oversight

The Colorado Coalition for the Homeless Incorrectly Allocated Its Employee Payroll Time and Charged Ineligible Cost to Its Grants

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-09-30.

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

OFFICE OF AUDIT                                      DRAFT
REGION   8
   For Discussion and Comment Only - Subject to Review and Revision
DENVER, CO




                   Colorado Coalition for the Homeless
                              Denver, CO

                Community Housing and Development
                   Supportive Housing Program




2014-DE-1003                                                          SEPTEMBER 30, 2014
                                                        1
                                                                    Issue Date: September 30, 2014

                                                                    Audit Report Number: 2014-DE-1003




TO:            LeRoy Brown, Director, Community Planning and Development, 8AD

               //signed//
FROM:          Ronald J. Hosking, Regional Inspector General for Audit, 8AGA

SUBJECT:       The Colorado Coalition for the Homeless Incorrectly Allocated Its Employee
               Payroll Time and Charged Ineligible Cost to Its Grants


    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 Colorado Coalition for the Homeless,
Denver, CO.

    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
913-551-5870.




                                                Office of Audit Region 8
                                   1670 Broadway, 24th Floor, Denver, CO 80202
                                      Phone (303) 672-5452, Fax (303) 672-5006
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
                                            September 30, 2014
                                            The Colorado Coalition for the Homeless Incorrectly
                                            Allocated Its Employee Payroll Time and Charged
                                            Ineligible Cost to Its Grants



Highlights
Audit Report 2014-DE-1003



 What We Audited and Why                     What We Found

We initiated a review of the Colorado       The Coalition incorrectly allocated its employee
Coalition for the Homeless due to issues    payroll time among its Supportive Housing Program
discovered during a Denver U.S.             grants. In addition, it charged ineligible costs to its
Department of Housing and Urban             grants, provided ineligible benefits to its employees,
Development (HUD), Office of                and spent some of its grant money on ineligible
Community Planning and Development          supportive housing items. The Coalition also
(CPD), monitoring review. Issues            continued to misspend its grant funds as highlighted in
identified during HUD’s review              previous HUD Office of Inspector General and HUD
included improperly accounting for          CPD reviews.
administrative costs and the use of grant
funds for ineligible expenses. Our
objectives were to determine whether
the Coalition properly assigned
employee time among its grants and
whether it charged unallowable costs to
its grants.

 What We Recommend

We recommend that HUD require the
Coalition to (1) develop procedures to
ensure that employee timesheets are
accurate; (2) provide support for
Homeless Management Information
System time charged to its grants; (3)
reimburse HUD for ineligible grant
expenses; and (4) seek a legal opinion
from HUD’s Office of General Counsel
regarding the use of grant funds for
employee parking, employee gift cards,
and transit subsidies.
                            TABLE OF CONTENTS

Background and Objectives                                                   5

Results of Audit
      Finding 1: The Coalition Incorrectly Allocated Its Employee Payroll   6

      Finding 2: The Coalition Spent Grant Money on Ineligible Items        10

      Finding 3: The Coalition Continued To Misspend Its Grant Funds        13

Scope and Methodology                                                       16

Internal Controls                                                           17

Appendixes
A.    Schedule of Questioned Costs                                          19
B.    Auditee Comments and OIG’s Evaluation                                 20




                                             4
                     BACKGROUND AND OBJECTIVES

The Colorado Coalition for the Homeless is a 501(c)(3) nonprofit organization established in
1984. The Coalition’s mission is to work collaboratively toward the prevention of homelessness
and the creation of lasting solutions for homeless and at-risk families, children, and individuals
throughout Colorado. A 13-member board of directors governs the Coalition. The executive
offices of the Coalition are located at 2111 Champa Street, Denver, CO.

The Coalition receives funding from Federal, State, and municipal grants, along with private
funding from various sources. The Coalition administers grants either directly or through 25
partner agencies in small cities and rural communities and throughout metropolitan Denver. It
operates 1,521 units of housing.

For grant years 2011 and 2012, the U.S. Department of Housing and Urban Development
(HUD) awarded the Coalition 36 competitive Supportive Housing Program grants totaling more
than $9.8 million. HUD awards program funds as annual competitive grants having a 3-year
term with renewal grants having a 1-year term. The purpose of the program is to enable
homeless persons to live as independently as possible. The Supportive Housing Program is a
competitive program under HUD’s Continuum of Care Program.

