oversight

    The Lower Manhattan Development
       Corporation, New York, NY
        Community Development Block Grant Disaster
               Recovery Assistance Funds




Office of Audit, Region 2      Audit Report Number: 2015-NY-1008
New York – New Jersey                                June 26, 2015
To:            Marion Mollegen McFadden
               Deputy Assistant Secretary for Grant Programs, DG

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

Subject:       The Lower Manhattan Development Corporation, New York, NY, Generally
               Administered CDBG Disaster Recovery Assistance Funds in Accordance With
               HUD 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 Lower Manhattan Development Corporation’s
(LMDC) administration of Community Development Block Grant (CDBG) Disaster Recovery
Assistance funds covering the period April 1, 2013 through March 31, 2014. The review was
performed in response to a congressional mandate that HUD OIG continuously audit LMDC’s
administration of the $2.783 billion in Disaster Recovery Assistance funds awarded to the State
of New York in the aftermath of the September 11, 2001, terrorist attacks on the World Trade
Center in New York City.
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 OIG to 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-1008
                   Date: June 26, 2015

                   The Lower Manhattan Development Corporation, New York, NY, Generally
                   Administered CDBG Disaster Recovery Assistance Funds in Accordance
                   With HUD Regulations



Highlights

What We Audited and Why
We performed the 19th review of the Lower Manhattan Development Corporation’s (LMDC)
administration of the $2.783 billion in Community Development Block Grant (CDBG) Disaster
Recovery Assistance funds awarded to the State of New York in the aftermath of the September
11, 2001, terrorist attacks on the World Trade Center in New York City. The objective of the
audit was to determine whether LMDC disbursed CDBG Disaster Recovery Assistance funds in
accordance with the guidelines established under the U.S. Department of Housing and Urban
Development (HUD)-approved partial action plans for the (1) Lower Manhattan Housing, (2)
Fulton Corridor Revitalization, (3) Lower Manhattan Public Information Plan, and (4) Planning
and Administration programs.

What We Found
LMDC generally disbursed CDBG Disaster Recovery Assistance funds in accordance with the
guidelines established under the HUD-approved partial action plans and applicable laws and
regulations for the (1) Lower Manhattan Housing, (2) Fulton Corridor Revitalization, (3) Lower
Manhattan Public Information Plan, and (4) Planning and Administration programs.

What We Recommend
There are no recommendations.
Table of Contents
Background and Objective......................................................................................3

Results of Audit
         Finding: LMDC Generally Administered CDBG Disaster Recovery Assistance
         Funds in Accordance With HUD Regulations……………………………....................5

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

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

Appendixes
         A. Auditee Comments and OIG’s Evaluation ............................................................. 10

         B. Schedule of Disbursements as of March 31, 2014 .................................................. 11




                                                           2
Background and Objective
The Lower Manhattan Development Corporation (LMDC) was created in December 2001 as a
subsidiary of the Empire State Development Corporation to function as a joint city-State
development corporation. A 16-member board of directors, appointed equally by the governor of
New York and the mayor of New York City, oversees LMDC’s affairs. The Empire State
Development Corporation performs all treasury functions for LMDC.
The State of New York designated LMDC to administer $2.783 billion1 of the $3.483 billion2 in
Community Development Block Grant (CDBG) Disaster Recovery Assistance funds appropriated
by Congress in the aftermath of the September 11, 2001, terrorist attacks on the World Trade Center
to assist with the recovery and revitalization of Lower Manhattan. Planned expenditures of Disaster
Recovery Assistance funds are documented in action plans that receive public comment and are
approved by the U.S. Department of Housing and Urban Development (HUD). As of March 31,
2014, HUD had approved 15 partial action plans and multiple amendments that allocated the $2.783
billion to various programs and activities (see appendix B for amounts by program), and LMDC had
disbursed approximately $2.344 billion, or 84 percent, of the $2.783 billion appropriated.
During this audit, we reviewed disbursements related to the following programs:
Lower Manhattan Housing: As of March 31, 2014, HUD had approved $54 million to fund the
Lower Manhattan Affordable Housing program, which consists of five projects: (1) Site 5B
Tribeca, (2) Chinatown-Lower East Side Acquisition and Preservation Program (Chinatown-LES
Program), (3) Masaryk Towers, (4) Knickerbocker Village, and (5) Affordable Housing. This
program will create new affordable units, preserve and rehabilitate existing affordable housing
units, acquire new land or properties for affordable housing, and create incentives for the private
sector to develop affordable housing. Specifically, $16 million was approved for the preservation
and rehabilitation of 160 or more units through the Chinatown-LES Program. However, during our
audit period, only $2 million was disbursed to facilitate the acquisition and rehabilitation of
privately owned properties in Chinatown and the Lower East Side.

Fulton Corridor Revitalization: As of March 31, 2014, HUD had approved $35 million to fund the
Fulton Street Corridor Revitalization: Incentive and Streetscape and Open Space Program
(Fulton Corridor Revitalization). LMDC funds would provide needed public investments in
streetscape improvements and public open spaces as well as incentives to spur private
rehabilitation and renovation of retail components in the Fulton Street area. There are three core
components of Fulton Corridor Revitalization: (1) Fulton Corridor Open Spaces, (2) the Fulton
Corridor Grant Program, and (3) Fulton Corridor Streetscape and Street Wall Improvements.




