oversight

The Lower Manhattan Development Corporation, New York, NY, Community Development Block Grant Disaster Recovery Assistance Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-07-18.

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

OFFICE OF AUDIT
REGION 2
NEW YORK-NEW JERSEY




                The Lower Manhattan Development
                   Corporation, New York, NY

     Community Development Block Grant Disaster
            Recovery Assistance Funds




 2013-NY-1008                         JULY 18, 2013
                                                        Issue Date: July 18, 2013

                                                        Audit Report Number: 2013-NY-1008

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



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


SUBJECT:       The Lower Manhattan Development Corporation, New York, NY, Generally
               Administered CDBG Disaster Recovery Assistance Funds in Accordance With
               HUD Regulations


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), final results of our review of the Lower Manhattan Development
Corporation’s (LMDC) administration of Community Development Block Grant (CDBG)
Disaster Recovery Assistance Funds covering the period April 1, 2011, through March 31, 2012.
The review was performed in response to a congressional mandate that HUD OIG continuously
audit LMDC’s administration of the $2.783 billion in Disaster Recovery Assistance funds
awarded to the State of New York in the aftermath of the September 11, 2001, terrorist attacks
on the World Trade Center in New York City.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
212-264-4174.
                                         July 18, 2013
                                         The Lower Manhattan Development Corporation,
                                         New York, NY, Generally Administered CDBG Disaster
                                         Recovery Assistance Funds in Accordance With HUD
                                         Regulations




Highlights
Audit Report 2013-NY-1008


 What We Audited and Why
                                           What We Found
                            th
  We performed the 17 review of the
  Lower Manhattan Development             LMDC (1) generally disbursed CDBG Disaster
  Corporation’s (LMDC)                    Recovery Assistance funds in accordance with the
  administration of the $2.783 billion    guidelines established under the HUD-approved
  in Community Development Block          partial action plans and applicable laws and
  Grant (CDBG) Disaster Recovery          regulations for the programs subject to our review, (2)
  Assistance funds awarded to the         had a financial management system in place that
  State of New York.                      adequately safeguarded funds and prevented misuse,
                                          and (3) had a plan for the allocated program funds
  The objectives of the audit were to     that remained unspent.
  determine whether LMDC
  (1) disbursed CDBG Disaster
  Recovery Assistance Funds in
  accordance with the guidelines
  established under HUD-approved
  partial action plans for the
  Community and Cultural
  Enhancements, East Side K-8
  School, and Other World Trade
  Center Area Improvements; (2)
  maintained a financial management
  system that adequately safeguarded
  the funds and prevented misuse; and
  (3) had a plan for the allocated
  program funds that remained
  unspent.

  What We Recommend

 There are no recommendations.
                           TABLE OF CONTENTS

Background and Objectives                                                      3

Results of Audit
      Finding: LMDC Generally Administered CDBG Disaster Recovery Assistance
               Funds in Accordance With HUD Regulations                        5

Scope and Methodology                                                          7

Internal Controls                                                              9

Appendixes
   A. Auditee Comments                                                         11
   B. Schedule of Disbursements as of March 31, 2012                           12




                                            2
                        BACKGROUND AND OBJECTIVES

The Lower Manhattan Development Corporation (LMDC) was created in December 2001 as a
subsidiary of the Empire State Development Corporation to function as a joint city-State
development corporation. A 16-member board of directors, appointed equally by the governor of
New York and the mayor of New York City, oversees LMDC’s affairs. The Empire State
Development Corporation performs all accounting functions for LMDC.

The State of New York designated LMDC to administer $2.783 billion1 of the $3.483 billion2 in
Community Development Block Grant (CDBG) Disaster Recovery Assistance funds appropriated
by Congress in the aftermath of the September 11, 2001, terrorist attacks on the World Trade Center
to assist with the recovery and revitalization of Lower Manhattan. Planned expenditures of Disaster
Recovery Assistance funds are documented in action plans that receive public comment and are
approved by the U.S. Department of Housing and Urban Development (HUD). As of March 31,
2012, HUD had approved 15 partial action plans and multiple amendments that allocated the $2.783
billion to various programs and activities (see appendix B for amounts by program), and LMDC had
disbursed approximately $2.152 billion, or 77 percent, of the $2.783 billion appropriated.

