oversight

The Department of Housing and Community Development, Montpelier, VT, Did Not Always Operate Its Disaster Recovery Programs Effectively and Efficiently

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-09-29.

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

OFFICE OF AUDIT
REGION 1
   estimated
BOSTON, MA




               Vermont Department of Housing and
                   Community Development,
                        Montpelier, VT

                  Disaster Recovery Programs




2014-BO-1004                             SEPTEMBER 29, 2014
                                            Issue Date: September 29, 2014

                                            Audit Report Number: 2014-BO-1004




TO:            Robert Shumeyko,
               Director, Office of Community Planning and Development, Boston Hub, 1AD

               //SIGNED//
FROM:          Edgar Moore,
               Regional Inspector General for Audit, Boston Region, 1AGA

SUBJECT:       The Department of Housing and Community Development, Montpelier, VT, Did
               Not Always Operate Its Disaster Recovery Programs Effectively and Efficiently

    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the Vermont Department of Housing and
Community Development’s disaster recovery programs.

    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
(212) 264-4174.
                                             September 29, 2014

                                             The Department of Housing and Community
                                             Development, Montpelier, VT, Did Not Always Operate
                                             Its Disaster Recovery Programs Effectively and
                                             Efficiently
Highlights
Audit Report 2014-BO-1004


 What We Audited and Why                      What We Found

We audited the State of Vermont,             The State expended funds for eligible activities;
Department of Housing and Community          however, it did not always administer its Community
Development’s disaster recovery              Development Block Grant Disaster Recovery programs
programs. We initiated this audit            (CDBG-DR1 and -DR2) effectively and efficiently in
because of the significant funding           accordance with all program requirements.
awarded and the Boston Office of             Specifically, it did not (1) have the staffing capacity to
Community Planning and                       administer its disaster recovery programs in
Development’s concerns about the             accordance with all program requirements, (2) submit
State’s capacity to administer this          all quarterly performance reports in a timely manner,
funding. Our audit objective was to          (3) perform adequate monitoring or oversight of
determine whether the State                  funded activities, (4) follow HUD requirements
administered its disaster recovery           regarding substantial and nonsubstantial amendments
programs effectively and efficiently in      to action plans, and (5) correct discrepancies contained
accordance with applicable regulations;      in quarterly progress reports submitted by
specifically, whether the State had (1)      subrecipients. This condition occurred because the
the capacity to administer its disaster      State relied on its existing staff for oversight of
programs, (2) established and                CDBG-DR1 program activities and failed to hire
implemented controls to ensure that          sufficient staff to oversee both the CDBG-DR1 and -
program activities were adequately           DR2 programs. As a result, there is a risk that the
documented and administered, and (3)         program mission will not be accomplished and that
expended funds for eligible activities.      obligated CDBG-DR2 funding of $13.2 million will
                                             not be expended by the deadline of December 10,
 What We Recommend                           2015. In addition, HUD lacked assurance that the
                                             State and its subrecipients complied with laws,
                                             regulations, grant agreements, and program
We recommend that the U.S.                   requirements.
Department of Housing and Urban
Development (HUD) require the State
to determine the portion of the $13.2
million in disaster recovery funds that it
believes will not be expended by the
December 10, 2015, deadline and
request a waiver from HUD for an
extension and hire additional staff
sufficient to ensure its disaster recovery
programs are administered effectively.
                            TABLE OF CONTENTS

Background and Objective                                                       3

Results of Audit
         Finding: The State Did Not Always Administer Its Disaster Recovery
                  Programs Effectively and Efficiently                         4

Scope and Methodology                                                          9

Internal Controls                                                             11

Appendixes
A.    Schedule of Funds To Be Put to Better Use                               13
B.    Auditee Comments and OIG’s Evaluation                                   14
C.    Criteria                                                                20




                                             2
                      BACKGROUND AND OBJECTIVE

The State of Vermont’s Agency of Commerce and Community Development is organized into
three departments (1) the Department of Economic Development, (2) the Department of Tourism
and Marketing, and (3) the Department of Housing and Community Development, which is
responsible for administering the Community Development Block Grant (CDBG) program
funded by the U.S. Department of Housing and Urban Development (HUD).

