oversight

The Lower Manhattan Development Corporation, New York, NY, Generally Administered CDBG Disaster Recovery Assistance Funds in Accordance With HUD Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-02-19.

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

    The Lower Manhattan Development
       Corporation, New York, NY
        Community Development Block Grant Disaster
                    Recovery Funds




Office of Audit, Region 2      Audit Report Number: 2016-NY-1004
New York – New Jersey                           February 19, 2016
To:            Marion Mollegen McFadden
               Deputy Assistant Secretary for Grant Programs, DG

               //SIGNED//
From:          Kimberly Greene
               Regional Inspector General for Audit, 2AGA
Subject:       The Lower Manhattan Development Corporation, New York, NY, Generally
               Disbursed CDBG Disaster Recovery Funds in Accordance With HUD
               Regulations


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 Lower Manhattan Development Corporation’s
(LMDC) administration of Community Development Block Grant (CDBG) Disaster Recovery
funds covering the period April 1, 2014 through March 31, 2015. The review was performed in
response to a congressional mandate that HUD OIG continuously audit LMDC’s administration
of the $2.783 billion in Disaster Recovery funds awarded to the State of New York in the
aftermath of the September 11, 2001, terrorist attack on the World Trade Center in New York
City. During the audit period, we reviewed $5.12 million of the $21.54 million disbursed for the
four programs selected for review.
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
212-264-4147.
                   Audit Report Number: 2016-NY-1004
                   Date: February 19, 2016

                   The Lower Manhattan Development Corporation, New York, NY, Generally
                   Disbursed CDBG Disaster Recovery Funds in Accordance With HUD
                   Regulations



Highlights

What We Audited and Why
We performed the 20th review of the Lower Manhattan Development Corporation’s (LMDC)
administration of the $2.783 billion in Community Development Block Grant (CDBG) Disaster
Recovery funds awarded to the State of New York in the aftermath of the September 11, 2001,
terrorist attacks on the World Trade Center in New York City. The objective of the audit was to
determine whether LMDC disbursed CDBG Disaster Recovery funds in accordance with the
guidelines established under the U.S. Department of Housing and Urban Development (HUD)-
approved partial action plans for the (1) New York Stock Exchange Security Improvements, (2)
East River Waterfront, (3) Lower Manhattan Business Expansion, and (4) Community &
Cultural Enhancements programs. Specifically, we reviewed $5.12 million of the $21.54 million
disbursed for the four programs selected for review.

What We Found
LMDC generally disbursed CDBG Disaster Recovery funds in accordance with the guidelines
established under the HUD-approved partial action plans and applicable laws and regulations for
the (1) New York Stock Exchange Security Improvements, (2) East River Waterfront, (3) Lower
Manhattan Business Expansion, and (4) Community & Cultural Enhancements programs.

What We Recommend
There are no recommendations.
Table of Contents
Background and Objective......................................................................................3

Results of Audit
         LMDC Generally Disbursed CDBG Disaster Recovery Funds in Accordance With
         HUD Regulations .............................................................................................................. 5

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

Internal Controls ......................................................................................................8

Appendixes
         A. Auditee Comments ...................................................................................................... 9

         B. Schedule of Disbursements as of March 31, 2015 ................................................. 10




                                                                  2
Background and Objective
The Lower Manhattan Development Corporation (LMDC) was created in December 2001 as a
subsidiary of the Empire State Development to function as a joint city-State development
corporation. A 16-member board of directors, appointed equally by the governor of New York and
the mayor of New York City, oversees LMDC’s affairs. The Empire State Development performs
all treasury functions for LMDC.

The State of New York designated LMDC to administer $2.783 billion1 of the $3.483 billion2 in
Community Development Block Grant (CDBG) Disaster Recovery funds appropriated by Congress
in the aftermath of the September 11, 2001, terrorist attacks on the World Trade Center to assist
with the recovery and revitalization of Lower Manhattan. Planned expenditures of Disaster
Recovery funds are documented in action plans that receive public comment and are approved by
the U.S. Department of Housing and Urban Development (HUD). As of March 31, 2015, HUD had
approved 15 partial action plans and multiple amendments, which allocated the $2.783 billion to
various programs and activities (see appendix B for amounts by program), and LMDC had
disbursed more than $2.4 billion, or 86 percent, of the $2.783 billion appropriated.

