OFFICE OF AUDIT REGION 4 ATLANTA, GA Hillsborough County, FL Community Development Block Grant Program 2014-AT-1006 JULY 9, 2014 Issue Date: July 9, 2014 Audit Report Number: 2014-AT-1006 TO: Gary Causey, Director of Community Planning and Development, Jacksonville Field Office, 4HD //signed// FROM: Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA SUBJECT: Hillsborough County Did Not Always Properly Administer Its CDBG Program Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) final results of our review of Hillsborough County’s administration of its 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 8M, 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 404-331-3369. Date of Issuance: July 9, 2014 Hillsborough County Did Not Always Properly Administer Its CDBG Program Highlights Audit Report 2014-AT-1006 What We Audited and Why What We Found We audited the Community Development The County failed to properly administer its Block Grant (CDBG) program administered CDBG program in accordance with HUD by Hillsborough County, FL, as part of the requirements. Specifically, it did not ensure that activities in our 2013 fiscal year annual its code enforcement and interim assistance audit plan. We selected the County for activities met national objectives and charged review based on a complaint referral from allowable expenditures. These conditions the Office of Inspector General’s Office of occurred because the County (1) staff was not Investigation on a public complaint alleging familiar with CDBG requirements,(2) did not the County’s misuse of CDBG funds for the verify the eligibility of target areas, (3) had an County’s cleanup events. Our audit interest in ensuring that certain areas were objective was to determine whether the federally funded or labeled as Federal low- County administered its CDBG program in income areas, (4) had weak management and accordance with applicable U.S. Department accounting controls, (5) lacked sufficient levels of Housing and Urban Development (HUD) of monitoring reviews, and (6) did not exercise requirements. Specifically, we wanted to due care to ensure that expenditures were determine whether the County’s CDBG eligible. We found some of the allegations in program (1) met national objectives and (2) the complaint to be valid and cited the issues incurred expenditures that were eligible and and costs as a finding in the report. As a result reasonable. of our findings, HUD had no assurance that approximately $1 million charged was properly What We Recommend expended. We recommend that HUD require the County to (1) support that national objectives and eligibility requirements were met or repay HUD $784,469 from non- Federal funds; (2) repay HUD $231,623 from non-Federal funds for ineligible costs; (3) develop, implement, and enforce controls and sufficient levels of monitoring to ensure that CDBG requirements are met; and (4) train its staff on CDBG requirements. TABLE OF CONTENTS Background and Objective 3 Results of Audit Finding 1: The County Did Not Properly Administer Its Code Enforcement 4 Activities Finding 2: The County Did Not Properly Administer Its Interim Assistance 10 Activities Scope and Methodology 13 Internal Controls 15 Appendixes A. Schedule of Questioned Costs 17 B. Auditee Comments and OIG’s Evaluation 18 C Map of the County’s Nine CDBG Low- and Moderate-Income Target Areas 40 D. Table of Ineligible CDBG Block Groups and Percentages 41 E. Pictures of Ineligible CDBG Block Group Areas 43 2 BACKGROUND AND OBJECTIVE The U.S. Department of Housing and Urban Development (HUD) awards annual Community Development Block Grants (CDBG) to entitlement counties and cities to develop viable urban communities by providing decent housing and a suitable living environment and by expanding economic opportunities, principally for low- and moderate-income persons. A CDBG-funded activity must meet at least one of three national objectives: • Benefit low- and moderate-income persons, • Aid in the prevention or elimination of slums or blight, or • Meet other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community and other financial resources are not available. Hillsborough County, FL, receives annual CDBG program funds from HUD. The County’s board of commissioners (comprised of seven elected members) is responsible for approving the County’s operating and capital budgets, which include Federal and State funding sources. The board of commissioners also develops management policies and provides direction to the county administrator on programs, including CDBG-funded activities, to improve the County and the welfare of its residents. The county administrator’s duties include overseeing all County administrative departments (including the Affordable Housing Services and Code Enforcement departments). The County’s Affordable Housing Services department administers the CDBG program. The CDBG funds are allocated to external entities and internal County departments to carry out the CDBG activities. The County expended more than $13.7 million in CDBG funds for activities created in program years 2010 through 2012. We received a complaint referral alleging that CDBG funds were misused for ineligible expenses during the County’s cleanup events involving code officers from the County’s Code Enforcement department. Our audit objective was to determine whether Hillsborough County administered its CDBG program in accordance with applicable HUD requirements. Specifically, we wanted to determine whether the County’s CDBG program (1) met national objectives and (2) incurred expenditures that were eligible and reasonable. 3 RESULTS OF AUDIT Finding 1: The County Did Not Properly Administer Its Code Enforcement Activities The County did not properly administer its code enforcement activities. Specifically, it mismanaged its CDBG code enforcement activities by (1) failing to support that the CDBG target areas were in a deteriorated condition, (2) failing to meet the low- and moderate-income area national objective, (3) misclassifying cleanup event expenditures, and (4) charging disallowed expenditures. These conditions occurred because the County (1) staff was not familiar with CDBG requirements, (2) did not verify the eligibility of target areas, (3) had an interest in ensuring that certain areas were federally funded or labeled as Federal low-income areas, (4) had weak management and accounting controls, and (5) lacked sufficient levels of monitoring reviews. As a result, HUD had no assurance that more than $865,000 in CDBG program costs was appropriately expended. The County Did Not Support That Target Areas Were in a Deteriorated Condition The County created three code enforcement activities and charged $858,738 for code enforcement efforts in nine designated CDBG low- and moderate-income target areas (see appendix C). To be eligible for CDBG funding under the code enforcement activity, code enforcement efforts must be used in deteriorating or deteriorated areas only to pay for salaries and overhead costs directly related to the enforcement of State and local codes. Eligible code enforcement efforts included the inspection of properties for code violations and enforcement of the codes. The County did not support that $645,517 1 was expended in deteriorated areas, and $213,221 was prohibited by HUD regulations. No. Activity Activity name Draw Unsupported Ineligible number amount 1 3508 Code enforcement $249,872 2 3317 Code enforcement $315,763 $645,517 $213,221 3 3029 Code enforcement $293,103 Total $858,738 $645,517 $213,221 1 As shown in the table for this finding, we deducted the ineligible expenditures of $213,221 to arrive at the unsupported amount of $645,517. 