The Community Development Block Grant Disaster Recovery (CDBG-DR) assistance program
was authorized under Title I of the Housing and Community Development Act of 1974. Disaster
recovery funds may be used for activities such as buying, constructing, and rehabilitating homes,
buildings, or structures; enhancing public facilities; or providing public services, such as
assistance to homeowners and businesses that create jobs. The funds may not be used on
activities when they duplicate funding already made available from the Federal Emergency
Management Agency, the Small Business Administration, the U.S. Army Corps of Engineers,
etc.

Section 239 of the HUD Appropriations Act of 2012 (Pub. L. 112-55, approved November 18,
2011) made available up to $400 million in disaster funding (CDBG-DR1) until expended. The
law provides that grants may be awarded directly to a State or unit of general local government
at the discretion of the HUD Secretary. Of the $400 million, more than $21.6 million (under
grant number B-12-DT-50-0001 DF3) was allocated to Vermont for use on disaster recovery
activities in Vermont’s Washington and Windsor Counties, which saw the greatest degree of
damage from flooding, primarily from Hurricane Irene.

On January 29, 2013, Congress passed the Disaster Relief Appropriations Act (Public Law 113-
2), which consisted of a supplemental appropriation to improve and streamline disaster
assistance for Hurricane Sandy, but it also expanded the use of the funding for other eligible
events that occurred in calendar years 2011, 2012, and 2013. As a result, Vermont received
another allocation of disaster funding (CDBG-DR2) of more than $17.9 million (under grant
number B-13-DS-50-0001), which will remain available through September 30, 2017. The State
of Vermont asked HUD to obligate only about $13.2 million, or approximately 74 percent of the
total $17.9 million in CDBG-DR2 funds allocated to Vermont. As projects get underway, the
State plans to amend its action plan and request that HUD obligate the additional funds, thus
starting a new 2-year expenditure timeline for the additional funds requested. The State will
have until June 1, 2017, to submit an amendment to budget the remaining $4.7 million.

The objective of the audit was to determine whether the State administered its disaster recovery
programs effectively and efficiently in accordance with applicable regulations. Specifically, we
wanted to determine whether the State had (1) the capacity to administer its disaster recovery
programs, (2) established and implemented the necessary controls to ensure that program
activities were adequately documented and administered, and (3) expended funds for eligible
activities.



                                                3
                                  RESULTS OF AUDIT


Finding:         The State Did Not Always Administer Its Disaster Recovery
                 Programs Effectively and Efficiently
The State of Vermont, Department of Housing and Community Development expended the
funds tested for eligible activities; however, it did not always administer its disaster recovery
programs (CDBG-DR1 1 and -DR 2 2) effectively and efficiently. Specifically, state officials did
not (1) have the staffing capacity to administer the disaster recovery programs in accordance
with all program requirements, (2) submit all quarterly performance reports in a timely manner,
(3) perform adequate monitoring or oversight of funded activities, (4) follow HUD requirements
regarding substantial and nonsubstantial amendments to action plans, and (5) correct
discrepancies contained in quarterly progress reports submitted by subrecipients. These
deficiencies occurred because the State relied on its existing staff for oversight of CDBG-DR1
program activities and failed to hire sufficient staff to oversee both the CDBG-DR1 and -DR2
programs. As a result, there is a risk that the program mission will not be accomplished and that
obligated CDBG-DR2 funding of $13.2 million will not be expended by the deadline of
December 10, 2015. In addition, HUD lacked assurance that the State and its subrecipients
complied with laws, regulations, grant agreements, and program requirements.


