oversight

        The Alabama Department of
     Economic and Community Affairs,
             Montgomery, AL
        Community Development Block Grant Disaster
                    Recovery Funds




Office of Audit, Region 4      Audit Report Number: 2015-AT-1010
Atlanta, GA                                    September 28, 2015
To:            Charles Franklin, Director, Community Planning and Development Division

               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Alabama Department of Economic and Community Affairs Administered Its
               Community Development Block Grant Disaster Recovery Funds for Infrastructure
               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 the State of Alabama’s Department of Economic
and Community Affairs’ Community Development Block Grant Disaster Recovery 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 404-
331-3369.
                    Audit Report Number: 2015-AT-1010
                    Date: September 28, 2015

                    The Alabama Department of Economic and Community Affairs
                    Administered Its Community Development Block Grant Disaster Recovery
                    Funds for Infrastructure in Accordance With HUD Requirements



Highlights

What We Audited and Why
We audited the State of Alabama’s Department of Economic and Community Affairs’
Community Development Block Grant Disaster Recovery (CDBG-DR) grant. We selected the
State for review because it was awarded more than $49 million in funding to recover from the
tornadoes of April 2011. Our audit objective was to determine whether the State administered its
CDBG-DR funds used for infrastructure to ensure that only eligible applicants participated in the
program, funds were spent only for eligible activities, and participants did not receive a
duplication of benefits and whether it adequately monitored applicant activity and performance.

What We Found
The State administered its CDBG-DR funds for infrastructure in accordance with HUD
requirements. It ensured that eligible applicants participated, funds were spent for eligible
activities, activities and performance were adequately monitored, and participants did not receive
a duplication of benefits.



What We Recommend
This report contains no recommendations.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The State Administered Its CDBG-DR Funds for Infrastructure in
         Accordance With HUD Requirements

Scope and Methodology ...........................................................................................6

Internal Controls ......................................................................................................8

Appendixes ................................................................................................................9

         A. State of Alabama Recipients Reviewed ...........................................................9

         B. Auditee Comments......................................................................................10




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Background and Objective
The Alabama Department of Economic and Community Affairs, located in Montgomery, AL, is
responsible for administering the State’s Community Development Block Grant Disaster
Recovery (CDBG-DR) program which is funded by the U.S. Department of Housing and Urban
Development (HUD). The Department was created by the Alabama Legislature as an arm of the
Governor’s Office in 1983. Its director and assistant director are appointed by the governor. A
10-member Legislative Oversight Commission monitors and evaluates its operations. The
Department is composed of seven divisions and various support sections. Each division is
responsible for administering different programs and grants and other duties.
On May 29, 2013, HUD issued a Federal Register notice, 1 which advised the public of a second
allocation of $514 million in CDBG-DR funds appropriated by the Disaster Relief
Appropriations Act of 2013. 2 The purpose of the allocation was to assist in the recovery of the
most impacted and distressed areas which were declared a major disaster in 2011 or 2012. HUD
awarded the State of Alabama more than $49 million from this second allocation. On November
5, 2013, HUD approved the State’s action plan. The action plan identified the purpose of the
State’s allocation, including criteria for eligibility, and how its uses addressed long-term
recovery needs. On December 16, 2013, HUD approved a grant agreement, which obligated
more than $32 million in funding from the $49 million allocation. The Disaster Relief Act
required the State to spend obligated funds within 2 years of the date of obligation.

Twenty-one recipients received funding for infrastructure. As of March 31, 2015, more than $22
million had been awarded to the recipients for infrastructure work, and more than $15 million
had been spent.
Our audit objective was to determine whether the State administered its CDBG-DR funds used
for infrastructure to ensure that only eligible applicants participated in the program, funds were
spent only for eligible activities, and participants did not receive a duplication of benefits and
whether it adequately monitored applicant activity and performance.




1
    78 Federal Register 32263, dated May 29, 2013
2
    Public Law 113-2, dated January 29, 2013



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Results of Audit

Finding: The State Administered Its CDBG-DR Funds for
Infrastructure in Accordance With HUD Requirements
The State ensured that its CDBG-DR funding for infrastructure was administered in accordance
with HUD requirements. Specifically, it ensured that (1) only eligible applicants participated in
the program, (2) funds were spent only for eligible activities, (3) it adequately monitored
applicant activity and performance, and (4) participants did not receive a duplication of benefits.


Activities and Applicants Were Eligible
We reviewed seven recipients that were awarded more than $4 million in CDBG-DR funds and
had spent more than $3 million. We reviewed each recipient’s file to determine whether the
CDBG-DR funds were used for eligible applicants and activities. All seven recipients were
eligible to receive CDBG-DR funds because they were located in a presidentially declared
disaster area. We reviewed each recipient’s general ledger, invoices, and canceled checks to
verify that all expenses were paid for eligible activities. The State’s written policies and
procedures ensured that only eligible applicants and activities were approved for assistance in
accordance with all applicable State and Federal laws, regulations, and policies. For example,
each recipient was required to (1) meet a national objective, such as benefiting low- and
moderate-income families, (2) have a citizen participation plan, (3) provide equal opportunity
employment, (3) ensure that no activities were located in a flood hazard area, (4) and ensure that
activities were located in Alabama counties that were presidentially declared disaster areas.

