oversight

Monmouth County, NJ Expended Community Development Block Grant Funds for Eligible Activities, But Control Weaknesses Need To Be Strengthened.

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-07-02.

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

  [Type text]
 OFFICE OF AUDIT
 REGION 2
  7
 NEW YORK-NEW JERSEY




                  Monmouth County, NJ

    Community Development Block Grant Program




2014-NY-1006                            JULY 02, 2014
                                                        Issue Date: July 02, 2014

                                                        Audit Report Number: 2014-NY-1006




TO:            Anne Marie Uebbing
               Director, Office of Community Planning and Development, Newark Field Office
               2FD

               //SIGNED//
FROM:          Edgar Moore
               Regional Inspector General for Audit, New York-New Jersey Region, 2AGA

SUBJECT:       Monmouth County, NJ Expended Community Development Block Grant Funds
               for Eligible Activities, But Control Weaknesses Need To Be Strengthened.


    Enclosed is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG), final audit report on our review of Monmouth County, NJ’s
Community Development Block Grant (CDBG) Program.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please
furnish us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
212-264-4174.

.
                                   July 02, 2014
                                   Monmouth County NJ Expended Community
                                   Development Block Grant Funds For Eligible Activities,
                                   But Control Weaknesses Need To Be Strengthened


Highlights
Audit Report 2014-NY-1006


 What We Audited and Why                             What We Found

We audited Monmouth County, NJ’s                    Although County officials expended CDBG
Community Development Block Grant (CDBG)            funds for eligible activities, several control
program based on a risk assessment that             weaknesses need to be strengthened.
considered grantee funding, the U.S.                Specifically, salary costs of employees who
Department of Housing and Urban                     worked on multiple programs were
Development’s (HUD) risk analysis, and prior        disbursed without adequate support for their
Office of Inspector General (OIG) audit             allocation, disbursements recorded in
coverage. The objective of the audit was to         County records did not always reconcile
determine whether County officials established      with those reported to HUD, accounting for
and implemented adequate controls to provide        program income was not adequate, housing
assurance that CDBG funds were expended for         rehabilitation assistance was not recovered
eligible activities in accordance with HUD          from one recipient in accordance with the
regulations and program requirements.               County’s policy, and a mortgage note on an
                                                    assisted property was underrecorded. These
                                                    conditions occurred due to County officials’
 What We Recommend
                                                    unfamiliarity with HUD regulations,
                                                    weaknesses in their accounting controls over
We recommend that the Director of HUD’s             salary allocations and program income, and
Newark Office of Community Planning and             a lack of oversight to ensure that the County
Development instruct County officials to            met loan requirements.
(1) support the salary allocation of $805,504 to
the CDBG program or reimburse any
unsupported amount, (2) reimburse the CDBG
program for the ineligible cost of $1,090, (3)
provide documents to support that the $133,453
was expended for eligible activities, (4) provide
support that $122,150 in program income was
expended in a timely manner, (5) strengthen
controls to ensure that the County’s books
reconcile with drawdowns reported to HUD,
(6) provide support that the disbursement of
$3,736 in program income was for eligibile
costs, (7) seek repayment of the ineligible
$50,265 housing rehabilitation loan, and
(8) increase by $4,355 a lien on an assisted
property.
                         TABLE OF CONTENTS

Background and Objective                                               3

Results of Audit
   Finding: Although County Officials Expended CDBG Funds For
             Eligible Activities, Several Control Weaknesses Need To
             Be Strengthened                                           4

Scope and Methodology                                                  10

Internal Controls                                                      12

Appendixes
A.   Schedule of Questioned Costs                                      14
B.   Auditee Comments and OIG’s Evaluation                             15




                                       2
                      BACKGROUND AND OBJECTIVE

The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974 (Public Law 93-383). The program provides
annual grants on a formula basis to entitled cities, urban counties, and States to develop viable
urban communities by providing decent housing and a suitable living environment and by
expanding economic opportunities, principally for low- and moderate-income persons. To be
eligible for funding, every CDBG-funded activity, except program administration and planning,
must meet one of the program’s three national objectives: benefit low- and moderate-income
persons, aid in preventing or eliminating slums or blight, or address a need with a particular
urgency because existing conditions pose a serious and immediate threat to the health or welfare
of the community. To receive an annual CDBG entitlement grant, a grantee must develop and
submit to HUD for approval a consolidated plan that provides the grantee’s goals for the
program to be funded.

