oversight

The City of Camden, NJ, Did Not Ensure That Activities Always Complied With National Objective, Procurement, and Environmental Review Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-05-24.

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

                 The City of Camden, NJ
        Community Development Block Grant Program




Office of Audit, Region 3     Audit Report Number: 2016-PH-1003
Philadelphia, PA                                    May 24, 2016
To:            Annemarie C. Uebbing, Director, Office of Community Planning and
               Development, Newark Field Office, 2FD
               //signed//
From:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA
Subject:       The City of Camden, NJ, Did Not Ensure That Activities Always Complied With
               National Objective, Procurement, and Environmental Review 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 Camden’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 215-
430-6734.
                    Audit Report Number: 2016-PH-1003
                    Date: May 24, 2016

                    The City of Camden, NJ, Did Not Ensure That Activities Always Complied
                    With National Objective, Procurement, and Environmental Review
                    Requirements



Highlights

What We Audited and Why
We audited the City of Camden, NJ’s administration of its Community Development Block
Grant program. We conducted the audit because the City was authorized $6.6 million in Block
Grant funds for fiscal years 2013 through 2015 and we had not audited its program since 1996.
Our audit objective was to determine whether the City ensured that its program activities met
national objectives and complied with applicable U.S. Department of Housing and Urban
Development (HUD) procurement and environmental review requirements.

What We Found
The City did not ensure that its activities always complied with national objective, procurement,
and environmental review requirements. Of 10 activities reviewed, 7 did not comply with
requirements. One activity did not meet a national objective, and the related costs were incurred
and paid after the subrecipient agreement had expired. For this and six other activities, the City
did not (1) prepare independent cost estimates before making purchases, prepare cost analyses
before modifying the contracts, or show evidence of competition; and (2) conduct environmental
reviews or properly document that projects were exempt from environmental review
requirements. As a result, the City made ineligible disbursements totaling $317,803, and it could
not show that disbursements totaling $2.8 million complied with applicable requirements.
The City began taking corrective actions at the end of the audit and began providing some
documentation to resolve the deficiencies regarding environmental reviews. HUD needs to
assess the documentation to determine whether it was adequate to show that projects were
exempt from environmental review requirements.

What We Recommend
We recommend that HUD require the City to (1) repay its program $317,803 for the
disbursements made after the subrecipient agreement expired; (2) provide documentation for the
six activities that did not comply with procurement requirements to show that costs paid for
products and services were fair and reasonable or repay its program from non-Federal funds any
amount that it cannot support; and (3) provide documentation for seven activities, with draws
totaling $2.8 million, to show that either it conducted an environmental review or the activity
was exempt from an environmental review or repay its program from non-Federal funds any
amount that it cannot support.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The City’s Activities Did Not Always Comply With National Objective,
         Procurement, and Environmental Review 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. List of Activities Reviewed ....................................................................................... 16

         D. Activities That Did Not Meet Procurement and Environmental Review
            Requirements.............................................................................................................17




                                                                 2
Background and Objective
The Community Development Block Grant program is a flexible program that provides
communities with resources to address a wide range of unique community development needs.
Established in 1974, the program is one of the U.S. Department of Housing and Urban
Development’s (HUD) longest continuously running programs. The program provides annual
grants on a formula basis to 1,209 general units of local government and States. The City of
Camden receives its Block Grant funds as an entitlement grantee. To be eligible for funding,
every activity, except program administration and planning, must meet one of the following three
national objectives:

   •   Benefit low- and moderate-income persons,
   •   Prevent or eliminate slums or blight, or
   •   Address certain urgent needs in a community because conditions pose an immediate
       threat to the health and welfare of the community.

The City of Camden operates under a mayor-council form of government, which consists of four
elected council members serving each of the City’s four districts. The City’s director of
community and planning development administers its Block Grant program.

The City obtains and draws program funds for activities through HUD’s Integrated Disbursement
and Information System (IDIS). This system is the drawdown and reporting system for HUD’s
formula grant programs, which include the Block Grant program.

Our audit objective was to determine whether the City ensured that its program activities met
national objectives and complied with applicable HUD procurement and environmental review
requirements.




