oversight

Virgin Islands Community AIDS Resource & Education, Inc., Did Not Administer Its Program in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-07-02.

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

       Virgin Islands Community AIDS
         Resource & Education, Inc.,
             Christiansted, USVI
                 Housing Opportunities for Persons
                       With AIDS Program




Office of Audit, Region 4          Audit Report Number: 2015-AT-1004
Atlanta, GA                                               July 2, 2015
To:            María Ortíz, Director, Community Planning and Development, San Juan Field
               Office, 4ND

               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA
Subject:       Virgin Islands Community AIDS Resource & Education, Inc., Did Not
               Administer Its Program in Accordance With HUD 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 Virgin Islands Community AIDS Resource &
Education, Inc.’s Housing Opportunities for Persons With AIDS 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 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
404-331-3369.
                   Audit Report Number: 2015-AT-1004
                   Date: July 2, 2015

                   Virgin Islands Community AIDS Resource & Education, Inc., Did Not
                   Administer Its Program in Accordance With HUD Requirements




Highlights

What We Audited and Why
We audited Virgin Islands Community AIDS Resource & Education, Inc.’s (VICARE) Housing
Opportunities for Persons With AIDS (HOPWA) program. This audit was the result of a referral
from the San Juan Office of Community Planning and Development. The objective of the audit
was to determine whether VICARE spent HOPWA funds in accordance with the U.S.
Department of Housing and Urban Development (HUD) requirements and for eligible efforts.

What We Found
VICARE’s financial management system did not properly identify the application of more than
$538,000 in HOPWA funds and did not support the eligibility and reasonableness of more than
$143,000 in program disbursements. In addition, VICARE allowed the use of more than
$12,000 for ineligible expenditures. As a result, HUD lacked assurance that funds were
adequately accounted for, safeguarded, and used for authorized purposes and in accordance with
HUD requirements.

What We Recommend
We recommend that HUD instruct VICARE to (1) submit all supporting documentation showing
the eligibility and propriety of more than $681,000 in HOPWA funds and (2) return from non-
Federal funds $12,447 in ineligible expenditures.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: HUD Requirements Were Not Followed ........................................................ 4

Scope and Methodology ...........................................................................................8

Internal Controls ....................................................................................................10

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .................................................................................. 12
         B. Auditee Comments and OIG’s Evaluation ............................................................. 13
         C. Schedule of Unsupported Expenditures.................................................................. 16




                                                             2
Background and Objective
The Housing Opportunities for Persons With AIDS (HOPWA) program is authorized under the
AIDS Housing Opportunity Act, 42 U.S.C. (United States Code) 12901 et seq., Title 24, Part 574.
Its primary focus is establishing stable housing, reducing the risk of homelessness, and improving
access to healthcare and supportive services for persons and their families living with HIV-AIDS.
Entitlement grants are awarded by formula to States and qualifying cities. Competitively awarded
grants may be awarded to (1) States, local governments, and nonprofit organizations for special
projects of national significance and (2) projects submitted by States and localities in areas that do
not qualify for HOPWA formula allocations. Nonprofit organizations are eligible to apply for
projects of national significance but may also serve as a project sponsor to formula grantees.

Virgin Islands Community AIDS Resource & Education, Inc. (VICARE) is a nonprofit
organization incorporated in the U.S. Virgin Islands, dedicated to promoting HIV-AIDS
education. Between 2004 and 2011, the U.S. Department of Housing and Urban Development
(HUD) approved more than $3.9 million in HOPWA funds (competitive awards) to VICARE.


                                      Year         Authorized amount
                                      2004                $1,158,255
                                      2008                 1,373,406
                                      2011                 1,373,400
                                      Total               $3,905,061


VICARE is no longer a recipient of HOPWA funds since the 2011 grant reached its end on July 31,
2014, and HUD has not awarded new funding. On August 14, 2014, the Office of Inspector
General (OIG) received a referral from the San Juan Office of Community Planning and
Development, stating that VICARE had depleted the funds of its year 2011 grant 1 year before the
end of the grant period. Our audit objective was to determine whether VICARE spent its 2011
HOPWA funds in accordance with HUD requirements and for eligible efforts.




