME program had been met. During the audit, we experienced significant delays in obtaining requested documentation, and County officials had not provided all of the requested documentation pertinent to our review. For example, the audited financial statements and the County’s internal monitoring reviews were provided almost 4 months after our initial request, and County officials took 2-4 months to provide only a portion of the requested administrative and planning cost documentation. Also, not all of the employee timesheets were provided to support the County’s HOME program cost allocation plan. In addition, County officials did not provide all of the monitoring documents affirming that home buyers resided in the HOME-funded property as their primary residence during the property’s affordability period and the income documentation for 4 of the 21 sampled home buyers to support that HOME funds were used for eligible applicants. Further, officials did not provide all of the contracts to support the commitments for fiscal years 2009 and 2010 grants, along with the complete administrative and planning cost drawdowns associated with these grants. This deficiency was attributed to the County’s budgetary reduction in staff with the associated loss of institutional knowledge and the County’s lack of established policies and procedures requiring that supporting records be obtained and maintained for review. Support for Fiscal Years 2009 and 2010 Grant Commitments Inadequate The HOME Deadline Compliance Status Report as of October 31, 2012, showed that the County had met its grant commitment, which included the 2009 and 2010 grants. However, County officials did not provide all of the contracts to support commitments during our review period of September 1, 2009, through August 31, 2011. As shown below, the contracts provided by County officials supported only $5.47 million of the $7.82 million in committed funds. In addition, the contract amounts differed from amounts entered by County officials in HUD’s IDIS . The commitment deadlines for these two grants were October 31, 2011, and October 31, 2012. County officials were unable to provide the contracts to support the remaining $2.35 million in funds as required by 24 CFR 92.500(d)(1)(B) and 24 CFR 92.508(a)(2)(x). These regulations provide that funds in the United States Treasury account are required to be committed within 24 months after the last day 9 of the month in which HUD notifies the participating jurisdiction of HUD’s execution of the HOME agreement and the participating jurisdictions are required to provide records documenting compliance within the 24-month commitment deadline. Nevertheless, since there were no contracts to support the commitment of the remaining $2.35 million in HOME funds for fiscal years 2009 and 2010, this amount was considered unsupported. In addition, there was insufficient documentation to support variances between executed agreements with Community Housing Development Organizations (CHDOs) and developers in several projects funded in 2009 and 2010. We attribute this deficiency to the County’s lack of established policies, procedures and controls requiring that supporting documents be obtained and maintained for review. A B C D E F G Percentage Remaining Total Total of funds funds not Grant funds Grant Commitment funds committed committed funds committed year deadline committed with with received with in IDIS contracts contracts contracts (E/C) (C - E) 2009 10/31/2011 $3,910,908 $2,256,785 $2,206,785 56% $1,704,123 2010 10/31/2012 $3,907,638 $3,915,389 $3,263,932 84% $643,706 Total: $7,818,546 $6,172,174 $5,470,717 70% $2,347,829 Lack of Formal Debarment Verification Procedures County officials did not document the results of their formal debarment verification procedures process. Thus, they could not demonstrate that the selection of the County’s contractors and vendors used in carrying out the HOME program complied with Federal requirements. County officials were made aware of the matter and implemented formal debarment verification procedures, effective July 30, 2012. This deficiency is attributed to the officials’ unfamiliarity with Office of Management and Budget Circular A-133, which provides that before procurement, officials should verify that contractors and vendors are not suspended, debarred, or otherwise excluded by the Federal Government. This verification may be accomplished by checking the Excluded Parties List System, maintained by the General Services Administration; collecting a certification from 10 the entity; or adding a clause or condition to the covered transaction with that entity (2 CFR 180.300). Conclusion Weaknesses in the County’s administrative controls caused noncompliance with its HOME program. Specifically, County officials did not (1) follow their own established procedures for the County’s subrecipient application process, (2) maintain records and documentation in accordance with Federal regulations, (3) fully support fiscal years 2009 and 2010 grant commitments, and (4) establish formal debarment verification procedures until July 30, 2012, during our audit. This condition occurred because of a lack of program oversight in the County’s Office of Community Development and the County’s failure to follow Federal regulations and in some instances, its own policies and procedures. Recommendations We recommend that the Director of HUD’s New York Office of Community Planning and Development instruct County officials to 2A. Document their application review committee membership and provide evidence of the committee meetings and their evaluation and rating of subrecipients to fully support their funding recommendations. 