4 The County did not have documentation to show that the CDBG target areas inspected by the code enforcement officers were in a deteriorated or deteriorating condition because it never performed and documented such reviews as required by 24 CFR (Code of Federal Regulations) 570.202(c). These regulations require that CDBG-funded code enforcement activities be used only in deteriorating or deteriorated areas, together with public or private improvements, rehabilitation, or services to be provided, which may be expected to arrest the decline in the area. If such conditions are met, CDBG funds may be used to pay for the salaries and overhead costs directly related to the enforcement of State or local codes. The condition described above occurred because both the County’s Affordable Housing Services and Code Enforcement departments believed that deteriorated or deteriorating areas were synonymous with low- and moderate-income areas and did not realize that they also needed to determine that the areas were deteriorated or deteriorating to qualify for CDBG funds and have documentation to support that determination. Also, the County Affordable Housing Services department did not have written policies and procedures in place to ensure activities met activity eligibility requirements before funding activities with CDBG funds. As a result, HUD had no assurance that $645,517 in CDBG funds was used for eligible code enforcement activities. The County Did Not Meet the Low- and Moderate-Income Area Benefit National Objective . The national objective for code enforcement activities is to benefit low- and moderate-income areas. The County did not meet the national objective because six of the nine CDBG target areas contained sections that were not in low- and moderate-income areas. Regulations at 24 CFR 570.208(a)(1) state that to qualify under the low- and moderate-income area benefit national objective, the activity must provide benefits available to all of the residents in an area in which at least 51 percent, or the upper quartile for exception grantees, of the residents in the area are low- and moderate-income persons. The County is an exception grantee, and its low- and moderate-income area thresholds were 48.21 percent for 2011 and 48.24 percent for 2012. An activity that serves an area that is not primarily residential in character does not qualify under this criterion. We reviewed the 2000 census data the County used to identify its nine CDBG low- and moderate-income target areas and conducted site visits. Six of the nine CDBG target areas included census block groups that did not meet the low- and moderate-income percentages. In addition, these target areas had large sections consisting of mainly government facilities, industrial sites, commercial properties, 5 large farm land, vacant land, and moderate to large residential properties. 2 Regulations at 24 CFR 570.208(a)(1)(vi) state that when census boundaries do not coincide sufficiently well with the service area of an activity, recipients may conduct a current survey of the residents of the area to determine the percentage of such persons that is low and moderate income. County staff stated that it did not have documentation to show that it had performed a survey for the areas that deviated from the block group boundaries. County staff also stated that the County’s board of commissioners made the final decision on which areas would be designated as CDBG low-and moderate-income areas. We reviewed the County’s board minutes to determine how the target areas were established. According to the board minutes, there was an interest in ensuring that certain areas were federally funded or designated as federally labeled low- income areas for other County financial relief benefits by “averaging in” areas that would not have qualified. Specifically, there was an interest in (1) including designated areas to qualify as “no-impact fee zones” so that developers did not have to pay County impact fees, (2) ensuring that rural areas received Federal funding, and (3) providing additional code enforcement for areas that were not low- and moderate-income areas as a result of citizen complaints. To qualify these areas, many of the CDBG target areas were expanded as much as possible to include sections that would not have otherwise qualified on their own by “averaging in” low- and moderate-income areas with those that were not. According to 24CFR570.208(a)(1)(vi), HUD will generally allow the grantee to determine the service area to be qualified; however, the area can be questioned if the nature of the activity or its location raises serious doubts about the area claimed by the grantee. In this case, the locations were questioned because they were not in low- and moderate-income areas and some were not primarily residential in nature. In January 2013, the County discovered that one target area (Town ‘n Country) was not low-and moderate-income when it was in the process of funding a water and sewer project. This project had been approved in the County’s annual action plan. The County’s written controls did not cite responsibility or accountability for the department to ensure that the activities met national objective requirements before establishing and funding activities with CDBG funds. HUD had also cited the County for a similar issue in 2010 for three other CDBG-funded activities. The condition described above occurred because the current County department administration did not verify whether the target areas were eligible and assumed that the previous administration had correctly identified the low- and moderate- income areas. There was also an interest in ensuring certain areas were federally funded or designated as federally labeled low-income areas when the areas were established during the previous administration. In addition, County staff were not 2 See appendixes C, D, and E for (1) a map of the nine CDBG target areas, (2) a list of census block groups that were not low- and moderate-income areas, and (3) pictures taken during the site visits to the areas questioned. 