oversight

The Kansas City, MO, Health Department Did Not Spend Lead Based Paint Hazard Control Grant Funds in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-04-06.

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

         Kansas City Health Department
               Kansas City, MO
       Lead-Based Paint Hazard Control Grant Program




Office of Audit, Region 7      Audit Report Number: 2018-KC-1002
Kansas City, KS                                      April 6, 2018
To:            Matthew Ammon
               Director, Office of Lead Hazard Control and Healthy Homes, L

               //signed//
From:          Ronald J. Hosking
               Regional Inspector General for Audit, 7AGA
Subject:       The Kansas City, MO, Health Department Did Not Spend Funds in Accordance
               With HUD 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 Kansas City, MO, Health Department’s Project
Lead Safe KC 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
913-551-5870.
                     Audit Report Number: 2018-KC-1002
                     Date: April 6, 2018

                     The Kansas City, MO, Health Department Did Not Spend Funds in
                     Accordance With HUD Requirements




Highlights

What We Audited and Why
We audited the Kansas City, MO, Health Department’s Lead Safe KC program due to increased
media attention on lead-based paint poisoning in the Kansas City area. Further, we had never
conducted an audit of the more than $21.6 million in grants received by the Health Department
since 1997. Our audit objective was to determine whether the Health Department (1) properly and
consistently calculated income for program participants, (2) spent grant funds on items that qualified
as lead hazards, (3) properly spent grant funds for relocation of owner-occupants, and (4) properly
notified owners in accordance with U.S. Department of Housing and Urban Development
requirements.

What We Found
The Health Department (1) did not consistently and correctly calculate annual income for
program participants; (2) sometimes replaced windows that did not qualify as lead hazards; (3)
did not determine whether relocation was a hardship for owner-occupants; and (4) did not
properly notify property owners of lead-based paint disclosure requirements, timely risk
assessment results, clearance reports, and ongoing reporting and maintenance recommendations.

What We Recommend
We recommend that the Health Department (1) repay $19,173 spent on ineligible assistance; (2)
complete a cost breakdown for the $10,731 spent for a rental property, which included assistance
to an ineligible unit; (3) recalculate the annual income for participants assisted with the 2014
lead hazard control grant to support the $1.8 million spent and repay the U.S. Treasury from non-
Federal funds for any property found to be ineligible; and (4) provide support showing the
$79,738 spent on windows replacement qualified or repay the U.S. Treasury from non-Federal
funds.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Health Department Did Not Properly and Consistently Calculate
         Income for Program Participants.................................................................................... 4

         Finding 2: The Health Department Sometimes Replaced Windows That Did Not
         Qualify as Lead Hazards .................................................................................................. 6

         Finding 3: The Health Department Did Not Determine Whether Relocation Was a
         Hardship for Owner-Occupants ...................................................................................... 8

         Finding 4: The Health Department Did Not Always Provide Proper Notification to
         Owners ............................................................................................................................... 9

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

Internal Controls ....................................................................................................14

Appendixes ..............................................................................................................15
         A. Schedule of Questioned Costs .................................................................................. 15

         B. Auditee Comments and OIG’s Evaluation ............................................................. 16

         C. Questioned Cost Detail ............................................................................................. 27




                                                                      2
Background and Objective
The Kansas City, MO, Health Department started its Project Lead Safe KC program in 1997 with
the assistance of lead-based paint hazard control grants awarded by the U.S. Department of Housing
and Urban Development (HUD). The program assists privately owned and rental properties in the
Kansas City area in reducing lead hazards found in the home. To qualify for assistance, the
property must have been built before 1978 and contain lead-based paint hazards. Additionally, the
owner or tenant occupants of the property must meet specific income requirements.

Lead-based paint and lead-contaminated dust are the most common sources of lead poisoning in
children. Even small amounts of lead can cause serious health problems. Children under the age of
6 are especially vulnerable to lead poisoning because it can severely affect mental and physical
development. Since 1997, the Health Department has received $21.6 million in grant funds and
assisted 1,826 homes in reducing lead hazards.

Authorized by Section 1011 of the Residential Lead-Based Paint Hazard Reduction Act of 1992,
HUD’s Office of Lead Hazard Control and Healthy Homes oversees the Health Department’s
grants. The purpose of the grant program is to assist States, cities, and other units of local
government in undertaking comprehensive programs to identify and control lead-based paint
hazards in eligible rental or owner-occupied housing. Grantees awarded with funding must
administer their grant programs in accordance with HUD requirements.

Our audit objective was to determine whether the Health Department (1) properly and consistently
calculated income for program participants, (2) spent grant funds on items that qualified as lead
hazards, (3) properly spent grant funds for relocation of owner-occupants, and (4) properly notified
owners in accordance with HUD requirements.




                                                  3
Results of Audit

Finding 1: The Health Department Did Not Properly and
Consistently Calculate Income for Program Participants
The Health Department did not properly and consistently calculate income for program
participants. This condition occurred because the Health Department did not fully understand
income requirements and lacked policies and procedures stating the definition of annual income
that it would use, how it would calculate annual income, and the documentation required to
verify income. Additionally, it did not have a documented review process to ensure that income
was correctly calculated. As a result, the Health Department spent $19,173 on a property that
was not eligible to receive assistance and another $10,731 on a property for which only one of
two units qualified for assistance. Further, it could not ensure that the $1.8 million spent on
property assistance went to participants who met income qualifications.