2B. Establish and implement policies and procedures for record keeping in accordance with HUD requirements. 2C Provide contracts to support the commitment of the remaining $2,347,829 in funds for fiscal years 2009 and 2010 and justify IDIS commitments in excess of HOME agreement amounts. If support cannot be provided, funds should be recaptured and returned to the U.S. Treasury for other purposes. Unsupported commitments should also be considered in determining whether to reduce overall deadline compliance measures and pursue deobligation of HOME funds not truly committed by the deadline dates. 2D. Develop controls to ensure that the County’s recently established debarment verification procedures are implemented for all future procurement activity. 11 Finding 3: Subrecipients and Home Buyers Were Not Adequately Monitored County officials are responsible for monitoring all subrecipients to ensure compliance with applicable requirements; however, they did not adequately monitor their subrecipients and home buyers. This condition occurred because of the County’s failure to follow Federal regulations and in some instances, its own policies and procedures. Consequently, HUD could not be assured that County officials properly administered their HOME program in accordance with requirements. Inadequate Monitoring of Subrecipients’ Performance For the period September 1, 2009, through August 31, 2011, County officials could not provide evidence that they conducted monitoring of their subrecipients’ performance. Specifically, they did not monitor the performance of their subrecipients at least annually as required by 24 CFR 92.504(a) and the contract between the County and the subrecipients. Although the County had written monitoring policies and procedures in place, County officials did not implement them to ensure that the required subrecipient monitoring was performed annually. We attribute this deficiency to the County’s reorganization and the resulting lack of program oversight. As a result of the County’s lack of monitoring, there was no assurance that the goals of the County’s HOME projects were met and that the subrecipients performed in accordance with HOME program requirements. Monitoring of Home-Buyer Property Affordability Period Not Adequately Documented The County is required by 24 CFR 92.254 to ensure that the property affordability period requirements are met. County officials relied on their subrecipients to monitor the County’s home-buyer property affordability requirements and did not always maintain records demonstrating compliance with property affordability requirements. For example, at the end of our fieldwork, County officials could provide only notarized residency affidavits, a property affordability requirement, for 15 of 153 HOME properties. This deficiency occurred due to the County’s weak monitoring controls over the subrecipient and its decentralized record- keeping system that did not allow for timely access and retrieval. As a result, County officials could not provide HUD assurance that the subrecipients followed established HOME program requirements and that home buyers occupied the HOME-funded property as their primary residence. 12 Conclusion County officials did not adequately monitor their subrecipients and home buyers to ensure that they adequately followed HOME regulations. This condition occurred because County officials failed to follow Federal regulations and in some instances, their own policies and procedures. Consequently, HUD could not be assured that County officials properly administered their HOME program in accordance with requirements. Recommendations We recommend that the Director of HUD’s New York Office of Community Planning and Development instruct County officials to 3A. Strengthen controls over their subrecipients to ensure that at least annual monitoring reviews are conducted. 3B. Follow established monitoring procedures at 24 CFR 92.254 and develop a tracking system to ensure that home-buyer property affordability requirements are met, supported, and documented. 3C. Develop controls that will ensure that the County’s decentralized record- keeping system is centralized for ready access to HOME documents. 13 Finding 4: Inaccurate Criteria Were Publicized on the County’s HOME Web Site Inaccurate information was publicized on the County’s Web site. Specifically, the County’s HOME program Web site detailed the incorrect unit threshold pertaining to Davis-Bacon Act requirements. This condition occurred because of a lack of oversight to ensure that accurate information is posted to the County’s Web sites, such as conveying the applicable Davis-Bacon Act unit threshold requirements for the HOME program. The County’s error regarding the Davis-Bacon Act may cause noncompliance with Federal HOME regulations if it leads to improper contract payments. Inaccurate Criteria Publicized The County’s HOME program Web site detailed the incorrect unit threshold pertaining to Davis-Bacon Act requirements. The unit threshold determines whether Davis-Bacon Act requirements are applicable for determining wage rates. Specifically, the County cited 8 units related to the CDBG regulations pertaining to the Davis-Bacon Act unit threshold on its HOME program Web site, when regulations require 12 units. The HUD HOME Investment Partnerships Act, statutory provision 286, contains specific language for the Davis-Bacon wage requirements. The Davis-Bacon Act for HUD’s HOME program stipulates in general that any contract for the construction of affordable housing with 12 or more units assisted with funds made available must contain a provision requiring that not less than the wages prevailing in the locality, as predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act (40 U.S.C. (United States