oversight

Palladia, Inc., New York, NY, Did Not Administer Its Supportive Housing Program in Accordance with HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-07-25.

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

OFFICE OF AUDIT
REGION 2
NEW YORK- NEW JERSEY




               Palladia, Inc., New York, NY

               Supportive Housing Program




2014-NY-1008                            JULY 25, 2014
                                                         Issue Date: July 25, 2014

                                                         Audit Report Number: 2014-NY-1008




TO:            Vincent Hom,
               Director, Community Planning and Development, 2ADMI
               Karen A. Campbell-Lawrence//SIGNED//
               For
FROM:          Edgar Moore,
               Regional Inspector General for Audit, New York-New Jersey, 2AGA


SUBJECT:       Palladia, Inc., New York, NY, Did Not Administer Its Supportive Housing
               Program in Accordance With HUD Requirements


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of Palladia, Inc.’s administration of its
Supportive Housing Program.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation in the body of the report 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 25, 2014
                                             Palladia, Inc., New York, NY, Did Not Administer Its
                                             Supportive Housing Program in Accordance With HUD
                                             Requirements



Highlights
Audit Report 2014-NY-1008


 What We Audited and Why                      What We Found

We audited Palladia, Inc.’s                  Palladia officials generally carried out their program-
administration of its Supportive             assisted activities with the appropriate beneficiaries;
Housing Program. We selected Palladia        however, they did not provide support for how program
for review based on a request from the       grant funds were expended and they did not maintain
U.S. Department of Housing and Urban         effective program and financial management controls.
Development’s (HUD) New York City            These deficiencies are attributed to Palladia’s
Office of Community Planning and             management predecessors’ lack of knowledge of
Development. The objectives of the           Federal regulations and failure to (1) implement and
audit were to determine whether              follow adequate policies and procedures to properly
Palladia officials (1) carried out           prepare and maintain source documentation for HUD
program-assisted activities with the         reimbursed vouchers and non-Federal cash match
appropriate beneficiaries, (2) expended      funds, and (2) establish an adequate record-keeping
program grant funds in compliance with       system. Consequently, Palladia officials could not
HUD and applicable regulations, and          assure HUD that program grant funds were spent in
(3) maintained effective program and         accordance with HUD rules and regulations and that
financial management controls.               the effectiveness of the grant activities was fully
                                             maximized as intended by HUD. As a result, we
 What We Recommend                           considered more than $1.6 million in program
                                             operating expenditures to be unsupported and
                                             $584,579 in required non-Federal cash matching funds
We recommend that the Director of the        for operating and supportive services to be
HUD’s New York City Office of                unsubstantiated.
Community Planning and Development
instruct Palladia officials to (1) provide
documentation to justify more than $1.6
million in unsupported costs; (2)
provide adequate supporting
documentation to substantiate that the
cash match of $584,579 was met for the
operating and supportive services costs,
and (3) maintain supporting
documentation and strengthen oversight
controls over disbursements that are
sufficient to ensure compliance with
applicable regulations.
                              TABLE OF CONTENTS

Background and Objectives                                                            3

Results of Audit
        Finding:      Palladia Officials Did Not Implement Adequate Record-Keeping
                      and Financial Management Systems                               4

Scope and Methodology                                                                10

Internal Controls                                                                    12

Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use               14
   B.   Auditee Comments and OIG’s Evaluation                                        15
   C.   Schedule of Unsupported Vouchers                                             20
   D.   The Projects Selected for Review                                             21




                                              2
                         BACKGROUND AND OBJECTIVES

The Supportive Housing Program (the Program) is authorized by the McKinney-Vento Homeless
Assistance Act (42 United States Code 11381 to 11389). The program is designed to promote the
development of supportive housing and services, such as assisting homeless persons with their
transition to permanent housing and providing services so that these former homeless persons can
live as independently as possible. Eligible activities include transitional housing, permanent
housing for homeless persons with disabilities, supportive services only, and innovative supportive
housing.

