oversight

The City of South Gate, CA, Did Not Administer Its Community Development Block Grant Program in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-03-29.

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

                  City of South Gate, CA
        Community Development Block Grant Program




Office of Audit, Region 9     Audit Report Number: 2018-LA-1003
Los Angeles, CA                                   March 29, 2018
To:            William Vasquez, Director, Los Angeles Office of Community Planning and
               Development, 9DD
               //SIGNED//
From:          Tanya E. Schulze, Regional Inspector General for Audit, 9DGA
Subject:       The City of South Gate, CA, Did Not Administer Its Community Development
               Block Grant Program 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 City of South Gate’s Community Development
Block Grant program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG website. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
213-534-2471.
                    Audit Report Number: 2018-LA-1003
                    Date: March 29, 2018

                    The City of South Gate, CA, Did Not Administer Its Community
                    Development Block Grant Program in Accordance With HUD Requirements


Highlights

What We Audited and Why
We audited the City of South Gate’s Community Development Block Grant (CDBG) program.
We selected the City based on our risk analysis of Los Angeles area grantees and prior
monitoring concerns identified by the U.S. Department of Housing and Urban Development
(HUD) with the City’s code enforcement activities. The objective of the audit was to determine
whether the City administered its CDBG funds in accordance with HUD requirements, focusing
on code enforcement and graffiti abatement activities.

What We Found
The City did not administer CDBG funds in accordance with HUD requirements. Specifically, it
(1) did not meet HUD’s code enforcement requirements and (2) did not ensure that code
enforcement and graffiti abatement salary and benefits costs were adequately supported. This
condition occurred because the City did not correctly interpret and implement code enforcement
program requirements and did not have adequate policies and procedures to ensure that code
enforcement and graffiti abatement salaries and benefits were accurately calculated and recorded.
As a result, it used $811,325 in CDBG funds for unsupported code enforcement costs and
$285,496 for unsupported graffiti removal costs.

What We Recommend
We recommend that the Director of HUD’s Los Angeles Office of Community Planning and
Development require the City to (1) provide documentation to support the eligibility of $811,325
in code enforcement costs and $285,496 in graffiti abatement costs or repay the program from
non-Federal funds; (2) develop and implement policies and procedures to ensure that code
enforcement and graffiti abatement salaries and benefits are accurately charged to CDBG grants;
and (3) develop and implement a targeted code enforcement strategy that would specify
deteriorating or deteriorated areas where code enforcement would be expected to arrest decline,
including a description of public or private improvements, rehabilitation, or services that would
help facilitate code enforcement.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The City Did Not Administer Its Code Enforcement Program in
         Accordance With Requirements...................................................................................... 4
         Finding 2: The City Did Not Administer Its Graffiti Abatement Program in
         Accordance With Requirements...................................................................................... 8

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

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

Appendixes ..............................................................................................................13
         A. Schedule of Questioned Costs .................................................................................. 13
         B. Auditee Comments and OIG’s Evaluation ............................................................. 14
         C. Criteria ....................................................................................................................... 17
         D. Schedule of Unsupported Expenses......................................................................... 19




                                                                     2
Background and Objective
The City of South Gate, CA, receives annual Community Development Block Grant (CDBG)
entitlement allocation funds from the U.S. Department of Housing and Urban Development
(HUD). The City uses its annual CDBG allocation to fund projects and activities undertaken
by City departments and community-based service providers specifically to address the housing
and community development needs of low- and moderate-income persons in South Gate.
Federal regulations at 24 CFR (Code of Federal Regulations) 570.208 require that CDBG funds
be used for eligible activities that meet one of three national objectives:

    •   provide benefit to low- and moderate-income persons,
    •   aid in the prevention or elimination of slums or blight, or
    •   meet a need having a particular urgency.
The City’s Community Development Department is responsible for the administration and
oversight of the CDBG program. The City’s planning, implementation, and evaluation of its
use of CDBG funds are guided by the framework established by HUD’s CDBG regulations
and are integrated into the City’s consolidated plans. The City received the following CDBG
program funds for fiscal years 2014 to 2016:

