oversight

The City of Norfolk, VA, Generally Failed To Justify Its Community Development Block Grant Activities

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-12-17.

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

OFFICE OF AUDIT
REGION 3
PHILADELPHIA, PA




                   City of Norfolk, VA

     Community Development Block Grant Program




2014-PH-1001                             DECEMBER 17, 2013
                                                        Issue Date: December 17, 2013

                                                        Audit Report Number: 2014-PH-1001




TO:            Ronne Leggette, Director, Office of Community Planning and Development,
               Richmond Field Office, 3FD
               //signed//
FROM:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA


SUBJECT:       The City of Norfolk, VA, Generally Failed To Justify Its Community
               Development Block Grant Activities


    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 City of Norfolk’s Community
Development Block Grant 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 8L, 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
215-430-6730.
                                            December 17, 2013
                                            The City of Norfolk, VA, Generally Failed To Justify Its
                                            Community Development Block Grant Activities




Highlights
Audit Report 2014-PH-1001


 What We Audited and Why                     What We Found

We audited the City of Norfolk’s            The City could not provide adequate documentation to
Community Development Block Grant           justify nearly $2.5 million of about $4 million it spent
program based on our annual audit plan      on 12 of 16 sample activities reviewed. In addition, 14
and a risk analysis, which indicated that   of the 16 activities were required to meet a national
the City had the most open activities in    program objective; however, the City could not
Virginia. Our objective was to              demonstrate that the activities met or would meet their
determine whether the City justified its    designated objectives. Of the 14 activities, 10,
program activities by ensuring that they    associated with about $4.1 million in program fund
were properly supported by adequate         draws, were more than 10 years old. Further, the City
documentation and met national              was unable to provide documentation within a
objectives as required.                     reasonable timeframe to support about $5 million it
                                            had drawn for 15 additional activities in our audit
                                            sample. These problems occurred because the City
                                            demonstrated poor record keeping and inadequate
 What We Recommend
                                            planning related to its program activities. As a result,
                                            many activities reviewed were extensively delayed,
We recommend that the U.S.                  and the City could not demonstrate during the audit
Department of Housing and Urban             that it used significant program funds it drew to meet
Development require the City to (1)         designated program objectives, such as benefiting low-
provide documentation or evidence to        and moderate-income persons and eliminating slums or
justify unsupported program costs or        blight.
repay the costs to its program from non-
Federal funds, (2) provide a plan to
complete extensively delayed program
activities, (3) implement policies to
improve its record keeping and ensure
that program funds are fully supported
by adequate documentation, and (4)
implement effective planning policies to
ensure that program activities are not
subjected to long delays.
                            TABLE OF CONTENTS

Background and Objective                                                                3

Results of Audit
      Finding: The City of Norfolk Generally Failed To Justify Its Program Activities   4

Scope and Methodology                                                                   10

Internal Controls                                                                       12

Appendixes
A.    Schedule of Questioned Costs                                                      14
B.    Auditee Comments and OIG’s Evaluation                                             15
C.    Breakdown of Activities for HUD Review                                            30




                                             2
                      BACKGROUND AND OBJECTIVE

The Community Development Block Grant program is a flexible program that provides
communities with resources to address a wide range of unique community development needs.
Established in 1974, the program is one of the U.S. Department of Housing and Urban
Development’s (HUD) longest continuously running programs. The program provides annual
grants on a formula basis to 1,209 general units of local government and States. To be eligible
for funding, every activity, except program administration and planning, must meet one of the
following three national objectives:

   •   Benefit low- and moderate-income persons,
   •   Prevent or eliminate slums or blight, and
   •   Address certain urgent needs in a community because conditions pose an immediate
       threat to the health or welfare of the community.

The City of Norfolk is governed by the city council and the city manager. The City has been a
program grantee for more than 30 years. The City’s Budget and Grants Management Division
administers its program. The City contracted with its subrecipient, the Norfolk Redevelopment
and Housing Authority, to carry out most of its community development activities. During the
audit period, the City was awarded about $92.8 million in grant funds.

