oversight

County Officials Did Not Always Administer the County's CDBG Program in Accordance With Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-08-11.

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

                      Hudson County, NJ
        Community Development Block Grant Program




Office of Audit, Region 2      Audit Report Number: 2015-NY-1009
New York-New Jersey                               August 11, 2015
To:            Anne Marie Uebbing
               Director, Office of Community Planning and Development, 2FD

               //SIGNED//
From:          Kimberly Greene
               Regional Inspector General for Audit, 2AGA
Subject:       County Officials Did Not Always Administer the County’s CDBG Program in
               Accordance With Program Requirements


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) results of our review of Hudson County, NJ’s administration of its 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
212-542-7984.
                   Audit Report Number: 2015-NY-1009
                   Date: August 11, 2015
                   County Officials Did Not Always Administer the County’s CDBG
                   Program in Accordance With Program Requirements



Highlights

What We Audited and Why
We audited Hudson County, NJ’s administration of its Community Development Block Grant
(CDBG) program based on a risk analysis performed by the Office of Inspector General (OIG).
This analysis considered the amount of funding awarded to CDBG grantees administered by the
U.S. Department of Housing and Urban Development’s (HUD) Newark, NJ, field office, the risk
score assigned by HUD, and prior OIG audits. The objective of the audit was to determine
whether County officials had established and implemented controls to ensure that the County
administered its CDBG program in accordance with program requirements.

What We Found
Hudson County’s CDBG program had weaknesses in its administrative and financial
management controls, which lessened assurance that it administered the program in accordance
with program requirements. Specifically, (1) County officials were inconsistent in charging
planning and administration costs to the program, (2) program delivery costs for rehabilitation
assistance were inflated or unnecessary in proportion to the actual rehabilitation assistance
provided, (3) CDBG funds were advanced to another Federal agency, (4) CDBG funds were used
to administer a subgrantee’s Emergency Solutions Grant program, and (5) deficiencies were
noted in the administration of the subgrantee agreements. These conditions occurred because of
County officials’ inadequate controls over program administration and their misinterpretation of
program requirements. These shortcomings led to ineligible and unreasonable costs being
charged to the CDBG program as well as unsupported reimbursements to subgrantees. As a
result, County officials could not assure HUD that they disbursed $362,912 in CDBG funds for
eligible, reasonable, and necessary program costs.

What We Recommend
We recommend that County officials reimburse HUD (1) $25,107 for ineligible planning and
administration costs charged to the CDBG program, (2) $127,380 for inflated or unreasonable
housing rehabilitation program delivery costs, and (3) $18,426 for costs associated with
ineligible homeowners’ housing rehabilitation assistance. In addition, County officials must
provide documentation to justify $39,999 in unsupported housing rehabilitation assistance
reimbursed to the subgrantee and $152,000 in unsupported reimbursements to subgrantees or
reimburse the CDBG program those amounts.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: County Officials Did Not Always Administer the County’s CDBG
         Program in Accordance With Program Requirements ................................................. 4

Scope and Methodology .........................................................................................10

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

Appendixes ..............................................................................................................13
         A. Schedule of Questioned Costs .................................................................................. 13

         B. Auditee Comments and OIG’s Evaluation ............................................................. 14




                                                             2
Background and Objective
The Community Development Block Grant (CDBG) is a flexible program that provides
communities with resources to address a wide range of unique community development needs. The
CDBG program does this by providing annual grants, on a formula basis, to 1,209 general units of
local government and States. Hudson County, NJ, is a recipient of CDBG funding, which it uses to
provide decent housing and a suitable living environment for County residents and expand
economic opportunities, principally for low- and moderate-income persons. As a CDBG grantee,
Hudson County also carries out activities that prevent or eliminate slums or blight and meet other
community development needs having a particular urgency because existing conditions pose a
serious and immediate threat to the health or welfare of the community and other financial resources
are not available to meet such needs. A requirement of the CDBG program is that funds be used for
activities that meet at least one of the national objectives of the CDBG program. To receive its
annual CDBG entitlement grants, Hudson County must submit a consolidated plan that provides its
goals for the program to the U.S. Department of Housing and Urban Development (HUD) for
approval.
The County executive, together with a nine-member board of chosen freeholders, governs
Hudson County. HUD awarded the County $2.68 and $3.19 million in CDBG program funding
during program years 2012 and 2013, respectively. The County received a score of 51 in HUD’s
2014 risk assessment, which ranked it 17th among the 55 CDBG grantees administered by the
HUD Newark, NJ, field office. The County’s Division of Housing and Community
Development administers the CDBG program. The CDBG program provides funding to the
County to carry out a wide range of community development activities directed toward
revitalizing neighborhoods, economic development, and providing improved community
facilities and services.
The objective of the audit was to determine whether County officials had established and
implemented controls to ensure that the County administered its CDBG program in accordance
with program requirements.




