oversight

The State of Illinois' Administrator Lacked Adequate Controls Over the State's Community Development Block Grant Disaster Recovery Program-Funded Projects

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-09-30.

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

                            State of Illinois
        Community Development Block Grant Disaster
                   Recovery Program




Office of Audit, Region 5             Audit Report Number: 2015-CH-1009
Chicago, IL                                           September 30, 2015
To:            Ray E. Willis, Director of Community Planning and Development, 5AD

               //signed//
From:          Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject:       The State of Illinois’ Administrator Lacked Adequate Controls Over the State’s
               Community Development Block Grant Disaster Recovery Program-Funded
               Projects


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 Illinois’ Community Development
Block Grant Disaster Recovery 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
312-353-7832.
                      Audit Report Number: 2015-CH-1009
                      Date: September 30, 2015

                      The State of Illinois’ Administrator Lacked Adequate Controls Over the
                      State’s Community Development Block Grant Disaster Recovery Program-
                      Funded Projects



Highlights

What We Audited and Why
We audited the State of Illinois’ Community Development Block Grant Disaster Recovery
program. The audit was part of the activities in our fiscal year 2015 annual audit plan. We
selected the State’s program based on a congressional request from the Honorable Mark Kirk to
review the State’s awards of program funds under the Consolidated Security, Disaster
Assistance, and Continuing Appropriations Act of 2009 for three projects.1 Our objective was to
determine whether the State’s Department of Commerce and Economic Opportunity ensured that
program funds used for the three projects met Federal requirements.

What We Found
The Department did not ensure that program funds used for the three projects met Federal
requirements. It could not provide sufficient documentation to support that two of the three
projects met a national objective and the use of program funds for one of the projects. Further,
program funds loaned for one of the projects were not repaid as required by the Department’s
grant agreement with the subrecipient and the Department could not ensure that two of the
subrecipients appropriately procured services for three contracts associated with two of the
projects. As a result, HUD and the Department lacked assurance that more than $1.7 million in
program funds was used and more than $4.3 million in program funds will be used in accordance
with Federal requirements. In addition, the Department did not have $250,000 in program funds
available for eligible program-funded projects.

What We Recommend
We recommend that the Director of HUD’s Chicago Office of Community Planning and
Development require the State to (1) support or reimburse its program from non-Federal funds
for the three projects that lacked evidence of compliance with Federal requirements, (2) support
that one project met a national objective or deobligate the program funds, (3) reimburse its
program from non-Federal funds for the program funds not repaid, and (4) implement adequate
controls to address the findings cited in this audit report.




1
 The awards were to (1) Chicago Neighborhood Initiatives, Inc., (2) the South Suburban Mayors and Managers
Association, and (3) the City of Belleville.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: The Department Did Not Administer Three Program-Funded Projects in
                  Accordance With Federal Requirements ....................................................... 5

Scope and Methodology ...........................................................................................9

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

Appendixes ..............................................................................................................11
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 11

         B. Auditee Comments and OIG’s Evaluation ............................................................. 12

         C. Applicable Requirements ......................................................................................... 36




                                                              2
Background and Objective
Community Development Block Grant Disaster Recovery funds were authorized under the
Consolidated Security, Disaster Assistance, and Continuing Appropriations Act of 2009 for
necessary expenses related to disaster relief; long-term recovery; and restoration of infrastructure,
housing, and economic revitalization in areas affected by hurricanes, floods, and other natural
disasters occurring during 2008 for which the President declared a major disaster under Title IV of
the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1974. The funds were to
be used for activities authorized under Title I of the Housing and Community Development Act of
1974 as amended. The U.S. Department of Housing and Urban Development (HUD) allocated
nearly $194 million in Community Development Block Grant Disaster Recovery funds to the State
of Illinois.
The State’s Department of Commerce and Economic Opportunity administers the State’s program.
The Department was created in 2003 by the Illinois General Assembly under the laws of the State.
Its mission is to raise Illinois’ profile as a premier global destination and to provide a foundation
for the economic prosperity of all Illinoisans through the coordination of business recruitment
and retention, providing essential capital to small businesses, investment in infrastructure and job
training for a 21st century infrastructure, and the administration of State and Federal grants. The
Department’s program records are located at 500 East Monroe Street, Springfield, IL. On June
30, 2010, the Department entered into a contract with CDM Smith, Inc.,2 to assist it in
administering the program. CDM Smith, Inc.’s program records are located at 427 East Monroe
Street, Springfield, IL.
The Honorable Mark Kirk requested that we review the State’s awards of program funds under
the Act to (1) Chicago Neighborhood Initiatives, Inc. to build a new community center in
Chicago, (2) the South Suburban Mayors and Managers Association for the demolition of the
Dixie Square Mall, and (3) the City of Belleville to create jobs at the Wagner Motor Car
Company. The following table shows the amount of program funds awarded, obligated, and
disbursed to the subrecipients for the three projects.

