Shelby County, TN
Community Development Block Grant Disaster
Recovery Funds
Office of Audit, Region 4 Audit Report Number: 2017-AT-1002
Atlanta, GA January 18, 2017
To: Mary C. Wilson, Director, Community and Planning Division, 4JD
//signed//
From: Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject: Shelby County, TN, Administered Its Community Development Block Grant
Disaster Recovery Program Funds for Infrastructure in Accordance With HUD
Requirements
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of Shelby County’s Community Development Block
Grant Disaster Recovery funds.
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
404-331-3369.
Audit Report Number: 2017-AT-1002
Date: January 18, 2017
Shelby County, TN, Administered Its Community Development Block Grant
Disaster Recovery Program Funds for Infrastructure in Accordance With
HUD Requirements
Highlights
What We Audited and Why
We audited Shelby County’s Community Development Block Grant Disaster Recovery (CDBG-
DR) grant. We selected the County for review in accordance with our annual audit plan and
because the County received more than $7.4 million in funding to recover from severe storms,
tornadoes, straight-line winds, and flooding that occurred in April 2011. Our audit objective was
to determine whether the County ensured that (1) funds were spent only for eligible activities and
supported disbursements, (2) it adequately monitored activities and performance, (3) participants
did not receive duplicate benefits, (4) an additional disaster recovery grant received from the
State of Tennessee was properly used, and (5) procurement of goods and services was conducted
in accordance with applicable requirements.
What We Found
The County administered its CDBG-DR funds for infrastructure in accordance with HUD
requirements. It ensured that funds were spent for eligible activities, disbursements were
supported, activities and performance were adequately monitored, participants did not receive
duplicate benefits, additional disaster recovery funds received were used properly, and the
procurement of goods and services was generally conducted in accordance with applicable
requirements.
What We Recommend
This report contains no recommendations.
Table of Contents
Background and Objective......................................................................................3
Results of Audit ........................................................................................................4
Finding: The County Administered Its CDBG-DR Funds for Infrastructure in
Accordance With HUD Requirements………………………………………………….4
Scope and Methodology ...........................................................................................7
Internal Controls ......................................................................................................9
Appendixes ..............................................................................................................10
A. Schedule of CDBG-DR Activities ............................................................................ 10
B. Auditee Comments .................................................................................................... 11
2
Background and Objective
Shelby County, with offices in Memphis, TN, is the State’s largest county, both in terms of
population and geographic area. The County is governed by a mayor-commissioner form of
government under a home rule charter that went into effect on September 1, 1986. The mayor
and commissioners serve 4-year terms. Together, the administration and the Board of County
Commissioners are responsible for governing the most populous of Tennessee’s 95 counties.
The County is also part of the Memphis Metropolitan Statistical Area, which comprises eight
counties in three states: Tennessee, Mississippi, and Arkansas.
On May 29, 2013, the U.S. Department of Housing and Urban Development (HUD) issued a
Federal Register notice,1 which advised the public of a second allocation of $514 million in
Community Development Block Grant Disaster Recovery (CDBG-DR) funds appropriated by
the Disaster Relief Appropriations Act of 2013. 2 The purpose of the allocation was to assist in
the recovery of the most impacted and distressed areas declared a major disaster in 2011 or 2012
for necessary expenses related to disaster relief, long-term recovery, restoration of infrastructure
and housing, and economic revitalization. HUD awarded the County more than $7.4 million
from this second allocation. On December 3, 2013, HUD approved the County’s action plan.
The action plan identified the purpose of the County’s allocation, including criteria for eligibility
and its long-term recovery needs. On January 13, 2014, HUD approved the grant agreement,
which obligated more than $7.4 million in funding to the County. The Disaster Relief
Appropriations Act of 2013 required the County to spend obligated funds within 2 years of the
date of obligation.
As of January 13, 2016, the County had spent 100 percent of its funding for infrastructure
totaling more than $7.4 million for activities completed by the County and its two subrecipients.
Our audit objective was to determine whether the County ensured that (1) funds were spent only
for eligible activities and supported disbursements, (2) it adequately monitored activities and
performance, (3) participants did not receive duplicate benefits, (4) an additional disaster
recovery grant received from the State of Tennessee was properly used, and (5) procurement of
goods and services was conducted in accordance with the applicable requirements.
1
78 Federal Register 32263, dated May 29, 2013
2
Public Law 113-2, dated January 29, 2013
3
Results of Audit
Finding: The County Administered Its CDBG-DR Funds for
Infrastructure in Accordance With HUD Requirements
Shelby County ensured that its CDBG-DR funding for infrastructure was administered in
accordance with HUD requirements. Specifically, it ensured that funds were spent for eligible
activities, disbursements were supported, activities and performance were adequately monitored,
participants did not receive duplicate benefits, additional disaster recovery funds received were
used properly, and procurement of goods and services was generally conducted in accordance
with applicable requirements.