                                               3
Results of Audit

Finding: The City’s Activities Did Not Always Comply With
National Objective, Procurement, and Environmental Review
Requirements
The City did not ensure that its activities always complied with national objective, procurement,
and environmental review requirements. Of 10 activities reviewed, 7 did not comply with
requirements. 1 Specifically, one activity, with draws totaling $317,803, did not meet a national
objective, and the related costs were incurred and paid after the subrecipient agreement had
expired. For this and five other activities, with draws totaling more than $2.1 million, the City
did not prepare independent cost estimates before making purchases, prepare cost analyses
before modifying the contracts, or show evidence of competition. Additionally, for these six
activities and one additional activity, with draws totaling $3.1 million, the City did not conduct
environmental reviews or properly document that projects were exempt from environmental
review requirements. This occurred because the City did not properly monitor one activity.
Additionally, the City was unfamiliar with HUD procurement and environmental review
requirements, and lacked controls to ensure that activities complied with program requirements
before making payments. As a result, the City made ineligible disbursements totaling $317,803,
and it could not show that disbursements totaling more than $2.8 million complied with
applicable program requirements.

One Activity Did Not Meet a National Objective and Funds Were Spent After the
Subrecipient Agreement Expired
Regulations at 24 CFR (Code of Federal Regulations) 570.200(a)(2) required assisted activities
to meet one of three national objectives. For activity 3061, related to the construction by a
subrecipient of a commercial building, the City planned to meet the objective of benefit to low-
and moderate-income persons by creating 20 jobs. The project was scheduled to be completed
June 30, 2012. However, the project had not been completed, and the national objective had not
been achieved. The project was estimated to cost $8.4 million, and the City’s Block Grant
contribution toward the project was $350,000. The project experienced delays for reasons such
as zoning issues and litigation. As time passed, the other sources of funding pulled their funding
from the project. The City said that the subrecipient was trying to gather funding to complete the
project. The subrecipient reported that it had $2.9 million for the project and planned to
complete the project in June 2017. Although the activity had not met a national objective, the
City’s disbursement of $317,803 to the project was ineligible because the subrecipient agreement
had expired.

Program regulations at 24 CFR 570.503(a) required the City to execute a written agreement with
its subrecipient and for the agreement to remain in effect while the subrecipient had control over

1
    See appendix D for details.



                                                 4
program funds. The City entered into an agreement with the subrecipient on April 16, 2012, for
construction and site improvement for a new commercial building. The City amended the
agreement, and it expired on June 30, 2013. However, although the subrecipient agreement had
expired, the subrecipient hired contractors to perform site improvements to the property between
June and December 2014 and incurred costs totaling $317,803. The subrecipient submitted
documentation to the City for payment, and the City paid the subrecipient $317,803. 2 Because
the City disbursed the funds to the subrecipient without an agreement in place, the disbursements
totaling $317,803 were ineligible. This condition occurred because the City did not properly
monitor the project and lacked controls to ensure that activities complied with all requirements
before making payments. Program regulations at 24 CFR 570.501(b) made the City responsible
for determining the adequacy of performance under subrecipient agreements and taking
appropriate action when performance problems arose. Additionally, regulations at 24 CFR
85.40(a) required the City to monitor grant activities to ensure compliance with applicable
Federal requirements and that performance goals were met.

Six Activities Did Not Comply With Procurement Requirements
The City did not comply with applicable procurement requirements for six activities with draws
totaling $2.1 million. For five of the six activities, 3 the City did not prepare an independent cost
estimate or conduct a price or cost analysis. For the remaining activity, 4 the City prepared
independent cost estimates for two contracts before receiving bids, but did not prepare a cost
analysis before modifying each contract. In addition, for three of the six activities, the City
lacked documentation to show that it made purchases competitively. 5 Regulations at 24 CFR
85.36 required the City to prepare an independent cost estimate and price or cost analysis for all
procurement actions, conduct all procurement transactions in a manner providing full and open
competition, and maintain sufficient records to detail the significant history of a procurement.
Contrary to these requirements, the City did not prepare cost estimates, perform price or cost
analyses, and maintain documentation to show that it made purchases competitively. By not
complying with requirements, the City had no assurance that the $2.1 million it paid for products
and services was fair and reasonable. This condition occurred because the City was unfamiliar
with HUD’s procurement requirements. At the time the City made the $2.1 million in
disbursements, its procedures did not comply with HUD’s procurement requirements.

