oversight

HUD Did Not Always Adequately Monitor Enforcement Grants Awarded Through Its Fair Housing Initiatives Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-01-24.

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

OFFICE OF AUDIT
REGION 3
PHILADELPHIA, PA




           U.S. Department of Housing and Urban
               Development, Washington, DC

               Fair Housing Initiatives Program




2013-PH-0003                  1          JANUARY 24, 2013
                                                        Issue Date: January 24, 2013

                                                        Audit Report Number: 2013-PH-0003




TO:            Sara K. Pratt, Deputy Assistant Secretary for Enforcement and Programs, Office
                 of Fair Housing and Equal Opportunity, ED
               //signed//
FROM:          John P. Buck, Regional Inspector General for Audit, Philadelphia Region, 3AGA


SUBJECT:       HUD Did Not Always Adequately Monitor Enforcement Grants Awarded
               Through Its Fair Housing Initiatives Program


   Attached is the U.S. Department of Housing and Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s oversight of private enforcement initiative
grants awarded through its Fair Housing Initiatives 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
215-430-6729.
                                          January 24, 2013
                                          HUD Did Not Always Adequately Monitor Enforcement
                                          Grants Awarded Through Its Fair Housing Initiatives
                                          Program



Highlights
Audit Report 2013-PH-0003


 What We Audited and Why                   What We Found

We audited the U.S. Department of         HUD monitoring generally covered procedures
Housing and Urban Development’s           required to ensure that grantees complied with grant
(HUD) oversight of Private                terms and program requirements. However, HUD did
Enforcement Initiative grants awarded     not perform onsite monitoring as required for
under its Fair Housing Initiatives        approximately $10.2 million of about $40.9 million in
program as part of our annual audit       enforcement grants awarded during the audit period
plan. Our objective was to determine      and did not always report monitoring results in a
whether HUD performed monitoring to       timely manner. These deficiencies occurred because
ensure that enforcement grant funds       program technical monitors and representatives did not
were spent in compliance with grant       perform their monitoring responsibilities in accordance
terms and program requirements.           with HUD policy. Also HUD did not have a system or
                                          process in place to ensure that monitoring and related
 What We Recommend                        reporting were consistently completed as required. As
                                          a result, there was no assurance that program
                                          requirements were fully met for grants that were not
We recommend that the Deputy              properly monitored.
Assistant Secretary for Enforcement
and Programs (1) issue a directive
emphasizing the importance of onsite
monitoring to applicable staff, and (2)
develop and implement a tracking
process to ensure that grantee
monitoring and related reporting are
completed in accordance with HUD
policies.
                          TABLE OF CONTENTS

Background and Objective                                                  3

Results of Audit
      Finding: HUD Did Not Always Adequately Monitor Enforcement Grants
      Awarded Through Its Fair Housing Initiatives Program                4

Scope and Methodology                                                     9

Internal Controls                                                         10

Appendix
A.    Auditee Comments and OIG’s Evaluation                               11




                                         2
                      BACKGROUND AND OBJECTIVE

The U.S. Department of Housing and Urban Development’s (HUD) Fair Housing Initiatives
program grant funds are competitively awarded to eligible organizations. The program is
administered by HUD’s Office of Fair Housing and Equal Opportunity through its Fair Housing
Initiatives program division. The division is responsible for administering and managing grant
activities and developing and implementing national standards, policies, and practices for the
program.

Fair housing organizations and other nonprofits use program funds to assist people who believe
they have been victims of housing discrimination. These organizations partner with HUD to
help people identify government agencies that handle complaints of housing discrimination.
They also conduct preliminary investigation of claims, including implementing testing to detect
instances of housing discrimination. Private Enforcement Initiative grants provided under the
program are used for testing and enforcement activities to prevent or eliminate discriminatory
housing practices. Testing involves the use of minorities and whites with the same financial
qualifications to evaluate whether housing providers or lenders treat equally qualified people
differently. The enforcement grant funds can be provided in single-year or multiyear grants,
resulting in some grantees receiving more than one grant. During fiscal years 2008 and 2009,
HUD awarded 156 enforcement grants totaling $40.9 million to 91 grantees.

Grant monitoring is performed through HUD’s 10 regional field offices. Grant officers,
government technical representatives, and government technical monitors are responsible for the
oversight and evaluation of a grantee’s performance. Grant officers have signature authority to
enter into, administer, and suspend or terminate a grant, while government technical
representatives coordinate with government technical monitors to provide technical and financial
oversight of grantees’ performance.

Our objective was to determine whether HUD performed monitoring to ensure that enforcement
grant funds were spent in compliance with grant terms and program requirements.




