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
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)