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.
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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
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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)