    The State Lacked the Capacity
    To Administer Disaster
    Recovery Programs


                 State officials did not have the capacity to properly administer the disaster
                 recovery grants as certified to per the Federal register section VI(35)(M) (see
                 Appendix C for criteria). On January 20, 2012, the HUD Secretary announced
                 that $21.6 million would be allocated to the State to support disaster recovery
                 efforts, primarily for flooding from Hurricane Irene. The State’s action plan
                 submitted to HUD on July 20, 2012, showed that the State planned to rely on its
                 existing staff to oversee CDBG-DR1 program activities. Although there is no
                 expenditure deadline for CDBG-DR1 funding, HUD regulations [FR, Section
                 VI(30)] state that each grantee is expected to promptly obligate and expend all
                 funds. In the summer of 2012, when it became clear that it needed additional staff
                 to operate the CDBG-DR1 program, State officials began a search for a grant
                 management specialist to work exclusively with disaster recovery programs.

1
  The HUD Appropriations Act (CDBG DR1) passed by Congress on November 18, 2011 states funds were
allocated to Vermont for use on disaster recovery activities in Vermont’s Washington and Windsor Counties, which
saw the greatest degree of damage from flooding, primarily from Hurricane Irene.
2
  The HUD Disaster Relief Appropriations Act (CDBG DR2) passed by Congress on January 29, 2013 consisted of
a supplemental appropriation to improve and streamline disaster assistance for Hurricane Sandy, but it also
expanded the use of the funding for other eligible events that occurred in calendar years 2011, 2012, and 2013.

                                                       4
                 However, the grant management specialist did not officially begin working until
                 March 11, 2013. Because a new position had to be created and approved, it was
                 several months before the State was able to advertise this position and find the
                 appropriate candidate.

                 On March 27, 2013, the HUD Secretary announced that $17.9 million (in CDBG-
                 DR2 funds) would be allocated to help Vermont communities recover from the
                 lingering effects of Hurricane Irene. 3 This amount supplemented the $21.6
                 million awarded in January 2012. As a result of this announcement, the staffing
                 level was increased with the hiring of two additional staff members, an
                 environmental officer and a grant specialist.

                 Having an environmental officer is beneficial for community planning and
                 development programs. However, the hiring of the environmental officer was not
                 directly related to the disaster recovery programs but, rather, was based on the
                 recommendations from a HUD environmental review performed June 24-25,
                 2013. In addition, most of the environmental officer’s time was spent on the
                 CDBG and HOME Investment Partnerships programs, with only a small
                 percentage of her time being spent on the CDBG-DR programs. The State’s
                 primary needs for disaster recovery included staff to perform compliance
                 oversight and monitoring, along with financial oversight and analysis of
                 independent public auditor reports.

                 The grant specialist added for disaster recovery was transferred from the State’s
                 Division of Community Planning and Revitalization within the Agency of
                 Commerce and Community Development. The grant specialist was initially used
                 to assist another grant specialist who oversaw the regular CDBG program and was
                 unable to work a 40-hour week. The grant specialist did not officially begin
                 working until October 2013, approximately 7 months after the HUD Secretary’s
                 announcement.

                 The State was responsible for an active Housing Acquisition and Rehabilitation
                 Program, involving HUD’s Neighborhood Stabilization Programs 1 and 3, CDBG
                 program, and HOME program. However, the State had only one main person
                 responsible for the review and analysis of the independent public audit reports,
                 and she worked primarily on the CDBG program, spending less than 2 percent of
                 her time on disaster recovery activities. This same person was responsible for
                 closeout agreement management and assisting with financial management
                 monitoring and oversight of the regular CDBG program. A State official stated
                 that in addition to the grant management specialist and grant specialist recently
                 hired, there was a need for an additional grant management specialist for disaster
                 recovery programs for compliance oversight and monitoring and one more grant
                 management specialist for review and analysis of independent public auditor

3
 The State asked HUD to obligate only $13.2 million of the total $17.9 million in funds allocated to it. When
projects were underway, the Agency planned to amend its action plan and request that HUD obligate the additional
$4.7 million. The State will have until June 1, 2017, to submit an amendment to budget the remaining $4.7 million.