Monitoring and Performance Was Adequate
The State’s policies and procedures for its CDBG-DR programs included procedures for
scheduling, conducting, and closing out a monitoring review. The policy stated that monitoring
involved the use of checklists to ensure financial and program compliance and a visit to the
project site to ensure that the activities were carried out in accordance with the approved
application. The checklists allowed the State to determine the recipient’s compliance in areas
such as citizen participation, meeting a national objective, eligibility, progress, disclosure,
professional services, environmental reviews, fair housing and equal opportunity, bidding and
contracting, labor, financial management, and record keeping. Upon completion of the
monitoring visit, the State provided a letter to the recipient outlining the results of the monitoring
review.
The State performed a monitoring review of four of the seven recipients (Blount County,
Cullman County, Hanceville, and Marion County). The Phil Campbell and two Hackleburg
grants had not been monitored because the State grantee monitoring plan stated that recipients
would be monitored when 30 percent of grant funds had been drawn or once in the life of the


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grant. For each recipient that was monitored, the monitoring reviews were supported by the
monitoring checklist, and the monitoring review letter was issued to the recipient. The State
followed its policies and procedures by documenting each file with the monitoring review
checklist and monitoring review letter.
For the seven recipients reviewed, two had completed their projects (Blount County and
Hanceville) and the State had closed out the projects. The remaining five projects are on
schedule to expend funds by the deadline date of December 15, 2015.

Duplication of Benefits Did Not Exist for the Seven Files Reviewed
The State’s policies and procedures for duplication of benefits stated all duplicated funds were
required to be returned to the State from non-Federal local funds. The State checked for
duplication of benefits during the monitoring process. It completed a duplication of benefits
checklist to ensure that there was no duplication of benefits. A duplication of benefits checklist
was included in the file for each of the four recipients that had a monitoring review. The State
also had each recipient sign an affidavit stating there was no duplication of benefits as a result of
the CDBG-DR project.
Conclusion
The State had developed policies and procedures for its CDBG-DR program that complied with
applicable HUD and Federal requirements. For the seven recipient files reviewed, the State
followed its policies and procedures and maintained documentation to ensure that eligible
applicants participated, funds were spent for eligible activities, activities and performance were
adequately monitored, and participants did not receive a duplication of benefits.




                                                  5
Scope and Methodology
We performed our audit from April through June 2015 at the Alabama Department of Economic
of Community Affairs, Montgomery, AL, and the seven CDBG-DR recipients’ offices in
Alabama. Our review generally covered the period April 1, 2011, through March 31, 2015, and
was adjusted as necessary.
To accomplish our objective, we
   •   Interviewed Alabama Department of Economic of Community Affairs staff to obtain an
       understanding of the controls significant to the audit objective and assist in our review of
       its files;
   •   Reviewed relevant background information;
   •   Reviewed the Disaster Relief Appropriations Act, Public Law 113-2;
   •   Reviewed 78 Federal Register 32262, dated May 29, 2013;
   •   Reviewed applicable laws, regulations, and relevant HUD program requirements to
       ensure the eligibility of applicants;
   •   Reviewed organizational charts for Alabama’s Department of Economic and Community
       Affairs; its monitoring report, issued July 2, 2014; and its action plan, policies, and
       procedures for CDBG-DR funds;
   •   Completed site visits and reviewed the infrastructure work that was completed for the
       seven CDBG-DR recipients.
   •   Reviewed each recipient’s general ledger, invoices and canceled checks to verify that all
       expenses were paid for eligible activities; and
   •   Reviewed files to ensure that adequate monitoring was completed and participants did not
       receive a duplication of benefits.
We used a random number generator that assigned a random number to each record, and then a
random number was assigned to records 1 to 21. The random number generator was used
because our universe of 21 was too small to project.
We selected the first seven recipients to review (see Appendix A). The total amount of CDBG-
DR funding awarded to the seven recipients was more than $4 million, and more than $3 million
was spent. We reviewed more than $3 million, or 23 percent of the total CDBG-DR funding,
spent for infrastructure.




                                                 6
We reviewed each recipient file to determine whether the CDBG-DR funds were used for
eligible applicants and activities. We also reviewed the files to ensure that adequate monitoring
was completed and participants did not receive a duplication of benefits. We reviewed each
recipient’s general ledger, invoices, and canceled checks to verify that all expenses were paid for
eligible activities. All recipients were eligible to receive CDBG-DR funds because they were
located in a presidentially declared disaster area. We reviewed each recipient and determined
that there was no duplication of benefits.
To achieve our audit objective, we relied in part on computer-processed data. We used the data
to select a sample of recipients that were awarded grants for infrastructure for review. 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 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 objectives.




                                                 7
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 objectives:

•   Program operations – Policies and procedures that management had implemented to
    reasonably ensure that a program meets its objectives, while considering cost effectiveness
    and efficiency.
•   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that program implementation 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.
We evaluated internal controls related to the audit objective in accordance with generally
accepted government auditing standard. 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 State’s internal control.




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Appendixes

Appendix A

                        State of Alabama recipients reviewed

                                                               Amount          Amount
     Locality    Project no    County        Activity          awarded        expended
Phil Campbell    DTR-13-09    Franklin   Sewer                     $232,617        $16,769
Blount County    DTR-13-16    Blount     Roads                     $758,572      $758,572
Hackleburg       DTR-13-08    Marion     Farmer's Market           $204,178        $10,500
Cullman County   DTR-13-17    Cullman    Roads                   $1,294,892      $982,582
Hackleburg       DTR-13-08    Marion     Town Hall                $864,715       $825,792
Marion County    DTR-13-10    Marion     Roads                     $939,166      $890,527
Hanceville       DTR-13-15    Cullman    Sewer                      $80,000        $80,000
Totals                                                           $4,374,140     $3,564,742




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Appendix B
             Auditee Comments




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