We initiated a review of the Coalition due to issues discovered during a Denver HUD Office of
Community Planning and Development (CPD) monitoring review. Issues identified during this
review included improperly accounting for administrative costs and the use of grant funds for
ineligible expenses.

The objectives of our audit were to determine whether the Coalition properly assigned employee
time among its grants and whether it charged unallowable costs to its grants.




                                                5
                                                  
                                RESULTS OF AUDIT

Finding 1: The Coalition Incorrectly Allocated Its Employee Payroll
The Coalition incorrectly allocated its employee payroll time among its Supportive Housing
Program grants. This condition occurred because the Coalition lacked a control to ensure that
employee timesheets were accurate at the time they were certified by the manager. As a result,
HUD could not be assured that more than $104,000 was used to administer its supportive
housing grants.



 The Coalition Incorrectly
 Allocated Its Employee Payroll
 Among Its Grants

              The Coalition incorrectly allocated some of its employee payroll time among its
              Supportive Housing Program grants. It could not support more than $104,000 in
              employee time allocated to these grants.

              The Coalition’s grant agreement with HUD requires that it conduct all of its HUD
              grant financial transactions and maintain its records in accordance with generally
              accepted accounting principles. Federal regulations at 24 CFR (Code of Federal
              Regulations) 84.21(b)(7) require the Coalition to support its grant accounting
              records with source documentation. Additionally, according to the HUD
              Supportive Housing Program Desk Guide, the Coalition must separately
              document staff time per grant and show how it assigned the grant costs. This
              information is important for determining the correct non-Federal matching
              portions defined in 24 CFR 583.100 through 583.150.

              Unsupported Homeless Management Information System Salaries
              The Coalition incorrectly allocated more than $63,000 of its Homeless
              Management Information System (HMIS) staff time to its other HUD grants from
              January 1, 2011, to December 31, 2012. It was unable to support the staff time
              spent on each of the grants for HMIS activities.

              Coalition staff updates, manages, and maintains HMIS, a database used by the
              Coalition and its partners to support their Supportive Housing Programs.
              According to Coalition officials, HMIS staff may charge time to update grant-
              specific data or to maintain the entire system. Officials stated that the Coalition
              did not track and document the amount of time its HMIS staff spent working on
              each of its SHP grants. Instead, it periodically pooled the HMIS staff time and
              then allocated the time to the Coalition’s grants that had not been fully expended.


                                               6
                                                 
Therefore, the Coalition was unable to provide source documentation supporting
HMIS payroll time allocated to its grants.

Table 1 summarizes the unsupported amount of HMIS staff payroll allocated to
each of its Supportive Housing Program grants.

Table 1: Allocation of HMIS payroll to HUD grants
            Grant name                  HMIS payroll allocated to grant
Lowry Perm                                         $2,000
Ren 88                                             $5,000
Concord Plaza                                      $6,050
Fremont-Custer-Chaffee TH                           $995
Mesa                                               $1,243
Southwest                                           $505
SLV                                                 $162
Adelante                                            $456
Garfield Trans                                      $823
NFR                                                 $816
Pueblo Trans                                        $359
Pueblo Perm                                         $174
Xenia Supportive Housing                           $2,000
HMIS Expansion                                     $2,549
Riverfront Perm                                    $5,075
Uptownlofts                                        $5,000
HNM                                                $3,057
REN SHP                                            $5,000
SHP DHF                                           $21,916
Total:                                            $63,180

Ineligible Program Staff Salaries
The Coalition incorrectly allocated nearly $41,000 in program staff salaries to its
other HUD grants from January 2, 2011, to December 31, 2012. Employee time
sheets did not always agree with the Coalition’s payroll records.

The Coalition incorrectly allocated approximately $32,000 in program staff
salaries to its REN SHP grant and nearly $9,000 in program staff salaries to its
SHP DHF grant

The Coalition required its program staff members to classify and separate hours
worked by grant on their timesheets. Staff members could work only on grants
previously approved by their supervisors. Coalition officials stated these controls
helped to ensure that employees worked on the correct grants.