6 familiar with CDBG requirements and did not consider whether the area was primarily residential in character. As a result, approximately $213,221 3 in CDBG funds was not used for its intended purpose of assisting low- and moderate-income areas with additional code enforcement efforts. The County Did Not Properly Classify Cleanup Expenditures The County charged an additional $6,315 in CDBG expenditures for two cleanup events that were reclassified from the code enforcement to the clearance and demolition activity. The costs were unrelated to work for the code enforcement or the clearance and demolition activities. This condition occurred due to weak management and accounting controls. According to the County, it inadvertently charged $3,915 to CDBG funds when it should have been charged to the County’s ad valorem funds. In addition, it charged the remaining $2,400 to the wrong CDBG activity. The County Did Not Charge Allowable Salary Expenditures Within the code enforcement expenditures questioned above, there were salary costs incurred that were disallowed by HUD regulations. Regulations at 24 CFR 570.202(c) state that CDBG funds may be used for salaries and related expenses of code enforcement officers, not including the cost of correcting the violations. We found instances in which CDBG-funded code enforcement officers corrected violations or performed work outside the CDBG target areas without adjusting their timesheets accordingly. We also noted inconsistencies in charging CDBG code enforcement time between code enforcement activities and interim assistance activities. This condition occurred because the County did not adequately supervise its code enforcement officers to ensure they did not work outside of the designated low- and moderate-income areas, and staff was not familiar with CDBG requirements. In addition, due to limited resources, the County performed onsite monitoring of external subrecipients and limited its compliance review of inter-County-administered CDBG activities to desk reviews and approval of payment processing. 3 The calculated total of $213,221 in ineligible costs expended on the code enforcement activity was based on the number of ineligible block groups within the total number of block group for each CDBG target area reviewed. Refer to appendix D and the Scope and Methodology section for more details. 7 Conclusion The County mismanaged its code enforcement activities. Specifically, it did not properly administer its CDBG code enforcement activities by (1) failing to support that the CDBG target areas were in a deteriorated condition, (2) failing to meet the low- and moderate-income area national objective, (3) misclassifying cleanup event expenditures, and (4) charging disallowed expenditures. These conditions occurred because the County (1) staff was not familiar with CDBG requirements, (2) did not verify the eligibility of target areas, (3) had an interest in ensuring that certain areas were federally funded or labeled as Federal low- income areas, (4) had weak management and accounting controls, and (5) lacked sufficient levels of monitoring reviews. As a result, HUD had no assurance that more than $865,000 in CDBG program costs was appropriately expended. Recommendations We recommend that the Director of the HUD Jacksonville Office of Community Planning and Development require the County to 1A. Provide documentation to support that the target areas were primarily residential in character and in deteriorated conditions, or repay HUD $645,517 from non-Federal funds. 1B. Conduct and document the physical determination of the deteriorated areas (defined by State or local laws), taking into account national objective requirements the County plans to use to support its future CDBG funding of the code enforcement activity. 1C. Provide training to County staff involved with the CDBG program on CDBG requirements. 1D. Perform a cost analysis to ensure that the funding amount for the code enforcement activity is reasonable, given the actual deteriorated areas determined to be eligible for the activity and the number of code enforcement officers needed to service the deteriorated areas. 1E. Repay HUD from non-Federal funds the estimated $213,221 used during our scope period to fund the code enforcement activity to service areas that did not qualify as low- and moderate-income areas. 1F. Develop, implement, and enforce written policies and procedures to ensure that CDBG national objectives and activity eligibility requirements are met and funding amounts are reasonable before funding the activity. 8 1G. Submit to HUD for review and approval the next set of CDBG target areas designated and any changes made by the County, along with the supporting documentation to ensure eligibility under the low- and moderate-income area national objective requirement. 1H. Repay HUD $3,915 from non-Federal funds for the cleanup event charged to the demolition and clearance activity. 1I. Provide support showing that the $2,400 charged for the cleanup event met national objective requirements and reclassify the funds to the correct CDBG activity, or repay HUD from non-Federal funds. 1J. Develop, implement, and enforce management and accounting controls to ensure that CDBG-funded activity costs charged to the CDBG program are allowable, reasonable, and allocable to the CDBG activity. 1K. Develop and perform sufficient levels of monitoring reviews and enforce compliance on inter-County departments that receive CDBG funding and carry out CDBG activities. 9 Finding 2: The County Did Not Properly Administer Its Interim Assistance Activities The County did not properly administer five interim assistance activities. Specifically, it did not provide documents to show that $136,552 expended for its interim assistance activities met the slum or blight area national objective and activity eligibility requirements. In addition, it charged $14,487 in disallowed expenses to the CDBG program. This condition occurred because the County was not familiar with the CDBG program requirements and did not exercise due care to ensure that expenditures were eligible. As a result, HUD had no assurance that interim assistance costs were appropriately expended. The County Did Not Support That Activities Met the Slum or Blight Area National Objective The County created five interim assistance activities for five neighborhood cleanup events with total draws of $151,039. Regulations at 24 CFR 570.201(f) state that CDBG funds may be used to provide interim assistance when (1) an area is exhibiting objectively determinable signs of physical deterioration