                        Subrecipient                         Awarded      Obligated    Disbursed
          Chicago Neighborhood Initiatives, Inc.             $4,998,600   $4,998,600    $652,242
                         Association                          4,000,000    3,075,472    3,075,472
                      City of Belleville                      1,000,000    1,000,000    1,000,000

                            Totals                           $9,998,600   $9,074,072   $4,727,714




2
    Previously known as Camp, Dresser, and McKee, Inc.



                                                         3
Our objective was to determine whether the Department ensured that program funds used for the
three projects met Federal requirements. Specifically, we wanted to determine whether the (1)
projects met a national objective, (2) projects clearly showed a direct or indirect relation to the
disaster, (3) program funds were used for eligible expenses, and (4) subrecipients appropriately
procured services.




                                                  4
Results of Audit

Finding: The Department Did Not Administer Three Program-
Funded Projects in Accordance With Federal Requirements
The Department did not ensure that program funds used for three projects met Federal
requirements.3 It could not provide sufficient documentation to support that two of the three
projects met a national objective and the use of program funds for one of the projects. Further,
program funds loaned for one of the projects were not repaid as required by the Department’s
grant agreement with the subrecipient and the Department could not ensure that two of the
subrecipients appropriately procured services for three contracts associated with two of the
projects. These weaknesses occurred because the Department lacked adequate controls for its
administration of the three projects to ensure that the use of program funds met Federal
requirements. As a result, HUD and the Department lacked assurance that more than $1.7
million in program funds was used and more than $4.3 million in program funds will be used in
accordance with Federal requirements. In addition, the Department did not have $250,000 in
program funds available for eligible program-funded projects.
Lack of Sufficient Documentation To Support Projects Met a National Objective
The Department could not provide sufficient documentation to support that two of the three
projects met a national objective. It reported in HUD’s Disaster Recovery Grant Reporting
system4 that the community center addressed the national objective of benefiting low- and
moderate-income individuals on an areawide basis. However, contrary to HUD’s regulations at
24 CFR (Code of Federal Regulations) 570.483(b)(1), the Department could not provide
sufficient documentation to support that the area used to determine whether the project qualified
as an activity benefiting low- and moderate-income individuals on an areawide basis was the
area that would be served by the community center. Further, the Department could not provide
sufficient documentation to support that at least 51 percent of the residents of the area were low-
and moderate-income individuals and the area was primarily residential.
The Department reported in HUD’s system that the creation of jobs at the Wagner Motor Car
Company addressed the national objective of job creation or retention activities. However, it
could not provide sufficient documentation to support whether the jobs that were created were
full-time or part-time as required by 24 CFR 570.483(b)(4)(i). Therefore, we could not
determine whether 51 percent of the jobs that were created provided employment to low-and
moderate-income individuals.




3
    See appendix C of this audit report.
4
    HUD’s system is the drawdown and reporting system for the program.



                                                         5
The Department’s deputy director of community development stated that he believed the
Department provided sufficient documentation to support that the community center project and
the creation of jobs at the Wagner Motor Car Company met a national objective.
Loan of Program Funds for Wagner Inappropriately Partially Forgiven
The Department allowed the City of Belleville to forgive $250,000 (50 percent) of a $500,000
loan, although Wagner Motor Car Company did not repay the loan in accordance with the
repayment schedule in the Department’s grant agreement with the City.5 Wagner made 20
repayments on the loan totaling $250,000 in principal and more than $37,000 in interest.6
However, the 20 payments were 8 to 19 days after the date required by the repayment schedule.
Further, contrary to appendix A, section C.1, of 2 CFR Part 225, the Department could not
provide sufficient documentation to support Wagner’s use of more than $438,000 of the $1
million in program funds. Wagner deposited $900,000 into its checking account and $100,000
into its money market account. It used nearly $562,000 from the checking account to pay for
inventory. The Department stated that Wagner used an additional nearly $201,000 from the
checking account to pay off a short-term loan. However, the Department could not provide
sufficient documentation to support that the loan was paid off or what Wagner used the loan for.
Further, the Department stated that Wagner maintained the remaining more than $237,000 ($1
million - nearly $562,000 - nearly $201,000) in the restricted money market account to fulfill
General Motors’ requirement for maintaining a minimum of $250,000 in unencumbered cash.
However, the Department could not provide sufficient documentation to support that Wagner
maintained the $100,000 in the money market account and that the remaining more than
$137,000 ($900,000 - nearly $562,000 - nearly $201,000) from the checking account was
transferred into the money market account.
The deputy director stated that he believed the Department provided sufficient documentation to
support that it followed Federal and State requirements in the administration of the Wagner
Motor Car Company project. Since none of Wagner’s repayments on the loan had reached the
third level of noncompliance (30 days late), the loan was considered in good standing. Appendix
A, section C.1, of 2 CFR Part 225 does not define minimum documentation or the meaning of
adequate. The Department believed that it provided adequate documentation to support
Wagner’s use of the program funds.
Department Could Not Ensure Subrecipients Appropriately Procured Services
The Department could not provide sufficient documentation to support that Chicago
Neighborhood Initiatives, Inc., performed a cost analysis for its contract with an engineering firm
as required by 24 CFR 84.45. Chicago Neighborhood Initiatives, Inc. obtained from an
engineering firm a concept engineer’s opinion of probable construction cost for site
improvements for the community center, dated November 2012. The opinion stated that the




5
  The grant agreement stated that $500,000 was a grant and $500,000 was a 50 percent forgivable loan as long as
Wagner met specified repayment requirements.
6
  The City remitted the more than $287,000 to the Department.