The Health Department Did Not Properly and Consistently Calculate Income for Program
Participants
The Health Department did not properly and consistently calculate income for program
participants. We reviewed 20 files for properties that received assistance through the Health
Department’s Project Lead Safe KC program. In calculating annual income, the Health
Department incorrectly used net wages instead of gross wages in six of the property files
reviewed. Further, it did not include any type of income other than wages in its annual income
calculation for any of the 20 property files reviewed.

HUD policy guidance 2013-07 required the Health Department to select one of three definitions
of annual income and apply the definition consistently for all properties. The Health Department
stated that it used the definition of annual income found at 24 CFR (Code of Federal
Regulations) 5.609. This definition includes gross wages and salaries, net income from the
operation of a business, welfare assistance payments, alimony, and child support in the
calculation of annual income. The Health Department incorrectly collected only documentation
related to wages.

The Health Department Did Not Fully Understand Income Requirements and Lacked
Policies and Procedures
The Health Department did not fully understand income requirements, and it lacked policies and
procedures for calculating income. In addition, it did not have a documented review process to
ensure that it properly calculated income.

In responses to our inquiries, the Health Department was unaware that the income definition it
used required more than wage-related income. While the program manager responsible for
overseeing the program received training on HUD requirements, the persons responsible for
reviewing applications had not been trained on income requirements. Further, the Health
Department’s work plan did not define the annual income definition it would use, nor did the



                                               4
Health Department have policies and procedures to address how it would calculate annual
income and the documentation required to verify annual income. While the Health Department
stated that the program manager reviewed approved applications for accuracy, it did not have a
documented review process to show that this review occurred.

The Health Department Spent Grant Funds on Ineligible Properties
The Health Department spent $19,173 on a property that was not eligible to receive assistance
and another $10,731 on a property for which only one of two units qualified for assistance. The
Health Department did not break down expenditures by unit; therefore, we were unable to
determine how much of the $10,731 was spent on the ineligible unit. To qualify for assistance,
participants must meet certain income requirements. Because the Health Department incorrectly
calculated income for tenants, it approved units for assistance that had income above the limit of
80 percent of the area median income.

Further, the Health Department could not ensure that the $1,803,705 spent on property assistance
went to participants who met income requirements because it did not collect the documentation
necessary to properly calculate annual income (see Appendix C for more details on the cost
breakdown).

Recommendations
We recommend that the Director of the Office of Lead Hazard Control and Healthy Homes
require the Health Department to

       1A.     Repay the U.S. Treasury $19,173 spent on ineligible assistance from non-Federal
               funds.

       1B.     Complete a cost breakdown to support the $10,731 spent on a rental property,
               which included assistance to an ineligible unit, and repay the ineligible assistance
               to the U.S. Treasury from non-Federal funds.

       1C.     Recalculate annual income for participants assisted with the 2014 lead hazard
               control grant to support the $1,803,705 spent. For any assistance the Health
               Department cannot support with complete income calculations, it should repay the
               U.S. Treasury from non-Federal funds, less any amount repaid as a result of
               recommendations 1B and 2A.

       1D.     Develop and implement policies and procedures that clarify the definition of
               annual income to be used, calculation components, and the documentation
               required to calculate income.

       1E.     Develop and implement procedures for quality control reviews to ensure that
               annual income is properly calculated.

       1F.     Provide training on HUD’s income requirements to employees responsible for
               calculating income.



                                                 5
Finding 2: The Health Department Sometimes Replaced Windows
That Did Not Qualify as Lead Hazards
The Health Department sometimes replaced windows that did not qualify as lead hazards. This
condition occurred because the Health Department did not have adequate internal controls. As a
result, it did not have those funds available for eligible program expenses.

The Health Department Replaced Windows That Did Not Qualify as Lead Hazards
The Health Department sometimes replaced windows that did not qualify as lead hazards. Due
to the costliness of window replacement, HUD issued policy guidance with specific requirements
for windows. In policy guidance 2013-01, it required grantees to test all windows for lead-based
paint. The guidance further stated that the window must contain a lead-based paint hazard and
not merely lead-based paint. For a window to qualify as a lead hazard, it must contain either
deteriorated lead-based paint or intact lead-based paint determined to be a friction hazard. Only
those lead-based paint hazards identified and clearly documented in the lead-based paint
inspection and risk assessment are eligible for reimbursement.

We reviewed 20 files for properties that received assistance from the Health Department’s lead
hazard control grant. We reviewed the risk assessment for each property, which outlined all of
the lead-based paint tests conducted and lead hazards identified. We compared the windows
identified on the property floor plan to the lead-based paint testing results to determine whether
the windows replaced were tested for lead-based paint and whether the test results clearly
showed that the window met the requirements of a lead-based paint hazard. For 9 of the
properties reviewed, the Health Department replaced 46 windows that had not been tested or did
not test positive for lead-based paint or for which the lead-based paint was intact and the Health
Department did not conduct the appropriate analysis to determine whether it was a friction
hazard. For these 9 properties, the Health Department spent $79,738 on the replacement of 245
windows. However, we could not determine the cost of the 46 windows that did not qualify for
replacement because the invoice documentation did not include the location of the windows (see
Appendix C for more details on the cost breakdown).

