oversight

The City of New York, NY, Did Not Always Disburse Community Development Block Grant Disaster Recovery Funds in Accordance With Federal Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-06-12.

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

    The City of New York, Office of
   Management and Budget, New York,
                  NY
      Community Development Block Grant Disaster
     Recovery Funds, Business Loan and Grant Program




Office of Audit, Region 2     Audit Report Number: 2015-NY-1007
New York – New Jersey                               June 12, 2015
To:            Marion Mollegen McFadden
               Deputy Assistant Secretary for Grant Programs, DG

               //SIGNED//
From:          Kimberly Greene
               Regional Inspector General for Audit, 2AGA

Subject:       The City of New York, NY, Did Not Always Disburse Community Development
               Block Grant Disaster Recovery Funds in Accordance With Federal Regulations


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 New York, Office of
Management and Budget’s administration of Community Development Block Grant Disaster
Recovery funds for its Business Loan and 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 212-
264-4174.
                    Audit Report Number: 2015-NY-1007
                    Date: June 12, 2015

                    The City of New York, NY, Did Not Always Disburse Community
                    Development Block Grant Disaster Recovery Funds in Accordance With
                    Federal Regulations



Highlights

What We Audited and Why
We audited the City of New York, Office of Management and Budget’s administration of the
Business Loan and Grant Program funded with Community Development Block Grant Disaster
Recovery (CDBG-DR) funds provided by the U.S. Department of Housing and Urban
Development (HUD) to assist in the disaster recovery and rebuilding efforts resulting from
Hurricane Sandy. The objectives of the audit were to determine whether the City (1) disbursed
CDBG-DR funds for its Business Loan and Grant Program to assist eligible business owners in
accordance with the guidelines established under its HUD-approved action plan, amendments,
and applicable Federal requirements and (2) maintained a financial management system that
adequately safeguarded funds and prevented misuse.


What We Found
City officials did not always disburse CDBG-DR funds in accordance with guidelines or
maintain a financial management system that adequately safeguarded funds and prevented
misuse. Specifically, City officials (1) disbursed CDBG-DR funds for unsupported inventory
costs, (2) did not identify either the source or application of funds for voucher drawdowns, and
(3) did not properly account for duplicate assistance when calculating the unmet need of one
applicant. However, they generally approved and denied applications for assistance in
accordance with program requirements. The deficiencies resulted from City officials’ lack of
knowledge of Federal funding regulations and weaknesses in the City’s administrative and
financial management control system. As a result, City officials could not assure HUD that
$241,000 in CDBG- DR funds was adequately safeguarded and disbursed for eligible,
reasonable, and necessary expenses and that the funds assisted qualified businesses in
compliance with Program requirements.

What We Recommend
We recommend that HUD instruct City officials to provide documentation to support $206,000
in CDBG-DR funds disbursed for inventory purchases and reimburse HUD from non-Federal
funds the $35,000 in CDBG-DR funds disbursed for duplicate assistance. Any amounts not
supported should be repaid from non-Federal funds.
Table of Contents
Background and Objectives………………………………………….………… . 3

Results of Audit………………………………………………………....................5
    Finding: The City Did Not Disburse CDBG-DR Funds in Accordance
    With Federal Regulations…………………………………………………………….....5

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

Internal Controls ………………………………………………………………..11

Appendixes……………………………………………………………………….13

    A. Schedule of Questioned Costs………………………………………………………13

    B. Auditee Comments and OIG's Evaluation…………………………………….......14




                                2
Background and Objectives
The U.S. Department of Housing and Urban Development (HUD), Office of Block Grant
Assistance, is responsible for the management and oversight of the Community Development Block
Grant Disaster Recovery (CDBG-DR) program. The CDBG-DR program provides disaster
recovery assistance, which helps cities, counties, and States recover from presidentially declared
disasters, especially in low-income areas. The CDBG-DR funding is appropriated by Congress as
a special CDBG appropriation in response to a disaster, and the statutory authority for CDBG-DR
funding is made through individual supplemental appropriations that address specific disasters.
Funding for damages caused by Hurricane Sandy is found in the Disaster Appropriations Act of
2013 (Public Law 113-2). This appropriation has provided the City of New York access to more
than $4.2 billion in disaster assistance. These funds are to be used in the most impacted and
distressed areas for necessary expenses related to disaster relief, long-term recovery and
restoration of infrastructure, and housing and economic revitalization. Each recipient must (1)
address a disaster-related impact (direct or indirect) in a presidentially declared county for the
covered disaster, (2) be a CDBG-eligible activity, and (3) meet a national objective.

