oversight

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)

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