          Fiscal year                                                 Amount

                July 1, 2014, to June 30, 2015                   $1,466,189
                July 1, 2015, to June 30, 2016                    1,437,034
                July 1, 2016, to June 30, 2017                    1,393,866
                     Total CDBG funds                             4,297,089

In 2015, HUD monitored the City’s 2013-14 program year CDBG activities and found that the
City’s CDBG-funded code enforcement activity lacked (1) a definition of deteriorating or
deteriorated areas, (2) a comprehensive strategy showing an effort to arrest the decline of the
areas where the code enforcement activities were taking place, and (3) records to show that
CDBG-funded code enforcement activities were confined to areas designated as deteriorating or
deteriorated. HUD identified the issue as a concern but requested a response to the review’s
findings and concerns. In June 2016, the City emailed an outline of its code enforcement
strategy, which included a broad definition of a deteriorated area. The email did not specify
which areas would be targeted, only that they would be low- to moderate-income areas and
deteriorated.
Our audit objective was to determine whether the City administered its CDBG funds in
accordance with HUD requirements, focusing on code enforcement and graffiti abatement
activities.




                                                  3
Results of Audit

Finding 1: The City Did Not Administer Its Code Enforcement
Program in Accordance With Requirements
The City did not administer CDBG-funded code enforcement activities in accordance with HUD
requirements. Specifically, it did not meet HUD’s code enforcement requirements and did not
ensure that code enforcement salary and benefits costs were adequately supported. This
condition occurred because the City did not correctly interpret and implement HUD regulations
and guidance, which required the City to restrict its code enforcement activities to deteriorated or
deteriorating areas. In addition, the City did not have adequate policies and procedures to ensure
that code enforcement salaries and benefits were accurately calculated and recorded. As a result,
it spent $811,325 on unsupported code enforcement costs.

The City’s Code Enforcement Activities Did Not Meet HUD’s Requirements
HUD regulations at 24 CFR 570.202(c) state that CDBG funds may be used for code
enforcement for costs incurred for inspection for code violations and enforcement of codes in
deteriorating or deteriorated areas when such enforcement, together with public or private
improvements, rehabilitation, or services to be provided, may be expected to arrest the decline of
the area (appendix C). 1 In addition, 24 CFR 570.207(a)(2) prohibits the use of CDBG funds for
general government expenses (appendix C). The City drew down $811,325 in CDBG funds for
code enforcement activity between July 1, 2014, and June 30, 2017. However, its identification
of deteriorated areas and code enforcement plan and strategy were inadequate.

    •   The City used its low- and moderate-income census tracts map to target its CDBG code
        enforcement but did not identify deteriorated areas where code enforcement activity
        would be expected to arrest decline as required in 24 CFR 570.202(c). Neither the City’s
        resolution nor its strategy included a description of deteriorated conditions in specific
        areas. Instead, target areas identified in the resolution were described as a “primarily
        residential area where a minimum of 51 percent of the residents in those areas are low-
        and moderate-income.” These were the low- and moderate-income area benefit areas that
        would be used to determine code enforcement eligibility.

    •   The City did not specifically identify how its code enforcement would be used in
        conjunction with public or private improvements, rehabilitation, or services that would
        arrest decline. The City’s strategy stated that its “code enforcement program will work
        with the Community Development and Public Works departments to arrest the
        deterioration of the area and develop a comprehensive approach to improving the target



1
 HUD further clarified and reinforced the requirements under Office of Community Planning and Development
(CPD) Notice CPD-14-016 (appendix C).


                                                      4
        areas.” Our discussion with the City disclosed that it had no set programs (rehabilitation,
        construction, etc.) working in conjunction with CDBG code enforcement to arrest decline
        in a deteriorated area or areas. In addition, there were no performance metrics for
        tracking the progress of the City’s code enforcement efforts.

    •   Daily inspection logs completed by inspectors identified specific violations at each
        location, but the areas inspected were based on the census tracts where at least 51 percent
        of the residents were low or moderate income rather than specific, designated
        deteriorating or deteriorated areas.

