oversight

The City of Chicago's Department of Public Health, Chicago, IL, Did Not Administer Its Lead Hazard Reduction Demonstration Grant Program in Accordance With HUD's and Its Own Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-30.

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

   The City of Chicago’s Department of
       Public Health, Chicago, IL
       Lead Hazard Reduction Demonstration Program




Office of Audit, Region 5     Audit Report Number: 2018-CH-1010
Chicago, IL                                   September 30, 2018
To:            Matthew Ammon, Director of Lead Hazard Control and Healthy Homes, L


               //signed//
From:          Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject:       The City of Chicago’s Department of Public Health, Chicago, IL, Did Not
               Administer Its Lead Hazard Reduction Demonstration Grant Program in
               Accordance With HUD’s and Its Own Requirements

Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the City of Chicago Department of Public Health’s
2014 Lead Hazard Reduction Demonstration 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
(312) 353-7832.
                        Audit Report Number: 2018-CH-1010
                        Date: September 30, 2018

                        The City of Chicago’s Department of Public Health, Chicago, IL, Did Not
                        Administer Its Lead Hazard Reduction Demonstration Grant Program in
                        Accordance With HUD’s and Its Own Requirements


Highlights

What We Audited and Why
We audited the City of Chicago’s Department of Public Health’s (Department) Lead Hazard
Reduction Demonstration Grant Program based on our analysis of the U.S. Department of
Housing and Urban Development’s (HUD) Office of Lead Hazard Control and Healthy Homes’
grantees in Region 5’s jurisdiction.1 Our audit objective was to determine whether the
Department administered the Program in accordance with HUD’s and its own requirements.

What We Found
The Department did not administer the Program in accordance with HUD’s and its own
requirements. Specifically, it did not (1) properly procure its subcontractor, (2) make appropriate
reimbursements to the subcontractor for Program activities, (3) ensure that income was properly
calculated for households residing in assisted units, (4) ensure that landlords gave preference in
renting assisted units to targeted families, (5) properly document its lead inspection results to
support that Program activities were necessary, (6) ensure that Program funds were adequately
protected, and (7) ensure that it accurately report the number of assisted units to HUD. As a
result, the Department lacked support that more than $512,000 in Program funds was used in
accordance with HUD’s requirements and did not have more than $122,000 in Program funds
available for eligible activities. In addition, HUD and the Department lacked assurance that
more than $386,000 in Program funds was protected and available for program use.

What We Recommend
We recommend that the Director of HUD’s Office of Lead Hazard Control and Healthy Homes
require the Department to support that the contract for grant administration services was cost
reasonable or reimburse the program, reimburse its programs for duplicate reimbursements and
for four units that had been sold within 3 years, support the eligibility of households residing in
assisted units and that landlords gave preference in renting units or reimburse the program, and
implement adequate procedures and controls to address the findings cited in this audit report.




1
    The region contains six States: Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Department Did Not Administer Its Program in Accordance With
         HUD’s and Its Own Requirements.................................................................................. 4

Scope and Methodology .........................................................................................12

Internal Controls ....................................................................................................15

Appendixes ..............................................................................................................17
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 17

         B. Auditee Comments and OIG’s Evaluation ............................................................. 19
Background and Objective
The Lead Hazard Reduction Demonstration Grant Program is authorized by Section 1011 of the
Residential Lead-Based Paint Hazard Reduction Act of 1992. The purpose of the Program,
administered by the U.S. Department of Housing and Urban Development’s (HUD) Office of
Lead Hazard Control and Healthy Homes, is to assist States, cities, counties-parishes, Native
American tribes, or other units of local government in identifying and controlling lead-based
paint hazards in eligible privately owned rental or owner-occupied housing. The Healthy Homes
Supplemental Funding is authorized under Section 502 of the Housing and Urban Development
Act of 1970. The Healthy Homes Supplemental Funding is being offered to assist those units
eligible for lead funds in using the Healthy Homes Rating System for remediating other health
and safety issues.

The City of Chicago’s Department of Public Health (Department) was founded in 1834. The
Department’s mission is to promote and improve health by engaging residents, communities, and
partners in establishing and implementing services that prioritize residents with the greatest need.
One of the Department’s tasks involves detecting and addressing exposure to lead hazards. The
Department administers the Program on behalf of the City.

In December 2014, the City was awarded $3.9 million in Program funds2 under grant number
ILLHD0270-14. As of July 2018, the Department had spent nearly $3.5 million in Program funds,
including nearly $2.8 million to address lead-based paint and other health hazards in 225 units.

