oversight

Catholic Social Services of the Diocese of Scranton, PA, Generally Administered Its Supportive Housing and HOME Program Funds for St. Hedwig's Veterans Village in Accordance With Applicable Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-05-23.

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

OFFICE OF AUDIT
REGION 3
PHILADELPHIA, PA




                   Catholic Social Services of the
                       Diocese of Scranton
                           Scranton, PA

        Supportive Housing and HOME Investment
              Partnerships Program Funds




2014-PH-1005                      2                  MAY 23, 2014
                                                        Issue Date: May 23, 2014

                                                        Audit Report Number: 2014-PH-1005




TO:            Nadab O. Bynum, Director, Office of Community Planning and Development,
               Philadelphia Regional Office, 3AD
               //signed//
FROM:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA


SUBJECT:       Catholic Social Services of the Diocese of Scranton, PA, Generally Administered
               Its Supportive Housing and HOME Program Funds for St. Hedwig’s Veterans
               Village in Accordance With Applicable Requirements


    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 Catholic Social Services of the
Diocese of Scranton’s use of Supportive Housing and HOME Investment Partnerships Program
funds.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
215-430-6730.
                                              May 23, 2014
                                              Catholic Social Services of the Diocese of Scranton, PA,
                                              Generally Administered Its Supportive Housing and
                                              HOME Program Funds for St. Hedwig’s Veterans Village
                                              in Accordance With Applicable Requirements


Highlights
Audit Report 2014-PH-1005


 What We Audited and Why                        What We Found

We audited the Catholic Social Services       The grantee generally used its HUD funds related to
of the Diocese of Scranton’s (grantee)        St. Hedwig’s Veterans Village in accordance with key
use of the U.S. Department of Housing         HUD requirements. The allegations in the complaint
and Urban Development’s (HUD)                 did not have merit. The grantee generally incurred
Supportive Housing and HOME                   eligible renovation, operating, and administrative costs
Investment Partnerships Program funds         that were supported by adequate documentation. It
used for the renovation of St. Hedwig’s       assisted eligible tenants and generally calculated rents
Veterans Village. We audited the              accurately. The alleged conflict-of-interest situation
grantee because we received a                 did not exist.
complaint alleging misuse of HUD
funds and a potential conflict of interest
involving the construction management
company. Our audit objective was to
determine whether the grantee used its
HUD funds related to St. Hedwig’s
Veterans Village in accordance with
key HUD requirements to (1) maintain
adequate documentation to demonstrate
that renovation, operating, and
administrative costs of the project were
eligible; (2) assist only eligible tenants;
(3) accurately calculate rents; and (4)
avoid conflict-of-interest situations.

 What We Recommend

This report contains no
recommendations.
                           TABLE OF CONTENTS

Background and Objective                                                3

Results of Audit
      Finding: The Grantee Generally Administered HUD Funds for the
      St. Hedwig’s Project in Accordance With Applicable Requirements   4

Scope and Methodology                                                   7

Internal Controls                                                       9

Appendix
A.    Auditee Comments                                                  11




                                           2
                      BACKGROUND AND OBJECTIVE
The HOME Investment Partnerships Program is authorized under Title II of the Cranston-
Gonzalez National Affordable Housing Act of 1990 as amended. Program regulations are at 24
CFR (Code of Federal Regulations) Part 92. HOME is the largest Federal block grant program
for State and local governments, designed exclusively to create affordable housing for low-
income households.

The Supportive Housing program is designed to develop supportive housing and services that
will allow homeless persons to live as independently as possible. Program regulations are at 24
CFR Part 583. Eligible applicants are States, units of local government, other governmental
entities such as public housing agencies, and private nonprofits.

Catholic Social Services (grantee) is a nonprofit community service organization operating on a
nonsectarian basis. The grantee purchased the former St. Hedwig’s School in Kingston, PA, and
renovated it to create St. Hedwig’s Veterans Village (project), which provides permanent
housing for veterans. The project consists of 10 1-bedroom apartments and 2 2- bedroom
apartments. Of the 12 units, 3 were designated as HOME units.