Eligible Activities and Supported Expenditures
We reviewed seven expenditures totaling more than $3 million of the nearly $7.5 million disaster
recovery grant. Table 1 lists the total funds received by the County and its subrecipients and the
amount of expenditures reviewed. In addition to program administration, the County used the
grant funds for eight activities completed by it and two subrecipients: the City of Bartlett and
utilities provider, Memphis Light, Gas, and Water (MLGW). A complete list of the activities is
provided in appendix A of this report. Seven of the activities were completed under HUD’s
national objective 3 of meeting an urgent need. For example, the work completed by MLGW
included restoration of the electrical grid following severe storms, which met the national
objective of meeting a community need having a particular urgency because existing conditions
posed a serious and immediate threat to the health or welfare of the community. The remaining
activity, Raleigh Millington bridge construction, 4 was completed under the national objective of
providing benefit to low- and moderate-income persons. Based on the census tract data used by
the County, more than 60 percent of the local population expected to use the bridge for
commuting purposes included low- and moderate-income persons. We determined that the
County and its subrecipients were eligible to receive disaster recovery grant funds as they were
located and the infrastructure work was completed in a presidentially declared disaster area. We
reviewed the general ledger, invoices, and canceled checks and determined that the expenses
were supported and the activities were eligible.
3
Under CDBG program rules, a grantee must meet one of three national objectives for each funded activity. The
national objectives are as follows: (1) benefiting low- and moderate-income persons, (2) preventing or eliminating
blight, or (3) meeting 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.
4
The County did not receive funding from the U.S. Department of Transportation. Nonetheless, as stated in the
Background and Objective section of the report, funding via HUD’s CDBG-DR was provided under the
Appropriations Act for necessary expenses related to disaster relief; long-term recovery; restoration of infrastructure
and housing such as restoration and repair of a bridge; and economic revitalization.
4
Table 1: Funding received and expenditures reviewed
Total amount
Amount of
of grant per
Entity Description of activity expenditures
entity and
reviewed
expense type
County Raleigh Millington bridge $4,900,363 $784,013
County Program administration 373,200 102,335
Bartlett Bartlett slope repair 40,114 35,713
Electrical system restoration (FEMA*-1979-
MLGW 745,566
DR)
MLGW Electrical system restoration (FEMA-1974-DR) 2,150,323 552,562
MLGW Electrical system restoration (FEMA-1978-DR) 852,195
Total 7,464,000 3,072,384
* FEMA = Federal Emergency Management Agency
Adequate Monitoring
We reviewed the County’s monitoring of activities and performance and its receipt and awarding
of disaster recovery funds. The County adequately monitored activities and performance and
ensured that participants did not receive duplicate benefits and additional disaster recovery funds
received were used properly. Specifically, the County required its subrecipients to provide a
breakdown of the benefits received from other sources, such as the Federal Emergency
Management Agency and Tennessee Emergency Management Agency, to ensure that the
awarding of disaster recovery funds would not duplicate benefits. Further, regarding its own
activity and performance, the County monitored and tracked the monthly invoices and payouts to
the construction and design contractors by source of funds for the activity. In addition, the
County maintained appropriate records to identify that it used all funds received from the State
of Tennessee for the bridge construction activity. It also provided a detailed schedule and
certified to the State that it did not receive duplicate benefits.
Generally Appropriate Procurement of Goods and Services
We reviewed five contracts representing 100 percent of procurements, which totaled more than
$9.7 million, 5 to determine whether goods or services were procured in accordance with HUD’s
requirements at 24 (Code of Federal Regulations) CFR Part 85. For one procurement, for which
$250 of the disaster recovery grant was used, a request for proposals was not advertised. We
issued a memorandum to inform HUD of this minor deficiency. For the remaining procurements
of goods and services, the recipients procured the goods or services in accordance with HUD’s
requirements. Specifically, although the activities completed included meeting an urgent need
5
The procurement contract amount was more than the disaster recovery grant as funds from other sources were also
used in paying the contract.
5
and partially consisted of preaward costs, 6 the recipients properly advertised and reviewed all
bids; accepted the lowest, most responsible bid; and allowed for a competitive bid process.
Additionally, the recipients reviewed the winning contract (as well as change orders) for cost
reasonableness. Further, the recipients properly solicited proposals, evaluated the contractors’
qualifications, and reviewed the proposals for cost reasonableness according to prepared cost
estimates. For example, the cost estimates for all sealed-bid contracts were completed before the
advertising and opening of the bids. Table 2 provides a procurement timeline of sealed-bid
contracts. Finally, the contract included all mandatory language, an adequate description of the
scope of work, completion dates, payment schedules, and the appropriate signatures.