The Health Department Did Not Have Adequate Internal Controls
The Health Department did not have adequate internal controls. It lacked policies and
procedures to implement HUD guidance and ensure that windows replaced met requirements.
Additionally, it did not have a process for reviewing risk assessments against the proposed scope
of work to ensure that only those items identified as lead hazards were included in the bid
specifications.

The Health Department Did Not Have Funds Available for Other Eligible Expenses
As a result of the issues described above, the Health Department did not have funds available for
eligible program expenses. The Health Department may have been able to use the funds to
provide additional support to homes on its waiting list and help control other lead hazards.




                                                6
Recommendations
We recommend that the Director of the Office of Lead Hazard Control and Healthy Homes
require the Health Department to

      2A.    Provide support showing the $79,738 spent on window replacement qualified or
             repay the U.S. Treasury from non-Federal funds.

      2B.    Develop and implement policies and procedures to ensure that all windows
             replaced meet lead hazard qualifications.

      2C.    Develop and implement quality control procedures to ensure that all bid
             specifications are reviewed for qualified items based on the risk assessment
             results.




                                              7
Finding 3: The Health Department Did Not Determine Whether
Relocation Was a Hardship for Owner-Occupants
The Health Department did not determine whether relocation was a hardship for owner-
occupants. This condition occurred because the Health Department did not include procedures
for determining hardship for relocation assistance. As a result, it may have spent grant funds for
the relocation of owner-occupants that could have been spent for other program expenses.
Further, it could not ensure that each participant received equitable treatment for the
determination of relocation assistance.

The Health Department Did Not Determine Whether Relocation Was a Hardship
The Health Department did not determine whether relocation was a hardship before providing
relocation assistance to owner-occupants. Of the 13 owner-occupied properties reviewed, the
Health Department provided relocation assistance to 5 participants without determining hardship.
Further, for the eight participants that did not receive relocation assistance, the Health
Department did not show why participants were not eligible to receive assistance.

According to the program notice of funding availability, owner-occupants temporarily relocated
for lead hazard reduction activities under this grant were not entitled to uniform relocation
assistance. However, HUD issued guidance that allowed grantees to use funds for the temporary
relocation of owner-occupants because occupants are not allowed to be present while lead hazard
is performed. According to the Health Department’s work plan, relocation assistance in the form
of a $75-per-day stipend would be offered to those property owners who had a hardship.

The Health Department Did Not Have Procedures for Determining Hardship
While the Health Department’s work plan stated that it would offer relocation assistance to those
for whom relocation would be a hardship, it did not have policies and procedures to define
hardship and how it would be determined. Instead, the Health Department asked families during
the contract signing process whether they had a place to stay while work was performed. If the
family had no other place to go, the Health Department offered the stipend. The verbal
discussion was not documented.

Grant Funds Were Not Available for Other Eligible Expenses and the Health Department
Could Not Determine Whether Participants Received Equitable Treatment
As a result of the issues described above, the Health Department may have spent grant funds on
relocation assistance that could have been used for other eligible program expenses.
Additionally, it could not ensure that each participant received equitable treatment for relocation
assistance.

Recommendations
We recommend that the Director of the Office of Lead Hazard Control and Healthy Homes
require the Health Department to

       3A.     Update the Health Department’s work plan to include policies and procedures for
               defining, determining, and documenting relocation hardship for all participants.



                                                 8
Finding 4: The Health Department Did Not Always Provide Proper
Notification to Owners
The Health Department did not always provide property owners with lead-based paint disclosure
requirements, timely risk assessment results, clearance reports, and ongoing reporting and
maintenance recommendations. This condition occurred because the Health Department lacked
adequate policies and procedures. As a result, it could not ensure that owners had all information
necessary to properly disclose lead hazards to potential buyers or lessees, and owners may not
have understood how to maintain work performed to prevent additional lead hazards or a
recurrence.

The Health Department Did Not Always Provide Proper Notifications to Owners
The Health Department did not always provide property owners with lead-based paint disclosure
requirements, timely risk assessment results, clearance reports, and ongoing reporting and
maintenance recommendations.

The HUD-issued program notice of funding availability, commonly known as a NOFA, notified
State and local governments that grant funds were available, provided program and application
requirements, and explained how applications would be reviewed. This notice required the
Health Department to provide all lead-based testing results, summaries of lead-based paint
hazard control treatments, and clearances to the owner of the unit, together with the notice
describing the owner’s legal duty to disclose the results to tenants and buyers. This notice also
required verifiable evidence that lead hazard evaluation and control reports, such as a signed and
dated receipt, were provided to owners and tenants. In addition, the Lead Safe Housing Rule
found at 24 CFR Part 35, subparts B-R, contained specific information that should be included in
the notices to owners for risk assessment results, clearance reports, and ongoing reporting and
maintenance recommendations.

Lead Disclosure Requirements Not Always Provided to Property Owners
According to the Lead Disclosure Rule found at 24 CFR Part 35, subpart A, owners have a legal
duty to disclose the presence of lead-based paint. HUD required the Health Department to
ensure that property owners were aware of this requirement. We reviewed 20 property files and
found 3 instances in which the Health Department did not provide notification of these
requirements to the owner.

Risk Assessment Results Not Always Provided to Property Owners
Regulations within the Lead Safe Housing Rule, subpart B, found at 24 CFR 35.125, required
owners to be notified within 15 days of the completion of the risk assessment. Further, it
required the notice to include information, such as a summary of the nature, dates, scope, and
results of the assessment and contact information, to obtain the full risk assessment report. Of
the 20 property files reviewed, we found 7 instances in which the Health Department did not
provide notification to the owner. Additionally, the letters provided to owners were not dated.
Therefore, we could not determine whether the Health Department notified owners within 15
days of the risk assessment completion.




