oversight

The Municipality of Bayamon, PR, Did Not Always Ensure Compliance With HUD Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-08-29.

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

           Municipality of Bayamon, PR
    Emergency Shelter and Emergency Solutions Grants




Office of Audit, Region 4     Audit Report Number: 2016-AT-1012
Atlanta, GA                                      August 29, 2016
To:            Olga De La Rosa, Director, Community Planning and Developments, San Juan
               Field Office, 4NG

               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Municipality of Bayamon, PR, Did Not Always Ensure Compliance With
               HUD Program 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 the Municipality of Bayamon’s Emergency Shelter
and Emergency Solutions Grants programs.
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-1012
                   Date: August 29, 2016
                   The Municipality of Bayamon, PR, Did Not Always Ensure
                   Compliance With HUD Program Requirements



Highlights

What We Audited and Why
We audited the Municipality of Bayamon’s Emergency Shelter Grants and Emergency Solutions
Grants programs. We selected this auditee based on congressional and hotline complaints
alleging that the Municipality improperly used Emergency funds to transport people from Puerto
Rico to mainland U.S. cities to receive rehabilitation treatment. Our main audit objectives were
to determine whether allegations included in the complaints had merit and whether the
Municipality’s Emergency programs were administered in compliance with the U.S. Department
of Housing and Urban Development’s (HUD) requirements.

What We Found
Although the Municipality assisted in the transportation of persons from Puerto Rico to mainland
U.S. cities to receive treatment, HUD funds were not used to pay for the transportation costs of
the participants. However, the Municipality improperly used Emergency funds to pay for travel
costs of employees who went to mainland U.S. cities to follow up on clients. The Municipality’s
financial management system did not properly identify the source and application of more than
$1.14 million in Emergency funds and allowed the use of more than $189,000 for ineligible
expenditures. In addition, it did not support the eligibility of more than $38,000 in program
charges and reported inaccurate information in HUD’s information system. As a result, HUD
lacked assurance that funds were adequately accounted for, safeguarded, and used for requested
and eligible purposes and in accordance with HUD requirements.

What We Recommend
We recommend that the Director of the San Juan Office of Community Planning and
Development require the Municipality to (1) complete the implementation of the new
accounting system in accordance with HUD requirements, (2) submit all supporting
documentation showing the eligibility and propriety of $982,851 in Emergency funds, and (3)
reimburse its program $189,227 from non-Federal funds in ineligible expenditures.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Municipality Did Not Always Ensure Compliance With HUD
         Requirements..................................................................................................................... 4

Scope and Methodology ...........................................................................................8

Internal Controls ....................................................................................................10

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .................................................................................. 12
         B. Auditee Comments and OIG’s Evaluation ............................................................. 13
         C. Schedule of Ineligible Travel Disbursements ......................................................... 17
         D. Schedule of Ineligible Detoxification Disbursements............................................. 18
         E. Schedule of Unsupported Drawdowns .................................................................... 19




                                                                    2
Background and Objectives
The Emergency Shelter Grants program was authorized by subtitle B of Title IV of the
McKinney-Vento Homeless Assistance Act of 1987 (42 U.S.C. (United States Code) 11371–
11378). It authorized the U.S. Department of Housing and Urban Development (HUD) to make
grants to States, units of general local government, territories, and Indian tribes for the
rehabilitation or conversion of buildings for use as emergency shelter for the homeless, for the
payment of certain operating expenses and essential services in connection with emergency
shelters for the homeless, and for homelessness prevention activities.

The Homeless Emergency Assistance and Rapid Transition to Housing Act of 2009 amended the
McKinney-Vento Homeless Assistance Act, revising the Emergency Shelter Grants program and
renaming it the Emergency Solutions Grants program. Recipients and subrecipients can use
Emergency Solutions Grants funds for the rehabilitation or conversion of buildings for use as
emergency shelter for the homeless, the payment of certain expenses related to operating
emergency shelters, essential services related to emergency shelters and street outreach for the
homeless, and homelessness prevention and rapid rehousing assistance.

The Municipality of Bayamon was founded in 1772, and its governing system consists of an
executive and legislative body, a mayor, and 16 members of the municipal legislature elected to
4-year terms. It provides a full range of services, including public safety, public works, culture,
recreation, health and welfare, education, and other miscellaneous services. The Municipality is
an entitlement recipient, which has administered more than $2.9 million in Emergency funds
approved by HUD during the last 13 years.

