oversight

The State of Connecticut Did Not Ensure That Its Grantees Properly Administered Their Housing Rehabilitation Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-19.

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

                     State of Connecticut
     Small Cities Community Development Block Grant
                        Program




Office of Audit, Region 1       Audit Report Number: 2018-BO-1005
Boston, MA                                      September 19, 2018
To:            Alanna Kabel, Director, Hartford Field Office, Community Planning and
               Development, 1ED
               //Signed//
From:          Ann Marie Henry, Regional Inspector General for Audit, 1AGA
Subject:       The State of Connecticut Did Not Ensure That Its Grantees Properly
               Administered Their Housing Rehabilitation Programs


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the State of Connecticut’s Small Cities
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 website. 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
617-994-8345.
                    Audit Report Number: 2018-BO-1005
                    Date: September 19, 2018
                    The State of Connecticut Did Not Ensure That Its Grantees Properly
                    Administered Their Housing Rehabilitation Programs



Highlights

What We Audited and Why
We audited the State of Connecticut’s Small Cities Community Development Block Grant
program based on an Office of Inspector General risk assessment, which ranked the State as the
highest risk grantee in Connecticut. Our audit objective was to determine whether the State
ensured that its grantees properly administered their housing rehabilitation programs. We also
assessed various complaints made against the program to determine whether they had merit and
if so, whether they were addressed and resolved.

What We Found
The State did not ensure that its grantees properly administered their housing rehabilitation
programs. For example, the State did not ensure that its grantees always (1) conducted and
documented environmental reviews, (2) properly procured contracts, (3) properly determined
homeowner and project eligibility, and (4) correctly charged program costs. Additionally, the
complaints reviewed generally had merit, but they were not all addressed and resolved. These
deficiencies occurred, in part, because the State did not (1) provide adequate oversight and
monitoring of its grantees to ensure that they administered program funds in accordance with
program requirements and (2) have policies and procedures to assess the validity of all program
complaints to ensure that they were addressed and resolved. As a result, we identified more than
$2.9 million in questioned costs. Additionally, the State did not meet its program goal to assist
the maximum amount of homeowners, and the U.S. Department of Housing and Urban
Development (HUD) did not have assurance that all costs were eligible, supported, reasonable,
and necessary and that valid complaints were reasonably addressed and resolved.

What We Recommend
We recommend that the Director of HUD’s Hartford Office of Community Planning and
Development require State officials to (1) repay more than $1.1 million in ineligible program
costs, (2) repay $434,970 in unreasonable program costs, (3) adequately support or repay more
than $1.3 million in unsupported program costs, (4) strengthen controls over program oversight
to ensure that grantees comply with their agreements and program requirements, and (5) develop
policies and procedures to address program complaints in a timely manner.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The State of Connecticut Did Not Ensure That Its Grantees Properly
         Administered Their Housing Rehabilitation Programs ................................................ 4

         Finding 2: Program Complaints Were Not Consistently Addressed and
         Resolved ........................................................................................................................... 11

Scope and Methodology .........................................................................................14

Internal Controls ....................................................................................................16

Appendixes ..............................................................................................................17
         A. Schedule of Questioned Costs .................................................................................. 17

         B. Auditee Comments and OIG’s Evaluation ............................................................. 18

         C. Schedule of Grants Reviewed at the State Level and Questioned Costs.............. 31

         D. Schedule of Monitoring Delays ................................................................................ 33

         E. Schedule of Grants Reviewed at the Grantee Level and Questioned Costs ........ 35

         F. Schedule of Individual Projects Reviewed and Questioned Costs ....................... 37




                                                                     2
Background and Objective
In 1981, Congress amended the Housing and Community Development Act of 1974 to give each
State the opportunity to administer Community Development Block Grant (CDBG) funds for
nonentitlement areas. Nonentitlement areas include those units of general local government that
do not receive CDBG funds directly from the U.S. Department of Housing and Urban
Development (HUD) as part of the entitlement program. Nonentitlement areas in Connecticut
are either cities or towns with a population of less than 50,000 or a central city of an area as
designated by the Office of Management and Budget. States participating in the Small Cities
CDBG program have three major responsibilities: formulating community development
objectives, deciding how to distribute funds among communities in nonentitlement areas, and
ensuring that recipient communities comply with applicable State and Federal laws and
requirements. The Connecticut Department of Housing is designated as the principal State
agency for the allocation and administration of program funds within the State of Connecticut.

The State had 121 grants, totaling more than $58 million, open as of July 1, 2015.

                        Category                      Amount         Number of grants
           Housing rehabilitation programs           $29,950,000          80
         Public housing modernization projects        25,561,521          35
                  Street improvements                  1,500,000           3
              Senior housing renovations                 800,000           1
           Americans with Disabilities Act
                                                         750,000              1
                      improvement
                  Food bank program                       56,847              1
                          Totals                      58,618,368             121

Our review focused on housing rehabilitation program activities, which accounted for 51 percent
of the funding total and 66 percent of the number of grants. The housing rehabilitation program
is a program whereby small cities and towns (grantees) are awarded a grant from the State and in
turn those grantees provide financial assistance to low- and moderate-income applicants for a
variety of housing rehabilitation needs. The grants are generally administered through an outside
consultant hired by the grantee. We also reviewed homeowner complaints sent to the HUD,
Office of Inspector General’s hotline, HUD Hartford Office of Community Planning and
Development, or both; as well as other complaints sent to the State from another complainant.

Our audit objective was to determine whether the State ensured that its grantees properly
administered their housing rehabilitation programs. We also assessed various complaints made
against the program to determine whether they had merit and if so, whether they were addressed
and resolved.




                                                 3
Results of Audit

Finding 1: The State of Connecticut Did Not Ensure That Its
Grantees Properly Administered Their Housing Rehabilitation
Programs
The State did not ensure that its grantees properly administered their housing rehabilitation
programs. Specifically, the State did not ensure that its grantees always (1) conducted and
documented environmental reviews, (2) properly procured contracts, (3) properly determined
homeowner and project eligibility, (4) correctly charged program costs, (5) obtained State
approval for projects that exceeded program limits, (6) used program income before drawing
down additional grant funds, and (7) submitted the required monthly construction progress
reports. These deficiencies occurred because the State did not provide adequate oversight and
monitoring of its grantees to ensure that they administered program funds in accordance with
program requirements. For example, the State did not always (1) conduct its onsite monitoring
or issue followup monitoring letters in a timely manner, (2) require its grantees to provide
sufficient supporting documentation for payment requests, or (3) adequately review information
provided by the grantees. As a result, we identified more than $1.1 million in ineligible program
costs, $434,970 in unreasonable program costs, and more than $1.3 million in unsupported
program costs. Additionally, the State did not meet its program goal to assist the maximum
amount of homeowners, and HUD did not have assurance that all costs were eligible, supported,
reasonable, and necessary.
Environmental Reviews Were Not Properly Conducted and Documented
In accordance with the State’s Grants Management Manual, chapter 2, there are two types of
environmental reviews required for the housing rehabilitation program. The first review (tier
one) is completed as part of the grant application and identifies potential compliance areas.
Using this process, grantees can publish a public notice and receive a release of funds based on
the programmatic information. However, this release of funds requires that the grantee complete
an individual statutory checklist (tier two) for each specific rehabilitation project. This site-
specific statutory checklist must be completed before construction costs are incurred for that
project. Otherwise, the project is ineligible for funding. For 16 of the 17 grants reviewed onsite,
the tier one environmental reviews were generally properly conducted and documented. The
City of Torrington, CT, however, was unable to provide the tier one environmental review for its
2014 grant, and as a result, the entire $400,000 1 grant was unsupported (appendix E).



1
    For the 2014 grant for the City of Torrington, CT, we identified specific ineligible, unreasonable and
    unsupported costs. To avoid double counting, we reduced the $400,000 questioned to $249,015 due to the
    $69,490 questioned as ineligible under site-specific environmental reviews, $3,790 questioned as unreasonable
    under program costs improperly charged to construction, $3,305 questioned as unreasonable under projects
    exceeding the program limits without State approval, and $74,400 questioned as an unsupported consultant
    administrator contract ($400,000 - $69,490 - $3,790 - $3,305 - $74,400 = $249,015) (appendix E).