where the recipient has determined that immediate action is necessary to arrest the deterioration and that a permanent improvement will be carried out as soon as practicable, or (2) there is a need to alleviate emergency conditions threatening the public health and safety in areas where the chief executive officer of the recipient determines that such a condition exists and requires immediate resolution. If either of these specific detailed criteria is met, the interim assistance activity may be used to fund special debris removal activities, such as neighborhood cleanup campaigns. We reviewed the draws for these five cleanup events and determined that the County did not support that $136,552 in expenditures met the slum or blight area national objective and interim assistance requirements, and $14,487 was prohibited by HUD regulations. No. Activity Activity name Draw Unsupported Ineligible number amount 1 3385 Orient Park $49,235 $45,012 $ 4,223 2 3433 Ruskin $4,458 $4,458 $- 3 3434 USF Tropical Storm Debby $10,264 $- $10,264 4 3501 Palm River $ 84,723 $84,723 $- 5 3521 USF – Paint the Town $ 2,359 $2,359 $- Total $151,039 $136,552 $14,487 10 The County indicated that the national objective of the interim assistance activities was to address the prevention or elimination of slums or blight in an area. However, it did not have the documents to support that four of the interim assistance activities (3385, 3433, 3501, and 3521) met the national objective in accordance with regulations at 24 CFR 570.208(b)(1). Specifically, the County did not provide documents to show that areas met the definition of a slum, blighted, deteriorated, or deteriorating area under State or local law and other delineated area requirements. In addition, it could not support that the activities met the interim assistance activity requirements. The County believed that the low- and moderate-income area was synonymous with the slum or blight area and that any work occurring within the CDBG target area would be allowable. This condition occurred because the County was not familiar with CDBG program requirements 4. As a result, HUD had no assurance that the activities met the slum or blight area national objective and activity eligibility requirements. The County Did Not Charge Allowable Salary Expenditures The County used CDBG funds to pay for code enforcement officers and management staff that participated in the cleanup events. We interviewed code enforcement management staff members, who disclosed that for one of the five cleanup events (activity 3434), they evaluated damages after a tropical storm hit the County. They stated that they did not spend the entire time evaluating damages or working in the CDBG target area. Regulations at 24 CFR 570.207(a)(2) state that regular responsibilities of local government are not eligible. The County’s management indicated that damage assessment was part of the Code Enforcement department’s regular job responsibilities. Therefore, the salaries and associated costs of $10,264 are local government expenditures that are prohibited by HUD regulations. The County charged salaries for management staff for participating in a cleanup event (activity 3385). We interviewed the management staff members, who stated that they did not participate in or spend time at the entire event. Regulations at 2 CFR Part 225, appendix A(C)(3), state that a cost is allocable if the goods or services involved are assignable to the cost objective. Since salary costs of $4,223 for staff were not allocable to the event, we considered the costs to be questionable. 4 We recommend that the County train its staff in recommendation 1C and implement written controls to ensure national objective and activity eligibility requirements are met prior to funding an activity in recommendation 1F. 11 The conditions described above occurred because the County did not exercise due care in ensuring that expenditures were allowable 5. As a result, it charged unallowable expenditures of $14,487 to the CDBG program. Recommendations We recommend that the Director of the HUD Jacksonville Office of Community Planning and Development require the County to 2A. Provide documents to show that activities 3385, 3434, 3501, and 3521 met the slum or blight area national objective and activity requirements, reclassify these activities to the correct national objective and activity type if it can be supported, or reimburse HUD $136,552 from non-Federal funds. 2B. Reimburse HUD $14,487 from non-Federal funds for the ineligible costs. 5 We recommend that the County develop, implement, and enforce management and accounting controls to ensure allowable costs are charged to the CDBG program in recommendation 1J. 12 SCOPE AND METHODOLOGY We performed our review from July 2013 through November 2013 at the County’s Affordable Housing Services office, located at 1208 Tech Boulevard, Suite 300, Tampa, FL, and other sites as necessary. Our review covered the period October 1, 2010, through May 31, 2013, and was expanded as needed to achieve our objective. To accomplish our objective, we • Reviewed applicable laws and regulations; • Reviewed applicable County policies and procedures; • Reviewed HUD monitoring reports and independent public accountant audit reports; • Reviewed the County’s and subrecipients’ financial records, program activity files, and other supporting documentation; • Interviewed HUD officials, County staff, subrecipients, and beneficiaries; and • Performed onsite visits to the program target areas, demolition sites, street improvements, and a multifamily building. We determined that as of May 30, 2013, the County had drawn down more than $13.7 million in program funds for activities created in program years 2010 through 2012. These draws were classified under 31 categories of eligibility. Due to time and resource constraints, we did not perform a 100 percent selection or a representative selection using statistical or nonstatistical sampling. Instead, we selected 5 of the 31 categories to review based on high dollar amount or potential relationship to the complaint. These five categories were (1) Clearance and demolition, (2) Interim assistance, (3) Code enforcement, (4) Street improvements, and (5) Rehabilitation of multifamily units. We did not review all activities within each of these five categories. We reviewed 13 of the 15 activities with expenditures of more than $2.7 million for meeting a national objective and cost allowability. This selection represented 20 percent of the total draws for meeting a national objective and 20 percent of the total draws for cost allowability. We selected these activities based on high dollar amount or potential relationship to the complaint or through random selection. In addition, for the interim assistance