OFFICE OF AUDIT
REGION 2
NEW YORK, NEW JERSEY
The City of Auburn, NY
Community Development Block Grant Program
2013-NY-1010 SEPTEMBER 26, 2013
Issue Date: September 26, 2013
Audit Report Number: 2013-NY-1010
TO: William T. O’Connell
Director, Community Planning and Development Division, Buffalo, NY, 2CD
FROM: Edgar Moore
Regional Inspector General for Audit, New York, New Jersey Region, 2AGA
SUBJECT: The City of Auburn, NY, Did Not Always Administer Its Community
Development Block Grant 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 City of Auburn, NY’s Community
Development Block Grant 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.
September 26, 2013
The City of Auburn, NY, Did Not Always Administer Its
Community Development Block Grant Program in
Accordance With HUD Requirements
Highlights
Audit Report 2013-NY-1010
What We Audited and Why What We Found
We audited the City of Auburn, NY’s City officials did not (1) adequately establish
Community Development Block Grant and implement the necessary controls to ensure
(CDBG) program based on an Office of that program activities were adequately
Inspector General risk analysis that documented and administered in accordance
considered the amount of funding the with HUD regulations, (2) always expend
City had available to expend. The CDBG funds for eligible activities, and (3)
objectives of the audit were to determine adequately expend and account for program
whether the City had (1) established and income.
implemented the necessary controls to
ensure that program activities were City officials (1) were slow in expending the
adequately documented and administered City’s revolving loan funds and maintained an
in accordance with U.S. Department of excessive balance of program income, (2) made
Housing and Urban Development (HUD) unnecessary draws from the City’s CDBG
regulations, (2) expended CDBG funds entitlement funding, (3) had weaknesses in
for eligible activities, and (3) properly accounting controls related to the City’s revolving
expended and accounted for program loan program income accounts, and (4) did not
income. report program income to HUD accurately or in a
timely manner. City officials also did not always
What We Recommend ensure that the City’s CDBG-funded activities
accomplished program objectives. Specifically,
City officials did not (1) maintain sufficient
We recommend that HUD instruct City documentation to support that all CDBG-funded
officials to (1) expend more than $2.4 activities met their stated objectives and that costs
million in CDBG program income or were eligible, (2) perform adequate monitoring or
reprogram the funds to other eligible oversight of the funded activities, and (3) fully use
program activities, (2) provide the available funds for program administration.
documentation to support the $177,923 We attribute these deficiencies to the City’s (1)
shortage in program income or repay any lack of communication and coordination between
unsupported amount from non-Federal officials in the program and financial divisions of
funds, (3) provide documentation to justify the City, (2) ongoing capacity issues due to recent
the $949,064 in unsupported costs and repay budget constraints and staff turnover, and (3)
any amount determined to be ineligible from inadequate written policies and procedures.
non-Federal funds, and (4) establish and
implement controls and procedures to ensure
the proper administration of the program.
TABLE OF CONTENTS
Background and Objectives 3
Results of Audit
Finding 1: City Officials Did Not Adequately Administer the City’s CDBG 4
Revolving Loan Fund
Finding 2: City Officials Did Not Always Ensure That CDBG-Funded Activities 11
Met Program Objectives
Scope and Methodology 15
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 18
B. Auditee Comments and OIG’s Evaluation 19
2
BACKGROUND AND OBJECTIVES
The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974, Public Law 93-383 as amended, 42 U.S.C.
(United States Code) 5301. The program provides grants to State and local governments to aid
in the development of viable urban communities. Governments are to use grant funds to provide
decent housing and suitable living environments and to expand economic opportunities,
principally for persons of low and moderate income. To be eligible for funding, every CDBG-
funded activity must meet one of the program’s three national objectives. Specifically, every
activity, except for program administration and planning, must
Benefit low- and moderate-income persons,
Aid in preventing or eliminating slums or blight, or
Address a need with a particular urgency because existing conditions pose a serious and
immediate threat to the health or welfare of the community.
The City of Auburn, NY, is a CDBG entitlement grantee. The U.S. Department of Housing and
Urban Development (HUD) awarded the City more than $1.1 million in CDBG funding in
program year 2010, $984,494 in 2011, and $814,792 in 2012.1 In addition, the City received
$288,052 in funds under the American Recovery and Reinvestment Act of 2009. These funds
were available to support a variety of activities directed at improving the physical condition of
neighborhoods by providing housing rehabilitation and public improvements and facilities,
fostering economic development by providing technical and financial assistance to local
businesses and creating employment, or improving services for low- and moderate-income
households. The City also administers a CDBG-funded revolving loan fund. The City operates
under the council-manager form of government, and its CDBG activities are administered
through the City’s Office of Planning and Economic Development. It is the responsibility of the
Office of the City Comptroller to receive, disburse, and account for all financial transactions of
the City. The files and records related to the City’s CDBG program are maintained at Memorial
City Hall, located in Auburn, NY.