During this audit, we reviewed disbursements related to the following programs:

New York Stock Exchange Security Improvements: As of March 31, 2015, HUD had approved
approximately $25.26 million for this program. This program consisted of two phases. Phase one
of the program involved installing security barriers and guard facilities on critical streets,
developing a more effective street treatment plan, and providing more attractive street furniture to
facilitate secure pedestrian and vehicular circulation within the historic core of Lower Manhattan.
Phase two of the program focused on public realm improvements to enhance the attractiveness of
the New York Stock Exchange Area as a competitive location for businesses, residents, and visitors.

East River Waterfront: As of March 31, 2015, HUD had approved $163 million for this program.
The East River Waterfront design study provided recommendations for improved alternative uses
for the waterfront between the Battery Maritime Building and Pier 42 to the north, including the
development of open spaces and sites for a wide variety of uses. This program would help
reinvigorate the 2-mile stretch and enhance use by residents, workers, and visitors. Together with
other public initiatives in the area, these projects will help strengthen the central business district in
Lower Manhattan and enhance the viability of its residential communities.

Lower Manhattan Business Expansion: As of March 31, 2015, HUD had approved $4 million for
this program. This program is a grant program intended to entice startup businesses to Lower
Manhattan and support the expansion of established companies in Lower Manhattan with office


1
    This amount was funded by two grants, B-02-DW-36-0001 for $2 billion and B-02-DW-36-0002 for $783 million.
2
    The Empire State Development administers the remaining $700 million.

                                                        3
space and funding opportunities. This economic development program would support
approximately 18 startup companies and the estimated creation or preservation of 320 jobs.

Community & Cultural Enhancements: As of March 31, 2015, HUD had approved more than
$88.77 million for the Community & Cultural Enhancements program. The Community
Enhancement and Cultural program funds will be allocated by LMDC to not-for-profit and
government organizations. The Community Enhancement fund will focus on projects that
support community facilities or programs that provide for education, employment, health care
services, and recreational or community gathering needs. The Cultural Enhancement fund will
focus on programs that provide cultural facilities or programming in Lower Manhattan and
demonstrate the ability to spur long-term Lower Manhattan revitalization and benefit area
residents, workers, businesses, and visitors.

HUD has authorized the use of up to 5 percent of the total grants to LMDC for costs associated with
planning and administration activities, which includes costs for overhead, personnel, and
consultants.

Our audit objective was to determine whether LMDC disbursed CDBG Disaster Recovery funds in
accordance with the guidelines established under HUD-approved partial action plans for the (1)
New York Stock Exchange Security Improvements, (2) East River Waterfront, (3) Lower
Manhattan Business Expansion, and (4) Community & Cultural Enhancements programs.




                                                 4
Results of Audit

LMDC Generally Disbursed CDBG Disaster Recovery Funds in
Accordance With HUD Regulations
LMDC officials generally disbursed CDBG Disaster Recovery funds in accordance with the
guidelines established under the HUD-approved partial action plans, subrecipient agreements,
and applicable laws and regulations for the New York Stock Exchange Security Improvements,
East River Waterfront, Lower Manhattan Business Expansion, and Community & Cultural
Enhancements programs.

Funds Disbursed in Compliance With HUD-Approved Action Plans and Federal
Requirements
For the programs tested, LMDC generally disbursed CDBG Disaster Recovery funds in
accordance with the HUD-approved partial action plans, subrecipient agreements, and applicable
laws and regulations. We tested approximately $5.12 million of the $21.54 million disbursed
under the New York Stock Exchange Security Improvements, East River Waterfront, Lower
Manhattan Business Expansion, and Community & Cultural Enhancements programs. We found
no material deficiencies.