                                                        5
                   reports. The State had significant unexpended funding. As of June 5, 2014, about
                   $7 million of the $21.6 million awarded for CDBG-DR1 had been expended, and
                   only $190,220 of the $17.9 million awarded for CDBG-DR2 had been expended.

    Quarterly Performance Reports
    Were Not Submitted in a
    Timely Manner

                   The primary reports HUD requires for disaster recovery activities are the
                   quarterly performance reports. The State failed to submit the quarterly
                   performance reports to HUD in a timely manner. It submitted a total of five
                   quarterly performance reports covering periods ending from December 31, 2012,
                   to December 31, 2013. HUD dictates that reports are due no later than 30 days
                   following the end of each calendar quarter 4. However, only one of the reports
                   was submitted in a timely manner. The number of late days for the remaining five
                   reports ranged from 54 to 295 days. For example, the report for the period ending
                   December 31, 2012, was due on January 31, 2013, but was not submitted until
                   May 31, 2013, and the report for the period ending June 30, 2013, was due on
                   July 31, 2013, but was not submitted until December 9, 2013. It should be noted
                   that all outstanding quarterly performance reports have been subsequently
                   submitted.

    There Was a Lack of Proper
    Monitoring


                   We noted deficiencies with several of the State’s onsite monitoring reviews of
                   subrecipients. Specifically, the State (1) did not maintain documentation
                   supporting the monitoring work performed, (2) failed to notify a subrecipient of
                   the results of the review in a timely manner, and (3) did not follow up to
                   determine that identified deficiencies had been resolved (per HUD Handbook
                   6509, Chapters 2-10, 2-14(A) and 2-12(B)(1) see Appendix C for specific
                   criteria).

                   For example, an onsite monitoring performed by the State on September 13, 2013,
                   of the Two Rivers-Ottauquechee Regional Commission (subrecipient) was not
                   adequately supported. The State subgranted CDBG-DR1 funding to this
                   subrecipient to administer its buyout program. However, there was no
                   documentation to support the details of the review, including checklists, notes,
                   writeups, or other documentation supporting monitoring work or activities (per
                   HUD handbook 6509, Chapter 2-14(A)). With no documentation, HUD could not
                   substantiate that all procedures were followed.



4
    Federal Register [Docket No. FR–5628–N–01] Disaster Recovery DR-1 Section VI(31)(B)

                                                       6
          In addition, the State failed to notify the Central Vermont Community Action
          Council (subrecipient) on a timely basis regarding the results of an onsite
          monitoring review it performed on November 7, 2013. The State sent the letter
          notifying the subrecipient of the results of the review on May 20, 2014, about 6
          months after the site visit was performed. However, HUD regulations dictate that
          a monitoring letter be sent within 60 days after completion of monitoring to the
          program participant describing the results of the review (HUD handbook 6509,
          Chapter 2-10.

          Also, there was no evidence that the State maintained documentation to
          substantiate how findings from a September 25, 2013, onsite monitoring review at
          the Brattleboro Development Credit Corporation (subrecipient) were resolved.
          The State requested a response by November 22, 2013, stating how these findings
          were resolved, but there was no evidence that the State followed up to ensure how
          or whether the deficiencies noted were corrected (HUD handbook 6509, Chapter
          2-12(B)(1).

HUD Requirements Regarding
Amendments to Action Plans
Were Not Followed

          The State submitted a revised action plan for a substantial amendment, which
          involved moving funds from the mobile home financing activity to the
          competitive municipal infrastructure activity. The action plan also noted changes
          in completion dates for its buyout and housing recovery programs. However, the
          State did not follow Federal Register requirements (sections VI (1) G) for action
          plans with substantial amendments, which provide that the beginning of every
          amended action plan must include a section that identifies exactly what content is
          being added, deleted, or changed and shows a chart or table that clearly illustrates
          where funds are coming from and where they are moving to. In addition, the
          action plan did not include a revised budget allocation table that reflected all of
          the funds as amended. The State also failed to post the amendment to its Web site
          as required (section VI (2) B).