                                               3
                                      RESULTS OF AUDIT


Finding: HUD Did Not Always Adequately Monitor Enforcement
Grants Awarded Through Its Fair Housing Initiatives Program
HUD monitoring generally covered procedures required to ensure that grantees complied with
grant terms and program requirements. However, HUD did not perform onsite monitoring
reviews as required for approximately $10.2 million of about $40.9 million in enforcement
grants awarded during the audit period and consistently report monitoring results in a timely
manner. Also, it did not implement monitoring procedures to ensure that grantees complied with
standard grant conflict-of-interest provisions. However, during the audit, we determined that
HUD was in the process of developing procedures to address this issue. The audit deficiencies
occurred because program technical monitors and representatives did not perform their
monitoring responsibilities in accordance with HUD policy. Also HUD did not have a system or
process in place to ensure that monitoring and related reporting were consistently completed as
required. As a result, there was no assurance that program requirements were fully met for
grants that were not properly monitored.


    HUD’s Monitoring Reviews
    Generally Covered Procedures
    Consistent With Policy

                   HUD regional offices’ onsite grant monitoring reviews generally included
                   procedures required to ensure that grantees complied with grant terms and
                   program requirements. HUD’s guidebook for monitoring program grant
                   agreements provides key review questionnaires designed to assess grantees’
                   performance with regard to fiscal accountability, program progress, compliance
                   with certifications, and overall administration of the program. Our review of
                   monitoring letters obtained from the regional offices showed that the monitoring
                   reviews generally covered the required areas.

    HUD Did Not Complete Onsite
    Monitoring for $10.2 Million in
    Enforcement Grants

                   Contrary to HUD policy, four regional offices did not monitor all grantees in their
                   jurisdictions that were awarded enforcement grant funds. Paragraph 3-1 of
                   HUD’s guidebook 1 for monitoring program grants states that the purpose of
                   onsite monitoring reviews is to allow HUD staff to meet with grantee staff and
                   board members, see project facilities, view records, and determine grantees’

1
    Guidebook For Monitoring Fair Housing Initiatives Program Grant Agreements

                                                        4
           compliance with grant agreement terms. In addition, an onsite monitoring review
           must be performed at least once during the performance period of each grant.
           Therefore, the regional offices should have performed at least one onsite visit for
           each of a total of 79 enforcement grants awarded in their jurisdictions. However,
           the regional offices did not conduct onsite monitoring for 37 grants valued at
           about $10.2 million as shown in table 1.

                                               Table 1
                                                      Percentage
                             Grants     Grants not       not            Value of grants
                Office      awarded     monitored     monitored         not monitored
               Region 2       14           14           100%             $ 3,524,369
               Region 3       14           10            71%               3,345,838
               Region 5       41            8            20%               1,932,141
               Region 6       10            5            50%               1,374,414
                Totals        79           37            47%             $10,176,762

           Based on the details shown in the table, the four regions collectively failed to
           complete onsite monitoring for 47 percent of their grants. The 37 grants in
           question represent 24 percent of 156 enforcement grants awarded during the audit
           period, and the related grant value of approximately $10.2 million represents 25
           percent of the total of $40.9 million awarded. Because these grants were not
           monitored according to HUD policy, there was no assurance that the related
           grantees fully met grant terms and program requirements.

HUD Did Not Consistently Issue
Monitoring Letters According
to Policy

           Policy provided in paragraph 3-6 of HUD’s guidebook for monitoring program
           grants requires that both positive and negative monitoring conclusions be
           provided via monitoring letters to grantees within 45 working days of onsite
           visits. Contrary to this policy, two regional offices failed to provide grantees
           monitoring letters within the required timeframe. In 12 cases, the regional offices
           sent out monitoring letters or reports 15 to 142 days late as shown in table 2
           below.




                                            5
                                                         Table 2
                                                                           Days beyond 45-day
                          Office     Count          Grant number              requirement
                         Region 1      1            FH700G07046                    74
                         Region 1      2            FH700G08045                    73
                         Region 1      3            FH700G08032                    80
                         Region 1      4            FH700G08051                   142
                         Region 4      1            FH700G06004                    18
                         Region 4      2            FH700G08016                    15
                         Region 4      3            FH700G09044                    24
                         Region 4      4            FH700G07039                    28
                         Region 4      5            FH700G08048                    38
                         Region 4      6            FH700G08063                    33
                         Region 4      7            FH700G09045                    38
                         Region 4      8            FH700G09047                    38

                   Regions 1 and 4 had 14 and 25 grants, respectively, under their jurisdiction.
                   Based on the details in table 2, Region 1 sent 29 percent 2 of its monitoring letters
                   late, and Region 4 was late in sending out 32 percent 3 of its monitoring letters.
                   HUD staff stated that the delays in issuing the monitoring letters were due to
                   completing other assignments and that the 45-day requirement was not given
                   priority. HUD needs to ensure that responsible staff consistently complies with
                   the reporting requirement so that grantees receive feedback about their
                   performance in a timely manner.