This audit was the result of congressional and hotline complaints alleging the improper use of
Emergency funds to transport people from Puerto Rico to mainland U.S. cities to receive
rehabilitation treatment.

The Municipality’s Office of Planning is responsible for administering Emergency funds. Its
books and records are maintained in the offices located at State Road PR-2, km 11, Bayamon,
PR.

The objectives of the audit were to determine whether the allegations included in the complaints
had merit and whether the Municipality’s Emergency programs were administered in compliance
with HUD requirements.




                                                 3
Results of Audit

Finding: The Municipality Did Not Always Ensure Compliance
With HUD Requirements
The Municipality’s financial management system did not properly identify the source and
application of more than $1.14 million in Emergency funds and allowed the use of more than
$189,000 for ineligible expenditures. In addition, it did not support the eligibility of more than
$38,000 in program charges and reported inaccurate information in HUD’s information system.
These deficiencies occurred because the Municipality had not completed the implementation of a
new accounting system and Municipality officials were not familiar with HUD requirements. As
a result, HUD lacked assurance that funds were adequately accounted for, safeguarded, and used
for requested and eligible purposes and in accordance with HUD requirements.

Inadequate Accounting Records
The Municipality’s accounting system did not reflect complete and accurate financial
information on Emergency program activities and did not permit the adequate tracing of program
expenditures. Regulations at 2 CFR (Code of Federal Regulations) 200.302(b) require grantees
to maintain financial records that are accurate, current, and complete and that adequately identify
the source and application of funds provided for assisted activities. However, the Municipality’s
accounting records were not accurate and complete because it had not fully established an
accounting system.

The Municipality’s accounting records did not comply with HUD requirements and were not
adequate for the preparation of reports. For example, the Municipality did not maintain a general
ledger for the Emergency programs. The record maintained was a disbursements register that
did not reflect disbursements by grant, activity, and funding type and did not properly account
for accounts payable and receivable. In addition, the Municipality’s records contained several
instances of incomplete and inaccurate financial information, including incorrect check amounts,
checks not related to the Emergency programs, gaps and missing checks, and duplicate
transactions.

The Municipality did not maintain a financial management system that permitted the tracing of
funds to a level which ensured that such funds had not been used in violation of the restrictions
and prohibitions of applicable statutes. A Municipality official informed us that data in HUD’s
information system could not be reconciled with the Municipality’s accounting records because
it was in the process of establishing a new accounting system as a result of a previous Office of
Inspector General (OIG) audit related to the HOME Investment Partnerships Program. 1 As a
result, HUD lacked assurance that funds were adequately accounted for, safeguarded, and used



1
    Audit report number 2012-AT-1009.


                                                 4
for eligible purposes. More than $1.14 million in Emergency funds drawn from HUD between
July 1, 2011, and December 31, 2015, was unsupported.

Ineligible Program Disbursements
Contrary to HUD requirements, more than $189,000 in Emergency funds was disbursed for
ineligible travel and detoxification expenditures. Therefore, the Emergency program was
charged unnecessary costs that did not meet program objectives.

       Travel expenditures - The Municipality assisted in the transportation of more than 170
       persons from Puerto Rico to mainland U.S. cities to receive treatment. Although, HUD
       funds were not used to pay for the transportation costs of the participants, the
       Municipality improperly disbursed $46,387 in Emergency funds to pay for travel
       expenses of employees who visited rehabilitation clinics in mainland U.S. cities.
       Contrary to HUD regulations, it made a total of 31 disbursements between November
       2008 and November 2015. Regulations at 24 CFR 576.102(a)(x)(D) state that the
       allowable travel costs of recipient or subrecipient staff are those related to accompanying
       or assisting program participants when using public transportation to receive services.
       These expenses were related to travel outside the Municipality’s geographic service area
       that did not meet program objectives and were ineligible program expenditures.
       Appendix C contains a list of the ineligible disbursements.

       Detoxification services - The Municipality improperly disbursed $142,840 in Emergency
       funds to pay for inpatient detoxification services in Puerto Rico clinics between May
       2011 and July 2015. Regulations at 24 CFR 576.102(a)(ix)(C) state that inpatient
       detoxification and other inpatient drug or alcohol treatment are not eligible program
       costs. Appendix D contains a list of the ineligible disbursements.