The objectives of the audit were to determine whether the City had (1) established and
implemented the necessary controls to ensure that program activities were adequately
documented and administered in accordance with HUD regulations, (2) expended CDBG funds
for eligible activities, and (3) properly expended and accounted for program income.
1
The City’s CDBG program year is April 1 through March 31.
3
RESULTS OF AUDIT
Finding 1: City Officials Did Not Adequately Administer the City’s
CDBG Revolving Loan Fund
City officials did not properly administer a CDBG revolving loan fund, which was supposed to
be used to provide low-interest loans for housing rehabilitation and economic development
activities directed at benefiting low- and moderate-income persons. Specifically, City officials (1)
were slow in expending these funds and maintained an excessive balance of program income, (2)
made unnecessary draws from the City’s CDBG entitlement funding when a sufficient amount of
program income was available, (3) had weaknesses in their accounting controls related to the
City’s revolving loan program income accounts, and (4) reported program income to HUD
inaccurately and in an untimely manner. We attribute these deficiencies to the City’s lack of
communication and coordination between officials in the program and financial divisions of the
City as well as its inadequate written policies and procedures. As a result, more than $2.4
million in program income funds was not used to benefit low- and moderate-income persons in a
timely manner and could have been used instead of having unnecessary drawdowns from the
City’s CDBG line of credit. Also, there was an unexplained shortage of more than $177,000 in
the City’s bank balance when compared to the program income balance reported to HUD.
Slow Progress and Excessive
Revolving Loan Fund Balance
In recent years, the City had been slow in expending its revolving loan fund
balance. This condition resulted in the City’s maintaining an excessively large
balance of program income. The City had a bank balance of more than $2.4
million as of June 30, 2013; in comparison, the City received entitlement funding
of only $814,792 in program year 2012. Therefore, the City had more than three
times its entitlement funding for the program year on hand as of that date.
Regulations at 24 CFR (Code of Federal Regulations) 85.20(b)(7) state that
procedures for minimizing the time elapsing between the transfer of funds and
disbursement by grantees must be followed.
The City’s slow progress in expending its revolving loan fund can be seen
through analysis of the receipts and draws recorded in HUD’s Integrated
Disbursement and Information System (IDIS).2 The following chart represents
the balance contained in the City’s revolving loan fund over time using these IDIS
data.
2
IDIS is a nationwide drawdown and reporting system for HUD’s four community planning and development grant
programs: CDBG, the HOME Investment Partnerships, the Emergency Shelter Grants, and Housing Opportunities
for Persons With AIDS. The system allows grantees to request their grant funding from HUD and report on their
program accomplishments. HUD uses these data to report to Congress and monitor grantees.
4
Revolving loan fund balance
$3,500,000.00
$3,000,000.00
$2,500,000.00
$2,000,000.00
$1,500,000.00
$1,000,000.00
$500,000.00
$-
The chart above shows how the balance in the City’s revolving loan fund steadily
increased over time with more receipts than draws annually. For example,
program income receipts were $465,759 more than program income draws in
program year 2011, $271,181 more in program year 2010, and $335,770 more in
program year 2009. Data downloaded from IDIS showed that as of June 30,
2013, the City was expending revolving loan funds that had been received during
program year 2007 and, thus, had not drawn any of the funds received since the
end of that program year, which occurred March 31, 2008.
City officials had been budgeting only small amounts for the City’s revolving
loan fund in recent annual action plans. Discussions with City officials also
revealed that little marketing was performed for the City’s revolving loan
programs. The City’s excessive program income balance was discussed with
HUD officials, who stated that the City would be required to develop a plan to
expend these funds in a timely manner. However, as of the end of our review,
City officials had made no progress on the development of this plan. Therefore,
the more than $2.4 million maintained in the City’s bank accounts should be
reprogrammed for other eligible purposes and put to better use.
Unnecessary CDBG
Entitlement Drawdowns
City officials made draws from the City’s CDBG entitlement funding for
activities that were budgeted under its revolving loan fund when a sufficient
amount of program income was available to expend. The City’s annual action
plans stated that the revolving loan fund was to be used in the award of loans for
5
the City’s Home Repair Assistance Program, Small Business Assistance Program,
and special development projects. However, on many occasions, City officials
made draws from the City’s CDBG entitlement to fund these expenditures.