                                 7
                                   
           The Coalition incorrectly charged four of its employees’ salaries to its grants
           totaling nearly $41,000. The employees’ worked on a grant, prepared and
           certified their timesheets showing the grant(s) they worked on, and sent their
           timesheet to their supervisor for final certification. However, in these four
           instances we found the Coalition accounting staff charged the employees’ salary
           to a different grant than the grant listed on the employees’ timesheet after it was
           certified by the manager.

           For example, an employee charged all of their time to a non HUD grant activity
           on their timesheet during the two week work period ending October 8, 2012. The
           employee and their supervisor signed the timesheet on October 8, 2012. On
           October 31, 2012, Coalition accounting staff allocated $7,387 of the employee’s
           May 2012 through October 2012 salaries to a HUD grant. During an interview,
           the employee said they worked primarily on the non HUD grant activity during
           this time period and they were not aware their time was applied to a HUD grant.

           This is ineligible under 24 CFR 583.150 that forbids the use of SHP grant funds
           for State or local purposes even when the underlying activity is assistance for
           homeless persons.


           Table 2 summarizes program staff time salaries incorrectly allocated to its
           Supportive Housing Program grants.

           Table 2: Allocation of program staff time to grants
                     Grant name                   Program staff salaries allocated to
                                                                grant
           REN SHP                                             $32,001
           SHP DHF                                                 $8,895
           Total:                                                 $40,896



The Coalition Lacked a Control
To Ensure That Employee
Timesheets Were Accurate


           The Coalition lacked a control that prohibits accounting staff from making
           backward adjustments without proper support or certifications from the staff
           stating they in fact worked on the HUD grant. During our review, Coalition
           officials stated that actual costs incurred often exceed the total amount allowed in
           its grants. Management and accounting staff meet on a periodic basis to
           reallocate costs away from over expended grants. We noted these allocations
           could take place months after the employee timesheets were certified. The

                                             8
                                              
           employee should recertify their timesheet if the time was not allocated properly to
           the federal grant prior to adjustment by the accounting staff.

           In addition, Coalition officials stated that it was difficult to track HMIS staff time
           by grant because some of the work went toward the benefit of all grants located
           on the system. The Coalition could run activity reports from HMIS by employee,
           but those reports did not track actual time worked.


More Than $104,000 Might Not
Be Available to Program
Participants

           HUD could not be assured that more than $104,000 was used to administer its
           Supportive Housing Program grants, reducing the amount of HUD funds available
           to program participants.

           Table 3 summarizes total questioned costs allocated to grants.

           Table 3: Summary of questioned salaries
                     Grant name              Program staff salaries allocated to
                                                           grant
           HMIS                                          $63,180
           Program staff                                 $40,896
           Total:                                        104,076


Recommendations

           We recommend that the Director of the Denver Office of Community Planning
           and Development require the Coalition to

           1A. Develop and implement policies and procedures to ensure that any needed
               adjustments to employee payroll are made more timely and requires
               strengthened controls, such as requiring staff to re-certify their time, if
               adjustments are made after the employee certifies their time.

           1B. Provide support for the $63,180 in time charged to its grants for HMIS-
               related services and require the Coalition to reimburse from non-Federal
               funds any portion of the amount that it cannot support.

           1C. Reimburse from non-Federal funds the $40,896 in ineligible expenses it
               charged to its other HUD grants.



                                             9
                                               
Finding 2: The Coalition Spent Grant Money on Ineligible Items
The Coalition charged ineligible costs to its grants. This condition occurred because the
Coalition misinterpreted Federal requirements for spending its grant funds. As a result, nearly
$75,000 was not available for Supportive Housing Program participants.


 The Coalition Charged
 Ineligible Costs


       The Coalition charged ineligible expenses to its supportive housing grants. It provided
       ineligible benefits to its employees and spent some of its grant money on ineligible items.

       Ineligible Employee Benefits

       The Coalition provided more than $45,000 in ineligible benefits to some of its
       employees. It provided paid parking to some of its employees who worked in downtown
       Denver. It also gave $100 grocery store gift cards to some of its employees. Lastly, it
       reimbursed some of its employees for public transportation. The following table shows
       the three ineligible expenses and the total charged during our audit period.

