oversight

The City of Miami Beach Did Not Always Properly Administer Its CDBG Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-06-22.

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

       City of Miami Beach, Miami, FL

        Community Development Block Grant Program




Office of Audit, Region 4     Audit Report Number: 2016-AT-1007
Atlanta, GA                                         June 22, 2016
To:            Ann D. Chavis, Director of Community Planning and Development, Miami Field
               Office, 4DD

               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA
Subject:       The City of Miami Beach Did Not Always Properly Administer Its CDBG
               Program




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 Miami Beach’s administration of the
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 404-
331-3369.
                         Audit Report Number: 2016-AT-1007
                         Date: June 22, 2016

                         The City of Miami Beach Did Not Always Properly Administer Its CDBG
                         Program




Highlights

What We Audited and Why
We audited the City of Miami Beach’s Community Development Block Grant (CDBG) program
in accordance with our annual audit plan because it had projects overseen by the same
administration questioned in our audit of the City’s HOME Investment Partnerships Program 1.
In addition, the U.S. Department of Housing and Urban Development’s Miami Office of
Community Planning and Development ranked the City as high risk in its 2015 risk assessment.
Our objective was to determine whether the City ensured that the drawdowns of CDBG funds
were supported and allowable.

What We Found
The City did not always comply with CDBG requirements. Specifically, it did not ensure that
drawdowns were properly supported and allowable for seven activities. This condition occurred
because the City lacked due diligence when administering its CDBG activities. As a result, it
charged $336,150 in questioned costs to the CDBG program.

What We Recommend
We recommend that the City (1) provide supporting documentation or reimburse its program for
$227,587 in unsupported expenditures from non-Federal funds and (2) reimburse its line of credit
for $108,563 used for ineligible costs from non-Federal funds.




1
    HUD OIG issued audit report 2016-AT-1006 on June 17, 2016, for the City of Miami Beach’s administration of
    the HOME Investment Partnerships Program.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: The City Did Not Ensure That It Charged Supported and Eligible
         Expenditures to the CDBG Program .............................................................................. 5

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

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

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs ................................................................................. 12

         B. Auditee Comments and OIG’s Evaluation ............................................................. 13




                                                             2
Background and Objective
Authorized under Title I of the Housing and Community Development Act of 1974, Public Law
93-383, as amended, the Community Development Block Grant (CDBG) program is a flexible
program that provides communities with resources to address a wide range of unique community
development needs. The U.S. Department of Housing and Urban Development (HUD) awards
annual grants to entitlement community recipients to develop viable communities by providing
decent housing and a suitable living environment and by expanding economic opportunities
principally for low- and moderate-income persons. An activity that receives CDBG funds must
meet one of three national objectives:

    •        Benefit low- and moderate-income families,
    •        Aid in the prevention or elimination of slums or blight, or
    •        Meet community development needs having a particular urgency.

The City of Miami Beach was incorporated as a municipal corporation on March 26, 1915, and
was created by the Florida Legislature, Chapter 7672, Laws of Florida (1917). The City is
governed by an elected mayor and six commissioners and operates under a commission-manager
form of government.

The City’s Office of Housing and Community Services, formerly known as the Office of Real
Estate, Housing, and Community Development, 2 is responsible for administering State and
Federal programs, such as the HOME Investment Partnerships Program, CDBG, the State
Housing Initiatives Program, and other special initiative programs targeted at income-eligible
recipients and frequently relating to housing opportunities. Its mission is to develop and
maintain a viable urban community by leveraging Federal funds with other funds to carry out
housing and community development programs.

The City is an entitlement grantee that receives annual allocations of CDBG funds. In fiscal
years 2010 through 2015, HUD allocated more than $7 million in CDBG funds to the City.

Over the past 3 years, the City has been addressing shortcomings identified in its 2013 internal
review of its projects and operations. This review began after the City dismissed its former
office director in May 2013. The City’s internal review found fiscal and operational
discrepancies, particularly in its dealings with its former subrecipient, the Miami Beach
Community Development Corporation. These issues included instances of noncompliance with
Federal requirements, especially insufficient support for expenditures and inadequate monitoring
of HUD-funded projects. During this review, some City and Corporation staff members were
dismissed or resigned. The City had replaced its director and most of its staff and suspended the


2
 In 2013, shortly after the former department director was dismissed, the office was reorganized and named the
Office of Housing and Community Services.