On October 29, 2012, Hurricane Sandy made landfall along the eastern seaboard, impacting more
than a dozen States. Over a 48-hour span, the storm caused extensive high winds and rainfall over
the metropolitan area of New York City. The effect of these forces caused power outages,
damaged homes, and destroyed critical public and private infrastructure.

The table below identifies the three allocations made to the City for CDBG-DR-
funded activities.

            According to the Federal Register                    Allocation amount
                      March 5, 2013                               $1,772,820,000
                    November 18, 2013                             $1,447,000,000
                     October 16, 2014                                $994,056,000
           Total funding through October 2014                     $4,213,876,000

The City received an allocation of $42 million in CDBG-DR funds for the administration of
its Business Loan and Grant Program, and approximately $7.9 million of these funds were
disbursed as of March 18, 2015.

One purpose of the Program is to assist storm-impacted, low-capital businesses with loans
or grants to use toward replenishing working capital or inventory. The Program operates on
a first-come, first-served basis and will end when all allocated CDGB-DR funds are used.
All activities funded under the Program must meet at least one of the following HUD
national objectives:

      Low- and moderate-income-area benefit,



                                                 3
       Low- and moderate-income limited clientele (microenterprises),
       Low- and moderate-income job creation and retention, and
       Urgent need.

Program funds can be used for moveable equipment (when no installation is required), inventory,
working capital (such as lease or mortgage payments), marketing costs and quotes, utility bills,
business taxes, payroll for staff, insurance (for example, property and liability insurance or
worker’s compensation), and accounts payable. Program funds are not approved for making
improvements to damaged buildings (renovations or repairs), purchasing fixed assets, or
repaying government loans.1

The City’s Office of Management and Budget, in conjunction with the New York City
Department of Small Business Services, administers the Business Loan and Grant Program. The
New York Business Development Corporation Local Development Company operates the
program as a subrecipient to provide the underwriting, awarding, and servicing of loans and
grants offered through the program. Additionally, New York City Business Solutions, a
component of the Department of Small Business Services, provides intake and application
assistance on behalf of the applicant.

The objectives of the audit were to determine whether the City (1) disbursed CDBG-DR funds for
its Business Loan and Grant Program to assist eligible business owners in accordance with the
guidelines established under its HUD-approved action plan, amendments, and applicable Federal
requirements and (2) maintained a financial management system that adequately safeguarded the
funds and prevented misuse.




1
 The City’s Business Loan and Grant Program Policies and Procedures, Version 2.0, dated December 6, 2013, page
8.



                                                      4
Results of Audit

Finding: The City Did Not Always Disburse CDBG-DR Funds in
Accordance With Federal Regulations
City officials generally approved and denied applications for assistance in accordance with
established guidelines and program requirements. However, the City did not always disburse
CDBG-DR funds for its Business Loan and Grant Program in accordance with guidelines
established under its HUD-approved action plan, amendments, and applicable Federal
requirements. Specifically, City officials disbursed CDBG-DR funds for unsupported
inventory costs and did not identify either the source or application of funds for 8 of 12
voucher drawdowns. Additionally, during a review of applications, we determined that City
officials did not properly account for duplicate assistance when calculating the unmet need of
one applicant. These deficiencies resulted from City officials’ lack of knowledge of Federal
funding regulations, weak administrative and financial management controls that led to
unsupported and ineligible disbursements, and improper maintenance of HUD-reimbursed
vouchers. Therefore, City officials could not assure HUD that $241,000 in CDBG-DR funds
was adequately disbursed for eligible expenses and appropriately assisted qualified businesses.

