oversight

The City of Colorado Springs Did Not Always Administer Its CDBG Program in Accordance With Applicable Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-06-30.

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

           City of Colorado Springs, CO
              Community Development Block Grant




Office of Audit, Region 8       Audit Report Number: 2015-DE-1002
Denver, CO                                            June 30, 2015
To:            Renee Ryles, Acting Director, Office of Community Planning and Development,
               DOF

               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 8AGA
Subject:       The City Used Grant Funds for Unsupported Salary and Project Costs and Did
               Not Properly Complete Environmental Reviews of Its 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 City of Colorado Springs, CO’s Community
Development Block Grant program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 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
913-551-5870.
                    Audit Report Number: 2015-DE-1002
                    Date: June 30, 2015

                    The City Used Grant Funds for Unsupported Salary and Project Costs and
                    Did Not Properly Complete Environmental Reviews of Its Projects




Highlights

What We Audited and Why
We audited the City of Colorado Springs’ Community Initiatives and Economic Vitality Division
based upon findings identified in U.S. Department of Housing and Urban Development (HUD),
Office of Inspector General, memorandum number 2014-DE-1802. Our audit objective was to
determine whether the City used its grant funds for eligible project costs and performed
environmental reviews of its projects.

What We Found
The City used grant funds for unsupported salary and project costs. It could not support its
Community Development Block Grant (CDBG) salaries from 2009 to 2013 totaling more than
$3.8 million and could not support any expenditures for a 2011 capital improvement project
totaling more than $67,000.
Additionally, the City did not properly complete environmental reviews of its projects. It did not
document the exempt status for its human service projects and did not complete a full
environmental review of 22 of its non-human service projects totaling more than $3.1 million.

What We Recommend
We recommend that the Director of the Denver Office of Community Planning and Development
require the City to (1) provide support for more than $3.8 million in unsupported salary costs or
reimburse HUD from non-Federal funds any portion of that amount that it cannot support; (2)
provide support for more than $67,000 in unsupported project costs or reimburse HUD from
non-Federal funds any portion of that amount that it cannot support; (3) develop and implement a
detailed payroll tracking system to ensure that only costs incurred in administering the CDBG
program are charged to the CDBG grants; (4) develop and implement a system to track its
project files; (5) develop and implement detailed policies and procedures to ensure that the City
complies with HUD environmental review requirements; and (6) provide support for the 22 non-
human service CDBG projects, showing that each project was either exempt or complied with
environmental requirements and for any portion of the more than $3.1 million not supported, the
City should reimburse HUD from non-Federal funds.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The City Used Grant Funds for Unsupported Salary and Project Costs . 4
         Finding 2: The City Did Not Comply With Environmental Review Requirements .. 6

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

Internal Controls ......................................................................................................9

Appendixes ..............................................................................................................10
         A. Schedule of Questioned Costs .................................................................................. 10
         B. Auditee Comments and OIG’s Evaluation ............................................................. 11




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Background and Objective
The City of Colorado Springs, CO’s Housing Development Division administers the City’s
Affordable Housing, Capital Improvement, Housing Rehabilitation, and Human Service Funding
programs. The Division is located within the Office of Economic Vitality, which reports to the
mayor’s office. The Division’s main offices are located at 30 South Nevada Avenue, Suite 604,
Colorado Springs, CO.

The Division’s mission is to provide oversight and administration of Federal and local programs
through the development of partnerships, preservation of neighborhoods, affordable housing
development and preservation, and stimulating economic revitalization.

For fiscal years 2009 through 2013, the City received more than $12 million in Community
Development Block Grant (CDBG) funds. In administering its Federal grants, the City must
follow Federal regulations, including those in the Code of Federal Regulations, Office of
Management and Budget circulars, U.S. Department of Housing and Urban Development (HUD)
handbooks, and HUD’s policies and procedures.

On September 30, 2014, the Office of Inspector General (OIG) issued memorandum number
2014-DE-1802, which substantiated complaint allegations related to the City’s HOME
Investment Partnerships Program and CDBG program. Specifically, the memorandum
substantiated allegations related to the City’s failure to report CDBG program income in a timely
manner and its improper charging of program and administrative costs.