Regulations at 24 CFR 570.504(b)(2)(i) state that program income in the form of
repayments to or interest earned on a revolving fund must be substantially
disbursed from the fund before additional cash withdrawals are made from the
U.S. Treasury for the same activity.
Four Home Repair Assistance Program activities drawn from the City’s CDBG
entitlement were reviewed as part of this audit. All four of these activities
included loans awarded through the City’s CDBG entitlement draws instead of its
revolving loan fund balance. One special development project loan awarded to
Currier Plastics, Inc., in the amount of $750,000 was also reviewed as part of this
audit. Of this amount, $600,000 was drawn from the City’s CDBG entitlement
funding, and $150,000 was from the City’s revolving loan fund balance. Instead
of using the available revolving loan funds to make this payment, City officials
drew down $600,000 on January 28, 2013, and, in turn, were able to meet the
City’s program year 2012 CDBG timeliness requirement by the January 31, 2013,
test date. It should be noted that the City failed to meet its program year 2011
CDBG timeliness requirement and would have been subject to recapture if it had
failed to meet it for a second straight year. Regulations at 24 CFR 570.902(a)
state that before the funding of the next annual grant, HUD will consider an
entitlement recipient to be failing to carry out its CDBG activities in a timely
manner if 60 days before the end of the grantee’s current program year, the
amount of entitlement grant funds available to the recipient under grant
agreements but undisbursed by the U.S. Treasury is more than 1.5 times the
entitlement grant amount for its current program year.
Accounting Control
Weaknesses With Program
Income
It is the responsibility of the City’s Office of the Comptroller to receive, disburse,
and account for all financial transactions of the City, including those related to the
CDBG program. During this review, multiple instances of weaknesses in the
controls implemented over the accounting of the City’s program income were
identified. Regulations at 24 CFR 85.20(b)(3) state that effective control and
accountability must be maintained for all grant and subgrant cash, real and
personal property, and other assets and that grantees and subgrantees must
adequately safeguard all such property and ensure that it is used solely for
authorized purposes.
6
The City maintained all of its CDBG funding in the same bank accounts,3 which
included entitlement draws and program income related to its multiple revolving
loan programs. These accounts were also used for Urban Development Action
Grant-related transactions. However, City officials did not keep schedules or
other documentation to sufficiently track the revolving loan funds in the accounts.
As a result, City officials were unable to easily provide information to support all
deposits and transfers between the City’s bank accounts. This condition also
resulted in the City’s using its revolving loan funds as advances for CDBG
activity expenditures later reimbursed through entitlement draws. These practices
were contrary to regulations at 24 CFR 570.500(b), which define a revolving fund
as a separate fund (with a set of accounts that are independent of other program
accounts) established for the purpose of carrying out specific activities, which, in
turn, generate payments to the fund for use in carrying out the same activities.
City officials also did not perform regular reconciliations between the program
income balance reported to HUD through IDIS and the balances maintained in the
City’s related bank accounts. There was a disconnect between the program and
financial divisions of the City. The Office of Planning and Economic
Development handled all IDIS-related reporting, and the Office of the City
Comptroller handled all of the financial reporting, but the data prepared by the
two divisions were not adequately compared and reconciled.
The program income balance presented in IDIS is calculated based on the
program income receipts and draws entered by City officials. As of June 30,
2013, the balance shown in IDIS was more than $2.6 million. However, on that
date, the balance in the City’s related bank accounts was less than $2.5 million.
There was an unexplained difference of $177,923 between what had been
reported to HUD through IDIS and the amount of program income on hand.
Regulations at 24 CFR 85.20(b)(2) state that grantees and subgrantees must
maintain records that adequately identify the source and application of funds
provided for financially assisted activities, including information pertaining to
grant or subgrant awards and authorizations, obligations, unobligated balances,
assets, liabilities, outlays or expenditures, and income.
Because City officials did not perform regular reconciliations between the
program income balance reported to HUD through IDIS and the balances
available to expend in the City’s related bank accounts, they were unable to
explain the difference between them. Therefore, $177,923 was considered
unsupported costs.
In addition, the City did not have comprehensive written policies and procedures.
City officials used their experience and in some cases, brief individual program
procedures to direct them in the administration of the City’s CDBG-funded
programs. However, many of the day-to-day activities involved in the
3
The City has two community development bank accounts; one is a checking account, and the other is a savings
account.