The objective of our audit was to determine whether the Department administered its program in
accordance with HUD’s and its own requirements. Specifically, we wanted to determine
whether the Department (1) properly procured its subcontractor to assist in administering its
Program, (2) made appropriate reimbursements to its subcontractor for lead-based paint and
other health hazard control activities, (3) ensured that income was properly calculated for
households residing in assisted units, (4) ensured that landlords gave preference in renting vacant
assisted units to families with a child under the age of 6 years, (5) properly documented its lead
inspection results to support that lead-based paint hazard control activities were necessary, (6)
adequately protected Program funds if assisted units were sold within 3 years, and (7) accurately
reported the number of assisted units to HUD.




2
    The $3.9 million in Program funds consisted of $3.5 million in Lead Hazard Reduction Demonstration Grant
    funds and $400,000 in Healthy Homes Supplemental Funding.




                                                       3
Results of Audit

Finding: The Department Did Not Administer Its Program in
Accordance With HUD’s and Its Own Requirements
The Department did not administer its Program in accordance with HUD’s and its own
requirements. Specifically, it did not (1) properly procure its subcontractor to assist in
administering its Program, (2) make appropriate reimbursements to the subcontractor for lead-
based paint and other health hazard control activities, (3) ensure that income was properly
calculated for households residing in assisted units, (4) ensure that property landlords gave
preference in renting assisted vacant units to families with a child under 6 years of age, (5)
properly document its lead inspection results to support that lead-based paint hazard control
activities were necessary, (6) ensure that Program funds were adequately protected, and (7)
ensure that it accurately reported the number of assisted units to HUD. This condition occurred
because the Department lacked adequate procedures and controls to ensure that it complied with
HUD’s and its own requirements. As a result, the Department lacked support that more than
$512,000 in Program funds was used in accordance with HUD’s requirements and did not have
more than $122,000 in Program funds available for eligible activities. In addition, HUD and the
Department lacked assurance that more than $386,000 in Program funds was protected and
available for program use. HUD also did not have complete and accurate information regarding
the number of assisted units.
The Department Did Not Properly Procure Its Subcontractor
The Department executed a noncompetitive contract with a subcontractor to assist in
administering its 2014 Program grant funds. However, it did not provide support showing that
procuring the contract under other procurement methods was infeasible in accordance with 24
CFR (Code of Federal Regulations) 85.36(d)(4)(i). It also did not conduct a cost analysis for
services provided under the contract as required by 24 CFR 85.36(d)(4)(ii). The Department had
previously procured this subcontractor to assist in administering its 2011 Program grant and a
2013 county-funded lead-based paint hazard control program by issuing two separate requests
for proposals on December 2012 and June 2013, respectively. The subcontractor was the only
entity that responded to both of the requests for proposals.
The Department believed that since only the subcontractor responded to its previous two requests
for proposals, it was the sole entity qualified to provide the 2014 Program grant administration
services. Therefore, to expedite the procurement process, it executed the noncompetitive
contract with a beginning term of June 2015. However, since approximately 2-2 ½ years had
passed from the date on which the requests for proposals had been issued to the beginning of the
contract term date for the noncompetitive contract, the Department’s belief that the subcontractor




                                                4
was the only entity qualified to provide grant administration services in June 2015 was not
supported. As a result, HUD and the Department lacked assurance that $387,443 in program
funds paid to the subcontractor for grant administration services was cost reasonable.
The Department Did Not Make Appropriate Reimbursements to Its Subcontractor
The Department did not make appropriate reimbursements to its subcontractor for lead-based
paint and other health hazard control activities.3 Specifically, it (1) paid its subcontractor
$102,069 in duplicate payments for lead-based paint and other health hazard control activities
associated with 12 units, (2) did not ensure that it reimbursed the subcontractor $77,597 for lead-
based paint and other health hazard control activities associated with 5 units, and (3) did not fully
reimburse the subcontractor for lead-based paint and other health hazard control activities
associated with 7 units totaling $10,661.
The subcontractor submitted two invoices for the same lead-based paint and other health hazard
control activities associated with 12 units, resulting in the duplicate payments. For five units, the
subcontractor did not submit invoices seeking reimbursement and for 7 units, the Department did
not fully reimburse the subcontractor because the subcontractor did not include the Department’s
approved change order costs on the invoices submitted for reimbursement. The Department’s
building construction inspectors develop the work specifications and change orders, which detail
the costs. In addition, the Department’s building construction supervisor developed a
spreadsheet which summarize the costs for the assisted units and indicates when lead activities
have been completed.
According to the Department’s former program director, the former program manager should
have compared the unit costs requested by the subcontractor for reimbursement to the unit costs
in the building construction supervisor manager’s records to determine if the subcontractor
requested the appropriate amounts for reimbursement. Also, the program manager should have
noticed that the subcontractor double billed the Department for the same unit costs and in other
cases did not bill the Department for any unit costs.