                                                   3
Results of Audit

Finding: HUD Requirements Were Not Followed
VICARE’s financial management system did not properly identify the application of more than
$538,000 in HOPWA funds and did not support the eligibility and reasonableness of more than
$143,000 in program disbursements. In addition, VICARE allowed the use of more than
$12,000 for ineligible expenditures. These deficiencies occurred because VICARE disregarded
its own policies and procedures and HUD requirements. As a result, HUD lacked assurance that
funds were adequately accounted for, safeguarded, and used for authorized purposes and in
accordance with HUD requirements.

Inadequate Accounting Records
VICARE’s accounting records did not reflect complete and accurate financial information on
HOPWA program activities and did not permit the adequate tracing of program receipts and
expenditures. Regulations at 24 CFR (Code of Federal Regulations) 84.21(b) require grantees to
maintain financial records that are accurate, current, and complete and that adequately identify
the source and application of funds provided for assisted activities. However, VICARE’s
accounting records did not comply with HUD requirements and were not adequate for the
preparation of reports. For example, for the period August 2011 to July 2014, VICARE’s
accounting records did not reflect the disposition of more than $346,000 for the HOPWA
program. As of October 29, 2014, HUD’s system reflected that VICARE had withdrawn more
than $1.3 million in HOPWA funds, but analysis of amounts posted in VICARE’s records
showed just over $1 million in expenditures (see table 1).

              Table 1

               HUD’s information system drawn amount                 $1,369,661
               VICARE’s records’ spent amount                         1,023,070
                               Difference                              $346,591

VICARE also provided conflicting information on the total amount of HOPWA funds recieved.
For example, the receipts shown in VICARE’s records did not agree with drawn amounts
reflected in HUD’s information system, and VICARE could not account for $16,018 in HUD
drawdowns (see table 2).

              Table 2

               HUD’s information system drawn amount                 $1,369,661
               VICARE’s records’ receipt amount                       1,353,643
                               Difference                               $16,018




                                                4
In addition, for the period November 2011 to May 2013, VICARE did not provide supporting
documentation showing the disposition and use of eight HOPWA drawdowns totaling $175,876.
Table 3 shows the voucher and date of drawdown deposits and the HOPWA funds for the
drawdowns that were not supported.

                          Table 3
                              Voucher                               Date of drawdown
                              number                Amount               deposit
                            038-019452                $10,000         Nov. 17, 2011
                            038-020839                 13,864         Sept. 12, 2012
                            038-020900                 13,864         Sept. 26, 2012
                            038-021129                 45,398         Nov. 21, 2012
                            038-021216                 13,864         Dec. 13, 2012
                            038-021266                 54,886         Dec. 24, 2012
                            038-021729                 12,000         Apr. 25, 2013
                            038-021771                 12,000         May 10, 2013
                                Total                $175,876


VICARE did not maintain a financial management system that permitted the tracing of funds to a
level that ensured that such funds had not been used in violation of the restrictions and
prohibitions of applicable statutes. A similar deficiency was identified in the 2008 independent
public accountant report; however, the deficiency continued to exist. The August 2014 HUD
monitoring report also identified deficiencies, stating that accurate financial records and
documentation to support program costs incurred were not maintained. 1 VICARE officials could
not explain discrepancies between its records and HUD’s information system and could not
account for $538,485 drawn. As a result, HUD lacked assurance that funds were adequately
accounted for, safeguarded, and used for eligible purposes.

