oversight

The State of Missouri Did Not Correctly Allocate Salaries to Its Disaster Recovery Grants

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-02-22.

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

                    The State of Missouri
        Community Development Block Grant Disaster
                   Recovery Program




Office of Audit, Region 7       Audit Report Number: 2016-KC-1001
Kansas City, KS                                  February 22, 2016
To:            Dana Buckner, Director, Kansas City Office of Community Planning and
               Development, 7AD
               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 7AGA
Subject:       The State of Missouri Did Not Correctly Allocate Salaries to Its Disaster
               Recovery Grants


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 State of Missouri’s Community Development
Block Grant Disaster Recovery 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
913-551-5870.
                     Audit Report Number: 2016-KC-1001
                     Date: February 22, 2016

                     The State of Missouri Did Not Correctly Allocate Salaries to Its Disaster
                     Recovery Grants




Highlights

What We Audited and Why
We audited the State of Missouri’s Community Development Block Grant (CDBG) Disaster
Recovery program because it was initially awarded more than $103 million in two CDBG
Disaster Recovery grants for storms and flooding that occurred in 2008. We had not previously
audited the State’s activities regarding these funds. Our audit objective was to determine
whether the State adequately supported salary distributions for its Disaster Recovery grants.

What We Found
The State did not correctly allocate salaries to its Disaster Recovery grants. It distributed salaries
to its grants by using distribution percentages based on project listings and employee feedback
instead of requiring employees to report their individual activities on their timesheets, which
would have enabled it to determine the actual amount of time spent on each activity.

What We Recommend
We recommend that the Director of the Kansas City, KS, Office of Community Planning and
Development (1) require the State to support more than $1.2 million in unsupported salary costs
for the B-08-DI-29-0001 Disaster Recovery grant or reimburse HUD from non-Federal funds
any portion of that amount that it cannot support, (2) require the State to support $279,362 in
unsupported salary costs for the B-08-DF-29-0001 Disaster Recovery grant or reimburse HUD
from non-Federal funds any portion of that amount that it cannot support, (3) require the State to
implement a detailed payroll tracking system to ensure that only salaries incurred in
administering the Disaster Recovery program are charged to its Disaster Recovery grants, (4)
ensure that the State receives training on salary distribution methods and documentation
requirements for Federal grants, and (5) monitor the State to ensure that it establishes and
implements a new time-keeping system.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The State Did Not Correctly Allocate Salaries to Its Disaster Recovery
         Grants................................................................................................................................. 4

Scope and Methodology ...........................................................................................7

Internal Controls ......................................................................................................9

Appendixes ..............................................................................................................10
         A. Schedule of Questioned Costs .................................................................................. 10
         B. Auditee Comments .................................................................................................... 11




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Background and Objective
The Missouri Department of Economic Development, Business and Community Services Division,
manages the Community Development Block Grant (CDBG) and CDBG Disaster Recovery
programs. The Business and Community Services Division’s main offices are located at 301 High
Street, Jefferson City, MO.
In 2008, parts of Missouri witnessed various weather-related disasters, including severe flooding
and tornadoes. There were six presidentially declared disasters in Missouri covering all but 8 of the
114 counties within the State. At least 3,892 homes were impacted by weather-related events in
2008, with 1,839 being affected in some way, 1,488 sustaining minor damage, 320 sustaining major
damage, and 245 being destroyed. Also, 22 levees were affected by flooding. Finally, there was
widespread damage to the public infrastructure reported by communities and regional planning
commissions.
The U.S. Department of Housing and Urban Development (HUD) initially awarded the State more
than $11 million in disaster relief funds through the Supplemental Appropriations Act, 2008 (Public
Law 110-252). Nationwide, the Act made up to $300 million in CDBG funds available for
necessary expenses related to disaster relief, long-term recovery, and restoration of infrastructure
and housing in areas covered by a 2008 major declaration of disaster.
HUD also awarded the State more than $92.6 million through the Consolidated Security, Disaster
Assistance, and Continuing Appropriations Act, 2009 (Public Law 110-329). This Act provided
$6.5 billion nationwide in CDBG funds for necessary expenses related to disaster relief, long-term
recovery, restoration of infrastructure and housing, and economic revitalization in areas affected by
hurricanes, floods, and other natural disasters occurring during 2008, for which the President
declared a natural disaster. Also, HUD awarded the State an additional $5 million through CDBG
supplemental funding under Public Law 110-329.
HUD signed the $11 million funding approval for the State on May 21, 2009, and the State signed it
on May 27, 2009. For the $92.6 million CDBG Disaster Recovery grant, HUD signed the funding
approval on November 27, 2009, and the State signed it on November 30, 2009. For the additional
$5 million, HUD signed the funding approval on February 16, 2011, and the State signed it on
February 18, 2011. The Disaster Recovery activities include clearance and demolition, debris
removal, acquisition and construction of public facilities, street repair, new housing, rehabilitation
and reconstruction of residential houses, acquisition buyout, relocation assistance, and economic
development.
Our audit objective was to determine whether the State adequately supported salary distributions
for its Disaster Recovery grants.




