oversight

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)

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