Discrepancies Were Noted in
Progress Reports

          We found inaccuracies or inconsistencies in the quarterly progress reports
          submitted by two subrecipients; specifically, the Brattleboro Development Credit
          Corporation and the Central Vermont Community Action Council. The State
          subgranted funding to the two agencies to provide business assistance in the form
          of grants and loans to meet businesses’ unmet needs. The actual to-date figures
          reflected in the quarterly reports ending December 31, 2013, for the number of
          businesses assisted and jobs created were reported incorrectly based on a
          comparison to the actual to-date figures in the prior quarter (period ending

                                           7
             September 30, 2013). A State official stated that this error may have been
             attributed to software problems in the system(s) interfacing with HUD. The
             State’s policy was to have a grant specialist verify the accuracy of data in the
             progress reports submitted by subrecipients; however, limited staffing hindered
             these efforts.

Conclusion

             The State did not adequately administer its disaster recovery programs as officials
             relied on the State’s existing staff for oversight of CDBG-DR1 program activities
             and failed to hire sufficient staff to oversee both the CDBG-DR1 and -DR2
             programs. By not having sufficient staffing to administer its disaster recovery
             programs, there is a risk that the program mission will not be accomplished and
             that obligated CDBG-DR2 funding of $13.2 million will not be expended by the
             deadline of December 10, 2015. In addition, because of the State’s failure to
             submit performance reports in a timely manner, perform proper monitoring or
             oversight of funded activities, follow HUD requirements regarding substantial and
             nonsubstantial amendments to action plans, and correct discrepancies in progress
             reports, HUD lacked assurance that the State and its subrecipients complied with
             laws, regulations, grant agreements, and program requirements.

Recommendations

             We recommend that the Director of HUD’s Boston Office of Community
             Planning and Development require State officials to

             1A   Determine the portion of the $13.2 million in CDBG-DR2 funds that the
                  State believes will not be expended by the December 10, 2015, deadline and
                  request a waiver in a letter to HUD justifying the necessity for extending the
                  deadline and identify the date by when the specified portion of funds will be
                  expended, to ensure that these funds are put to their intended use.

             1B. Develop controls that will allow for sufficient staff to be hired to ensure that
                 the disaster recovery programs are administered effectively.




                                              8
                         SCOPE AND METHODOLOGY

We performed our onsite audit work at the State’s main office located at One National Life
Drive, Montpelier, VT, from January to May 2014. Our audit generally covered the period
August 1, 2011, to December 31, 2013, and was extended when necessary to meet our objective.
We relied in part on computer-processed data for obtaining information on the State’s expenditure
of disaster recovery funds. We performed a minimal level of testing and found the data to be
adequate for our purposes.

To accomplish our audit objective, we

   •   Reviewed applicable laws, regulations, HUD handbooks , HUD notices, and the State’s
       policies and procedures, including its action plans.

   •   Conducted discussions with State officials to gain an understanding of the State’s financial
       structure, procurement practices, reporting activities, monitoring policies, applicant selection
       process, and staffing capacity issues.

   •   Evaluated internal controls and reviewed computer controls to identify potential
       weaknesses related to our objective.

   •   Reviewed records of the State’s board minutes, independent public auditor’s reports, and
       written HUD monitoring reviews of the State’s disaster recovery program.

   •   Evaluated the State’s allocation plan to determine whether the allocation of costs was
       reasonable and evaluated the State’s monitoring practices and reporting process.

   •   Evaluated the State’s rating and scoring of applications, ensuring that the State selected
       and evaluated subrecipients in accordance with its action plan.

   •   Evaluated the State’s efforts to identify and prevent duplication of assistance and
       ineligible assistance.