Palladia, Inc. was established in 1970 as a nonprofit multiservice agency in New York City that
serves families and individuals with special needs. According to its web site, Palladia’s clients are
largely urban with nearly 2,000 clients per day in 31 distinct programs. The programs that
Palladia provides include residential substance abuse treatment, outpatient and transitional
treatment, homeless and domestic violence shelters, alternatives to incarceration, permanent
supporting housing programs, and a wide range of special initiatives and collaborations. Palladia
provides supportive permanent housing to homeless and disabled individuals and families in more
than 400 units.

According to the U.S. Department of Housing and Urban Development’s (HUD) Line of Credit
Control System (LOCCS) 1, HUD authorized and Palladia disbursed $10.4 million for 27 grants
awarded for 10 Supportive Housing Program projects during the audit period, July 1, 2010,
through June 30, 2012. We selected a nonstatistical sample of 6 of the 10 program projects for
review to determine whether Palladia officials expended program grant funds in compliance with
HUD and applicable regulations. The 6 program projects had 723 tenant files and we selected a
nonstatistical sample of 80 of the 723 tenant files from the sample of 6 program projects for review
to determine whether Palladia officials carried out their program activities with the appropriate
beneficiaries. See Appendix D for the projects selected for review.

Our audit objectives were to determine whether Palladia officials (1) carried out program-
assisted activities with the appropriate beneficiaries, (2) expended program grant funds in
compliance with HUD and applicable regulations, and (3) maintained effective program and
financial management controls.


1
 LOCCS is a HUD grant disbursement system that provides disbursement controls for over 100 HUD grant
programs and every year LOCCS disburses over $20 billion to thousands of HUD business partners.




                                                      3
                                 RESULTS OF AUDIT


 Finding:      Palladia Officials Did Not Implement Adequate Record-
               Keeping and Financial Management Systems

Although Palladia officials generally carried out their program-assisted activities with the
appropriate beneficiaries, they did not provide support for how program grant funds were expended
in accordance with HUD rules and regulations, and had not implemented adequate record-keeping
and financial management systems. Specifically Palladia officials did not (1) maintain source
documentation to support 30 of 38 vouchers, which represented approximately $1.6 million in
program expenditures; (2) establish a record-keeping system to substantiate the $584,579 in
required non-Federal cash match funds expended for operating and supportive services costs; and
(3) reconcile financial and accounting records (for example, the general ledger did not match their
annual performance reports and LOCCS drawdowns). These deficiencies are attributed to
Palladia’s prior management staff’s lack of knowledge of Federal regulations and failure to (1)
implement and follow adequate policies and procedures to properly prepare and maintain source
documentation for HUD reimbursed vouchers and non-Federal cash match funds, and (2) establish
an adequate record-keeping system. Consequently, Palladia officials could not assure HUD that
program grant funds were spent in accordance with HUD rules and regulations and that the
effectiveness of the grant activities was fully maximized as intended by HUD. As a result, we
considered more than $1.6 million in program operating expenditures to be unsupported, and
$584,579 in required non-Federal cash matching funds for operating and supportive services costs
to be unsubstantiated.



  Activities Carried Out With
  Appropriate Beneficiaries

              Palladia officials generally carried out their program-assisted activities with the
              appropriate beneficiaries as evidenced by our review of 80 out of 723 tenant files
              selected from a sample of six program projects. Each of the 80 files reviewed
              contained documentation to support the homeless and disability status of the
              tenants such as the signed HUD Homeless Status Certification, and letters from
              shelters and families regarding the tenant’s homelessness and New York City
              Housing Referral Application, or evidence from a hospital or clinic documenting a
              disability. Thus, Palladia officials are administering these activities to the
              appropriate clientele.




                                                4
Inadequate or Lacking Source
Documentation

            Palladia officials could not provide adequate source documentation to support more
            than $1.6 million in disbursements associated with 30 of 38 vouchers pertaining to the
            six program projects reviewed. Palladia officials were able to provide source
            documentation for only 8 of the 38 vouchers tested. The remaining 30 vouchers were
            not supported by source documentation, such as payroll records, invoices, rental leases,
            utility bills, and other records related to the expenditures. Regulations at 24 CFR (Code
            of Federal Regulations) 84.21(b) require grantees and subgrantees to maintain records,
            which adequately identify the source and application of funds provided for financially
            assisted activities. This deficiency is attributed to Palladia’s prior management staff
            that failed to follow Palladia’s internal accounting manual, thereby ignoring the written
            policies and procedures to properly prepare and maintain source documentation for
            HUD reimbursed vouchers and non-Federal cash match funds. Palladia Policies and
            Procedures Manual contained written procedures for the administration of government
            grants, and had a billing process requiring supporting documentation for each voucher,
            and records retention procedures. However, since these procedures were not followed,
            there was no assurance that more than $1.6 million in program funds was expended for
            eligible program activities.