During this audit, we reviewed disbursements and financial management procedures related to the
following programs:

Community and Cultural Enhancements program: As of March 31, 2012, HUD had approved
more than $87 million for the Community and Cultural Enhancements program. This program
will address a range of community and cultural needs by providing grants, through a competitive
selection process, to not-for-profit and government organizations for projects and programs that
demonstrate the ability to spur long-term Lower Manhattan revitalization, benefiting area
residents, workers, businesses, and visitors. Grants would be provided to not-for-profit
organizations that, through proposed or existing facilities and activities, demonstrate excellence,
animate the neighborhood, and support cultural life in Lower Manhattan.

East Side K-8 School program: As of March 31, 2012, HUD had approved $23 million for the
East Side K-8 School program. This project would create a K-8 public school consisting of
approximately 97,000 gross square feet. The K-8 public school would be constructed in portions
of the ground through fifth floors of a mixed-use development project. In addition, the funds
will be used to upgrade existing and create additional public school facilities, including
classrooms, labs, theaters, and recreation space.

Other World Trade Center Area Improvements program: As of March 31, 2012, HUD had
approved more than $196 million for the Other World Trade Center Area Improvements program
with allocated funds under LMDC’s $783 million grant.3 The funds would assist properties and
businesses damaged by and economic revitalization directly related to the September 11, 2001
terrorist attacks on New York City. Funding under this program will be used by the following
1
  This amount was funded by two grants: B-02-DW-36-0001 for $2 billion and B-02-DW-36-0002 for $783 million.
2
  The Empire State Development Corporation administers the remaining $700 million.
3
  See footnote 1.

                                                     3
activities, some of which are funded under LMDC’s $2 billion grant as separate line items: the
World Trade Center Memorial and Museum, the World Trade Center Performing Arts Center, a
pedestrian bridge over West Street at West Thames Street, and the East River Waterfront
Esplanade and Piers. Further, the Other World Trade Center Area Improvements program will
fund activities and costs associated with World Trade Center Memorial and cultural facilities and
affordable housing, education, infrastructure, open space, quality of life, transportation, and
economic development projects benefiting the area.

Our audit objectives were to determine whether LMDC (1) disbursed CDBG Disaster Recovery
Assistance funds in accordance with the guidelines established under HUD-approved partial
action plans for the following programs: Community and Cultural Enhancements, East Side K-8
School, and Other World Trade Center Area Improvements; (2) maintained a financial
management system that adequately safeguarded the funds and prevented misuse; and (3) had a
plan for the allocated program funds that remained unspent.




                                                4
                                RESULTS OF AUDIT


Finding:      LMDC Generally Administered CDBG Disaster Recovery
              Assistance Funds in Accordance With HUD Regulations
LMDC officials generally (1) disbursed CDBG Disaster Recovery Assistance funds in
accordance with the guidelines established under the HUD-approved partial action plans and
applicable laws and regulations for the programs subject to our review, (2) had a financial
management system in place that adequately safeguarded funds and prevented misuse, and
(3) had a plan for the allocated program funds that remained unspent.


 Funds Disbursed in Compliance
 With Guidelines

              For the items tested, LMDC generally disbursed the CDBG Disaster Recovery
              Assistance funds in accordance with HUD-approved partial action plans,
              subrecipients’ agreements, and applicable laws and regulations. We tested $11.23
              million of $21.76 million disbursed under the Community and Cultural
              Enhancements, East Side K-8 School, and Other World Trade Center Area
              Improvements programs during this audit period, and no material deficiencies were
              identified.

              For the items tested, LMDC disbursed funds to subrecipients for eligible,
              reasonable, and necessary expenses that complied with the agreements and
              applicable laws and regulations. Through interviews, desk reviews, and site
              visits, LMDC officials continuously monitored the performance of subrecipients
              against the goals and performance standards prescribed in the subrecipient
              agreements. Subrecipients were required to submit monthly progress reports on
              the projects and adequate supporting documents for cost reimbursement. LMDC
              officials prepared either monthly or quarterly monitoring reports for each project,
              documenting the project status, communication with the subrecipients, problems
              identified, if any, and their resolutions.