1
    This amount was funded by two grants, B-02-DW-36-0001 for $2 billion and B-02-DW-36-0002 for $783 million.
2
    The Empire State Development Corporation administers the remaining $700 million.



                                                        3
Lower Manhattan Public Information Plan: As of March 31, 2014, HUD had approved $2.57
million to deliver information on the rebuilding of Lower Manhattan. The centerpiece of the
program was a comprehensive Web site, www.LowerManhattan.info, which offered regularly
updated news and information for area residents, workers, and visitors. Topics included
rebuilding plans and progress; transportation and transit; health, safety, and security; downtown
business; community involvement opportunities; “things to do”; and Lower Manhattan history.
The Lower Manhattan Information Plan program also integrated construction information into its
Web site.
Planning and Administration: As of March 31, 2014, HUD had approved $115.24 million in
CDBG funds covering broad planning and administration activities related to the recovery,
remembrance, and rebuilding efforts in Lower Manhattan (defined by LMDC as the entire area
of Manhattan south of Houston Street). Administration activities include extensive public
information and coordination activities relating to LMDC planning work and maintenance of an
interactive Web site, www.RenewNYC.com.
HUD has authorized the use of up to 5 percent of the total grant to LMDC for costs associated
with planning and administration activities, which include costs for overhead, personnel, and
consultants.
Our audit objective was to determine whether LMDC disbursed CDBG Disaster Recovery
Assistance funds in accordance with the guidelines established under HUD-approved partial
action plans for the (1) Lower Manhattan Housing, (2) Fulton Corridor Revitalization, (3) Lower
Manhattan Public Information Plan, and (4) Planning and Administration programs.




                                                4
Results of Audit

Finding: LMDC Generally Administered CDBG Disaster Recovery
Assistance Funds in Accordance With HUD Regulations
LMDC officials generally disbursed CDBG Disaster Recovery Assistance funds in accordance
with the guidelines established under the HUD-approved partial action plans, subrecipient
agreements, and applicable laws and regulations for the Lower Manhattan Housing, Fulton
Corridor Revitalization, Lower Manhattan Public Information Plan, and Planning and
Administration programs.

Funds Disbursed in Compliance With HUD-Approved Action Plan and Federal
Requirements
For the programs tested, LMDC generally disbursed CDBG Disaster Recovery Assistance funds
in accordance with the HUD-approved partial action plans, subrecipient agreements, and
applicable laws and regulations. We tested approximately $6.57 million of the $11.21 million
disbursed under the Lower Manhattan Housing, Fulton Corridor Revitalization, Lower
Manhattan Public Information Plan, and Planning and Administration programs. We found no
material deficiencies.

Specifically, for the items tested, LMDC disbursed funds to subrecipients and vendors for
eligible, reasonable, and necessary expenses that complied with the HUD-approved partial action
plans, subrecipients’ agreements, and applicable laws and regulations. LMDC officials
continuously monitored subrecipient performance against goals and performance standards
prescribed in subrecipient agreements. Monthly progress reports and adequate support
documentation for cost reimbursements must be maintained for each subrecipient project. Audit
fieldwork disclosed that LMDC officials prepared monthly, bimonthly, and quarterly monitoring
reports and maintained adequate support documentation for each of their projects. Additionally,
these reports documented communications and identified problems and resolutions.

Conclusion
For the items tested during our review, LMDC officials generally administered and disbursed
CDBG Disaster Recovery Assistance funds in accordance with the established guidelines under
HUD-approved partial action plans, subrecipient agreements, and applicable laws and
regulations for the Lower Manhattan Housing, Fulton Corridor Revitalization, Lower Manhattan
Public Information Plan, and Planning and Administration programs.

Recommendations
There are no recommendations.




                                               5
The Lower Manhattan Housing program had one drawdown, of which we reviewed 100 percent.

For the disbursements under the Fulton Corridor Revitalization, Lower Manhattan Public
Information Plan, and Planning and Administration programs, we reviewed the largest dollar
amount drawn down and disbursed for each program.

For informational purposes, we used the data obtained from HUD’s DRGR system. The
assessment of this reliability was limited to the data we reviewed and reconciled to LMDC
records. Therefore, we did not assess the reliability of this system.
We performed our audit fieldwork from January through May 2015 at the LMDC office located
in Lower Manhattan and the LMDC parent company, Empire State Development Corporation,
located in Midtown Manhattan.

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.




                                                7
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   Effectiveness and efficiency of operations,
•   Reliability of financial reporting, and
•   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

Relevant Internal Controls

We determined that the following internal controls were relevant to our audit objective:

•   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 resource use 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.
We evaluated internal controls related to the audit objectives in accordance with generally
accepted government auditing standards. Our evaluation of internal controls was not designed to
provide assurance regarding the effectiveness of the internal control structure as a whole.


                                                  8
Accordingly, we do not express an opinion on the effectiveness of LMDC’s internal control as a
whole.




                                               9
Appendix A
             Auditee Comments and OIG’s Evaluation


                              Auditee Comments




                               10