    HUD Did Not Monitor Conflict-
    of-Interest Provisions

                   Attachments A and B of the program grant agreements included standard conflict-
                   of-interest provisions and other related requirements defined as economic interest
                   provisions. These provisions prohibited grantees from soliciting funds from
                   lenders they had tested within a year after the testing and provided that they not
                   have any affiliation with lenders they had tested within a year before or after the
                   test. We reviewed 8 of the 156 grants awarded during the audit period to
                   determine whether HUD monitoring included procedures to test the grantees’
                   compliance with standard grant conflict-of-interest and economic interest
                   provisions. The review disclosed that HUD did not conduct onsite monitoring for
                   two of the eight grants. Also, the statements of work and monitoring reports for
                   the remaining six grants showed that HUD monitoring did not include testing or
                   procedures to determine whether the grantees complied with the grant conflict-of-
                   interest and economic interest provisions.


2
    4 divided by 14= 29 percent
3
    8 divided by 25= 32 percent

                                                     6
                 HUD’s guidebook for monitoring program grant agreements did not address how
                 to monitor grantee compliance with the standard grant conflict-of-interest and
                 economic interest provisions. However, HUD officials stated that efforts were in
                 progress to implement policies to ensure that grantees comply with the
                 requirements. 4 The new policies will be incorporated into a revised guidebook
                 which HUD plans to issue by the end of the second quarter of fiscal year 2013,
                 once internal and external review processes are complete.

    HUD Staff Did Not Follow
    Onsite Monitoring Policy


                 Government technical monitors and representatives did not complete their
                 responsibilities according to policy, causing the deficiencies in the monitoring
                 process discussed above. Paragraphs 9-1 and 2-1 of HUD’s guidebook for
                 monitoring program grants states that onsite monitoring should generally be the
                 primary method for reviewing grantees’ implementation of projects and provides
                 that grant officers, government technical representatives, and government
                 technical monitors are responsible for the oversight and evaluation of grantees’
                 performance. Paragraph 9-1 of the guidebook also states that remote monitoring
                 does not replace onsite reviews. In addition, paragraphs 2-2 and 2-3 specifically
                 provide that the government technical monitor is responsible for developing
                 monitoring schedules and strategies for onsite reviews in conjunction with the
                 government technical representative, who is responsible for approving monitoring
                 schedules and strategies for onsite reviews.

                 With respect to the grants for which HUD did not complete onsite monitoring
                 reviews, staff members in a couple of regions stated that they performed other
                 types of reviews during the year and, therefore, did not deem the onsite
                 monitoring reviews necessary. In the two regions where monitoring letters were
                 not always sent out in a timely manner, timely reporting of monitoring results was
                 not a priority. During the audit, HUD headquarters officials could not readily
                 provide general information on the status of monitoring for the program grants.
                 HUD needs to implement a tracking process at the headquarters level to ensure
                 that its regional offices complete grantee monitoring and related reporting in
                 accordance with its policies.

    Conclusion

                 HUD monitoring generally covered procedures required to ensure that grantees
                 complied with grant terms and program requirements. However, it did not
                 perform onsite monitoring as required for approximately $10.2 million of about

4
 HUD had begun these efforts as a result of an audit recommendation in HUD OIG audit report number 2012-PH-
1002, dated November 14, 2011, The National Community Reinvestment Coalition, Washington, DC, Did Not
Comply With Conflict-of-Interest Provisions in Its Fair Housing Initiative Program Agreement With HUD.

                                                     7
          $40.9 million in enforcement grants awarded during the audit period and did not
          always report monitoring results in a timely manner. These deficiencies occurred
          because program technical monitors and representatives did not perform their
          monitoring responsibilities in accordance with HUD policy. Also, HUD did not
          have a system or process in place to ensure that monitoring and related reporting
          were consistently completed as required. As a result, there was no assurance that
          program requirements were fully met for grants that were not properly monitored.

Recommendations

          We recommend that the Deputy Assistant Secretary for Enforcement and
          Programs

          1A.     Issue a directive to applicable staff, emphasizing the importance of onsite
                  monitoring.

          1B.     Develop and implement a tracking process to ensure that the regional
                  offices monitor grantees and issue related monitoring reports in
                  accordance with HUD policies.




                                            8
                         SCOPE AND METHODOLOGY

We conducted the audit from January through September 2012 at HUD’s office located in
Washington, DC, and our office located in Philadelphia, PA. The audit covered the period
October 2008 through December 2011 but was expanded when necessary to include other
periods. We did not rely on computer-processed data during the audit.