Unsupported Inventory Costs
City officials disbursed CDBG-DR funds for unsupported inventory purchases. On April 23,
2014, without evidence that inventory damage or loss occurred as a direct result of Hurricane
Sandy, City officials disbursed $206,000 in CDBG-DR funds to the owner of an
undergarment business, via two-party checks, for the purchase of lingerie inventory.
However, insurance documentation disclosed that the business was closed for 5 days and
suffered a business interruption and not an inventory loss. According to the City’s policies
and procedures,2 an eligible loss is defined as a physical loss to moveable equipment or
inventory or an economic loss that was incurred as the direct result of Hurricane Sandy.
Additionally, regulations at 2 CFR (Code of Federal Regulations) Part 225, appendix A,
paragraph (A)(2)(a)(1), states that governmental units are responsible for the efficient and
effective administration of Federal awards through the application of sound management
practice. During the course of the audit, we determined that City officials did not have
sufficient knowledge of requirements that govern the administration of Federal funding or
practice efficient and effective administration of sound management controls. This deficiency
resulted in the expenditure of $206,000 in unsupported CDBG-DR funds.




 2
   The City’s Business Loan and Grant Program Policies and Procedures, Version 2.0, dated December 6, 2013,
 page 4, provides that “eligible loss” means physical loss to moveable equipment and inventory or economic losses
 incurred on or after October 27, 2012, and resulting directly or indirectly from Hurricane Sandy.




                                                        5
Source and Application of Federal Funds Not Always Identified
City officials did not always identify the source and application of funds on voucher
drawdowns. Of 12 voucher drawdowns reviewed, 4 did not identify the specific funding
source (such as grant or loan) and 8 did not show where funds were spent or applied (table 1).
Additionally, the total for these eight voucher drawdowns was approximately $1.2 million;
however, supporting invoices amounted to $1.36 million. City officials agreed that these totals
did not match and stated that due to the flexibility of the Program, awardees were not required
to provide a breakout of expenditures or identify the source of funds (loan versus grant). City
officials further stated that a particular invoice may have been only partially covered by
CDBG-DR funds; thus, a breakout of costs would place an additional burden on a business,
especially during disaster recovery. Guidance in 24 CFR 85.20(b)(2) requires grantees and
subgrantees to maintain records adequately identifying and reconciling data to the source and
application of funds, awards and authorizations, obligations, unobligated balances, assets,
liabilities, outlays or expenditures, and income. This reconciliation is necessary to ensure that
the same source documentation is not used to make multiple drawdowns of CDBG-DR funds.
Further, the source and application of funds are to be properly identified, and the specific
supporting documentation should agree with the amount and type of drawdown (grant or loan).


               Voucher   Supporting  Source of funds
      Voucher drawdown documentation (grant or loan)                        Application of
Count number   amount     amount        identified                         funds identified
  1   252342   $550,000   $574,317          No                                    No
  2   255047    $60,000    $65,427                                                No
  3   256158   $210,000   $282,087          No                                    No
  4   256549    $36,688    $37,115                                                No
  5   255672    $40,000    $43,880                                                No
  6   251308   $100,514   $111,927          No                                    No
  7   265585    $29,041    $30,682                                                No
  8   265584   $185,739   $213,074          No                                    No
                                      4 instances in                        8 instances in
                                        which the                             which the
      Totals: $1,211,982 $1,358,509  source of funds                        application of
                                         was not                            funds was not
                                        identified                            identified

Duplicate Assistance Not Properly Accounted for When Calculating Unmet Need
City officials did not account for duplicate assistance when calculating the unmet need of one
program applicant. Specifically, they did not deduct $35,000 in duplicate assistance, consisting
of a $25,000 loan and a $10,000 grant, from the unmet need calculation for a pharmacy business.
The $25,000 loan and $10,000 grant were provided by the New York Business Development
Corporation Local Development Company. According to City officials, to calculate the unmet
need of the pharmacy business, which had experienced a change in cash flow as a result of the
storm, the $35,000 in duplicate assistance was added to the pharmacy’s total working capital