       Table 4: Ineligible Employee Benefits
                                    Ineligible employee benefits
                       Payroll cost                              Ineligible
                   Employee gift cards                             $9,243
                    Employee parking                              $34,845
               Employee transit subsidies                          $1,122
                           Total                                  $45,210

       The Coalition’s executive director stated that the Coalition paid for employee parking
       because the cost was too expensive in the downtown area. The executive director
       considered the employee parking expense as reasonable compensation according to the
       Office of Management and Budget (OMB) guidance reasonableness of a cost. However,
       payment of parking expenses is not allowable under Federal regulations.

       The Coalition’s executive director explained that the Coalition provided its employees
       grocery store gift cards as a yearly bonus. He stated that the Coalition gave gift cards so
       employees would not need to pay taxes on the bonus. However, the purchase of gift
       cards is not allowable under Federal regulations.

       The Coalition’s executive director explained that the Coalition provided some of its
       employees a transit subsidy to commute to their work location. However, transit
       subsidies are not allowable under Federal regulations.



                                                10
                                                  
The Coalition may not use its Federal grant money on these types of expenses.
According to 2 CFR Part 230, appendix B(8)(e), “Costs which are unallowable under
other paragraphs of this appendix shall not be allowable under this paragraph solely on
the basis that they constitute personal compensation.” In addition, subpart (19) of the
same appendix states, “Goods or services for personal use. Cost of goods or services for
personal use of the organization’s employees are unallowable regardless of whether the
cost is reported as taxable income to the employees.”

Ineligible Program Expenses

The Coalition spent more than $29,000 on ineligible items. It spent the money on
ineligible entertainment expenses, criminal background checks on program clients,
furniture, rental assistance, and airline tickets. The following table shows per grant and
account number the ineligible expenses.


                            Ineligible program expenses
          Grant name                   Account number                Ineligible costs
 Lowry Trans - CO0032                  201-721-6380-000                  $2,434
                                       201-721-7615-000                  $1,941
 SHP Demo - CO0024                     207-731-6125-000                   $563
 Comprehensive Support Services -      208-725-6125-000                  $3,141
 CO0030
 Transitional Housing - CO0054         210-726-6830-000                   $2,174
 Homeless No More - CO0037             322-732-6791-000                  $18,080
 Civic Center - CO0027                 267-865-6515-000                     $84
 Concord Plaza - CO0031                223-728-6830-000                     $24
 Renaissance 88 Permanent -            203-724-6380-000                    $430
 CO0045
 Renaissance at Lowry PH -             202-722-6830-000                    $105
 CO0046
 Off Broadway Lofts - CO0043           253-861-6125-000                    $33
 Forest Manor Combined - CO0036        205-851-6125-000                   $158
                                             Total                       $29,167

The Coalition stated that it needed to perform criminal background checks in order for its
participants to live at its properties.

However, the Supportive Housing Program Desk Guide clearly states that conducting
criminal background checks is not an eligible use of program funds.

Rental assistance and the purchase of furniture are normally eligible costs if approved as
a budgeted line item on the contract. However, the Coalition did not have HUD approval
to charge rental assistance to grant number CO0037 or to charge operating costs
(purchasing furniture) to grant number CO0054.


                                         11
                                           
     The HUD Desk Guide, page 39, states, “Grantees and project sponsors should note the
     rental assistance…is NOT an eligible activity under [supportive housing program]”. We
     found no amendments for either grant authorizing the addition of rental assistance
     funding or operating cost funding for the purchase of furniture.

     The purchase of recreational activity tickets, tree stands, fireworks, and the rental of a
     helium tank are also ineligible supportive housing expenses. These costs are not
     necessary to assist program participants in obtaining and maintaining housing.
     Regulations at 2 CFR 230, Cost Principles for Non-Profit Organizations, Appendix B,
     Item 14 states; “Entertainment costs. Cost of entertainment, including amusement,
     diversion, and social activities and any cost directly associated with such costs (such as
     tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities)
     are unallowable.”

The Coalition Misinterpreted
Federal Requirements


     The violations described above occurred because the Coalition misinterpreted Federal
     requirements for spending its grant funds. The Coalition believed that employee parking,
     gift cards, and transit subsidies were eligible expenses under OMB guidelines. In
     addition, it believed that airline tickets for participants and entertainment expenses were
     eligible expenses under Federal guidance. These are constant violations for the Coalition
     and we further address this issue below in Finding 3.

