oversight

The City of Springfield, MA, Needs To Improve Its Compliance With Federal Regulations for Its Community Development Block Grant Disaster Recovery Assistance Grant

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-10-17.

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

            The City of Springfield, MA
        Community Development Block Grant Disaster
               Recovery Assistance Funds




Office of Audit, Region 1      Audit Report Number: 2017-BO-1002
Boston, MA                                       October 17, 2016
To:            Robert Shumeyko,
               Director, Office of Community Planning and Development, 1AD

               //Signed//
From:          Ann Marie Henry
               Acting Regional Inspector General for Audit, 1AGA

Subject:       The City of Springfield, MA, Needs To Improve Its Compliance With Federal
               Regulations for Its Community Development Block Grant Disaster Recovery
               Assistance Grant

Attached are the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our audit of the City of Springfield’s Community
Development Block Grant Disaster Recovery (CDBG-DR) assistance grant.

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 contact me at
617-994-8345.
                   Audit Report Number: 2017-BO-1002
                   Date: October 17, 2016

                   The City of Springfield, MA, Needs To Improve Its Compliance With Federal
                   Regulations for Its Community Development Block Grant Disaster Recovery
                   Assistance Grant


Highlights

What We Audited and Why
We audited the Community Development Block Grant Disaster Recovery (CDBG-DR)
assistance grant provided to the City of Springfield, MA, by the U.S. Department of Housing and
Urban Development (HUD) to assist in disaster recovery and rebuilding efforts resulting from
damages caused by presidentially declared disasters. The audit objective was to determine
whether the City properly followed Federal procurement requirements and whether payments to
vendors were adequately supported.

What We Found
A review of approximately $8.3 million, representing 60 percent of the $13.9 million in CDBG-
DR funds obligated, found that the funds were budgeted for eligible and HUD-approved
activities. However, City officials did not ensure that more than $1.9 million met Federal
procurement requirements or payments to vendors were adequately supported. Further, the City
did not always document the duplication of benefits in accordance with requirements.

What We Recommend
We recommend that HUD’s Acting Deputy Assistant Secretary for Grant Programs instruct City
officials to (1) provide evidence showing that more than $1.4 million was spent for supported,
necessary, and reasonable costs or repay HUD from non-Federal funds; (2) obtain support for
$472,246 or reprogram funds to other allowable activities; and (3) strengthen and follow
procurement policies and financial and administrative controls to ensure compliance with
Federal requirements.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The City’s CDBG-DR Activities Were Not Always Properly Procured
         and Adequately Supported............................................................................................... 4

Scope and Methodology .........................................................................................10

Internal Controls ....................................................................................................12

Appendixes ..............................................................................................................14
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 14
         B. Auditee Comments and OIG’s Evaluation ............................................................. 15
         C. Schedule of Sampled Activities ................................................................................ 25




                                                               2
Background and Objective
In 2013, the U.S. Department of Housing and Urban Development (HUD) awarded the City of
Springfield, MA, more than $21.8 million in Community Development Block Grant Disaster
Recovery (CDBG-DR) funds in response to multiple presidentially declared disasters in 2011,
the most severe of which was a June 1, 2011, F3 1 tornado. In addition to the tornado, in 2011,
the City endured two disastrous snow storms, the worst of which was a surprise October
“nor’easter.” The City received another Presidential Disaster Declaration for damages caused by
August 2011’s Hurricane Irene.

Before providing funds to a grantee, the Disaster Relief Appropriations Act of 2013 required the
HUD Secretary to certify that the grantees maintained sufficient financial controls and
procurement processes or procedures to identify any duplication of benefits; spent funds in a
timely manner; maintained Web sites to inform the public of all disaster recovery activities; and
prevented and detected fraud, waste, and abuse of funds.

In addition, the grantees were required to develop an action plan for public comment and HUD
approval, which described (1) how the proposed use of the CDBG-DR funds would address
long-term recovery needs; (2) activities for which funds could be used; (3) the citizen
participation process used to develop, implement, and access the action plan; and (4) grant
administration standards. HUD approved the City’s partial action plan and provided the City
more than $13.9 million in funds in December 2013. The City had drawn down and spent more
than $9.7 million as of March 2016. The Act requires that all funds be obligated by September
30, 2017, and disbursed within 2 years of obligation unless a waiver is obtained. The City’s
request to extend some funds was granted in November 2015, and the City now has until
December 13, 2018, to disburse these funds.