The County of Monmouth, NJ, is a CDBG entitlement grantee. The U.S. Department of Housing
and Urban Development (HUD) awarded the County $2.9 and $2.4 million in CDBG funding
during program years 2011 and 2012, respectively. The County’s CDBG plan provided funding to
carry out a wide range of community development activities directed toward revitalizing
neighborhoods, economic development, and providing improved community facilities and
services. The County has designated its Community Development Division to administer the
CDBG program

The objective of the audit was to determine whether County officials established and
implemented adequate controls to provide assurance that CDBG program funds were expended
for eligible activities in accordance with HUD regulations and program requirements.




                                               3
                                    RESULTS OF AUDIT

Finding: Although County Officials Expended CDBG Funds For
         Eligible Activities, Several Control Weaknesses Need To Be
         Strengthened.
Although County officials’ expended CDBG funds for eligible activities, several control
weaknesses need to be strengthened. Specifically, salary costs of employees who worked on
multiple programs were disbursed without adequate support for their allocation, disbursements
recorded in County records did not always reconcile with those reported to HUD, accounting for
program income was not adequate, housing rehabilitation assistance was not recovered from one
recipient in accordance with the County’s policy, and a mortgage note on an assisted property
was underrecorded. These conditions occurred due to County officials’ unfamiliarity with HUD
regulations, weaknesses in their accounting controls over salary allocations, reconciling books
and records with amounts reported to HUD, recording program income, and a lack of oversight
to ensure that the County met loan requirements. As a result, (1) $805,504 in employee salaries
was charged to the CDBG program without adequate support, (2) $1,090 in salary costs was
incorrectly charged to CDBG program, (3) the County’s books did not reconcile with amounts
reported to HUD in IDIS, (4) the County lacked assurance that $133,453 was expended for
eligible activities (5) program income disbursements in the amount of $151,998 were made after
the subgrantee agreement expired, (6) $3,736 in program income disbursements was
unsupported, (7) $50,265 in housing rehabilitation assistance was not recovered in accordance
with the County’s policy, and (8) a mortgage note on an assisted property was underrecorded by
$4,355.


 Allocation of Salary Costs
 Inadequately Supported

               County officials lacked adequate support for the allocation of the salaries of eight
               Community Development Division employees’ who worked on multiple
               programs. Federal regulations require a reasonable basis for allocating costs
               among programs served.1 While these eight employees worked on multiple
               programs, $805,504, or 100 percent of their salary cost in program years 2011 and
               2012, was charged to the CDBG program. This condition occurred because
               County officials misinterpreted HUD regulations, believing that there was no
       1
         Regulations at 24 CFR (Code of Federal Regulations) 85.20(b)(5) require grantees to follow applicable
       Office of Management and Budget cost principles and HUD program regulations in determining the
       reasonableness and allowability of costs. Regulations at 2 CFR 225(8)(h)(4) Appendix B require that when
       employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be
       supported by personnel activity reports or equivalent documentation, and Appendix A to Part 225, (C)(3)(a)
       provides that a cost is allocable to a particular cost objective if the goods or services involved are
       chargeable or assignable to such cost objective in accordance with the relative benefits received.


                                                       4
                 requirement to allocate employees’ time among the various programs on which
                 they worked and that any program could be charged the full cost. As a result, the
                 $805,504 is considered as unsupported costs.

                 In addition, while County policy provided that 63 percent of another Division
                 employee’s salary was to be allocated to the CDBG program, 100 percent was
                 charged to the program in December 2011. We attribute this error to a lack of
                 oversight by County officials; thus, the excess charges of $1,090 are considered to
                 be ineligible.