The Department Did Not Ensure That Income for Households Residing in Assisted Units
Was Properly Calculated
We reviewed 23 households that resided in a Program-assisted unit to determine whether the
Department’s subcontractor appropriately calculated income.4 Of the 23 households, the
subcontractor did not properly calculate income for 4 households that it considered to be low



3
    Under the Department’s contract with the subcontractor, the subcontractor was responsible for paying the lead
    abatement contractors performing the lead-based paint and other health hazard control activities.
4
    Under the Department’s contract with the subcontractor, the subcontractor was responsible for determining
    whether households residing in assisted units were income eligible.




                                                         5
income. Two households resided in rental units, and two resided in owner-occupied units.
According to Federal requirements, assisted rental units must be made available or occupied by a
low-income household.5 Additionally, assisted owner-occupied units must be the principal
residence of a low-income household.6 For the four households,7 the subcontractor did not:

        include overtime pay in the income calculation for three households,8
        verify the beginning date of employment for two households before using year-to-date
         earnings from the households’ most current paystubs, and
        include disability benefits in the income calculation for one household.9

If the gross earnings on the paystubs and disability benefits had been used to calculate household
income, the household income for each of the 4 households would have exceeded the low
income threshold.

The Department lacked adequate oversight of its subcontractor. Specifically, it did not monitor
the subcontractor to ensure that household income was properly calculated. Instead, it relied on
the subcontractor to correctly calculate household income. As a result, the Department lacked
assurance that $59,883 in Program funds spent on the four assisted units was for households that
were income eligible.
The Department Did Not Ensure That Vacant Rental Units Were Prioritized for Families
With a Child Under 6 Years of Age
The Department did not ensure that property landlords gave preference in renting six vacant
assisted units to families with a child under 6 years of age. According to HUD’s Office of Lead
Hazard Control and Healthy Homes’ Policy Guidance 2014-01, grantees are advised to establish
policies to ensure that assisted units are prioritized for families with children under 6 years of
age, such as but not limited to registering assisted units in a publicly accessible lead-safe housing
registry and following up with owners at least annually and documenting in the unit file that
owner has attempted to comply.

The Department stated that it was aware that property landlords had to give preference to
families with a child under 6 years of age. However, it was uncertain what policies and
procedures it could implement to ensure that the requirement was met. Therefore, the




5
    See the Residential Lead-Based Paint Hazard Reduction Act of 1992, as amended, section 1011(a)(1).
6
    See the Residential Lead-Based Paint Hazard Reduction Act of 1992, as amended, section 1011(a)(2).
7
    The households had 1 or more calculation errors.
8
    24 (Code of Federal Regulations) 5.609.
9
    Ibid.




                                                        6
Department did not monitor the property landlords that had lead abatement activities completed
in their vacant units to ensure that the preference requirement was being met. As a result, the
Department lacked assurance that $41,240 in Program funds used to assist six vacant units was
prioritized for families with a child under 6 years of age.
The Department Did Not Always Properly Record Its Lead Inspection Results
Of the 25 assisted units selected for review, the Department did not properly document its lead
inspection results to support that lead-based paint hazard control activities were necessary for 13
units. According to HUD’s requirements, only those lead-based paint hazards identified and
clearly documented in the lead inspection report were eligible for reimbursement.10 The
unsupported lead-based paint hazard control activities consisted of window and door
replacements, paint stabilizing wall surfaces, ceilings, decks, and adding drywall. The main
issue dealt with the replacement of 45 windows in 10 assisted units. According to HUD’s
requirements, if the lead inspection or risk assessment required that more than five windows be
replaced in a property with the cost charged to grant funds, grantees were required to document
each window being replaced with either a X-ray fluorescence (XRF) reading from each window
or a photo.11 For the 45 windows, the Department’s inspection reports did not contain an XRF
reading or a photo showing the condition of the old windows. According to the Department’s
supervising building construction inspector, there may have been conditions that prevented the
inspectors from taking an XRF reading of the windows, such as windows being sealed shut or
extreme weather conditions. As a result, the Department paid $28,606 in Program funds for the
unsupported lead-based paint hazard control activities completed in the 13 assisted units. In
addition, for 2 of the 13 units, the Department paid $2,900 for seven windows that were not
installed. This issue occurred because the Department’s supervising building construction
inspector did not always thoroughly review the lead inspection reports to ensure that the lead-
based paint hazard control activities listed in the work specifications were properly supported.