The City obtains or draws program funds for activities through HUD’s Integrated Disbursement
and Information System. This system is the drawdown and reporting system for HUD’s formula
grant programs, which include the Community Development Block Grant program.

Our objective was to determine whether the City justified its program activities by ensuring that
they were properly supported by adequate documentation and met national objectives as
required.




                                                3
                                         RESULTS OF AUDIT


Finding: The City of Norfolk Generally Failed To Justify Its Program
Activities
The City could not provide adequate documentation to justify nearly $2.5 million of about $4
million it drew for 12 of 16 sample activities reviewed. Also, 14 of the 16 activities were
required to meet a national program objective; however, the City could not demonstrate that the
activities met or would meet their designated objectives. Of the 14 activities, 10 associated with
about $4.1 million in program fund draws were more than 10 years old. 1 Further, the City was
unable to provide documentation within a reasonable timeframe to support about $5 million it
had drawn for 15 additional sample activities. These problems occurred because the City
demonstrated poor record keeping and inadequate planning related to its program activities. As a
result, $9.1 million in program funds the City drew was unsupported, and many projects
reviewed were extensively delayed and did not meet designated program objectives, such as
benefiting low- and moderate-income persons and eliminating slums or blight.


    The City Could Not Justify $2.5
    Million in Program Funds
    Drawn

                    The City failed to justify about $2.5 million in program funds it drew for
                    activities. According to program regulations at 2 CFR (Code of Federal
                    Regulations) Part 225, 2 each program activity must be adequately documented.
                    Also, regulations at 24 CFR 570.506(a) state that grantees must provide a full
                    description of each activity assisted with program funds, including its location.
                    We requested and reviewed documentation for a sample of 16 of the City’s
                    program activities. The City drew about $6.5 million in program funds for these
                    activities. The activities mainly entailed property or lot acquisitions for
                    development but also included some code enforcement and grant administration
                    or support activities. Contrary to program regulations, the City was unable to
                    provide adequate documentation to justify nearly $2.5 million of about $4 million
                    it drew for 12 of the 16 activities. The missing documentation included key
                    documents to support transactions associated with property acquisitions, such as
                    complete deeds and settlement documents, invoices to support payments to
                    contractors, and supporting employee time records for administrative expenses.
                    Table 1 below provides a breakdown of the 12 activities and related funding
                    information.



1
    Of the 10 activities, 9 were included in the 12 for which the City could not provide adequate documentation.
2
    Appendix A, section C(1)(j)

                                                            4
            Table 1

                                                      Amount
                                                                   Supported      Unsupported
             Count        Activity type      ID #      drawn
                1      Code enforcement       998    $ 500,000     $        0     $ 500,000
                2      Acquisition            924       521,981       106,686        415,295
                3      Acquisition           1389       355,289             0        355,289
                4      Code enforcement      1249       253,860             0        253,860
                5      Acquisition           1844       496,696       247,734        248,962
                6      Acquisition            480       437,815       199,186        238,629
                7      Acquisition            923       323,785       119,304        204,481
                8      Acquisition           1898       330,437       143,598        186,839
                9      Administration        4274       146,255       110,423         35,832
               10      Administration        4387       182,236       169,769         12,467
               11      Acquisition           1897       400,134       397,052          3,082
               12      Administration        4438        77,393        76,967            426
              Totals                                 $4,025,881    $1,570,719     $2,455,162

            The City partially attributed its deficient record keeping to changes in its
            administration process. It stated that its administration process had changed
            departments at least three times since 1997 and its system of record keeping had
            improved. The City needs to provide the required documentation to justify the
            approximately $2.5 million it drew to fund the activities in table 1.

Activities Did Not Meet Their
Designated National Objectives

            According to program regulations at 24 CFR 570.200(a)(2), grantees must
            maintain evidence that each program activity meets a national objective. In
            addition, regulations at 24 CFR 570.208 provide the criteria for determining
            compliance with the national objective requirement. However, of the 16 sample
            activities reviewed, 14 that were required to meet a national objective were
            incomplete and had not met the requirement. The designated national objectives
            for the activities included benefiting low- and moderate-income persons and
            eliminating slums or blight. City officials stated that it was unlikely that any of
            the activities would meet their designated objectives in 2013.