7
administration of the grant were not documented. HUD identified this condition
as a concern during its 2011 monitoring of the City, but no corrective action was
taken. City officials were also unable to provide written accounting policies and
procedures during our review.
Program Income Not Reported
Accurately and in a Timely
Manner
Officials in the City’s Office of Planning and Economic Development were
responsible for recording program income receipts and draw information in IDIS.
Regulations at 24 CFR 85.20(b)(1) state that accurate, current, and complete
disclosure of the financial results of financially assisted activities must be made in
accordance with the financial reporting requirements of the grant or subgrant.
However, we identified instances of the City’s failure to record program income
transactions accurately and in a timely manner.
City officials recorded revolving loan payment receipts under inaccurate IDIS
activity numbers. Each loan awarded from the City’s revolving loan fund was
given its own distinct activity number in IDIS. However, City officials grouped
the receipt amounts by program area and recorded them under four distinct
activity numbers, representing the four revolving loan programs. Some of the
numbers used to represent revolving loan program areas represented activities that
were funded through the City’s CDBG entitlement. Therefore, the receipts were
not accurately recorded under the activity numbers related to the loans that
generated the program income.
The City received payments on its outstanding revolving loans throughout the
year. However, City officials only recorded these payments as receipts in IDIS
annually and did so months after the end of the program year on multiple
occasions. Therefore, the program income balance reported to HUD in IDIS was
regularly inaccurate as it was understated for nearly the entire year due to the
failure of the City to report program income receipts in a timely manner. For
example, as of March 31, 2013, the end of program year 2012, there were no
program income receipts reported in IDIS for the period. However, on June 28,
2013, City officials recorded program income receipts of $289,235 for program
year 2012. Thus, it was nearly 3 months after the end of the program year that
related receipts were recorded in IDIS.
City officials also did not report the City’s IDIS draws in a timely manner. On
average during the audit period, City officials made IDIS draws approximately 3
months after the related expenditures occurred and were entered into the City’s
internal accounting system. As a result, City officials expended the City’s
revolving loan funds maintained in its community development bank accounts
and later reimbursed these funds through IDIS entitlement draws. Therefore, the
8
program income funds included in the City’s revolving loan fund were being used
as advances for CDBG entitlement expenditures.
Conclusion
City officials did not properly administer a CDBG revolving loan fund, which
was supposed to be used to provide low-interest loans for housing rehabilitation
and economic development activities directed at benefiting low- and moderate-
income persons. Specifically, City officials (1) were slow in expending these
funds and maintained an excessive balance of program income, (2) made
unnecessary draws from the City’s CDBG entitlement funding when a sufficient
amount of program income was available, (3) had weaknesses in their accounting
controls related to the City’s revolving loan program income accounts, and (4) did
not report program income to HUD accurately and in a timely manner. We
attribute these deficiencies to the lack of communication and coordination
between the program and financial divisions of the City as well as the City’s
inadequate written policies and procedures. As a result, more than $2.4 million in
program income funds was not used to benefit low- and moderate-income persons
in a timely manner and could have been used instead of having unnecessary
drawdowns from the City’s CDBG line of credit. Also, there was an unexplained
shortage of more than $177,000 in the City’s bank balance when compared to the
program income balance reported to HUD .
Recommendations
We recommend that the Director of HUD’s Buffalo Office of Community
Planning and Development instruct City officials to
1A. Expend or reprogram to other eligible program activities the $2,451,645 in
CDBG program income maintained in the City’s community development
bank accounts as of June 30, 2013, so the City can assure HUD that these
funds have been put to better use.
1B. Establish and implement controls to ensure that all CDBG program
income and disbursements are accounted for properly. Specifically, City
officials should perform regular CDBG program income reconciliations
among data in IDIS, City bank accounts, and the City’s internal
accounting system, as well as maintaining more adequate documentation
to track CDBG program income receipts and expenditures.
1C. Develop procedures to ensure that program income is disbursed before
drawing down CDBG funds from the U.S. Treasury and CDBG funds are
not drawn down for expenses that were already paid for with program
income funds.
9
1D. Provide documentation to justify the $177,923 unsupported difference
between the City’s CDBG program income balance in IDIS and its bank
account balances as of June 30, 2013. Any portion of the unsupported
difference determined to be ineligible should be reimbursed from non-
Federal funds.
1E. Develop a comprehensive overall CDBG policies and procedures manual
to ensure that City officials adequately administer the City’s CDBG
program in accordance with HUD regulations. Specifically, the City
should ensure that program income is accurately accounted for and
reported to HUD in a timely manner.