                                                        4
Additionally, we reviewed 33 individual projects and found that none of the tier two site-specific
statutory checklists was reviewed or signed by a grantee official, making them ineligible. For 14
of the 33 projects, the site-specific statutory checklists were not signed or dated by the preparer
and were prepared after construction started, after project completion, or not at all. Also, the
supporting documentation, such as maps and letters to the State Historic Preservation Office
(SHPO), was dated after construction started or not provided. Finally, the files for one project
included a letter from the SHPO informing the grantee that the property appeared to be eligible
for listing on the National Register of Historic Places and requesting additional information.
However, there was no evidence that this grantee provided the additional information or obtained
a final determination from SHPO. As a result, more than $1 million was charged to the program
for ineligible costs because the grantees committed program funds and incurred construction
costs before properly completing the environmental reviews (appendix F).

Contracts Were Not Always Properly Procured
There were generally four types of contracts associated with each grantee’s program, including
(1) general construction, (2) program administration, (3) lead testing, and (4) title search. The
general construction contracts were generally properly procured. However, we found
deficiencies in the procurement of the remaining three services, including incomplete
procurement histories, missing contracts, contracts executed after the program funds were used,
and contracts awarded without support that the cost or price was considered as one of the
evaluating factors as required by 2 CFR 200.318 and 320 or 24 CFR 85.36. 2
In one instance, a grantee used a procurement method, which included the fee proposal as a
factor to be evaluated. However, the fee proposal was not evaluated. Instead, the grantee
awarded program administration contracts for its 2012-2016 grants to a consultant whose bids
did not include a fee proposal schedule in any of the bid proposals submitted. The proposal
submitted by the consultant stated that a compensation schedule would be presented following
the grant award and once the specific grant activities, budget, and a scope of services had been
determined.
In another instance, two grantees could not provide all of the proposals submitted for grant
administration contracts. One of these grantees provided an evaluation of the proposals, dated
May 29, 2018, 3 which was after we requested it, and it was not clear how the grantee completed
the evaluation without the second proposal, which was missing. As a result, we found $694,902 4
in unsupported costs and $121,720 5 in ineligible costs due to procurement deficiencies (appendix
E).



2
    24 CFR 85 Part 36 was incorporated into 2 CFR 200 and implemented by the State on June 4, 2015 per the
    State’s Small Cities bulletin 2015-005.
3
    This contract was awarded on March 30, 2015, and the contract was executed on December 16, 2015.
4
    To avoid double counting, we reduced the $694,902 in unsupported costs to $676,922 due to the $17,980
    questioned as ineligible under site-specific environmental reviews or as unreasonable under program costs
    improperly charged to construction ($694,902 - $17,980 = $676,922) (appendix E).
5
    To avoid double counting, we reduced the $121,720 in ineligible costs to $100,000 due to the $21,720
    questioned as ineligible under site-specific environmental reviews or as unreasonable program costs improperly
    charged to construction ($121,720 - $21,720 = $100,000) (appendix E).



                                                         5
Finally, grantees did not always justify (1) the acceptance of sole proposals, instead of putting
the contracts back out to bid, or (2) not awarding contracts to the lowest bidder.
Homeowner and Project Eligibility Was Not Properly Determined
The assisted homes must be occupied by low- to moderate-income households to be eligible for
the program in accordance with the State’s Grant Management Manual, chapter 7. However, we
identified several cases in which the grantees did not consider rental income when determining
income eligibility. In one case, $1,100 per month in rental income was not considered, and in
other cases, the applicants did not list rental income from their multifamily homes with rental
units (appendix F). Any rental income should have been included and considered when
determining income eligibility.

Additionally, grantees were required to seek approval from the State to move forward with cases
that had a loan-to-value (LTV) ratio above 90 percent as required by the State’s Small Cities
bulletin 2015-001. However, some grantees considered only the first mortgage when calculating
the LTV ratios. We reviewed the LTV ratio calculations for 15 of the 33 projects 6 and noted that
only 5 were done properly. For three projects, the ratios exceeded the program limits, with LTV
ratios of 101 percent, 125 percent, and 138 percent. For seven projects, although the LTV ratios
were under the required limit, the ratios were not properly calculated (appendix F). As a result,
we identified four ineligible projects. For one project, the applicant would not have qualified if
the $1,100 in rental income had been considered, and three projects exceeded the LTV ratios.
These four projects were already questioned as ineligible under site-specific environmental
reviews (appendix F).

Program Costs Were Improperly Charged to Construction Costs
The State limits the amount that grantees may charge to administration and program costs.
These limits are specified in the State’s Small Cities CDBG Application Handbooks which are
published each year. Starting in 2014, the limits were set at $33,000 for administration and up to
12 percent of the grant award for program costs, with the remaining funds allocated to
construction costs. However, grantees sometimes charged program costs, such as title search and
lead-testing fees, as construction costs. In other instances, bid advertisement costs and one
applicant’s homeowner’s insurance premium were charged as construction costs. We identified
$125,470 7 in program costs, above the 12 percent, that were improperly charged to construction
costs, making those costs unreasonable (appendixes C and E).

Projects Exceeded the Program Limits Without State Approval
Starting in January 2015, grantees were required to get approval from the State to move forward
with projects that exceeded $30,000 for a single-family house or $50,000 for homes with two or
more units, as required by the State’s Small Cities bulletin 2015-001. While some grantees did

6
    Title searches were not required until January 2018, and while some grantees routinely did them, others did not.
    In cases in which there was no title search, we did not perform additional audit work to identify other mortgages
    or other liens.
7
    Of the $125,470, $16,954 was identified at the State level (appendix C) and $108,516 at the grantee level
    (appendix E). To avoid double counting, we reduced the $125,470 in unreasonable costs to $96,159 due to the
    $29,311 questioned as ineligible under site-specific environmental reviews ($125,470 - $29,311 = $96,159).



                                                          6
seek approval for projects that exceeded the program limits, we noted several projects that
exceeded the limits without evidence of State approval. Of the 303 projects completed after this
requirement, we identified 54 projects that exceeded the program limits by $382,213 8 without
evidence of State approval, making those costs unreasonable (appendixes C and E).

Grant Funds Were Drawn Down Before Program Income Was Used
The agreements between the State and its grantees, and the State’s Grants Management Manual,
chapter 3, required grantees to disburse program income before additional funds were requested.
For 7 of the 28 grantees, grant funds were drawn down even when the grantees reported
excessive program income on their requests for payments, in their quarterly reports, or both. We
identified $422,600 in program income that should have been used before additional grant funds
were drawn down (appendix C). If the grant funds could not be spent before the grant’s end
date, the State should have required the grantees to return the funds so that it could reallocate
them to other activities.

                                            Program income             Limit per the          Amount that
          Grantee               Grant        per 2nd to last            assistance            should have
                                year        quarterly report            agreement              been used
         Enfield                2012           $107,152                   $50,000                $57,152
       New Fairfield            2013            126,441                    50,000                 76,441
         Putnam                 2013             55,389                    50,000                  5,389
          Derby                 2014             65,513                    25,000                 40,513
        Torrington              2014             57,508                    25,000                 32,508
         Windsor                2014            177,785                    25,000                152,785
        Southbury               2015             82,812                    25,000                 57,812
                                          Total                                                  422,600


Monthly Construction Progress Reports Were Not Always Submitted
Starting in March 2016, grantees were required to submit monthly construction progress reports
for each ongoing project, as provided in the State’s Small Cities bulletin 2016-001. These
reports provided information, including the work specifications, contract amount, and
completion percentage. Along with the progress report, grantees were required to submit
supporting documentation, such as the bid tabulation and recent field reports with photos. While
some grantees did submit some progress reports for ongoing projects, we noted several missing
reports and that in some cases, the grantees did not submit any reports. Additionally, we noted
that some reports included evidence that projects received only one bid and did not include the
required inspection reports. We found no evidence that the State followed up on any missing
reports or issues. Additionally, these reports were provided to the construction specialist in the

8
    Of the $382,213 and 54 projects, $359,000 and 50 projects were identified at the State level (appendix C) and
    $23,213 and 4 projects were identified at the grantee level (appendix E). To avoid double counting, we reduced
    the $382,213 in unreasonable costs to $338,811 due to the $43,402 questioned as ineligible under site-specific
    environmental reviews, $20,189 at the State level, and $23,213 at the grantee level ($382,213 - $20,189 -
    $23,213 = $338,811).