            Of the 14 activities that did not meet their designated national objectives, 10 were
            more than 10 years old with funding or start dates ranging from 1997 to 2002, and
            the City had drawn about $4.1 million in program funds related to the activities as
            shown in table 2 below.




                                              5
Table 2


 Count        Activity type           ID #       Start date       Amount drawn
   1       Acquisition                 480         1997              $ 437,815
   2       Code enforcement            998         1998                 500,000
   3       Acquisition                 923         1998                 323,785
   4       Acquisition                 924         1998                 521,981
   5       Code enforcement           1249         1999                 253,860
   6       Acquisition                1389         1999                 355,289
   7       Acquisition                1844         2001                 496,696
   8       Acquisition                1897         2001                 400,134
   9       Acquisition                1898         2001                 330,437
  10       Acquisition                2066         2002                 458,944
 Total                                                               $4,078,941

The City could not demonstrate that any of the activities in table 2 had benefited
low- and moderate-income persons or eliminated slums or blight. Although
program regulations do not impose a timeframe for completing activities,
extended delays adversely impact potential program beneficiaries. Therefore,
grantees should take necessary precautions and plan properly to avoid extended
project delays.

According to the City, the primary reason for the incomplete activities was
changes in City divisions responsible for program oversight. Also, the City’s
subrecipient provided the following reasons for activity delays: (1) it assembled
developments over time, (2) the City had restrictions regarding home construction
size, (3) some lots were between homes and difficult to build on, and (4) some
lots were next to market rate homes. The subrecipient stated that it expected to
clear all outstanding national objective activities within 36 months through
buyouts, lot or property development, and inventory reduction. The reasons cited
by the City and its subrecipient reflect a lack of focus on completing activities in a
reasonable and timely manner and inadequate planning regarding program
activities. The subrecipient’s concerns largely represent examples of issues that
should have been considered before activities were started. Because the City and
its subrecipient failed to properly plan for activities by considering contingencies
or challenges and determining appropriate solutions, activities were extensively
delayed, and the City could not demonstrate that it met its designated objectives to
benefit low- and moderate-income persons or eliminate slums or blight.




                                  6
The City Could Not Readily
Provide Documentation To
Justify $5 Million Drawn for 15
Sample Activities

            The City could not provide supporting documentation within a reasonable
            timeframe to support approximately $5 million in program funds it drew for 15
            activities. At the beginning of the audit, we identified and selected 31 of the
            City’s program activities for review. We initially reviewed 16 of the activities as
            discussed above. Because the City generally lacked adequate documentation to
            justify the program funds it drew for the activities, we asked it to provide
            documentation for the remaining 15 sample activities. We requested the
            documentation on March 6, 2013, and asked the City to provide the documents by
            March 25, 2013. On March 15, 2013, City officials stated that the earliest they
            could provide the documents would be May 1, 2013, because the City was
            focused on preparing its budget. We believed that the deadline provided was
            reasonable because it allowed 19 days for the City to gather the information
            requested. However, in consideration for the City’s needs and due to the
            constraints an extension would have imposed on the audit process, we informed
            the City that it could provide the documents for HUD review after the audit. The
            City needs to provide adequate documentation to justify the approximately $5
            million it drew for the 15 activities (see appendix C for breakdown).

The City Needs To Improve Its
Record Keeping and Implement
Planning Policies

            As evidenced by the amount of program funds the City could not justify with
            documentation and the extensively delayed program activities, the City needs to
            implement policies to improve its record keeping and planning regarding program
            activities. The City should coordinate with HUD and implement policies
            regarding specific documentation required to support each type of program
            activity.