 Financial System Adequate To
 Safeguard Funds

              LMDC had a financial management system in place that adequately safeguarded
              funds and prevented misuse. LMDC officials generally safeguarded program
              funds by adequately monitoring its subrecipients, which provided assurance that
              funds were expended to meet overall program objectives. During the review
              period, LMDC developed and implemented adequate fiscal controls and
              accounting procedures that ensured accurate, current, and complete reporting of

                                               5
             financial data. LMDC officials reviewed and approved invoices for payments and
             submitted the invoice packages to the parent company, the Empire State
             Development Corporation, which processed the payments to subrecipients and
             vendors.

LMDC’s Plan for Program
Funds That Remained Unspent

             During the audit, we noted that six programs had 80 percent or more of their
             allocated funds unspent, and LMDC officials provided both verbal and written
             explanation for the unspent funds. Specifically, subgrantees were in the process
             of submitting documentation for four programs to LMDC for reimbursement, and
             the funds for two programs’ had been reallocated to other programs. As a result,
             we determined that although six programs had less than 80 percent of the funds
             allocated but not disbursed, LMDC had a plan for the allocated program funds
             that remained unspent.

Conclusion

             For the items tested, LMDC officials generally administered CDBG Disaster
             Recovery Assistance funds in accordance with the guidelines established under
             HUD-approved partial action plans, had a financial management system in place
             to safeguard funds and prevent misuse, and had plans for the remaining unspent
             funds.

Recommendations

             There are no recommendations.




                                             6
                             SCOPE AND METHODOLOGY

During the audit period, April 1, 2011, through March 31, 2012, LMDC disbursed $53.8 million of
the $2.783 billion in Disaster Recovery Assistance funds appropriated for activities related to the
rebuilding and revitalization of Lower Manhattan.

To accomplish our audit objectives, we reviewed applicable laws, regulations, and program
requirements; HUD-approved partial action plans; and LMDC’s accounting books and records. We
documented and reconciled disbursements recorded during the audit period in HUD’s Disaster
Recovery Grant Reporting system. Our audit focused on three programs, for which we obtained a
general understanding of LMDC’s internal controls and tested a nonstatistical sample of $11.23
million in disbursements, representing 52 percent of the $21.76 million disbursed for the three
programs during the audit period, as follows:

                                                                      Amount disbursed from
                   Program                       Amount tested         April 1, 2011, through
                                                  (in millions)          March 31, 2012
                                                                            (in millions)
Community and Cultural                                      $1.72                         $5.494
Enhancements
East Side K-8 School                                          6.78                          13.54
Other World Trade Center Area                                 2.73                           2.73
Improvements
                                       Total               $11.23                          $21.76

For the disbursements under the Community and Cultural Enhancements program, we reviewed
a nonstatistical sample of two projects with the highest disbursements from the Community
Enhancement fund, one project with the highest disbursements from the Cultural Enhancement
fund, and two other projects selected to get a representation of different types of projects.

For the East Side K-8 School program, LMDC officials authorized three drawdowns, of which
we reviewed the highest disbursed drawdown.

For the Other World Trade Center Area Improvements program, LMDC officials authorized one
drawdown, of which we reviewed 100 percent.

In addition, we reviewed the subrecipients’ agreements, subcontracts, and sub-subcontracts
applicable to the disbursements in our sample. We reviewed and reconciled LMDC’s bank
statements with HUD’s Disaster Recovery Grant Reporting system drawdown reports. In addition,
we traced the drawdowns for the programs subject to review to the general ledgers to determine
whether LMDC maintained a financial management system that adequately safeguarded the funds
and prevented misuse. We also reviewed the HUD quarterly performance reports to identify the

4
    The amount of $383,347.22 was drawn down from the WTC Site program on December 21, 2011, and this was
     reclassified to the Community & Cultural Enhancements program on June 6, 2012.

                                                       7
programs for which LMDC had disbursed less than 80 percent of the allocated funds to determine
whether LMDC had plans for the funds that remained unspent.

While we used the data obtained from HUD’s Disaster Recovery Grant Reporting system for
informational purposes, our assessment of the reliability of the data in the system was limited to
the data reviewed, which were reconciled to LMDC’s records; therefore, we did not assess the
reliability of this system.

We performed the audit fieldwork at LMDC’s office located in Lower Manhattan and at
LMDC’s parent company, the Empire State Development Corporation, office located in
Midtown Manhattan from February 2013 through June 2013. 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.