Seven Activities Did Not Comply With Environmental Review Requirements
The City did not comply with environmental review requirements for seven activities with draws
totaling $3.1 million. 6 For two activities, 7 with draws totaling $332,703, the City did not
complete an environmental review. Regulations at 24 CFR 58.38 required the City to maintain a
written record of the environmental review undertaken for each project. The environmental
review record must contain all required environmental review documents, public notices, and
written determinations or environmental findings as evidence of review, decision making, and

2
    The City made a payment of $186,132 in October 2014 and a payment of $131,671 in December 2014.
3
    Activities 2827, 2982, 3061, 3357, and 3359
4
    Activity 3097
5
    See appendix D for details.
6
    See appendix D for details.
7
    Activities 3061 and 2982



                                                      5
action pertaining to a particular project. This condition occurred because the City was unfamiliar
with environmental review requirements and lacked environmental review procedures. For five
activities, 8 with draws totaling $2.8 million, the City did not document their exempt status in its
environmental review record. For exempt activities, regulations at 24 CFR 58.34(b) state that
the City must document a written determination that each activity or project is exempt and that it
meets the conditions specified for the exemption. This condition occurred because the City was
unfamiliar with environmental review requirements, specifically the requirement to document
the exempt status of activities in its environmental review record, and it lacked environmental
review procedures.

The City Had Begun To Take Action To Resolve Deficiencies Regarding Environmental Reviews
After we notified the City of this problem, it prepared written determinations, dated in April
2016, that it believed demonstrated that the five activities discussed above were exempt from
environmental review requirements. HUD needs to assess whether the written determinations
provided and any documentation the City provides after the audit for the seven activities are
adequate to show that it conducted an environmental review or that the activity was exempt from
an environmental review.

HUD’s Recent Monitoring Review Identified Similar Issues
In June 2013, HUD’s Newark, NJ, Office of Community Planning and Development conducted
an onsite monitoring of the City’s Block Grant program and identified issues similar to those
identified here. The purpose of HUD’s monitoring review was to determine the City’s
compliance with applicable laws and regulations and identify deficiencies or weaknesses in
program management. The review resulted in five findings and two concerns. HUD found that
the City did not follow procurement regulations when it did not perform cost estimates and
conduct environmental reviews for activities that it considered to be emergencies. In March
2015, HUD accepted the last of the City’s corrective actions, including updates to its procedural
manuals, to address the monitoring findings.

Conclusion
The City did not ensure that its activities always complied with national objective, procurement,
and environmental review requirements. Of 10 activities reviewed, 7 did not comply with
requirements. This occurred because the City did not properly monitor one activity.
Additionally, the City was unfamiliar with HUD procurement and environmental review
requirements, and lacked controls to ensure that activities complied with all requirements before
making payments. As a result, the City made ineligible disbursements totaling $317,803 and
unsupported disbursements totaling more than $2.8 million.

Although the City had begun taking corrective action at the end of the audit to resolve some of
the deficiencies, HUD needs to assess the documentation to determine whether it was adequate
to show that projects were exempt from environmental review requirements.




8
    Activities 2818, 2827, 3097, 3357, and 3359



                                                  6
Recommendations
We recommend that the Director of HUD’s Newark, NJ, Office of Community Planning and
Development

         1A.      Require the City to repay its program $317,803 for the disbursements it made for
                  activity 3061 after the subrecipient agreement expired.

         1B.      Require the City to provide documentation for the six activities that did not
                  comply with procurement requirements to show that costs paid for products and
                  services were fair and reasonable or repay its program from non-Federal funds
                  any amount that it cannot support (excluding any amount repaid as a result of
                  recommendations 1C and 1D).

         1C.      Require the City to provide documentation for two activities, with draws totaling
                  $14,900, 9 to show that it conducted an environmental review or repay its program
                  from non-Federal funds any amount that it cannot support.