The Department Did Not Adequately Protect Program Funds Used for Assisted Units
We reviewed 59 assisted units12 to determine whether the Department executed property owner
agreements in accordance with its work plan. The Department did not execute property owner
agreements listing its recapture policy for 23 of the 59 assisted units. According to the
Department’s work plan, property owners were required to sign an agreement affirming that they
would not sell the assisted property within the next 3 years and if they did, the amount granted to
them would be subject to be recaptured by the Department at the time of sale. During our audit
period, the Department did not recapture Program funds for four assisted units that had been sold




10
     See HUD’s Office of Lead Hazard Control and Healthy Homes’ Policy Guidance 2013-01, section 4.
11
     See HUD’s Office of Lead Hazard Control and Healthy Homes’ Policy Guidance 2013-01, section 2.
12
     See Scope and Methodology section.




                                                       7
by the properties’ owners within 3 years of the date of the program applications seeking
assistance.13

The Department also did not have a mechanism, such as a lien, to secure the repayment of
Program funds if an assisted unit was sold. These issues occurred because the Department was
unaware of how to enforce its recapture policy. In addition, the Department had removed the
property owner agreement to shorten the application. Therefore, the property owner agreements
were not executed for all assisted units. As a result, the Department did not recapture $17,507 in
Program funds that could have been used for additional Program activities, and it did not
adequately protect $297,924 in Program funds spent on the 23 assisted units14 for which a
property owner agreement had not been executed.

The Department Did Not Ensure That It Accurately Reported Assisted Units to HUD
The Department did not accurately report the number of assisted units to HUD’s Office of Lead
Hazard Control and Healthy Homes. As of April 2018, the Department reported to HUD that
244 units had been assisted with Program funds. According to the Department’s supporting
documentation for drawdowns from HUD’s Line of Credit Control System (LOCCS),15 225 units
had been assisted with Program funds. However, the Department’s records showed that 253
units had been assisted. Therefore, it appeared that Program funds were not drawn down and
paid to the subcontractor for 28 units (253 - 225). This issue occurred because the Department
reported assisted units to HUD before receiving confirmation that Program funds had been
drawn down for those units. As a result, HUD did not always have complete and reliable
information.

Conclusion
The Department lacked adequate procedures and controls to ensure that it complied with HUD’s
and its own requirements. As a result, the Department lacked support that more than $512,000
in Program funds was used in accordance with HUD’s requirements and did not have more than
$122,000 in Program funds available for eligible activities. In addition, HUD and the
Department lacked assurance that more than $386,000 in Program funds was protected and
available for program use. HUD also did not have complete and accurate information regarding
the number of assisted units.




13
     We conducted Lexis-Nexis® - Accurint® searches on the 225 assisted units and concluded that 4 had been
     resold.
14
     For the 23 units, we excluded any Program funds that were questioned under another section of our audit review.
15
     HUD’s Line of Credit Control System (LOCCS) is the primary grant disbursement system, which handles
     disbursements for the majority of HUD programs.




                                                          8
Recommendations
We recommend that the Director of HUD’s Office of Lead Hazard Control and Healthy Homes
require the Department to
     1A. Support that grant administration services paid were cost reasonable or reimburse its
         Program $387,443 from non-Federal funds.

     1B. Reimburse its Program $102,069 from non-Federal funds for the duplicate payments
         made to its subcontractor for lead-based paint and other health hazard control activities.

     1C. Coordinate with HUD’s Office of Lead Hazard Control and Healthy Homes to determine
         whether $88,258 in Program funds ($77,597 + $10,661) may be drawn down and used to
         reimburse its subcontractor if the lead-based paint and other health hazard control
         activities are determined to be eligible.

     1D. Determine whether the subcontractor is owed payment for 21 units,16 which the
         Department’s records showed were assisted under the Program but were not identified as
         assisted units according to documentation maintained by the Department to support its
         drawdowns from HUD’s LOCCS. If the Department determines that the subcontractor is
         owed payment for the lead-based paint and other health hazard control activities, it
         should provide support that the lead-based paint and other health hazard control activities
         were eligible and that the subcontractor was not reimbursed for these activities from non-
         Program funds. If these conditions have been met, the Department should reimburse the
         subcontractor from Program funds.