   •   Selected a sample of 4 requisitions for the competitive grant program, (totaling $766,474)
       from a universe of 33 requisitions (totaling more than $2.3 million). The selection was
       based on the four largest requisitions; one for each of the four subrecipients that
       expended funds through the program. Because two of the four subrecipients had multiple
       vendors, further sampling was warranted. The total number of vendors for 2 of the
       subrecipients were 13 (totaling $318,700) and 33 (totaling $245,559), respectively. Our
       sample selection represented the largest three vendor payments for each of the two
       vendors totaling $94,000 and $31,930, respectively. We evaluated activities to determine
       whether national objectives were met, the scoring process was reasonable, the State
       complied with written agreements, and expenses were eligible and adequately supported.



                                                  9
   •   Selected a sample of 3 requisitions for the State directed grant program, (totaling
       $480,467) from a universe of 39 requisitions (totaling more than $2.2 million) to evaluate
       the State’s practices and procedures. The selection was based on the three largest
       requisitions (totaling $480,467); one for each of the three activities for which the vast
       majority of the funding was expended; namely, the buyout, housing recovery, and
       downtown assistance programs. We evaluated procedures regarding deed restrictions and
       debt to equity ratios and determined whether national objectives were met, the scoring
       process was reasonable, the State complied with written agreements, and expenses were
       eligible and adequately supported.

   •   Tested the procurements for demolition contracts awarded through the CDBG-DR1
       program. We limited our review to the three highest payments for demolition projects.
       We selected a sample of 3 projects (total costs of $228,762) to review from a universe of
       10 demolition projects totaling $982,300.

   •   Selected a sample of 3 administrative cost line items for the CDBG-DR1 grant, (totaling
       $188,925) from a universe of 108 administrative cost line items (totaling $460,055). The
       selection was made from the expenditure summary of the Vision accounting system
       (accounting software) and was based on the largest expenditures in each of three
       categories; namely, salaries, computer software services and miscellaneous
       administrative costs (advertising, travel, etc.). For the CDBG-DR2 grant, we selected a
       sample of 1 administrative cost line item (totaling $85,072) from a universe of 32
       administrative cost line items (totaling $168,761). The sample item was the largest dollar
       item in the universe. We tested to determine whether costs were reasonable, eligible, and
       supported.

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.




                                               10
                              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:

                  •   Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

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

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

               We assessed the relevant controls identified above.

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




                                                 11
Significant Deficiencies

             Based on our review, we believe that the following items are significant deficiencies:

                 •   State officials did not have adequate controls over program operations
                     when they failed to hire a sufficient number of staff members to properly
                     administer the State’s two disaster recovery programs (see finding).

                 •   State officials did not have adequate controls over compliance with laws
                     and regulations when they failed to submit quarterly performance reports
                     in a timely manner, perform adequate monitoring, follow HUD
                     requirements regarding substantial and nonsubstantial amendments to
                     action plans, and correct discrepancies contained in quarterly progress
                     reports submitted by subrecipients (see finding).




                                              12
                                   APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE


             Recommendation                       Funds to be put
                 number                           to better use 1/
                   1A                              $13,232,000




1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. By implementing our recommendation requesting an
     extension of the deadline for the use of $13.2 million in CDBG-DR2 funding, the
     recapture of funds awarded to benefit the Vermont residents affected by natural disasters
     can be avoided.




                                            13
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         14
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




Comment 3




                         15
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 5




Comment 6




Comment 7




Comment 8




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 9




                         17
                            OIG Evaluation of Auditee Comments

Comment 1 Department of Housing and Community Development (State) officials agreed
          with OIG that additional staff are necessary to meet its monitoring and oversight
          responsibilities. OIG modified recommendation 1B to direct the State to develop
          controls that would allow for sufficient staff to be hired to ensure that the disaster
          recovery programs are administered effectively.

Comment 2 State officials agreed that they failed to submit quarterly performance reports on
          time. They indicated that, as discussed during the exit conference, the first report
          was not due until December 31, 2012, which means that five reports were late, not
          six. As such, State officials requested that these facts be corrected in the report.
          In addition, they suggested that the audit report emphasize that all outstanding
          quarterly performance reports have since been submitted. OIG agreed and revised
          the report, accordingly.