                                                         3
Corporation’s HOME community housing development organization status. City staff indicated
that the City had stopped all advance payments to this subrecipient and recaptured any remaining
funds awarded. Further, the City said that it had improved its operations, which included
revising its process directives, forms, and policies and procedures. Additionally, in an effort to
safeguard the City’s interest and stability of the tenants, the City had acquired four HUD-funded
properties from the Corporation.

This audit was a spinoff of our review of the City’s HOME audit, which found questionable
costs associated with properties administered by the Corporation. Since the Corporation also
received CDBG funding for some of the activities reviewed under the HOME audit, we reviewed
these same activities. The objective of this audit was to determine whether the City administered
its CDBG program in accordance with applicable Federal requirements. Specifically, we wanted
to determine whether the City ensured that drawdowns of CDBG funds used for four properties
also funded with HOME funds were in accordance with applicable Federal requirements and
were allowable and supported.




                                                4
Results of Audit

Finding: The City Did Not Ensure That It Charged Supported and
Eligible Expenditures to the CDBG Program
The City did not ensure that it charged supported and eligible expenditures to the CDBG
program. This condition occurred because the City lacked due care when administering its
CDBG activities. As a result, it charged $336,150 in questionable costs to the CDBG program.

Questionable Costs
The City did not ensure that expenditures for seven activities were adequately supported and
eligible. Regulations at 24 CFR (Code of Federal Regulations) 85.20 require that accounting
records be supported by source documentation, such as canceled checks, paid bills, payrolls, time
and attendance records, contracts, etc.
The City charged questionable project costs of $336,150 for seven activities reviewed. See the
table below.

                                                        Costs with                      Total
 Voucher      IDIS*                                                   Unallowable
                              Activity name             inadequate                    questioned
 number      activity #                                                  costs
                                                      documentation                     costs
                          The Corporation’s
                          Allen House
 5120349        766                                     $100,698                       $100,698
                          Apartments
                          Rehabilitation
                          The Corporation’s
                          Rehabilitation of the
 5554632        892                                                     $ 8,500        $   8,500
                          London House
                          Apartments
                          The Corporation’s
 5460676                  Rehabilitation of the                         $19,248        $ 19,248
                871       Barclay Apartments
                          The Corporation’s
 5560044                  Rehabilitation of the                         $ 5,505        $   5,505
                          Barclay Apartments
                          City of Miami Beach
 5780517        932       Barclay Apartments                            $75,310        $ 75,310
                          Acquisition
                          The Corporation’s
 5517524                                                $ 24,393                       $ 24,393
                          Multifamily Housing
                885
                          The Corporation’s
 5509695                                                $ 18,832                       $ 18,832
                          Multifamily Housing
 5382277                  The Corporation’s             $ 23,503                       $ 23,503



                                                  5
                    857         Multifamily Housing
                                The Corporation’s
  5459775                                                             $ 20,653                                  $ 20,653
                                Multifamily Housing
                                The Corporation’s
  5334722                                                             $ 20,865                                  $ 20,865
                                Multifamily Housing
                    815
                                The Corporation’s
  5262221                                                             $ 18,643                                  $ 18,643
                                Multifamily Housing
                                        Total                         $227,587               $108,563           $336,150

* IDIS = Integrated Disbursement and Information System is a HUD system that allows grantees to request grant funding from
HUD and reports on what is accomplished with these funds.

Activity 766 – Voucher 5120349 for the Corporation’s Allen House Apartments Rehabilitation
The City provided $159,684 in CDBG funds to the Corporation to renovate the façade of the
Allen House Apartments. For this activity, the City did not provide sufficient documents to
support expenditures of $100,698. It provided a payment request letter and forms. However, it
did not provide the invoices and canceled checks from the Corporation to the vendors to validate
the expenditures as required by 24 CFR 85.20. As a result, $100,698 was unsupported.

Activity 892 – Voucher 5554632 for the Corporation’s Rehabilitation of the London House
Apartments
The City provided CDBG funds to the Corporation to rehabilitate the London House Apartments.
For this activity, the City paid for underwriting fees that were not included in the subrecipient
written agreement. Regulations at 24 CFR 570.503 require that grantees have written
agreements in effect with each subrecipient before giving out any CDBG funds. The regulations
require that the written agreements describe the work to be performed, a schedule for completion
of the work, and a budget. The budget in the agreement specified that the CDBG funds would
pay for construction, architectural, and engineering fees but did not include underwriting fees.
Therefore, $8,500 in underwriting fees was unallowable.
Activities 871 and 932 – Acquisition and Rehabilitation of the Barclay Apartments
The City used $100,063 in CDBG funds for the acquisition and rehabilitation of the Barclay
Apartments (vouchers 5460676, 5560044, and 5780517). Our review of $94,558 for activities
871 and 932 showed costs totaling $19,248 that did not have adequate documentation to support
the expenditures.