                                                        7
State’s Department of Economic and Community Development and were not shared with the
Department of Housing project managers, who were responsible for grant oversight and could
have used them to track and review program compliance and project progress.

Onsite Monitoring and Monitoring Letters Were Not Completed in a Timely Manner
The State’s Small Cities bulletin 2013-003 required grantees to submit a precloseout certificate
within 30 days of final funds drawdown and the State generally conducted onsite monitoring
only after receipt of such certification. These certifications were sometimes not submitted until
months after the final drawdown and in some cases, more than a year after the final drawdown.
Additionally, the State did not always conduct its onsite monitoring or issue followup monitoring
letters in a timely manner. These onsite monitoring visits and the followup monitoring results
letters were also taking up to a year or longer to be completed.

As of April 30, 2018, of the 28 grants reviewed, the State had completed its onsite monitoring for
only 15 of the grants and had issued only 4 monitoring letters. 9 For the remaining 11 grants
already monitored by the State, the days between the monitoring and April 30, 2018, ranged
from a low of 223 days to a high of 1,021 days, with an average of 604 days. Additionally, the
average number of days between the submission of the precloseout certificate and the date of
onsite monitoring or April 30, 2018, for the remaining 13 grants for which onsite monitoring had
not been completed was 248 days (appendix D). Had the State performed its onsite monitoring
and issued its letters in a timely manner, mistakes in areas such as environmental reviews,
procurement, LTV ratios, and determining income eligibility could have been identified, and
improvements could have been implemented to improve compliance going forward.

Insufficient Supporting Documentation Was Provided With Payment Requests
Before January 2018, grantees were required to submit only the State’s request for payment
template in accordance with the State’s Grants Management Manual, chapter 3, which included
the total amount requested along with a breakout by budget category. The State did not require
additional support, such as (1) invoices, (2) contracts between contractors and homeowners, or
(3) certificates of completion. Without the additional supporting documentation, there was no
assurance that payment requests were for completed work and that costs were charged to the
proper category. For example, the State approved $125,470 in program costs that were
improperly charged to construction costs. Starting in January 2018, grantees are required to
submit a detailed schedule of expenditures report with each request for payment. This schedule
provides information on the costs, such as the budget line item charged and the contractor name,
which should alert the State to instances in which the grantee charges program costs as
construction costs. This new control should improve the State’s oversight of its grantees in this
area.

The State Did Not Always Adequately Review Information Provided by the Grantees
There was no evidence that the State followed up on potential issues that could be identified by
reviewing the supporting information provided by the grantees. For example, the quarterly
reports showed projects with loan amounts above the program limits. These reports also

9
    These 28 grants had precloseout certifications, dated between July 17, 2014, and February 28, 2018.



                                                         8
sometimes showed inconsistent amounts between the project loan amounts and the total general
construction contracts associated with the project. The project loan should be equal to or more
than the total of the general construction contracts associated with the project. 10 However, we
found several instances in which the project loan amount was less than the amount of the general
construction contracts associated with the project and no other funding sources were identified.
Additionally, seven grantees reported in either their requests for payment, quarterly reports, or
both that they had more than $25,000 or $50,000 in program income, but the State did not
require the grantees to use the program income before requesting additional grant funds.

Conclusion
The State did not ensure that its grantees properly administered their housing rehabilitation
programs. Specifically, the State did not ensure its grantees always (1) conducted and
documented environmental reviews, (2) properly procured contracts, (3) properly determined
homeowner and project eligibility, (4) correctly charged program costs, (5) obtained State
approval for projects that exceeded program limits, (6) used program income before drawing
down additional grant funds, and (7) submitted the required monthly construction progress
reports. These deficiencies occurred because the State did not provide adequate oversight and
monitoring of its grantees to ensure that they administered program funds in accordance with
program regulations. As a result, we identified more than $1.1 million in ineligible program
costs, $434,970 in unreasonable program costs, and more than $1.3 million in unsupported
program costs; the State did not meet its program goal to assist the maximum amount of
homeowners; and HUD did not have assurance that all costs were eligible, supported, reasonable,
and necessary.
Recommendations
We recommend that the Director of HUD’s Hartford Office of Community Planning and
Development require State officials to

          1A.      Repay from non-Federal funds the $1,190,977 11 in ineligible costs charged to the
                   program.
          1B.      Repay from non-Federal funds the $434,970 12 in unreasonable costs charged to
                   the program.
          1C.      Support $249,015 in program costs spent on a 2014 grant for which the grantee
                   was unable to provide a tier one environmental review record or repay from non-
                   Federal funds any amount that cannot be supported.




10
     This is because sometimes there are additional costs associated with the projects, such as title searches and lead
     testing fees.
11
     This amount includes $1,090,977 questioned as a result of improperly conducted site-specific environmental
     reviews and a net amount of $100,000 in program funds used without a contract.
12
     This amount includes a net amount of $96,159 in program costs improperly charged to construction, and a net
     amount of $338,811 for project costs that exceeded the program limits.



                                                            9
1D.   Support $676,922 for contracts that were improperly procured or repay from non-
      Federal funds any amount that cannot be supported.
1E.   Support $422,600 in program income that was not used before additional grant
      fund drawdowns or repay from non-Federal funds any amount that cannot be
      supported.
1F.   Strengthen controls over program oversight to ensure that grantees comply with
      their agreements and program requirements, including tier two environmental
      reviews, contract procurements, and homeowner and project eligibility, to ensure
      that (1) all income, including rental income, is considered; (2) loan-to-value ratios
      do not exceed 90 percent without State approval; and (3) projects do not exceed
      the program limits without State approval.
1G.   Strengthen controls over monitoring to ensure that onsite monitoring and
      monitoring letters are completed in a timely manner and sufficient supporting
      documentation is required and reviewed by those responsible for grant oversight.




                                        10
Finding 2: Program Complaints Were Not Consistently Addressed
and Resolved
The State did not ensure that all program complaints were addressed and resolved. Complaints
made by homeowners and by another complainant 13 generally had merit; however, only the
complaints made by homeowners were addressed. Additionally, the complaints were not always
resolved by the State. This condition occurred because the State did not (1) have policies and
procedures to assess the validity of all program complaints to ensure that they were addressed
and resolved and (2) always enforce its policies regarding the allowance of rehabilitation work;
specifically, the repair or replacement of paved surfaces. As a result, HUD did not have
assurance that all complaints were reasonably addressed and resolved or that all costs were
eligible, supported, reasonable, and necessary.
Several Complaints Made by Homeowners Were Addressed but Not Always Resolved in a
Timely Manner
We reviewed five complaints made by four homeowners to the HUD, Office of Inspector
General’s (OIG) hotline about the State’s program, alleging defective workmanship and that
contractor invoices were paid without inspections or approval by the homeowner. We
determined that the complaints reviewed generally had merit. We also determined that the State,
the respective grantee, and its program consultants and contractors worked with the homeowners
to address and resolve the issues. In addition, the HUD Hartford Office of Community Planning
and Development was aware of the OIG hotline complaints and as of August 15, 2018 was
actively working with the State to reach satisfactory conclusions for one remaining unresolved
complaint made by one of the four homeowners.

The HUD Hartford Office of Community Planning and Development also tracked an additional
five program complaints made to its office by homeowners who alleged, among other things,
defective workmanship. For one complaint the State advised HUD that the complaint lacked
validity and for another complaint it was noted that the case was in litigation. The remaining
three complaints remain unresolved with one dating back to December 2015 and the remaining
two dating back to July 2016. The HUD Hartford Office of Community Planning and
Development continues to work with the State to reach satisfactory conclusions.

Additional Complaints Made Against the Program Were Not Addressed and Resolved
We reviewed three additional complaints submitted by a complainant to the State, alleging (1)
potentially ineligible driveway replacement and repairs; (2) inconsistent treatment by the State
with regard to how complaints were handled; and (3) procurement irregularities, including the
use of cost-plus contracts, a lack of free and open competition, and noncompliance with State
and Federal procurement requirements.

In January 2017, the complainant alleged that some grantees were funding potentially ineligible
driveway replacement and repairs and asked the State under what circumstances driveways


13
     Sent to the HUD, Office of Inspector General’s hotline, HUD Hartford Office of Community Planning and
     Development, or both.