                                                         6
prices were based on average prices from contractors’ bid prices that the engineering firm had
reviewed for similar projects within the past year or available material and labor cost data and
that some unit prices were adjusted for special conditions. The Department did not provide
documentation to support the opinion. In December 2013, Chicago Neighborhood Initiatives,
Inc., requested qualifications for engineering services associated with site and infrastructure
work in preparation for the community center, and two engineering firms submitted
qualifications.7 Chicago Neighborhood Initiatives, Inc., selected the firm that it believed was the
best qualified, which was the same firm that provided the opinion, in February 2014. In May
2014, it entered into a contract with the firm totaling $720,500.
However, CDM Smith, Inc., completed a cost reasonableness review for the design and
construction engineering services portion of the contract to support that $470,800 for the services
was reasonable. The deputy director stated that it was the opinion of Department’s contractor
that the scope and entire price of Chicago Neighborhood Initiatives, Inc.’s contract with the firm
was reasonable. However, the Department did not provide documentation to support the opinion
concerning the remaining $249,700 of the contract for environmental services, soil boring
activities, and work to be completed by a subcontractor related to materials collection and testing
during the construction oversight.
Contrary to HUD’s regulations at 24 CFR 84.43 and 84.45 and the Association’s procurement
policies and procedures, the Department did not ensure that the Association obtained more than
one bid for two requests for proposals for professional and consulting services and performed a
cost analysis for the services. The same firm provided the bids for both requests. The
Association entered into two contracts with the firm8 and paid the firm $59,600 in program funds
under the contracts.
The deputy director stated that the subrecipients procured the services using 24 CFR 85.36 and
he believed that the subrecipients complied with those procurement regulations. However, since
the subrecipients were nonprofit corporations, 24 CFR 84.40 through 84.48 were the applicable
procurement regulations. The deputy director stated that he believed that the engineer’s opinion
for the community center met the requirements of an independent estimate for the engineering
services. He also believed that it was acceptable for the Association to enter into contracts with
the firm for professional and consulting services after receiving only one bid since the
Association requested proposals from several firms.




7
    The firm that provided the opinion was one of the two firms that submitted qualifications.
8
    The Association’s contracts with the firm were for $56,000 and nearly $6,000.



                                                            7
Conclusion
The weaknesses described above occurred because the Department lacked adequate controls for
its administration of the three projects to ensure that the use of program funds met Federal
requirements. As a result, HUD and the Department lacked assurance that more than $1.7
million in program funds was used and more than $4.3 million in program funds will be used in
accordance with Federal requirements. Further, the Department did not have $250,000 in
program funds available for eligible program-funded projects.
Recommendations
We recommend that the Director of HUD’s Chicago Office of Community Planning and
Development require the State to
        1A.      Support or reimburse its program from non-Federal funds $1,211,842 (more than
                 $652,000 disbursed to Chicago Neighborhood Initiatives, Inc. + $1 million
                 disbursed to the City of Belleville + nearly $60,000 for the Association’s two
                 contracts - $500,000)9 for the program funds used for the three projects without
                 sufficient documentation to support that the use of the funds met Federal
                 requirements.
        1B.      Support that Chicago Neighborhood Initiatives, Inc.’s community center project
                 met a national objective or deobligate the $4,346,358 in program funds.
        1C.      Reimburse its program from non-Federal funds $250,000 for the program funds
                 that the City of Belleville inappropriately forgave the Wagner Motor Car
                 Company from repaying.
        1D.      Implement adequate controls to ensure that the Department administers the
                 program in accordance with Federal requirements.




9
  We did not include the (1) $250,000 in principal that Wagner Motor Car Company repaid since the City of
Belleville remitted the amount to the Department and (2) $250,000 in program funds that the City inappropriately
forgave Wagner since we included the amount in recommendation 1C.




                                                         8
Scope and Methodology
We performed our audit work from November 2014 through July 2015 at the Department’s
offices located at 500 East Monroe Street, Springfield, IL, and HUD’s Chicago regional office
located at 77 West Jackson Boulevard, Chicago, IL. The audit covered the period September
2010 through September 2014 and was expanded as necessary.
To accomplish our objective, we reviewed
      Applicable laws; Federal regulations at 2 CFR Parts 225 and 230; HUD’s regulations at
       24 CFR Parts 84 and 570; the Federal Register, dated February 13, 2009, August 14,
       2009, and October 22, 2010; HUD’s “CDBG [Community Development Block Grant]
       Disaster Recovery Framework” training handout; HUD’s grant agreement with the State
       for program funds; and HUD’s files for the State’s program.
      The State’s action plan for program funding, single audit report for 2011, comprehensive
       annual financial reports for 2012 through 2014, and program data from HUD’s system.
      The Department’s grant agreements with subrecipients, policies and procedures, and
       organizational charts.

      Subrecipients’ policies and procedures and accounting records.
In addition, we interviewed the subrecipients’, CDM Smith, Inc.’s, and the Department’s
employees and HUD’s staff.
Finding
We reviewed the three program-funded projects that the Honorable Mark Kirk asked us to
review.
We relied in part on the data from HUD’s system. Although we did not perform a detailed
assessment of the reliability of the data, we performed minimal levels of testing and found the
data to be adequately reliable 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 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:

   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.
   Reliability of financial reporting – 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 applicable 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.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

   The Department lacked adequate controls for its administration of three projects to ensure
    that the use of program funds met Federal requirements (see finding).