            According to current Palladia officials, former management staff members did not
            maintain source documentation for program expenditures before June 2011 due to their
            lack of knowledge pertaining to record keeping. Also, current officials stated that they
            could not provide any support for prior expenses because they believed that it would
            take two to three staff members working full time for 2 months to prepare the missing
            source documentation for the 30 unsupported vouchers and reconcile their financial and
            accounting records. However, current Palladia officials contended that after HUD
            performed a monitoring review in June 2011, they maintained complete source
            documentation associated with program vouchers going forward. Our review disclosed
            that one of the six sampled programs projects, with a project period of July 1, 2011, to
            June 30, 2012, was supported with complete source documentation for its two
            vouchers. However, without source documentation to substantiate the 30 vouchers that
            we requested for review, there was no assurance that more than $1.6 million in program
            funds was expended for eligible program activities. See appendix C for the list of
            unsupported vouchers.

Lack of a Record-Keeping
System

           Palladia officials did not maintain a record-keeping system to ensure that supporting
           records were available for review in accordance with Federal and HUD rules.
           Regulations at 24 CFR 84.21(b) requires that grantees and subgrantees maintain records,
           which adequately identify the source and application of funds provided for financially
           assisted activities. In addition, 24 CFR 84.23(a)(1) states that all contributions, including

                                             5
cash and third party in-kind, shall be accepted as part of the recipient's cost sharing or
matching when such contributions meet all of the criteria and are verifiable from the
recipient's records. For example, source documentation, such as invoices, payroll records,
and utility bills to substantiate the program expenditures, was not maintained as discussed
above. Also, the rent rolls for five program projects and the records substantiating the
funding source for the six program projects were not maintained. In addition, the eligible
program expenses paid for with non-Federal cash match funds for five of the six program
projects in our sample were not maintained. Further, due to lack of a record-keeping
system, Palladia officials could not provide documentation in a timely manner. For
example, Palladia officials took more than 2 months to provide the general ledger
detailing the cash match for one of the six program projects reviewed; however, the
general ledger did not support the funding source of the non-Federal cash match funds.
As a result, the funding source for the non-Federal cash match was not substantiated for
the six program projects in our sample.

In addition, the eligible program expenses of $584,579 ($382,299 and $202,280) in
required non-Federal cash matching funds for operating and supportive services costs
could not be substantiated for five of the six program projects in our sample. Based on
HUD LOCCS, the tables below show an analysis of Palladia’s cash match funds for
operating and supportive services costs.

Cash match analysis for “Operating Costs” for five of the six sampled
program projects


      Program              Operating         Required cash             Total
    project name             costs             match @@            operating costs
       Aegis                  $262,245              $87,415                $349,660
     Esperanza                 369,183              123,061                 492,244
    Flora Vista                 87,401               29,134                 116,535
    Hill House                 116,194               38,731                 154,925
  Stratford House              311,873              103,958                 415,831
         Total              $1,146,896            $382,299@              $1,529,195

@ We were not provided with any evidence of the source of the required cash match of $382,299.

@@ 24 CFR 583.125(c) states that assistance for operating costs will be available for up
to 75 percent of the total cost in each year of the grant term. The recipient must pay the
percentage of the actual operating costs not funded by HUD. At the end of each
operating year, the recipient must demonstrate that it has met its match requirement of the
costs for the year. For example, $262,245/0.75 = $349,660 in total cost and $349,660
*0.25 = $87,415 (required cash match).