The City did not adequately distinguish between CDBG code enforcement activities and its
regular responsibilities as a unit of general local government. Instead, it used the CDBG funds to
supplement its general code enforcement activities, which were its regular responsibilities as a
unit of general local government. Therefore, the City could not support that the $811,325 drawn
for code enforcement met program requirements (appendix D).

The City Did Not Ensure That Code Enforcement Payroll Was Adequately Supported
HUD regulations at 2 CFR 200.430 state that charges to Federal awards for salaries and wages
must be based on records that accurately reflect the work performed and must be supported by a
system of internal control, which provides reasonable assurance that the charges are accurate,
allowable, and properly allocated (appendix C). However, there were significant discrepancies
between the City’s code enforcement payroll expenditure charged to CDBG and the related
source documentation.

CDBG full-time salaries contained in the City’s expenditure detail report for our initial sample
period of January 1 to February 28, 2017, did not adequately reconcile to timesheets and pay
stubs. As a result, the $24,493 in payroll was not adequately supported.

Additional sample voucher testing found that $134,661 in code enforcement salaries and benefits
was not adequately supported due to unexplained variances among hours reported on timesheets,
inspection logs, and the City’s Labor Distribution Report. 2

    •   May 1 Through June 30, 2016 - $43,820
        Three of four code enforcement officers reviewed recorded fewer hours on their
        timesheets than were recorded on the City’s Labor Distribution Report. The same code
        enforcement officers also recorded less time on their daily inspection logs than was
        recorded on the Labor Distribution Report.




2
 The Labor Distribution Report should support salaries and benefits in the City’s Expenditure Detail Report. The
Expenditure Detail Report is the document used to support CDBG grant costs.


                                                         5
    •   January 1 Through March 31, 2016 - $47,547
        All four code enforcement officers reviewed recorded fewer hours on their timesheets
        than were recorded on the City’s Labor Distribution Report. Two of the officers had no
        timesheets to support their time. Three of four code enforcement officers recorded fewer
        hours on their daily inspection logs than were recorded on the Labor Distribution Report.

    •   March 1 Through April 30, 2017 - $43,294
        Three of four code enforcement officers reviewed recorded fewer hours on their
        timesheets than were recorded on the Labor Distribution Report. All four code
        enforcement officers reviewed recorded fewer hours on their daily inspection logs than
        were recorded on the City’s Labor Distribution Report.
In addition, the City did not provide all requested supporting payroll documents for two sample
vouchers for the periods July 1 to November 30, 2014 ($84,201), and July 1 to December 31,
2016 ($142,593). As a result, an additional $226,794 was unsupported.

The City’s code enforcement supervisors and department heads reviewed and approved
timesheets with missing expenditure account numbers. In some instances, the related salary
amounts were allocated using budgeted percentages, which would cause inconsistencies between
source documentation and reports used to support CDBG grant costs. The written finance
procedures provided by the City did not address any of these practices or accounting for CDBG
grant funds in general. As a result, HUD had no assurance that $385,948 3 ($24,493 + $134,661
+ $226,794) in funds spent on the City’s CDBG-funded code enforcement activities was
accurately accounted for and charged to the grant.

Conclusion
The City did not administer CDBG funds in accordance with HUD-CDBG regulations and
guidelines. The City used its low- to moderate-income census tracts map to target its CDBG
code enforcement and did not identify deteriorated areas. It also did not have set programs
working in conjunction with CDBG code enforcement to arrest decline in a deteriorated area or
areas. In addition, code enforcement salaries and benefits charged to the grants were not
adequately supported. As a result, HUD did not have adequate assurance that $811,325 in grant
funds was used for eligible purposes.




3
 The questioned salary and benefits amounts are also included in the $811,325 amount questioned in the prior
section (appendix D).


                                                        6
Recommendations
We recommend that the Director of HUD’s Los Angeles Office of Community Planning and
Development require the City to

        1A.      Provide documentation to support the $811,325 in code enforcement costs
                 (activities 591, 619, and 645), including meeting code enforcement and salary and
                 benefit requirements, 4 or repay the program from non-Federal funds.