                                                9
Clearance Reports Not Always Provided to Property Owners
HUD required the Health Department to obtain clearance following lead hazard reduction work
to ensure that the work completed successfully addressed the lead-based paint hazard.
Therefore, the Health Department conducted dust wipe analysis following work to ensure that
the work was completed successfully. Regulations within the Lead Safe Housing Rule, subpart
R, found at 24 CFR 35.1340 required the preparation of a clearance report providing
documentation of the lead hazard reduction or maintenance activities as well as the clearance
examination. In accordance with the regulation, the clearance report must contain the following
information:

        Address of the residential property.
        Information on the clearance examination, such as date conducted; the name, address,
         and signature of each person performing the examination; the results of the visual
         assessment; and results of the analysis of dust samples by location of sample, along with
         the name and address of each laboratory that conducted the analysis of the dust samples.
        Information on the hazard reduction or maintenance activity, such as the start and
         completion dates of the reduction activities; name and address of each firm or
         organization conducting the work; a detailed written description of the hazard reduction
         activities, including methods used; and locations of exterior surfaces, interior rooms,
         common areas, and components where reduction activity occurred.

Of the 20 files reviewed, we found 5 properties that did not receive notification that clearance
was achieved. None of the clearance reports found in the files included all of the required
information identified above.

Reporting and Maintenance Not Provided to Property Owners
Regulations within the Lead Safe Housing Rule, subpart R, found at 24 CFR 35.1355 required
that each assisted unit be provided written notice asking occupants to report deteriorated paint
and, if applicable, failure of encapsulation or enclosure, along with the name, address, and
telephone number of the person whom occupants should contact. Further, the Health
Department stated that it would send owners a maintenance recommendation letter following the
dust wipe analysis. However, we did not find evidence that this occurred in the 20 files
reviewed. In the clearance notification, the Health Department recommended periodic checks of
all painted surfaces to determine whether the paint and other surface coatings would require
additional repair or maintenance. It also recommended frequent cleaning using lead-safe
cleaning practices.

The table below shows the number of instances of notifications missing from property files.

                            Notifications missing from property files
        Disclosure          Risk assessment                                     Reporting &
       requirements               results          Clearance reports            maintenance
             3                       7                    5                         20




                                                 10
In no instance did the Health Department provide the required verifiable evidence, such as a
signed and dated receipt, showing that it supplied the above information to the owner.

The Health Department Lacked Procedures
The Health Department lacked procedures for providing required notifications to owners. While
the Health Department’s work plan stated that it would discuss disclosure requirements during
the preconstruction meeting, it did not discuss how it would provide the required information
once the lead hazard control work was complete. Additionally, the Health Department’s work
plan lacked detailed policies and procedures to ensure that all owners received the required
notifications.

The Owners Did Not Have All Necessary Information
As a result of the issues described above, the Health Department could not ensure that owners
had all information necessary to properly disclose lead hazards to potential buyers or lessees, and
owners may not have understood how to maintain work performed to prevent additional lead
hazards or a recurrence.

Recommendations
We recommend that the Director of the Office of Lead Hazard Control and Healthy Homes
require the Health Department to

       4A.     Develop and implement policies and procedures to ensure that the property
               owners receive the required information concerning lead-based paint disclosure
               requirements, risk assessment results, summaries of treatments and clearances,
               and ongoing maintenance activities, including how to report paint deterioration.




                                                11
Scope and Methodology
Our audit period generally covered the period October 1, 2014, through July 31, 2017. We
performed our fieldwork from September through December 2017 at the Kansas City, MO,
Health Department located at 2400 Troost Avenue, Kansas City, MO.

To accomplish our objective, we reviewed

      applicable laws and regulations;
      the grant agreement between the Health Department and HUD, including the terms and
       conditions and the notice of funding availability for the grant;
      the Health Department’s policies and procedures, financial statements, organization chart,
       and employee listing; and
      property files for properties assisted.

Additionally, we interviewed Health Department employees and HUD staff from the Office of
Lead Hazard Control and Healthy Homes.

During our review, we selected a targeted nonstatistical sample of 20 property files for review.
We selected our sample from a universe of 170 properties with $1.26 million spent from lead
hazard control funds, $356,691 spent from health homes supplemental funds, and $80,277 spent
from owner contributions. Our sample represented 12 percent of the total properties in our
universe, 20 percent of the lead hazard control funds, 21 percent of the healthy homes funds, and
33 percent of the overall owner contributions. Our review included 7 rental properties and 13
owner-occupied properties.

To select our sample, we analyzed data obtained from the Health Department, which included its
general ledger, contracts, and properties assisted. We selected our sample to ensure that we
included rental and owner-occupied properties; a variety of vendors that performed work; and
unusual occurrences, such as a high dollar value, multiple vouchers for one contract, and costs in
excess of the contract amount. We accomplished this analysis by compiling the data provided by
the Health Department and sorting it by different factors. We selected our sample of 20
properties as follows:

      We selected the only property that had multiple vouchers associated with a single
       contract.
      We selected the only property that had no contract associated with the work performed.
      We selected 6 of the 8 properties with costs of more than $20,000. (We excluded 2
       properties because the work was performed by a vendor included in our sample.)