Nearly $75,000 Was Not
Available for Supportive
Housing Program Participants


     As a result of the conditions described above, nearly $75,000 was not available for
     Supportive Housing Program participants. Specifically, the Coalition provided more than
     $45,000 in ineligible benefits to some of its employees. Additionally, it spent more than
     $29,000 on ineligible items.

Recommendations

     We recommend that the Director of HUD’s Denver Office of Community Planning and
     Development requires the Coalition to

     2A.    Reimburse HUD from non-Federal funds $74,677 for its ineligible expenses.




                                              12
                                                 
Finding 3: The Coalition Continued To Misspend Its Grant Funds
The Coalition continued to misspend its grant funds highlighted in a previous HUD Office of
Inspector General (OIG) and HUD CPD reviews. This occurred because the Coalition did not
agree with either agency’s interpretation of Federal requirements for spending its grant funds.
As a result, a portion of the Coalition’s Supportive Housing Program funds have not benefited its
participants.


 The Coalition Continued To
 Misspend Its Grant Funds


       OIG audit report 2003-DE-1006, issued August 26, 2003, and a recent CPD monitoring
       review, dated November 12, 2013, express concerns similar to those noted in this audit
       report. The section below illustrates the findings in those previous reviews and the
       Coalition’s response.

       In our previous HUD OIG report, we stated, “During a review of the employee
       timesheets, the HUD OIG discovered an employee worked on two different grants
       however, the Coalition charged 100% of the employee’s time to the Supportive Housing
       Program grants.”

       In addition, we stated, “Employee Parking Costs: Colorado Coalition also charged the
       two Supportive Housing Program projects reviewed for the cost of employee parking.
       The Supportive Housing Program does not permit these costs because such costs do not
       relate to carrying out the HUD program. HUD Regulations under 24 CFR 583.120
       specify that only costs directly related to providing supportive services to the programs’
       recipients are eligible. As a result, the total employee parking costs of $7,771 charged to
       the two projects reviewed are ineligible and need to be reimbursed to the HUD funded
       programs from non-Federal funds. This would also include any similar charges that have
       been charged to any other HUD funded program.”

       The Coalition resolved the above findings by reimbursing HUD for its ineligible
       employee parking costs.

       Second, in the 2013 CPD monitoring review, HUD identified the same discrepancies
       noted during our review. HUD reported, “Monitoring Review Finding - Ineligible
       Personnel Costs: The Coalition provided its employees reimbursement for employee
       parking and public transit passes. Finally, the Coalition used grant funds to buy [grocery
       store] gift cards for Coalition employees on December 31, 2011.”

       The following is an excerpt from the Coalition’s response to our previous HUD OIG
       report:



                                               13
                                                 
“The HUD OIG concluded that these parking costs are not eligible since they are not
‘directly related to providing supportive services to SHP recipients’. We disagree. In the
same way that employee fringe benefits such as health insurance and unemployment
insurance are allocable in proportion to the allocation of salary, the parking benefit is
allocable to the SHP [Supportive Housing Program] grant to the same extent as salary.”

The Coalition provided the same rationale to HUD CPD for its ineligible parking
expenses and gift cards. In its response to HUD CPD’s monitoring report, the Coalition
stated:

“Finding – Ineligible Personnel Costs. We disagree with this finding regarding the
eligibility of using grant funds for employee parking and King Soopers gift cards for
employees who work on the grant funded activity for HMIS. We have consulted the
OMB A-122 Circular and believe that employee parking is an eligible federal grant cost
both as a part of the allocated occupancy costs and as an employee fringe benefit cost –
both of which are clearly eligible under the OMB Circular. The 2003 OIG audit
disallowed employee parking expenses specifically as a “Supportive Service” Cost under
24 CFR 583.120 – not as ineligible as an operating, HMIS, or administrative cost. Since
the costs in that audit were not costs ‘directly associated with providing such services’,
they were found ineligible within the supportive services cost category. However,
eligible costs for HMIS services do not have this limitation under the regulations. As
such, we believe that they are appropriate and eligible costs in that they are essential for
allowing staff working on implementing the HMIS system to do their work, and to not
penalize them for working in the downtown office where free parking is either extremely
limited or non-existent. The [grocery store] Cards were provided to all Coalition staff as
a year-end incentive bonus to recognize their good work. It is clear under OMB A-122
Circular that such incentive compensation is an eligible federal expense. Rather that
providing a cash bonus, we chose to provide this bonus through the discounted [grocery
store] card to save money. Expenses for such cards were allocated to all federal and non-
federal cost centers based on the amount of time each staff person worked on those
activities. As such, we believe these costs are allowable for the HMIS grant for HMIS
lead agency staff. The fact that this bonus was provided in the form of a gift card rather
than a cash supplement to wages does not affect its eligibility under OMB rules.”