                                                 6
losses to reflect a positive baseline. Officials further stated that if the $35,000 in duplicate
assistance was not included in the pharmacy’s working capital loss, the unmet need calculation
would not have accurately portrayed the pharmacy’s full losses. However, the City’s policies
and procedures3 require the deduction of all duplicate assistance from the unmet need calculation.
Further, 76 FR (Federal Register) 71064 (November 16, 2011) states that to calculate a CDBG-
DR award, all assistance found to be duplicative is subtracted to obtain the maximum potential
award amount or the unmet need. Therefore, the $35,000 in duplicate assistance was ineligible.
Approval and Denial of Applications in Accordance With Program Requirements
City officials generally approved and denied business applications for assistance in
accordance with Program requirements. We reviewed 10 business applicants, consisting of 1
denied and 9 approved businesses. This review disclosed that in applicants’ files, City
officials had documented the applicant’s core eligibility (such as for-profit or small business),
location of loss, damage or interruption the business realized, and Federal debarment
verification and that the business was not a private utility. Additionally, all 10 businesses in
our sample had provided adequate proof of their loss of inventory or moveable equipment or
business interruption. Further, City officials properly documented the applicants’ need for
inventory, moveable equipment, or working capital and unmet need determination. The
business that was denied assistance suffered damages as a result of the storm. However, the
denial occurred because one of the two owners left the business and the remaining owner
applied for disaster assistance to start a new business in the same location. Appropriately,
City officials denied the applicant because the new business did not exist before Hurricane
Sandy.

Conclusion
City officials did not always disburse CDBG-DR funds and maintain a financial management
system that adequately safeguarded the funds in accordance with Federal regulations.
Specifically, they disbursed CDBG-DR funds for unsupported inventory costs, did not identify
either the source or application of funds or both for voucher drawdowns, and did not properly
account for duplicate assistance. However, City officials generally approved and denied
business applications for assistance in accordance with program requirements. The
deficiencies were a result of City officials’ lack of knowledge of Federal regulations and
weaknesses in the City’s administrative and financial management controls. These conditions
led to questionable disbursements and improper maintenance of HUD-reimbursed vouchers.
As a result, City officials could not assure HUD that $241,000 in CDBG-DR funds was
disbursed for eligible, reasonable, and necessary expenses and that the funds assisted eligible
businesses in compliance with Program requirements.




 3
  The City’s Business Loan and Grant Program Policies and Procedures, Version 2.0, dated December 6, 2013,
 page 5, provides that “unmet need” means the losses to moveable equipment, inventory, and working capital
 suffered by the applicant as a direct or indirect result of Hurricane Sandy less all duplicative assistance sources.




                                                           7
Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs instruct City
officials to

      1A.    Provide documentation to justify the $206,000 in CDBG-DR funds disbursed for
             unsupported inventory purchases. Any amounts not supported should be repaid
             from non-Federal funds.
      1B.    Strengthen controls over disbursements to ensure that supporting records
             adequately identify the source, application, and use of funds for all financially
             assisted activities.

      1C.    Reimburse HUD from non-Federal funds the $35,000 in CDBG-DR funds
             disbursed for ineligible duplicate assistance.




                                               8
Scope and Methodology
The review generally covered the period October 29, 2012, through July 31, 2014, and was
extended as needed. Audit fieldwork was performed onsite from August 2014 through
April 2015 at the City’s office located at 255 Greenwich Street, New York, NY.

To accomplish our audit objectives, we

        Reviewed applicable laws, regulations, HUD handbooks, Federal Registers, Code of
         Federal Regulations requirements, public laws, and the City’s policies and procedures for
         the Business Loan and Grant Program.
        Obtained an understanding of the City’s disbursement and financial controls.
        Interviewed officials of the City and the Department of Small Business Services.
        Reviewed the City’s action plan and amendments.
        Reviewed the grant agreement between HUD and the City.
        Reviewed the memorandum of understanding between the City and the Department of
         Small Business Services and the subrecipient agreements between the City and the New
         York City Economic Development Corporation, the Department of Small Business
         Services, and the New York Business Development Corporation.