A Municipality official informed us that she was not aware that HUD prohibited these types of
expenditures.

Unsupported Drawdowns and Disbursements
The Municipality did not account for Emergency funds drawn from HUD between March 2012
and June 2014. It did not provide disbursement vouchers or other support showing the
reasonableness, allowability, and allocability of $29,824 charged to the program. Appendix E
contains a list of the unsupported drawdowns. In addition, the Municipality charged the
Emergency program the full cost of computer equipment, although the equipment was used for
other efforts not related to the program. Contrary to 2 CFR 200.405(a), the Municipality did not
prorate the equipment cost; therefore, $8,340 disbursed in December 2015 was considered
unsupported pending a HUD eligibility determination of the proper cost allocation. These
deficiencies occurred because the Municipality had not completed the implementation of a new
accounting system to account for all program funds and ensure that all program funds were used
in accordance with HUD requirements.

Inacurate Reporting
HUD’s information system contained inaccurate information concerning the Municipality’s
Emergency-funded activities. For four activities, it reflected an incorrect expenditure amount


                                                5
because the Municipality drew funds from HUD for one activity but used the funds for other
efforts. For example, on October 23, 2014, it withdrew $7,607 for activity number 1839 (ESG11
Administration). However, the funds were used to pay for rental subsidies of 12 participants
under the Municipality’s homelessness prevention efforts. As a result, the administrative
expenditures were overstated, and the homelessness prevention expenditures were understated by
at least $7,607. The inaccurate data compromised the integrity of HUD’s information system
and the degree of reliability HUD could place on the data for monitoring commitments and
compiling national statistics on the Emergency programs. These deficiencies occurred because
the Municipality had not completed the establishment of a new accounting system that could be
used to reconcile program expenditures with HUD drawdowns.

Conclusion
The Municipality did not properly identify the source and application of Emergency funds,
allowed the disbursement of ineligible expenditures, did not support the eligibility of program
charges, and reported inaccurate information in HUD’s information system. The deficiencies
described above occurred because the Municipality did not complete the implementation of a
new accounting system and was unfamiliar with program requirements. As a result, HUD lacked
assurance that funds were adequately accounted for, safeguarded, and used for authorized
purposes and in accordance with HUD requirements.

Recommendations
We recommend that the Director of the San Juan Office of Community Planning and
Development require the Municipality to

         1A.     Complete the implementation of the new accounting system and ensure it
                 tracks program funds to a level that supports compliance with HUD
                 requirements.

         1B.     Provide support that $944,687 2 in Emergency funds drawn from HUD is
                 reconciled with the accounting records and that such funds have not been used
                 in violation of the restrictions and prohibitions of applicable statutes or
                 reimburse the Emergency programs from non-Federal funds.

         1C.     Reimburse $189,227 to the Emergency programs from non-Federal funds for
                 ineligible charges made to the programs.

         1D.     Submit supporting documentation showing the eligibility, reasonableness, and
                 allocability of $38,164 charged to the Emergency programs for unsupported
                 drawdowns and equipment cost allocations or reimburse the programs from non-
                 Federal funds.




2
    Emergency funds of more than $1.1 million drawn between July 1, 2011, and December 31, 2015, were adjusted
    to consider $158,800 questioned in recommendation 1C and $38,164 questioned in recommendation 1D.


                                                       6
1E.   Implement adequate procedures and controls to ensure that only eligible,
      reasonable, and allocable costs are charged to the Emergency programs. The
      procedures should include but not be limited to ensuring that program staff is
      properly trained and familiar with HUD’s requirements and that data in HUD’s
      information system are periodically reconciled with accounting records.




                                       7
Scope and Methodology
We performed our onsite audit work between February and May 2016 at the Municipality’s
office in Bayamon, PR. The audit generally covered the period October 2, 2003, through
December 31, 2015.

To accomplish our audit objective, we

    •    Reviewed applicable statutes and HUD program requirements,

    •    Interviewed HUD and Municipality officials,

    •    Reviewed HUD- and Municipality-related files and records, and

    •    Traced information reported in HUD’s information system to the Municipality’s records.

According to the Municipality’ records, between October 2003 and June 2015, 174 persons
transferred to rehabilitation centers in the United States. We examined the Municipality’s files
and records to determine the source of funds used to pay for the transportation costs.