                                                 3
Results of Audit

Finding: County Officials Did Not Always Administer the County’s
CDBG Program in Accordance With Program Requirements
Hudson County, NJ’s, CDBG program had financial and administrative control weaknesses, and
deficiencies existed in the administration of its subgrantee agreement, which lessened assurance
that the program was administered in accordance with program requirements. Specifically, (1)
County officials were inconsistent in charging planning and administration costs to the program,
(2) program delivery costs for rehabilitation assistance were inflated or unnecessary in
proportion to the actual rehabilitation assistance provided, (3) CDBG funds were advanced to
another Federal agency, (4) CDBG funds were used to administer the subgrantee’s Emergency
Solutions Grant (ESG) program, and (5) deficiencies were noted in the administration of the
subgrantee agreements. We attributed these deficiencies to inadequate controls over program
administration and County officials’ misinterpretation of program requirements. As a result,
County officials could not assure HUD that the County disbursed $362,912 in CDBG funds for
eligible, reasonable, and necessary program costs.

The County’s Policy for Charging Planning and Administration Costs to the CDBG
Program Was Inconsistent
A review of time distribution sheets and payroll records found that the County’s policy for
charging salary costs to the CDBG program was not consistent. During the period January
through June 2013, an employee worked solely on the ESG program for 13 consecutive pay
periods. Our review of time distribution sheets and payroll records showed that 100 percent of
this employee’s salary was allocated and charged to the ESG program during the period January
11 through March 22, 2013. However, time distribution sheets showed that during the period
April through July 2013, 100 percent of the salary costs ($25,107) for this same employee were
allocated to the ESG program but review of the payroll records showed that it was charged to the
CDBG program. Office of Community Planning and Development (CPD) Notice CPD 13-07,
section III.A.3, states that the grantee’s records should clearly show that there is consistent
treatment of like costs under similar circumstances. The Notice further states that as a general
rule, neither the statute nor the regulations allow CDBG funds to be used to pay program
administration costs solely for the administration of the ESG program, the Supportive Housing
Program, or the Housing Opportunities for Persons with AIDS program.

We attributed this deficiency to weaknesses in the County’s program administrative controls and
County officials’ misinterpretation of the program requirements. County officials stated that
they interpreted the use of “solely” in Notice CPD 13-07 as the staff person’s regular
responsibilities over the course of the year. Further, the County’s financial records and




                                                4
Integrated Disbursement and Information System (IDIS)1 reports showed that the officials drew
down funds for salaries monthly. Regulations at 2 CFR (Code of Federal Regulations) Part 225,
appendix B, paragraphs (8)(h)(5)(a) and (c), state that personnel activity reports must reflect an
after-the-fact distribution of the actual activity and must be prepared monthly. Therefore,
County officials should have charged the appropriate program monthly. As a result, the $25,107
in salary costs was an ineligible cost.