    Disbursements Reported in
    IDIS Did Not Reconcile with the
    County’s Books

                 Review of County records for 1 of the 15 activities revealed that they did not
                 reconcile with what was reported to HUD. County officials did not explain the
                 discrepancies. Regulations at 24 CFR (Code of Federal Regulations) Part
                 85.20(b)(1) require that grantees maintain accurate financial records. We
                 attribute this condition to weaknesses in financial controls related to reconciling
                 the County’s books and records to amounts reported in HUD’s Integrated
                 Disbursement and Information System (IDIS)2 . Specifically, review of
                 drawdowns in HUD’s IDIS under activity 1618, planning and administration
                 disclosed the following

                    $276,045 was drawn down for the activity; however, the County’s books and
                     records reported that $256,555 was expended. County officials could not
                     explain the difference; therefore, we could not determine whether the
                     difference of $19,490 was used for an eligible CDBG activity.

                    IDIS showed that $126,112 was drawn down; however, the County’s books
                     reported that $113,334 was related to fringe benefits and the balance of
                     $12,778 was charged to another IDIS activity. County officials could not
                     explain the difference.

                    $101,185 was incurred for housing rehabilitation, but it was charged to and
                     drawn down under planning and administration. County officials said they
                     charged planning and administration because there were insufficient funds in
                     the housing rehabilitation program since the new housing improvement grant
                     funds had not been received.

                 As a result, the County lacked assurance that all funds were expended for eligible
                 activities and the disbursements were accurately reflected in IDIS. Therefore, the
                 County lacked assurance that $133,453 ($19,490, $12,778 and $101,185) was

2
 IDIS is HUD’s drawdown and reporting system. The system allows grantees to request their grant funding from
HUD and report on what is accomplished with these funds.

                                                      5
           expended for eligible activities and disbursements were accurately reflected in
           IDIS.

Unsupported and Unreported
Program Income Receipts

           While County officials reported in IDIS that $182,263 in program income
           was earned during fiscal year 2011, the County’s financial records showed
           that $32,878 was received. Regulations at 24 CFR 570.504 require that the
           receipt and expenditure of program income be recorded as part of the
           financial transactions of the grant program. County officials stated that
           some of the program income reported in IDIS for 2011 was earned in 2010
           and prior years but had not been recorded; therefore, it was reported in
           IDIS in 2011 but not in their financial records. In addition, the County’s
           financial records showed that program income of $2,333 was received in
           August 2012, yet no program income was reported in IDIS until December
           27, 2013, after we informed County officials that their records did not
           reconcile with HUD’s. We attribute this condition to weaknesses in the
           County’s accounting controls over recording program income.

Unsupported Program Income
Disbursements

           County officials’ drew down program income in advance of disbursement to a
           subgrantee and disbursed the funds for work completed after the subgrantee’s
           agreement had expired. Regulations at 24 CFR 85.20(b)(7) provide that a grantee
           must make drawdowns as close as possible to the time of making disbursements.
           However, while County officials drew down $122,150 in program income on
           October 23, 2012, the funds were not disbursed to the subrecipient until October
           22, 2013, 1 year later.

           In addition, regulations at 24 CFR 570.503 provide that a written agreement must be
           signed before CDBG funds are disbursed to a subrecipient and the agreement
           should remain in effect during any period in which the subrecipient has control
           over CDBG funds. However, while the subrecipient agreement expired in
           November 2012, project documentation disclosed that the project was not
           completed until June 2013, and County officials disbursed the $122,150 and an
           additional $29,848 on October 22, 2013, in response to the subgrantee’s request for
           reimbursement of $151,998 on October 7, 2013.

           County officials stated that the subgrantee did not provide supporting documents
           until October 7, 2013, due to flood damage it incurred in October 2012, but did not
           know why the $122,150 was drawn down in October 2012 and the subrecipient
           agreement had not been extended. In addition, County officials did not provide
           supporting documents for the disbursement of additional program income of $3,736

                                            6
             ($1,403 and $2,333 for 2011 and 2012, respectively); therefore, we considered these
             amounts to be unsupported.

Housing Rehabilitation
Assistance Loan Not Repaid
and HUD’s Interest Not
Protected

             Review of files for eight homeowners assisted under housing rehabilitation
             activities noted issues with two cases. In the first case, County officials did not
             exercise the provision in the County’s policy and mortgage note that the interest-
             free loan for rehabilitation assistance must remain a lien on the borrower’s
             premises for a period of 10 years, and must be repaid in the event of the
             borrower’s death or if the property is sold and the title is transferred or conveyed
             within 10 years of the date of the mortgage note. County officials had provided a
             $50,265 10-year interest-free deferred loan in March 2010; however, they lacked
             evidence that they obtained or pursued repayment of the loan upon the
             homeowner’s death in August 2010.