                                       6
            Cash match analysis for “Supportive Services Costs” for five of the six
            sampled program projects

                                                                                Total
                                    Supportive
                 Program                              Required cash           supportive
                                     services
               project name                            match @@@               services
                                       costs
                                                                                 costs
                   Aegis                $100,426              $25,107             $125,533
                 Esperanza               233,746               58,437              292,183
                Flora Vista              109,549               27,387              136,936
                Hill House               106,978               26,745              133,723
              Stratford House            258,420               64,605              323,025
                    Total               $809,119            $202,280@           $1,011,399

            @ We were not provided with any evidence of the source of the required cash match of $202,280.

            @@@ Per Palladia’s grant agreement with HUD, the recipient must provide a 25 percent cash match for
            supportive services. For example, $100,426 *0.25 =$25,107 (required cash match).

            The deficiency noted above is attributed to Palladia’s turnover in management
            staff, including its chief executive officer, chief financial officer, and assistant
            vice president of finance, who failed to implement policies and procedures to
            ensure that grant matching funds were appropriately recorded and that adequate
            supporting source documentation was maintained. Consequently, Palladia
            officials could not assure HUD that they administered the program in
            accordance with requirements.


Financial and Accounting
Records Not Reconciled

            Palladia officials failed to reconcile their financial and accounting records
            associated with their Supportive Housing Program. Therefore, program
            expenditures reported on their general ledgers did not match their annual
            performance report, and program revenues reported on their general ledgers did
            not match LOCCS drawdowns for the six program projects in our review (see
            table below).




                                                7
             Reconciliation of Palladia’s general ledger, its annual performance report,and
             LOCCS drawdowns

                                                                                               GL
                                                      Expenses                              revenues
               Program       General
                                           APR**      per GL*      GL          LOCCS          and
                project       Ledger
                                          Expenses    and APR    Revenues     drawdowns     LOCCS
                 name        expenses
                                                       match                               drawdowns
                                                                                             match
                Aegis        $468,421     $456,728      No        $400,130     $390,609        No
               Dreitzer
               Women
                              589,284       407,108     No         553,480      407,108       No
                 and
               Children
              Esperanza        830,689      829,548     No         787,524      798,493       No
              Flora Vista      231,486      228,934     No         260,605      205,621       No
              Hill House       282,635      234,153     No         282,635      234,153       No
               Stratford
                               696,455      595,243     No         644,819      595,243       No
                House
                Total:      $3,098,970   $2,751,714              $2,929,193   $2,631,227

             * GL = general ledger
             ** APR = annual performance report

             Our review of Palladia’s financial and accounting records, including its general ledger,
             annual performance reports, and drawdowns from LOCCS disclosed that for the six
             program projects sampled, the amounts reported to HUD could not be reconciled with
             Palladia’s records. When requested, Palladia officials were unable to explain and
             reconcile the differences reported for the six program projects. Further, officials stated
             that they could not allocate staff resources during the time our onsite audit work was
             performed to reconcile their financial and accounting records. Regulations at 24 CFR
             84.21(b)(7) and 574.450 require that accounting records be supported by source
             documentation, and each project sponsor agree to maintain and make available to HUD
             financial records sufficient to ensure proper accounting and disbursing from a grant
             under this part to ensure that the program requirements were met. Palladia officials
             attributed this noncompliance with HUD rules and regulations to their former
             management staff. However without performing reconciliations between their
             financial and accounting records, there was no assurance that funds were expended for
             eligible program activities and accurately recorded in accordance with HUD
             requirements.


Conclusion

             Palladia officials generally carried out their program activities with the appropriate
             beneficiaries; however, they could not provide documentation demonstrating that they
             properly expended program funds in accordance with regulations, and officials could not
             demonstrate that they implemented adequate record-keeping and financial management
                                                  8
          systems. Specifically, (1) inadequate or a lack of source documentation provided no
          assurance that more than $1.6 million in program funds was expended for eligible
          program activities; (2) $584,579 in required non-Federal cash match funds expended for
          operating and supportive services costs was unsubstantiated due to the lack of a record-
          keeping system; and (3) financial and accounting records were not reconciled, assuring
          that funds were expended for eligible program activities, and accurately recorded in
          accordance with HUD requirements. Thus, Palladia officials could not assure HUD that
          program grant funds were spent in accordance with HUD rules and regulations and that
          the effectiveness of the grant activities was fully maximized as intended by HUD. We
          attribute these deficiencies to Palladia’s management predecessors’ lack of knowledge of
          Federal regulations and failure to (1) implement and follow adequate policies and
          procedures to properly prepare and maintain source documentation for HUD reimbursed
          vouchers and non-Federal cash match funds, and (2) establish an adequate record-
          keeping system.