                                                       11
would be an eligible program work item. The State provided its guidance as noted in its CDBG
Residential Rehabilitation Standards, which states that “repair of paved surfaces shall be minimal
in cost and incidental to the rehabilitation of the dwelling.” In addition, the State noted that code
violations and building and site defects that presented health and safety hazards and were life
threatening were priorities; a driveway should be the lowest priority work item; and if a
driveway was the only repair to the property, it would not be allowable. The State also highly
recommended that grantees consult with the State’s Department of Housing before including
repairs to driveways in the rehabilitation work. This complainant sent a followup email to the
State on October 2, 2017, and a letter, dated February 21, 2018, asking additional questions
regarding the procedures for including and installing driveways as part of an eligible project.

During our review, we noted several projects that included driveways in the scope of work in
which the driveways were not “minimal in cost and incidental to the rehabilitation of the
dwelling,” as stated in the guidance. For example, one project had total costs of $16,700, which
included a driveway replacement costing $9,600, 57 percent of the total project cost. In other
instances, driveways were included in the scope of work according to the monthly construction
progress reports submitted, but we did not see evidence that the State followed up to determine
whether this work and the costs were in accordance with its CDBG Residential Rehabilitation
Standards.

In addition, the complainant alleged inconsistent treatment with regard to how complaints were
handled. Specifically, the complaint alleged that the complainant requested the State’s policies
for complaints but the State had not responded. In June and July 2018, we requested that State
officials update the status of these two complaints and asked whether the State had a policy for
complaints, citizen or otherwise. The State did not respond to our request and, therefore, it was
not clear whether the State had a policy. With no response, we determined that these complaints
had merit and they were not addressed or resolved.

Finally, the complainant alleged that there were procurement irregularities with the award of a
consultant administrator contract for one grantee. The State files we reviewed in this instance
showed that the State evaluated the complaint, but it was not clear from the files provided
whether the complaint had been adequately resolved. In June and July 2018, we inquired with
State officials regarding whether they had resolved this complaint. The State did not respond,
and as a result, we determined that the complaint was not adequately resolved.

The State Lacked Policies and Procedures for All Complaints
The State did have grievance procedures in its Grant Management Manual for homeowners and
contractors. However, these procedures seemed to apply only to the grantees, homeowners, and
contractors participating in the housing rehabilitation program and did not address the State’s
responsibility for all other complaints or a timeframe for resolution. As noted above, while
complaints made by homeowners were addressed they were not always resolved in a timely
manner. Additionally, the State could not show that other complaints made by complainants
other than homeowners were always addressed and resolved. Further, the State did not always
enforce its policies regarding the allowance of rehabilitation work; specifically, the repair or
replacement of paved surfaces.



                                                 12
Conclusion
The State did not ensure that all program complaints were addressed and resolved. Complaints
made by homeowners and another complainant generally had merit; however, only homeowner
complaints were addressed. Additionally, the complaints were not always resolved by the State.
This condition occurred because the State did not (1) have policies and procedures to assess the
validity of all program complaints to ensure that they were addressed and resolved and (2)
always enforce its policies regarding the allowance of rehabilitation work; specifically, the repair
or replacement of paved surfaces. As a result, HUD did not have assurance that all complaints
were reasonably addressed and resolved or that all costs were eligible, supported, reasonable, and
necessary.

Recommendations
We recommend that the Director of HUD’s Hartford Office of Community Planning and
Development require State officials to

       2A.     Develop and implement policies and procedures to assess the validity of all
               program complaints to ensure that they are addressed and resolved in a timely
               manner.
       2B.     Provide additional guidance to its grantees regarding its policy stating that the
               repair or replacement of paved surfaces should be minimal in cost and incidental
               to the rehabilitation of the dwelling, including whether grantees are required to
               consult with the State before starting the work.




                                                 13
Scope and Methodology
We performed our audit work from February through June 2018 at the State’s office located at
505 Hudson Street, Hartford CT, at 6 of the 49 grantee offices, and at our office located at 10
Church Street, Hartford, CT. The audit covered the period July 1, 2015, through June 30, 2017,
and was expanded when necessary to include grants awarded before July 1, 2015, but still open
as of July 1, 2015, and included complaints made after June 30, 2017.
To accomplish our objective, we

   •   Reviewed the criteria relevant to our audit objective, including the Housing and
       Community Development Act of 1974, 24 CFR (Code of Federal Regulations) Part
       570—Community Development Block Grants, and HUD’s Community Planning and
       Development Monitoring Handbook 6509.2, REV-7.

   •   Reviewed relevant internal policies and procedures developed and used by the State,
       including policies, procedures, and processes for planning, organizing, directing, and
       monitoring the program.

   •   Reviewed the State’s consolidated plan, consolidated annual performance and evaluation
       reports, and action plans.

   •   Reviewed HUD’s 2016 monitoring report on the State’s program.

   •   Conducted interviews with appropriate State officials and staff to determine what
       procedures staff followed related to the program.

   •   Selected and reviewed a sample of 28 housing rehabilitation grants totaling $11.3 million
       from a universe of 80 housing rehabilitation grants totaling $29.95 million to review at
       the State level (appendix C). A sample was chosen rather than reviewing 100 percent of
       the universe because the universe was too large. We selected the grants based on (1) the
       consultant administering the grant, (2) the dollar amount, and (3) whether the State had
       performed onsite monitoring. We did not perform a statistical sample, so our results were
       not projected.

   •   Selected and reviewed a sample of 6 grantees from a universe of 49 grantees to review at
       the grantee level. Specifically, we reviewed 17 grants administered by the 6 grantees
       totaling $6.75 million from a universe of 80 housing rehabilitation grants totaling $29.95
       million at the grantee level (appendix E). From the grants administered by the grantees,
       we selected 33 projects totaling more than $1.09 million for detailed review (appendix F).
       A sample was chosen rather than reviewing 100 percent of the universe because the
       universe was too large. We selected the grantees based on (1) the consultant



                                               14
          administering the grant and (2) the number of grants in our universe for each grantee. We
          did not perform a statistical sample, so our results were not projected.

     •    Assessed the validity of eight complaints, including five complaints submitted to HUD
          OIG’s hotline 14 and three made by another complainant, to determine whether they had
          merit and if so, whether they were addressed and resolved by the State.

     •    Conducted interviews with HUD officials and reviewed HUD’s files for an additional
          five homeowner complaints made to HUD Hartford Office of Community Planning and
          Development.

To achieve our audit objective, we generally relied on source documentation, including grant
applications, assistance agreements, requests for payment, and quarterly reports; other
documentation in the State’s files; and the grantees’ procurement, environmental and financial
files, and individual project records. We did not rely on computer-processed data from the
State’s computer system and, therefore, did not test the State’s systems.

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.




14
     Made by four homeowners who had participated in two grantee’s housing rehabilitation programs.



                                                        15
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:

•   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 the use of resources 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.

We assessed the relevant control identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:
•   The State did not provide adequate oversight and monitoring of its grantees to ensure that
    they administered program funds in accordance with program regulations (finding 1).




                                                  16
Appendixes

Appendix A


                              Schedule of Questioned Costs
         Recommendation
                               Ineligible 1/    Unsupported 2/      Unreasonable
             number
                                                                         3/
                1A.           $1,190,977
                1B.                                                  $434,970
                1C.                                 $249,015
                1D.                                  676,922
                1E.                                  422,600

               Totals          1,190,977            1,348,537        434,970



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.
3/   Unreasonable or unnecessary costs are those costs not generally recognized as ordinary,
     prudent, relevant, or necessary within established practices. Unreasonable costs exceed
     the costs that would be incurred by a prudent person in conducting a competitive
     business.




                                               17
Appendix B
                       Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation               Auditee Comments




             September 7, 2018


             Ms. Ann Marie Henry
             Regional Inspector General for Audit
             Region 1 Boston
             U.S. Department of Housing and Urban Development
             Office of Inspector General
             10 Causeway Street, Room 370
             Boston, MA 02222-1092

             RE:    Response to Draft Audit 2018-BO-18-0003

             Dear Ms. Henry:

             Thank you for the opportunity to meet with you and the other U.S. Department
             of Housing and Urban Development (HUD) staff to discuss the Draft Audit on
             the State of Connecticut Small Cities Community Development Block Grant
             Program (CDBG-SC). As was discussed at the meeting on September 4, 2018,
             the Department has a number of concerns with regard to the Draft Audit, and has
             developed the following comments, most of which were discussed with you and
             your staff either during the audit period, or at the meeting on the 4th.