                                                   3
Results of Audit

Finding: The State Did Not Correctly Allocate Salaries to Its
Disaster Recovery Grants
The State did not correctly allocate salaries to its Disaster Recovery grants. This deficiency
occurred because the State was not aware of the specific guidance outlined in the Code of
Federal Regulations (CFR) regarding salary distribution documentation. As a result, HUD
lacked assurance that the State properly used more than $1.5 million to administer its Disaster
Recovery projects.
The State Did Not Correctly Allocate Salaries to Its Disaster Recovery Grants
The State distributed salaries to its grants by using distribution percentages based on project
listings and employee feedback instead of requiring employees to report their individual
activities on their timesheets, which would have enabled it to determine the actual amount of
time spent on each activity. Federal regulations at 2 CFR Part 225, appendix B, paragraph
(8)(h), require that employees who work on multiple activities or cost objectives have a
distribution of their salaries or wages be supported by personnel activity reports or equivalent
documentation. It also requires these reports or equivalent documentation to reflect an after-the-
fact distribution of the actual activity worked on, account for the total activities for which an
employee is compensated, be prepared at least monthly, and be signed by the employee.

From June 2010 through September 2012, the State used the same salary distribution percentages
for its employees working on the Disaster Recovery grants. In October 2012, it began to allocate
salary distribution percentages for individual employees, but it still assigned these percentages
based on project listings and employee feedback.

The State assigned its Disaster Recovery program salaries to two administrative expenditure
accounts, and those salaries accounted for the majority of the costs. The State could not support
the salaries it allocated to the administrative expenditure accounts for the B-08-DI-29-0001 and
B-08-DF-29-0001 Disaster Recovery grants. The salaries for the two grants totaled more than
$1.2 million and $279,362, respectively. Overall, these salaries totaled more than $1.5 million.




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The table below shows the year, Disaster Recovery grant, and salary expenses.

                                   B-08-DF-29-0001        B-08-DI-29-0001
                      Year*          grant salary           grant salary
                                       expenses               expenses
                       2010               $36,824                 $3,968
                       2011                $85,845              $118,472
                       2012                $47,320              $279,587
                       2013                $51,885              $259,781
                       2014                $45,482              $295,243
                       2015                $12,006              $305,725
                       2016                      $0                $9,518

                      Totals             $279,362              $1,272,294

                       *The State’s fiscal year is July 1 through June 30.

The State Was Not Aware of the Specific Guidance Regarding Salary Distribution
Documentation
During our audit, State officials told us that they were not aware of the specific guidance
outlined in 2 CFR Part 225, dealing with the required salary distribution documentation. As a
result of our review, the State implemented changes in its payroll system so its employees could
submit their own activity codes to help track the time charged to Federal awards.
HUD Lacked Assurance That the State Properly Used More Than $1.5 Million
The only accurate way to allocate salaries to individual grants is to allocate the costs based on
the actual amount of time staff spends working on each grant. Because the State based the
allocations on project listings, HUD lacked assurance that the State properly used more than $1.5
million in salary costs to administer its Disaster Recovery projects and, therefore, may not have
had funds available for other projects.
Recommendations
We recommend that the Director of the Kansas City, KS, Office of Community Planning and
Development

       1A.    Require the State to support $1,272,294 in unsupported salary costs for the B-08-
              DI-29-0001 Disaster Recovery grant or reimburse HUD from non-Federal funds
              any portion of that amount that it cannot support.
       1B.    Require the State to support $279,362 in unsupported salary costs for the B-08-
              DF-29-0001 Disaster Recovery grant or reimburse HUD from non-Federal funds
              any portion of that amount that it cannot support.