            Regarding its delayed activities, the City stated that it was assembling a
            committee to address the issue. Part of the committee’s functions should be to (1)
            reevaluate the City’s planning goals regarding program activities, (2) develop and
            implement planning policies that include considering contingencies or challenges
            related to potential activities, and (3) determine appropriate solutions to prevent
            prolonged delays. This measure will help to ensure that activities undertaken are
            completed and benefit intended program beneficiaries within a reasonable
            timeframe.




                                             7
    The City Should Provide a Plan
    for Delayed Activities as
    Required by HUD

                 HUD recently issued updated instructions 3 regarding program activities and
                 related funding to grantees. According to the instructions, HUD’s Integrated
                 Disbursement and Information System has been updated to flag, among other
                 things, program activities that have 80 percent of their funding amount disbursed
                 with no accomplishments. Grantees with such activities are required to provide to
                 HUD (1) an explanation of the reasons for activity delays; (2) an action plan for
                 resolving the delays; and (3) a date, within 6 months, by which the action plan
                 will be executed. This information collectively constitutes a remediation plan.

                 As discussed above, the City had 10 activities that were more than 10 years old.
                 The approximately $4.1 million it had drawn for the activities represented all of
                 its available funding. Therefore, in accordance with HUD instructions, the City
                 should provide to HUD a remediation plan for its 10 extensively delayed
                 activities.

    Conclusion

                 The City could not justify or adequately support $9.1 million in program funds it
                 drew mainly because of poor record keeping and a failure to properly plan for its
                 program activities. It could not provide records to support transactions associated
                 with its program activities, and most activities reviewed were extensively delayed
                 and did not meet designated national objectives to benefit low- and moderate-
                 income persons and eliminate slums or blight. The City needs to justify and
                 support the $9.1 million in program funds it drew and provide HUD a remediation
                 plan for its 10 delayed activities. It should also implement policies to improve its
                 record keeping and planning regarding its program activities. Doing so will help
                 prevent potential misuse of program funds.

    Recommendations

                 We recommend that the Director of HUD’s Richmond Office of Community
                 Planning and Development direct the City to

                 1A.    Provide documentation to support the $2,455,162 in unsupported funds
                        drawn for 12 activities or repay the amount to its program from non-
                        Federal funds.



3
 CDBG [Community Development Block Grant] Changes in IDIS [Integrated Disbursement and Information
System] Instructions for Grantees - IDIS Release 11.4

                                                   8
                 1B.      Provide to HUD a remediation plan for the 10 delayed activities and
                          demonstrate that national objectives have been met as required to support
                          $4,078,941 in program funds drawn for the activities. 4

                 1C.      Provide for HUD review documentation to support $5,014,403 drawn for
                          the additional 15 activities.

                 1D.      Develop and implement improved record-keeping policies to ensure that
                          all draws of program funds are fully supported by adequate
                          documentation.

                 1E.      Develop and implement effective planning policies regarding program
                          activities to ensure that activities are not subjected to long delays.




4
 Of the 10 delayed activities, 9 were included in the 12 activities addressed in recommendation 1A. The
unsupported program funds drawn for these 9 overlapping activities totaled about $2.4 million. Therefore, we made
an adjustment to our calculation of total questioned costs to avoid double counting (see Scope and Methodology
section of report).

                                                        9
                         SCOPE AND METHODOLOGY

We conducted the audit from December 2012 to July 2013 at the City’s and its subrecipient’s
offices in Norfolk, VA, and our Richmond, VA, field office. The audit covered the period
July 1, 1996, through December 31, 2012. We relied in part on computer-processed data in
HUD’s Integrated Disbursement and Information System. Although we did not perform a
detailed assessment of the reliability of the data, we performed a minimal level of testing and
found the data to be adequate for our purposes. The testing entailed matching information
obtained from HUD’s system to hardcopy documents provided by the City and its subrecipient.

To accomplish our objective, we reviewed

   •   Relevant background information and applicable regulations,
   •   Program requirements,
   •   Reports from HUD’s Integrated Disbursement and Information System, and
   •   Documents supporting the City’s and its subrecipient’s fund draws for program activities.

We interviewed staff from the City and its subrecipient and HUD program staff in Richmond,
VA.