                                               12
      We selected 7 of the 23 properties with costs that exceeded the contract amount.
           o We selected 6 of the 7 properties with the greatest variance from the contract
               amount. (We excluded 1 property because the work was performed by a vendor
               included in our sample.)
           o To include a second rental property in this portion of the sample, we selected the
               rental property with the greatest cost from the remaining 17 properties with costs
               exceeding the contract amount.
      We selected the 1 property for which the vendor paid was not the contracted vendor.
      We selected the 1 property with the highest cost of 6 properties that received matched
       funds other than owner matches.
      We selected the 2 properties that had work rebid to a different contractor than originally
       selected.
      We selected the only owner-occupied property that had been reclassified as a rental
       property.

We validated the data provided by the Health Department by comparing those data to the
documentation found in the property file. From those properties selected, we reviewed 19
properties from the Health Department’s 2014 grant. However, we mistakenly selected one
property from the Health Department’s 2012 grant due to an error in the address in the contract
data provided by the Health Department. We did not identify any other errors in the Health
Department data or the property files.

The results of procedures apply to items selected under this method, apply only to the selected
items, and may not be projected to the portion of the population that was not tested. We did not
rely on computer-based data to support our audit conclusions. All of our audit conclusions are
based on source documentation obtained from the Health Department’s property files.

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.




                                               13
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:

   Controls over income calculations, lead hazards, relocation assistance, and notifications for
    the Health Department’s Lead Safe KC program.

We assessed the relevant controls identified above.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.

Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

       The Health Department did not have adequate policies and procedures (findings 1, 3, and
        4)
       The Health Department did not have a process to review risk assessments against the
        proposed scopes of work (finding 2).

Separate Communication of Minor Deficiencies
We reported minor deficiencies to the auditee in a separate management memorandum.




                                                14
Appendixes

Appendix A


                               Schedule of Questioned Costs
                  Recommendation
                                         Ineligible 1/   Unsupported 2/
                      number
                          1A               $19,173
                          1B                                  $10,731
                          1C                                1,803,705
                          2A                                   79,738

                        Totals              19,173          1,894,174



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.




                                             15
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




Comment 1



Comment 2


Comment 3


Comment 4




                              16
Ref to OIG
Evaluation   Auditee Comments




Comment 5


Comment 6


Comment 7

Comment 8


Comment 9



Comment 10




                          17
Ref to OIG
Evaluation   Auditee Comments




Comment 11


Comment 12


Comment 13




Comment 14




Comment 15




                          18
Ref to OIG
Evaluation   Auditee Comments




Comment 16




Comment 17




Comment 18


Comment 19




                          19
Ref to OIG
Evaluation   Auditee Comments




Comment 20




                          20
Ref to OIG
Evaluation   Auditee Comments




                          21
                           OIG Evaluation of Auditee Comments


General     We acknowledge that the Health Department took the findings found in this report
            seriously and took numerous steps to correct the issues identified. The Health
            Department made references to those changes in the audit report and provided
            documentation to support its changes to policies and procedures. We reviewed
            the changes the Health Department made and found that they took steps to
            prevent future findings. However, HUD should review the changes to the Health
            Department’s policies and procedures to ensure that program requirements are
            met. Further, HUD should require the Health Department to update its work plan
            for future grants to ensure that it includes all the information necessary to meet
            program requirements. Please note that the Health Department made references
            to a number of attachments throughout its comments. Due to the voluminous
            nature of these attachments, we excluded them from the auditee’s comments in
            the audit report.

Comment 1   Policy guidance 2013-07 required grantees to select one of three definitions of
            annual income. One of the definitions allowed is the adjusted gross income as
            defined for reporting purposes under the IRS form 1040 long form. However, the
            guidance stated that this did not mean the IRS forms submitted to the IRS. The
            guidance required grantees to obtain income verification with the hierarchy of
            third party verification that should be used.

Comment 2   The program files did not support the statement that the Health Department
            requested additional information from applicants. The only documentation to
            support the income submission and verification was the application and wage
            statements provided by applicants. While the applicants certify that the
            information included in the application is true and correct, we found no evidence
            to suggest that the Health Department verified the information within the
            application.

            According to 24 CFR 5.609, annual income means all amounts, monetary or not,
            that go to the family member head or any other family member or are anticipated
            to be received from a source outside the family during the 12-month period. It
            also means amount derived from assets for which any family member has access.
            This includes but is not limited to the full amount of wages and salaries, the net
            income from the operations of a business or profession, interest, dividends, and
            other net income of any real or personal property, the full amount of periodic
            amounts received from Social Security, annuities, insurance policies, retirement
            funds, pensions, disability or death benefits, payments in lieu of earnings such as
            unemployment and disability compensation, welfare assistance payments, and
            alimony and child support payments and regular contributions or gifts received
            from organizations or from persons not dwelling in the unit. We found no
            evidence to support that the Health Department determined that applicants had
            means derived from assets. While the Health Department did ask for the


                                             22
            applicant to report income in its application, the only documentation the Health
            Department received was related to wages and social security statements.
            Further, the Health Department did not consistently accept the same
            documentation to support wage information. We found instances where the
            Health Department accepted W-2 forms, IRS 1040 forms, and employer wage
            statements.