Specifically, for the items tested, LMDC disbursed funds to subrecipients and vendors for
eligible, reasonable, and necessary expenses that complied with the HUD-approved partial action
plans, subrecipients’ agreements, and applicable laws and regulations. LMDC officials
continuously monitored subrecipient performance against goals and performance standards
prescribed in subrecipient agreements. Monthly progress reports and adequate supporting
documentation for cost reimbursements must be maintained for each project. Audit fieldwork
disclosed that LMDC officials prepared monthly, bimonthly, and quarterly monitoring reports
and maintained adequate supporting documentation for each of their projects. Additionally,
these reports documented communications and identified problems and resolutions.

Conclusion
For the items tested during our review, LMDC officials generally disbursed CDBG Disaster
Recovery funds in accordance with the established guidelines under HUD-approved partial
action plans, subrecipient agreements, and applicable laws and regulations for the New York
Stock Exchange Security Improvements, East River Waterfront, Lower Manhattan Business
Expansion, and Community & Cultural Enhancements programs.

Recommendations
There are no recommendations.




                                               5
Scope and Methodology
During the audit period, April 1, 2014 through March 31, 2015, LMDC disbursed more than
$56.7 million of the $2.783 billion in CDBG Disaster Recovery funds appropriated for activities
related to the rebuilding and revitalization of Lower Manhattan.

To accomplish our audit objective, we

        Reviewed applicable laws, regulations, program requirements.
        Reviewed LMDC’s policies, procedures, and internal controls.
        Reviewed HUD-approved partial action plans and amendments.
        Reviewed Empire State Development and LMDC records and subrecipient agreements
         applicable to the disbursements.
        Reviewed HUD quarterly performance reports and prior Office of Inspector General
         (OIG) audit work papers.
        Reviewed HUD monitoring reports.
        Interviewed LMDC officials.
        Obtained data in HUD’s Disaster Recovery Grant Reporting (DRGR) system.3
        Reviewed audited financial statements for the years ending March 31, 2014 and 2015.
        Reconciled disbursements in DRGR that were recorded during the review period.

During our audit, we selected four programs to gain a general understanding of LMDC’s internal
controls. We tested a nonstatistical4 sample of $5.12 million, or 23.79 percent, of the $21.54
million disbursed during our review period as follows:

                                                                                       Amount disbursed from
                                                          Amount tested                 April 1, 2014 through
                  Program
                                                           (in millions)                  March 31, 2015
                                                                                            (in millions)
New York Stock Exchange Security                                $1.43                            $2.89
Improvements
East River Waterfront                                            2.64                               12.91
Lower Manhattan Business Expansion                               0.29                                1.66
Community & Cultural Enhancements                                0.76                                4.08
                Total                                           $5.12                              $21.54


3
  The DRGR system was developed by HUD’s Office of Community Planning and Development for the CDBG
Disaster Recovery program and other special appropriations. Data from the system are used by HUD staff to review
activities funded under these programs and for required quarterly reports to Congress.
4
  A nonstatistical selection is appropriate when the auditor knows enough about the population to identify a relatively
small number of items of interest. The results of procedures applied to items selected under this method apply only
to the selected items and must not be projected to the portion of the population that was not tested.



                                                          6
For the disbursements under the New York Stock Exchange Security Improvements, East River
Waterfront, and Lower Manhattan Business Expansion programs, we reviewed the largest dollar
amount drawn down and disbursed for each program. For the Community & Cultural
Enhancements program, we reviewed the three largest dollar amounts drawn down and disbursed
for this program.

For informational purposes, we used the data obtained from HUD’s DRGR system. The
assessment of this reliability was limited to the data we reviewed and reconciled to LMDC
records. Therefore, we did not assess the reliability of this system.

We performed our audit fieldwork from September through December 2015 at the LMDC office
located in Lower Manhattan and the LMDC parent company, Empire State Development, located
in Midtown Manhattan.

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(s).