In addition, the City stated that for these activities, it did not plan to meet the national objective
of benefitting low- and moderate-income households at 24 CFR 570.208(a)(3) and would,
therefore, need to repay HUD all CDBG funds spent for these activities. This condition occurred
because the City stated that it did not have the financial capacity to complete the rehabilitation
and maintain it as affordable housing. In January 2015, the City obtained title to the Barclay
Apartments from its former subrecipient because it was at risk of loss as a result of the
subrecipient’s organizational problems. Therefore, the City planned to release a request for
proposals for a private developer with the experience and resources to rehabilitate and operate
the building. The building would be developed as workforce housing for residents earning 120



                                                              6
to 140 percent of area median income, which is over CDBG’s income limit, and employed in the
public safety, education, and municipal sectors.

Given its current status, these activities should be immediately canceled because the City (1)
stated that it did not have the financial capacity to complete the project and (2) did not plan to
meet the CDBG low- and moderate-income national objective. HUD had no assurance that the
Barclay Apartments project would fully meet the program objectives and provide the intended
benefits. As a result, all CDBG funds drawn down for this project ($100,063 for activities 871
and 932) should be returned to its line of credit and made available for other eligible CDBG
activities.

The Corporation’s Multifamily Housing Activities (815, 857, and 885)
The City awarded the Corporation funds to cover the delivery costs for the rehabilitation
administration of six rental buildings. It did not have adequate documentation to support
$126,889 in delivery costs for activities 815, 857, and 885. The City provided expense reports
for the administration and operations of the Corporation. However, it did not provide invoices,
timesheets, or canceled checks in accordance with 24 CFR 85.20 to support these reports. In
addition, the City was not able to relate these costs to the rehabilitation activities being carried
out. Activity delivery costs are allowable if the costs are incurred for implementing and carrying
out eligible CDBG activities authorized under 24 CFR 570.201-570.204. Therefore, the
$126,889 drawn down was not supported. According to HUD’s Integrated Disbursement and
Information System and the subrecipient agreements, the costs for these activities included
delivery costs for the Barclay Apartments. As indicated in the section above, the Barclay
Apartments project would not meet the national objective; therefore, the delivery costs would be
unallowable. Regulations at 24 CFR 570.200(a)(2) indicates that activity delivery cost is
allocable to an activity if it also meets a national objective. The City should identify the portion
of the $126,889 that is for the Barclay Apartments project and consider that amount unallowable.

Reasons for Deficiencies
The conditions described above occurred because the City lacked due diligence when
administering its CDBG activities. The City did not know the reason for the deficiencies
because they generally occurred during the previous administration. Since discovering
operational and financial deficiencies in 2013, caused by the prior administration and former
subrecipient, the City had taken steps to improve its operations, such as

   •   Dismissing its former department director and reorganizing the department;
   •   Revising its controls and processes, such as requiring specific documents to support its
       reimbursements and improving its record retention policies; and
   •   Hiring more staff members to oversee the program.

Since the review was limited to the projects that were related to the former subrecipient, we
encourage HUD to confirm that the City has implemented its revised policies and procedures
throughout its CDBG program.




                                                 7
Conclusion
The City did not ensure that it charged supported and eligible expenditures to the CDBG
program. This condition occurred because the City lacked due diligence when administering its
CDBG activities. As a result, it charged $336,150 in questioned costs to the CDBG program.

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

1A.    Provide supporting documentation or reimburse its program for $227,587 in unsupported
       expenditures from non-Federal funds.

1B.    Reimburse its line of credit for $108,563 in ineligible costs from non-Federal funds.


We recommend that the Director of HUD’s Miami Office of Community Planning and
Development

1C.    Confirm that the City has implemented its revised written policies and procedures
       throughout its CDBG program.




                                                8
Scope and Methodology
We performed our review from January through April 2016 at the City’s Office of Housing and
Community Services located at 555 17th Street, Miami Beach, FL, and other sites as necessary.
Our review covered the period January 1, 2010, through November 30, 2015, and was expanded
as needed to achieve our objective.

To accomplish our objective, we

   •   Reviewed applicable laws and regulations;

   •   Reviewed applicable City policies and procedures;

   •   Reviewed monitoring, independent public accountant, and IDIS reports;

   •   Reviewed the City’s financial records, program activity files, and other supporting
       documentation; and

   •   Interviewed HUD and City staff.