            The guidance 2013-07 also required the Health Department to verify income and
            stated that verification methods may not be altered to suit particular circumstances
            or applicants. The Health Department’s work plan did not include the method
            used to verify income. As mentioned previously, the program files did not
            provide documentation to show verification took place.

            Finally, the guidance required the Health Department to re-examine a household’s
            income if more than six months elapsed. Of the files reviewed, 13 of the files
            received assistance more than six months after the dated application. The only
            updated documentation provided supported wages and not other sources of
            income. Based on this, HUD cannot be assured that all applicants qualified to
            receive assisance.

Comment 3   Policy guidance 2013-07 allowed flexibility for the definition of annual income
            by allowing grantees to select one of three definitions. The Health Department
            could have selected the definition of adusted gross income on the IRS Form 1040;
            however, the guidance stated that this did not mean the IRS forms submitted to
            the IRS. Further, the guidance citation the Health Department included in its
            response was the portion of the guidance related to income verification and not
            the definition of annual income used. It is the responsibility of the Health
            Department to verify all income information submitted by applicants. The policy
            guidance stated that the source documentation must be sufficient for HUD to
            monitor the program compliance and verification methods may not be altered to
            suit particular circumstances or applicants. The guidance outlined a hierarchy of
            verification methods that was required to be followed in all cases.

Comment 4   The policy provided did not include a procedure on how the Health Department
            would verify the information provided. Additionally, the Health Department
            should update its approved work plan to include the income verification methods
            used. The guidance stated that grantees must ensure that families are treated
            equitably by using the same definition of income for all applicants. Therefore, the
            Health Department cannot use the definition of annual income found at 24 CFR
            5.609 for some applicants and the adjusted gross income as defined for reporting
            purposes under the IRS Form 1040 long form for others. HUD should ensure that
            the updated policy complies with its requirements for income calculation and
            verification.




                                             23
Comment 5     We confirmed that the Health Department returned $17,673; however, the Health
              Department must also return the $1,500 spent on relocation of occupants because
              the property was not eligible to receive assistance. Finding 3 refers to relocation
              expenditures spent on properties eligible to receive assistance. We will work with
              HUD during the audit resolution process to reflect the Health Department’s
              $17,673 repayment thus far.

Comment 6     The Health Department provided the cost breakdown of the funds spent on the
              ineligible property and the journal entry documentation to support the decreased
              billing. We will work with HUD during the audit resolution process to reflect the
              repayment and close out the recommendation.

Comment 7     We found 6 instances in the 20 files reviewed where the Health Department
              incorrectly calculated income using net wages instead of gross. One of the
              definitions of annual income allowed by HUD to be used is the “adjusted gross
              income” as defined under the IRS Form 1040 long form. However, the Health
              Department did not adopt this definition for annual income. Further, the Health
              Department did not obtain proper verification of the form submitted by the
              applicant.

Comment 8     The “Defining Income” section of policy guidance 2013-07 states “you must
              ensure that families in each grant program are treated equitably by using the same
              definition of income for all applicants within a particular grant program.”

Comment 9     The definition of annual income found at 24 CFR 5.609 covered income for those
              self-employed by including net income for operations of a business. Therefore,
              the Health Department could have used this definition. As stated previously, the
              Health Department could have adopted the definition of annual income used by
              the IRS for all applicants; however, adopting the definition used on the 1040 does
              not mean using the forms submitted to the IRS. The Health Department would
              still need to verify the income of the applicant using the hierarchy method
              outlined in policy guidance 2013-07.

Comment 10 We did not review the changes to the Health Department’s policies as part of the
           audit. The auditee’s comments refer to using multiple definitions of income,
           which is contrary to HUD guidance. Therefore, HUD will need to review the
           Health Department’s policies and procedures to ensure they comply with HUD
           requirements.

Comment 11 The auditee’s comments refer to using multiple definitions of income, which is
           contrary to HUD guidance. Therefore, HUD should provide training to help
           ensure the auditee complies with the guidance.

Comment 12 During our audit, we did not find evidence to support that the Health
           Department’s policies and procedures manual had been updated to reflect HUD’s



                                              24
              policy guidance for income requirements. The Health Department did not have
              policies and procedures to ensure the proper calculation and verification of
              income. Further, the guidance required specific information to be included in the
              Health Department’s work plan, and the Health Department had not updated its
              work plan accordingly.

Comment 13 We did not review the changes to the Health Department’s policies as part of the
           audit. Therefore, HUD will need to review the Health Department’s policies and
           procedures to ensure they comply with HUD requirements.

Comment 14 Due to the nature and complexity of an OIG audit, it is not uncommon for the
           OIG to identify issues not previoiusly discovered in a HUD review.

Comment 15 HUD will need to review the documenation for all 46 windows that we found to
           be ineligible. We did not find the support provided by the Health Department
           sufficient to justify the replacement of the windows. The guidance contained
           certain requirements for window replacement, and we did not find that the 46
           windows met that criteria. However, for rental properties, the Health Department
           did require owners to contribute 25 percent of the lead hazard control work
           conducted. Therefore, we did reduce the total cost of the windows for the three
           rental properties by $9,962 to reflect the amount contributed by the owners (see
           Appendix C). As stated in the audit report, we could not determine the cost of the
           windows based on the invoice and bid proposal documents maintained in the
           property files. Therefore, we recommended to HUD that the Health Department
           provide a cost breakdown of the windows it replaced to show that they qualified
           for replacement.

