oversight

The City of Huntington Beach, CA, Administered Its Community Development Block Program in Accordance With HUD Rules and Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-28.

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

          City of Huntington Beach, CA
        Community Development Block Grant Program




Office of Audit, Region 9     Audit Report Number: 2016-LA-1012
Los Angeles, CA                               September 28, 2016
To:            William G. Vasquez, Director, Office of Community Planning and Development,
               Los Angeles, 9DD

               //SIGNED//
From:          Tanya E. Schulze, Regional Inspector General for Audit, 9DGA
Subject:       The City of Huntington Beach, CA, Administered Its Community Development
               Block Program in Accordance With HUD Rules and 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 City of Huntington Beach’s 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
213-534-2471.
                    Audit Report Number: 2016-LA-1012
                    Date: September 28, 2016

                    The City of Huntington Beach, CA, Administered Its Community
                    Development Block Program in Accordance With HUD Rules and
                    Requirements


Highlights

What We Audited and Why
We audited the City of Huntington Beach’s Community Development Block Grant program due
to issues identified by the U.S. Department of Housing and Urban Development’s (HUD) Los
Angeles Office of Community Planning and Development. In addition, Office of Inspector
General (OIG) data analytics identified timeliness issues with the use of program funding. We
also selected the City because it had not been audited by OIG. Our objective was to determine
whether the City administered its program in accordance with applicable HUD rules and
requirements. Specifically, we wanted to determine whether its projects complied with program
requirements.

What We Found
The City administered its program funds in accordance with applicable HUD rules and
requirements for the projects reviewed. The program-funded projects reviewed met program
national objectives, and project activities were supported and met eligibility criteria. The City
had addressed HUD’s monitoring concerns and timeliness issues.

What We Recommend
There are no recommendations.
Table of Contents
Background and Objective......................................................................................4

Results of Audit ........................................................................................................5
         Finding: The City Administered Its Program in Accordance With HUD Rules and
         Requirements..................................................................................................................... 5

Scope and Methodology ...........................................................................................6

Internal Controls ......................................................................................................8
         A. Auditee Comments and OIG’s Evaluation ............................................................... 9




                                                                    3
Background and Objective
The City of Huntington Beach is a recipient of the U.S. Department of Housing and Urban
Development’s (HUD) Community Development Block Grant (CDBG) entitlement program. The
program funds are intended to help the City develop viable urban communities by providing decent
housing and a suitable living environment and by expanding economic opportunities, principally for
low- and moderate-income persons. The program is authorized under Title 1 of the Housing and
Community Development Act of 1974, Public Law 93-383, as amended in 42 United States Code
530.1 et seq.
HUD awarded the City more than $2.9 million in funding through the program for fiscal years
ending October 1, 2013, through September 30, 2016. As of June 1, 2016, HUD’s Line of Credit
Control System 1 reports showed that the City had drawn down more than $1.6 million. The City
identified the following objectives for its use of program funds:
    1. Provide decent affordable housing. The City includes a wide range of housing possibilities
       under the HOME Investment Partnerships Program and CDBG.
    2. Creating a suitable living environment. The City will undertake activities that benefit
       communities, families, or individuals by addressing issues in their living environment.
    3. Creating economic opportunities. The City will undertake activities related to economic
       development, commercial revitalization, or job creation.
The City’s Office of Business Development administers the program funds to meet these objectives.
The objective was to determine whether the City administered its program in accordance with
applicable HUD rules and requirements. Specifically, we wanted to determine whether its projects
complied with program requirements.




1
    The Line of Credit Control System is HUD’s primary grant disbursement system used for handling
    disbursements for the majority of HUD programs.


                                                       4
Results of Audit

Finding: The City Administered Its Program in Accordance With
HUD Rules and Requirements
The City administered its program funds in accordance with applicable HUD rules and
requirements for three public service projects, one code enforcement project, and a program
administration project reviewed during the review. The projects were eligible and properly
supported. The City had also addressed HUD’s monitoring concerns and timeliness issues
regarding the use of program funds.