                                                  10
Appendixes

Appendix A
          Schedule of Questioned Costs and Funds To Be Put to Better Use
        Recommendation                                     Funds to be put
                           Ineligible 1/ Unsupported 2/
            number                                         to better use 3/
                1A                                   $1,211,842
                1B                                                       $4,346,358
                1C                 $250,000

              Totals               $250,000          $1,211,842          $4,346,358


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.
3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, implementation of our recommendation
     will ensure that program funds are used in accordance with HUD’s regulations.




                                              11
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




                               12
Ref to OIG   Auditee Comments
Evaluation



Comment 1




                            13
Ref to OIG       Auditee Comments
Evaluation




Comments 2, 3,
 and 4




                                14
Ref to OIG       Auditee Comments
Evaluation




Comments 2, 3,
 and 4
Comment 5




                                15
Ref to OIG   Auditee Comments
Evaluation




Comments 2
 and 6


Comments 6
 and 7




Comments 6
 and 8




Comments 6
 and 9

Comment 6




                            16
Ref to OIG   Auditee Comments
Evaluation


Comment 6




Comment 6


Comment 6




Comment 1




                            17
Ref to OIG   Auditee Comments
Evaluation




Comment 10




Comment 10




Comment 1




                            18
Ref to OIG    Auditee Comments
Evaluation




Comments 2,
 11, and 12




Comment 11
Comment 13




                             19
Ref to OIG    Auditee Comments
Evaluation




Comment 12

Comments 12
 and 14




Comments 11
 and 12


Comment 1




                             20
Ref to OIG   Auditee Comments
Evaluation




Comment 15




                            21
Ref to OIG   Auditee Comments
Evaluation




Comment 15



Comment 15




Comment 1




                            22
Ref to OIG     Auditee Comments
Evaluation




Comments 4
 and 16




Comment 17

Comments 4
 and 17

Comments 16,
 17, and 18



Comment 18




Comments 16,
 17, and 18




                              23
Ref to OIG     Auditee Comments
Evaluation




Comments 16,
 17, and 18




Comment 19


Comment 20




Comment 1




                              24
Ref to OIG        Auditee Comments
Evaluation




Comments 4
 and 21




Comment 22




Comments 4,
 21, 22, and 23

Comment 24




                                 25
Ref to OIG   Auditee Comments
Evaluation



Comment 25


Comment 1




                            26
Ref to OIG    Auditee Comments
Evaluation




Comments 3,
 26, and 27




Comments 3,
 26, and 28




Comments 27
 and 29




                             27
Ref to OIG     Auditee Comments
Evaluation


Comments 27
 and 29

Comments 27
 and 29
Comments 27
 and 29
Comments 27,
 29, and 30

Comments 27,
 29, and 31




Comments 27,
 29, and 31



Comment 1




                              28
                         OIG Evaluation of Auditee Comments


Comment 1   We did not include in appendix B page 5 of the response since it was intentionally
            left blank and the cover pages to the responses for each item and the attachments
            since the cover pages and the attachments were not necessary to understand the
            comments of the Department’s deputy director of community development. We
            provided the Director of HUD’s Chicago Office of Community Planning and
            Development a complete copy of the written comments plus page 5, the cover
            pages, and the attachments.
Comment 2   We revised the report to state the following:

               The Department’s deputy director of community development stated that he
                believed the Department provided sufficient documentation to support that the
                community center project and the creation of jobs at the Wagner Motor Car
                Company met a national objective.
Comment 3   We revised the report to state the following:

               The deputy director stated that he believed the Department provided sufficient
                documentation to support that it followed Federal and State requirements in
                the administration of the Wagner Motor Car Company project. Since none of
                Wagner’s repayments on the loan had reached the third level of
                noncompliance (30 days late), the loan was considered in good standing.
                Appendix A, section C.1, of 2 CFR Part 225 does not define minimum
                documentation or the meaning of adequate. The Department believed that it
                provided adequate documentation to support Wagner’s use of the program
                funds.
Comment 4   We revised the report to state the following:

               The deputy director stated that the subrecipients procured the services using
                24 CFR 85.36 and he believed that the subrecipients complied with those
                procurement regulations. However, since the subrecipients were nonprofit
                corporations, 24 CFR 84.40 through 84.48 were the applicable procurement
                regulations. The deputy director stated that he believed that the engineer’s
                opinion for the community center met the requirements of an independent
                estimate for the engineering services. He also believed that it was acceptable
                for the Association to enter into contracts with the firm for professional and
                consulting services after receiving only one bid since the Association
                requested proposals from several firms.
Comment 5   The Department entered into a contract with CDM Smith, Inc., to assist it in
            administering the program. Therefore, we did not remove or redact CDM Smith,
            Inc., from the report.