Comment 16 This represents a weakness in internal controls, and the Health Department failed
           to properly implement HUD’s guidance. Therefore, we recommended that HUD
           require the Health Department to develop and implement appropriate policies and
           procedures to ensure it is in compliance with HUD requirements. The Health
           Department is also responsible to ensure its vendors perform work as required.

Comment 17 We reviewed the changes to the Health Department’s policies that we received as
           attachments to the auditee comments and found them to be acceptable; however,
           during future monitoring visits, HUD should ensure the Health Department has
           implemented the new policies.

Comment 18 The program files did not have evidence to support that discussions regarding
           relocation hardships took place to ensure the policy was equitably applied for all
           program participants. The Health Department is ultimately responsible for
           ensuring that it is in compliance with program requirements, including work
           performed by contractors.




                                              25
              We acknowledge that the Health Department’s work plan stated that it would hold
              a preconstruction conference and had a checklist. However, in 18 of the 20 files
              reviewed, the checklist was either not found or not completed properly.

Comment 19 The Health Department could not provide documented evidence to show that
           discussions occurred and hardship was properly determined. Further, the Health
           Department is ultimately responsible for following HUD’s rules and regulations.
           Therefore, it must have adequate oversight of its contractors and proper
           documentation to support that relocation funds spent were eligible. The updated
           policy and forms the Health Department provided did not define hardship and
           how the forms would be used to make the determination.

Comment 20 HUD’s notice of funding availability required the Health Department to provide
           all lead-based paint testing results, summaries of lead-based paint hazard control
           treatments, and clearances to the owner of the unit, together with the notice
           describing the owner’s legal duty to disclose the results to tenants and buyers.
           Additionally, it required the Health Department to document verifable evidence
           that this was done. Further, the notification discussed in the audit report required
           written notifications to owners. The program files did not contain any evidence
           that this occurred and there was not sufficient documentation to support the
           Health Department’s statements that discussions concerning these four items
           occurred.




                                              26
Appendix C
                             Questioned Cost Detail

                Finding 1: Ineligible and Unsupported Cost Detail

                Property address            Ineligible   Unsupported

                2805 Gillham Road           $19,173
                      318 Ord                              $10,731
                  10000 Belmont                              8,475
                 10005 Cambridge                             1,225
               1018 East 76th Street                         6,300
                   10428 Palmer                              2,450
              10610 College Avenue                            950
                108 South Overton                           23,475
             11117 Elmwood Avenue                            4,800
                    1120 Norton                              9,345
              11227 Bristol Terrace                          4,400
               1124 East 44th Street                         6,730
               11502 Orchard Road                            4,906
               1169 East 77th Street                         5,803
                     118 White                              10,800
             11813 East 62nd Terrace                         3,000
                 1218 North Lynn                             7,290
               1314 East 60th Street                         3,717
              14014 East 66th Street                         2,195
                 1408 South Osage                           14,800
               1419 East 66th Street                         9,680
                 146 North Oakley                            9,910
               1517 East 73rd Street                         3,600
                   1530 Belmont                             16,400
                   1544 Chelsea                              8,910
                  1602 Elmwood                               7,755
                     1603 Lawn                              17,615
                     1612 Lawn                               5,150
              1615 East 42nd Street                         11,450
               1633 East 49th Street                         6,150
              1712 East 72nd Street                          4,675
                1716 E 72nd Street                           7,008
               1846 E 68th Terrace                          11,400
                    1924 Spruce                              7,000
              1956 East 71st Terrace                         7,038



                                       27
  Property address            Ineligible   Unsupported

     2018 Jefferson                           2,010
   2034 East Gregory                         11,705
  2201 South Overton                          2,853
       2306 Olive                             6,600
2308 East 71st Terrace                        7,855
      2407 Spruce                             6,500
 2424 East 68th Street                       19,640
 2431 East 68th Street                       13,400
 2505 Northeast 52nd                          3,850
    2508 Lawndale                             6,685
2511 South Hawthorne                          3,510
      2517 Norton                            13,500
 2528 Poplar Avenue                          15,375
     2542 Cypress                            16,700
      2545 Norton                            10,600
 2608 East 73rd Street                        7,775
       2718 Bales                            11,200
 2807 East 10th Street                       13,700
 2817 Indiana Avenue                          1,665
      2827 Monroe                             5,500
     2921 Wabash                              2,800
 2940 East 28th Street                       12,875
      3004 Wayne                              6,110
 3011 East 65th Street                        3,575
  3018 East 7th Street                       10,003
     3023 Montgall                           18,000
       3106 Perry                             5,365
     3119 Montgall                           13,455
     3120 Cypress                            13,650
     3122 Harrison                           13,725
      3210 Jackson                           11,800
       3216 Olive                            19,875
  3217 Bellefontaine                         13,000
   322 North Denver                           9,645
3220 East 30th Terrace                        9,750
   3226-28 Campbell                          11,071
  3228 Bellefontaine                         13,650
 3319 East 59th Street                        8,350
   332 North Askew                           13,390