Recommendations

          We recommend that the Director of HUD’s New York Office of Community Planning and
          Development instruct Palladia officials to

          1A.     Provide documentation to justify that the $1,615,057 in unsupported costs is
                  associated with eligible program activities. Any unsupported costs determined to
                  be ineligible should be reimbursed from non-Federal funds.

          1B.     Strengthen oversight controls over disbursements to ensure that adequate
                  supporting documentation is maintained and complies with applicable
                  regulations.

          1C.     Follow its policies and procedures for record-keeping to maintain records that
                  adequately identify the source and application of funds provided for financially
                  assisted activities.

          1D.     Provide records detailing the funding sources of the non-Federal cash match
                  for the six grant activities reviewed.

          1E.     Provide source documentation to substantiate that the $584,579 in required non-
                  Federal cash matching funds for five of the six program projects reviewed were
                  met.

          1F.     Reconcile its accounting records to ensure that total revenues and
                  expenditures in its general ledgers reconcile to the revenues and expenditures
                  reported in its annual performance reports and LOCCS.




                                            9
                              SCOPE AND METHODOLOGY

We performed our onsite audit work at Palladia’s office located at 2006 Madison Avenue, New
York, NY, from September 2013 to February 2014. Our audit generally covered the period July1, 2010, to
June 30, 2012, and was extended when necessary to meet our objectives. To accomplish our audit
objectives, we

    Researched and reviewed HUD handbooks, the Code of Federal Regulations, HUD grant
     agreements, Office of Management and Budget circulars, the McKinney-Vento Homeless Assistance
     Act, HUD’s notice of funding availability, the HUD Supportive Housing Program Desk Guide,
     annual performance reports, and program budget instructions.

   Reviewed Palladia’s policy and procedures used to administer its program.

    Interviewed officials of the New York HUD Office of Community Planning and Development and
     Palladia.

   Reviewed applicable HUD monitoring reports.

    Obtained and reviewed Palladia’s annual audited financial statements, annual performance
     reports, general ledgers, LOCCS drawdowns, program budget, bank statements, organizational
     chart, job descriptions, tenant files, and available source documentation for program
     disbursements.

    We relied in part on computer-processed data primarily for obtaining background information on
     the Palladia’s expenditure of program funds. We performed a minimal level of testing and found
     the data to be adequate for our purposes.

    Reviewed Palladia’s Website for general background information.

We reconciled the authorized and disbursed amounts of Palladia’s program grants during our audit
period, July 1, 2010, to June 30, 2012, with LOCCS drawdowns. Palladia received $10.4 million in
HUD funds for 27 grant activities associated with 10 Supportive Housing Program projects. Included
in the population of 10 projects were 4 projects that were not selected for testing because HUD had
recently reviewed one project in 2011, one project consisted of minimal grant amounts, another project
had a zero grant balance, and the last was a scattered site project. Thus, only the 6 remaining projects
were suitable for our testing purposes. Therefore, we selected a non-statistical sample of one grant
from each of the 6 Supportive Housing Program projects for review to determine whether Palladia
expended program funds in accordance with HUD rules and regulations. The non-statistical sample of
6 out of 27 grants equating to $2.6 million, represented 22 percent of the total grants (6/27) and 25
percent of the universe ($2,631,227 / $10,404,569).