Housing Rehabilitation Administration Costs Were Not Reasonable
County officials charged the CDBG program $127,380 in rehabilitation administration costs
(program delivery) that were primarily for salaries and fringe benefits. Specifically, County
officials charged the CDBG program $76,284 during the period April 2013 to April 2014 and an
additional $51,096 during the period April to December 2014. However, the total charges for
program delivery costs were not reasonable, economical, or efficient in proportion to the level of
actual rehabilitation assistance costs, which in this case, were for grants to homeowners for
various rehabilitation work. For instance, County officials funded $200,000 for a housing
rehabilitation assistance activity in August 2010; however, for the past 4 years and as of
September 2014, only $11,740 was used for actual rehabilitation assistance. As a result, the
rehabilitation activity was not completed and did not meet a CDBG national objective or a final
cost objective. County officials stated that while only one homeowner was assisted under CDBG
rehabilitation activity, several units were assisted under the County’s HOME Investment
Partnerships Program. Since the HOME program was not included in our audit scope, we did
not determine whether the same HOME program costs were also charged to the CDBG program.
Further, County officials stated that CDBG provided funding to a subgrantee, which resulted in
the rehabilitation of six units. However, County officials were not involved in administering this
rehabilitation activity because it was carried out by a subgrantee.
We attributed this condition to weaknesses in administrative management controls. In
accordance with Notice CPD 13-07, the incomplete activity would most likely be determined
ineligible, and the staff costs would be disallowed or possibly considered as general
administrative costs. When these costs are assigned as planning and administrative costs, the
grantee’s obligations may exceed the 20 percent program administration cost limit. In addition,
guidance at 2 CFR Part 225, appendix A, paragraph (C)(1)(a), states that to be allowable under
Federal awards, costs must be necessary and reasonable for proper and efficient performance and
administration of Federal awards. Therefore, the $127,380 in rehabilitation administration costs
($76,284 + $51,096) was ineligible because it was associated with an incomplete activity. If the
staff costs were considered general administrative costs, the County would exceed its 20 percent
cap for program administration because County officials had already allocated $546,604 for
planning and administration costs, which was 20 percent of the 2012 grant.




1
 IDIS is a nationwide database that provides HUD with current information regarding program activities and is the
drawdown and reporting system for several programs, including the CDBG program.



                                                         5
As explained above, a homeowners’ rehabilitation assistance activity that was funded in August
2010 was not completed. However, County officials funded similar activities for $100,000 and
$79,881, respectively, during program years 2013 and 2014. As a result, the County lacked
assurance that funded activities would generate the intended benefits. County officials stated
that they did not have adequate staff to carry out homeowners’ rehabilitation assistance activities
and did not receive applications from the homeowners seeking rehabilitaiton assistance.
Therefore, County officials should not have funded a project that was not ready to move forward.
Further, County officials drew down $48,740 under a 2010 funded homeowner rehabilitation
activity, but $37,000 was used to reimburse another subgrantee. As a result, the County could
not ensure that accomplishments and disbursements were accurately reflected in IDIS.

CDBG Funds Were Provided to Another Federal Agency
Based on a review of documents supporting program income and discussions with County
officials, the County received $50,000 from the Environmental Protection Agency (EPA).
County officials stated that they advanced CDBG funds to fund management services
(administrative costs) for this EPA grant. Regulations at 2 CFR, Part 225, appendix A,
paragraph C(3)(c), state that any cost allocable to a particular Federal award or cost objective
may not be charged to other Federal awards to overcome fund deficiencies, avoid restrictions
imposed by law or terms of the Federal awards, or for any other reason. We attributed this
deficiency to the County’s weaknesses in administrative and financial management controls. As
a result, County officials could not assure HUD that the County spent CDBG funds in
accordance with this program requirement.

CDBG Funds Were Used To Administer the Subgrantee’s ESG Program
A review of 2013 documents supporting program income noted that County officials used
CDBG funds to administer the ESG program for the City of Bayonne, one of the County’s
subgrantees. However, County officials stated that the City of Bayonne did not have the
capacity to administer the ESG program. In July 2013, the City of Bayonne reimbursed $14,787
to the County. County officials could not explain why their CDBG funds were used since the
City of Bayonne received CDBG funds from HUD directly. Notice CPD 13-07, section III.A.3,
states that as a general rule, neither the statute nor the regulations allow CDBG funds to be used
to pay program administration costs solely for the administration of the ESG program. We
attributed this condition to weaknesses in program administration. As a result, County officials
could not ensure that CDBG funds were used in accordance with program requirements.