category, we extended our scope to capture all 13 cleanup events that were related to the complaint. This expansion resulted in the review of an additional activity and additional costs totaling $25,244. The results of this audit apply only to the items reviewed and cannot be projected to the universe of activities. For the code enforcement category, the County relied on its nine CDBG target areas to meet the CDBG low- and moderate-income area national objective requirement. The County used the 2000 census data to develop its nine CDBG target areas. The 2000 census data provide the low- and modearte-income percentage by block group level. Block groups are statistical divisions within a census tract, and each block group generally represents between 600 to 3,000 people. Based on the County’s review of the 2000 census data and final decision and approval from its board of commissioners in December 2003, the County created the CDBG target area map with the nine CDBG target areas. The County uses the CDBG target map as a primary tool to qualify its CDBG-funded activities in meeting the CDBG low- and moderate-income area national objective requirement. The County has a low- and moderate-income area threshold of 48.21 percent to meet or exceed to qualify an area as a low- and moderate-income area. In addition, the area must be primarily residential in character. We identified 90 full block groups and 4 partial block groups within the 9 CDBG target areas based on the CDBG target map. We found that 26 of the block groups located within 8 CDBG target areas did not meet the minimum required low- and moderate-income percentage based on the 2000 census data. We performed site visits to confirm the types of properties in the 26 block group areas. We questioned 21 block groups located within 6 of the CDBG target areas because they were not primarily residential in character or the areas consisted mainly of moderate to large high-end residential properties. To calculate the cost expended for the ineligible areas, we divided the number of ineligible block groups by the total number of block groups within each CDBG target area. The percentage of each ineligible target area was multipled by 1/9, representing its portion from the total of the nine CDBG target areas. Finally, the total percentage was multipled by the total CDBG funds expended for the code enforcement activity for our scope period under review ($858,738). This resulted in estimated questioned costs of $213,221 for the code enforcement activity. We assessed the reliability of the data reflected in the County’s program target area maps. We performed limited testing of zip codes and census tracts and block groups reflected in the maps and found the maps to be complete, accurate, and reliable. Therefore, we relied on the County’s maps to materially support our audit findings, conclusions, and recommendations. 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(s). We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. 14 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 objective: • Controls over program operations. • Controls over relevance and reliability of information. • Controls over compliance 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 Deficiencies Based on our review, we believe that the following items are significant deficiencies: • The County failed to ensure national objective requirements were met and expenditures were eligible as cited in its failure to properly administer its CDBG-funded code enforcement activities in accordance with HUD requirements (finding 1). 15 • The County failed to ensure national objective requirements were met and expenditures were eligible as cited in its failure properly administer its CDBG- funded interim assistance activities in accordance with HUD requirements (finding 2). 16 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Ineligible Unsupported number 1/ 2/ 1A $645,517 1E $213,221 1H 3,915 1I 2,400 2A 136,552 2B 14,487 ________ Total $ 231,623 $ 784,469 1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that the auditor believes are not allowable by law; contract; or Federal, State, or local policies or regulations. 2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of the audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures. 17 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 18 Comment 2 19 Comment 3 Comment 3 Comment 3 20 Comment 3 Comment 4 Comment 5 21 Comment 6 Comment 4 22 Comment 7 Comment 8 Comment 9 Comment 8 23 Comment 10 24 Comment 11 Comment 11 25 26 Comment 12 Comment 13 Comment 14 27 Comment 14 Comment 15 28 29 Comment 16 Comment 16 30 Comment 17 Comment 17 31 32 OIG Evaluation of Auditee Comments Comment 1 –The audit was initiated as part of the Office of Inspector General’s (OIG) annual audit plan and based on a complaint. Therefore, we reviewed the CDBG program in general as part of OIG’s annual audit plan as well as specific areas related to the complaint. In addition, our audit objective was stated in the audit notification letter and discussed with County officials during the audit. Comment 2 – The County disagreed with our methodology in calculating the ineligible CDBG costs. An estimate for the cost of each ineligible census tract block group was used to determine the ineligible costs because the County was not able to provide the exact time and cost spent by each CDBG-funded code officer for each case citation handled or work performed in the CDBG target areas. Basing the ineligible cost by block group is a reasonable representation of the amount of the costs that the CDBG-funded code enforcement activity incurred within each ineligible block group area. Comment 3 – The County stated that neither HUD nor OIG defines “deterioration” or provides guidance as to what the County must document and, therefore, requested that we revise the finding. It is not OIG’s responsibility to define “deterioration.” Regulations at 24 CFR 570.208(b)(1)(i) provide that the grantee (County) must delineate the deteriorated or deteriorating area as defined under either State or local law. This means that the County may choose to use the definition of deteriorated or deteriorating under the State or local law to meet the national objective requirement. While onsite, we asked County staff for documentation to support that all nine CDBG target areas, which the CDBG-funded code enforcement officers serviced, were in deteriorated or deteriorating condition. County staff stated that such a determination was never made and such documentation was not available because the staff assumed that deteriorated or deteriorating areas were synonymous with low- and moderate-income areas as stated in the report. Therefore, the County did not support that code enforcement activity service areas were in deteriorated condition as required, resulting in unsupported costs of $645,517 (the County incorrectly referred to the questioned cost in recommendation 1A; it should be $645,517 and not $213,211 as cited by the County). The County provided the code enforcement inspection information to support allocation of code enforcement costs, not as justification that an area was deteriorated. If the County has the determination documentation or alternative after-the-fact documentation to support that all nine CDBG target areas, which the CDBG-funded code enforcement officers serviced, were in deteriorated or deteriorating condition, the County will have further opportunity to provide the documentation to address recommendation 1A in the report to HUD’s staff, which will work with the County and our office to resolve the recommendation. 