     1E. Determine whether appropriate reimbursements were made to the subcontractor for the
         remaining 166 assisted units17 that were not a part of our review. If the Department
         determines that appropriate reimbursements were not made, it should provide support that
         the lead-based paint and other health hazard control activities are Program eligible and
         the subcontractor was not reimbursed for these activities from non-Program funds. If
         these conditions have been met, the Department should reimburse the subcontractor from
         Program funds.




16
      Of the 28 Program-assisted units that differed between the Department’s records and support for its drawdowns
      from LOCCS, we reviewed 7 during the audit. Therefore, 21 units remain.
17
      During the audit, we reviewed 59 of the 225 units reported in LOCCS. Therefore 166 units remain.




                                                          9
     1F. Support that the four households residing in assisted units were income eligible or
         reimburse its Program $59,883 from non-Federal funds for the lead-based paint and other
         health hazard control activities completed in the assisted units.

     1G. Support that landlords gave preference in renting six vacant units to families with
         children under 6 years of age or reimburse its Program $41,240 from non-Federal funds
         for the lead-based paint and other health hazard control activities completed at these
         assisted units.

     1H. Support that lead-based paint hazard control activities were necessary at 13 assisted units
         or reimburse its Program $23,85718 from non-Federal funds for the unsupported lead-
         based paint hazard control activities completed at these assisted units.

     1I.    Reimburse its Program $2,900 from non-Federal funds for the two units in which the
           seven windows were not installed.

     1J.   Transfer $17,507 in non-Federal funds to its Childhood Lead Poisoning Prevention
           Program and use the funds in accordance with the program grant requirements since these
           funds were not recaptured after the four assisted units were sold within 3 years.

     1K. Execute agreements with owners of the assisted units detailing the Department’s
         recapture policy and determine whether liens should be filed with the appropriate
         government office to ensure that Program funds used to assist the units are properly
         protected and able to be recaptured if assisted units are resold within 3 years. These
         protections should ensure that $297,924 in Program funds is adequately protected.

     1L. Implement adequate procedures and controls to ensure that (1) contracts are properly
         procured in accordance with HUD’s requirements, (2) annual income is properly
         calculated for households residing in assisted units, (3) the appropriate reimbursement
         payments are made to the subcontractor for lead-based paint and other health hazard
         control activities, (4) lead inspection results properly support lead-based paint hazard
         control activities, (5) it complies with its work plan regarding executing agreements with
         property owners and determining whether other mechanisms are needed to enforce the
         agreements. This measure would ensure that future Program funds are protected, and (6)
         accurate and complete information regarding assisted units is reported to HUD.



18
      The actual unsupported amount was $28,606. However, the amount was reduced by $4,749, which was included
      in the unsupported costs associated with recommendation 1F. Therefore, the amount associated with this
      recommendation was $23,857.




                                                       10
1M. Develop and implement adequate procedures and controls to ensure that assisted rental
     units are prioritized for families with children under 6 years of age.




                                              11
Scope and Methodology
We performed our onsite audit work between January and August 2018 at the Department’s
office located at 2133 West Lexington Street, Chicago, IL. The audit covered the period
December 15, 2014, through June 15, 2018.

To accomplish our audit objective, we interviewed staff from HUD’s Office of Lead Hazard
Control and Healthy Homes and the Department’s employees. In addition, we obtained and
reviewed the following:
      Residential Lead-Based Paint Hazard Reduction Act of 1992, as amended; Federal
       regulations at 2 CFR Part 225; HUD’s regulations at 24 CFR Parts 5 and 85; HUD Office
       of Lead Hazard Control and Healthy Homes’ notices; the Program’s notice of funding
       availability; Program grant terms and conditions; HUD’s Guidelines for the Evaluation
       and Control of Lead-Based Paint Hazards in Housing.

      The Department’s accounting records, annual audited financial statements, agreements
       with its subcontractor, policies and procedures, work plan, files for assisted units, and
       procurement files.

Reimbursement Review
The Department’s supporting documentation for its drawdowns from HUD’s Line of Credit
Control System identified 225 units that had been assisted with Program funds during our audit
period. We selected 59 assisted units consisting of (1) 25 units reviewed for lead inspection, (2)
the 14 additional units reviewed for household income calculations, (3) 4 units that were resold
within 3 years, (4) 5 units reviewed for monitoring of vacant units, and (5) 11 units reviewed for
duplicate payments. One vacant unit and one duplicate payment unit were excluded from the
count since the two units were a part of the 25 units reviewed for lead inspection (see the
samples selected for the other reviews below).