Weaknesses Were Noted in the Administration of Subgrantee Agreements
Unsupported Disbursements
County officials reimbursed a subgrantee, the Town of Secaucus, NJ, $60,000 for senior citizen
housing rehabilitation activity costs without obtaining adequate supporting documents and
ensuring that the subgrantee complied with program requirements. Specifically, a review of
eight homeowners’ files noted that the subgrantee provided $13,334 to two homeowners who
were not eligible and failed to seek repayment of $6,667 in accordance with the County’s policy.
Regulatory guidance at 24 CFR 85.20(b)(6) states that accounting records must be supported by
source documents. In addition, guidance at 24 CFR 570.501(b) states that the grantee is
responsible for ensuring that CDBG funds are used in accordance with the program requirements


                                                 6
and the use of a subgrantee does not relieve the grantee of this responsibility. We attributed
these deficiencies to a lack of oversight to ensure that program requirements were met.
A review of homeowners’ files noted issues with three of the following cases:

         The subgrantee provided CDBG funding of $6,667 to a homeowner who was an
          employee of the subgrantee and did not qualify as a senior citizen. As outlined in 24
          CFR 570.611, providing assistance to an employee creates a conflict of interest.
          County officials, however, stated that providing assistance to the subgrantee’s
          employee was not a conflict of interest, and the activity was not coded as a program
          for the senior citizen housing rehabilitation activity. However, our review of
          supporting documents as well as seven other homeowners’ files noted that the activity
          was for a senior citizen housing rehabilitation activity. As a result, we considered
          $6,667 to be an ineligible cost.

          The subgrantee provided CDBG funding of $6,667 to a homeowner whose income
           was under-calculated because the household consisted of two individuals but only one
           individual’s income was included. However, after our inquiry, County officials and
           the subgrantee concluded that the homeowner was ineligible and they would seek
           repayment to reimburse the County. Subsequently, County officials provided a
           document to support that $1,575 was remitted to HUD. As a result, County officials
           will have to remit remaining $5,092.

          The subgrantee provided CDBG funding of $6,667 to a homeowner, but County
           officials failed to ensure that the subgrantee recovered housing rehabilitation
           assistance in accordance with the County’s policy after one homeowner’s estate sold
           the property within 2 years after the funding was provided. The County’s policy
           requires repayment if the property is sold within 2 years after the funding was
           provided. After our inquiry, County officials agreed and stated that the subgrantee
           would repay the County.

The total amount of $18,426 ($6,667+$5,092+$6,667) was erroneously provided to ineligible
recipients. Specifically, two homeowners were not eligible, and in the other case, funds for
rehabilitation assistance were not recovered in accordance with the County’s policy. The
remaining $39,999 ($60,000 - $18,426-$1,575) was unsupported because County officials did
not obtain supporting documents. These documents included agreements between the subgrantee
and homeowners and copies of invoices to support the type and costs of the work completed.

The Subgrantee Agreement Was Not Executed as Required by Program Requirements
In August 2009, Hudson County officials gave $35,000 to the County’s Health and Human
Services division for the local administration and planning of the County’s homeless programs
without executing a grant agreement. The County stated that the prior division chief believed
that it was not necessary to execute the grant agreement since the County gave the funding to
another of its divisions. Regulatory guidance at 24 CFR 570.503(a) states that grantees must
sign a grant agreement with the subrecipient before disbursing CDBG funds and that agreement



                                                 7
must remain in effect during any period when the subrecipient has control over CDBG funds.
Further, guidance at 24 CFR 570.501(a) states that local governments are subject to the same
requirements as subrecipients, while interagency or interdepartmental agreements should include
the same provisions required in a subrecipient agreement. We attributed this condition to County
officials’ unfamiliarity with CDBG program regulations. The lack of a written agreement could
affect the County’s ability to monitor the performance of the subgrantee to ensure that CDBG
funds were used properly. As a result, the $35,000 in CDBG funds reimbursed to the subgranee
was unsupported.