We obtained the City’s universe of funded incomplete (open) activities from HUD’s Integrated
Disbursement and Information System. The universe included 180 open activities funded
between 1996 and 2012. We nonstatistically selected 31 activities by filtering the universe for
activities funded for $250,000 or more and eliminating two activities that were less than a year
old. The City had drawn down a total of $11.5 million for the 31 activities. We selected a
sample of 16 activities associated with about $6.5 million in draws for initial (survey) review by
selecting the 10 oldest activities and 6 others with the largest overall amount of funds available
for drawdown. We then requested documents from the City and its subrecipient to support the
$6.5 million and determine whether the activities met program national objectives as required.
Because the City could not fully justify its draws related to the activities in our survey review,
we requested documentation to support $5 million that the City had drawn for the remaining 15
activities in our sample. Drawdowns related to the 31 sample activities were as of November
2012.

The 12 activities for which the City could not provide adequate documentation included 9 of the
10 old activities. The unsupported drawn amount for the 9 overlapping activities was about $2.4
million. Therefore, to avoid double counting questioned costs, we made an adjustment for this
amount, which resulted in an adjusted total of $9.1 million in unsupported costs as shown: $11.5
million (total unsupported costs from appendix A) minus $2.4 million (total unsupported costs
related to 9 overlapping activities) = $ 9.1 million.

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


                                                10
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 the program meets its objectives.

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

               •      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that program
                      participants comply with program laws and regulations.

               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 City lacked adequate control policies and procedures to ensure that all
                    funds it drew for program activities were adequately supported.

             •      The City lacked adequate control policies and procedures to ensure that
                    program-funded activities it undertook were accomplished within a
                    reasonable timeframe.




                                              13
                                             APPENDIXES

Appendix A

                       SCHEDULE OF QUESTIONED COSTS
                                   Recommendation
                                                             Unsupported 1/
                                       number
                                               1A               $ 2,455,162
                                               1B                 4,078,941
                                               1C                 5,014,403
                                             Total              $11,548,506 5



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.




5
 As stated in footnote 4 and described in the Scope and Methodology section of the report, we adjusted the total
questioned costs to avoid double counting.

                                                        14
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         15
Comment 2




Comment 3




Comment 4




            16
Comment 5




Comment 6




            17
Comment 6


Comment 7




Comment 8




Comment 9




            18
Comment 10




Comment 11


Comment 12




Comment 13




             19
Comment 13




Comment 14




Comment 15




             20
Comment 2



Comment 16




Comment 14

Comment 4

Comment 17




             21
Comment 1


Comment 15


Comment 13
Comment 14




             22
Comment 15




             23
24
                         OIG Evaluation of Auditee Comments


Comment 1   Our audit conclusions are supported by work performed in accordance with
            generally accepted government auditing standards. We conducted interviews and
            requested relevant information and documentation several times throughout the
            audit. All statements and conclusions in the report are properly documented in
            the audit workpapers.

Comment 2   During the audit, the City spoke in generalities without specifics and did not
            provide the audit staff any detailed documents regarding these asserted
            improvements. The audit focused strictly on the City’s open activities that were
            funded with at least $250,000 in program funds, as described in the Scope and
            Methodology section, and disclosed that the City could not provide adequate
            documents to justify $9.1 million in program funds it drew for activities.

Comment 3   We did not focus on activities between 11 and 15 years old. Rather, as described
            in the Scope and Methodology section, we began with the City’s universe of 180
            open activities and selected a sample primarily by identifying activities with
            $250,000 or more in funding. The City’s assertion that it is harder for older
            projects to meet a broad national objective may be a reflection of its inability to
            properly plan for activities by considering contingencies or challenges and
            determining appropriate solutions.

Comment 4   There were four activities in the audit sample that were included in the prior
            Office of Inspector General (OIG) nationwide audit the City referenced. The
            review of these four activities was not duplicative because the nationwide audit
            identified only open activities, while this audit additionally included determining
            whether drawdowns associated with the activities were adequately supported, why
            activities had not met national objectives, and related resolution plans. Contrary
            to its assertions, the City failed to provide evidence the audit staff repeatedly
            requested to determine whether it had an approved remediation plan for all of its
            open activities. Also, Office of Community Planning and Development officials
            in HUD’s Richmond, VA, field office told the audit staff that the City did not yet
            have a HUD-approved remediation plan.