             I have summarized our position with regard to the specific recommendations
             below, and then have addressed each of the specific issues identified by the draft
             in an accompanying attachment.




                                            18
                       Auditee Comments and OIG’s Evaluation




Ref to OIG               Auditee Comments
Evaluation
             Finding 1:
             Recommendation:
                  1A. Repay from non-Federal funds the $1,625,947 in ineligible costs charged to
             the program.

Comment 1    Response:
                   The Department disagrees with the finding, in part, and the
             recommendation for repayment.

             Recommendation:
                  1B. Support $249,015 in program costs spent on a 2014 grant for which the
             grantee was unable to provide a tier one environmental review record or repay from
             non-Federal funds any amount that cannot be supported.
Comment 2
             Response:
                    The Department disagrees with the finding, and is working with the
             Grantee regarding support for the program costs.
             Recommendation:
Comment 3        1C. Support $676,922 for contracts that were improperly procured or repay from
             non-Federal funds any amount that cannot be supported.

             Response:
                   The Department disagrees with the finding and the recommendation.

             Recommendation:
                  1D. Support $422,600 in program income that was not used before additional
Comment 4    grant fund drawdowns or repay from non-Federal funds any amount that cannot be
             supported.

             Response:
                   The Department disagrees with the finding and the recommendation.

             Recommendation:
             1E. Strengthen controls over program oversight to ensure that grantees comply with
             their agreements and program requirements, including tier two environmental reviews,
             contract procurements, and homeowner and project eligibility, to ensure that




                                             19
                       Auditee Comments and OIG’s Evaluation




Ref to OIG               Auditee Comments
Evaluation
             (1) all income, including rental income, is considered; (2) loan-to-value ratios do not
             exceed 90 percent without State approval; and (3) projects do not exceed the
             program limits without State approval.
Comment 5
             Response:
                   The Department agrees with the finding and the recommendation.

             Recommendation:
                 1F. Strengthen controls over monitoring to ensure that onsite monitoring and
             monitoring letters are completed in a timely manner and sufficient supporting
             documentation is required and reviewed by those responsible for grant oversight.
Comment 6
             Response:
                   The Department agrees with the finding and the recommendation.

             Finding 2:
             Recommendation:
                  2A. Develop and implement policies and procedures to assess the validity of all
             program complaints to ensure that they are addressed and resolved in a timely
Comment 7    manner.

             Response:
                   The Department agrees with the finding and the recommendation.

             Recommendation:
                   2B. Provide additional guidance to its grantees regarding its policy stating
Comment 8    that the repair or replacement of paved surfaces should be minimal in cost and
             incidental to the rehabilitation of the dwelling, including whether grantees are
             required to consult with the State before starting the work.

             Response:
                   The Department agrees with the finding and the recommendation.




                                              20
                       Auditee Comments and OIG’s Evaluation




Ref to OIG                Auditee Comments
Evaluation
             Again, I would like thank you for the opportunity to comment on the Draft
             Audit, and for your continued assistance in the effective implementation of
             this federal grant program. Should you have any questions, or require
             additional information, please do not hesitate to contact me.

             Sincerely,




             Michael C. Santoro
             Director
             Office of Policy Research and Housing Support



             Cc:     Dimple Desai, Dept. of Administrative Services
                   Alanna Kabel, Director, Hartford Field Office, HUD, CPD
                   Kristen Ekmalian, Auditor, Region 1
                   Joshua Sunderland, Senior Auditor, Hartford Field Office, HUD
                   Todd Hebert, Hartford Field Office, HUD
                   Brian, Conatser, Hartford Field Office, HUD, CPD
                   Evonne M. Klein, Commissioner, DOH


             Attachment




                                            21
                       Auditee Comments and OIG’s Evaluation




Ref to OIG               Auditee Comments
Evaluation
             Attachment Response to Draft Audit – State of Connecticut Community
             Development Block Grant – Small Cities (CDBG-SC)
             Finding 1: The State of Connecticut Did Not Ensure That Its Grantees
             Properly Administered Their Housing Rehabilitation Programs

             Finding 1A: Environmental Reviews Were Not Properly Conducted and
             Documented

Comment 1    Response:
                   The Department disagrees with the finding, in part, and the
             recommendation for repayment.

             As indicated in the review by the auditor, Tier 1 Environmental Reviews were
             generally conducted and documented, with one exception, covered on Finding
             1B. However, the auditor purports that Tier II Environmental Reviews were
             neither reviewed nor signed or dated properly. Further, that for one project in
             particular, State Historic Preservation Office (SHPO) follow up was not properly
             documented. The Department agrees that the Tier II reviews were not always
             signed or were not dated. However, these are not regulatory requirements
             associated with a Tier II Environmental Review. The Department has confirmed
             with the respective grantees, or their consultants, that all Tier II Environmental
             Reviews were appropriately reviewed prior to the initiation of construction,
             rending these costs eligible under the regulations. The Department is working
             with these grantees, or their consultants, to obtain confirming documentation to
             this effect, and will work with the HUD Field Office on a final resolution to this
             finding. Further, the Department is working with its sister agency, SHPO, to
             provide confirmation that the proper follow up was made with regard to the one
             outlying project. Again, the Department intends to work with the HUD Field
             Office on a final resolution to this issue.
Comment 2
             Finding 1B: Environmental Reviews Were Not Properly Conducted and
             Documented

             Response:
                    The Department disagrees with the finding, and is working with the
             Grantee regarding the necessary supporting documentation.




                                            22
                       Auditee Comments and OIG’s Evaluation




Ref to OIG               Auditee Comments
Evaluation
             It is unusual, based on the Grantee’s prior history, experience and existing
             procedures that Tier I Environmental Review was not completed. The
             Department is working with the Grantee to either locate the necessary
             documentation relative to the Tier 1 ER, or to verify that the Tier I ER was not
             completed. The Department intends to work with the HUD Field Office on a
             final resolution to this issue.


             Finding 1C: Contracts Were Not Always Properly Procured
Comment 3
             Response:
                   The Department disagrees with the finding, and the recommendation.

             The Department is working with specific Grantees on the identified activities
             to identify and collect the specific documentation that is missing, incomplete
             or unclear. It is the Department’s position that the Grantees did not understand
             the obligation to provide all of the necessary documentation relative to
             procurement upon request by the Auditor, and that the necessary information
             exists, but was not provided. The Department is working with these grantees,
             or their consultants, to obtain confirming documentation to this effect, and will
             work with the HUD Field Office on a final resolution to this finding.

             Finding 1D: Grant Funds Were Drawn Down Before Program Income Was
Comment 4    Used

             Response:
                   The Department disagrees with the finding, and the recommendation.

             It is the Department’s position that the Auditor failed to take into consideration
             two issues affecting this Finding. First, the Department does not allow program
             income from one activity type (such as Homeowner Rehabilitation) to be used
             for a different activity type (such as Public Facilities/Infrastructure). To be
             clear, a Program Income balance on hand, does not automatically mean that the
             funds are available for expenditure on the specific activity. Second, and more
             relevant, is that the Department processes and makes all payments from state




                                             23
                       Auditee Comments and OIG’s Evaluation




Ref to OIG               Auditee Comments
Evaluation
             funds. At the time that a payment request is made and processed using state
             funds, there should have been very little, if any, program income available to
Comment 4    the Grantee, consistent with the Department’s policy at that time, and as
             noted above. However, at the time that the funds are drawn down in IDIS in
             order to reimburse these state funds, typically at the end of a given quarter,
             the Grantee may have accumulated additional program income, exceeding the
             Department’s policy.

             The Department is collecting specific details on the transactions identified by
             the Auditor, in order to document that either, or both of these conditions
             resulted in the Auditor’s Finding. It is the Department’s intention to provide
             this information to the HUD Field Office upon completion, is committed to
             working with the HUD Field Office on a final resolution to this finding.