We also selected a non-statistical sample of 80 out of the 723 tenant files pertaining to the 6
sampled projects for review to determine whether Palladia officials carried out their program
activities with the appropriate beneficiaries. The 80 tenant files were selected from the top,
middle, and bottom of the 6 tenant lists. Our sample of 80 files represented approximately 11
                                                  10
percent of the universe (80 / 723), and consisted of six program projects as shown below:

                                                                                               Samples
                                                                                   Number of
                                                                       Amount                     of
Number     Program project name              Project period                         tenant
                                                                      disbursed                 tenant
                                                                                     files
                                                                                                 files
                                     January 1, 2011 – December 31,
                   Aegis                                               $390,609        96          8
    1                                             2011
             Dreitzer Women and
                                                                       407,108         97          10
    2              Children            July 1, 2011-June 30, 2012
    3             Esperanza          August 1, 2010 – July 31, 2011    798,493         304         31
                                     November 1, 2010 – October 31,
                 Flora Vista                                           205,621         22          5
    4                                             2011
    5            Hill House           July 1, 2010 – June 30, 2011     234,153         46          10
                                     November 1, 2010 – October 31,
               Stratford House                                         595,243         158         16
    6                                             2011

                   Total:                                                              723         80
                                                                      2,631,227


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.




                                                 11
                                 INTERNALCONTROLS
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:

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

                     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.

                     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 of resources – Policies and procedures that management has
                      implemented to reasonably ensure that 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.


                                                  12
Significant Deficiencies

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

                    Palladia officials did not have adequate controls over program operations
                     when they did not maintain source documentation for more than $1.6
                     million in HUD disbursements associated with 30 of 38 vouchers in
                     accordance with HUD rules and regulations (see finding).

                    Palladia officials did not have adequate controls over validity and reliability
                     of data when they did not perform reconciliations of their general ledgers to
                     their annual performance reports and LOCCS drawdowns (see finding).

                    Palladia officials did not have adequate controls over compliance with laws
                     and regulations when they did not comply with HUD regulations for
                     disbursing program funds and establishing a record-keeping system (see
                     finding).

                    Palladia officials did not have adequate controls over safeguarding resources
                     when they disbursed more than $1.6 million in program funds without
                     maintaining source documentation and had weaknesses in their
                     administrative controls when they did not establish a record-keeping system
                     (see finding).




                                               13
                                  APPENDIXES
Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE


                                                   Funds to be
         Recommendation
                               Unsupported 1/      put to better
             number
                                                      use 2/

                    1A             $1,615,057
                    1E                                    $584,579



1/   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.

2/   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. In this instance, if the supporting documentation is
     provided to substantiate the required cash match of $584,579, HUD can be assured that
     program funds will be put to good use.




                                             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 5




                         17
Ref to OIG Evaluation
                        Auditee Comments




Comment 5




                         18
                          OIG Evaluation of Auditee Comments

Comment 1   Palladia officials provided background information on their agency, citing the
            many people served and programs administered. However, our audit only
            covered Palladia’s ten Supportive Housing Program projects awarded funding
            from July 1, 2010 through June 30, 2012.

Comment 2   Although Palladia officials did not state disagreement with the finding, they
            expressed disappointment that we did not acknowledge the work Palladia had
            done in response to HUD field office concerns, claiming improvements were
            made to their electronic time keeping-system as an example. However, the
            scope of our review did not include the verification of Palladia’s response to
            HUD’s concerns, nor Palladia’s ability to help other New York City providers
            on how to use the HUD Activity Log system. We did not test Palladia’s
            electronic time keeping system; therefore, we did not report on it.

Comment 3   Officials contend that the draft report does not convey the financial sacrifices
            they have made while faced with fiscal pressure. The financial sacrifices that
            Palladia officials have made were not within our scope of review; therefore, we
            have not conveyed this information in this report. Further, it should be noted
            that officials did not update their general ledger to reflect what was actually
            reimbursed by HUD. Thus, this only reinforces the audit result that there was no
            assurance that HUD funds were accurately recorded in accordance with HUD
            requirements.

Comment 4   Palladia officials expressed disappointment that we did not expand our scope to
            fully document Palladia’s improvements in reporting for HUD contracts.
            However, Palladia officials did not express disagreement on our finding. We did
            not review the vouchers that fell outside of our audit period, July 1, 2010 to June
            30, 2012. Thus, we have not reported on them.

Comment 5   We have taken Palladia officials suggested amendments to the draft report into
            consideration and made revisions to the final report where necessary.