Table 2: Cost estimates prepared for sealed-bid contracts
Date cost Date Date
Date bid
Service contracted estimate service contract
opened
prepared advertised executed
Construction of Raleigh Millington bridge 2/7/2013 3/26/2013 4/11/2013 6/26/2013
Construction of Bartlett slope repair 5/2/2013 5/7/2013 5/23/2013 6/27/2013
Conclusion
The County had developed controls and procedures for its CDBG-DR program that complied
with applicable HUD requirements. For the seven expenditures and generally all of the
procurement contracts, the County followed its controls and procedures and maintained
documentation to ensure that expenses were supported and for eligible activities, participants did
not receive duplicate benefits, and goods and services were procured in accordance with HUD
requirements.
6
2 CFR Part 225, Appendix B, Paragraph 31, defines pre-award costs as costs incurred prior to the effective date of
the award directly pursuant to the negotiation and in anticipation of the award where such costs are necessary to
comply with the proposed delivery schedule or period of performance. Such costs are allowable only to the extent
that they would have been allowable if incurred after the date of the award and only with the written approval of the
awarding agency. The County’s action plan identified preaward costs and HUD approved the plan. Twenty-nine
percent of the CDBG-DR funds were used for preaward costs.
6
Scope and Methodology
We performed our audit work between June and August 2016 at the County’s office located at
1075 Mullins Station Road, Memphis, TN, and at our office in Atlanta, GA. Our review covered
the period April 2011 through May 2016.
To accomplish our objective, we
• Interviewed County personnel involved with the management of the CDBG-DR grant
and HUD officials;
• Reviewed relevant background information;
• Reviewed the Disaster Relief Appropriations Act, Public Law 113-2;
• Reviewed 78 Federal Register 32262, dated May 29, 2013;
• Reviewed applicable HUD laws, regulations, and other HUD program requirements
relevant to CDBG-DR funding;
• Reviewed the County’s action plan, policies, procedures, and organizational charts;
• Reviewed the County’s audited financial statements and Disaster Recovery Grant
Reporting system 7 reports;
• Reviewed the approved grant agreement between the County and HUD and approved
contracts between the County and its subrecipients;
• Reviewed the general ledger, invoices, and canceled checks to verify that the funds were
spent for activities that were eligible and supported;
• Ensured that additional disaster funds received from the State of Tennessee were
adequately spent and tracked; and
• Completed a site visit to the County’s infrastructure project to observe the work being
completed.
The universe consisted of 46 expenditures totaling more than $7.4 million. We selected and
reviewed four expenditures based on the highest percentage of the grant spent per draw for each
entity and program administration. In addition, based on expenditures being classified as
administrative costs, we expanded the sample to include the remaining three expenditures for one
subrecipient to ensure that project administration costs for the grant did not exceed the allowable
5 percent limit. We reviewed more than $3 million, or 41 percent, of the disaster recovery grant.
The results of the sample review are attributable only to the specific items reviewed and cannot
be projected to the universe of transactions.
7
Disaster Recovery Grant Reporting is a HUD system that is primarily used by grantees to access grant funds and
report performance accomplishments for grant-funded activities.
7
We reviewed 100 percent of the 5 procurement contracts totaling more than $9.7 million to
determine whether goods or services were procured in accordance with HUD’s requirements.
To achieve our survey objective, we relied in part on computer-processed data. We used the data
to select a sample of expenditures for review. Although we did not perform a detailed
assessment of the reliability of the data, 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 findings
and conclusions based on our audit objective.
8
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:
• Effectiveness and efficiency of 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 provide reasonable assurance that program implementation is in accordance
with laws, regulations, and provisions of contracts or grant agreements.
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 objective 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.
Accordingly, we do not express an opinion on the effectiveness of the County’s internal controls.
9
Appendixes
Appendix A
Schedule of CDBG-DR Activities
Activity Recipient Grant amount
Raleigh Millington Bridge Restoration & Recovery County $4,900,363
Bartlett Blvd. Bridge Slope Repair Bartlett 35,713
FEMA-1978-DR Electrical System Restoration MLGW 852,195
FEMA-1979-DR Electrical System Restoration MLGW 745,566
FEMA-1974-DR Electrical System Restoration MLGW 552,562
Bartlett Emergency Protective Measures Bartlett 3,599
Bartlett Sewer Lift Station Repairs Bartlett 192
Bartlett Wastewater Overflow Control Bartlett 610
Administration County 373,200
Total N/A 7,464,000
10
Appendix B
Auditee Comments
11
Shelby County, TN, Administered Its Community Development Block Grant Disaster Recovery Program Funds for Infrastructure in Accordance With HUD Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2017-01-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)