                         28
     Property address              Ineligible   Unsupported

     3322 South Benton                            12,395
         3335 Askew                               10,522
       3426 Kensington                             2,800
     3429 Bellefontaine                            4,487
     343 South Hardesty                           4,625
        3430 Chestnut                             12,388
       3430 Woodland                              14,650
       3432 Kensington                             4,425
         3433 Central                             28,463
      3436-3636 Forest                            29,223
        3440 Garfield                              5,732
       3446 Kensington                             8,710
  3504 Benton Boulevard                           17,950
        3511 Windsor                              24,600
          3514 Tracy                              17,748
         3520 Morrell                              5,700
         3544 Jackson                             15,800
    3600 East 10th Street                          9,175
          3627 Agnes                              11,158
3711 East Gregory Boulevard                        7,400
        3733 Prospect                             20,600
         3744 Monroe                               6,995
         3747 Wayne                                5,700
         3750 Wayne                                2,850
       3801 Kensington                             9,125
         3807 Monroe                               7,260
      3817-21 Baltimore                           12,780
   3821 Montgall Avenue                           13,922
     3825 East 9th Street                         11,130
   3851 East 60th Terrace                         11,527
        3905 Vineyard                              3,825
         3930 Myrtle                               8,300
   3937 Paseo Boulevard                           16,885
          3960 Lawn                                5,000
    4009 East 56th Street                          9,944
          4021 Forest                             15,300
     4106 Bellefontaine                           12,888
    4111 East 26th Street                          9,795
    4119 East 26th Street                          8,485
    4121 East 26th Street                           750


                              29
 Property address            Ineligible   Unsupported

4125 Scarritt Avenue                        16,200
     4127 Agnes                             13,951
     4131 Troost                            18,155
     4140 McGee                             15,126
    4210 Chestnut                           13,160
    4212 Harrison                            7,375
   4217 Hardesty                             5,995
    4241 College                             9,000
     4315 Benton                             6,760
    4325 College                            14,650
 4342 Benton Road                           11,600
 44 East 32nd Street                         6,905
 4412 Bellefontaine                          9,800
4419 East 38th Street                        7,600
  442 North Drury                           10,050
     4447 Norton                             3,975
 4521 Gilham Road                           24,681
   4521 Montgall                            12,340
4709 East 39th Street                        2,080
   4800 Greenway                             4,060
    487 Donnelly                             9,490
 4924 South Benton                           6,165
5009 Forest Avenue                           1,955
     503 Jackson                            10,500
 5038 South Benton                          21,100
 511 East 91st Street                        6,500
  5115 Cambridge                             3,700
    5116 Garfield                           14,000
512 North Lawndale                           8,200
  5214 Brookwood                             8,609
    5239 Franklin                            2,435
      5315 Olive                             9,985
5323 Euclid Avenue                          14,200
   5342 Brooklyn                             8,475
     5346 Euclid                            10,650
5425 East 28th Street                        7,900
   5434 Highland                            15,100
      5537 Lydia                             7,100
    5538 Virginia                            7,282
      5542 Lydia                             5,288


                        30
    Property address              Ineligible   Unsupported

  5561 Northeast Munger                           3,438
       5629 Harrison                             11,500
        5635 Wabash                               4,545
         5717 Tracy                              10,067
         5720 Lydia                               5,626
    5813 East 11th Street                         9,500
         5830 Tracy                               7,888
    6025 East 10th Street                        12,705
    6040 East 14th Street                         5,500
        6124 College                              3,213
         6136 Agnes                               7,250
       6142 Kenwood                              18,195
     615 East 70th Street                         7,444
     630 East 65th Street                        11,000
   6626 East 16th Terrace                         6,675
   6928 Paseo Boulevard                          16,720
         6942 Spruce                              6,038
   7011 Paseo Boulevard                           2,550
 7020 East Bannister Road                         3,975
  7207 East 108th Terrace                         6,210
    7219 Myrtle Avenue                            3,400
        7227 Wabash                               3,135
        7336 Virginia                            16,975
       7406 Highland                             15,085
     7431 Pennsylvania                           4,500
    7711 East 48th Street                          600
       7929 Brooklyn                              9,210
7940 Hickman Mills Drive                          5,150
7953 Northeast 54th Street                        2,331
      8011 Main Street                            4,500
          8030 Flora                              6,041
  8101 Independence Ave                           8,200
    8107 East 90th Street                         1,340
          811 Ewing                               4,550
     816 East 31st Street                        30,200
       816 Lexington                             10,395
          8250 Flora                              4,950
8300 Blue Ridge Boulevard                         7,375
  8802 Woodland Avenue                            3,106
   9013 East 90th Terrace                         5,594


                             31
                       Property address               Ineligible         Unsupported

                          9220 Stark                                        2,500
                        9915 Charlotte                                      5,575
                             Totals                     19,173            1,803,705
                Please note that the amounts in the table above have not been reduced
                by the unsupported amounts below in Finding 2.

                               Finding 2: Unsupported Cost Detail
                        Total windows      Ineligible       Owner             Unsupported (total
 Property address
                          replaced         windows        contribution      auditee cost of windows)
  3122 Harrison                  13            4              $975                     $2,925
   3433 Central                  44            24             3,850                    11,550
 3436-3636 Forest                59            9             5,138*                   15,413*
  3511 Windsor                   32            1                0                     12,800
    3514 Tracy                   18             3               0                       6,800
   3544 Jackson                  14             1               0                       3,750
  4215 Montgall                  18             2               0                       6,800
4521 Gilham Road                 27             1               0                      14,800
5038 South Benton                20            1                0                       4,900
       Totals                  245             46                9,963                79,738
*rounded to the nearest dollar




                                                 32