Our audit objective was to determine whether the City properly followed Federal procurement
requirements and whether payments to vendors were adequately supported.




1
 The Fujita-Pearson scale or more popularly known as the F scale, is used to measure the intensity of a tornado based
on the amount of damage done by a passing tornado over an area. F3 tornados have wind speeds between 158–206
mph, causes severe damage, and roofs are torn off even on well-constructed structures.




                                                          3
Results of Audit

Finding 1: The City’s CDBG-DR Activities Were Not Always
Properly Procured and Adequately Supported
The City did not always properly procure vendors in accordance with Federal requirements, and
some payments to vendors were not adequately supported. Further, the City did not always
properly document the duplication of benefits review in accordance with Federal requirements
and City policies. These issues were caused by the City’s weak policies and procedures and its
noncompliance with existing policies and procedures for (1) procuring developers and
contractors, (2) obtaining supporting documentation in compliance with City contracts, and (3)
properly documenting the review and certification of the duplication of benefits. As a result,
HUD lacked assurance that $1.9 million in CDBG-DR funds was provided for supported,
necessary, and reasonable costs.

CDBG-DR Funds Were Not Always Properly Supported, Necessary and Reasonable
Our review of 20 CDBG-DR activities found that the City did not always follow Federal
procurement requirements and also did not always obtain adequate supporting documentation for
payment requests. We attribute these deficiencies to the City’s weak policies and procedures
which did not ensure compliance with Federal procurement requirements and its noncompliance
with the existing policies and procedures. As a result, the City incurred more than $1.4 million 2
in unsupported costs and $472,246 3 in unexpended funds that could be reallocated to other
eligible CDBG-DR activities (see table in appendix C). The details are described below.

Procurement of Vendors Was Not Always in Accordance With Federal Requirements
The City did not always ensure that vendors were procured in accordance with Federal
requirements. The City did not always develop cost estimates or complete cost reasonableness
reviews as required. As a result, the City was not able to support $835,618 in expended funds
and $299,721 in budgeted funds may need to be reallocated to other eligible CDBG-DR
activities.

For example, the City issued a request for proposals from developers for the construction of new
single-family homes that would provide home ownership opportunities to low- and moderate-
income buyers. However, it received only one responsive bid. 4 The responsive developer
submitted a proposal to complete six 5 projects. According to the budget submitted by the




2
  The $1.4 million includes $835,618 not properly procured and $613,045 not adequately supported.
3
  The $472,246 includes $299,721 not properly procured and $172,525 not adequately supported.
4
  The City received a bid from a second bidder; however, the bidder was determined to be nonresponsive.
5
  The developer requested funding for rehabilitation of one home; however, the City did not allow the rehabilitation
since the funding was for new construction. Therefore, the City provided funding for only five homes.



                                                          4
developer, the total development cost for the five projects selected was more than $1.8 million,
of which the City committed more than $1.1 million in CDBG-DR assistance. The City did not
properly develop and document the cost estimate and cost reasonableness analysis for the
projects.

Regulations at 24 CFR (Code of Federal Regulations) 85.36(f) state that grantees and
subgrantees must perform a cost or price analysis in connection with every procurement action,
including contract modifications. The method and degree of analysis is dependent on the facts
surrounding the particular procurement situation, but as a starting point, grantees must make
independent estimates before receiving bids or proposals. A cost analysis is necessary when
adequate price competition is lacking and for sole-source procurements, including contract
modifications or change orders, unless price reasonableness can be established on the basis of a
catalog or market price of a commercial product sold in substantial quantities to the general
public or based on prices set by law or regulation. A price analysis is used in all other instances
to determine the reasonableness of the proposed contract price. Further, the Office of
Management and Budget’s cost principles at 2 CFR Part 225, appendix A, paragraph (C)(1)(a),
require grantees to ensure that all costs incurred are reasonable and necessary for proper and
efficient performance and administration of Federal awards. 6

City officials stated that often the initial budget estimates provided by the developer were higher
than the actual expenses but the higher budget ensured that there would be sufficient funds
available. The City should provide funds based on a reasonable budget so as not to
oversubsidize a project, and if additional funds are needed to complete the projects, change
orders may be requested and processed as necessary. When total development costs are
overstated and the sales prices are also understated on the developer’s budget, the developer’s
subsidy is increased.