        Evaluated the City’s internal controls and reviewed application and disbursement files
         to identify potential weaknesses related to our objectives.
        Reviewed data in HUD’s Disaster Recovery Grant Reporting system.4
        Reviewed HUD monitoring reports.
        Reviewed the City’s financial statements for the year ending in June 2013.

City officials processed 48 applications during the audit period, October 29, 2012, to July 31,
2014, consisting of 9 denied and 39 approved applications. We selected for review a
nonstatistical sample of 10 applications, consisting of 1 denied and 9 approved applications,
which represented approximately 21 percent (10/48) of the application universe. City officials
disbursed approximately $2.4 million in program funds during the period October 29, 2012, to
October 14, 2014. We selected for review a nonstatistical sample of 12 voucher drawdowns



 4
  The Disaster Recovery Grant Reporting system was developed by HUD’s Office of Community Planning and
 Development for the CDBG-DR program and other special appropriations. Data from the system are used by
 HUD staff to review activities funded under these programs and for required quarterly reports to Congress.




                                                      9
totaling approximately $1.4 million, which represented approximately 59 percent ($1.4
million/$2.4 million) of the total disbursement universe. The voucher drawdowns tested
consisted of 10 vouchers associated with the 9 approved applications and 2 vouchers related to
program administrative costs.

While we used the data obtained from HUD’s Disaster Recovery Grant Reporting system for
informational purposes, our assessment of the reliability of the data in the system was limited to
the data reviewed; therefore, we did not assess the reliability of this system. 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 finding
and conclusion based on our audit objectives.




                                                10
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 has
     implemented to reasonably ensure that a program meets its objectives.

    Compliance with laws and regulations – Policies and procedures that management
     has implemented to reasonably ensure that the use of funds is consistent with laws
     and regulations.

    Safeguarding resources – Policies and procedures that management has
     implemented to reasonably ensure that resources are safeguarded against waste, loss,
     and misuse.

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

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.



                                                  11
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

    City officials did not have adequate controls over program operations, compliance with
     laws and regulations, and safeguarding resources when they did not ensure that CDBG-DR
     funds were disbursed for eligible, reasonable, and necessary expenses and that the funds
     assisted eligible businesses in compliance with HUD rules and regulations and their own
     policies and procedures (see finding).




                                                12
Appendixes

Appendix A
                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A                                $206,000
                          1C             $ 35,000


                        Totals            $35,000           $206,000



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.




                                             13
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                              14
             Auditee Comments
Ref to OIG
Evaluation




Comment 1




                           15
Ref to OIG   Auditee Comments
Evaluation




Comment 1




Comment 2




Comment 1




Comment 3




                           16
Ref to OIG   Auditee Comments
Evaluation




Comment 3




                           17
Ref to OIG   Auditee Comments
Evaluation




Comment 3




Comment 4




                           18
Ref to OIG   Auditee Comments
Evaluation




Comment 4




                           19
Ref to OIG   Auditee Comments
Evaluation


Comment 4




                           20
Ref to OIG   Auditee Comments
Evaluation




Comment 4




Comment 5




                           21
                           OIG Evaluation of Auditee Comments


Comment 1     City officials disagreed that the questionable inventory costs were ineligible,
              stating that they provided proper documentation to support the $210,000 in
              disbursement made to the pharmacy. The officials contended that lost inventory
              was not the basis for an unmet need determination but that the award was issued
              due to the business’s unmet need in working capital due to economic loss.
              Further, City officials stated that the City’s policies and procedures required that a
              business satisfy core eligibility requirements, including proof of loss, damage, or
              interruption, for its expenses to be necessary and reasonable. Since documentation
              showed that lost inventory was part of the basis for an unmet need determination
              for the pharmacy business, City officials provided proof of inventory loss and an
              explanation that the pharmacy business used a cash basis accounting method, and,
              therefore, there was no accounts payable balance on its tax returns. As a result,
              we have removed the questionable inventory costs of $210,000 from the final
              audit report.