                                              29
Comment 6   Contrary to HUD’s regulations at 24 CFR 570.483(b)(1), the Department could
            not provide sufficient documentation to support that the area used to determine
            whether the project qualified as an activity benefiting low- to moderate-income
            individuals on an areawide basis was the area that would be served by the
            community center. Therefore, the Department could not provide sufficient
            documentation to support that at least 51 percent of the residents of the selected
            area were low- to moderate-income individuals and the area was primarily
            residential.
Comment 7   Section 4 of part I of the application described the community center project as
            site and infrastructure improvements to complete the development of a 138,000-
            square-foot indoor sports center. The 10-mile radius to be served by the
            community center was predominantly African American, and more than 25
            percent of the population was Latino. The community center will serve the
            surrounding low-income communities through its offerings of indoor baseball,
            soccer, and lacrosse fields, a unique combination not currently offered in Chicago.
            Section 3.3 stated that the community center’s interior will feature three 120 by
            200 foot full-size turf fields to accommodate baseball, soccer, and lacrosse. The
            community center will also accommodate meetings, community events, and
            exhibitions. Further, section 3.5 stated that the areas to be served included the far
            south side of Chicago, the Pullman and Roseland communities, and the greater
            Calumet region. The map did not include much of the far south side of Chicago
            and the greater Calumet region. In addition, the Department’s application
            checklist for the community center stated that the documentation used to support
            that the community center addressed the national objective of benefiting low- and
            moderate-income individuals on an area wide basis was from Chicago
            Neighborhood Initiative, Inc.’s Pullman Park project, which involved the
            construction of a large retail store. Therefore, it appears that the area that would
            be served by the community center would be greater than the roughly 4-mile by 4-
            mile square included in the service area map for the Pullman Park project.
Comment 8   Many of the large thoroughfares that connect the community center to the census
            tracts that the Department included in its updated service area map and that the
            deputy director stated would make transportation to the community center easier
            using roads, buses, and sidewalks also connect the community center to census
            tracts that the Department did not include in its updated map. Therefore, the
            interstate highways and the river should not deter individuals living in such
            census tracts from using the community center.
Comment 9   The deputy director did not provide support for the services that the four
            community centers provided. Therefore, we contacted three of the four
            community centers. South Central Community Center was the only one that had
            an indoor sports facility. It had one indoor basketball court. We were unable to
            locate Oak Lawn Community Center. Therefore, the deputy director’s statement
            that residents of the areas where the community centers are located would be less
            likely to travel to the community center in Pullman is not supported.


                                              30
Comment 10 We revised the report to state the following:

                 The Department could not provide sufficient documentation to support that
                  two of the three projects met a national objective.
              We also removed the following from the report:

                 The Department reported in HUD’s system that the demolition of the Dixie
                  Square Mall addressed the national objective of aiding in the prevention or
                  elimination of slums and blight on an area wide basis. However, the
                  Department could not provide sufficient documentation to support that the
                  area used to support the objective met the conditions contained in the
                  regulations at 24 CFR 570.483(c)(1)(ii)(A) or (B).
Comment 11 We removed from the report that the Department could not provide sufficient
           documentation to support the income for all of the individuals who were hired as
           required by 24 CFR 570.483(b)(4)(i).
Comment 12 The Department could not provide sufficient documentation to support whether
           the jobs that Wagner Motor Car Company created were full time or part time as
           required by 24 CFR 570.483(b)(4)(i). Therefore, we could not determine whether
           51 percent of the jobs that were created provided employment to low- and
           moderate-income individuals. Further, we could not determine whether Wagner
           hired 13 full-time-equivalent permanent employees, of which 7 were to be low- to
           moderate-income individuals, as required by the Department’s modification to the
           grant agreement with the City of Belleville.
Comment 13 On March 30, 2015, the Department stated that for its grant to the City of
           Belleville, it did not apply the waiver in 74 FR (Federal Register) 65369, dated
           October 22, 2010, which allowed the State to establish a low- and moderate-
           income jobs benefit by documenting for each person employed the name of the
           business, the type of job, and the annual wages or salary of the job and stated that
           HUD would consider the person income qualified if the annual wages or salary of
           the job was at or under the HUD established income limit for a one person
           household.
Comment 14 The deputy director stated that 5 of the 13 employees the City of Belleville
           reported in its final grantee report as having full-time jobs appeared to have only
           part-time jobs since the employees’ annualized wages were less than minimum
           wage and the 5 jobs should not be counted as full-time-equivalent jobs. The
           Department’s own limited analysis showed that the City appeared to have
           inappropriately reported 31.2 percent of the 16 jobs as full-time jobs. Therefore,
           we could not rely on the City’s final grantee report to support that the remaining
           eight (13 – 5) employees had full-time jobs.
Comment 15 We removed the following from the report:




