oversight

Improvements are Needed for HUD's Code Enforcement Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-25.

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

     Office of Community Planning and
                Development,
              Washington, DC
                 CDBG Code Enforcement Program




Office of Audit, Region 9        Audit Report Number: 2018-LA-0006
Los Angeles, CA                                  September 25, 2018
To:            Lori Michalski, Acting General Deputy Assistant Secretary for Community
               Planning and Development, HHQ

               //SIGNED//
From:          Tanya E. Schulze, Regional Inspector General for Audit, 9DGA
Subject:       Improvements Are Needed for HUD’s Code Enforcement Program


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s Community Development Block Grant
code enforcement 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
213-534-2471.
                    Audit Report Number: 2018-LA-0006
                    Date: September 25, 2018

                    Improvements Are Needed for HUD’s Code Enforcement Program



Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) Community
Development Block Grant code enforcement program due to results from our external audits,
which showed that grantees did not adequately understand and failed to ensure compliance with
program requirements. Our audit objective was to determine (1) whether HUD’s code
enforcement guidance under its Office of Community Planning and Development (CPD) Notice
CPD-14-016 was adequate to ensure that grantees met the intent of the program, (2) whether
HUD followed its internal controls for developing the guidance, and (3) the adequacy of HUD’s
monitoring of grantee code enforcement.

What We Found
We determined that (1) HUD’s code enforcement guidance should be improved and additional
training should be provided to better aid grantees in meeting the intent of the program, (2) HUD
did not completely follow its internal controls for developing its code enforcement guidance, and
(3) HUD’s monitoring of grantee code enforcement was generally adequate.

What We Recommend
We recommend that the Acting General Deputy Assistant Secretary for Community Planning
and Development (1) update and revise Notice CPD-14-016 to further improve the code
enforcement guidance, (2) provide mandatory training on the revised Notice to the local field
offices and grantees that use CDBG funds for the code enforcement program to ensure
compliance with requirements, and (3) ensure that it is issued with the appropriate clearance.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: HUD’s Code Enforcement Program Had Weaknesses .............................. 5

Scope and Methodology ...........................................................................................8

Internal Controls ....................................................................................................10

Appendixes ..............................................................................................................11
         A. Auditee Comments and OIG’s Evaluation ............................................................. 11




                                                            2
Background and Objective
The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974, Public Law 93-383, as amended, 42 United
States Code 5301. Under the CDBG program, the U.S. Department of Housing and Urban
Development (HUD) awards grants to State and local governments to aid in the development of
viable urban communities. To be eligible for funding, program-funded projects must satisfy one
of three HUD national program objectives required in 24 CFR (Code of Federal Regulations)
570.208:

    •    provide a benefit to low- and moderate-income persons,
    •    prevent or eliminate slums or blight, or
    •    meet other urgent community development needs due to disasters or other emergencies.

CDBG funds may be used for code enforcement activities. Eligible code enforcement activities
must be in deteriorated or deteriorating areas in which such enforcement, together with public or
private improvements or services to be provided, may be expected to arrest the decline of the
area. 1 Between program years 2014 and 2017, HUD awarded and grantees drew down the
following CDBG code enforcement funding:

                              Program year Amount funded Amount drawn

                                    2014       $ 45,512,686    $ 45,159,126

                                    2015        70,235,738       69,020,356

                                    2016        66,099,658       61,118,291

                                    2017        43,600,112       25,096,517

                                   Total       225,448,194      200,394,290


HUD headquarters issued Office of Community Planning and Development (CPD) Notice CPD-
14-016, Use of CDBG Funds for Code Enforcement Activities, in October 2014 because it was
receiving multiple inquiries about code enforcement from the field offices that had received
inquiries from grantees. This guidance was developed to assist grantees in using CDBG funds
for code enforcement in compliance with CDBG program requirements. The Notice included
discussion on key aspects related to the establishment and administration of a CDBG code
enforcement program, such as what is code enforcement, the purpose of code enforcement,
eligible costs, ineligible activities, fair housing and civil rights, revenue, statutory provisions, and
record-keeping requirements.