The Subgrantee Was Reimbursed Without Amendment
In August 2010, County officials funded $80,000 to EMET Realty and Development Company
for a single-room occupancy activity. The term of this agreement expired in June 2011.
However, County officials reimbursed a subgrantee $80,000 in CDBG funds in February 2013,
which was outside the agreement term. In addition, $37,000 was drawn down under the
homeowner housing rehabilitation activity funded in 2010 but was used to reimburse a
subgrantee in February and June of 2013 without an amendment to the grant agreement. The
County amended the grant agreement in August 2014 when County officials gave the subgrantee
$100,000 in additional funding. Guidance in 24 CFR 570.503(a) states that grantees must sign a
grant agreement with the subrecipient before disbursing CDBG funds and that agreement must
remain in effect during any period when the subrecipient has control over CDBG funds. County
officials stated that since the funds from another activity were used, they believed an amendment
was not necessary. We attributed these deficiencies to County officials’ unfamiliarity with
CDBG regulations and weak controls over the administration of the County’s subgrantee
agreements. The lack of agreement amendments could affect the County’s ability to monitor the
subgrantee’s performance to ensure that CDBG funds were properly used. Therefore, the
$117,000 in CDBG funds reimbursed to the subgrantee was unsupported.
Conclusion
County officials’ misinterpretation of the program requirements and implementation of
inadequate administrative and financial controls led to ineligible and unreasonable costs being
charged to the CDBG program as well as unsupported reimbursements to subgrantees. As a
result, County officials could not assure HUD that the County administered the program in
accordance with program requirements.

Recommendations
We recommend that the Director of HUD’s Newark, NJ, Office of Community Planning and
Development instruct County officials to
       1A.     Reimburse the County’s CDBG program $25,107 from non-Federal funds for
               planning and administration costs incorrectly charged to the County’s CDBG
               program.
       1B.     Develop and implement a system to ensure that the salaries of staff members who
               work on other CPD programs are not charged to the CDBG program.
       1C.     Reimburse the County’s CDBG program $127,380 from non-Federal funds for
               ineligible and possibly inflated program delivery costs.


                                                8
1D.   Establish procedures to ensure that costs charged to the CDBG program are
      necessary and reasonable for administering the program.
1E.   Establish policies and procedures to no longer fund activities that are inefficient
      or no longer feasible.
1F.   Establish a policy and procedure to assure HUD that CDBG funds are spent in
      accordance with program requirements and costs allocable to other Federal
      awards are not charged to the CDBG program.
1G.   Reimburse the County’s CDBG program $18,426 from non-Federal funds for
      housing rehabilitation provided to ineligible homeowners.
1H.   Provide documentation to support the $39,999 in housing rehabilitation assistance
      reimbursed to the subgrantee. Any amount determined to be ineligible should be
      reimbursed to the County’s CDBG program from non-Federal funds.
1I.   Establish procedures to ensure that adequate documents are requested and
      reviewed before reimbursing a subgrantee and that CDBG funds are spent in
      accordance with program requirements.
1J.   Strengthen controls over the administration of the County’s subgrantees to ensure
      that agreements are executed and amended when the award or time of
      performance changes and before the CDBG funds are disbursed.
1K.   Provide documentation to support the $35,000 given to the subgrantee without an
      executed grant agreement so that HUD can determine eligibility. Any ineligible
      amounts should be reimbursed to the County’s CDBG program from non-Federal
      funds.
1L.   Provide documentation to support the $117,000 given to the subgrantee without a
      grant agreement amendment so that HUD can determine eligibility. Any
      ineligible amounts should be reimbursed to the County’s CDBG program from
      non-Federal funds.




                                        9
Scope and Methodology
The review generally covered the period July 2012 through June 2014 and was extended as
necessary. Audit fieldwork was performed onsite from September 2014 through January 2015 at
the County’s office located at 257 Cornelison Avenue, Jersey City, NJ,
To accomplish our audit objective, we
      Reviewed relevant Federal regulations and CDBG program requirements.

      Interviewed appropriate personnel from the HUD Newark, NJ, Office of Community
       Planning and Development and reviewed relevant grant files to obtain an understanding
       of CDBG program requirements and identify HUD’s concerns with the County’s
       operations.

      Reviewed the County’s consolidated annual performance and evaluation reports, action
       plans, and IDIS reports to document the County’s activities and disbursements. Our
       assessment of the reliability of the data in IDIS was limited to the data reviewed, which
       were reconciled to County records. Therefore, we did not assess the reliability of this
       system.

