OFFICE OF AUDIT REGION 2 NEW YORK-NEW JERSEY The Lower Manhattan Development Corporation, New York, NY Community Development Block Grant Disaster Recovery Assistance Funds 2014-NY-1011 SEPTEMBER 30, 2014 Issue Date: September 30, 2014 Audit Report Number: 2014-NY-1011 TO: Marion Mollegen McFadden, Deputy Assistant Secretary for Grant Programs, DG //SIGNED// FROM: Edgar Moore, Regional Inspector General for Audit, New York – New Jersey, 2AGA SUBJECT: The Lower Manhattan Development Corporation, New York, NY, Generally Administered CDBG Disaster Recovery Assistance Funds in Accordance With HUD Regulations 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 Lower Manhattan Development Corporation’s (LMDC) administration of Community Development Block Grant (CDBG) Disaster Recovery Assistance funds covering the period April 1, 2012 through March 31, 2013. The review was performed in response to a congressional mandate that HUD OIG continuously audit LMDC’s administration of the $2.783 billion in Disaster Recovery Assistance funds awarded to the State of New York in the aftermath of the September 11, 2001, terrorist attacks on the World Trade Center in New York City. HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on recommended corrective actions. For each recommendation without a management decision, please respond and provide status reports in accordance with the HUD Handbook. Please furnish us copies of any correspondence or directives issued because of the audit. The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its publicly available reports on the OIG Web site. Accordingly, this report will be posted at http://www.hudoig.gov. If you have any questions or comments about this report, please do not hesitate to call me at 212-264-4174. September 30, 2014 The Lower Manhattan Development Corporation, New York, NY, Generally Administered CDBG Disaster Recovery Assistance Funds in Accordance With HUD Regulations Highlights Audit Report 2014-NY-1011 What We Audited and Why What We Found We performed the 18th review of the LMDC generally disbursed CDBG Disaster Recovery Lower Manhattan Development Assistance funds in accordance with the guidelines Corporation’s (LMDC) administration established under the HUD-approved partial action of the $2.783 billion in Community plans and applicable laws and regulations for the Development Block Grant (CDBG) Columbus Park Pavilion, West Street Pedestrian Disaster Recovery Assistance funds Connection, Fiterman Hall, and Education – Other awarded to the State of New York. programs. The objective of the audit was to determine whether LMDC disbursed CDBG Disaster Recovery Assistance funds in accordance with the guidelines established under the U.S. Department of Housing and Urban Development (HUD)-approved partial action plans for the Columbus Park Pavilion, West Street Pedestrian Connection, Fiterman Hall, and Education – Other programs. What We Recommend There are no recommendations. TABLE OF CONTENTS Background and Objective 3 Results of Audit Finding: LMDC Generally Administered CDBG Disaster Recovery Assistance Funds in Accordance With HUD Regulations 5 Scope and Methodology 6 Internal Controls 8 Appendixes A. Auditee Comments 10 B. Schedule of Disbursements as of March 31, 2013 11 2 BACKGROUND AND OBJECTIVE The Lower Manhattan Development Corporation (LMDC) was created in December 2001 as a subsidiary of the Empire State Development to function as a joint city-State development corporation. A 16-member board of directors, appointed equally by the governor of New York and the mayor of New York City, oversees LMDC’s affairs. The Empire State Development performs all accounting functions for LMDC. The State of New York designated LMDC to administer $2.783 billion1 of the $3.483 billion2 in Community Development Block Grant (CDBG) Disaster Recovery Assistance funds appropriated by Congress in the aftermath of the September 11, 2001, terrorist attacks on the World Trade Center to assist with the recovery and revitalization of Lower Manhattan. Planned expenditures of Disaster Recovery Assistance funds are documented in action plans that receive public comment and are approved by the U.S. Department of Housing and Urban Development (HUD). As of March 31, 2013, HUD had approved 15 partial action plans and multiple amendments, which allocated the $2.783 billion to various programs and activities (see appendix B for amounts by program), and LMDC had disbursed more than $2.23 billion, or 80 percent, of the $2.783 billion appropriated. During this audit, we reviewed disbursements related to the following programs: Columbus Park Pavilion program: As of March 31, 2013, HUD had approved $998,571 for the Columbus Park Pavilion program. This project includes rehabilitation to address the decay of the Columbus Park pavilion’s infrastructure. The project expands on recent renovation efforts by the Parks Department and proposes the creation of new community space in the lower level of the pavilion and the refurbishment of the upper level of the pavilion