Our audit objective was to determine whether the City used its grant funds for eligible project
costs and performed environmental reviews of its projects.




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Results of Audit

Finding 1: The City Used Grant Funds for Unsupported Salary and
Project Costs

The City used grant funds for unsupported salary and project costs. This occurred because the
City did not have a payroll system that tracked actual time spent on different activities and did
not have a system in place to track its project files. As a result, HUD could not be assured that
nearly $3.9 million was used to administer the City’s CDBG projects.

The City Used Grant Funds for Unsupported Costs
The City used grant funds for unsupported salary and project costs. It could not support its
CDBG salaries from 2009 to 2013 and could not support any expenditures for a 2011 capital
improvement project. Federal regulations at 24 CFR (Code of Federal Regulations) 85.20(b)(6)
require accounting records to be supported with source documentation.

During the period 2009 through 2013, the City could not support its salaries of more than $3.8
million. Specifically, the City did not have detailed timesheets, payroll logs, attendance records,
or other documentation to support the salaries. It also was not able to explain why it charged the
amounts charged to CDBG salary costs.

The table below shows the salary year, staff salaries for the year, and total unsupported salary
cost.


            Year                                          Staff salaries

             2009                    $26,282.89 per pay period x 26 pay periods =$683,355
             2010                                          $796,309
             2011                                          $796,308
             2012                                          $796,308
             2013                    $30,066.82 per pay period x 26 pay periods= $781,737
            Total:                                         $3,854,017

In addition, the City did not maintain records for one project. It was unable to provide the file
associated with the Capital Improvements – Westside CDBG project. This project was funded
for more than $67,000 and completed on September 16, 2011.




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The City Lacked a Payroll System and Project Records
The City lacked a payroll system that tracked actual time spent on different activities and did not
have other documentation to support its salary costs charged to individual grants. Further, it did
not have a system in place to track its project files.

The City Had No Assurance That Nearly $3.9 Million Was Used To Administer CDBG
Projects
HUD lacked assurance that the City used more than $3.8 million to administer its CDBG projects
and used more than $67,000 to benefit eligible CDBG recipients.

Recommendations
We recommend that the Director of the Denver Office of Community Planning and Development
require the City to

       1A. Provide support for the $3,854,017 in unsupported salary costs or reimburse HUD
           from non-Federal funds any portion of that amount that it cannot support.

       1B. Provide support for the $67,209 in unsupported project costs or reimburse HUD
           from non-Federal funds any portion of that amount that it cannot support.

       1C. Develop and implement a detailed payroll tracking system to ensure that only costs
           incurred in administering the CDBG program are charged to the CDBG grants.

       1D. Develop and implement a system to track its project files.




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Finding 2: The City Did Not Comply With Environmental Review
Requirements

The City did not properly complete environmental reviews of its projects. This occurred because
the City did not understand HUD environmental review requirements and lacked detailed
policies and procedures to ensure compliance with all applicable environmental review
requirements. As a result, the City and HUD lacked assurance that the City’s CDBG projects
complied with environmental standards.

The City Did Not Comply With Environmental Review Requirements
The City did not properly complete environmental reviews of its projects. It did not document
the exempt status for its human service projects and did not complete a full environmental
review of 22 of its non-human service projects.

Federal regulations at 24 CFR 58.38 require the City to maintain a written record of the
environmental review undertaken for each project. The environmental review record must
contain all required environmental review documents, public notices, and written determinations
or environmental findings as evidence of review, decision making, and actions pertaining to a
particular project of a recipient.

During the period 2009 through 2013, the City did not complete any environmental reviews of
83 human service projects. These completed projects would have been exempt or categorically
exempt under 24 CFR 58.34 and 24 CFR 58.35; however, the City did not document the exempt
status before committing CDBG funds to the projects.

Additionally, the City did not fully follow environmental review requirements for 22 non-human
service projects totaling more than $3.1 million. Requirements at 24 CFR 58.15 allow an entity
to tier its environmental reviews and assessments to eliminate repetitive discussions of the same
issues at higher levels of review. A HUD environmental officer explained that if an entity elects
to tier its reviews, the project-specific review (tier 2) must reference the already approved
broader review (tier 1). The City completed project-specific tier 2 environmental reviews;
however, it did not complete a broad-level tier 1 review.