Comment 5    Finding 1E: Strengthen Controls Over Program Oversight

             Response:
                   The Department agrees with the finding, and the recommendation.
             As the Auditor was aware, both staffing limitations, as well as outdated
             procedures contributed to this Finding. The Department recently finalized and
             is in the process of fully implementing a new Community Development Block
             Grant – Small Cities Grant Management Manual for our Grantees. Many of the
             specific recommendations made by the Auditor have been addressed in this
             Manual, and it is the Department’s intention to make additional modifications to
             these policies and procedures, both as a result of this Finding, as well as a result
             of input from staff, our Grantees and/or their consultants, in order to strengthen
             both grant operation and program oversight.
             Specifically, these updated policies and procedures address all aspects of
             program management, including environmental review, procurement, program
             income and beneficiary eligibility. It is the Department’s intention to provide
             additional training and guidance to our Grantees on this Manual over the
             coming year. In addition, as was noted at the Audit Exit Meeting on 9/4/18, the
             Department has recently finalized additional new hires, including a Program
             Manager for CDBG-SC, as well as additional staff within the Department.




                                             24
                      Auditee Comments and OIG’s Evaluation




Ref to OIG              Auditee Comments
Evaluation
             Finding 1F: Strengthen Controls Over Program Monitoring

             Response:
Comment 6
                   The Department agrees with the finding, and the recommendation.

             As the Auditor was aware, limited staffing and workload were major
             contributors to this Finding. As noted above, the Department has recently
             finalized additional new hires, including a Program Manager for CDBG-SC,
             as well as additional staff within the Department. It is the Department’s
             position that these new hires will allow for more timely and thorough review
             of program monitoring, both in the short and long term. Further, the
             Department fully recognizes the need to strengthen its controls associated
             with program monitoring, and is committed to doing so. The Department is
             committed to working with the HUD Field Office to identify specific actions
             and improvements.

             Finding 2: The State Lacked Policies and Procedures for All Complaints

             Finding 2A: Develop and Implement Policies and Procedures
Comment 7
             Response:
                   The Department agrees with the finding, in part, and the
             recommendation.

             As previously noted, the Department recently finalized and is in the process of
             fully implementing a new Community Development Block Grant – Small
             Cities Grant Management Manual for our Grantees. This Manual provides
             guidance to our Grantees on the procedures for addressing beneficiary
             complaints. As noted by the Auditor, our Grantees did not always follow these
             procedures correctly, and as a result, a number of these complaints were
             brought to the attention of either the Department or the Hartford Field Office
             for resolution. Miscommunication between the Department and the Grantees
             lead to a handful of complaints having untimely or poorly documented
             resolutions. Most complaints are resolved at the Grantee level, and in a




                                            25
                       Auditee Comments and OIG’s Evaluation




Ref to OIG               Auditee Comments
Evaluation
             timely fashion, however, the Department has identified a consistent issue with
             one particular Grantee consultant with regard to this issue. Both Department
             staff and the Grantee consultant have been made aware of this issue, and the
             Department is developing the necessary procedures to ensure that complaints of
             all kind are addressed in a timely fashion going forward. The Department is
             committed to working with the HUD Field Office to close this finding as quickly
             as possible.


             Finding 2B: Provide Additional Guidance on Certain Specific Policies and
             Procedures

Comment 8    Response:
                   The Department agrees with the finding, and the recommendation.

             As previously noted, the Department recently finalized and is in the process of
             fully implementing a new Community Development Block Grant – Small Cities
             Grant Management Manual for our Grantees. Specifically, these updated
             policies and procedures address all aspects of program management, including
             environmental review, procurement, program income and beneficiary
             eligibility. It is the Department’s intention to provide additional training and
             guidance to our Grantees on this Manual over the coming year. In addition,
             representatives of the OIG have been asked to participate in the Department’s
             annual Applicant Training, next slated for January, 2019. The intention will be
             to educate our Grantees and their consultants on the need to properly document
             environmental review, procurement and other regulatory compliance. With
             regard to the specific policy in question, it is the Department’s intent to take the
             following actions: 1) Reissue a Notice on the repair or replacement of paved
             surfaces; 2) Clarify the language in the Manual regarding this policy, consistent
             with the Notice; 3) Highlight this specific issue at the annual Applicant Training
             in January 2019. The Department is committed to working with the HUD
             Field Office ensure that this, and all of the Department’s policies and procedures
             are communicated appropriately to our Grantees.




                                             26
                         OIG Evaluation of Auditee Comments


Comment 1   State officials disagreed with recommendation 1A and disagreed in part with the
            finding that the tier two site-specific environmental reviews were not properly
            conducted and documented. They acknowledged that the reviews were not
            always signed or dated but stated that (1) these are not regulatory requirements
            associated with the tier two reviews, (2) the environmental reviews were
            appropriately reviewed prior to the initiation of construction, and (3) they are
            working with the grantees to obtain confirming documentation. We disagree. 24
            CFR Part 58, defines the term “responsible entity” as the grantee under the state
            CDBG Program and requires that the responsible entity must complete the
            environmental review process. The State’s Grants Management Manual includes
            a link to HUD’s “Environmental Review for Activity/Project that is Categorically
            Excluded Subject to Section 58.5” checklist which provides for two signatures;
            the preparer and the responsible entity. This checklist further states that the
            original, signed document and related supporting material must be retained on file
            by the responsible entity in an Environmental Review Record (ERR) for the
            activity/project (ref: 24 CFR Part 58.38) and in accordance with recordkeeping
            requirements for the HUD program(s). As stated in the report, 14 of 33 projects
            did not have a signed or dated site-specific statutory checklist and the checklists
            were prepared after construction started, after project completion, or were not
            prepared at all. It is unclear what other confirming documentation could be
            provided. State officials advised that they would work with the HUD Field Office
            on a final resolution to this issue. They should continue to work with the HUD
            Field Office during the audit resolution process to close out the recommendation.
            In their response, State officials addressed only the environmental reviews that
            were not properly conducted or documented. The response did not address the
            other ineligible costs cited in the report including program costs improperly
            charged to construction costs or projects that exceeded the program limits without
            State approval. After discussions with the HUD Hartford, CT Office of
            Community Planning and Development staff, we decided that it was more
            appropriate to classify those costs as unreasonable rather than ineligible. The
            program costs charged to construction costs were technically eligible Small Cities
            CDBG program costs, but they exceeded the allowable 12 percent limit of the
            grant award and, therefore, we consider those costs unreasonable. The project
            costs that exceeded program limits without State approval were a violation of the
            State imposed limits, but not in violation of regulatory or statutory requirements
            of the Small Cities CDBG program. Therefore, we consider those costs
            unreasonable. We revised the final report accordingly. Specifically, we made
            minor wording adjustments to the body of the report and to footnotes 1, 4, 5, 7, 8,
            11, 12, 15, and 18. To account for the unreasonable questioned costs, we inserted
            a new recommendation 1B and moved the initial recommendations 1B through 1F
            down to what are now recommendations 1C through 1G. Finally, we adjusted
            Appendix A (Schedule of Questioned Costs), Appendix C (Schedule of Grants


                                             27
                  Reviewed at the State Level and Questioned Costs), and Appendix E (Schedule of
                  Grants Reviewed at the Grantee Level and Questioned Costs) as necessary.
Comment 2         State officials disagreed with recommendation 1B, which is now 1C, and stated
                  that they are working with the grantee to obtain the necessary supporting
                  documentation. They stated that it is unusual, based on the grantee’s prior
                  history, experience and procedures that a tier one environmental review was not
                  completed and advised that they were working with the Grantee to either locate
                  the necessary documentation relative to the tier one review, or to verify that the
                  tier one review was not completed. State officials advised that they would work
                  with the HUD Field Office on a final resolution to this issue. They should
                  continue to work with the HUD Field Office during the audit resolution process to
                  close out the recommendation. We look forward to reviewing any supporting
                  documentation and working with the HUD Field Office on this recommendation’s
                  closure.
Comment 3         State officials disagreed with recommendation 1C, which is now 1D, and the
                  finding that contracts were not always properly procured. They stated that they
                  are working with specific grantees to identify and collect the specific
                  documentation that is missing, incomplete or unclear and that their position is that
                  the grantees did not understand the obligation to provide all of the necessary
                  documentation relative to procurement and that the information exists but was not
                  provided. State officials advised that they would work with the HUD Field Office
                  on a final resolution to this issue. They should continue to work with the HUD
                  Field Office during the audit resolution process to close out the recommendation.
                  We look forward to reviewing any supporting documentation and working with
                  the HUD Field Office on this recommendation’s closure.
Comment 4         State officials disagreed with recommendation 1D, which is now 1E, and the
                  finding that grant funds were drawn down before program income was used.
                  They stated that their position is that we did not take into consideration two issues
                  affecting this finding. The first being that the State’s Department of Housing does
                  not allow program income from one activity type (such as Homeowner
                  Rehabilitation) to be used for a different activity type (such as Public
                  Facilities/Infrastructure) meaning that program funds on hand may not be
                  available for expenditure on a specific activity. The second being that the State’s
                  Department of Housing processes and makes all payments from State funds and
                  typically draws down funds from Integrated Disbursements and Information
                  System (IDIS) 15 to reimburse those State funds at the end of a given quarter. State
                  officials contend that the grantees may have accumulated additional program
                  income, exceeding the limits, during this time. State officials advised that they
                  are collecting specific details on the transactions identified during our review in