The developer budgeted the anticipated sales price of four of the five the projects at $132,000
each, although the contract with the City stated that they would be priced to sell at or about
$150,000. The reduction in the sales price increased the CDBG-DR subsidy provided by the
City by $18,000 for each of the four projects, for a total of $72,000. Therefore, the developer
may receive more funds than necessary to complete the projects. Further, higher total
development costs affect the amount of funds provided to the developer and may not be
necessary or reasonable.

In addition, the total budgeted development costs submitted by the developer were sometimes
more than two times the expected market value of the projects. In one instance, the total
development budget submitted by the developer was $377,775; however, the completed project
was appraised at only $190,000. Further, the developer sold the project for $158,000. This does
not appear to be a reasonable use of CDBG-DR funds.




6
    As of December 26, 2014, this criteria can now be found at 2 CFR Part 200.403(a).



                                                           5
City officials stated that the reasonableness of the costs was reviewed when the project budget
was submitted to ensure that it was in accordance with current building costs. However, we
reviewed the budget and identified costs that did not appear to be reasonable or necessary.
Specifically, three costs seemed duplicative or not necessary, while other costs seemed high.
Specifically, the budget included estimates for three duplicate costs, (1) a cost certification and a
third party cost review; (2) a developer fee and a clerk of the works fee; and (3) a developer fee
and a consultant fee. When asked about the duplicative costs, City officials reviewed the budget
and agreed that two of the three costs were duplicative and should not have been included in the
budget. They stated that they would instruct the developer to not bill for the cost certification
and clerk of the works costs. The City did not agree that the consultant’s fee duplicated the
developer’s fee, however, according to the developer’s contract with the consultant, many of the
tasks were covered under the developer fee. 7

Since the City did not (1) establish an adequate cost estimate of development costs before
reviewing the bids, (2) obtain bids from multiple qualified developers, and (3) document a
review of cost reasonableness, it may not have maximized its CDBG-DR funds and could have
potentially helped to house more low- and moderate-income families. Therefore, we questioned
$827,118, the entire CDBG-DR contract amount paid to the developer for these five projects
minus program income returned to the City, as unsupported, and the City may need to reallocate
the remaining budgeted amount of $299,721.

Further, the City provided cost estimates for two demolition projects but did not support how the
cost estimates were established. Since the City obtained more than three bids for the demolition
work and selected the lowest bidder to perform the work, the cost of the demolition for these two
projects appeared to be reasonable. Therefore, we did not question the costs; however, we are
concerned with the City’s lack of documentation to support the cost estimates. The City needs to
improve its process for documenting and supporting its cost estimates. Based on our inquiries
regarding the City’s lack of cost estimates and cost reasonableness reviews, City officials stated
that in future projects they would make the cost estimates and cost reasonableness reviews
formal steps in their underwriting process. City officials also stated that they would incorporate
both of these analyses into their policies and procedures and document the analyses in the files.

The City also purchased two intact and undamaged school buildings located in the tornado zone
to ensure the continuation and better functioning of two crucial educational facilities and meet
needs for classroom space. The City hired two appraisers to determine the value of the schools
before their purchase but did not properly procure the appraisers in accordance with 24 CFR
85.36(d) small purchase procedures. These procedures state that if small purchase procedures
are used, price or rate quotations must be obtained from an adequate number of qualified
sources. City officials stated that they were exempt from this requirement because the appraisers
were considered expert witnesses. However, the City did not provide support to document why
they were considered expert witnesses and hired outside the procurement requirements.




7
    All of these costs were included in the questioned costs.



                                                                6
Therefore, we considered the $8,500 in CDBG-DR funds paid to the appraisers to be
unsupported.

The City Did Not Always Obtain Adequate Support for Payments
The City did not always ensure that its vendors submitted adequate support for their payment
requests. As a result, the City was not able to support that $613,045 in expended funds and
$172,525 in budgeted funds may need to be reallocated to other eligible CDBG-DR activities.