While we do agree that 2 CFR Part 230 (formerly OMB Circular A-122) allows for salary
and benefits such as health insurance and unemployment insurance, we disagree that
parking and gift cards are allowed under OMB guidance. As stated in finding 2 of this
report, 2 CFR Part 230, appendix B(8)(e), reads, “Costs which are unallowable under
other paragraphs of this appendix shall not be allowable under this paragraph solely on
the basis that they constitute personal compensation.” And paragraph (19) of the same
appendix prohibits the costs of goods or services for personal use of the organization’s
employees. Paragraph (8)(h) of appendix B states, “That portion of the cost of
organization-furnished automobiles that relates to personal use by employees (including
transportation to and from work) is unallowable as fringe benefit or indirect costs
regardless of whether the cost is reported as taxable income to the employees.” Although
this paragraph explicitly discusses the use of organization-furnished automobiles, it

                                         14
                                           
     clearly shows that OMB considers costs related to employees’ personal use (including
     transportation to and from work) as ineligible.

The Coalition Was Unwilling
To Follow Federal Guidance


     As discussed throughout this report, due to the Coalition’s unwillingness to follow
     guidance provided by HUD OIG and HUD CPD, Supportive Housing Program
     participants did not benefit fully from grant funds.

Recommendations

     We recommend that the Director of HUD’s Denver Office of Community Planning and
     Development

     3A.    Seek a legal opinion from HUD’s Office of General Counsel regarding the use of
            grant funds for employee parking, employee gift cards, and transit subsidies. If
            the Office of General Counsel agrees that these are ineligible uses of grant funds,
            HUD should seek administrative actions against the executive director of the
            Coalition for continually disregarding HUD and HUD OIG guidance.




                                             15
                                               
                       SCOPE AND METHODOLOGY
Our audit covered the period January 1, 2011, through December 31, 2012. We performed our
onsite work in November and December of 2013 at the Coalition’s office located at 2111
Champa Street, Denver, CO.

We interviewed HUD and Coalition staff and reviewed pertinent documentation to obtain an
understanding of the program and the auditee. This documentation included applicable
sections of the McKinney-Vento Homeless Assistance Act of 1987, HUD regulations, the
Supportive Housing Program Desk Guide, grant agreements, and any Coalition policies related
to its Supportive Housing Program.

We selected and reviewed all 36 Supportive Housing Program grants issued to the auditee by
HUD for grant years 2011 and 2012 to determine whether the Coalition properly assigned
employee time among its grants and whether it charged unallowable costs to its grants. We
reviewed payroll records to include general ledger reports of the general fund, signed employee
timesheets, and personnel action forms. Additionally, we reviewed supporting invoices and
records of check payments to vendors.

We did not use auditee computer-generated data as audit evidence or to support our audit
conclusions. We used source documentation obtained from HUD and the auditee for
background information purposes. We based all of our conclusions on source documentation
reviewed during the audit.

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 objectives.




                                              16
                                                
                               INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objectives:

                     Controls to ensure that employee timesheets are accurate at the time they are
                      certified by the manager.
                     Controls to ensure compliance with HUD regulations pertaining to eligible
                      program expenditures.

               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 Coalition incorrectly allocated its employee payroll time among its
                   Supportive Housing Program grants because it lacked a control to ensure that
                   employee timesheets were accurate at the time they were certified by the
                   manager (finding 1).