Comment 5   Based on HUD regulations at 24 CFR 570.490(d), adequate documentation must
            be kept for program activities until they are closed. Therefore, the age of the
            activities is not a valid justification for the City’s not having the appropriate
            supporting documentation. From January 2013, when the audit was started, until
            August 2013, when the draft report was issued, audit staff attempted to obtain
            documentation from the City and its subrecipient to support the questioned
            activities. A subrecipient staff member repeatedly attempted to research and
            obtain documentation to support transactions and finally admitted that the
            information was unavailable. The City now says it has documents to support
            much of the reported unsupported costs. These documents will be subject to

                                             25
            review to determine whether they represent adequate supporting documentation
            for the questioned costs. We adjusted the unsupported amount of $2.9 million
            reflected in the draft report down to $2.5 million as a result of our final reporting
            review procedures.

Comment 6   The City states that there was a lack of communication between audit staff
            members and provides as an example an incident that occurred during the audit in
            which the senior auditor initially said an activity was supported and the auditor in
            charge later had follow-up questions. The incident described reflects our
            adherence to professional auditing standards rather than a lack of communication.
            In accordance with generally accepted government auditing standards, the audit
            work was subject to different levels of review. The auditor in charge determined
            that additional information was needed after reviewing the senior auditor’s work.
            The auditor in charge requested the additional information before the draft report
            was issued, and the activity was never officially considered unsupported. Also,
            the information provided to the auditor in charge was not the same information
            provided to the senior auditor. The City initially provided information on
            program funds used for the activity. However, the auditor in charge determined
            that the invoice supporting the activity cost was more than the amount drawn.
            Therefore, the auditor in charge requested that the City identify the source of all
            funds used for the project to properly reconcile the funds drawn to the invoice.

Comment 7   The City said it provided the auditors with drawdown vouchers, acquisition files,
            and access to the subrecipient staff for assistance as needed and that the standard
            OIG used to support the acquisition of property was a deed identifying the address
            and sales price of the property or a real estate settlement record and an acquisition
            worksheet signed by the seller. It is true that the City provided the above
            documents; however, it did not do so until about 3 months after the audit staff
            requested the documents. Also, the standard it referred to was proposed by its
            subrecipient’s attorney. We agreed that the documents proposed would constitute
            acceptable documentation to support a sale of land transaction. In all instances in
            which the agreed-upon documents were provided, the audit staff considered the
            related transactions supported. For the activity the City referenced as an example,
            the supporting documents the subrecipient provided did not include a signed
            acquisition worksheet. In an effort to obtain the acquisition worksheet and other
            documents, the audit staff contacted the designated subrecipient staff member
            several times via phone calls and e-mails. However, the staff member, after an
            exhaustive search, stated that the documents were unavailable.

Comment 8   We do not dispute that the City may use multiple sources of funding to finance
            projects. The City stated that OIG would not support program expenses when it
            could not examine all funding sources. This is incorrect. As in the case of the
            example addressed in comment 6, there were instances in which the invoice
            supporting an activity cost was more than the amount drawn. Therefore, to
            properly reconcile the amounts drawn to the invoices, the audit staff requested
            that the City identify all applicable sources of funds. The audit staff did not ask to

                                              26
              examine all funding sources. In many such cases in which the City identified
              funding sources as appropriate, the audit staff considered the transactions
              supported.

Comment 9     The City said OIG requested a manual recalculation of payroll costs for every
              relevant pay period. This is incorrect. The audit staff requested documentation to
              support drawdowns associated with administrative activities in the audit sample.
              The subrecipient first provided canceled checks and printouts of salary expenses
              without timesheets or personnel action forms identifying rates of pay or the basis
              for fringe benefits. Also, the subrecipient initially did not provide an allocation
              plan or a basis for management fees it charged to the Community Development
              Block Grant program.