We did not select 100 percent of the transactions for testing, as the selection made provided
sufficient evidence for the findings presented. The results of the audit apply only to the items
selected for review and cannot be projected to the universe or population.
HUD’s information system showed that the Municipality withdrew more than $1.14 million in
Emergency funds between July 1, 2011, and December 31, 2015. We reviewed a sample of
drawdowns based on the type of the activity and the dollar amount to determine whether the
funds were used for eligible purposes. 3 The sample resulted in 34 drawdowns totaling $330,865.
The Municipality’s records showed that between July 1, 2011, and December 31, 2015, the
Municipality disbursed more than $1.13 million in Emergency funds. We reviewed a sample of
disbursements based on the purpose of the payment and the payee name to determine whether
the funds were used for eligible purposes. 4 The sample resulted in 50 disbursements totaling
$258,731. Based on the deficiencies noted regarding the propriety of funds charged for travel
and detoxification services, we reviewed 17 additional disbursements totaling $30,477 made
between November 1, 2008, and June 30, 2011.
To achieve our audit objectives, we relied in part on computer-processed data contained in
HUD’s information system. Although we did not perform a detailed assessment of the reliability

3
    We selected for review activity delivery drawdowns greater than $10,000 and administrative drawdowns greater
    than $1,500.
4
    We selected for review disbursements made for the acquisition of motor vehicles and computer equipment, and
    paid to the Municipality, its employees, and to other vendors.


                                                        8
of the data, we performed a minimal level of testing and found the data in HUD’s information
system adequate for our purposes. We did not rely on computer-processed data contained in the
Municipality’s accounting system, nor were the data used to materially support our audit
findings, conclusions, and recommendations.

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 objectives.




                                                9
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

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

Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objectives:

•   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.

•   Reliability of financial reporting – Policies and procedures that management has
    implemented to reasonably ensure that valid and reliable data are obtained, maintained, and
    fairly disclosed in reports.

•   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that resource use is consistent 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 Municipality’s financial management system did not properly identify the application of
    Emergency drawdowns, did not support the eligibility and reasonableness of program
    expenditures, and contained inaccurate financial information concerning funded activities. In



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addition, Municipality officials were not familiar with HUD requirements and allowed the
use of program funds for ineligible efforts (finding).




                                           11
Appendixes

Appendix A


                              Schedule of Questioned Costs

                 Recommendation
                                        Ineligible 1/    Unsupported 2/
                     number
                       1B                                    $944,687
                       1C               $189,227
                       1D                                       38,164
                        Totals            189,227              982,851


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




                               13
Ref to OIG   Auditee Comments
Evaluation




Comment 2




Comment 3




                            14
Ref to OIG
             Auditee Comments
Evaluation




Comment 4




Comment 4




                          15
                         OIG Evaluation of Auditee Comments


Comment 1   The Municipality indicated it will continue with the implementation of the new
            accounting system. We acknowledge the Municipality’s agreement with our
            finding. The Municipality must coordinate with HUD regarding the
            implementation of this new system to ensure it complies with HUD requirements.
Comment 2   The Municipality stated that there was a discrepancy in the amount questioned
            pertaining to recommendation 1B and that it should be corrected. In addition, that
            it will submit to HUD a reconciliation of the Emergency funds drawn.
            The $944,687 questioned in recommendation 1B is correct and no modifications
            are required. Emergency funds of more than $1.1 million drawn between July 1,
            2011, and December 31, 2015, were adjusted to consider $158,800 of the
            $189,227 questioned in recommendation 1C and $38,164 questioned in
            recommendation 1D ($1,141,651 - $158,800 -$38,164). Only $158,800
            questioned in recommendation 1C pertains to the period of July 1, 2011 through
            December 31, 2015. The Municipality must ensure that in addition to submitting
            the reconciliation, it provides support demonstrating that such funds have not
            been used in violation of the restrictions and prohibitions of applicable statutes.
Comment 3   The Municipality requested the ineligible costs be reclassified as unsupported and
            to allow the identification of allowable detoxification expenses.
            Regulations at 24 CFR 576.102(a)(ix)(C) state that inpatient detoxification and
            other inpatient drug or alcohol treatment are not eligible program costs. The
            Municipality did not provide additional documentation pertaining to the ineligible
            charges.
Comment 4   The Municipality indicated it will provide HUD the required documentation and
            will participate in future HUD training. We acknowledge the Municipality’s
            agreement with our finding.