15
     IDIS is the draw down and reporting system for the five CPD formula grant programs.



                                                        28
            order to document that either, or both of these considerations resulted in the
            finding.
            We agree that program income from one activity type may not be used for a
            different activity type and we only considered Homeowner Rehabilitation
            program income to reach our conclusions. Further, as cited in the report, for 7 of
            the 28 grantees, grant funds were drawn down even when the grantees reported
            excessive program income on their requests for payments, in their quarterly
            reports, or both. Therefore, the grantees should not have made the requests for
            additional grant funds. The State’s policy to initially use State funds to pay its
            grantee’s requests for payments and subsequently draw down the funds from IDIS
            to reimburse the State is separate from the grantee using program income on hand
            before requesting additional grant funds from the State. State officials stated that
            they will provide any information collected to the HUD Field Office and they are
            committed to working with the HUD Field Office on a final resolution to this
            finding. They should continue to work with the HUD Field Office during the
            audit resolution process to close out the recommendation. We look forward to
            reviewing any supporting documentation and working with the HUD Field Office
            on this recommendation’s closure.
Comment 5   State officials agreed with recommendation 1E, which is now 1F, to strengthen
            controls over program oversight and have begun taking corrective action to
            address the deficiencies identified. They should continue to work with the HUD
            Field Office during the audit resolution process to close out the recommendation.
            We look forward to reviewing any supporting documentation and working with
            the HUD Field Office on this recommendation’s closure.
Comment 6   State officials agreed with recommendation 1F, which is now 1G, to strengthen
            controls over program monitoring and have begun taking corrective action to
            address the deficiencies identified. They should continue to work with the HUD
            Field Office during the audit resolution process to close out the recommendation.
            We look forward to reviewing any supporting documentation and working with
            the HUD Field Office on this recommendation’s closure.
Comment 7   The State agreed with recommendation 2A and the finding, in part, that the State
            lacked policies and procedures for all complaints and have begun taking
            corrective action to address the deficiencies identified. They should continue to
            work with the HUD Field Office during the audit resolution process to close out
            the recommendation. We look forward to reviewing any supporting
            documentation and working with the HUD Field Office on this recommendation’s
            closure.
Comment 8   State officials agreed with recommendation 2B and have begun taking corrective
            actions to address the deficiencies identified. They should continue to work with
            the HUD Field Office during the audit resolution process to close out the




                                             29
recommendation. We look forward to reviewing any supporting documentation
and working with the HUD Field Office on this recommendation’s closure.




                             30
Appendix C
                                       Schedule of Grants Reviewed at the State Level and Questioned Costs


                                                                 Number.                       Program
                                                      Program        of   Program               income
                                                                                                                                               Total
            Grant                                       cost     projects cost that               that        Unsupported
                        Town          Amount                                                                                    Unreasonable questioned
            year                                     charged to     that  exceeded              should           costs
                                                                                                                                   costs       costs 16
                                                    construction exceeded   limits             have been
                                                                   limits                        used
     1       2011       Shelton       $300,000                      N/A
     2       2012       Enfield       300,000                            0                       $57,152         $57,152                             $57,152
     3       2012      Salisbury      300,000                           N/A
     4       2013      Ansonia        400,000                            1         $3,275                                           $3,275            3,275
                        Beacon
     5       2013                     400,000                            0
                         Falls
     6       2013      Ellington      450,000                           N/A
     7       2013      Hampton        450,000                            2         45,754                                           45,754           45,754
                        New
     8       2013                     400,000                           N/A                      76,441           76,441                             76,441
                       Fairfield
     9       2013       Putnam        400,000          $5,560            3         11,788         5,389            5,389            17,348           22,737
 10          2013      Salisbury      600,000                            3         88,027                                           88,027           88,027
 11          2013     Southbury       400,000                            0
 12          2013     Waterford       400,000                            1          4,990                                            4,990            4,990
 13          2013    Woodstock        400,000                            1          2,707                                            2,707            2,707



16
         Total questioned costs are the total unsupported and total unreasonable costs. The unsupported costs consist of only the program income that should
         have been used. The unreasonable costs consist of the program costs charged to construction and the program costs that exceeded limits.
                                                              31
                                                   Number.              Program
                                        Program        of   Program      income
                                                                                                                 Total
     Grant                                cost     projects cost that      that     Unsupported
                Town        Amount                                                                Unreasonable questioned
     year                              charged to     that  exceeded     should        costs
                                                                                                     costs       costs 16
                                      construction exceeded   limits    have been
                                                     limits               used
14   2014    Bethlehem      400,000                    2      1,645                                  1,645        1,645
15   2014     Coventry      500,000                   1       5,135                                  5,135        5,135
16   2014       Derby       400,000                   3       2,360      40,513       40,513         2,360       42,873
17   2014     Hampton       400,000                   4       80,549                                 80,549      80,549
18   2014       Salem       400,000      2,976        5       15,425                                 18,401      18,401
19   2014     Seymour       400,000                   4       11,651                                 11,651      11,651
20   2014      Stafford     400,000                   5       57,652                                 57,652      57,652
21   2014    Torrington     400,000                   1       3,305      32,508       32,508         3,305       35,813
22   2014     Windsor       400,000                   0                  152,785      152,785                    152,785
23   2015      Ansonia      400,000                   1       1,136                                  1,136        1,136
24   2015     Killingly     400,000                   1       5,183                                  5,183        5,183
25   2015     Lebanon       400,000                   0
26   2015      Ledyard      400,000                   3       5,071                                  5,071        5,071
27   2015      Lisbon       400,000      8,418        4       3,027                                  11,445      11,445
28   2015    Southbury      400,000                   5       10,320     57,812       57,812         10,320      68,132
Total gross questioned
                         11,300,000     16,954       50      359,000     422,600      422,600       375,954      798,554
costs
Minus costs already questioned
                                          0           0       20,189       0            0            20,189      20,189

Net total of questioned costs           16,954       50      338,811     422,600      422,600       355,765      778,365


                                              32
Appendix D
                                                         Schedule of Monitoring Delays



                                                         Date of        Days between                 Days between      Days between
            Grant                     Precloseout
                         Town                         monitoring for   precloseout and    Date of    monitoring and   precloseout and
            year                      certification
                                                         closeout        monitoring         letter       letter            letter
     1       2013     Waterford        10/17/2016        6/6/2017            232          3/6/2018        273               505
     2       2011      Shelton          12/3/2014       6/21/2016            566         2/22/2018        611              1177
     3       2013     Hampton          10/29/2015       8/30/2016            306          3/6/2018        553               859
     4       2014     Torrington        8/4/2016        10/5/2016             62          1/9/2017         96               158
     5       2013     Southbury         7/23/2015        5/3/2016            285         4/30/2018        727              1012
     6       2012      Enfield          6/23/2015       3/31/2016            282         4/30/2018        760              1042
     7       2013     Woodstock         7/16/2015       6/14/2016            334         4/30/2018        685              1019
     8       2012     Salisbury         7/17/2014       7/14/2015            362         4/30/2018        1021             1383
     9       2013      Ansonia          2/1/2016        9/27/2016            239         4/30/2018        580               819
                       Beacon
 10          2013                       4/7/2016       10/18/2016           194          4/30/2018        559              753
                        Falls
 11          2013     Ellington         6/7/2016        12/6/2016           182          4/30/2018        510              692
                         New
 12          2013                      1/26/2016        9/13/2016           231          4/30/2018        594              825
                       Fairfield
 13          2013     Salisbury        2/6/2016          8/2/2016           178          4/30/2018        636              814
 14          2014     Coventry         7/21/2016        5/16/2017           299          4/30/2018        349              648
 15          2014       Salem          6/22/2017        9/19/2017            89          4/30/2018        223              312
                                                                                            Not
 16          2014       Stafford        4/5/2017       5/15/2018 17         405
                                                                                         completed
                                                                                            Not
 17          2014       Windsor        6/16/2017        4/30/2018           318
                                                                                         completed
                                                                                            Not
 18          2015       Ansonia        2/13/2018        4/30/2018            76
                                                                                         completed
                                                                                            Not
 19          2015      Killingly       2/28/2018        4/30/2018            61
                                                                                         completed