              It is not clear why the City and its subrecipient believed that they had to manually
              recalculate their payroll when all they needed to do was provide timesheets,
              personnel action forms identifying rates of pay and a description of fringe
              benefits, and a list of employees that charged time to the Community
              Development Block Grant program. Also, all of the drawdowns in question
              occurred in 2011 and 2012; therefore, there was a reasonable expectation that the
              supporting information would be readily available in the automated payroll
              system and not require a massive commitment of staff hours to obtain. In
              response to our requests, the City provided copies of payroll sheets, Federal
              Insurance Contributions Act tax and fringe benefit calculations, and the
              percentage of time devoted to the Community Development Block Grant program
              for its three applicable employees. We also received documentation for seven
              subrecipient employees. The documents provided do not support the City’s
              assertion that it manually recalculated payroll costs or that massive staff hours
              were necessary to obtain the documentation.

Comment 10 The City stated that OIG was unwilling to support expenses for legal fees billed
           on an hourly basis without a contract that outlined agreed-upon hourly rates. The
           audit staff requested the contracts related to the legal fees to verify the billed
           hourly rates. This is a normal audit procedure. The City also stated that it could
           not locate contractual records because the acquisition activities in question were
           more than 10 years old. However, as stated in comment 5, based on HUD
           regulations at 24 CFR 570.490(d), adequate documentation must be kept for
           program activities until they are closed. Finally, contrary to the City’s assertion
           that available invoices for legal fees were deemed insufficient documentation, the
           only legal fees considered unsupported by the audit staff were in those instances
           in which no invoices existed or instances in which invoices were incomplete..

Comment 11 The City said that program regulations contain no timeframe requirement for
           meeting national objectives or completing an activity. We acknowledged this fact
           in the report. However, as stated in the report, extended delays adversely impact
           potential program beneficiaries. Also, as stated in HUD's October 2012 letter to
           the City, although program regulations regarding national objectives and

                                               27
              recordkeeping do not specify a time period for compliance with national
              objectives, this does not mean that grantees have unlimited time to meet program
              requirements. HUD stated, "It is difficult for a grantee to argue that, after failure
              to achieve compliance (or have records documenting compliance) over several
              years or more, it is reasonable to allow still more time to demonstrate
              compliance." HUD added that many of the City's activities it reviewed had gone
              beyond a reasonable time period for demonstrating compliance with a national
              objective.

              The City has drawn approximately $4.1 million, which represents 100 percent of
              the funding available for the 10 activities in question. The recommendation that
              the City provide a remediation plan for the activities is in line with HUD’s new
              instructions for long-standing open activities. The new instructions require
              grantees to provide remediation plans for activities when 80 percent of related
              program funds have been disbursed with no accomplishments. Also the $4.1
              million is appropriately classified as unsupported consistent with the explanation
              of unsupported costs in appendix A since we cannot determine eligibility until the
              City demonstrates that the related activities have met required national objectives.

Comment 12 The City referred to two Code Enforcement Emergency Grant projects and
           accepted responsibility for the activities remaining open but claimed it was able to
           demonstrate to OIG that funds were not abused or misused. During the audit,
           audit staff requested financial information, a description of the City’s Code
           Enforcement Program, and a list of properties serviced and individuals assisted
           under the program. The City first reported that it had no information available to
           support the draws for the two activities; however, many weeks later, it provided
           some contracts and names of people that it said it assisted with program funds.
           The audit staff could not directly associate the information provided with the
           draws. Also, the documentation did not support the amount drawn. As stated
           above, the City should have maintained adequate documentation for open
           activities regardless of age.

Comment 13 The City stated that eight activities remain open because they contain one or more
           undevelopable acquired parcels. During the audit, the City and its subrecipient
           provided general explanations for why activities were delayed as outlined in the
           audit finding. The City did not provide information or documentation on the
           breakdown and costs of acquired parcels. The information the City now presents,
           along with related supporting documents, will be subject to review to determine
           whether any of the questioned costs are now adequately supported.