Code) 276a-276a-5), be paid to all laborers and mechanics employed in the development of affordable housing and participating jurisdictions and must require certification as to compliance with these provisions before making any payment under such contract. Thus, the posted error may have led to improper payments being made in noncompliance with Federal HOME program regulations. County officials were made aware of the matter and implemented corrective action, effective July 25, 2012. This deficiency is attributed to the County officials’ confusion between the CDBG and HOME program unit threshold under the Davis-Bacon Act requirements and their failure to oversee information posted to the County’s Web site. Conclusion County officials did not publicize accurate HOME program Davis-Bacon Act regulations (unit threshold) on the County’s Web site. This condition occurred 14 because the County lacked oversight controls for HOME administration, particularly its HOME Web site. As a result, the inaccurate Web site information may have compromised the Federal Labor Standards. However, during the audit, the County corrected the Davis-Bacon unit threshold on its HOME Web site. Recommendations We recommend that the Director of HUD’s New York Office of Community Planning and Development instruct County officials to 4A. Ensure that accurate information is posted to County Web sites, such as conveying the applicable Davis-Bacon Act unit threshold requirements for the HOME program. 4B. Strengthen controls over the review process for uploading program information to the County’s Web sites to ensure that the information posted is accurate. 15 SCOPE AND METHODOLOGY We performed our onsite audit work at the Nassau County Office of Community Development’s main office located at 40 Main Street, Hempstead, NY, from July 2012 to January 2013. Our audit generally covered the period September 1, 2009, through August 31, 2011, and coincided with the County’s 35th and 36th program years. We extended the audit period when it was necessary. We relied in part on computer-processed data primarily for obtaining background information on the County’s expenditure of HOME funds. We performed a minimal level of testing and found the data to be adequate for our purposes. To accomplish our objectives, we • Researched HUD handbooks, the Code of Federal Regulations, and other requirements that govern the County’s HOME program; • Reviewed the County’s HOME matching fund records; • Reviewed the County’s procedures and controls used to administer its HOME program activities; • Obtained and reviewed risk assessments performed by the New York HUD Office of Community Planning and Development; • Interviewed officials of the New York HUD Office of Community Planning and Development and the County; • Reviewed HUD’s and the County’s available monitoring reports and files for the County’s HOME program; • Obtained and reviewed the County’s annual audited financial statements; • Obtained and examined the cost allocation plan, organizational structure, job descriptions, staff force reduction plan, and available employee manual timesheets; and • Reviewed the County’s HOME Web site for general background information. Using HUD’s June 11, 2012, IDIS Status of HOME Activities report, we selected a nonstatistical sample of 16 of 165 activities (10 percent) administered by the County to determine whether the County met HOME requirements. The 16 IDIS activities totaled approximately $8.5 million, representing approximately 15.5 percent of the universe ($8.5 million/$55 million). The $55 million, as detailed in HUD’s June 11, 2012, IDIS Status of HOME Activities report, consists of all of the projects since the beginning of the HOME program in 1992. The County’s HOME projects included the following HOME activity types: new construction, acquisition only, acquisition and rehabilitation, and rehabilitation only. Our testing also included reviews of available drawdown vouchers and invoices associated with the IDIS projects’ administrative 16 costs, home-buyer income eligibility documents, residency certifications, and drive-by site visit observations. We conducted the audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 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 objectives: • 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 the use of funds is consistent with laws and regulations. • Safeguarding resources – Policies and procedures that management has implemented to reasonably ensure that the funds 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 Deficiency Based on our review, we believe that the following items are significant deficiencies: • County officials did not have adequate controls over program operations when they approved expenditures for reimbursement that did not comply with HUD requirements and did not commit HOME funds in accordance with HUD rules and regulations (see findings 1 and 2). • County officials did not have adequate controls over compliance with laws and regulations when they failed to follow their own established administrative policies and procedures, Federal regulations for record keeping and debarment verification, and consistently monitor their subrecipients to ensure that the program objective was met (see findings 2, 3, and 4). • County officials did not have adequate controls over safeguarding resources when they charged unsupported and ineligible costs to the HOME program (see findings 1). • County officials did not have adequate controls over the validity and reliability of data when they failed to ensure that accurate information is posted to its program web sites (see finding 4). 