1
    To stop further deterioration of an area


                                                     3
Our audit objective was to determine (1) whether HUD’s code enforcement guidance under
Notice CPD-14-016 was adequate to ensure that grantees met the intent of the program, (2)
whether HUD followed its internal controls for developing the guidance, and (3) the adequacy of
HUD’s monitoring of grantee code enforcement.




                                               4
Results of Audit

Finding 1: HUD’s Code Enforcement Program Had Weaknesses
Improvements are needed in HUD’s code enforcement guidance, Notice CPD-14-016. Although
generally more comprehensive and detailed than prior code enforcement guidance, the Notice
contains areas that should be further improved and clarified. HUD also did not require training
for its field office personnel who monitor the program activities and CDBG grantees that
administer CDBG code enforcement programs. Further, HUD did not completely follow its
internal clearance requirements for implementing its code enforcement guidance. This condition
occurred because there was less emphasis on improving policy and increasing training for less
commonly funded activities like code enforcement and HUD did not follow its clearance process
requirements. As a result, there was an increased overall risk that grantee code enforcement
programs would not be implemented in a manner that maximized the program’s intent.

Guidance Was Adequate but Could Be Improved and Training Should Be Provided
HUD issued Notice CPD-14-016 to provide further updated clarification of code enforcement
requirements under 24 CFR 570.202(c). Although the Notice was generally adequate and
comprehensive, there were some areas that could be improved. In addition, with the exception of
an April 2015 webinar, there had not been mandatory training offered exclusively focused on
code enforcement activities for both CPD staff and grantees.
Our external audits of four grantee code enforcement programs 2 and eight HUD monitoring
reports and interviews with HUD CPD, 3 covering periods since the Notice went into effect,
showed that grantees failed to properly implement their code enforcement program because they
had insufficient knowledge or were unaware of requirements or incorrectly interpreted and
implemented HUD regulations and guidance. This deficiency indicated the need to clarify or
update the guidance and train grantees on the requirements. For instance, our external audit of
Huntington Park 4 determined that the City was not aware that it needed a definition for
deteriorated areas or that it needed to show that the areas were deteriorated because it assumed
that a CDBG-designated area based on income was sufficient. In another instance, HUD
conducted monitoring of the City of San Jose and determined that the City did not document the
applicable legal definition of deterioration, current conditions of each target area, boundaries of
the target areas, and identification of other activities that would arrest the decline of the area to
support its use of CDBG funds. The HUD CPD representative stated that the City was unaware
of the Notice.



2
    Clark County, NV, 2017-LA-1001; City of Huntington Park, CA, 2017-LA-1005; City of South Gate, CA, 2018-
    LA-1003; and City of Moreno Valley, CA, 2018-LA-1004
3
    City of San Jose, City of Youngstown, Riverside County, City of Montebello, City of Southfield, City of Niles,
    Kansas City, and Benton Harbor
4
    City of Huntington Park, CA, audit number 2017-LA-1005


                                                         5
HUD headquarters stated it had not had a pattern of grantees or field offices requesting
clarification of the Notice; however, our interviews with the HUD field offices showed that
provisions of the guidance were not being interpreted consistently. For example, HUD staff
members weighed in on their interpretation of the last sentence of the first paragraph on page 14
of the Notice, which stated, “…records that grantees should maintain when carrying out CDBG
assisted code enforcement activities include…” Some HUD staff members viewed the record
requirement as a suggestion, while others stated that it was a requirement. This type of
inconsistency can lead to differing interpretations by grantees or grantees being held to different
standards by the field offices, and HUD should make it clear whether it is a suggestion or a
requirement. Based on discussions with field office staff who monitored grantees with code
enforcement programs and our analysis, the guidance could be improved through:

    •    Emphasis on desired outcomes for code enforcement in line with the Housing and
         Community Development Act.
    •    A better description of an acceptable definition of deteriorating or deteriorated areas that
         is in line with the Housing and Community Development Act.
    •    Clarification that an area that is 51 percent low- to moderate-income alone is not
         necessarily suitable for code enforcement activity. Grantees must formally designate
         deteriorated areas before engaging in eligible code enforcement activity.
    •    Adjusting the guidance in the last sentence of the first paragraph on page 14 of the Notice
         from “should” to “must.” 5
    •    Additional language to state that a written “strategy” or “plan” must be in place for using
         code enforcement.
    •    The use of plain language.