33 Comment 4 – The County stated that OIG contended that its target areas, which were regularly reported in its annual actions and consolidated plans, were improper and OIG’s contention conflicted with HUD’s longstanding approval of the target areas. The County’s CDBG target areas are not prequalified or approved by HUD. HUD reviews and approves the general activities that may be conducted by the grantee but does not necessarily review all of the CDBG activities or the corresponding supporting documentation used to qualify the CDBG activities, including the designated CDBG target areas in the annual action plan or comprehensive plan that have met all eligibility requirements. Therefore, HUD did not provide longstanding approval of the County’s target areas. We acknowledged during the exit conference that grantees are allowed to average in low- and moderate-income areas with those that are not if it can support the actual service area benefitting from the activity. Additionally, the area serviced must be primarily residential in character as required in 24 CFR 570.208(a)(1). The questioned areas (1) did not meet the low-and moderate- income threshold percentage, (2) were not the actual service areas benefitting from the activity, and (3) were not primarily residential in character and thus not in compliance with Federal regulations. Comment 5 – The difference in citing six CDBG target areas as a finding on page 5 versus eight target areas on page 14 was due to our site visits as stated in the Scope and Methodology section of the report on page 14. Comment 6 – This statement does not contend that the County’s low- and moderate-income data used to establish the CDBG target areas were complete, accurate, or reliable. The acknowledgement that the CDBG target area map was complete, accurate, and reliable was based on the County’s CDBG target area map’s having the labeling of the census tract and block group numbers consistent with the census tract and block group numbers used by the census. The County’s calculation did not include the low- and moderate-income percentage data for some of the block group areas shown on the CDBG target area map. Also, the County’s calculation included some incomplete low- and moderate-income percentage data because it used percentages that covered an entire block group area when the map showed the service area to be only a small fraction of the block group area. Comment 7 – The County stated that it clearly stated in its amended action plan that it was adopting the target areas for the purpose of establishing service areas for area benefit activities and this had not changed in more than 10 years. This information was also reported to HUD so it is unreasonable for OIG to now claim that these delineations were improper. It is the responsibility of the County to perform its due diligence in ensuring that activities funded by the CDBG program meet all requirements and have documentation to support eligibility. In designating the service area for a particular activity, the County should take into account (1) the nature of the activity, (2) the location of the activity, (3) accessibility (for example, geographic barriers, user fees, hours service is available), and (4) comparable facilities or services. Regulations require that the entire population in the service area be considered in determining whether such service provided benefits low- and moderate-income individuals. 34 In the case of the code enforcement activity for the County, this activity was not dependent on multiple block groups to provide the code enforcement service. The code enforcement activity services individual real estate properties, and, therefore, the actual area benefit was generally independent from one block group area to another. The County generally had most of its CDBG target areas covering an entire block group area and, therefore, should have qualified the code enforcement activity according to each individual block group service area as required under 24 CFR 570.208(a)(1)(v). The County also had a few service areas that did not cover an entire block group area in which the County should have conducted an independent survey, as stated under 24 CFR 208(a)(1)(vi), if the County chose to deviate from the boundary areas. Comment 8 – We acknowledged during the exit conference that grantees are allowed to average in low- and moderate-income areas with those that are not if it can support the actual service area benefitting from the activity. Additionally, the areas must be primarily residential in character as required by 24 CFR 570.208(a)(1). The questioned areas (1) did not meet the low-and moderate- income threshold percentage, (2) were not the actual service areas benefitting from the activity, and (3) were not primarily residential in nature and, thus, not in compliance with Federal regulations. Therefore, approximately $213,221 in CDBG funds was not used for its intended purpose of assisting low- and moderate-income areas with additional code enforcement efforts. Comment 9 – The HUD Integrated Disbursement and Information System is a tool for grantees to use in qualifying low- and moderate-income area national objective-based activities. The County must properly identify the actual area benefiting from the activity. If the County entered incomplete or inaccurate information, the system would base the result on the incomplete or inaccurate information entered by the County. The County did not include all of the census block groups and also included full census block group areas when the entire areas were not being serviced. The system cannot determine whether the areas designated are primarily residential in character, which is also a part of the County’s responsibilities in properly identifying the service area. It is the responsibility of the County to perform its due diligence in ensuring that activities funded by the CDBG program meet all requirements and have documentation