Comment 2     City officials also disagreed that the questionable inventory costs of $206,000 in
              disbursement made to the undergarment business were unsupported. They
              contended that the undergarment business suffered economic losses in the form of
              business interruption, which is supported by the insurance documentation. Our
              review disclosed that the undergarment business was closed for 5 days due to the
              lack of power and did not provide evidence of loss of inventory. Since the
              undergarment business did not have the inventory needs and the award was issued
              to the business’ unmet need in working capital due to economic loss, the
              $206,000 in inventory costs was unsupported.

Comment 3 City officials disagreed that the source and application of Federal funds were not
          always identified and stated that this mismatch was not a problem. According to
          the officials, receipts in excess of an award demonstrated that a company had
          more than enough eligible expenses. Also, City officials stated that awardees
          were not required to provide additional documentation regarding the breakout of
          invoices to identify the source of funds because this requirement would place
          additional burden on a business, especially in the context of disaster recovery.
          The City further asserted that DRGR system did not require this level of detail in
          drawdown. However, the mismatch was a problem because City officials could
          use the same source documentation to make multiple drawdowns of CDBG-DR
          funds. In addition, if City officials found that some of the expenses were not
          supported, it was important to know which source of funds (grant or loan) the
          business should repay first. Receipts in excess of the award amount are a problem
          when City officials do not keep records to identify which portions of the expenses
          were paid with Federal funds.




                                               22
            Our review noted that City officials identified the breakdown of loan and grant
            amounts for a voucher in their files. However, the breakdown did not identify
            which portion of the expenses was associated with grant or loan funds and which
            was paid with Federal funds. According to 24 CFR 85.20(b)(2), grantees and
            subgrantees are required to maintain records that adequately identify the source
            and application of funds provided for financially assisted activities. Further, we
            have reviewed the exhibit documentation provided by City officials since the
            onsite audit work and found that the documentation identified the breakdown of
            loan and grant amounts but the breakdown did not identify which portion of the
            expenses was associated with grant or loan funds. The same documentation was
            provided during the audit. Therefore, the source and application of Federal funds
            were not always identified as City officials did not properly maintain and
            reconcile the HUD-reimbursed vouchers.

Comment 4   City officials disagreed that duplicate assistance was not properly accounted for
            when calculating unmet need for one business. They stated that when a business
            had a change in cash flow from the prestorm to poststorm periods, the cash flow
            of the business was normalized as part of their underwriting procedures, adjusting
            for any grants and loans the business received after Hurricane Sandy. Therefore,
            the duplicative assistance of $35,000 was added to the total working capital losses
            so that the business’ unmet need would accurately portray its full losses.
            According to the City’s Business Loan and Grant Program Policies and
            Procedures, Version 2.0, dated December 6, 2013, page 5, the unmet need means
            the losses to moveable equipment, inventory, and working capital suffered by the
            applicant as a direct or indirect result of Hurricane Sandy less all duplicative
            assistance sources. Further, 76 FR71064 (November 16, 2011) states that to
            calculate a CDBG-DR award, all assistance found to be duplicative is subtracted
            to obtain the maximum potential award amount or the unmet need. Therefore, the
            $35,000 in duplicate assistance was ineligible.
Comment 5   City officials disagreed with the recommendations to pay back CDBG-DR funds
            because they believed they have provided adequate supporting documentation for
            eligible expenses in accordance with the City’s policies and procedures for the
            program. City officials also cited their continued efforts to strengthen controls by
            revising applicable policies and procedures as needed and agreed that applications
            for assistance were generally approved and denied in accordance with program
            requirements. During our audit review, we were provided six updated versions of
            the City’s policies and procedures for the program; thus, the officials’ continual
            efforts are evident. It is our intention that this report will assist the officials in
            fully strengthening controls to assure HUD that the CDBG-DR funds are
            disbursed for eligible, reasonable, and necessary expenses and that the funds
            assisted eligible businesses.




                                              23