To accomplish our objective, we interviewed HUD headquarters staff and reviewed

   •   Relevant background information.

   •   Applicable HUD rules, regulations, and guidance.

   •   HUD’s organizational chart and employee listing related to the program.

   •   Grant agreements, which included the statement of work between HUD and the grantees.

   •   Monitoring reports and other correspondence prepared by HUD and another Federal
       agency providing guidance to HUD.

   •   Federal Register notices showing grantees’ funding during the audit period.

We requested and reviewed monitoring reports for 156 grants awarded during the audit period to
determine whether HUD performed monitoring of the grantees. In addition, we nonstatistically
selected and reviewed 8 of 156 grants to determine whether the monitoring included testing to
determine whether the grantees complied with standard grant conflict-of-interest and economic
interest provisions. The first four grants were selected based on the largest grant dollar amounts
from Regions 1 to 4. The next four grants were randomly selected from grantees that HUD said
had performed lender testing in Regions 5, 6, 9, and 10. We did not consider Regions 7 and 8
because Region 7 did not have any grants during the audit period and Region 8 had only two
grants, which had been deobligated by HUD.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                9
                              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:

               •      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

               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.

 Significant Deficiency

               Based on our review, we believe that the following item is a significant deficiency:

               •      HUD lacked a system or process to ensure that regional field offices
                      monitored enforcement grants in compliance with its policies.




                                                 10
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         11
Comment 2




Comment 3



Comment 4


Comment 5




Comment 6




            12
Comment 7




            13
                         OIG Evaluation of Auditee Comments

Comment 1   We are not opposed to HUD’s position that onsite monitoring be performed on
            grantees that pose the highest risk, and that grantees posing relatively lower levels
            of risk be monitored remotely. However, HUD did not mention or provide the
            2002 notice it cites during the audit. When we provided the audit finding and
            related recommendations to HUD for feedback during the audit, HUD stated that
            it had no comment. Nevertheless, we have reviewed the notice HUD now cites
            and determined that it does not change our audit conclusion. During the audit, we
            requested that HUD provide documentation on all monitoring reviews/reports for
            the audit period. HUD provided documentation on both onsite and remote
            monitoring reviews. Therefore, we considered the documentation for both kinds
            of reviews when determining whether or not a grantee had been monitored. For
            the 37 grants cited in the report, HUD did not provide adequate documentation to
            show that either an onsite or remote monitoring review was performed.

Comment 2   During the audit, HUD staff provided various documents to show that they
            performed routine reviews including progress reviews, close-out reviews, reviews
            of grantee tasks, and performance assessments. While these reviews constituted
            important aspects of grant administration, they were not sufficient evidence of
            grantee monitoring as required by HUD policy. As noted in HUD’s guidebook
            for monitoring program grant agreements, specific review questionnaires are
            required during monitoring reviews. These include the financial, general, and
            enforcement review questionnaires. These questionnaires are used to identify
            potential problem areas or identify areas where problems are most likely to occur.
            However, they were not required for the routine reviews that HUD staff
            performed; therefore, those reviews/activities were not sufficient to show that
            grantees were monitored as required.

Comment 3   Less than half (70) of the 156 enforcement grants awarded during the audit period
            were multi-year grants. The remaining grants were single-year grants. Also, only
            12 of the 37 grants cited in the report were multi-year grants. The remaining 25
            were single-year grants. The audit finding was provided to HUD for comment
            and discussed with HUD during the audit. However, HUD did not provide any
            evidence or information to show that any of the questioned grants had been
            scheduled for future monitoring.

Comment 4   HUD provided us a copy of the directive it issued to applicable staff on the
            importance and requirements of conducting remote and onsite monitoring of all
            grantees. We have reviewed the directive and are encouraged that HUD has taken
            immediate action in response to audit recommendation 1A.

Comment 5   We have added a statement in the report to reflect that HUD plans to issue a
            revised guidebook by the end of the second quarter of fiscal year 2013, once
            internal and external review processes are complete.



                                             14
Comment 6   We are pleased that HUD plans to work with a contractor to develop and
            implement a tracking system to ensure that regional offices are conducting grant
            monitoring and issuing monitoring reports within established timeframes.

Comment 7   We conducted the audit in accordance with generally accepted government
            auditing standards which require that we plan and perform the audit to obtain
            sufficient, appropriate evidence to provide a reasonable basis for our findings and
            conclusions. The audit disclosed that HUD did not adequately monitor 37 grants
            valued at $10.2 million and consistently issue monitoring reports within 45
            working days in accordance with its policy. The audit report accurately reflects
            these results. Although HUD states that the report does not accurately reflect
            current monitoring requirements and activities for it Fair Housing Initiatives
            program, it did not provide any additional information or documents to refute our
            conclusions.




                                             15