      Reviewed HUD’s monitoring and independent accountant audit reports.

      Reviewed the County’s policies and procedures and interviewed key personnel to obtain
       an understanding of the County’s administration of the CDBG program.

      Reviewed the County’s files and records of selected projects to test whether County
       officials administered the program in accordance with program requirements.

We selected for review a nonstatistical sample of 17 activities with the highest disbursements
valued at approximately $2.1 million. This amount represented 30 percent of the $6.8 million in
funds disbursed for 128 activities during our review period. The activities were under six
general categories: (1) economic development, (2) housing rehabilitation, (3) planning and
administration, (4) property acquisition-disposition-clearance, (5) public facilities and
improvements, and (6) public service. The results were not projected to the universe because the
sample selection was not statistically based.
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.




                                                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 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.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

   County officials did not have adequate controls over the effectiveness and efficiency of
    program operations and the administration of subgrantee agreements because they did not
    establish adequate administrative controls to ensure that (1) CDBG funds were not used
    solely for the administration of other CPD programs or to pay for costs associated with other


                                                  11
    fundng sources, (2) costs charged were necessary and reasonable, and (3) a subgrantee
    agreement was executed or amended when necessary (see finding).
   County officials did not always establish or implement adequate controls to ensure that
    resources were safeguarded against waste, loss, and misuse, which resulted in CDBG funds
    being used for unsupported and ineligible costs (see finding).




                                                12
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A             $ 25,107
                          1C             127,380

                          1G              18,426

                          1H                               $39,999
                          1K                                35,000
                          1L.                              117,000

                        Totals           $170,913          $191,999



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
Ref to OIG   Auditee Comments
Evaluation




Comment 1




Comment 2




                            15
             Auditee Comments
Ref to OIG
Evaluation




Comment 3




Comment 4




Comment 5




Comment 2




                            16
Ref to OIG   Auditee Comments
Evaluation




Comment 6




Comment 7




Comment 8




                            17
             Auditee Comments
Ref to OIG
Evaluation




Comment 9




                            18
                                 OIG Evaluation of Auditee Comments


Comment 1        County officials disagreed that $25,107 was an ineligible cost, and they later
                 revised the time allocation sheets for the period July 13, 2012, through June
                 2013.2 In addition, according to County officials, $14,747 of the $25,107 in
                 question was reimbursed by the City of Bayonne’s ESG program. Also, officials
                 revised their time allocation policy and the process for charging funds. The
                 revision to the time allocation sheets was made 3 years after the costs were
                 allocated to the ESG program and charged to the CDBG program. As of June 17,
                 2015, the employee salary in question was allocated 43 percent instead of 100
                 percent to the ESG program. However, County officials did not provide
                 documentation to support the 43 percent calculation. In January 2015, County
                 officials provided documentation showing that 50 percent of the salary was
                 allocated to the ESG program. Therefore, the revisions made in January and June
                 2015 differ and were made with no supporting basis. Further, based on the
                 County’s revised time allocation in June 2015, the employee’s time was allocated
                 43 percent to the ESG program from July 12, 2012, through June 28, 2013.
                 Therefore, the City of Bayonne may have to reimburse additional funds to the
                 County. County officials also did not provide evidence to support that they had
                 revised their process for charging funds. Therefore, the entire $25,107 stands as
                 an ineligible cost.
Comment 2        County officials disagreed that the housing rehabilitation costs were unreasonable.
                 Based on the County’s HOME program report, a total of eight units were assisted,
                 representing $100,667 in HOME program funds, during the period April 2013
                 through November 2014. Since the HOME program was not in our audit scope,
                 we could not determine whether the units assisted met HOME program
                 requirements. If CDBG funds were used for the HOME program, County
                 officials should charge IDIS matrix code 21H for the CDBG funding of HOME
                 administrative cost or 14J for the housing services in support of the HOME
                 program. However, County officials charged program delivery cost under IDIS
                 matrix code 14H, which is CDBG rehabilitation delivery cost.
                 County officials disagreed that they were not involved in administering the
                 program. This program provided CDBG funding to eight homeowners; however,
                 County officials reimbursed a subgrantee without obtaining adequate supporting
                 documents and ensuring that program requirements were met. Therefore, the



2
  We reviewed IDIS activity 1996, Planning and Administration, for which the County drew down funds for salary
and fringe costs for the period October 2012 through December 2013. However, County officials provided revised
time allocation sheets only for the period July 13, 2012, through June 28, 2013. They did not mention whether the
timesheet allocation had been revised for the period July through December 2013.