                                                 17
                                                   
   The Coalition charged ineligible costs to its grants because it misinterpreted
    Federal requirements for spending its grant funds (finding 2).




                                  18
                                    
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                    Recommendation
                                            Ineligible 1/     Unsupported 2/
                        number
                          1B                                           $63,180
                          1C                      $40,896
                          2A                      $74,677



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.




                                             19
                                               
    Appendix B

            AUDITEE COMMENTS AND OIG’S EVALUATION


    Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                             20
                               
Comment 3




Comment 4




            21
              
Comment 5




            22
              
Comment 6




            23
              
Comment 7




Comment 8




            24
              
Comment 9




Comment 10




Comment 11




             25
               
26
  
Comment 12



Comment 13




Comment 14




             27
               
28
  
                         OIG Evaluation of Auditee Comments

Comment 1   The Coalition pointed out that we cited the wrong criteria relating to some of the
            grant expenditures we questioned in the audit report. We originally only cited the
            new SHP criteria at 24 CFR Part 578. However, the Coalition was correct that for
            some of the items we reviewed, the old SHP criteria at 24 CFR part 583 was
            applicable. We reviewed the citations to the criteria and made adjustments
            accordingly. The new requirements appropriately appear in four locations in this
            report. For the questioned expenditures that are not covered under the new
            regulations, we changed the criteria citation to 2 CFR 230, Appendix B which
            was applicable for the entire period of our audit. Furthermore, we left the new
            requirements in the report when the violation fell under both requirements. Our
            analysis and recommendation have not changed because the previous criteria still
            does not authorize the Coalition’s use of its Supportive Housing Funds on the
            items we found during our audit.

Comment 2   The Coalition stated that our report implies that the Coalition intentionally
            violated HUD regulations by incorrectly allocating costs or spending grant funds
            on ineligible items. As reported in finding 3 of this report, the HUD OIG and
            HUD CPD offices previously notified the Coalition of improper uses of the grant
            funds. This report shows the Coalition continued using grant funds to pay for
            employee parking and other similar costs after we questioned those costs in our
            2003 audit report.

Comment 3   The Coalition points out that this report questions only 1.18% of the total grant
            amount received by the Coalition during our audit period. We agree the report
            findings do amount to a small portion of the Coalitions total supportive housing
            funding. However, the funds we highlighted in this report did not go to the
            benefit of the intended recipients. The Coalition can work with HUD Community
            Planning and Development to document other eligible costs it incurred with non-
            HUD funds to replace the questioned costs.

Comment 4   The Coalition states that HUD lacked specific guidance and that the issue raised
            in the report was a difficult question for HUD officials to answer. We encourage
            the Coalition to continue to work with HUD to ensure grants funds are spent
            according to the terms of the specific grant agreements.

Comment 5   The Coalition states that the adjustments to the employees’ time were due to the
            employees not knowing whether the activity charged on the timesheet was a HUD
            grant or non-HUD grant activity. HUD regulations require grantees to maintain
            records to support their use of grant funds. The Coalition should strengthen its
            controls to ensure that time charged to HUD grants are only for activities allowed
            under that specific grant. In addition, the Coalition should make any adjustments
            to the employees’ time as close to the activity as possible and have the employee
            and manager recertify that the employee actually worked on that activity.



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Comment 6   The coalition states that HUD OIG used the wrong criteria in determining
            eligibility of the questioned costs. See comment 1 above for our response to that
            statement. In addition, the Coalition states it believed the payment of parking
            costs and employee gift cards represented reasonable compensation and incentive
            bonus payments under OMB Circular A-122 appendix B at subpart (8)(a) and
            (8)(g). We disagree. As stated in finding 3 of this report, paragraph (8)(e) of the
            appendix reads, “Costs which are unallowable under other paragraphs of this
            appendix shall not be allowable under this paragraph solely on the basis that they
            constitute personal compensation.” And paragraph (19) of the same appendix
            prohibits the costs of goods or services for personal use of the organization’s
            employees.