19 APPENDIXES SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Unsupported Funds to be put Ineligible 1/ number 2/ to better use 3/ 1A $189,322 1B $78,530 1C $31,470 1D $1,264 2C $2,347,829 _______________________________________________ Total $78,530 $2,538,415 $31,470 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 necessary expenditures noted in preaward reviews, and any other savings that are specifically identified. In this instance, if the improperly executed contract with the Village of Freeport is terminated, reprogramming the remaining contract balance of $31,470 will result in funds being put to better use. 20 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Comment 2 21 Ref to OIG Evaluation Auditee Comments Comment 2 Comment 3 22 Ref to OIG Evaluation Auditee Comments Comment 3 23 Ref to OIG Evaluation Auditee Comments Comment 3 Comment 4 Comment 5 24 Ref to OIG Evaluation Auditee Comments Comment 5 Comment 6 Comment 7 25 Ref to OIG Evaluation Auditee Comments Comment 7 26 Ref to OIG Evaluation Auditee Comments Comment 7 27 Ref to OIG Evaluation Auditee Comments Comment 7 Comment 8 28 Ref to OIG Evaluation Auditee Comments Comment 9 Comment 10 29 OIG Evaluation of Auditee Comments Comment 1 County officials misinterpreted that the audit period went as far back as 2001, that the draft audit report was written in the present tense, and that it provides a false picture of current conditions in 2013 by not discussing current policies and procedures. Our audit period covered September 1, 2009, to August 31, 2011; however, our nonstatistical sample included a contract executed and committed on July 10, 2002, with a scheduled project start date of September 1, 2001. Our work found that more than 10 years has lapsed and the project is still not completed. In addition, the contract was not executed properly, contractors were improperly procured by the subrecipient, and an unapproved change order was paid for by County officials. Due to the deficiencies identified, with this contract, it is discussed in the draft audit report in the past tense to conform to our audit period. Therefore, a review of the County’s allocation plan for administrative and planning costs in 2013 was not within our audit scope. Comment 2 County officials disagree that there are unsupported administrative and planning costs, contending that the auditors have an insufficient understanding of HUD’s IDIS and that the draft audit report is contradictory on the matter of supporting documentation. However, when we reviewed the vouchers during testing of administrative and planning costs drawdowns, County officials provided records that were not fully acceptable, such as time tracking documentation, some of which contained discrepancies and others that were not properly signed or authorized. Also, the undated, manually created spreadsheets provided were untraceable to source documentation and appeared to have been created based on our inquiries. Even during the audit, officials repeatedly told us that they had little knowledge of the records maintained other than the contract files. Further, the available documents provided did not lay out or present the data in an easily traceable fashion for reconciliation. As noted in the draft audit report, despite several meetings, County officials were unable to fully reconcile the $189,322 in administrative and planning costs due to insufficient records. Thus, the reported result that $189,322 is considered unsupported is accurate. Further, we agree that IDIS does not allow the participating jurisdiction to withdraw more than 10 percent of HOME funds to be used for administrative and planning costs. Therefore, we have revised the draft audit report by removing the statement, “Therefore, it could not be determined whether the County exceeded the 10 percent limit on administrative and planning costs according to 24 CFR (Code of Federal Regulations) 92.207.” However, this revision does not affect our recommendation. Thus, recommendation 1A remains the same. 30 Comment 3 County officials incorrectly contend that in addition to not understanding IDIS, the auditors also lack an understanding of elementary contract law. Contrary to the officials’ contention, the contract was improperly executed because it did not (1) specify the number of HOME units to be created, (2) include a schedule for completing the task, and (3) include a cost budget. Further, as stated above in comment 1, the contractors were improperly procured by the subrecipient, and an unapproved change order was paid for by the officials. The matters in the draft report were discussed with officials throughout the audit, during the preexit conference, and at the exit conference. We are not intentionally misleading the readers; neverthelss, we strongly encourage County officials to correct this issue by following Federal procurement requirements when using Federal funds. Comment 4 As discussed during the audit and expressed throughout the review, as well as at the preexit and exit conferences, the available documents confirmed only that the expenditures occurred. However, the very same documents did not sufficiently identify the purposes or activities related to the $1,264 charges. We agree with the officials’ statement that audit reports deal in facts, which is why it was of the utmost importance that we constantly requested that officials provide factual source documentation to lend credence to the assertion that their program expenditures were necessary and allowable. For example, the documentation provided to support the project delivery costs of $1,264 did not show whether the charges were for employees’ salaries and benefits, inspection costs, or environmental review costs. A document merely stating a project delivery amount without further detail is not descriptive and cannot