                                                 8
                              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 resource use is
                      consistent with laws and regulations.

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

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

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct
               (1) impairments to the effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

                                                 9
Significant Deficiencies

             We evaluated internal controls related to the audit objectives in accordance with
             generally accepted government auditing standards. Our evaluation of internal
             controls was not designed to provide assurance regarding the effectiveness of the
             internal control structure as a whole. Accordingly, we do not express an opinion
             on the effectiveness of the LMDC’s internal control as a whole.




                                             10
Appendix A

             AUDITEE COMMENTS




                    11
Appendix B

        SCHEDULE OF DISBURSEMENTS AS OF MARCH 31, 2012

                 Program                      Budget as of      Audit period        Cumulative        Balance
                                              Mar. 31, 2012     disbursement      disbursed as of   remaining as
                                                                Apr. 1, 2011 –    Mar. 31, 2012      of Mar. 31,
                                                                Mar. 31, 20125                          2012
Business Recovery Program                        218,946,000           (18,238)      218,757,706           188,294
Job Creation & Attraction Program                143,000,000         (105,084)       107,467,802        35,532,198
Small Firm Attraction & Retention                 29,000,000           (18,804)       27,683,337         1,316,663
Residential Grant Program                        236,180,809                  0      236,057,064           123,745
Employment Training Assistance                       346,000                  0          337,771             8,229
Interim Memorial                                     309,969                  0          309,969                 0
Columbus Park Pavilion                               998,571                  0                0           998,571
History & Heritage Marketing                       4,612,619                  0        4,612,619                 0
Downtown Alliance Streetscape                      4,000,000                  0        4,000,000                 0
NYSE Security Improvements                        25,255,000            507,479       12,194,821        13,060,179
Parks & Open Spaces                               46,981,689             24,598       18,150,900        28,830,789
Hudson River Park Improvement                     72,600,000                  0       72,568,082            31,918
West Street Pedestrian Connection                 22,955,811            514,830       18,842,331         4,113,480
LM Communication Outreach                          1,000,000                  0        1,000,000                 0
Pace Green Roof Design                               100,000                  0                0           100,000
Chinatown Tourism Marketing                        1,160,000                  0        1,159,835               165
Lower Manhattan Info                               2,570,000                  0        1,752,391           817,609
WTC Site                                         706,618,783         1,931,994       599,680,448      106,938,335
Lower Manhattan Tourism Programs                   3,950,000                  0        3,950,000                 0
East River Waterfront                            149,000,000        10,264,466        49,090,285        99,909,715
Lower Manhattan Street Management                  9,000,000         2,116,880         6,308,002         2,691,998
East Side K-8 School                              23,000,000        13,540,599        13,569,302         9,430,698
Fitterman Hall                                    15,000,000         1,855,429         1,857,213        13,142,787
Chinatown LDC                                      7,000,000            118,254        4,901,834         2,098,166
Lower Manhattan Housing                           54,000,000                  0       28,200,000        25,800,000
Lower Manhattan Public Service Programs            7,891,900            270,732        7,091,951           799,949
Planning & Administration                        114,892,005         3,089,835       102,302,200        12,589,805
Community & Cultural Enhancements                 87,855,844        5,487,5046        54,818,585        33,037,259
Drawing Center                                     2,000,000         1,745,440         2,000,000                 0
Fulton Corridor                                   39,000,000         6,851,112         8,062,708        30,937,292
Economic Development                               6,775,000         2,872,685         3,888,692         2,886,308
Transportation Improvements                       31,000,000                  0          136,499        30,863,501
Education – Other                                  3,000,000                  0                0         3,000,000
Utility Restoration and Infrastructure           483,382,087                  0      483,382,087                 0
Rebuilding
Disproportionate Loss                              33,000,000                0        32,999,997                3
Other World Trade Center Area Improvements        196,617,913        2,727,117        24,993,174      171,624,739
                     Total                      2,783,000,000       53,776,828     2,152,127,605      630,872,395



5
    Negative amounts represent recoveries to the program.
6
    The amount of $383,347.22 was drawn down from the WTC Site program on December 21, 2011, and this was
     reclassified to the Community & Cultural Enhancements program on June 6, 2012.

                                                      12