Unsupported Program Expenditures
Salary costs - VICARE did not provide adequate documentation supporting the reasonableness,
allowability, and allocability of $64,544 charged to the HOPWA program, associated with
salaries. It did not track its employees’ time by program activity or implement a cost allocation
plan to distribute payroll costs among HUD and other programs. Although VICARE charged the
HOPWA program a portion of payroll costs associated with seven employees who performed
additional functions not related to the program, it did not maintain documentation to support the
basis of the allocation and the reasonableness of the costs as required by 2 CFR 230, appendix B,
8(m). The 2008 independent public accountant report included a similar deficiency; however,
the deficiency continued to exist. The executive director informed us that she did not know the
basis for the allocations. Therefore, HUD lacked assurance of the reasonableness, allowability,
and allocability of $64,544 in payroll costs charged to the HOPWA program.



1
    HUD did not question any funds as a result of its 2014 monitoring.



                                                            5
Preaward costs - The grant agreement allowed disbursements for expenditures associated with
the HOPWA program that were incurred before the effective date of the grant. However,
grantees are required to obtain HUD approval before incurring costs. For the months of June and
July 2011, VICARE charged the 2011 HOPWA grant $33,618 in preaward costs, but it did not
provide evidence that HUD approved the expenditures incurred before the effective date of the
grant, August 1, 2011.

Activity costs - Regulations at 2 CFR 230, appendix A, allow disbursements for reasonable and
allowable costs associated with HOPWA-funded activities that are supported with records that
enable HUD to determine that HOPWA requirements were met. VICARE did not support the
reasonableness and allowability of more than $45,000 in HOPWA expenditures. For example, it
charged the HOPWA program more than $9,000 for administrative costs but did not provide
documentation supporting the reasonableness and allowability of the administrative costs
charged to the program. Therefore, HUD lacked assurance of the reasonableness and
allowability of $45,158 in activity costs charged to the HOPWA program. Appendix C contains
a list of the unsupported activity expenditures.

Ineligible Expenditures
VICARE charged the HOPWA program $12,197 for payroll expenditures that were not related to
its program. In addition, it disbursed $250 for ineligible late fees and the purchase of a funeral
wreath. Such costs were not necessary or related to the administration of the HOPWA program.

Disregard for Policies, Procedures, and HUD Requirements
VICARE disregarded its own policies and procedures as well as HUD’s requirements. Its
policies and procedures required the maintenance of current and accurate financial data reflecting
the operation and financial condition of the organization. In addition, they required VICARE to
record all revenues and expenses and prepare bank reconciliations within 30 days following the
end of the month. Regulations at 24 CFR 84.21(b) require grantees to maintain financial records
that are accurate, current, and complete and that adequately identify the source and application of
funds provided for assisted activities. However, VICARE’s accounting records did not comply
with its own policies and procedures and HUD requirements. For example, accounting records
were not current, did not reflect the disposition of program receipts and expenditures, and
charged expenditures not related to the HOPWA program.

In addition, no financial audits of VICARE had been performed since 2008, contrary to 24 CFR
84.26(a). The 2008 independent public accountant report identified deficiencies related to the
HOPWA program; however, the deficiencies continued to exist.

    • Bank reconciliations were not performed monthly, and when they were performed, they
      were not reviewed by a supervisor.
    • Accounting records did not identify the source and application of funds and failed to
      properly track program activities.
    • VICARE lacked personnel activity reports to track time charged among HUD and other
      programs.




                                                 6
Conclusion
The deficiencies discussed above occurred because VICARE disregarded its own policies and
procedures and HUD’s requirements. As a result, HUD had no assurance that more than
$681,000 was adequately accounted for, safeguarded, and used for authorized purposes and in
accordance with HUD requirements. In addition, VICARE used more than $12,000 for
ineligible purposes.

Recommendations
We recommend that the Director of the San Juan Office of Community Planning and
Development instruct VICARE to

       1A.    Submit all supporting documentation showing the eligibility and propriety of
              $538,485 drawn from its treasury account or reimburse the HOPWA program line
              of credit from non-Federal funds.

       1B.    Submit all supporting documentation showing the eligibility and propriety of
              $143,320 in HOPWA expenditures or reimburse the HOPWA program line of
              credit from non-Federal funds.