                                               31
                 Contrary to the Act, the Department could not provide sufficient
                  documentation to support that program funds used for the Dixie Square Mall
                  project were for necessary expenses related to the flooding that occurred in
                  Illinois during 2008. The Department stated that the disaster caused a rise in
                  unemployment and that the demolition of the Mall would enable potential
                  development and ultimately job creation. The Department also stated that
                  future development would stabilize the City of Harvey’s tax base. However,
                  the Department was unable to provide sufficient documentation to support that
                  the demolition of the Mall would enable future development leading to job
                  creation. It provided a February 2009 economic impact analysis of a planned
                  redevelopment project for the Mall. However, it did not provide the
                  redevelopment plan, and the economic impact analysis stated that the
                  company was not retained to provide an opinion regarding the planned
                  redevelopment project’s financial feasibility. The Department also provided
                  an October 2012 redevelopment plan for the Dixie Highway corridor
                  redevelopment project area. However, the project area did not include the site
                  of the Mall. Further, although demolition of the Mall was completed in
                  December 2012, redevelopment had not occurred on the site as of July 2015.
              We also amended recommendation 1A to reflect these revisions.
Comment 16 The Department could not provide sufficient documentation to support that
           Chicago Neighborhood Initiatives, Inc., performed a cost analysis for its contract
           with an engineering firm as required by 24 CFR 84.45.
Comment 17 Part IV of the Department’s grant agreement with Chicago Neighborhood
           Initiatives, Inc., dated November 10, 2013, states that Chicago Neighborhood
           Initiatives, Inc., must conduct all procurement transactions in a manner providing
           for full and open competition and in compliance with the more stringent and
           applicable of the procurement regulations at 24 CFR 85.36 or 24 CFR 84.40
           through 84.48 or the State’s procurement code at 30 Illinois Compiled Statutes
           500. Since Chicago Neighborhood Initiatives, Inc., was a nonprofit corporation,
           24 CFR 84.40 through 84.48 were the applicable procurement regulations.
           Section 84.45 states that some form of cost or price analysis must be made and
           documented in the procurement files in connection with every procurement
           action. Further, regulations at 24 CFR 85.36(f)(1) state that grantees and
           subgrantees must perform a cost or price analysis in connection with every
           procurement action, including contract modifications.
Comment 18 Chicago Neighborhood Initiatives, Inc., obtained from an engineering firm a
           concept engineer’s opinion of probable construction cost for site improvements
           for the community center, dated November 2012. The opinion stated that the
           prices were based on average prices from contractors’ bid prices that the
           engineering firm had reviewed for similar projects within the past year or
           available material and labor cost data and that some unit prices were adjusted for
           special conditions. The Department did not provide documentation to support the



                                               32
              opinion. In December 2013, Chicago Neighborhood Initiatives, Inc., requested
              qualifications for engineering services associated with site and infrastructure work
              in preparation for the community center, and two engineering firms submitted
              qualifications. The firm that provided the opinion was one of the two firms that
              submitted qualifications. Chicago Neighborhood Initiatives, Inc., selected the
              firm that it believed was the best qualified, which was the same firm that provided
              the opinion, in February 2014. In May 2014, it entered into a contract with the
              firm totaling $720,500. It was not appropriate to use an opinion, especially
              without documentation to support the opinion, from the selected firm to support
              the reasonableness of the contract.
Comment 19 CDM Smith, Inc. completed a cost reasonableness review for the design and
           construction engineering services portion of the contract to support that $470,800
           for the services was reasonable.
              We revised the report to state the following:

                 The Department’s deputy director of community development stated that it
                  was the opinion of Department’s contractor that the scope and entire price of
                  Chicago Neighborhood Initiatives, Inc.’s contract with the firm was
                  reasonable. However, the Department did not provide documentation to
                  support the opinion concerning the remaining $249,700 of the contract for
                  environmental services, soil boring activities, and work to be completed by a
                  subcontractor related to materials collection and testing during the
                  construction oversight.
Comment 20 The Department did not provide documentation to support Chicago Neighborhood
           Initiatives, Inc.’s cost analysis of engineering services associated with site and
           infrastructure work in preparation for the community center.
Comment 21 Contrary to HUD’s regulations at 24 CFR 84.43 and 84.45 and the Association’s
           procurement policies and procedures, the Department did not ensure that the
           Association obtained more than one bid for two requests for proposals for
           professional and consulting services and performed a cost analysis for the
           services.
Comment 22 Part IV of the Department’s grant agreement with the Association, dated
           November 19, 2010, states that the Association must conduct all procurement
           transactions in a manner providing for full and open competition and in
           compliance with the more stringent and applicable of the procurement regulations
           at 24 CFR 85.36 or 24 CFR 84.40 through 84.48 or the State’s procurement code
           at 30 Illinois Compiled Statutes 500. Since the Association was a nonprofit
           corporation, 24 CFR 84.40 through 84.48 were the applicable procurement
           regulations. Section 84.43 states that all procurement transactions must be
           conducted in a manner that provides, to the maximum extent possible, free and
           open competition. Section 84.44 states that all recipients must establish written
           procurement procedures. Section 84.45 states that some form of cost or price