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              costs charged as program delivery costs were not justified. Further, the travel
              logs provided as support did not provide sufficient information pertaining to
              which properties were inspected, including the $583 in gas and mileage costs, and
              it appeared that the costs had been charged to the HOME program administration.
              Therefore, the $76,284 and $51,096 charged to the CDBG program were
              ineligible costs.
Comment 3     County officials state that the homeowner rehabilitation program was suspended
              and the balance was reprogrammed to other activities. As noted in the audit
              report, County officials had funded $200,000 in August 2010, and only $11,740
              was used for actual rehabilitation costs; therefore, County officials will be
              required to reprogram the difference of $188,260 to other eligible projects.
Comment 4     County officials stated that the description that CDBG funds were provided to
              another Federal agency inaccurately depicted the information provided during the
              audit. The details in the audit report are based on the written response from
              County officials and our review of the program income documentation. It should
              be noted that during the exit meeting, County officials acknowledged that CDBG
              funds should not have been used for the EPA grant. As a result, County officials
              could not assure HUD that the CDBG funds were spent in accordance with
              program requirements.

Comment 5     County officials agreed that CDBG funds were used because of a delay in
              reimbursement from the City of Bayonne.
Comment 6 County officials agreed to repay $5,130 because the non-senior citizen did not
          meet the requirements of the program; however, officials contend that there was
          no conflict of interest. Officials are reminded that assisting an employee creates a
          conflict of interest, as outlined in 24 CFR 570.611. Based on the documentation
          provided, the employee was provided $6,667 in CDBG funding; therefore, County
          officials will be required to repay $6,667.
              In addition, County officials agreed that assistance was provided to a homeowner
              who was ineligible because the homeowner’s income was over the program limit
              and provided documentation to support that $1,575 had been remitted to HUD.
              However, based on the documentation provided, the homeowner was provided
              $6,667 in CDBG funding; therefore, County officials will be required to repay the
              remaining $5,092.
              Also, County officials contend that the repayment of funds provided to the
              homeowner who sold the property within 2 years after receiving funding is not
              required since the County did not have a policy in place requiring repayment.
              This claim contradicts the documents previously provided, stating that the
              subgrantee, Town of Secaucus, had recouped the funding due to noncompliance
              and would remit the funds to the County. Further, when County officials
              provided their housing rehabilitation policy, they told us that the same policy was



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            applicable for the housing rehabilitation activity funded with CDBG and HOME
            program funding. Therefore, County officials will be required to repay $6.667.
Comment 7   County officials contended that the remaining homeowners were eligible and all
            costs were supported. The questioned ineligible costs were reduced from $20,001
            to $18,426 since $1,575 had been remitted to HUD. Since County officials did
            not provide supporting documents for the $39,999, it is considered an unsupported
            cost. County officials will have to work with HUD field office staff to address
            this issue during the audit resolution process.
Comment 8   County officials acknowledged that the subgrantee agreement should have been
            executed before funding was provided to the County’s Health and Human
            Services. Officials implemented a policy in August 2014, requiring an executed
            agreement before providing funding to any agency.
Comment 9   County officials agreed that the subgrantee was reimbursed funds without an
            amended grant agreement but stated that all funds were disbursed for eligible and
            supported activities. The project file reviewed during the audit fieldwork did not
            contain all necessary supporting documents, and we asked officials to provide
            them. The matter was discussed with County officials several times. The
            additional documents provided by County officials after the audit fieldwork did
            not contain detailed information to support the cost reimbursed, such as a copy of
            an invoice detailing the breakdown for labor and equipment costs for the electrical
            system upgrade, replacement of the fire safety system, and the architect and
            engineering firm’s fees. County officials will have to work with HUD field office
            staff to address this issue during the audit resolution process.




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