The City Did Not Understand HUD Environmental Review Requirements
The City did not understand HUD environmental review requirements. A City official stated
that the City was not aware that it was required to complete an environmental assessment for all
of its CDBG projects. Additionally, the City did not have detailed policies and procedures to
ensure compliance with all applicable environmental review requirements.

The City Lacked Assurance That Its CDBG Projects Complied With Environmental
Standards
As a result of the conditions described above, the City and HUD lacked assurance that the City’s
CDBG projects complied with environmental standards. The City needs to implement policies
and procedures to ensure compliance with environmental regulations, which include



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documenting the exempt status of projects and completing an environmental review before funds
are requested.

Recommendations
We recommend that the Director of the Denver Office of Community Planning and Development
require the City to

       2A. Develop and implement detailed policies and procedures to ensure that it complies
           with HUD environmental review requirements.

       2B. Provide support for the 22 non-human service CDBG projects, showing that each
           project was either exempt or complied with environmental requirements. For any
           portion of the $3,154,456 not supported, the City should reimburse HUD from non-
           Federal funds.




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Scope and Methodology
Our audit covered the period January 1, 2009, through December 31, 2013. We performed our
work from October through December 2014 at the City’s office located at 30 South Nevada
Avenue, Suite 604, Colorado Springs, CO.

We issued memorandum report 2014-DE-1802 on September 30, 2014 to address allegations
made in a citizen’s complaint. In that memorandum we made three recommendations to address
issues identified during that review. We did not include any items addressed in those
recommendations as part of our testing or results for this review.

To accomplish our objectives, we obtained and became familiar with applicable HUD
regulations and guidance. We also:

      Interviewed HUD’s Denver Office of Community Planning and Development
       management and staff,
      Interviewed City’s management and staff,
      Reviewed the City’s project files and management files,
      Reviewed the City’s written policies and procedures for CDBG,
      Reviewed prior HUD monitoring reviews.

To determine whether the City was properly charging its administrative costs we reviewed the
employee salary breakouts sheets for 2009 -2013, since there were no timesheets, payroll logs,
attendance records, or any other documentation to support salary expenses.

To determine whether the City was properly performing environmental reviews of its projects
we reviewed all 83 completed human services projects from 2009 – 2013, for compliance with
HUD environmental review requirements. Additionally, we reviewed 27 of the City’s 38,
completed non-human services projects for compliance with HUD environmental review
requirements. The non-human services projects were from 2009 - 2012 totaling $3.8 million.
We reviewed the grant agreement and environmental review record for each project.
We did not use auditee computer-generated data as audit evidence or to support our audit
conclusions. We used source documentation obtained from HUD and the auditee for background
information purposes. We based all of our conclusions on source documentation reviewed
during the audit.

We conducted the audit in accordance with generally accepted government auditing standards,
see. 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(s).




                                                8
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   Effectiveness and efficiency of operations,
   Reliability of financial reporting, and
   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

   Controls to ensure the proper charging of salaries.
   Controls to ensure compliance with HUD environmental review requirements.
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 Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

   The City did not have a system in place to track its employees’ time (finding 1).
   The City did not have controls in place to ensure proper completion of its environmental
    reviews (finding 2).




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Appendixes

Appendix A


                             Schedule of Questioned Costs
                           Recommendation
                                             Unsupported 1/
                               number
                                   1A              $3,854,017
                                   1B               $67,209
                                   2B              $3,154,456
                                 Totals            $7,075,682


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




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Appendix B
                    Auditee Comments and OIG’s Evaluation



Ref to OIG           Auditee Comments
Evaluation




        Comment 1




                                      11
Comment 2




            12
                        OIG Evaluation of Auditee Comments


Comment 1   The City did not provide detailed payroll records to support its CDBG salaries
            during our review. As part of the normal audit resolution process, HUD will work
            with the City to determine if the recommendations are satisfied.
Comment 2   We appreciate the proactive attention to our recommendations; however, we did
            not verify that the corrective actions satisfy the recommendations. Therefore,
            HUD will verify whether they adequately meet the intent of the recommendations
            during the normal audit resolution process.




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