Comment 3 State officials believed that there was some misunderstanding regarding the
          examples cited on monitoring. They state that regarding the Central Vermont
          Community Action Council they informed the auditors of the status of the review
          and since it was not completed, they did not yet provide a monitoring letter.
          Regarding Brattleboro they had the required documents related to their follow-up
          on the monitoring deficiencies, but were not asked for this information. Officials
          did agree that they did not have the capacity to adequately monitor, as activities
          have increased. However, we disagree that there were discussions of follow up
          activities pertaining to the Central Vermont Community Action Council review as
          the only documentation OIG received from the State related to this review was the
          May 20, 2014 letter where they notified this subrecipient of the results of a review
          performed six months ago on November 7, 2013. There was no indication that
          State officials followed-up on the deficiencies identified. Regarding Brattleboro,
          we disagree because on June 2, 2014, OIG requested support for all onsite
          monitoring activities for disaster recovery. Based on our review of the
          documentation provided, there was no evidence that the State followed-up to
          ensure deficiencies were corrected for this agency. It should also be noted that the
          formal written comments did not include documentation to support the State’s
          position on these matters. Therefore, better controls are needed to ensure that
          sufficient staff is hired to document the Sate’s monitoring actions, etc.

Comment 4     We acknowledge State official’s admission that they failed to follow HUD
              requirements regarding amendments to action plans, and they will seek further
              HUD guidance to better adhere to requirements in the future.

Comment 5     State officials emphasized that the inaccuracies in subrecipient progress reports,
              or any delay in correcting such inaccuracies, were not caused by a lack of
              staffing, but by problems entering data into HUD’s Disaster Recovery Grant
              Reporting system. OIG did not state that the inaccuracies in quarterly progress


                                               18
                          OIG Evaluation of Auditee Comments

            reports were specifically caused by a lack of staffing capacity. However, the
            State’s Director of Grants Management informed OIG, during an interview
            conducted on February 19, 2014, that their policy is to have a grant specialist
            verify the accuracy of data in the progress reports submitted by subrecipients,
            but admitted that limited staffing hindered these efforts. We were informed that
            the responsibility for ensuring the accuracy of the progress reports will be
            assigned to a grant management specialist undergoing on the job training.

Comment 6   State officials requested some revisions to the wording in the opening
            paragraph of the report. For example, while the first sentence of the report
            acknowledges that funds were expended for eligible activities, State officials
            believed that it was appropriate to state this more affirmatively to better
            reflect their work and program accomplishments. We concurred with the
            State’s request for revisions to the report’s opening paragraph with the
            exception of the matter related to the quarterly progress reports.

Comment 7   State officials emphasized that the introduction of the CDBG-DR1 program
            occurred at a time when there was tremendous uncertainty about the federal
            budget and funding for its regular CDBG program was in serious jeopardy. As a
            result, the State did not believe it was prudent to hire new staff while facing
            potential cuts for existing staff. OIG believes any concerns regarding cuts to the
            regular CDBG program were unfounded. The introduction of the CDBG-DR1
            program and the funding allocations for the regular CDBG program were
            announced almost simultaneously. HUD published funding allocations for all
            Community Planning and Development programs on January 18, 2012, and on
            January 20, 2012, the HUD Secretary announced Vermont would receive $21.6
            million in CDBG-DR1 funding.

Comment 8   The State did not agree that there is a "significant" risk, reported in the last
            sentence of the report’s opening paragraph, that the program mission will not be
            accomplished. They believed that the sentence would be more accurate if it
            stated that there is “a risk" without the modifier "significant. OIG concurred and
            removed the word “significant” from the report.

Comment 9   State officials at the exit conference misunderstood and thought that the report
            would be modified from the draft language to direct the State to hire "two
            additional staff members to work on disaster recovery programs” rather than
            recommending that they "hire additional grant management staff and reassign
            an experienced employee to work on disaster recovery programs. However,
            we did adjust recommendation 1B to be less specific so that they could hire the
            staff that they considered to be sufficient enough to ensure that the disaster
            recovery programs are administered effectively".