       1C.    Reimburse $12,447 to the HOPWA program line of credit from non-Federal funds
              for ineligible disbursements that were not related to the program.




                                              7
Scope and Methodology
The objective of this audit was to determine whether VICARE spent its HOPWA funds in
accordance with HUD requirements and for eligible efforts.

To accomplish our objective, we

      •    Reviewed applicable laws, regulations, and relevant HUD program requirements;

      •    Interviewed HUD and VICARE officials;

      •    Obtained an understanding of and reviewed VICARE’s controls and procedures as they
           related to our objective;

      •    Reviewed the most recent HUD monitoring and independent public accountant reports;
           and

      •    Traced information reported in HUD’s Line of Credit Control System to VICARE’s
           records.

We performed a limited review of VICARE’s financial records, including receipts and disbursed
amounts recorded in the general ledger corresponding to program years 2012 through 2014, and
reviewed the check register for the period August 1, 2011 through July 31, 2014.

VICARE made 57 withdrawals totaling more than $1.3 million in HOPWA funds between
August 1, 2011, and July 31, 2014. We selected and reviewed the six withdrawals that were
greater than $45,000. We reviewed six additional withdrawals based on the amount of the
drawdown. 2 Twelve withdrawals totaling more than $393,000 (29 percent) were reviewed to
determine whether VICARE spent grant funds in accordance with HUD requirements.

VICARE’s records reflected that it spent more than $308,000 3 for payroll costs between August
1, 2011, and July 31, 2014. We selected and reviewed 13 payroll expenditures totaling $64,544
(21 percent) based on the amount of the expenditure and the personnel included in the payroll.
We reviewed the expenditures to determine whether the payments met HOPWA requirements,
including allowability and allocability of the costs.

VICARE’s general ledger reflected expenditures totaling $1,023,070. For our review of activity
delivery costs, we reviewed 45 disbursements totaling $35,455 based on the purpose of the



2
    Three drawdowns in the amount of $13,864, two in the amount of $12,000, and one in the amount of $10,000.
3
    These were associated with 799 payroll expenditures.



                                                          8
payment or the vendor name. We reviewed the expenditures to determine whether the payments
were supported and made for eligible efforts.

To achieve our audit objective, we relied in part on computer-processed data contained in HUD’s
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.
We did not rely on computer-processed data contained in VICARE’s accounting system, nor
were the data used to materially support our audit findings, conclusions, and recommendations.
We did not select 100 percent of the items for testing as the selections made provided sufficient
evidence for the findings presented. The results of the audit apply only to items selected for
review and cannot be projected to the universe or population.
The audit generally covered the period August 1, 2011, through July 31, 2014; however, and we
extended the period as needed to accomplish our objectives. We conducted our fieldwork from
October 2014 through March 2015 at VICARE offices in Christiansted, USVI.
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(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                9
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 provide
    reasonable assurance that a program meets its objectives, while considering cost
    effectiveness and efficiency.

•   Relevance and reliability of information – Policies and procedures that management has
    implemented to reasonably ensure that operational and financial information used for
    decision making and reporting externally is relevant, reliable, and fairly disclosed in reports.

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

•   Safeguarding of assets – Policies and procedures that management has implemented to
    reasonably prevent and promptly detect unauthorized acquisition, use, or disposition of assets
    and resources.

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.




                                                  10
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   VICARE’s financial management system did not properly identify the application of
    HOPWA drawdowns, did not support the eligibility and reasonableness of program
    disbursements, and allowed the use of program funds for ineligible efforts (see finding).




                                                 11
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A                                  $538,485
                          1B                                   143,320
                          1C                $12,447
                        Totals              $12,447           $681,805



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.
2/   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.




                                              12
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 1




                               13
Ref to OIG   Auditee Comments
Evaluation




Comment 1




                          14
                        OIG Evaluation of Auditee Comments


Comment 1   VICARE management agreed with the OIG finding and recommendations.
            VICARE stated that it will provide the required supporting documentation for
            recommendations 1A and 1B, and will reimburse from non-Federal funds the
            ineligible disbursements related to recommendation 1C.