                                                 5
1C.   Require the State to implement a detailed payroll tracking system to ensure that
      only salaries incurred in administering the Disaster Recovery program are charged
      to its Disaster Recovery grants.
1D.   Ensure that the State receives training on salary distribution methods and
      documentation requirements for Federal grants.
1E.   Monitor the State to ensure that it establishes and implements a new time-keeping
      system.




                                       6
Scope and Methodology
To accomplish our audit objective, we
      Interviewed HUD’s Kansas City, KS, Office of Community Planning and Development
       management and staff;
      Interviewed the State’s management and staff;
      Reviewed Public Laws 110-252 and 110-329, the Stafford Act, applicable portions of the
       Code of Federal Regulations, Federal Register notices, and Office of Management and
       Budget Circulars;
      Reviewed applicable HUD handbooks and guidebooks, Office of Community Planning
       and Development notices, and the State’s CDBG Administrative Manual;
      Reviewed the State’s project files, payroll records, and timesheets;
      Reviewed the grant agreements executed between HUD and the State;
      Reviewed HUD’s monitoring review of the State’s CDBG Disaster Recovery program;
       and
      Reviewed the State’s audited financial statements.

We reviewed the B-08-DF-29-0001 (DF) grant totaling more than $11 million and the B-08-DI-
29-0001 (DI) CDBG Disaster Recovery grant, totaling more than $97 million. The State had
spent more than $66.4 million for the DI grant project expenditures and more than $10.5 million
for the DF grant project expenditures as of June 29, 2015. It had spent more than $1.4 million
for its DI grant administrative expenditures and $314,839 for its DF grant administrative
expenditures as of July 16, 2015.

We selected a nonstatistical sample of 14 vouchers to review, including 7 from the DI grant and
7 from the DF grant. The vouchers list the amount of funds drawn for administrative expenses
from each disaster recovery grant. For the DI grant, the seven sampled vouchers totaled
$80,010, or 5.59 percent of the State’s total DI administrative expenses. For the DF grant, the
seven sampled vouchers totaled $19,385, or 6.16 percent of the State’s total DF administrative
expenses. For the DI sample, we selected every 20th voucher number from the list of 140 DI
administrative fund vouchers. For the DF sample, we selected every 19th voucher number from
the list of 135 DF administrative fund vouchers. We used a nonstatistical selection method to
select the vouchers for review because it met our audit objective. The results of our review
sample apply only to the items reviewed and cannot be projected to the universe.

We primarily used data from the State’s files to meet our audit objective. In addition, we used
HUD’s Disaster Recovery Grant Reporting (DRGR) system data. The DRGR system was
developed for the Disaster Recovery CDBG program and other special appropriations. Data
from the system are used by HUD staff to review activities funded under these programs and for


                                                7
required quarterly reports to Congress. We determined that the DRGR data were sufficiently
reliable to meet our objective.

Our audit period generally covered January 1, 2009, through May 31, 2015. However, we
expanded our review through July 16, 2015, to review additional administrative expenditures.
We conducted fieldwork from July through November 2015 at the Missouri Department of
Economic Development, Business and Community Services Division’s offices located at 301
West High Street, Jefferson City, MO. We also visited Disaster Recovery project offices located
in Mexico, MO, Belton, MO, St. Joseph, MO, Kansas City, MO, and Warrenton, MO.

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:

   Controls over the State’s allocation of salaries to its Disaster Recovery grants.
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 State lacked a detailed payroll tracking system to ensure that only costs incurred in
    administering the Disaster Recovery program were charged to its Disaster Recovery grants.
Separate Communication of Minor Deficiencies
We reported minor deficiencies to the auditee in a separate management memorandum dated
February 22, 2016.




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Appendixes

Appendix A


                             Schedule of Questioned Costs
                           Recommendation
                                             Unsupported 1/
                               number
                                   1A              $1,272,294
                                   1B                 279,362

                                 Total             $1,551,656



1/   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.




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Appendix B
                                        Auditee Comments

The auditee elected not to provide written comments.




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