Although HUD headquarters presented a webinar on code enforcement and Notice CPD-14-016,
which is available on HUD Exchange, in April 2015 and PowerPoint slides were sent to the field
offices and encouraged to be shared with grantees, no other training, optional or mandatory, was
offered to CPD staff or grantees. Further, 9 of the 12 6 field offices did not offer code
enforcement training to their grantees either because they believed it was up to the grantees to
run their own programs, there was a shortage of local CPD staff, or not many grantees had a code
enforcement program. Of the three field offices that provided nonmandatory training to their
grantees, the topic of code enforcement was discussed as part of the overall CDBG national
objective and eligibility training. HUD headquarters stated that mandating training on particular
aspects of the CDBG program, such as code enforcement, was not feasible or practical because
not every grantee undertook a code enforcement program and it did not have enough staff
resources and time to dedicate to the program, when only a third of all grantees elect to spend
CDBG funds on code enforcement activities.



5
    “Records that grantees should maintain when carrying out CDBG-assisted code enforcement activities include:”
6
    Apart from the original eight field offices sampled, we contacted an additional four field offices to ask whether
    they performed code enforcement-specific training. In addition, although 1 of the 9 field offices had not
    presented code enforcement training sessions to all local grantees, staff indicated they would provide technical
    assistance to individual grantees if requested.


                                                           6
HUD Did Not Completely Follow Its Policy Before Issuing Notice CPD-14-016
HUD did not completely follow its internal controls before issuing Notice CPD-14-016. HUD
Handbook 000.2, REV-3, section D-2.4 which governs HUD’s clearance process for all
directives, including Notice CPD-14-016, stated that all directives were required to be cleared, at
a minimum, by the following six offices within headquarters: Office of the Chief Human Capital
Officer, Office of General Counsel, Office of Inspector General, Office of Policy Development
and Research, Office of the Chief Information Officer, and Office of the Chief Financial Officer.
The originating office was to undertake appropriate followup to ensure that the reviewing office
received a directive’s transmittal. The HUD Office of Block Grant Assistance, the originating
office of Notice CPD-14-016, received clearances from the Offices of General Counsel and Fair
Housing and Equal Opportunity but did not receive clearances from any of the other required
offices. According to section D-3.1 of the Handbook, under extreme time constraints, the
originating office may issue a directive without securing or resolving clearance comments after
(1) asking the overdue office for the reason(s) for the delay and (2) notifying the overdue
organization in writing before proceeding. However, in this instance, the HUD Office of Block
Grant Assistance did neither because it assumed that a nonresponse from the remaining five
offices represented their concurrence.

Conclusion
Although Notice CPD-14-016 code enforcement guidance was generally comprehensive and
detailed, it could be updated to clarify provisions and additional training provided to avoid
misinterpretation by field office staff and grantees. HUD also did not completely follow its
clearance controls before issuing the Notice. This condition may be attributed to HUD’s lack of
emphasis on code enforcement because it was a smaller component of HUD’s overall CDBG
program and HUD did not follow the clearance requirements. As a result, there was an increased
risk that grantee code enforcement programs, with an average annual program year funding of
more than $51.7 million, 7 would not be implemented properly.

Recommendations
We recommend that the Acting General Deputy Assistant Secretary for Community Planning
and Development

            1A. Update and revise the CPD Notice to further improve the code enforcement
                guidance.

            1B. Provide mandatory training on the revised Notice to the local field offices and to
                grantees that use CDBG funds for the code enforcement program to ensure
                compliance with requirements.

            1C. Ensure that the updated and revised notice is issued with the appropriate
                clearance.




7
    Based on amounts spent between program years 2015 and 2017


                                                     7
Scope and Methodology
We performed our audit fieldwork from May to July 2018 at our offices in Los Angeles, CA, and
San Francisco, CA. Our audit generally covered the period October 2015 through September
2017 and was expanded to other periods when necessary. Our scope was expanded to cover the
period October 1, 2014 to June 7, 2018 with respect to monitoring reports with code enforcement
concerns because of the limited number of results that occurred from our original audit scope.
To accomplish our objective, we

    •   Reviewed applicable HUD requirements and internal procedures.