to support the eligibility. Comment 10 –The County stated that HUD generally allows the grantee to determine the service area and the burden is on OIG to provide “serious doubts” showing that the County’s code enforcement activities did not benefit low- and moderate-income persons. The County may determine its own service areas, but if it chooses to deviate from the census boundaries, the County may conduct an independent survey to support the low- and moderate- income percentage for that deviated area. Essentially, the County must provide support for those areas substantially deviating from the area, and an acceptable form of support would be a survey. The County did not have support for its deviation. The code enforcement activity service area is questioned because the block group areas did not meet the low- and moderate-income percentage threshold required as evidenced by (1) the County’s CDBG target area map, (2) the HUD decennial census data, and (3) the site visits with pictures showing that some of the areas were not primarily residential in character. See appendixes C, D, and E in the audit report. 35 Comment 11 – The County stated that its target areas met the minimum low- and moderate- income thresholds and the activities served the intended populations. In addition, its’ target areas were based on census data and planning advice from the local planning agency. The County excluded certain areas designated for private redevelopment, and this does not equate to gerrymandering. The County also included a footnote stating that our comment related to citizen complaints was unclear. The County is required to determine the actual area benefit for each individual activity. County staff stated that the County’s board of commissioners made the final decision on which areas would be designated as the County’s CDBG target areas. In reviewing the board minutes, we determined that the County commissioners’ interests played a role in the final decision regarding which areas were designated as the County’s CDBG target areas. The citizen’s complaint regarding the need for increased code enforcement was for the County’s Town ‘n Country CDBG target area. A County employee disclosed to the County board that the only way to qualify the Town ‘n Country area would be to average in the census tract block groups. The Town ‘n Country CDBG target area was a newly created area based on the County’s calculation of the 2000 census data. More than half of the census block groups in this target area did not meet the County’s minimum required 48.21 low- and moderate-income percentage threshold. This area was mainly a moderate- to high-income area that the County used for more than 10 years. The County agreed in a written email that this area should not have been designated as a CDBG target area because the area did not qualify. The County discovered this error in January 2013 and removed the Town n’ Country CDBG target area at the end of April 2013. Comment 12 – The County objects to our use of present-day photographs from recent visits as a reason to question its target areas. As stated in the Scope and Methodology section of the audit report, all of the service areas questioned did not meet the low- and moderate-income area percentage threshold and, therefore, were already disqualified. After identifying the service areas that did not meet the first requirement, we conducted site visits to the areas that did not meet the low- to moderate-income threshold percentage to determine the characteristics of the properties in the areas. We asked the County for documentation to support that the CDBG target areas were in deteriorated conditions and primarily residential in nature and were told that the County generally did not consider these factors in determining the eligibility of its CDBG low- and moderate-income area national objective-based activities. The CDBG low- and moderate-income area national objective criteria require that the area also be primarily residential in character; otherwise the activity would not qualify. If the types of properties and conditions in the County’s questioned CDBG target areas have changed in the past 3 years, the County should have had and provided us with documentation to show what had been there during the past 3 years as well as reflecting such changes in its annual action plan submitted to HUD. 36 According to community development memorandum, dated April 23, 1991, the purpose of the primarily residential requirement is to preclude activities that serve an area consisting primarily of businesses from qualifying on the basis of the income of those persons who happen to reside within the boundaries of that area. For example, the County’s Causeway target area contained only a small section of residential areas, while the remaining majority of the target area consisted mainly of industrial and commercial properties, along with some vacant land and a few agricultural areas. Planned Development - Industrial Agricultural SF Conventional Agricultural Industrial Agricultural SF Conventional Agricultural Industrial Planned Development – Manufacturing Planned Development SF Conventional Currently Majority of the –Currently Commercial 6 uts / acre Area is Vacant Land. / Industrial Properties Comment 13 – We identified the $6,315 in misclassified and ineligible costs and informed the County of this issue. The County originally categorized the costs as a code enforcement activity expense and later reclassified the costs as a clearance and demolition activity expense. This expense was associated with cleanup campaigns that were unrelated to the code enforcement or the clearance and demolition activities. We found additional misclassified costs among the code enforcement, interim assistance, and clearance and demolition activities. In addition, the County charged ineligible code enforcement payroll costs as reported in finding 1 and other regular local government costs charged to the CDBG program as reported in finding 2 of the audit report. This issue would have been reported as a finding regardless of whether the County fixed problems found during our review because the issue of misclassifying costs and charging ineligible costs appeared to be systemic problem and not an isolated incident. Comment 14 – The County requested specific detail to substantiate the ineligible salary costs. We reviewed a sample of timesheets from the code enforcement activity and found more than 300 cases in which CDBG-funded code officers’ time was charged to the CDBG program for ineligible work or misclassified work without adjusting the officers’ timesheets accordingly. Specifically, we found that CDBG-funded code officers performed (1) more than 30 cases of code inspection work occurring outside the County’s CDBG target areas used