for recreational programming. In addition, the project will eliminate barriers and promote accessibility for people with disabilities. West Street Pedestrian Connection program: As of March 31, 2013, HUD had approved more than $22 million for the West Street Pedestrian Connection program. The purpose of this project is to construct a temporary pedestrian bridge near the intersection of Vesey and West Streets and provide enhancements to the bridge and walkway at Liberty Street. This improvement is intended to foster safe pedestrian flow across West Street and appropriately handle the expected high volume of pedestrians that will use this crossing daily once the Port Authority Trans- Hudson service is fully restored. In addition, another project was created to fund pedestrian management-related services necessary to improve traffic and pedestrian safety at selected West Street pedestrian crossings. Fiterman Hall program: As of March 31, 2013, HUD had approved $15 million for the Fiterman Hall program. The funds are to be dedicated to costs for planning, design, and administrative expenses, including environmental, engineering, and other studies. The funds are also to be used 1 This amount was funded by two grants, B-02-DW-36-0001 for $2 billion and B-02-DW-36-0002 for $783 million. 2 The Empire State Development administers the remaining $700 million. 3 for enhancement of interior and exterior public spaces upon completion of the replacement building, including landscaping and indoor and outdoor furniture. Education – Other program: As of March 31, 2013, HUD had approved $3 million for the Education – Other program. The funds are to be used to upgrade existing and create additional public school facilities, including classrooms, labs, theaters, and recreation space. Our audit objective was to determine whether LMDC disbursed CDBG Disaster Recovery Assistance funds in accordance with the guidelines established under the HUD-approved partial action plans for the following programs: Columbus Park Pavilion, West Street Pedestrian Connection, Fiterman Hall, and Education – Other. 4 RESULTS OF AUDIT Finding: LMDC Generally Administered CDBG Disaster Recovery Assistance Funds in Accordance With HUD Regulations LMDC officials generally disbursed CDBG Disaster Recovery Assistance funds in accordance with the guidelines established under the HUD-approved partial action plans and applicable laws and regulations for the Columbus Park Pavilion, West Street Pedestrian Connection, Fiterman Hall, and Education – Other programs. Funds Disbursed in Compliance With Guidelines For the programs tested, LMDC generally disbursed the CDBG Disaster Recovery Assistance funds in accordance with the HUD-approved partial action plans, subrecipients’ agreements, and applicable laws and regulations. We tested $13.74 million disbursed under the Columbus Park Pavilion, West Street Pedestrian Connection, Fiterman Hall, and Education – Other programs during this audit period, and no material deficiencies were identified. For the programs tested, LMDC disbursed funds to subrecipients for eligible, reasonable, and necessary expenses that complied with the subrecipients’ agreements and applicable laws and regulations. Through interviews, desk reviews, and site visits, LMDC officials continuously monitored the performance of subrecipients against the goals and performance standards prescribed in the subrecipients’ agreements. Subrecipients were required to submit monthly progress reports on the projects and adequate supporting documents for cost reimbursement. LMDC officials prepared either monthly, bi-monthly, or quarterly monitoring reports for each project, documenting the project status, communication with the subrecipients, problems identified, if any, and their resolutions. Conclusion For the programs tested, LMDC officials generally administered CDBG Disaster Recovery Assistance funds in accordance with the guidelines established under the HUD-approved partial action plans and applicable laws and regulations. Recommendations There are no recommendations. 5 SCOPE AND METHODOLOGY During the audit period, April 1, 2012 through March 31, 2013, LMDC disbursed $78.4 million of the $2.783 billion in CDBG Disaster Recovery Assistance funds appropriated for activities related to the rebuilding and revitalization of Lower Manhattan. To accomplish our audit objective, we reviewed applicable laws, regulations, and program requirements; subrecipient agreements and contracts applicable to the disbursements; and HUD- approved partial action plans. We documented and reconciled disbursements recorded during the audit period in HUD’s Disaster Recovery Grant Reporting system. Our audit focused on four programs, for which we obtained a general understanding of LMDC’s internal controls and tested $13.74 million in disbursements for the audit period, as follows: Amount Amount disbursed Percentage Program tested from April 1, 2012, Tested (in millions) through March 31, 2013 (in millions) Columbus Park Pavilion $0.77 $0.77 100% West Street