10
Finding 2: City Officials Did Not Always Ensure That CDBG-Funded
Activities Met Program Objectives
City officials did not always ensure that all of the City’s CDBG-funded activities accomplished
program objectives before disbursing funding. Specifically, City officials did not (1) maintain
sufficient documentation to support that all CDBG-funded activities met their stated objectives
and that costs were eligible, (2) perform adequate monitoring or oversight of the funded
activities, and (3) fully use the available funds for program administration, which contributed to
the lack of capacity to properly administer the CDBG program. We attribute these deficiencies
to the City’s lack of capacity to properly administer the program due to staff turnover and budget
constraints and the lack of adequate written policies and procedures. As a result, the City
expended more than $949,000 for activities that did not have adequate documentation to support
the eligibility of the costs incurred.
Insufficient Supporting
Documentation Maintained
The City’s CDBG project files did not contain sufficient documentation to
support that each activity met program objectives. Specifically, economic
development loan files did not include job creation data or proof of eligible
expenditures after the disbursement of the loan proceeds, and a public services
activity file did not contain adequately documented clientele income
certifications.
Three economic development loans awarded by the City were reviewed as part of
this audit. They included loans awarded to Columbus Center Development, LLC,
in the amount of $140,000, Downtown Deli in the amount of $40,000, and Currier
Plastics, Inc., in the amount of $750,000. None of the City’s project files related
to these three loans included job creation data or proof of eligible expenditures
after the disbursement of the loan proceeds. Regulations at 24 CFR 570.208(a)(4)
state that for an activity that creates jobs, the recipient must document that at least
51 percent of the jobs will be held by or available to low- and moderate-income
persons and for an activity that retains jobs, the recipient must document that the
jobs would be lost without the CDBG assistance. The loan recipient
commitments for each of these loans stated that the borrower agreed to spend the
funds for purposes of the commitment within 30 days of the date of the
commitment. They also required that the borrower document to the City’s
satisfaction the actual costs paid as part of the project before final disbursement;
however, this documentation was not adequate. City officials, as a result of our
audit, obtained additional documentation from one borrower, Columbus Center
Development, LLC, to support job creation and the eligible expenditure of the
loan proceeds; however, these documents did not provide sufficient support that
program objectives were met.
11
The City disbursed $19,064 for its Chronic Offenders Rehabilitation Program
public services activity. This activity consisted of counseling chronic juvenile
delinquents and young criminals rather than incarcerating them. The file
maintained by the City for this public services activity did not include
documentation supporting its qualification under the low- and moderate-income
limited clientele national objective. However, after our request for this
information, City officials obtained client information reports for nine different
clients from the subrecipient administering the program. These reports contained
incomplete and insufficient information regarding the household size and income
of the clientele assisted. Regulations at 24 CFR 570.208(a)(2) state that activities
qualifying under the low- to moderate-income limited clientele national objective
require information on family size and income evidencing that at least 51 percent
of the clientele includes persons whose family income does not exceed the low-
and moderate-income limit. Based on the documentation provided, there was
inadequate assurance that program objectives were met.
The City’s CDBG project files did not contain adequate documentation to support
that each activity met program objectives. As a result, City officials lacked
assurance that these objectives were accomplished. Therefore, the $930,000
expended on three economic development loans and the $19,064 expended on a
public services activity were considered unsupported.
Inadequate Monitoring of
CDBG-Funded Activities
Several instances were identified in which City officials did not perform adequate
monitoring or oversight of the City’s CDBG-funded activities. Specifically,
subrecipients were provided funds without valid contracts in place and later not
monitored in a sufficient manner. Further, loan recipients were not monitored
after disbursement of the loan proceeds to ensure that program objectives were
accomplished. Regulations at 24 CFR 85.40(a) state that grantees are responsible
for managing the day-to-day operations of grant- and subgrant-supported
activities. Grantees must monitor grant- and subgrant-supported activities to
ensure compliance with applicable Federal requirements and that performance
goals are achieved. Grantee monitoring must cover each program, function, or
activity.
The City used a subrecipient, Homsite Fund, Inc., to administer its Home Repair
Assistance Program, which provides low-interest loans to homeowners in need of
eligible repairs to their homes. Although the City reimbursed the subrecipient for
its administration of the program, the two parties did not execute a subrecipient
agreement for the 2011 program year. The contract that was executed for the
2010 program year expired on June 30, 2011, and was not extended. Therefore,
contrary to regulations at 24 CFR 570.503, the City disbursed CDBG funds to a
subrecipient without having a signed, written agreement in place.