Duplicate Payments Review
We conducted a 100 percent review of the 225 assisted units to determine whether duplicate
payments were made by comparing the Program funds drawn down per unit according to the
Department’s LOCCS supporting documentation to the unit costs according to the Department’s
records. We identified 12 payments as potential duplicates; therefore, we reviewed the
supporting documentation such as invoices to determine whether the payments were duplicated.
Since we performed a 100 percent review of the potential duplicate payments, no projection was
warranted.




                                                12
Income and Lead Inspections Reviews
From the Department’s records of 253 units assisted under the Program, we sorted the units into
6 different cost strata and selected 2 from each stratum for review in the survey phase. The six
cost strata were based on the unit cost according to the Department’s records - $0 to $5,000;
$5,001 to $10,000; $10,001 to $15,000; $15,001 to $20,000; $20,001 to $25,000; and $25,001
and greater.19

For the survey, we reviewed 10 units to determine whether each unit’s lead inspection results
supported the lead-based hazard control activities and 9 units to determine whether household
income was properly calculated.20

Based on the survey results, we selected an additional 14 units to review for the accuracy of
household income calculations to support income eligibility. These additional units were
selected based on the highest income households according to the subcontractor’s records.
Therefore, we reviewed a total of 23 units for the household income review. We also selected an
additional 15 units to review the lead inspections. We selected two units per each of the four
Department inspectors who conducted the lead inspections, two units that most recently
underwent a lead inspection, and five units for which the lead inspections were conducted by the
Department inspector who appeared to have the most significant lead inspection deficiencies.
Therefore, we selected a total of 25 units for the lead inspection review. Since we used a
nonstatistical method, our results were not projected to the universe.
Vacant Unit Review
Using the Department’s records, we determined that six vacant units had been assisted using
program funds. We reviewed all six assisted units to determine whether the Department had
assurance that property landlords gave preference in renting assisted units to families with a child
under 6 years of age. Since we did 100 percent sampling, our results cannot be projected to the
universe.

Sold Unit Review
We performed Lexis-Nexis - Accurint searches on all 225 assisted units, according to the
Department’s LOCCS supporting documentation, to determine whether any had been resold
within 3 years of the date of the program application for assistance. This review identified that
four units had been resold. We reviewed all four units to determine whether the Department




19
     We excluded two units during the survey phase because the subcontractor did not receive reimbursement for the
     units.
20
     One of ten units reviewed in the survey phase was vacant at the time the lead-based paint hazard control
     activities were completed. Therefore, it was not possible to calculate household income.




                                                        13
recouped Program funds used for the units. Since we did 100 percent sampling, our results
cannot be projected to the universe.

Executed Agreements Review
We reviewed the same 59 assisted units reviewed as part of the reimbursement review. Since this
was a targeted selection, we did not project to the universe.

We did not rely on computer-generated data to support our audit conclusions. Our audit
conclusions are based on source documentation maintained by the Department.
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
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   effectiveness and efficiency of operations,
   reliability of financial reporting, and
   compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.
   Reliability of financial reporting – Policies and procedures that management has
    implemented to reasonably ensure that valid and reliable data are obtained, maintained, and
    fairly disclosed in reports.
   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that resource use is consistent with laws and
    regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.




                                                  15
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:


      The Department lacked adequate procedures and controls to ensure that it (1) complied
       with HUD’s procurement requirements, (2) reimbursed its subcontractor for lead-based
       paint and other health hazard control activities, and (3) appropriately calculated
       household income. It also lacked adequate procedures and controls to ensure that (1)
       preference in renting assisted vacant units was provided to families with a child under 6
       years of age, (2) lead inspections appropriately identified the lead-based paint hazard
       control activities, (3) Program funds were protected, and (4) it accurately reported
       assisted units to HUD (finding).




                                                16
Appendixes

Appendix A
           Schedule of Questioned Costs and Funds To Be Put to Better Use


     Recommendation                                                  Funds to be put
         number              Ineligible 1/        Unsupported 2/     to better use 3/
           1A                                      $387,443
             1B              $102,069
             1C                                                         $88,258
             1F                                      59,883
             1G                                      41,240
             IH                                      23,857
             1I                2,900
             1J               17,507
             1K                                                         297,924

            Total             122,476               512,423              386,182


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.




                                             17
3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In these instances, if the Department implements our
     recommendations, it will ensure that Program funds are adequately protected by
     executing appropriate agreements and appropriately reimbursing its subcontractor for
     lead-based paint and other health hazard control activities. 