                                                33
              analysis must be made and documented in the procurement files in connection
              with every procurement action. Further, regulations at 24 CFR 85.36(b)(1) state
              that grantees and subgrantees must use their own procurement procedures, which
              reflect applicable State and local laws and regulations, provided that
              procurements conform to applicable Federal law and the standards identified in 24
              CFR 85.36. Section 85.36(c)(1) states that all procurement transactions will be
              conducted in a manner providing full and open competition consistent with 24
              CFR 85.36. Section 85.36(f)(1) also states that grantees and subgrantees must
              perform a cost or price analysis in connection with every procurement action
              including contract modifications.
Comment 23 The Association’s procurement policies and procedures state that all purchases
           that use Federal awards of more than $5,000 but less than $100,000 must be made
           by obtaining written quotations from at least two responsible vendors.
Comment 24 Section 3.1 of HUD’s Office of Community Planning and Development’s Playing
           by the Rules, a handbook on administrative systems for Community Development
           Block Grant subrecipients, states that the Federal requirements for procurement
           are located in 24 CFR 85.36 for government subrecipients and in 24 CFR 84.40
           through 84.48 for nonprofit subrecipients.
Comment 25 The Department did not provide documentation to support its contractor’s
           analysis.
Comment 26 The Department allowed the City of Belleville to forgive $250,000 of a $500,000
           loan, although Wagner Motor Car Company did not repay the loan in accordance
           with the repayment schedule in the Department’s grant agreement with the City.
Comment 27 Contrary to appendix A, section C.1, of 2 CFR 225, the Department could not
           provide sufficient documentation to support Wagner Motor Car Company’s use of
           more than $438,000 of the $1 million in program funds.
Comment 28 Part II of the Department’s grant agreement with the City of Belleville, dated
           November 10, 2010, states that Wagner Motor Car Company was required to pay
           the interest and principal indebtedness on the loan as follows: (1) only the interest
           due, calculated on the full amount of the outstanding principal, beginning on
           December 1, 2010, and on the first day of each following month until and
           including May 1, 2011; (2) more than $9,000 in principal plus applicable interest,
           beginning on June 1, 2011, and on the first day of each following month until and
           including October 1, 2015; and (3) the unpaid principal on November 1, 2015. If
           Wagner was, at all times during the loan, in good standing with all required
           payments under the loan, the City was authorized to forgive a maximum of
           $250,000 of the loan principal based on (1) Wagner’s satisfactory performance in
           remitting repayments of principal and payments of interest as agreed and (2)
           making specific prepayments defined in the repayment schedule as balloon
           payments on or before June 1, 2012, April 1, 2013, February 1, 2014, or
           December 1, 2014, respectively.


                                               34
              Wagner made 20 repayments on the loan totaling $250,000 in principal and more
              than $37,000 in interest. However, the 20 payments were 8 to 19 days after the
              date required by the repayment schedule. Therefore, the City was not authorized
              to forgive $250,000 of the loan to Wagner.
Comment 29 The Department stated that Wagner Motor Car Company used nearly $201,000
           from its checking account to pay off a short-term loan. However, the Department
           could not provide sufficient documentation to support that the loan was paid off
           or what Wagner used the loan for. Further, the Department stated that Wagner
           maintained the remaining more than $237,000 in a restricted money market
           account to fulfill General Motors’ requirement for maintaining a minimum of
           $250,000 in unencumbered cash. However, the Department could not provide
           sufficient documentation to support that Wagner maintained $100,000 in the
           money market account and that more than $137,000 from the checking account
           was transferred into the money market account.
Comment 30 The bank statement did not support the payee of Wagner Motor Car Company’s
           check number 65642 for nearly $201,000.
Comment 31 The Department provided Wagner Motor Car Company’s checking account bank
           statement for the period October 30 through November 30, 2010, which showed
           that Wagner deposited $900,000 in program funds into the checking account on
           November 22, 2010. The Department also provided a hand written bank
           reconciliation for the checking account for November 2010, which included
           outstanding check number 61778 for $142,000. The bank reconciliation did not
           include the payee of the check. The Department provided Wagner’s money
           market account bank statement for the period November 18 through December
           21, 2010, which showed that Wagner deposited $100,000 in program funds into
           the money market account on November 22, 2010. The statement included what
           appeared to be a tape calculation, showing that $142,000 was added to the money
           market account, for a total of nearly $255,000. Check 61778 was written next to
           the addition. The Department did not provide additional bank statements for the
           money market account. The two bank statements and bank reconciliation were
           not sufficient to support that Wagner maintained the $100,000 in the money
           market account and that more than $137,000 from the checking account was
           transferred into the money market account.




                                              35
Appendix C
                                    Applicable Requirements


Finding
The Consolidated Security, Disaster Assistance, and Continuing Appropriation Act of 2009
states that program funds must be used for necessary expenses related to disaster relief; long-
term recovery; and restoration of infrastructure, housing, and economic revitalization in areas
affected by hurricanes, floods, and other natural disasters occurring during 2008.
HUD’s grant agreement with the State for the program, dated February 4, 2010, states that the
State must comply with all waivers and alternative requirements in the Federal Register, dated
February 13, 2009.
74 FR (Federal Register) 7245, dated February 13, 2009, states that regulatory provisions
governing the Community Development Block Grant program for States at 24 CFR Part 570
apply to the use of program funds. Page 7252 states that 24 CFR 570.502(b), except that HUD
recommends but does not require the application of the requirements of 24 CFR Part 84, applies
to any activity that a State carries out directly by funding a subrecipient.
Regulations at 24 CFR 84.43 state that all procurement transactions must be conducted in a
manner that provides, to the maximum extent possible, free and open competition. Section 84.44
states that all recipients must establish written procurement procedures. Section 84.45 states that
some form of cost or price analysis must be made and documented in the procurement files in
connection with every procurement action.
Regulations at 24 CFR 570.483 state that a Community Development Block Grant-assisted
activity must comply with one or more of the national objectives. Section 570.483(b)(1) states
that for an activity to be considered to address the objective of benefiting low- and moderate-
income individuals on an areawide basis, the benefits must be available to all the residents in a
particular area and at least 51 percent of the residents must be low- and moderate-income
individuals. Such an area does not need to have the same boundaries as census tracts or other
officially recognized boundaries but must be the entire area served by the activity. An activity
that serves an area that is not primarily residential in character cannot qualify as an activity
benefiting low- and moderate-income individuals on an areawide basis. Section 570.483(b)(4)(i)
states that a job creation activity is an activity designed to create permanent jobs in which at least
51 percent of the jobs, computed on a full-time equivalent basis, involve the employment of low-
and moderate-income individuals. Section 570.483(c)(1) states that for an activity to be
considered to address the objective of aiding in the prevention or elimination of slums and blight
on an areawide basis; (1) the area, defined by the unit of general local government, meets a
definition of a slum, blighted, deteriorated, or deteriorating area under State or local law and (2)
the area must meet the conditions cited in 24 CFR 570.483(c)(1)(ii)(A) or (B). Section
570.483(c)(1)(ii)(A) states that at least 25 percent of the properties throughout the area must
experience at least one of the following conditions: (1) physical deterioration of buildings or
improvements, (2) abandonment of properties, (3) chronic high-occupancy turnover rates or