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Appendix C

                                         CRITERIA

Federal Register [Docket No. FR–5628–N–01] Disaster Recovery DR-1
Section VI(31)(B) – Each grantee must submit a quarterly performance report, as HUD
prescribes, no later than 30 days following the end of each calendar quarter, beginning after the
first full calendar quarter after grant award and continuing until all funds have been expended
and all expenditures have been reported.

Section VI(1)G – In the case of Action Plan amendments, each amendment should constitute the
entirety of the Action Plan, as amended. The beginning of every Action Plan amendment must
include a section that identifies exactly what content is being added, deleted, or changed. This
section must also include a chart or table that clearly illustrates where funds are coming from and
where they are moving to. The Action Plan must include a revised budget allocation table that
reflects the entirety of all funds, as amended. A grantee’s most recent version of its entire Action
Plan should be able to be accessed and viewed as a single document at any given point in time,
rather than the public having to view and cross-reference changes among multiple amendments.

Section VI(2)B – Grantee must notify HUD, but is not required to undertake public comment,
when it makes any plan amendment that is not substantial. However, every amendment to the
Action Plan (substantial and nonsubstantial) must be numbered sequentially and posted on the
grantee’s Web site.

Section VI(30) – HUD expects each grantee to expeditiously obligate and expend all funds,
including any recaptured funds or program income, and to carry out activities in a timely
manner.

Section VI(35)(M) – Each State or unit of local government receiving a direct award certifies
that it (and any subrecipient or administering entity) has the capacity to carry out disaster
recovery activities in a timely manner; or the State or unit of local government will develop a
plan to increase capacity where such capacity is lacking.

Federal Register [Docket No. FR-5696-N-06] Disaster Recovery Grants DR-2
Section III – To ensure timely expenditure of funds, section 904(c) under Title IX of the
Appropriations Act requires that all funds be expended within two years of the date HUD
obligates funds to a grantee (funds are obligated to a grantee upon HUD’s signing of the
grantee’s CDBG-DR grant agreement).

HUD CPD Grant Monitoring Handbook 6509.2
Chapter 1-4 – This Handbook is for the use of all HUD CPD [Office of Community Planning
and Development] field staff and program participants involved in monitoring CDBG programs.




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Chapter 2-7 Section C – The “real work” of monitoring entails interviews and file reviews to
verify and document compliance and performance (and can include physical inspections, if
monitoring is conducted on-site).

Chapter 2-10 – Within 60 days after completion of monitoring, written correspondence must be
provided to the program participant describing the results – in sufficient detail to clearly describe
the areas that were covered and the basis for the conclusions.

Chapter 2-12(B)(1) - In the event that a program participant fails to meet a target date - and has
not alerted the Field Office as to the reasons prior to the date (and, if appropriate and agreed-
upon, established a new date) - the HUD reviewer is to follow-up either by telephone or email,
with a reminder. Either form of contact must be documented.

Chapter 2-14 Section A – It is essential that each step of the monitoring process be adequately
documented. Documenting preserves the valuable results, both positive and negative. All
correspondence, documentation and working papers relating to the monitoring and conclusions
are to be maintained in the official field office files.

Code of Federal Regulations
24 CFR 85.40(a) – Grantees are responsible for managing the day-to-day operations of grant and
subgrant supported activities. Grantees must monitor grant and subgrant supported activities to
assure compliance with applicable Federal requirements and that performance goals are being
achieved. Grantee monitoring must cover each program, function, or activity.

Vermont’s CDBG Disaster Recovery 1 Action Plan, July 20, 2012
Part V, General Requirements, under section entitled “Building Capacity for Implementation and
Compliance” – The Agency’s Action Plan states that it will provide technical and management
assistance to the grant recipients. In addition, there will be staff available to provide day-to-day
ongoing technical assistance via e-mail, telephone and on-site visits, when necessary.




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