Our review of the City’s HOME program found that the City charged questionable costs. Most
of these issues involved the Miami Beach Community Development Corporation. Since the
Corporation also received CDBG funding for some of the activities reviewed under the HOME
audit, we reviewed these same activities. These activities involved the rehabilitation or
acquisition of the Allen House Apartments, Barclay Apartments, London House Apartments, and
Neptune Apartments.

According to IDIS, the City drew down approximately $1 million in CDBG funds related to the
four properties reviewed during our scope period of January 1, 2010, through November 30,
2015. Based on high dollar amount and most current drawdowns, we selected six transactions
with expenditures of $817,768, or 81.18 percent of CDBG funds drawn for the four properties.
Current staff had concerns with three activities related to delivery costs involving the
Corporation. Specifically, the City was concerned with the purpose and outcome of these
activities. As a result, we expanded our review and selected six additional transactions with
expenditures of $126,889. Overall, we reviewed 12 transactions with expenditures of $944,657.
We did not perform a 100 percent selection. The results of this audit apply only to the items
reviewed and cannot be projected to the universe of activities.




                                                9
Computer-processed data generated by the City were not used to materially support our audit
findings, conclusions, and recommendations. Thus, we did not assess the reliability of these
computer-processed data.

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:

•   Controls over program operations to reasonably ensure that the program meets its
    objective(s),
•   Controls over relevance and reliability of operational and financial information, and
•   Controls over compliance with laws and regulations.

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

•    The City did not ensure that it charged supported and eligible expenditures to the CDBG
    program (finding).




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Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number


                          1A                               $227,587




                          1B             $108,563


                        Totals           $108,563          $227,587



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.




                                              12
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2


Comment 3




                               13
Comment 4




Comment 5




Comment 5




            14
                         OIG Evaluation of Auditee Comments


Comment 1   The City agreed that it did not have sufficient documentation to support
            expenditures of $100,698 for activity 766. The City is working with its
            subrecipient to acquire documentation to possibly confirm the completion of work
            in support of the expenditures.

            We acknowledge the City’s effort to obtain documentation to confirm the
            completion of work. However, the City also needs documentation to support the
            expenditures in order to ensure that the program was not overcharged and costs
            were allowable and reasonable in accordance with 24 CFR 85.20. The City
            should provide HUD with any additional documentation or provide proof of
            repayment during the audit resolution.

Comment 2   The City concurred with OIG that expenditures of $8,500 were not part of the
            scope of work for activity 892; therefore, these costs were unallowable. In
            addition, the City stated that it was not able to provide supplemental
            documentation that justified the underwriting fees charged to the project.

            We acknowledge the City’s agreement with our finding. Therefore, the City must
            provide HUD with proof that it reimbursed its line-of-credit from non-Federal
            funds for the unallowable costs during the audit resolution.

Comment 3   The City agreed that expenditures totaling $100,063 are unallowable because the
            project will not meet the national objective of benefitting low-to moderate-income
            individuals. The City plans to develop the Barclay Plaza as Workforce Housing
            that would serve persons earning between 120 to 140 percent of the area median
            income, which is over CDBG’s income limit.

            We acknowledge the City’s agreement with our finding. As a result of this
            project not meeting the required national objective, the City must provide proof to
            HUD that it reimbursed its program from non-Federal funds, all funds expended
            for this project, including the $100,063 for activities 871 and 932.

Comment 4   The City agreed that it was not able to provide adequate documentation to support
            delivery costs of $126,889 for activities 815, 857, and 885. In addition, the City
            stated that only activity 885 had expenditures related to the Barclay Apartments
            project. However, it was difficult to identify the portion of the $126,889 related
            to this project since the reimbursement packages did not assign costs per building.

            We acknowledge the City’s agreement with our finding. Thus, the City must
            provide HUD with proof that it reimbursed its program $126,889 for unsupported
            costs from non-Federal funds during the audit resolution.




                                             15
Comment 5   The City agreed with the questioned costs and requested that reimbursement to
            HUD for unsupported costs of $227,587 and ineligible costs of $108,563 come
            from the City’s future CDBG program allocations over a span of three fiscal
            years.

            We recognize the City’s willingness to repay $227,857 in unsupported costs and
            $108,563 in ineligible costs through a future grant reduction; however, HUD will
            work with the City to determine whether this option is viable.




                                             16