         1D.      Determine whether the documentation the City provided for five activities, with
                  draws totaling $2,816,545, is adequate to show that the activities were exempt
                  from an environmental review and if not, require the City to repay its program
                  from non-Federal funds any amount that it cannot support.

         1E.      Require the City to develop and implement controls to ensure that it properly
                  monitors subrecipient activities.

         1F.      Require the City to develop and implement controls to ensure that subrecipient
                  activities comply with all requirements before making disbursements.

         1G.      Require the City to provide training to its staff on HUD procurement and
                  environmental review requirements.

         1H.      Require the City to develop and implement controls to ensure that it complies
                  with HUD procurement and environmental review requirements.




9
    To avoid double-counting unsupported costs in our recommendations, we reported costs related to more than one
    deficiency only once. For this recommendation, we did not report the $317,803 related to activity 3061 because
    those costs were addressed in recommendation 1A.



                                                         7
Scope and Methodology
We conducted the audit from September 2015 through March 2016 at the City’s office located at
520 Market Street, Camden, NJ, and our offices located in Baltimore, MD, and Philadelphia, PA.
The audit covered the period July 1, 2013, to August 31, 2015, but was expanded when
necessary.

To accomplish our objective, we reviewed

   •   Applicable laws, regulations, the City’s annual plan, HUD’s program requirements at 24
       CFR Parts 58, 85 and 570, and other guidance.

   •   The City’s program files, procurement files, environmental reviews, annual audited
       financial statements for fiscal years 2013 and 2014, policies and procedures, and
       organizational chart.

   •   IDIS data reports, grant agreements, subrecipient grant agreements, and documents
       supporting the City’s and its subrecipient’s fund draws for program activities.

We also interviewed City employees and HUD staff.

To achieve our audit objective, we relied in part on computer-processed data from the City’s
computer system. Although we did not perform a detailed assessment of the reliability of the data,
we did perform a minimal level of testing and found the data to be adequate for our purposes.

We obtained information from IDIS for the City’s activities as of September 2015. The universe
included 72 open, 892 completed, and 329 canceled activities that the City created between 1993
and 2014. We segregated the open activities from the completed activities and sorted the
activities in descending dollar order based on the amount of funds allocated to the activity. We
nonstatistically selected 10 activities for review using a risk-based sampling method to determine
whether the activities met national objective, procurement, and environmental review
requirements. Although this approach did not allow us to make a projection to the population, it
was sufficient to meet the audit objective. The City allocated more than $4.4 million to the 10
activities and had drawn nearly $4.0 million from them as of September 8, 2015 (appendix C).
For open activities, we selected the five activities with the largest amount of allocated funds. For
completed activities, we selected the four activities with the largest amount of allocated funds
and a last draw within 3 years of the beginning our audit period (July 1, 2013). We selected the
only canceled activity that had funds drawn against it. However, during our review, we found
that this activity had not been canceled. Rather, the City had incorrectly identified the activity in
the system. The activity was completed.

Activities 3306 and 3407 were property improvement programs that the City established in 2013
and 2014 to assist low-income homeowners by giving them grants of up to $5,000 to make


                                                  8
repairs on their homes. We nonstatistically selected 25 grants for review using a risk-based
sampling method to determine whether they met national objective, procurement, and
environmental review requirements. Although this approach did not allow us to make a
projection to the population, it was sufficient to meet the audit objective. The City made 92
draws against these activities. For activity 3306, we selected the five draws with the largest
amounts totaling $133,891. For activity 3407, we selected the five vouchers with the largest
amounts totaling $109,408. The City provided grants to 66 homeowners with these 10 draws (36
from activity 3306 and 30 from activity 3407). Of the 66 grants, we reviewed the 25 with the
largest amounts totaling $112,884 (14 valued at $62,650 from activity 3306 and 11 valued at
$50,234 from activity 3407). We reviewed the other eight activities entirely.

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.




                                                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 objective:

•   Effectiveness and efficiency of program operations – Policies and procedures that
    management has implemented to reasonably ensure that a program meets its objectives.
•   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.
•   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that program participants comply with program 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 Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
The City
•   Was unfamiliar with procurement and environmental review requirements.
•   Lacked controls to ensure that it complied with HUD procurement and environmental review
    requirements.