The City did not obtain adequate support for the proposals and the invoices for the four on-call
engineering contractors. For example, according to their contract, for each specific project, the
contractor was required to submit proposals stating (1) the estimated staffing, number of man-
hours for each profession, direct labor costs, other direct costs, and any other anticipated fees or
costs; (2) the estimated lump-sum not-to-exceed fee supported by a list of tasks and the estimated
cost for each task identified and listing job classifications and man-hours required in each job
classification based on hourly rates submitted with the engineer’s response to the request for
qualifications; and (3) a detailed description and estimate of direct expenses the engineer will
incur on the project without markup. Instead, the proposals submitted by the engineer stated
tasks and a lump-sum fee only.

In addition, the four engineering contracts stated that the invoices must include a description
specifying the goods delivered, work performed, services rendered, or other event initiating
entitlement to payment. The contract also stated that the following documents must be attached
to any invoice submitted by the engineer: a complete itemized listing of all employees, by name,
with itemization of hours worked and hourly rate. Instead, the invoices were submitted and paid
for lump-sum amounts based on the percentage of work completed. The amounts requested were
not supported by the actual employees, hours, and rates on which their contracts were based and
documentation that was required to process payments. Instead, the contractors requested and the
City paid the entire estimated amounts with no support for actual costs. At the City’s request,
based on our audit, one of the engineers provided a worksheet listing the employee’s name, title,
and number of hours estimated per task and the hourly rates. However, they did not provide the
actual number of hours worked per task to support the invoices. Therefore, we questioned
$613,045 paid to these four contractors as unsupported. The remaining budgeted amount of
$172,525 needs to be properly supported when requested or reallocated and put to better use.

Further, the contractor for the single-family projects discussed above submitted requests for
payment with a certification of the work completed and listed the items in process or completed
and a lump-sum amount. The amounts listed were round numbers ($55,000, $99,000). City
officials stated that they reimbursed the developer only for actual expenses; however, no
documentation was provided by the contractor or the City to show that these were actual costs.

Office of Management and Budget cost principles at 2 CFR Part 225, appendix A, paragraph
(C)(1)(j), require grantees and their subrecipients to ensure that all costs incurred are adequately




                                                  7
documented. 8 The City obtained additional documentation from the developer based on our
audit, which itemized the work performed. However, the documentation did not support that the
costs were reasonable and necessary. Therefore, the $722,821 9 paid to this contractor was not
supported. These costs are included in the questioned costs in the procurement section above.

Duplication of Benefits Was Not Properly Documented
The City did not always properly document the duplication of benefits review as required.
According to Federal Register 78 FR 14329 (March 5, 2013) and the City’s CDBG-DR policies
and procedures, the duplication of benefits review needed to be completed before awarding
assistance. In two instances, the City did not document its duplication of benefits review until
months after the funds were disbursed.

Further, the City did not perform a duplication of benefits review for the new construction of five
projects. Four of the files included a memorandum from the U.S. Department of Homeland
Security, Federal Emergency Management Agency, indicating that it was aware of the new
construction; however, no additional duplication of benefits review was performed, and the City
did not have the developer sign a certification agreeing to repay the assistance if it later received
other disaster assistance for the same purpose. According to City officials, they did not believe
this was necessary as the projects were vacant lots before the disaster. After our request, the City
obtained signed affidavits from the developer for the five projects, certifying that no additional
disaster funding was provided and agreeing to repay any funds received.

Conclusion
City officials did not always properly document procurement, ensure that payments to vendors
were adequately supported, and document the duplication of benefits review. These issues were
caused by weak City policies and procedures and officials’ not complying with their existing
policies and procedures for (1) procuring developers and contractors, (2) obtaining supporting
documentation in compliance with City contracts, and (3) properly documenting the review and
certification of the duplication of benefits. As a result, City officials did not ensure that more
than $1.9 million in Federal funds was supported, necessary, and reasonable.

Recommendations
We recommend that HUD’s Acting Deputy Assistant Secretary for Grant Programs instruct City
officials to

           1A.      Provide adequate documentation to support that $1,448,663 in CDBG-DR funds
                    was spent for supported, necessary and reasonable costs. Any amount for which
                    adequate support cannot be provided should be repaid from non-Federal funds.




8
    As of December 26, 2014, this criteria can now be found at 2 CFR Part 200.403(g).
9
    This amount is the actual costs paid to the contractor for the five projects.