be proven to be factual. Therefore, we consider the project delivery costs of $1,264 to be unsupported. Comment 5 County officials agree that they did not provide documentation to support the existence of an application review committee during the audit; however, after locating information on their computer system, they provided additional documentation to support the existence of the HOME application review committees for fiscal years 2009 and 2010. Nevertheless, the information that was provided after our onsite review work did not provide evidence of the committees’ detailed discussion regarding the selection methods and merits of each application, or their evaluation, rating, and funding recommendations for fiscal years 2009 and 2010. Therefore, recommendation 2A remains the same. Comment 6 County officials state that they are developing a project tracking system and have begun scanning and creating an electronic filing system for HOME program files. These actions should assist the officials in resolving our recommendation to establish and implement policies and procedures for record keeping in accordance with HUD requirements. 31 Comment 7 Many times during the audit, we provided the spreadsheets to the officials for explanation and comment. Officials did not provide a response and additional documentation until after the onsite work concluded and the exit conference was conducted. We have reviewed the explanations and additional documentation provided by the officials and will address them below. County officials acknowledge that they did not fully commit their fiscal year 2009 HOME funds in accordance with time requirements and interpreted that the shortfall amount was $387,309 based on a HUD Office of Community Planning and Development letter. However, our audit work showed that the shortfall amount for fiscal year 2009 was $2,100,908 as noted in the draft audit report. According to the County officials’ explanation and additional documentation provided, we accepted the explanation that the small variances between the contracts and the IDIS amounts are for project expenses such as the cost of environmental reviews and inspections that were not part of the contract budget. Therefore, variances of $5,000 and $695 for IDIS 4614 and IDIS 4338 were accepted, and we also accepted the 10 percent of $391,090 set aside for administrative costs for fiscal year 2009. Therefore, shortfall was reduced from $2,100,908 to $1,704,123 {$2,100,908 – ($5,000 + $695 + $391,090)} for fiscal year 2009 as shown in the final report. County officials also claimed that they had met the commitment deadline for their fiscal year 2010 HOME funds. Contrary to the officials’ contention that the spreadsheets we provided during the exit conference acknowledge that the fiscal year 2010 HOME funds deadline was met, the spreadsheets detailed the amounts reported in IDIS. However, according to 24 CFR 92.500(d)(1)(B) and 24 CFR 92.508(a)(2)(x), for the amounts reported in IDIS to be considered as valid commitments, County officials needed to provide signed contracts or amendments to support the amounts shown in IDIS, which they did not. We reviewed the explanations and additional documentation provided later by the officials for fiscal year 2010 and accepted the variances of $10,000 and $36,169 for IDIS 4612 and IDIS 4317. We also accepted the 10 percent of $367,763 set aside for administrative costs for fiscal yer 2010. In addition, the documents supported only $500,000 of the $1,031,457 related to IDIS 4120 because the amendment contract was not provided. We considered that IDIS 4377 for $70,000 was a subset of IDIS 4317 for $786,169; however, the contract amount was $750,000, and it did not support the additional $70,000. Further, variance of $36,168.74 was accepted for IDIS 4317 as project delivery costs. Therefore, supporting documentation was required for the $70,000. Lastly, there were no contracts or amendments provided for IDIS 4104 and IDIS 4565. Therefore, in summary, the 2010 shortfall included in our draft report was 32 reduced from $1,057,638 to $643,706 {$1,057,638 – ($10,000 + $36,169 + $367,763)} as reported in this final report. As a result of County officials’ explanations and additional documents provided, we reduced the unsupported commitment from $3.16 million ($2,100,908 + $1,057,638 million) to $2.35 million ($1,704,123 + $643,706 million) for our audit period. Thus, we recommend that County officials provide addition contracts to support the remaining $2.35 million during the audit resolution process. Comment 8 We agree that County officials provided their “OCD Monitoring Plan” to us during the audit. As stated in the audit report, the County is required to, at a minimum, conduct annual subrecipient monitoring and document its subrecipient monitoring results. However, officials did not maintain adequate documentation of their monitoring. Nevertheless, we do agree that the County will strengthen its controls by tracking, centralizing, and scanning the subrecipient documents. Comment 9 We agree that the County and subrecipient have procedures for monitoring the home buyer property affordability. However, County officials could not make available all of the home buyer affordability affidavits for our audit period and, therefore, will need to do so during the audit resolution process. Comment 10 The actions implemented by County officials to ensure that accurate information is on the County’s Web site are responsive to our recommendations. 33
Nassau County, NY, Did Not Administer It's HOME Investment Partnerships Program in Accordance With HUD Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-05-13.
Below is a raw (and likely hideous) rendition of the original report. (PDF)