             In the second case, County officials provided a 10-year, interest-free deferred loan
             and executed a $20,800 mortgage note for homeowner rehabilitation; however,
             additional work due to a change order increased the CDBG assistance provided to
             $25,155. County officials stated that the homeowner refused to sign a mortgage
             modification to increase the note to $25,155, and they had not taken legal action
             to increase the lien. Consequently, the County could suffer a loss of $4,355 in
             program income due to the under-recorded mortgage if the property is sold or
             transferred in less than 10 years. We attribute these conditions to oversights in
             ensuring that program requirements were met.

Conclusion

             Although County officials expended CDBG program funds for eligible activities,
             several control weaknesses need to be strengthened. Specifically, salary costs of
             employees who worked on multiple programs were disbursed without adequate
             support for their allocation, disbursements recorded in County records did not
             always reconcile with those reported to HUD, accounting for program income
             was not adequate, housing rehabilitation assistance was not recovered from one
             recipient in accordance with the County’s policy, and a mortgage note on assisted
             property was underrecorded. We attribute these conditions to County officials’
             unfamiliarity with HUD regulations and weaknesses in their accounting for salary
             allocations and program income, and a lack of oversight to ensure that the County
             met loan requirements.




                                               7
Recommendations


          We recommend that the Director of HUD’s New Jersey Office of Community
          Planning and Development instruct County officials to:

          1A.     Determine the proper allocation of the $805,504 in salary costs and
                  reimburse the CDBG program for any excess allocation.

          1B.     Reimburse $1,090 to the County’s CDBG program from non-
                  Federal funds for the salary cost that was charged incorrectly.

          1C.     Develop a cost allocation plan to allocate salaries of employees
                  who work on multiple programs.

          1D.     Strengthen its financial controls to provide greater assurance that
                  drawdowns reported in IDIS reconcile with County records and if
                  required, make related adjustments to the accounting records.

          1E      Provide documentation that $133,453 ($19,490, $12,778 and $101,185)
                  was expended for eligible activities and the disbursements were accurately
                  reflected in IDIS. If adequate support cannot be provided, the amount
                  should be reimbursed from non-Federal funds.

          1F.     Provide documentation to support that $122,150 was expended in a
                  timely manner for an eligible activity after drawdown. If adequate
                  support cannot be provided, the amount should be reimbursed from
                  non-Federal funds.

          1G.     Provide documentation to support that the $3,736 in program
                  income was disbursed for eligible costs. Any amount determined
                  to be ineligible should be reimbursed to the CDBG program from
                  non-Federal funds

          1H.     Strengthen controls over accounting for program income to
                  provide greater assurance that program income receipts and
                  disbursements are properly accounted for and used in accordance
                  with CDBG program requirements.

          1I.     Seek repayment of the $50,265 housing rehabilitation loan or
                  reimburse the CDBG program from the non-Federal funds.

          1J.     Increase the housing rehabilitation loan lien by $4,355 to protect
                  HUD’s interest in the additional amount loaned or reimburse the
                  CDBG program that amount from non-Federal funds.


                                            8
1K.   Strengthen controls to ensure that CDBG funds are recovered for
      properties sold or transferred within 10 years and mortgage notes
      include the correct amount to reflect total indebtedness to the
      program.




                               9
                        SCOPE AND METHODOLOGY

We performed our onsite audit work at the County’s office located in Freehold, NJ, between
October 2013 and February 2014. The audit generally covered the period January 1, 2011,
through December 31, 2012, and was extended as necessary. To accomplish our objective, we

      Reviewed relevant Federal regulations and CDBG program requirements.

      Interviewed appropriate personnel from the HUD Newark, NJ, Office of Community
       Planning and Development and reviewed relevant grant files to obtain an understanding
       of CDBG program requirements and identify HUD’s concerns with the County’s
       operations.