                                              19
Appendix C

             SCHEDULE OF UNSUPPORTED VOUCHERS


    No. of vouchers    Project Name        Voucher amounts   Voucher Number
                   1      Aegis                $31,219         001-796053
                   2      Aegis                 3,102          001-791589
                   3      Aegis                 72,547         001-780145
                   4    Esperanza               26,090         001-804545
                   5    Esperanza               17,051         001-796099
                   6    Esperanza              126,671         001-791600
                   7    Esperanza              138,496         001-780142
                   8    Esperanza              177,072         001-770863
                   9    Esperanza              203,554         001-757973
                  10    Flora Vista             14,513         001-804558
                  11    Flora Vista             9,347          001-796055
                  12    Flora Vista             5,526          001-791387
                  13    Flora Vista             44,267         001-780150
                  14    Flora Vista             22,134         001-774834
                  15    Flora Vista             42,944         001-761409
                  16    Flora Vista             17,472         001-756579
                  17    Hill House              23,453         001-804560
                  18    Hill House              20,060         001-796056
                  19    Hill House              7,105          001-791586
                  20    Hill House              44,177         001-780151
                  21    Hill House              22,088         001-774826
                  22    Hill House              30,366         001-760773
                  23    Hill House              17,183         001-756581
                  24    Hill House              69,721         001-751144
                  25     Stratford              34,667         001-804552
                  26     Stratford              55,163         001-796054
                  27     Stratford              58,198         001-791384
                  28     Stratford             117,481         001-780148
                  29     Stratford              58,740         001-774830
                  30     Stratford             104,650         001-761410


        Totals:                               $1,615,057




                                      20
Appendix D

               THE PROJECTS SELECTED FOR REVIEW

Aegis: During the project period, January 1 through December 31, 2011, HUD authorized and
Palladia disbursed $390,609 in program funds to Aegis, which is a domestic violence crisis
shelter that provides short-term, 90-day, and residential support services for families who must
immediately leave their homes due to domestic violence. Some of the supportive services that
Aegis provides are individual counseling, substance abuse assessment, housing advocacy, child
and adolescent support groups, and recreational and cultural activities.


Dreitzer Women and Children: During the project period, July 1, 2011, through June 30, 2012,
HUD authorized and Palladia disbursed $407,108 in program funds to Drietzer, which was a
residential facility with programs for both mother and child. Dreitzer Women and Children
promoted a drug free life style and good mental health for a woman through a multidisciplinary
team approach. The criteria for admission were that the individual had to be experiencing:
substance abuse, homelessness, and either was pregnant or has one child under three years old
in their care. According to Palladia officials, Dreitzer Women and Children was closed after the
project period ended on June 30, 2012.


Esperanza: During the project period, August 1, 2010, through July 31, 2011, HUD authorized
and Palladia disbursed $798,493 in program funds to Esperanza, a community residence
providing temporary housing, short-term case management, and substance abuse services to men.
This transitional housing project’s average length of stay is between 6 and 9 months. Some of the
supportive services that Esperanza provides are income maintenance counseling and individual
and group substance abuse counseling.


Flora Vista: During the project period, November 1, 2010, through October 31, 2011, HUD
authorized and Palladia disbursed $205,621 in program funds to Flora Vista, which provides 20
studio apartments to individuals with disabilities who were formerly homeless. Some of the
supportive services that Flora Vista provides for its tenants are substance abuse treatment,
counseling, legal assistance, entitlement advocacy, and community program referrals.


Hill House: During the project period, July 1, 2010, through June 30, 2011, HUD authorized and
Palladia disbursed $234,153 in program funds to Hill House, which provides 43 units to
individuals who have personal histories of homelessness and addiction. Some of the supportive
services that Hill House provides are health education and support, case management, substance
abuse counseling and recreational and socialization activities.



                                               21
Appendix D

               THE PROJECTS SELECTED FOR REVIEW

Stratford House: During the project period, November 1, 2010, through October 31, 2011, HUD
authorized and Palladia disbursed $595,243 in program funds to Stratford House, Palladia’s
largest permanent supportive housing program, which provides 60 one, two, and three-bedroom
apartments for formerly homeless families who have struggled with disabilities, such as mental
illness and substance abuse. Some of the supportive services that Stratford House provides are
legal assistance and entitlement advocacy, case management, substance abuse counseling, and
community program referrals.




                                              22