17
         Monitoring was scheduled for May 15, 2018.
                                                        33
                                                        Date of             Days between                         Days between           Days between
        Grant                       Precloseout
                      Town                            monitoring for       precloseout and         Date of       monitoring and        precloseout and
        year                        certification
                                                        closeout             monitoring             letter           letter                 letter
                                                                                                     Not
 20      2015       Lebanon         10/24/2017           4/30/2018                188
                                                                                                  completed
                                                                                                     Not
 21      2014         Derby         10/31/2017           4/30/2018                181
                                                                                                  completed
                                                                                                     Not
 22      2014       Hampton           8/8/2017           4/30/2018                265
                                                                                                  completed
                                                                                                     Not
 23      2013        Putnam          6/23/2016           4/30/2018                676
                                                                                                  completed
                                                                                                     Not
 24      2014      Bethlehem        10/16/2017           4/30/2018                196
                                                                                                  completed
                                                                                                     Not
 25      2015        Lisbon          2/12/2018           4/30/2018                 77
                                                                                                  completed
                                                                                                     Not
 26      2015        Ledyard        10/17/2017           4/30/2018                195
                                                                                                  completed
                                                                                                     Not
 27      2015      Southbury         2/14/2018           4/30/2018                 75
                                                                                                  completed
                                                                                                     Not
 28      2014       Seymour          3/28/2017           4/30/2018                398
                                                                                                  completed
     Averages                                                                     248                                  545 18                 801




18
     For the 11 grants already monitored by the State (rows 5 through 15), the amount of days between the monitoring and April 30, 2018, ranged from a low
     of 223 days to a high of 1,021 days, with an average of 604 days.
                                                         34
     Appendix E
                                    Schedule of Grants Reviewed at the Grantee Level and Questioned Costs


                                            Program                         Program
                                                                                                                                 Ineligible or  Total
          Grant                               cost     Lack of   Improper   cost that                   Tier one     Unsupported
                    Town      Amount                                                                                             unreasonable questioned
          year                             charged to contracts procurement exceeded                     ERR*           costs
                                                                                                                                     costs      costs 19
                                          construction                        limits
1         Ansonia   2012     $300,000        $4,778                                                                                        $4,778          $4,778
2         Ansonia   2013      400,000         13,764        $110,618                        $7,578                                        131,960          131,960
3         Ansonia   2015      400,000         12,637                        $81,000                                     $81,000            12,637          93,637
4         Ansonia   2016      400,000                                                        8,625                                         8,625            8,625
5     Hampton       2012      300,000          2,576                         73,836                                     73,836             2,576           76,412
6     Hampton       2013      450,000          5,195                        111,778                                     111,778            5,195           116,973
7     Hampton       2014      400,000          1,980                         79,868                                     79,868             1,980           81,848
8     Hampton       2015      450,000          4,945                         86,973           630                       86,973             5,575           92,548
9     Hampton       2016      450,000                                        86,100                                     86,100                             86,100
10    Seymour       2014      400,000         21,763                                                                                       21,763          21,763
11   Southbury      2013      400,000         11,102         11,102                                                                        22,204          22,204
12   Southbury      2015      400,000         11,796                                         6,380                                         18,176          18,176
13   Southbury      2016      400,000
14   Torrington     2013      400,000          3,400                         3,400                                       3,400             3,400            6,800




     19
       Total questioned costs are the total unsupported and total ineligible or unreasonable costs. The unsupported costs consist of the improper procurement
       amount and the Tier one ERR (net of $925,937). The ineligible costs consist of the lack of contracts (net of $100,000) and the unreasonable costs consist
       of the program costs charged to construction (net of $79,205) and the program costs that exceeded limits (net of $0).
     * ERR = environmental review record
                                                             35
                                       Program                         Program
                                                                                                      Ineligible or  Total
       Grant                             cost     Lack of   Improper   cost that Tier one Unsupported
                  Town     Amount                                                                     unreasonable questioned
       year                           charged to contracts procurement exceeded   ERR*       costs
                                                                                                          costs      costs 19
                                     construction                        limits
15   Torrington   2014     400,000      8,370                 82,770             $400,000   482,770      8,370      491,140
16   Torrington   2015     400,000      6,210                84,218                         84,218        6,210      90,428
17 Woodstock      2013     400,000                            4,959                          4,959                    4,959
Total gross questioned
                         6,750,000     108,516   121,720     694,902    23,213   400,000   1,094,902     253,449    1,348,351
costs
Minus costs already questioned
                                       29,311     21,720     17,980     23,213   150,985    168,965      74,244      243,209
Net total of questioned costs          79,205    100,000     676,922      0      249,015    925,937      179,205    1,105,142




                                                  36
Appendix F
                       Schedule of Individual Projects Reviewed and Questioned Costs


                 Grantee     Grant year          Address            1/   2/   3/   4/   Total questioned costs
              1 Woodstock      2013         142 Peake Brook Rd.     X                          $22,758
              2 Woodstock      2013          149 E. Quasset Rd.     X                           24,365
              3  Ansonia       2013             19 Williams St.     X    X    X    X            57,578
              4  Ansonia       2013              38 Colver St.      X    X    X    X            34,450
              5  Ansonia       2015             22 Condon Dr.       X    X                      28,942
              6  Ansonia       2015              18 Richard St.     X              X            13,900
              7  Ansonia       2012            39-41 Grove St.      X         X    X            54,348
              8  Ansonia       2016                29 Hall St.      X    X                      38,625
              9  Seymour       2014              12 Garden St.      X    X    X    X            54,992
             10 Seymour        2014               29 Emma St.       X                           34,564
             11 Seymour        2014          250 South Main St.     X    X                      31,810
             12 Seymour        2014             10 Rocky Glen       X    X                      19,036
             13 Torrington     2013           58-60 Calhoun St.     X                           40,343
             14 Torrington     2013              49 Marvin St.      X                           30,184
             15 Torrington     2014              33 French St.      X         X                 45,460
             16 Torrington     2014        337 Torringford W. St.   X                           24,030
             17 Torrington     2015           122 North Elm St.     X         X                 29,407
             18 Torrington     2015         461 Greenwoods Rd.      X                           21,210
             19 Southbury      2013            242 Perkins Rd.      X    X         X            61,587
             20 Southbury      2013          887 Southford Rd.      X    X         X            33,027
             21 Southbury      2013        247D Heritage Village    X    X         X            25,804
             22 Southbury      2015          892 Kettletown Rd.     X    X                      36,380
             23 Southbury      2015           288 Lakeside Rd.      X              X            33,808
             24 Southbury      2015                30 Pascoe        X              X            33,497
             25 Hampton        2012          195 Pilfershire Rd.    X                           39,827
             26 Hampton        2012           53 Windham Rd.        X                           41,943
             27 Hampton        2013            30 Edwards Rd.       X                           27,181
             28 Hampton        2013            11 Hartford Tpk.     X                           21,205
             29 Hampton        2014             176 Palmer Rd.      X                           31,521
             30 Hampton        2014         161 Orchard Hill Rd.    X                           15,810
             31 Hampton        2015         170 Orchard Hill Rd.    X    X                      30,630
                                          37
                      Grantee     Grant year          Address           1/   2/   3/   4/   Total questioned costs
                32    Hampton        2015       78 Hammond Hill Rd.    X X                          30,000
                33    Hampton        2016          61 Franklin Dr.     X X                          22,755
                     Totals                                            33 14      6    10         1,090,977

1/   Tier two statutory checklists not reviewed or signed by a grantee official
2/   Tier two statutory checklists not signed by preparer, prepared after construction started, prepared after project completion,
     or not prepared
3/   Rental income not considered
4/   Loan-to-value ratio improperly calculated




                                               38