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Appendix C
             Schedule of Ineligible Travel Disbursements
             Check number         Date         Amount
                 1979         Nov. 3, 2008         $330
                 1981         Nov. 7, 2008        3,435
                 2080        June 29, 2009          890
                 2081        June 29, 2009        1,500
                 2204        Mar. 21, 2010        2,145
                 2205        Mar. 21, 2010        2,145
                 2208        Mar. 21, 2010        2,145
                 2231        June 10, 2010        1,325
                 2234        June 30, 2010          692
                   78          Apr. 5, 2011         500
                   80          Apr. 8, 2011       3,250
                   81          Apr. 8, 2011       3,250
                   82          Apr. 8, 2011         500
                   84        Apr. 25, 2011        1,250
                   86        Apr. 25, 2011          285
                   87        Apr. 25, 2011          285
                  214          Mar. 5, 2012          43
                  217          Mar. 5, 2012         788
                  249         June 27,2012        1,770
                  264        Sept. 18, 2012         269
                  274        Nov. 14, 2012        4,000
                  322          Apr. 3, 2013         202
                  439         Oct. 15, 2013       5,086
                  440         Oct. 15, 2013       2,286
                  603        Apr. 30, 2014          183
                  871         Jan. 23, 2015       1,250
                  922        Mar. 26, 2015          126
                  994         Oct. 15, 2015       3,000
                  995         Oct. 15, 2015       3,000
                 1010        Nov. 17, 2015          457
                         Total                  46,387




                                  17
Appendix D
             Schedule of Ineligible Detoxification Disbursements
                 Check number            Date         Amount
                      93              May 5, 2011      $6,500
                     151             Sept. 21, 2011     6,000
                     153             Oct. 11, 2011      6,000
                     166             Nov. 23, 2011      6,000
                     212              Mar. 5, 2012      3,500
                     215              Mar. 5, 2012      3,500
                     216              Mar. 5, 2012      3,500
                     240             May 14, 2012       7,500
                     248             June 25, 2012      7,500
                     257             July 13, 2012      7,500
                     260             Aug. 14, 2012      7,800
                     265             Sept. 21, 2012     7,800
                     273             Nov. 1, 2012       7,800
                     279             Dec. 19, 2012      7,800
                     280             Dec 19, 2012       7,800
                     282              Feb. 5, 2013      7,800
                     372             June 12, 2013      1,920
                     390             July 18, 2013     12,000
                     414             Aug. 28, 2013      1,920
                     643             May 22, 2014       3,850
                     735             Aug 13, 2014       2,000
                     736             Aug. 13, 2014      3,850
                     737             Aug. 13, 2014      4,375
                     738             Aug. 13, 2014      1,000
                     739             Aug. 15, 2014      5,625
                     958              July 6, 2015      2,000
                             Total                    142,840




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Appendix E
                         Schedule of Unsupported Drawdowns
 Activity   Voucher                     Amount        Amount
                       HUD sent date                                    Comments
 number     number                       drawn      unsupported
  1839      5403293    Mar. 21, 2012       $3,575       $3,575    No support provided
                                                                  Documents provided did
  1905      5573448    June 13, 2013       1,581         1,581
                                                                  not identify the payee.
  1905      5576551    June 20, 2013       1,579         1,579    No support provided
  1905      5605184    Sept. 12, 2013      2,038         2,038    No support provided
  1905      5605186    Sept. 12, 2013      1,802         1,802    No support provided
                                                                  Documents provided did
  1905      5605189    Sept. 12, 2013      1,802         1,802
                                                                  not identify the payee.
  1905      5605191    Sept. 12, 2013      1,802         1,802    No support provided
  1905      5612024    Sept. 30, 2013      2,312         2,312    No support provided
                                                                  Documents provided did
  1954      5627239    Nov. 14, 2013       1,802         1,802
                                                                  not identify the payee.
                                                                  Documents provided did
  1954      5635462    Dec. 10, 2013       1,802         1,802
                                                                  not identify the payee.
                                                                  Documents provided did
  1954      5635464    Dec. 10, 2013       1,802         1,802
                                                                  not identify the payee.
  1904      5645268    Jan. 10, 2014      18,852         1,602    No support provided
  1950      5689163    May 15, 2014       10,125         4,375    No support provided
  1836      5698590    June 16, 2014      11,886         1,950    No support provided
               Total                      62,760        29,824




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