12
During the period in which this subrecipient operated without a valid contract, the
City also did not perform adequate monitoring of its operations. Specifically,
City officials informed us that they did not perform regular onsite monitoring of
Homsite Fund, Inc., and instead relied on the reports that were submitted with
each request for payment. Therefore, the City did not comply with HUD
regulations and, thus, lacked assurance that program objectives were met.
Annually, the City issues a request for proposals related to its CDBG funding to
be expended for public services activities. During the 2008 program year, the
City awarded CDBG funding to Partnership for Results, Inc., to administer the
Chronic Offenders Rehabilitation Program. The purpose of this program was to
have chronic juvenile delinquents and young criminals counseled rather than
incarcerated. The City executed a subrecipient agreement with Partnership for
Results, Inc., on August 29, 2008. However, this program progressed slowly, and
no funds were disbursed for it until more than 2 years later. The City made a
single draw on January 25, 2011, to fund this activity. However, by then, the
subrecipient agreement, which covered the period August 1, 2008, through July
31, 2009, had been expired for more than a year. Specifically, the 2008 contract
read, “The Subrecipient agrees to perform all activities under this contract
between August 1, 2008 and July 31, 2009. All projects undertaken in relation to
this contract will be completed by the end of this contract period. All activities
are to be implemented to ensure their completion in the time allowed.” City
officials were unable to provide written contract extensions related to this CDBG-
funded activity.
Under its Small Business Assistance Program, the City awarded economic
development loans to local small businesses. Three such economic development
loans were reviewed as part of this audit. They included loans awarded to
Columbus Center Development, LLC, Downtown Deli, and Currier Plastics, Inc.
City officials informed us that the City’s economic development program
manager was let go in July 2012 due to budget constraints. As a result, no
monitoring was performed on any of the City’s Small Business Assistance
Program loan recipients. City officials explained that this condition also
contributed to the missing documentation identified above.
Based on the above, City officials did not always perform adequate monitoring or
oversight of the City’s CDBG-funded activities. As a result, they lacked
assurance that these activities accomplished program objectives.
Underuse of Program
Administration Funds and
Capacity Issues
Regulations at 24 CFR 570.200(g) allow up to 20 percent of the sum of any grant,
plus program income, to be expended for planning and program administrative
13
costs. The City budgeted $160,000, or 16.25 percent of its 2011 entitlement grant
($160,000/$984,494 = 16.25%), for program administration costs but made draws
of only $79,635, or 8 percent ($79,635/$984,494 = 8%). The City made draws of
$105,685 from its 2010 program administration activity, which amounted to just 9
percent of its 2010 CDBG entitlement ($105,685/$1,173,920 = 9%). Therefore,
the City used much less program administration funding than it was entitled to.
Through discussions with City officials and our review of the City’s CDBG
expenditures, we determined that the City experienced capacity issues due to
budget constraints. These capacity issues affected the City’s CDBG timeliness
and ability to ensure that program objectives were met. However, the City did not
fully use the program administration funds allowable by HUD. Regulations at 24
CFR 570.206(a)(1)(v) state that the salaries, wages, and related costs involved
with monitoring program activities for progress and compliance with program
requirements are eligible under program administration. Therefore, not using the
available funds for the allowable administrative costs contributed to City officials’
lack of monitoring and proper administration of CDBG activities.
Conclusion
City officials did not always ensure that all of the City’s CDBG-funded activities
accomplished program objectives before disbursing funding. Specifically, City
officials did not maintain sufficient documentation to support that all CDBG-
funded activities met their stated objectives and did not perform adequate
monitoring or oversight of the funded activities. We attribute these deficiencies
to the City’s ongoing capacity issues due to recent budget constraints and staff
turnover as well as its inadequate written policies and procedures. As a result, the
City expended more than $949,000 for unsupported costs.
Recommendations
We recommend that the Director of HUD’s Buffalo Office of Community
Planning and Development instruct City officials to
2A. Provide documentation to justify $949,064 in unsupported costs charged
to the CDBG program. Any unsupported costs determined to be ineligible
should be reimbursed from non-Federal funds.
2B. Develop procedures to ensure that funded activities comply with program
objectives and that the activities are sufficiently monitored.
2C. Review the City’s use of available program administration funds and
determine whether the staffing is appropriate and funds should be
reallocated to program administration to more effectively administer the
City’s CDBG program.