The renovation cost of the project was more than $2.2 million. The grantee used non-Federal
funds totaling $1.7 million for the project and received U.S. Department of Housing and Urban
Development (HUD) funds from two sources. In February 2011, HUD’s Philadelphia Office of
Community Planning and Development awarded the grantee a Supportive Housing program
grant for the renovation, operation, and administration of the project. Additionally, in December
2011, the Luzerne County Office of Community Development provided the grantee a forgivable,
non-interest-bearing, deferred payment, 15-year loan from its HOME program. As of August
2013, the following amounts were authorized and disbursed:

          HUD funding sources        Authorized amounts         Disbursed amounts
          2011 HOME grant                  $400,000                  $400,000
          2011 Supportive
                                              369,022                  266,709
          Housing program grant
                 Totals                      $769,022                 $666,709

The grantee, as a developer in the HOME program, was not required to follow Federal
procurement requirements.

As of January 2013, the project renovation was complete, and as of August 2013, all 12 units
were occupied.

Our audit objective was to determine whether the grantee used its HUD funds related to St.
Hedwig’s Veterans Village in accordance with key HUD requirements to (1) maintain adequate
documentation to demonstrate that renovation, operating, and administrative costs of the project
were eligible; (2) assist only eligible tenants; (3) accurately calculate rents; and (4) avoid
conflict-of-interest situations.



                                                3
                                 RESULTS OF AUDIT


Finding: The Grantee Generally Administered HUD Funds for the
St. Hedwig’s Project in Accordance With Applicable Requirements
The grantee generally used its HUD funds related to St. Hedwig’s Veterans Village in
accordance with key HUD requirements. The allegations in the complaint did not have merit.
The grantee generally incurred eligible renovation, operating, and administrative costs that were
supported by adequate documentation. It assisted eligible tenants and generally calculated rents
accurately. The alleged conflict-of-interest situation did not exist.



 Renovation Costs Met Program
 Requirements



               The grantee incurred eligible renovation costs that were supported by adequate
               documentation. Although the complaint alleged that HUD funds were misused,
               that allegation had no merit. Regulations at 24 CFR Parts 92 and 583 required
               that the grantee maintain adequate documentation to support the eligible use of
               program funds. We reviewed nine transactions totaling $599,000 to determine
               whether costs were eligible and adequately supported. The payments were
               supported by invoices for services, such as elevator repair; electrical; and heating,
               ventilation, and air conditioning repairs for the project, and other supporting
               documentation submitted by the construction manager.

 Operating and Administrative
 Costs Generally Met Program
 Requirements


               The grantee generally ensured that operating and administrative costs of the
               project met program requirements. Regulations at 24 CFR Part 583 required that
               the grantee maintain adequate documentation to support the eligibility of program
               funds. We reviewed $25,102 in operating and administrative expenditures to
               determine whether the costs were eligible and properly supported. The
               expenditures were generally eligible and properly supported by documentation,
               such salary records, timesheets, utility invoices, and other documentation. We
               identified only minor issues relating to the calculation and allocation of salary and
               benefit costs and reported them to the grantee in a separate letter.




                                                 4
Tenants Met Eligibility
Requirements, and Rents Were
Generally Calculated Correctly


            The grantee ensured that tenants met eligibility requirements. All tenants were
            income eligible, were veterans, and met the definition of homelessness. The
            grantee had maintained sufficient documentation in its files, such as tenant intake
            worksheets, applications, income documentation, documentation showing that the
            tenants were veterans, and other pertinent documentation.

            The grantee generally calculated rents accurately. We identified only minor
            issues relating to the calculation of rents and reported them to the grantee in a
            separate letter.

The Alleged Conflict of Interest
Did Not Exist



            The complaint alleged that the owner of the construction management company
            was the cousin of the grantee’s director of housing and residential services. We
            found no indication that the two individuals were related. Neither the owner nor
            the construction management company was prohibited from doing business with
            HUD.