Comment 7   The Coalition states that while the SHP Program Desk Guide prohibits criminal
            background checks, it does allow for credit checks for participants. Further, the
            Coalition asserts that of the $3,979 questioned in our report, only $40 was spent
            on criminal background checks, the remaining portion being spent on credit
            checks. During our review, the Coalition staff provided the amount charged to
            the grants for criminal background checks. We specifically asked if the entire
            amount questioned was for background checks as indicated on the documentation
            provided. The Coalition did not provide support to show the fees were for other
            purposes. Therefore, we recommend the Coalition work with HUD to reconcile
            any new information about the accounting for criminal background checks versus
            credit checks.

Comment 8   The Coalition again referred to the incorrect citation to 24 CFR Part 578. See
            comment 1 above for our response to that statement. We changed our citation to
            the HUD Desk Guide, pg. 39 that states: “Grantees and project sponsors should
            note that rental assistance…is NOT an eligible activity under [supportive housing
            program]. We found that neither grant CO00037 or CO0054 had an approved line
            item for operating or rental assistance in its grant agreement with HUD CPD.
            Therefore, we consider the costs to be ineligible and the Coalition can work with
            HUD if additional information is available.

Comment 9   The Coalition again points out the incorrect citation to HUD regulations. See
            comment 1 above for our response that statement. Throughout our audit review
            we continually informed the Coalition staff and management of the ineligible
            supportive service costs we questioned. Some of the ineligible costs we
            discovered during our review are as follows: cable internet/TV cost for
            participants, purchase of one-way airline ticket for a client, Denver parks and
            recreation – membership and recreation pass, Colorado state parks – reservations,
            Colorado Athletic Club – soccer fees, fireworks, and purchase of art recreational
            activity tickets. We determined these to be ineligible costs under 2 CFR 230,
            Cost Principles for Non-Profit Organizations, Appendix B, Item 14 which reads,
            “Entertainment costs. Cost of entertainment, including amusement, diversion, and
            social activities and any cost directly associated with such costs (such as tickets to



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              shows or sports events, meals, lodging, rentals, transportation, and gratuities) are
              unallowable.”

Comment 10 The Coalition argues that $29,000 of the questioned costs were spent on program
           participants and the remaining portion of the questioned costs were budgeted and
           spent on staff benefits which allowed them to serve program participants. While
           we agree the funds were spent on participants or on employees who served the
           participants, we disagree that the funds were spent for eligible uses. Therefore,
           nearly $75,000 did not meet the intended use of the program to benefit eligible
           participants under the rules and regulations of the program.

Comment 11 The Coalition questions why the HUD OIG refers to a HUD CPD monitoring
           report which it received in November 2013 which is after the period covered by
           this HUD OIG review of January 1, 2011 to December 31, 2012. As discussed in
           finding 3 of this report, we refer to the 2013 CPD monitoring review because its
           findings were similar to the 2003 HUD OIG audit report. In the 2003 HUD OIG
           report, we questioned the Coalitions use of grant funds for employee parking cost
           and similar charges to its HUD grants. Our reference to the HUD CPD
           monitoring review is to help illustrate a pattern of continued misinterpretation of
           the federal requirements related to employee parking costs and similar charges.

Comment 12 The Coalition states it believes that it is grossly unfair for HUD OIG to use its
           responses to previous HUD OIG reports and HUD CPD monitoring reviews to
           imply unwillingness to follow guidance. We disagree. See comment 11 above
           for more details. In addition, it is the Coalitions responsibility to correctly
           interpret HUD regulations for the use of its grant funds. If the Coalition ever
           questions if a new or changed regulation allows for the use of funds for a
           previously questioned cost, the Coalition should seek guidance from HUD prior to
           using the funds for such costs.

Comment 13 The Coalition states that conclusions reached in a previous HUD OIG review
           conducted in 2012 contradicts HUD OIG’s assertion in this report that the
           Coalition continually disregards HUD OIG’s guidance. As stated in the
           Coalitions response, the 2012 HUD OIG review was based on a complaint
           related to the Coalition’s administration of the Homelessness Prevention and
           Rapid Re-Housing Program (HPRP). The objective and scope of that review
           were limited to the specific complaint received by our Hotline regarding the
           HPRP program. The results of that review have no impact on the results of this
           review.

Comment 14 The Coalition also sites clean audits conducted by independent auditors under the
           requirements of OMB Circular A-133. As stated in comment 13 above, the scope
           and objective of those audits are completely different from the objectives and
           scope of this review and have no impact on the results of this review. 




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