              Some of the City’s comments suggest that it believes we questioned activities
              only because of their age. None of the activities questioned were considered
              unsupported solely because of their age. Rather, as explained in the report, the
              questioned activities were considered unsupported because the City did not
              provide adequate documents or evidence during the audit to justify related funds
              drawn by demonstrating that the activities had met required national objectives.

                                                28
Comment 14 The City asserts that it collaborated with HUD’s Richmond, VA, field office to
           establish a remediation plan for all 10 activities in table 2 of the report. However,
           as stated in comment 4, the City failed to provide evidence we repeatedly
           requested to determine whether it had an approved remediation plan for all of its
           open activities. However, we are encouraged that the City plans to work with
           HUD to resolve its longstanding open activities.

Comment 15 The City provided an e-mail it received from the audit manager as evidence that
           OIG said the 15 activities in question would not be considered as part of the audit.
           However, OIG did not say that there would be absolutely no mention of the
           activities in the report. Rather, in the finding outline we provided to the City on
           July 9, 2013, in an e-mail on August 26, 2013, and at the exit conference on
           September 11, 2013, we explained that that the report would generally be based
           on the 16 activities reviewed but that we would also report on the remaining 15
           sample activities we could not review.

              The audit finding primarily focuses on the 16 activities we reviewed; however,
              these activities were part of an audit sample of 31 activities. Generally accepted
              government auditing standards require that we communicate the results of the
              audit. Accordingly, the report discusses the audit findings and recommendations
              related to the entire sample. In the Scope and Methodology section, we explained
              how we selected the sample of 31 activities and how we identified the 16 for
              initial review. We also explained why we requested the documentation related to
              the remaining 15 sample activities. In addition, the report discussed why the City
              could not readily provide the additional requested documents, our position, and
              the need for the City to provide the documents for HUD review. During the exit
              conference, after expressing the City’s concerns, the assistant city manager
              accepted that OIG would report on the 15 additional sample activities. However,
              she requested that the OIG consider revising language in the draft report
              highlights to avoid misinterpretation by the media. We considered the City’s
              requests and made changes to the report highlights.

Comment 16 We are encouraged by the City’s acknowledgement that it needs to implement
           planning policies and its planned actions that were triggered by the audit.

Comment 17 The City claims that OIG staff said it was not aware of OIG’s prior nationwide
           audit and that it played no role in the current review. This is incorrect. The
           auditor in charge told the City that OIG would review the four activities in
           question and any related remediation plans and give the City credit for taking the
           necessary steps to close the activities. However, as stated in comments 4 and 14,
           the City failed to provide evidence the audit staff repeatedly requested to
           determine whether it had remediation plans for all of the questioned activities.




                                               29
Appendix C

     BREAKDOWN OF ACTIVITIES FOR HUD REVIEW


                                                                 Funded     Amount
    Count          Activity type         ID #   Start date       amount     drawn
             Fiscal year 2009
      1      rehabilitation services     3808     2008       $    470,167   $ 429,254
             Rehabilitation services-
      2      administration              4157     2009            439,216     425,427
      3      Acquisition                 2254     2002            363,151     363,151
      4      Acquisition                 2809     2004            358,700     357,735
      5      Acquisition                 2497     2002            355,061     355,061
             City grant administration
      6      fiscal year 2009            3752     2008            351,580     343,056

      7      Acquisition                 2626     2003            366,987     339,153
             City grant administration
      8      fiscal year 2008            3463     2007            360,000     337,489

      9      City grant administration   3191     2006            360,000     328,379
             City grant administration
     10      fiscal year 2010            3977     2009            370,380     317,503
             City grant administration
     11      fiscal year 2011            4219     2010            371,580     317,357
     12      Acquisition                 2567     2003            297,861     291,385

     13      Acquisition                 2154     2002            281,501     281,501

     14      Acquisition                 2554     2003            274,904     274,904
             Disposition and
     15      disposition support         4075     2009          300,000        253,048
    Total                                                    $5,321,088     $5,014,403




                                          30