    •   Interviewed appropriate HUD personnel from the Office of Field Management and Office
        of Block Grant Assistance.

    •   Interviewed HUD CPD field office directors and staff.

    •   Reviewed data from the Grants Management Process (GMP) system and Integrated
        Disbursement and Information System (IDIS). 8

    •   Reviewed monitoring reports and previously published Office of Inspector General (OIG)
        audit reports.

We relied on data received from HUD that were retrieved from the GMP system, which is the
interface through which field offices enter information about grant recipients’ risk assessment
and monitoring processes. Although we did not perform a detailed assessment of the reliability
of the data, we determined that that data were sufficiently reliable for the purposes of our review
because the data in the sampled items were supported by the information in the monitoring
reports.
We reviewed a targeted, nonstatistical sample of 13 monitoring reports with 16 code
enforcement findings from a total of 35 code enforcement findings that were issued from 8 HUD
field offices in fiscal years 2016 and 2017. We selected the samples to ensure coverage for the 8
HUD field offices with applicable reports in our audit scope of fiscal years 2016 and 2017. We
initially selected 16 monitoring reports with 19 code enforcement findings to review. The
sample was then adjusted down to 13 monitoring reports with 16 code enforcement findings
because we collected enough information from the 8 field offices to accomplish our objective. In
addition, we selected and reviewed a targeted nonstatistical sample of 7 monitoring reports with
8 code enforcement concerns from a total of 13 code enforcement concerns from 4 field offices
between fiscal years 2015 and 2018 because these were the most recent concerns identified by

8
 IDIS is a nationwide database that provides HUD with current information regarding the program activities
underway across the Nation. HUD uses this information to report to Congress and to monitor grantees. IDIS is the
drawdown and reporting system for CDBG.


                                                        8
HUD that were within our audit scope. We reviewed the monitoring concerns to confirm
whether they were correctly identified as such or should have been labeled as findings and found
no significant issues. The results of our review cannot be projected. We found no significant
issues with HUD’s monitoring reviews of the grantees’ code enforcement programs.
Further, we contacted 4 additional field offices, responsible for largest code enforcement funding
that was drawn down from IDIS between the initial funding date of 2015 and 2017, to inquire
whether they provided code enforcement training to the grantees.
We also relied on data from IDIS that were provided by OIG’s Field Analytic Support Division.
The data showed the grantees, program years, and funded and drawn amounts for the code
enforcement activity. We used this information to determine the average amount funded in the
code enforcement program.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                9
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   effectiveness and efficiency of operations,
•   reliability of financial reporting, and
•   compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

•   Compliance with laws and regulations - Policies and procedures that HUD has implemented
    to provide reasonable assurance that directives are issued in accordance with regulations.

We assessed the relevant controls identified above.

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

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

•   HUD’s code enforcement guidance could be improved, and mandatory training was not
    provided for its code enforcement program (finding).


We evaluated the internal controls related to the audit objective in accordance with generally
accepted government auditing standards. Our evaluation of internal controls was not designed to
provide assurance regarding effectiveness of the internal control structure as a whole.
Accordingly, we do not express an opinion on the effectiveness of HUD’s internal control.




                                                  10
Appendixes

Appendix A
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




Comment 1


Comment 2

Comment 3




                               11
                         OIG Evaluation of Auditee Comments


Comment 1   We agree there were no significant issues identified as part of our sample of the
            field offices’ code enforcement monitoring. Although there was some
            inconsistency on the interpretation of certain portions of the notice (as discussed
            in the finding), the field office staff were generally sufficiently knowledgeable of
            the program requirements during the monitoring and appropriately identified
            findings and concerns.

Comment 2   While we recognize CPD’s work on improving the dissemination of policy
            guidance and information, we continue to recommend that the HUD Notice 14-
            016 be revised to better clarify the requirements of the code enforcement
            program.

Comment 3   The OIG will evaluate CPD’s forthcoming additional responses and proposed
            management decisions as part of the audit resolution process.




                                              12