                                                  36
chronic high vacancy rates in commercial or industrial buildings, (4) significant declines in
property values or abnormally low property values relative to other areas in the community, or
(5) known or suspected environmental contamination. Section 570.483(c)(1)(ii)(B) states that
the public improvements throughout the area must be in a general state of deterioration.
Regulations at 24 CFR 570.489(n) state that a State must ensure that costs it and its recipients
incur conform with Office of Management and Budget Circulars A-87 and A-122 as applicable.
Regulations at 24 CFR 570.502(b) state that subrecipients, except subrecipients that are
government entities, must comply with Office of Management and Budget Circular A-122.
Appendix A, section C.1, of 2 CFR Part 225 requires all costs to be necessary, reasonable, and
adequately documented.10
Appendix A, section A.2, of 2 CFR Part 23011 requires that all costs be reasonable and
adequately documented. Section A.3 states that a cost is reasonable if, in its nature or amount, it
does not exceed that which would be incurred by a prudent person under the circumstances
prevailing at the time the decision was made to incur the cost.
Part IV of the Department’s grant agreement with Chicago Neighborhood Initiatives, Inc., dated
November 10, 2013, states that program funds must be spent for project costs that comply with
Office of Management and Budget Circular A-122. Chicago Neighborhood Initiatives, Inc.,
must conduct all procurement transactions in a manner providing for full and open competition
and in compliance with the more stringent and applicable of the procurement regulations at 24
CFR 84.40 through 84.48 or the State’s procurement code at 30 Illinois Compiled Statutes 500.
Part IV of the Department’s grant agreement with the Association, dated November 19, 2010,
states that program funds must be spent for project costs that comply with Office of Management
and Budget Circular A-122. The Association must conduct all procurement transactions in a
manner providing for full and open competition and in compliance with the more stringent and
applicable of the procurement regulations at 24 CFR 84.40 through 84.48 or the State’s
procurement code at 30 Illinois Compiled Statutes 500.
The Department’s grant agreement with the City of Belleville, dated November 10, 2010, states
that the Department agrees to provide a grant to the City in an amount not to exceed $1 million
in program funds. Part II of the grant agreement states that the City will receive $1 million in
program funds for the benefit of the Wagner Motor Car Company, consisting of a $500,000 grant
and a $500,000 loan with an annual interest rate of 5 percent. Wagner was required to pay the
interest and principal indebtedness on the loan as follows: (1) only the interest due, calculated
on the full amount of the outstanding principal, beginning on December 1, 2010, and on the first
day of each following month until and including May 1, 2011; (2) more than $9,000 in principal
plus applicable interest, beginning on June 1, 2011, and on the first day of each following month



10
     Office of Management and Budget Circular A-87 was relocated to 2 CFR Part 225.
11
      Office of Management and Budget Circular A-122 was relocated to 2 CFR Part 230. 


                                                          37
until and including October 1, 2015; and (3) the unpaid principal on November 1, 2015. If
Wagner was, at all times during the loan, in good standing with all required payments under the
loan, the City was authorized to forgive a maximum of $250,000 of the loan principal based on
(1) Wagner’s satisfactory performance in remitting repayments of principal and payments of
interest as agreed and (2) making specific prepayments defined in the repayment schedule as
balloon payments on or before June 1, 2012, April 1, 2013, February 1, 2014, or December 1,
2014, respectively. Wagner was required to hire a minimum of 29 additional full-time-
equivalent permanent employees before August 31, 2012, and retain the employees until the
Department approved the grantee evaluation report. Of the 29 employees, 15 were to be low- to
moderate-income individuals. On June 28, 2013, the Department approved a modification to the
grant agreement so that Wagner was required to hire only 13 additional full-time-equivalent
permanent employees before December 31, 2014. Further, 7 of the 13 employees were to be
low- to moderate-income individuals. Part IV states that program funds must be spent for project
costs that comply with Office of Management and Budget Circular A-87.
The Association’s procurement policies and procedures state that all purchases that use Federal
awards of more than $5,000 but less than $100,000 must be made by obtaining written
quotations from at least two responsible vendors.




                                                38