as the County’s 37 identifier of low- and moderate-income areas (based solely on the zip codes) and (2) more than 350 cases of abatement work specifically disallowed by the CDBG code enforcement activity requirements. As a result, the County did not charge allowable salary expenditures to the CDBG program. We discussed this issue with the County and provided examples of the deficiencies. Comment 15 – Activity 3434 USF Tropical Storm Debby did not meet either the slum or blight area national objective or interim assistance requirements. This specific activity was not questioned with the national objective or interim assistance requirements because it was already questioned as an ineligible local government expense on page 11 of the audit report. Comment 16 – The County stated that it could meet the interim assistance activity requirements and could also provide pictures documenting the code violations found during the “Fight the Blight” campaigns. The County did not meet the interim assistance activity requirements, which were discussed with the County and with the local HUD Office of Community Development office that generally oversees the County. The County should refer to its correspondences with the local HUD office and our office when it was informed that the activities did not qualify under the interim assistance activity requirements. The correspondence included emails and meetings held in July, August, September, October and November of 2013. Under the interim assistance activity (according to 24 CFR 201(f) and CDBG Program – Guide to National Objectives and Eligible Activities for Entitlement Communities), certain activities may qualify if they meet all requirements under one of the two subcategories described. This activity type is seldom used because it has very specific requirements. The first subcategory covers limited improvements to a deteriorating area as a prelude to permanent improvements. The second subcategory covers activities to alleviate an emergency condition. The County designated all five interim assistance activities as qualifying under the first subcategory of the interim assistance requirement and then attempted to reclassify the activities under the second subcategory when it could not meet the conditions for the first subcategory. The local HUD office informed the County that the activities would not qualify under either of the interim assistance activity subcategories if they did not meet all of the requirements. For the unsupported interim assistance activities (3385, 3433, 3501, and 3521), the County must select a definition for deterioration. The actions must be a prelude to the permanent improvements, which means that the actions were needed before the permanent improvements could be made, and there must be specific documentation to show that the actions were necessary and the permanent improvements related for those necessary actions, as well as those permanent improvements to be made that were intended to address the deterioration identified. The activities are limited to those specifically allowed, such as repairs of streets, sidewalks, etc. 38 Between 1 and 2 years have passed since the cleanup events occurred, and there was no evidence of specific plans for permanent improvements that correlated to the cleanup events in the cleanup area boundary areas. Comment 17 – Salary costs totaling $10,264 were ineligible because they were local government expenses. Regulations at 24 CFR 570.207(a)(2) state that expenses required to carry out the regular responsibilities of the unit of general local government are not eligible for assistance. The records show that the costs generally covered five management staff members’ salaries for about 1 week. We met with all five management staff members to discuss (1) the type of work performed during this event, (2) their actual time spent on this event, (3) their job descriptions, and (4) the areas where they performed such work. Management staff members stated that they performed damage assessment and monitored water levels at river and bay areas for potential flooding, which was a part of their regular job function as outlined in their job descriptions. The management staff members also did not know that their time was being charged to the CDBG program and stated that such charges were incorrect. In addition, the activity did not qualify under the interim assistance activity because it did not meet any of the requirements listed under 24 CFR 570.201(f). Salary costs totaling $4,223 were ineligible because management staff stated they did not participate or spend their entire time at the clean-up event, as required by 24 CFR Part 225. 39 Appendix C MAP OF THE COUNTY’S NINE CDBG LOW- AND MODERATE-INCOME TARGET AREAS 40 Appendix D TABLE OF INELIGIBLE CDBG BLOCK GROUPS AND PERCENTAGES No. Target Low- and 2000 census Ineligible Types of properties Map of CDBG area moderate- data cost 6 target area income area percentages 1 Causeway 28% Census tract $21,203 Consists mainly of 136.02, commercial and block group 2 industrial properties. 47% Census tract 136.02, block group 3 2 Gibsonton 45% Census tract $14,679 Consists mainly of 138.01, solid waste facilities, block group 3 commercial businesses, and vacant land. 46% Census tract Consists mainly of 138.04, new construction and block group 2 existing moderate to large residential properties and vacant land. 3 Ruskin 36-46% Census tract $31,805 Consists mainly of a 141.07, block marina, a resort hotel groups 1 and 2 and homes, some new construction of moderate to large residential properties, vacant land, some commercial businesses, and a few small residential properties. 44% Census tract Consists mainly of 141.09, block new construction of group 3 moderate to large single-family houses, existing large houses, vacant land, and a cemetery. 6 Refer to “Scope and Methodology” section for more details on how ineligible costs were computed. 41 No. Target Low- and 2000 Census Ineligible cost Types of properties Map of CDBG area moderate- data target area income area percentages 4 Wimauma 9% Census tract $68,154 A majority of the area 139.06, block consists of vacant land group 4 and large farm land. 5 Town ‘n 34 - 44% Census tracts $53,526 A majority of the area Country 116.07, 116.09, consists of moderate to 116.12 & high-end residential 116.13 houses. 6 Dover 40% Census tract $23,854 A majority of the area 124.01, is vacant land, some block group 2 very large farm fields, and a few moderate to large houses. Total $213,221 42 Appendix E PICTURES OF INELIGIBLE CDBG BLOCK GROUP AREAS 43 44 45 46
Hillsborough County, FL Did Not Properly Administer Its Community Development Block Grant (CDBG) Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-07-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)