14
SCOPE AND METHODOLOGY
We performed onsite audit work at the City’s offices in Memorial City Hall located in Auburn, NY,
between January and July 2013. The audit scope covered the period January 1, 2011, through
December 31, 2012, and was extended as necessary. We relied in part on computer-processed data
primarily for obtaining background information on the City’s expenditure of CDBG funds. We
performed a minimal level of testing and found the data to be adequate for our purposes. To
accomplish our objectives, we
Reviewed relevant HUD regulations, guidebooks, and files.
Interviewed HUD officials to obtain an understanding of and identify HUD’s concerns with
the City’s operations.
Reviewed HUD’s 2008 and 2011 monitoring reports.
Reviewed the City’s policies, procedures, and practices.
Interviewed key personnel responsible for the administration of the City’s CDBG program.
Tested expenditures in many program areas, including public facilities and improvements,
economic development, rehabilitation, public services, clearance, and direct homeowner
assistance. Specifically, we selected a sample consisting of the 14 activities that had
received the largest amounts of funding out of the 126 activities funded since the start of our
audit period. For program years 2010 through 2012, the City received more than $2.9
million in CDBG entitlement funding and reported program income receipts of $784,544.
HUD’s IDIS reports reflected that more than $3.3 million in CDBG funds was disbursed for
126 activities between January 1, 2011, and March 31, 2013. Our sample consisted of
expenditures totaling more than $1.7 million for 14 different activities. This amount
represented almost 52 percent of the City’s more than $3.3 million in expenditures during
this period.
Reviewed the City’s CDBG revolving loan fund transactions and balance. For program
years 2010 and 2011, the City reported program income receipts of $784,544. As of March
31, 2013, no program income receipts had been reported for program year 2012. IDIS
reports reflected that $455,110 in CDBG program income funds was disbursed for 14
activities between January 1, 2011, and December 31, 2012. As of June 30, 2013, IDIS
reports reflected a program income balance of more than $2.6 million.
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.
15
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.
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.
Laws and regulations – Policies and procedures that management has
implemented to reasonably ensure that resource use is consistent with laws
and regulations.
Safeguarding of resources – Policies and procedures that management has
implemented to reasonably ensure that resources are safeguarded against
waste, loss, and misuse.
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.
16
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
The City did not have adequate controls over the effectiveness and efficiency
of program operations when it did not establish adequate administrative
controls to ensure that costs associated with various program areas were
supported and eligible under the CDBG program (see finding 2).
The City did not have adequate controls over the reliability of data when it
did not report program income transactions to HUD through IDIS in an
accurate and timely manner (see finding 1).
The City did not have adequate controls over compliance with laws and
regulations as it did not always comply with HUD regulations while
disbursing CDBG funds (see findings 1 and 2).
The City did not have adequate controls to ensure that CDBG resources were
safeguarded when program income was not adequately tracked or accounted
for (see finding 1).
17
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds to be put
Unsupported 1/
number to better use 2/
1A $2,451,645
1D $177,923
2A $949,064
Total $1,126,987 $2,451,645
1/ 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.
2/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
that are specifically identified. In this case, if our recommendation is implemented, it
will result in the elimination of an excessive balance of program income of more than
$2.4 million by ensuring that the funds are used in a timely manner to benefit low- and
moderate-income people and prevent unnecessary draws from the U.S. Treasury.
18
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
19
Ref to OIG Evaluation Auditee Comments
Comment 3
Comment 4
Comment 5
20
Ref to OIG Evaluation Auditee Comments
Comment 6
Comment 7
Comment 8
21
Ref to OIG Evaluation Auditee Comments
Comment 9
Comment 10
22
Ref to OIG Evaluation Auditee Comments
Comment 11
Comment 12
Comment 13
23
Ref to OIG Evaluation Auditee Comments
Comment 14
Comment 15
24
Ref to OIG Evaluation Auditee Comments
25
OIG Evaluation of Auditee Comments
Comment 1 City officials requested that their comments be included in the body of the report
rather than in an appendix. We determined that a presentation of the auditee
comments in the body of the report was not necessary, as all of the City’s
responses are addressed in this appendix B.
Comment 2 City officials stated that they were unaware that a plan to expend the City’s
revolving loan fund balance was to be developed before the end of our review and
that after learning of this finding, they contacted HUD Buffalo Office of
Community Planning and Development (CPD) staff with a tentative plan for the
funds. During a discussion on February 25, 2013, HUD Buffalo CPD officials
informed us that the City would be required to develop a plan. We were not
aware of a deadline for this plan, but as of the end of our review, nothing had
been developed. City officials were responsive in their development of a tentative
planned use for these funds after learning of this finding. However, a final
determination will be made as to the eligibility of the proposed planned activities
by HUD officials during the audit resolution process.