            The owner of the construction management company had previously served on
            the grantee’s board of directors for more than 5 years. The owner of the
            construction management company announced his resignation from the board in
            March 2009. Three months before resigning, in December 2008, the construction
            management company entered into a contract with the grantee for preconstruction
            services and construction management services related to the St. Hedwig’s
            project. Although the owner of the construction management company had
            entered into a contract with the grantee while actively serving on the board of
            directors, the grantee’s bylaws did not prohibit this arrangement. The bylaws
            prohibited this arrangement only when the contract involved payment with
            government funds. In this case, the grantee did not apply for HOME funds from
            Luzerne County until December 2011. By that time, the owner of the
            construction management company was no longer a board member. Therefore,
            the HOME program conflict-of-interest regulations did not apply. Regulations at
            24 CFR Part 92 state that no employee, agent, consultant, officer, elected official,
            or appointed official of the participating jurisdiction or subrecipient receiving
            HOME funds, who has exercised any function or responsibilities with respect to
            activities assisted with HOME funds or who is in a position to participate in a
            decision-making process or to gain inside information with regard to HOME
            activities, may obtain a financial interest or benefit from a HOME-assisted
            activity or have an interest in any contract, subcontract, or agreement for that


                                              5
             individual or those with whom he or she has family or business ties during his or
             her tenure or for 1 year thereafter.

Conclusion

             The allegations in the complaint did not have merit. The grantee generally used its
             HUD funds related to St. Hedwig’s Veterans Village in accordance with key
             HUD requirements. The grantee generally incurred eligible renovation, operating,
             and administrative costs that were supported by adequate documentation. It
             assisted eligible tenants and generally calculated rents accurately. The alleged
             conflict-of-interest situation did not exist.




                                              6
                            SCOPE AND METHODOLOGY

We conducted the audit from August 2013 through March 2014 at the grantee’s office located at
33 East Northampton Street, Wilkes-Barre, PA, and our offices in Philadelphia, PA. The audit
covered the period August 2009 through July 2013 but was expanded as necessary.

To achieve our objective, we reviewed

    •   Applicable HUD regulations at 24 CFR Parts 583, 5, 84, and 92 and other directives that
        govern the program.

    •   The grantee’s agreement with HUD and Luzerne County, general ledger, policies and
        procedures, board meeting minutes, and other construction documentation related to the
        renovation of the St. Hedwig’s project.

    •   Luzerne County’s HOME program documentation and other documentation relating to
        the St. Hedwig’s project.

    •   The construction manager’s bank statements, canceled checks, and other documentation
        used to support the receipt and payment of HUD funds to subcontractors.

    •   The files for all 13 tenants who have occupied St. Hedwig’s Veterans Village.

We conducted interviews with the grantee’s employees, HUD staff, and the construction manager of
the project.

Between March 2012 and August 2013, the grantee executed 18 transactions requesting program
funds totaling $666,709 ($400,000 in HOME funds and $266,709 in Supportive Housing
program funds) of the $769,022 in HUD funds awarded to the project. Of the 18 transactions,
we reviewed 9 transactions for project rehabilitation costs totaling $599,000, or 90 percent
($400,000 in HOME funds and $199,000 in Supportive Housing program funds), to determine
whether program eligibility requirements were met. Of the remaining nine transactions totaling
$67,709 for operating and administrative expenses of the project, we reviewed five transactions
totaling $25,102 to determine whether the costs were eligible and properly supported.

To achieve our audit objective, we relied in part on computer-processed data from HUD and grantee
databases. We used information from HUD’s Integrated Disbursement and Information System 1
and its Line of Credit Control System 2 to review the disbursements of program funds. We
compared data from those systems to program records maintained by the grantee. Although we did

1
  The Integrated Disbursement and Information System is the drawdown and reporting system for all of HUD’s
Office of Community Planning and Development formula grant programs including the HOME program.
2
  The Line of Credit Control System is the system HUD uses to disburse and track the payment of Supportive
Housing program funds.




                                                      7
not perform a detailed assessment of the reliability of the data, we did perform a minimal level of
testing and found the data to be adequate for our purposes.

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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                  8
                              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 it calculates program fees correctly and
                   properly maintains documentation in its tenant files.

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

               •   Compliance with laws and regulations – Policies and procedures that
                   management has implemented to reasonably ensure that resource use is
                   consistent with 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.




                                                 9
           We evaluated internal controls related to the audit objective in accordance with
           generally accepted government auditing standards. Our evaluation of internal
           controls was not designed to provide assurance regarding the effectiveness of the
           internal control structure as a whole. Accordingly, we do not express an opinion on
           the effectiveness of the grantee’s internal control.

Separate Communication of
Minor Deficiencies

           Minor internal control and compliance issues were reported to the grantee in a
           separate letter, dated May 8, 2014.




                                            10
Appendix A

             AUDITEE COMMENTS




                    11