      Reviewed the County’s consolidated annual performance and evaluation reports, action
       plans, and IDIS reports to document the County’s activities and disbursements. Our
       assessment of the reliability of the data in IDIS was limited to the data reviewed, which
       were reconciled to County records; therefore, we did not assess the reliability of this
       system.

      Reviewed County policies, procedures, practices and interviewed key personnel to obtain
       an understanding of the County’s administration of the CDBG program.

      Reviewed County financial books and records and bank statements.

      Reviewed HUD’s monitoring and independent accountant audit reports.

      Reviewed and tested the County’s files and records of selected projects to test whether
       the costs were eligible, adequately supported, and the County administered the program
       in accordance with program requirements.

      Reviewed program income for 2011 and 2012 to determine whether the County
       accurately and adequately reported program income in IDIS, and whether program
       income was disbursed for eligible CDBG activities




                                               10
      Selected a nonstatistical sample of 15 CDBG activities to test compliance with CDBG
       program requirements. IDIS reported that more than $7 million in CDBG funds were
       disbursed for 68 activities during our review period. The activities were under the four
       general categories, planning and administration, public facilities and improvements,
       public service, and housing rehabilitation. We selected a sample of 15 activities with the
       highest disbursements valued at approximately $2.4 million, representing 34 percent of
       the $7 million in funds disbursed during our review period. The sample selection was not
       statistically based; therefore, the results were not projected to the universe.

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.




                                               11
                              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 resource use is
                      consistent with laws and regulations.

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

                     Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

               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.


                                                 12
Significant Deficiencies

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

                   The County did not have adequate controls over the effectiveness and
                    efficiency of program operations when it did not establish adequate
                    procedures to ensure that costs charged to the CDBG program for salaries
                    were allocable to the program, and did not keep track of employees’ time
                    when they worked on multiple programs

                   The County did not have adequate controls over the reliability of data when
                    it did not accurately report program income transactions in IDIS in a timely
                    manner and the drawdowns reported to HUD did not match the County’s
                    accounting records.




                                              13
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

           Recommendation                            Unsupported
                                  Ineligible 1/
               number                                    2/

                  1A                                      $805,504
                  1B                 $1,090
                  1E                                      $133,453
                  1F                                      $122,150
                  1G                                        $3,736
                  1I                $50,265
                  1J                                        $4,355


                 Total              $51,355             $1,069,198


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.




                                              14
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         15
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2



Comment 3




Comment 4




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 4



Comment 5




Comment 6




Comment 7




Comment 8




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 9




Comment 10




Comment 11




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12




Comment 13




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 13




Comment 14




                         20
. Ref to OIG Evaluation   Auditee Comments




Comment 15




                           21
                         OIG Evaluation of Auditee Comments

Comment 1   County officials acknowledged that they misinterpreted guidance provided in a
            HUD webinar published in August 2011, which could have caused improper
            allocation of salaries. County officials said that they are reviewing County staff
            assignment documentation to determine what amount of the $805,504 questioned
            may be ineligible and should be repaid to the CDBG program. This
            documentation will need to be reviewed by HUD during the audit resolution
            process to confirm any ineligible allocated salary cost.

Comment 2   County officials noted that they have strengthened controls over salary allocation
            by instituting time sheet procedures to accurately track staff time spent on each
            program administered by the County officials. This is responsive to our
            recommendation and will need to be verified by HUD during the audit resolution
            process.

Comment 3   County officials agreed to reimburse the CDBG program for the ineligible salary
            cost as we recommended.

Comment 4   County officials stated that reported discrepancies in disbursements between what
            was reported in IDIS and the County’s records were caused by the first-in first out
            (FIFO) methodology for grant accounting used by IDIS. IDIS does charge
            drawdowns from the oldest budget fiscal year appropriation’s (grant year) funding
            source available at the time of the drawdown without regard to the original source
            of funding (referred to as FIFO). However, this methodology should not have
            prevented reconciliation of drawdowns by activity between IDIS and the County’s
            records. Therefore, as explained in comments below County officials will need to
            provide documentation to HUD to support the $133,453 to HUD.