Comment 3 City officials requested a definition of the term “substantially disbursed” as used
in the HUD regulations regarding the use of revolving loan funds before funds are
drawn from the U.S. Treasury for the same activity. “Substantially disbursed”
does not mean that the City should have an amount of program income equal to
three times its entitlement funding as reported since this could impact whether the
City will meet its 1.5 timeliness test. However, City officials should request
guidance from HUD officials regarding this matter as part of the audit resolution
process.
Comment 4 City officials indicated that they were unaware of the practice of expending
revolving loan funds and later reimbursing them through draws from the U.S.
Treasury. However, City officials outlined their plan to address this issue in their
comments regarding recommendations 1B and 1C, which were responsive to our
recommendations.
Comment 5 City officials developed a tentative plan for the excess program income to be
expended for CDBG remediation activities related to the cleanup of brownfield
properties. Although officials’ actions were responsive to our recommendation to
develop a planned use of these funds, the plan would have to be reviewed and
approved by HUD officials during the audit resolution process.
Comment 6 City officials were responsive to our recommendation in that they will perform
quarterly reconciliations for the City’s revolving loan fund. However, these
procedures will have to be tested and approved by HUD officials during the audit
resolution process.
26
Comment 7 City officials’ actions were responsive to our recommendation in that they will set
up a separate bank account for the City’s program income.
Comment 8 City officials attributed the unexplained difference between the revolving loan
fund balances in IDIS and the City’s bank accounts to the turnover in key staff at
the City. However, officials’ actions were responsive to our recommendation in
that they proposed a review of the financial records to identify the cause of the
difference.
Comment 9 City officials’ planned actions were responsive to our recommendation in that
they had started researching information related to developing CDBG policies and
procedures manuals.
Comment 10 City officials expressed concern over the inclusion of the economic development
loan awarded to Currier Plastics, Inc., in our finding as it had just closed in
January 2013. However, the documentation related to this loan was reviewed in
May 2013, and City officials informed us in July 2013 that no monitoring had
been performed on this loan. Based on the Office of Planning and Economic
Development’s lack of an economic development program manager and the lack
of documentation in previous economic development loan files reviewed, this
loan was considered unsupported. City officials should provide the
documentation to the HUD Buffalo office as part of the audit resolution process.
For the evaluation of the comments regarding “Chronic Offenders” public service
activity and “Columbus Center” loan, see comments 12 and 13 below.
Comment 11 City officials stated that the City’s relationship with Homsite Fund, Inc., was
different from that of a “typical subrecipient.” However, Homsite Fund, Inc., was
provided CDBG funds for program delivery costs during the period; thus, an
executed, written agreement needed to be in place.
Comment 12 City officials stated that a written contract extension for the Chronic Offenders
Rehabilitation Program was obtained. This contract extension was provided to us
during the exit conference. However, the contract extension was dated July 22,
2013, which was well after the CDBG funds were disbursed to the subrecipient,
Partnership for Results, Inc. Therefore, these funds were disbursed without a
valid written contract in place, which would have made it difficult to enforce
compliance with program requirements.
Comment 13 City officials questioned the section of the report stating that the documents
provided for the economic development loan awarded to Columbus Center
Development, LLC, were insufficient. The documentation provided to support
job creation related to this loan included several employees who were hired before
the awarding of the loan and also a significant number of employees who
exceeded the HUD income limits. The documentation provided to support the
expenditures made with these loan funds was a list and, thus, did not include
invoices or copies of checks. Based on the documentation received and lack of
27
monitoring before our request for this documentation, the costs associated with
this loan were considered unsupported. City officials provided additional
documentation at the exit conference for the other unsupported costs included in
this finding. However, this information will have to be reviewed by HUD Buffalo
officials as part of the audit resolution process.
Comment 14 City officials’ actions were responsive to our recommendation in that they had
started researching information related to developing a CDBG policies and
procedures manuals. A final determination will be made as to the adequacy of the
City’s CDBG policies and procedures manual by HUD officials during the audit
resolution process.
Comment 15 City officials’ actions were responsive to our recommendation in that they
acknowledged that the Office of Planning and Economic Development was
understaffed, which significantly impacted the delivery and administration of the
City’s CDBG program. They were attempting to fill some of the vacancies in the
department to restore capacity.
28
The City of Auburn, NY Community Development Block Grant Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)