                                                           8
1B.   Obtain adequate support to document the reasonableness and necessity of
      $472,246 or reprogram the funds to other allowable activities, thus ensuring that
      the funds will be put to their intended use.
1C.   Strengthen and follow its procurement policies to ensure that vendors are properly
      procured and cost estimates are performed and adequately supported before
      obtaining bids.

1D.   Strengthen and follow its financial controls to ensure that the proper
      documentation is submitted with vendor payment requests to determine whether
      the costs are adequately supported, necessary, and reasonable.
1E.   Strengthen and follow its administrative controls over the duplication of benefits
      to ensure that the review is performed before awarding CDBG-DR funds and
      beneficiaries certify that no duplicative funds have been provided and agree to
      repay assistance if funds are provided later.




                                        9
Scope and Methodology
The audit generally covered the period June 1, 2011, through September 30, 2015, and was
extended as needed. Audit fieldwork was performed from November 2015 through May 2016 at
Springfield City Hall located at 36 Court Street, Springfield, MA.

To accomplish our audit objective, we
     •   Reviewed the Disaster Relief Appropriations Act of 2013, the implementing regulations,
         and HUD guidance pertaining to the use of CDBG-DR funds and the City’s policies and
         procedures for administering the CDBG-DR grant.
     •   Obtained an understanding of the City’s financial controls over CDBG-DR funds’
         obligation and disbursement.
     •   Interviewed City employees responsible for administering the disaster grant to document
         the City’s policies and procedures for administering the CDBG-DR funds.
     •   Reviewed the City’s action plan and amendments, quarterly disaster reports, and grant
         agreement with HUD to identify the CDBG-DR grant requirements.
     •   Reviewed HUD’s monitoring report, dated October 9, 2014.
     •   Reviewed the City’s financial statements ending June 30, 2011, June 30, 2012, June 30,
         2013, and June 30, 2014.
     •   Reviewed various Disaster Recovery Grant Reporting system 10 reports to document the
         City’s activities and disbursements. Our assessment of the reliability of the data in this
         system was limited to data reviewed and reconciled with City records; therefore, we did
         not assess the reliability of this system. However, the data were sufficiently reliable for
         our purposes.
     •   Reviewed a sample of 20 of 59 activities to assess compliance with procurement
         requirements and support for payments of CDBG-DR funds. We reviewed more than
         $8.3 million to which City officials had allocated 60 percent of more than $13.9 million
         in CDBG-DR funds. The activities were selected based on risks identified with higher
         dollar costs per line item, risks with new construction, and risks identified with certain
         vendors and contractors during our review of the vouchers. We did not perform a
         statistical sample; therefore, our results were not projected.




10
  The Disaster Recovery Grant Reporting system was developed by HUD’s Office of Community Planning and
Development for the CDBG-DR program and other special appropriations, such as the Neighborhood Stabilization
Program. Grantees use this system to draw down funds and report program income.



                                                      10
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.




                                                11
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:

•   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that the use of funds is consistent with laws and
    regulations.
•   Program operations – Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.
•   Safeguarding resources – Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.
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 did not comply with procurement policies to ensure that vendors were properly
        procured and cost estimates were performed and adequately supported before obtaining
        bids (finding).




                                                   12
•   The City did not ensure that the proper documentation was submitted with vendor
    payment requests to determine whether the costs were adequately supported, necessary,
    and reasonable (finding).

•   The City did not ensure that the duplication of benefits review was performed before
    awarding CDBG-DR funds and beneficiaries certified that no duplicative funds had been
    provided and agreed to repay assistance if funds were provided later (finding).




                                           13
Appendixes

Appendix A


           Schedule of Questioned Costs and Funds To Be Put to Better Use
                Recommendation                      Funds to be put
                                   Unsupported 1/
                     number                         to better use 2/
                         1A             $1,448,663
                         1B                                 $472,246


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.
2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the City implements our
     recommendations to determine the necessity and reasonableness of the $472,246 in
     unspent allocated funds, it can assure HUD that these funds will be supported or properly
     put to better use.