                                           18
Appendix B
             Auditee’s Comments and OIG’s Evaluation
Ref to OIG
             Auditee Comments
Evaluation




                             19
             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




Comment 1




                              20
             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




Comment 2




                              21
             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




Comment 3




Comment 4


Comment 5
Comment 6

Comment 7




                              22
             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




Comment 8
Comment 9




                              23
             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




Comment 8


Comment 10




Comment 8




                              24
             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




Comment 11




Comment 8

Comment 12




                              25
              Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
             Auditee Comments




Comment 13


Comment 14




Comment 8




Comment 15




                            26
             Auditee Comments and OIG’s Evaluation

Ref to OIG
Evaluation
              Auditee Comments




                              27
                           OIG Evaluation of Auditee Comments

Comment 1 The Department believes that two weeks wasn’t sufficient time to respond to the
          audit report.

             We periodically updated the Department of the issues cited in the audit report via
             the following communications. On April 13, 2018, we provided the Department
             with schedules detailing (1)assisted households for which income was not properly
             calculated, (2) a vacant rental unit for which the Department did not monitor to
             ensure that the preference requirement was met, (3) assisted units for which the
             Department did not properly document its lead inspection results, (4) assisted units
             for which property owner agreements were not executed, and (5) assisted units that
             had been sold for which the Department did not recapture Program funds. On May
             7, 2018, we conducted a survey results meeting with the Department which
             included a discussion that the Department did not properly procure its
             subcontractor. On June 22, 2018, we provided the Department with updated
             schedules regarding our reviews of (1) household income calculation, (2) vacant
             rental units, and (3) lead inspection results. On August 3, 2018, we provided the
             Department with schedules detailing the inappropriate reimbursements made to its
             subcontractor. We acknowledge that the Department was granted only two weeks
             to respond to the audit report. However, the Department had more than 2 weeks to
             provide documentation regarding the issues noted in the finding.

Comment 2 The Department generally disagrees with the finding which it believes was made
          based on a broad conclusion and sweeping generalizations.

             We disagree. The report provides specific details to support the conclusion that
             Department did not administer its program in accordance with HUD’s
             requirements.

Comment 3 The Department disagrees with our conclusion that it did not properly procure its
          subcontractor.

             The Department executed a noncompetitive contract with its subcontractor.
             According to 24 CFR 85.36 (d)(4)(i), procurement by noncompetitive proposals
             may only be used when the award of a contract is infeasible under small purchase
             procedures, sealed bids or competitive proposals and one of the following
             circumstances applies: (A) the item is available only from a single source; (B) the
             public exigency or emergency for the requirement will not permit a delay resulting




                                              28
             from noncompetitive solicitation; (C) the awarding agency authorizes
             noncompetitive proposals; or (D) after solicitation of a number of sources,
             competition is determined inadequate. The Department did not provide support
             that the awarding of the noncompetitive contract was infeasible under other
             procurement methods and that any of the four conditions cited above had been met
             when it awarded the noncompetitive contract to its subcontractor. Additionally, a
             cost analysis for services provided under the contract as required by 24 CFR
             85.36(d)(4)(ii) was not conducted. Therefore, we concluded that the Department
             did not properly procure its subcontractor.

Comment 4 The Department believes it followed internal procedures pursuant to 24 CFR
          85.36(b)(1) and was granted approval to award the noncompetitive contract to its
          subcontractor as evidenced by exhibits A and B.

             According to 24 CFR 85.36(b)(1), grantees will use their own procurement
             procedures provided that the procurements confirm to applicable Federal law and
             the standards identified in this section. Exhibits A and B are documents showing
             that the Department requested internal approval to award a noncompetitive
             contract and the awarding of the noncompetitive contract. However, there was no
             support in the exhibits showing that the Department met HUD’s requirements to
             noncompetitively award the contract. We did not include the Department’s
             exhibits in this report because they were not necessary to understand the
             Department’s position and were addressed in our evaluation. However, the
             attachments are available upon request.

Comment 5 The Department stated that we incorrectly determined that because 2-2.5 years had
          passed between the 2013 contract and the 2015 contract, the Department did not
          show inadequate competition after solicitation of a number of sources. The
          Department further states that 2-2.5 year threshold is arbitrary and not found in the
          regulation.

             The 2-2.5 years is not a threshold. The range describes the length of time between
             the dates the requests for proposals had been issued for the competitively procured
             contracts and the beginning contract term date for the noncompetitive contract,
             which is cited in this audit report.
Comment 6 The Department stated that it released a request for proposal for its County funded
          abatement and mitigation grant in June 2018 and its Program subcontractor was
          the only respondent. It believes this further proves a lack of competition.




                                              29
              However, the Department did not provide supporting documentation regarding the
              request for proposal.