                                            15
Appendix C
                     Schedule of Unsupported Activity Expenditures
                  Check
    Date         number            Vendor            Amount              Comment
  August 22,              United Healthcare
                  5619                                $1,407 No support was provided.
    2011                  Insurance Co.
                                                             No support was provided showing
November 23,              United Healthcare                  the basis and reasonableness of
                  5714                                 2,813
   2011                   Insurance Co.                      allocations made to the HOPWA
                                                             program.
 January 24,              United Healthcare
                  5766                                 1,550 No support was provided.
    2012                  Insurance Co.
                                                             No invoice and no support were
 February 22,             United Healthcare                  provided showing the basis and
                  5809                                 3,101
    2012                  Insurance Co.                      reasonableness of allocations
                                                             made to the HOPWA program.
  March 14,               United Healthcare
                  5841                                 1,643 No support was provided.
   2012                   Insurance Co.
                                                             No invoice and no support were
                          United Healthcare                  provided showing the basis and
April 14, 2012    5879                                 1,643
                          Insurance Co.                      reasonableness of allocations
                                                             made to the HOPWA program.
September 28,             United Healthcare
                  6040                                 1,643 No support was provided.
    2012                  Insurance Co.
 February 8,              United Healthcare
                  6203                                   26 No support was provided.
    2013                  Insurance Co.
                                                             No support was provided showing
                                                             the basis and reasonableness of
  March 20,               Francisco E. Depusoir,
                  5820                                 5,000 allocations made to the HOPWA
   2012                   CPA
                                                             program, and no canceled check
                                                             was provided.
 October 12,              Francisco E. Depusoir,
                  6094                                  150 No support was provided.
    2012                  CPA
 August 12,               Carlton L Williams &
                  5613                                 3,160 No support was provided.
    2011                  Associates, Inc.
 September 2,
                  5636    Banco Popular                1,127 No support was provided.
    2011
 September 2,
                  5636    Banco Popular                 446 No support was provided.
    2011
 November 3,
                  5702    Pioneer Investments           631 No support was provided.
    2011




                                                16
                     Check
      Date          number                 Vendor             Amount             Comment
                                                                     No support was provided showing
                                                                     the basis and reasonableness of
  June 7, 2012        5907        Pioneer Investments            514
                                                                     allocations made to the HOPWA
                                                                     program.

 August 1, 2011       5532        Water and Power Authority      325 No support was provided.

 August 1, 2011       5595        Water and Power Authority      179 No support was provided.

   January 17,
                      5758        Water and Power Authority      240 No support was provided.
      2012
   January 24,
                      5769        Water and Power Authority      266 No support was provided.
      2012

  May 24, 2012        5828        Water and Power Authority      288 No support was provided.

  May 25, 2012        5830        Employee A                     640 No support was provided.

  June 8, 2012        5890        Employee A                     640 No support was provided.
                                                                     No support was provided showing
                                                                     the basis and reasonableness of
 August 6, 2012      EFT*         Internal Revenue Service        76
                                                                     allocations made to the HOPWA
                                                                     program.
                                                                     No support was provided showing
    March 29,                                                        the basis and reasonableness of
                      EFT         Internal Revenue Service       436
     2013                                                            allocations made to the HOPWA
                                                                     program.
  November 3,
                      EFT         Employee B                     384 No support was provided
     2011
  November 3,
                      EFT         Employee C                     354 No support was provided.
     2011
                                  VICARE, Methodist
                                  Training and Outreach
     Various          EFT                                       9,681 No support was provided
                                  Center (MTOC)
                                  (administrative fees)
                                  MTOC (salary adjustments
     Various          EFT         and other administrative      6,795 No support was provided.
                                  costs)

                                  Total                       $45,158
* EFT=electronic funds transfer




                                                        17