Pedestrian Connection 1.90 1.90 100% Fiterman Hall 8.07 8.07 100% Education – Other 3.0 3.0 100% Total $13.74 $13.74 For the disbursements under the Columbus Park Pavilion, West Street Pedestrian Connection, Fiterman Hall, and Education – Other programs, we reviewed 100 percent of the drawdowns. We also reviewed 100 percent of the 58 school grant applications for the Education – Other program, in which two schools applied under one grant application. NYCDOE permitted the two schools to make separate purchases under the same grant application. Therefore, a total of 59 schools were approved to make purchases by LMDC for the Education – Other program. In addition, we tested whether the 59 schools were located in the eligible program area and complied with the program requirements. While we used the data obtained from HUD’s Disaster Recovery Grant Reporting system3 for informational purposes, our assessment of the reliability of the data in the system was limited to the data reviewed, which were reconciled to LMDC’s records; therefore, we did not assess the reliability of this system. We performed our audit fieldwork from April through August 2014 at LMDC’s office located in Lower Manhattan and at the office of LMDC’s parent company, the Empire State Development, located in Midtown Manhattan. 3 The Disaster Recovery Grant Reporting system was developed by HUD's Office of Community Planning and Development for the Disaster Recovery CDBG program and other special appropriations. Data from the system is used by HUD staff to review activities funded under these programs and for required quarterly reports to Congress. 6 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 finding and conclusion based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our finding and conclusion based on our audit objective. 7 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. 8 We evaluated internal controls related to the audit objective in accordance with generally accepted government auditing standards. Our evaluation of internal controls was not designed to provide assurance regarding the effectiveness of the internal control structure as a whole. Accordingly, we do not express an opinion of the effectiveness of the LMDC’s internal control as a whole. 9 Appendix A AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 10 Appendix B SCHEDULE OF DISBURSEMENTS AS OF MARCH 31, 2013 Program Budget as of Audit period Cumulative Balance Mar. 31, 2013 disbursement disbursement as remaining as of Apr. 1, 2012 – of Mar. 31, 2013 Mar. 31, 2013 Mar. 31, 20134 Business Recovery Program $218,946,000 ($7,313) $218,750,393 $195,607 Job Creation & Attraction Program 143,000,000 (247,661) 107,220,142 35,779,858 Small Firm Attraction & Retention 29,000,000 (57,946) 27,625,391 1,374,609 Residential Grant Program 236,180,809 236,057,064 123,745 Employment Training Assistance 346,000 337,771 8,229 Interim Memorial 309,969 309,969 0 Columbus Park Pavilion 998,571 767,406 767,406 231,165 History & Heritage Marketing 4,612,619 4,612,619 0 Downtown Alliance Streetscape 4,000,000 4,000,000 0 NYSE Security Improvements 25,255,000 12,194,821 13,060,179 Parks & Open Spaces 46,981,689 2,021,480 20,172,380 26,809,309 Hudson River Park Improvement 72,600,000 31,918 72,600,000 0 West Street Pedestrian Connection 22,955,811 1,899,781 20,742,111 2,213,700 LM Communication Outreach 1,000,000 1,000,000 0 Chinatown Tourism Marketing 1,160,000 1,159,835 165 Lower Manhattan Info 2,570,000 1,752,391 817,609 WTC Site 706,718,783 25,209,587 625,273,382 81,445,401 Lower Manhattan Tourism Programs 3,950,000 3,950,000 0 East River Waterfront 163,000,000 7,378,665 56,468,950 106,531,050 Lower Manhattan Street Management 9,000,000 2,016,373 8,324,375 675,625 East Side K-8 School 23,000,000 9,429,401 22,998,703 1,297 Fiterman Hall 15,000,000 8,071,557 9,928,770 5,071,230 Chinatown LDC 7,000,000 365,765 5,267,600 1,732,400 Lower Manhattan Business Expansion 4,000,000 0 4,000,000 Lower Manhattan Housing 54,000,000 28,200,000 25,800,000 Lower Manhattan Public Service Programs 7,891,900 161,527 7,369,444 522,456 Planning & Administration 114,892,005 2,689,444 104,991,644 9,900,361 Community & Cultural Enhancements 87,855,844 6,205,569 60,524,842 27,331,002 Drawing Center 2,000,000 2,000,000 0 Fulton Corridor 35,000,000 108,442 8,171,150 26,828,850 Economic Development 6,775,000 378,908 4,267,600 2,507,400 Transportation Improvements 17,000,000 10,360 146,859 16,853,141 Education – Other 3,000,000 3,000,000 3,000,000 0 Utility Restoration and Infrastructure 483,382,087 483,382,087 0 Rebuilding Disproportionate Loss 33,000,000 32,999,997 3 Other World Trade Center Area Improvements 196,617,913 8,999,805 33,992,979 162,624,934 Total $2,783,000,000 $78,433,068 $2,230,560,675 $552,439,325 4 Negative amounts represent recoveries to the program. 11
The Lower Manhattan Development Corporation, New York, NY, Generally Administered CDBG Disaster Recovery Assistance Funds in Accordance With HUD Regulations
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)