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
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)