Comment 5   County officials agree that the difference between IDIS and the County’s records
            of $19,490 reported for activity 1618 was because it was charged to an activity
            other than activity 1618 in the County’s records. County officials will need to
            provide documentation to HUD during the audit resolution process that the
            $19,490 was disbursed for an eligible CDBG activity.

Comment 6   County officials acknowledge that, while $126,112 was drawdown and reported
            in IDIS under activity 1618, on the County’s records $113,334 was charged to
            activity 1618, but $12,778 was charged to activity 1462. County officials will
            need to provide documentation to HUD during the audit resolution process that
            the $12,778 was disbursed for an eligible CDBG activity.

Comment 7   County officials stated that they used CDBG planning & administration funds for
            housing improvement activity expenses because the new grant year’s funding was
            not received , and that they had intended to make an adjusting entry in IDIS and
            the County’s records when the grant funds were made available. County
            officials acknowledged that this adjustment was not made. Therefore, County

                                            22
              officials will need to make the adjustment and provide documentation to HUD
              during the audit resolution process that the $101,185 was expended for an eligible
              housing improvement activity.

Comment 8     County officials stated that due to limitations with the FIFO methodology used in
              IDIS, they concentrated more on reconciling the entirety of their funding as
              opposed to activity by activity. Nevertheless, County records and IDIS should be
              reconciled on an activity by activity basis.

Comment 9     County officials stated that additional internal control procedures are being
              implemented to ensure that the County’s records will be accurately reflected in
              IDIS. This is responsive to our recommendation and the adequacy of these
              procedures will need to be verified by HUD during the audit resolution process.

Comment 10 County officials provided documentation to support that $8,540 should not be
           considered program income, but rather was an adjustment to correct an erroneous
           entry in a prior year. Therefore, we deleted the phrase that County officials
           provided support for only $24,338. Nevertheless, County officials acknowledged
           that this may not have been properly recorded in IDIS and have agreed to consult
           with HUD on its proper treatment.

Comment 11 County officials acknowledged that $149,985 of program income earned
           over many years had not been reported in either the County’s records or
           IDIS, and that once the oversight was noted, an adjustment was made to
           the County’s records to report the program income. However, County
           officials stated that it was not possible to associate the prior year program
           income with the appropriate prior year in IDIS. County officials will need
           to work with HUD during the audit resolution process to reconcile County
           records with IDIS. County officials have implemented a new procedure to
           record new program income in the IDIS system, which is responsive to
           our recommendation.

Comment 12 While the FIFO methodology used in IDIS has been recognized by HUD
           as having limitations, these limitations should not have prevented County
           officials from recording program income receipts and disbursements into
           IDIS in a timely manner and periodically reconciling IDIS with the
           County’s records. County officials should contact the HUD Newark field
           office when technical assistance is needed.

Comment 13 County officials acknowledged that the error in this IDIS drawdown went
           unnoticed due to subsequent events beyond their control, which we
           acknowledge. However, County officials should not drawdown funds in
           advance of need and without obtaining adequate supporting
           documentation. Therefore, County officials will need to provide
           documentation to HUD during the audit resolution process to support that
           $122,150 was expended in a timely manner for an eligible activity. If

                                              23
              adequate support cannot be provided, the amount should be reimbursed
              from non-Federal funds.

              In addition, during the audit resolution process with HUD, County
              officials will need to provide documentation to support that $3,736, which
              County officials did not address in their comments, was expended for
              eligible activity.

Comment 14 County officials stated that CDBG regulations do not require the County to
           impose a lien on program participants’ property. However, the County’s Housing
           Improvement program policy does require recording a mortgage in the amount of
           assistance provided to protect HUD and the County’s interest, and require
           repayment in the event of the borrower’s death or if the property is sold and the
           title is transferred or conveyed within 10 years. Consequently, the County has
           agreed to refer the matter to its Counsel for possible legal remedies to collect the
           $50,265.

Comment 15 As recommended in the report, County officials should increase the housing
           rehabilitation loan lien by $4,355 to protect HUD’s interest in the additional
           amount loaned or reimburse the CDBG program that amount from non-Federal
           funds. As a part of the audit resolution process with HUD, County officials will
           need to obtain HUD’s approval for not pursuing legal action.




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