                                                  10
•   Lacked controls to ensure that it properly monitored subrecipient activities.
•   Lacked controls to ensure that subrecipient activities complied with all requirements before
    making disbursements.




                                                 11
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A             $317,803
                          1C                               $14,900
                          1D                               2,816,545

                        Totals           317,803           2,831,445



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
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 3




                               14
                         OIG Evaluation of Auditee Comments


Comment 1   The City noted that the activities reviewed covered years 2009 through 2014 and
            that the findings addressed activities from years 2009 through 2013. We added a
            column in appendix C to identify the plan years of the activities reviewed.
Comment 2   The City commented that it incorporated recommendations from HUD’s 2013
            monitoring review into its procedural manuals. We added a statement in the
            finding regarding the City’s actions to address HUD’s monitoring findings.
Comment 3   The City asserted that it will incorporate the recommendations contained in the
            audit report into its purchasing manual as well as its grants management manual.
            It also stated that it will continue to improve its internal policies and procedures
            and instruct all directors and supervisory staff in these procedures. These actions
            relate to recommendations 1E, 1F, 1G and 1H respectively. However, we did not
            verify the implementation of these actions. Therefore, as part of the audit
            resolution process, HUD will evaluate the corrective actions taken by the City to
            ensure that they satisfy the recommendations.




                                              15
Appendix C
                             List of Activities Reviewed
        IDIS     Plan                             Amount
#                         Activity name                       Amount drawn    Status
     activity ID year                             allocated
1      2827     2009     Fire equipment           $729,000      $729,000     Completed

2      3359     2013    Fire equipment –          612,500        612,500     Completed
                        27th & Federal St.
                            Firehouse

3      2818     2009     Morris Delair            607,850        607,850     Completed
                        Water Treatment II

4      3097     2010    Emergency sewer           529,296        529,296     Completed
                          construction

5      3357     2012    Fire equipment –          507,383        337,899       Open
                        27th & Federal St.
                            Firehouse

6      3401     2014     Administration           444,574        281,426       Open

7      3061     2011      PBCIP Renew             350,000        317,803       Open
                            Building

8      3407     2014        Property              335,000        277,152       Open
                          Improvement
                            Program

9      3306     2013        Property              285,565        266,540       Open
                          Improvement
                            Program

10     2982     2009    Demolition – 1183          14,900        14,900      Completed
                           Liberty St.

                             Totals               4,416,068     3,974,366




                                             16
Appendix D
     Activities That Did Not Meet Procurement and Environmental Review Requirements
                                                             Amount not
                                     Amount
                                                           supported by an
                                    lacking a    Amount
                                                            environmental      Total
       Project name       Total        cost      lacking
#                                                              review or    unsupported
         (IDIS ID)        drawn    estimate or evidence of
                                                            lacking proper      cost
                                       cost    competition
                                                            documentation
                                     analysis
                                                           of exempt status
      Fire equipment
1                       $729,000    $718,921    $729,000       $729,000      $729,000
           (2827)
      Fire equipment
2                        612,500     612,500     612,500        612,500       612,500
           (3359)
       Morris Delair
           Water
        Treatment
3                        607,850         0          0           607,850       607,850
            Plant
       improvement
           (2818)
           Sewer
4     reconstruction     529,296     131,820        0           529,296       529,296
           (3097)
      Fire equipment
5                        337,899     337,899        0           337,899       337,899
           (3357)
      PBCIP Renew
6         Building       317,803     317,803     317,803        317,803      317,803 10
           (3061)
        Demolition
7                         14,900      14,900        0            14,900        14,900
           (2982)
           Totals       3,149,248   2,133,843   1,659,303      3,149,248     3,149,248




10
     The funds for this activity are included here to show our complete audit results for the City’s compliance with
     procurement and environmental review requirements. However, since these funds were also ineligible because
     the City disbursed the funds to the subrecipient without an agreement in place, we did not include them in the
     $2,831,445 ($3,149.248 - $317,803 = $2,831,445) in unsupported costs reported in recommendations 1C and 1D.



                                                          17