                                              14
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




                               15
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               16
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 2




Comment 3




                               17
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 4




                               18
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 5




                               19
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 6




                               20
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 6




                               21
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




                               22
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




                               23
                         OIG Evaluation of Auditee Comments
Comment 1   In its response the City acknowledged that analysis of cost estimates and cost
            reasonableness was not documented in the files. However, it stated that a cost
            analysis was performed. In accordance with 24 CFR 85.36(f) “…as a starting
            point, grantees must make independent estimates before receiving bids or
            proposals.” The City needs to ensure that it properly documents its independent
            estimate in the file to support the cost reasonableness of its projects.

Comment 2   The City stated that contract included language that the property shall initially be
            priced to sell at or about $150,000. However, the budget provided by the
            contractor was based on a sales price of $132,000. While we agree that the price
            ultimately could be less than $150,000, the original budget should have been
            based on the price planned in the contract not the reduced price.

Comment 3   According to the City’s response the developer was not paid a set price for each
            house, but rather paid for actual demonstrated costs incurred in building the
            houses plus a pre-set developer’s fee. As a result, there was no incentive for the
            developer to keep the costs down because the developer would have to invest less
            of their own funds for the project. Further, as discussed in the report, the
            developer was billing for lump sum, round amounts for construction costs with no
            support that they were actual or reasonable costs.

Comment 4   OIG agrees that increasing property values and stabilizing the neighborhood is
            important; however, we maintain our position that spending almost double the
            amount of the appraised value to develop a home does not seem reasonable.

Comment 5   The City stated that it mistakenly believed that quotations were not required for
            this procurement. The City also stated that it used its normal practice for
            obtaining expert services including appraisers. However, the City needs to
            document its actions to meet Federal requirements.

Comment 6   Overall, City officials agreed to collect supporting documentation for submission
            to HUD and to amend its CDBG-DR policies and procedures as recommended by
            OIG, which is responsive to our recommendations.




                                              24
     Appendix C
                                         Schedule of Sampled Activities
                                                                                             Funds to          Total
          Vendor and activity              Amount          Amount        Unsupported
                                                                                             be put to       questioned
                                           obligated        spent           costs
                                                                                             better use        costs
      Viva Development, LLC - NS
                                      $245,775             $245,775        $199,520 11            $0          $199,520
1              Florence St.
     Viva Development, LLC - 17 &
                                       231,294             214,285           214,285           17,009          231,294
2              23 Beech St.
      Viva Development, LLC - 323
                                       226,650             140,611           140,611           86,039          226,650
3               Central St.
      Viva Development, LLC - 329
                                       243,525             151,440           151,440           92,085          243,525
4               Central St.
      Viva Development, LLC - 350
                                       225,850             121,262           121,262          104,588          225,850
5               Central St.
     Weston & Sampson Engineers,
                                       109,000             100,045           100,045            8,955          109,000
 6                  Inc.
 7     Alfred Benesch & Company        374,600             302,700           302,700           71,900          374,600
 8         Fuss & O’Neill, Inc.        209,570             117,900           117,900           91,670          209,570
 9    GZA Geoenvironmental, Inc.        59,840              59,840            59,840              0             59,840
10    GZA Geoenvironmental, Inc.        22,000              22,000            22,000              0             22,000
11    GZA Geoenvironmental, Inc.        10,560              10,560            10,560              0             10,560
12       Daly Appraisal Services         4,000               4,000             4,000              0              4,000
     Commercial Appraisal Services,
                                         4,500               4,500            4,500               0             4,500
13                  Inc.
     Jay-Mor Enterprises, Inc. - 158-
14                                      73,900              73,900               0                0                 0
               162 Rifle St.
     Associated Building Wreckers,
15                                       2,700               2,700               0                0                 0
            Inc. - NS Allen St.
     Associated Building Wreckers,
16                                      59,350              59,350               0                0                 0
            Inc. - NS Allen St
17     Palmer Paving Corporation      2,307,776           2,307,776              0                0                 0
18   New England Concrete Services 603,248                 603,248               0                0                 0
       Diocese of Springfield – 36
19                                    2,600,000           2,600,000              0                0                 0
               Margaret St.
       Hamden Savings Bank – 91
20                                     760,000             760,000               0                0                 0
                 School St.
                   Totals             8,374,138           7,901,892         1,448,663         472,246         1,920,909



     11
       The developer returned $46,255 in program income. Therefore, this amount was subtracted from the amount of
     unsupported costs.



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