Program-Funded Projects Were Eligible and Supported
The CDBG projects reviewed were eligible and supported. We reviewed the following five
projects:

Public service projects
   • Activity 543 – Oak View Community Center Children’s Bureau
   • Activity 577 – Senior Outreach Services
   • Activity 565 – AIDS Services Foundation OC

Code enforcement
   • Activity 574 – Special Code Enforcement

Project administration
   • Activity 569 – Fair Housing Foundation

All five projects met at least one of the program national objectives. The City ensured that all
project activities met eligibility criteria and expenses were supported. As a result, $183,378 in
program expenses for the five projects was eligible and supported.

The City Had Addressed Monitoring and Timeliness Issues
The City had addressed HUD’s monitoring concerns identified in a 2014 monitoring report.
Specifically, it implemented a CDBG policy and procedures guide and grant management
policies and procedures in June 2015 and April 2016, respectively. The City also established
eligibility checklists for its projects to ensure that program funds had the required supporting
documents. Further, it repaid HUD $29,053 for incurred ineligible program costs.

The City acknowledged its timeliness issues by hiring a new grants accountant in January 2016
to ensure that program funds would be spent according to HUD’s timeliness requirements. The
City stated that it would ensure that timeliness requirements would be met.

Recommendations
There are no recommendations.


                                                  5
Scope and Methodology
We performed our audit at the City’s office in Huntington Beach, CA, from June 2 to August 19,
2016. Our review covered the period October 1, 2013, to June 1, 2016, and was expanded as
necessary.
To accomplish our objective, we

    •    Reviewed relevant background information, including grant agreements, HUD
         monitoring reports, and the City’s consolidated and action plans;

    •    Reviewed and analyzed the City’s policies and procedures and internal controls relating
         to its program;

    •    Reviewed the City’s audited financial statements for fiscal years 2013, 2014, and 2015;

    •    Reviewed applicable HUD program rules and requirements;

    •    Reviewed information from HUD’s Line of Credit Control System;

    •    Reviewed information from HUD’s Integrated Disbursement and Information System;

    •    Reviewed project files for sampled program expenses;

    •    Interviewed City personnel responsible for administering the program; and

    •    Performed site visits to sampled program-funded projects.
We relied on data maintained by the City. Specifically, we relied on the accuracy of data from
HUD’s Integrated Disbursement and Information System 2 for the period October 1, 2013,
through June 1, 2016. We performed a data reliability assessment and determined that the data
were sufficiently reliable for our audit objective. Specifically, we compared the total spent
program funds in the data with the City’s audited single audit reports and consolidated annual
performance and evaluation reports.
The audit universe consisted of 43 projects totaling more than $2.1 million in expenditures for
the period October 1, 2013, through June 1, 2016. For our review, using Microsoft Excel’s
random generator, we selected five projects with transactions totaling $183,378 in project
expenditures for the period. Overall, our sample represented 8 percent of the expenditures for
the period. Although this approach did not allow us to make a projection to the population, it
was sufficient to meet the audit objective.



2
    The Integrated Disbursement and Information System provides HUD with current information regarding the
    program activities underway across the Nation, including funding data.


                                                       6
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.




                                                7
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 requirements.
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 program operations – Implementation of policies and
    procedures to ensure that program funds are used for eligible purposes.

•   Reliability of financial information – Implementation of policies and procedures to
    reasonably ensure that relevant and reliable information is obtained to support eligible
    program expenditures.

•   Compliance with applicable laws and regulations – Implementation of policies and
    procedures to ensure that the monitoring of and expenditures for program activities comply
    with applicable HUD rules and requirements.

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 the internal controls related to the audit objective in accordance with generally
accepted government auditing standards. Our evaluation of internal controls did not identify
significant deficiencies related to our audit objective. Accordingly, we do not express an opinion
on the effectiveness of the City’s internal control.




                                                  8
Appendix A
                                         Auditee Comments

The City declined the opportunity to provide a written response.




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