Comment 7 The Department stated that 88% of the Program funds awarded to its subcontractor
          were used to pay lead-based paint work performed on the assisted units.

              The questioned costs in recommendation 1A were limited to Program funds paid to
              its subcontractor for grant administration services. In recommendation 1A, we did
              not question any Program funds used to pay for lead-based paint work performed
              on assisted units.

Comment 8 The Department should work with HUD’s Office of Lead Hazard Control and
          Healthy Homes for the recommendations in which it agreed that involved
          repayment of funds and the recommendations in which it disagreed.

Comment 9 The Department disagrees with our conclusion that it did not make appropriate
          reimbursements to its subcontractor. However, it is in the process of updating its
          policies and procedures regarding invoice approvals.

              In our audit report, we identified that the Department (1) paid its subcontractor
              duplicate payments for activities associated with 12 units, (2) did not ensure that it
              reimbursed the subcontractor for activities associated with 5 units, and (3) did not
              fully reimburse the subcontractor for activities associated with 7 units. Based on
              the discrepancies noted with these 24 units, the Department did not make
              appropriate reimbursements to its subcontractor. We acknowledge the
              Department’s assertions that it is in the process of making improvements. It
              should work with HUD to ensure that the updated policies and procedures fully
              address the recommendations.

Comment 10 The Department disagrees with our conclusion that it did not ensure that income
           for households residing in assisted units was properly calculated. It also stated that
           the household income for 19 of the 23 units selected for review was calculated
           correctly. The report acknowledged that of the 23 households reviewed, the
           subcontractor did not properly calculate income for 4 households.

              Although we did not select a statistical sample and project to the universe, the
              Department did not monitor the subcontractor to ensure that household income was
              properly calculated. Therefore, the Department did not ensure that income for
              households residing in assisted units was properly calculated.




                                                30
Comment 11 The Department disagrees with our conclusion that it did not ensure vacant rental
           units were prioritized for families with a child under 6 years of age. However, the
           Department acknowledges room for improvement and has begun updating its
           policies and procedures.

             As stated in the audit report, the Department acknowledged that it did not monitor
             the property landlords that had lead abatement activities completed in their vacant
             units to ensure that the preference requirement was met. Therefore, the
             Department did not ensure that vacant rental units were prioritized for families
             with a child under 6 years of age. We acknowledge the Department’s assertions
             that it has begun updating its policies and procedures regarding the cited
             deficiency. It should work with HUD to ensure that the updated policies and
             procedures fully address the recommendations.

Comment 12 The Department disagrees with our conclusion that it did not always properly
           record its lead inspection results. However, the Department acknowledges room
           for improvement and has begun updating its policies and procedures.

             As stated in the audit report, of the 25 assisted units selected for review, the
             Department did not properly document its lead inspection results to support that
             lead based paint hazard control activities were necessary for 13 units. Therefore,
             the Department did not always properly record its lead inspection results. We
             acknowledge the Department’s assertions that it has begun updating its policies
             and procedures regarding the cited deficiency. It should work with HUD to ensure
             that the updated policies and procedures fully address the recommendations.

Comment 13 The Department disagrees with our conclusion that four units were resold within 3
           years of assistance. Additionally, the Department stated that we did not make any
           determination regarding the additional 221 assisted units.

             We used Lexis-Nexis –Accurint to determine that only 4 of the 225 assisted units
             had been sold within 3 years of the date of the program applications seeking
             assistance. The Department did not provide documentation with its response to
             show that the 4 units had not been sold.

Comment 14 The Department stated the language in the audit report citing that “the Department
           did not recapture Program funds for four assisted units that had been sold by the
           properties’ owners 3 years after the date of the program applications seeking
           assistance” was unclear.




                                              31
             We acknowledge that the language was not clear and revised the audit report to
             state that “the Department did not recapture Program funds for four assisted units
             that had been sold by the properties’ owners within 3 years of the date of the
             program applications seeking assistance”. This change is consistent with the
             related recommendation cited in the report.

Comment 15 The Department disagrees with our conclusion that it did not report accurate and
           complete information regarding assisted units to HUD.

             As stated in the audit report, as of April 2018, the Department reported to HUD
             that 244 units had been assisted with Program funds. According to the
             Department’s supporting documentation for drawdowns from HUD’s Line of
             Credit Control System, 225 units had been assisted with Program funds. The
             Department was unable to reconcile the difference between the number of assisted
             units reported to HUD and the number of assisted units according to the
             documentation that supported its LOCCs draw downs. Therefore, the Department
             did not ensure that it accurately reported assisted units to HUD.




                                              32