                                                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 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:

   Program operations – Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.
   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that resource use is consistent with laws and regulations.
   Safeguarding resources – Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.
   Validity and reliability of data – Policies and procedures that management has implemented
    to reasonably ensure that valid and reliable data are obtained, maintained, and fairly
    disclosed in reports.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
We evaluated internal controls related to the audit objectives in accordance with generally
accepted government auditing standards. Our evaluation of internal controls was not designed to
provide assurance regarding the effectiveness of the internal control structure as a whole.
Accordingly, we do not express an opinion on the effectiveness of LMDC’s internal control as a
whole.




                                                  8
Appendixes

Appendix A
             Auditee Comments




                    9
                                                    Appendix B
                                   Schedule of Disbursements as of March 31, 2015

                                                                        Audit period
                                                                                            Cumulative         Balance
                      Program                          Budget as of     disbursement
                                                                                         disbursement as    remaining as of
                                                       Mar. 31, 2015    Apr. 1, 2014 –
                                                                                         of Mar. 31, 2015    Mar. 31, 2015
                                                                        Mar. 31, 20155
Business Recovery Program                                $218,946,000                       $218,750,393          $195,607
Job Creation & Attraction Program                         143,000,000     ($27,600)          106,631,801         36,368,199
Small Firm Attraction & Retention                          29,000,000                         27,625,391          1,374,609
Residential Grant Program                                 236,180,809                        236,057,064            123,745
Employment Training Assistance                                346,000                            337,771              8,229
Interim Memorial                                              309,969                            309,969                  0
Columbus Park Pavilion                                        998,571                            767,406            231,165
History & Heritage Marketing                                4,612,619                          4,612,619                  0
Downtown Alliance Streetscape                               4,000,000                          4,000,000                  0
NYSE (New York Stock Exchange) Security
                                                           25,255,000        2,890,607        23,154,743          2,100,257
Improvements
Parks & Open Spaces                                        46,981,689                         28,625,960         18,355,729
Hudson River Park Improvement                              72,600,000                         72,600,000                  0
West Street Pedestrian Connection                          22,955,811                         21,492,152          1,463,659
LM (Lower Manhattan) Communication Outreach                 1,000,000                          1,000,000                  0
Chinatown Tourism Marketing                                 1,160,000              165         1,160,000                  0
Lower Manhattan Info                                        2,570,000           36,000         2,548,556             21,444
WTC (World Trade Center) Site                             714,953,783       14,032,384       663,202,157         51,751,626
Lower Manhattan Tourism Programs                            3,950,000                          3,950,000                  0
East River Waterfront                                     163,000,000       12,910,163       118,301,948         44,698,052
Lower Manhattan Street Management                           9,000,000                          8,324,375            675,625
East Side K-8 School                                       23,000,000            1,297        23,000,000                  0
Fiterman Hall                                              15,000,000                         15,000,000                  0
Chinatown LDC (Local Development
                                                            7,000,000                          5,367,394          1,632,606
Corporation)
Lower Manhattan Business Expansion                         4,000,000         1,660,000         1,660,000          2,340,000
Lower Manhattan Housing                                   54,000,000         4,810,015        35,010,015         18,989,985
Lower Manhattan Public Service Programs                    7,891,900           158,499         7,561,020            330,880
Planning & Administration                                115,247,005         1,858,875       107,534,334          7,712,671
Community & Cultural Enhancements                         87,855,844         4,078,808        72,714,579         15,141,265
Drawing Center                                             2,000,000                           2,000,000                  0
Fulton Corridor                                           35,000,000        12,724,414        26,717,456          8,282,544
Economic Development                                       6,775,000                           4,897,866          1,877,134
Transportation Improvements                               15,835,000             4,614           162,268         15,672,732
Education – Other                                          3,000,000                           3,000,000                  0
Utility Restoration and Infrastructure Rebuilding        483,382,087                         483,382,087                  0
Disproportionate Loss                                     33,000,000                 3        33,000,000                  0
Other World Trade Center Area Improvements               189,192,913         1,660,584        36,622,141        152,570,772
                       Total                          $2,783,000,000     $56,798,828     $2,401,081,465      $381,918,535




      5
          Negative amounts represent recoveries to the program.



                                                                  10