        1B.      Develop and implement a targeted code enforcement strategy that specifies
                 deteriorating or deteriorated areas where code enforcement would be expected to
                 arrest decline. The strategy should include a description of public or private
                 improvements, rehabilitation, or services that would help facilitate code
                 enforcement and also include performance metrics to track progress.

        1C.      Develop and implement policies and procedures to ensure that code enforcement
                 salaries and benefits are charged and documented in accordance with program
                 requirements.




4
 The questioned salary and benefits sample amount of $385,948 is included in the total code enforcement costs of
$811,325 (appendix D).


                                                         7
Finding 2: The City Did Not Administer Its Graffiti Abatement
Program in Accordance With Requirements
The City did not administer CDBG funds in accordance with HUD requirements. Specifically, it
did not ensure that graffiti abatement costs, primarily salaries and benefits, were supported and
properly allocated. This condition occurred because the City did not have adequate policies and
procedures to ensure that graffiti abatement salaries and benefits were accurately charged or
allocated to the grants. As a result, it spent $285,496 on unsupported costs.

The City’s Graffiti Abatement Costs Were Not Supported and Properly Allocated
HUD regulations at 2 CFR 200.403 state that CDBG costs must be adequately documented to be
allowable under Federal awards. Also, regulations at 2 CFR 200.430 state that charges to
Federal awards for salaries and wages must be based on records that accurately reflect the work
performed and must be supported by a system of internal control, which provides reasonable
assurance that the charges are accurate, allowable, and properly allocated (appendix C). The
City drew down $391,859 in CDBG funds for the graffiti abatement expenditures incurred
between July 1, 2014, and June 30, 2017. However, it did not ensure that $285,496 spent on its
CDBG-funded graffiti abatement activities was accurate, adequately documented, and properly
allocated to the grant (appendix D).

There were discrepancies between the hours charged to the grant and the hours recorded on the
employee daily work reports for the same period. Although graffiti abatement employees
created daily log reports showing how their hours were spent between CDBG and non-CDBG
projects, 5 the City did not use the information from the daily log reports to support the amount of
the drawdown.

    •   Fiscal Year 2014-2015 - $174,068
        Although graffiti abatement employees created daily log reports showing how their hours
        were allocated to CDBG and non-CDBG projects, the City did not use the information
        from the daily log reports to support the amount of the drawdown. The City charged
        two-thirds of the allocation from a total that was not clearly identified in the supporting
        documents provided. 6 As a result, the graffiti costs charged to CDBG for fiscal year
        2014-2015 were unsupported.

    •   Fiscal Year 2015-2016 - $40,432
        There was a discrepancy of a net 104 additional hours charged for the two vouchers
        reviewed, 7 which were not included in the daily work reports. Some staff members had
        more hours while others had fewer hours charged than the amounts recorded on daily



5
  The City performed graffiti abatement in both eligible low- and moderate-income areas and non-CDBG eligible
areas.
6
  The $174,068 included both payroll and nonpayroll amounts in which the unsupported two-thirds allocation was
applied to the voucher.
7
  One voucher was for $36,229, and the second was $4,203 (appendix D).


                                                        8
           work reports and timesheets, calling the total payroll draws into question. In addition, the
           City did not provide support for additional hours charged for labor costs in the
           expenditures report not being included in the labor detail report provided.

      •    Fiscal Year 2016-2017 - $70,996
           There was a discrepancy of a net 56 additional hours charged for the two vouchers
           reviewed, 8 which were not included in the daily work reports. Some staff members had
           more hours while others had fewer hours charged than the amounts reported on daily
           work reports and timesheets, calling the entire payroll charge into question.
Employee daily work reports were reviewed and approved by a public works supervisor;
however, the City did not have a clear explanation for why the hours recorded in these reports
were not used to determine salaries and benefits charged to the vouchers. The written finance
policies and procedures provided by the City did not address any of these practices or accounting
for CDBG grant funds in general.

As a result, HUD had no assurance that funds spent on the City’s CDBG-funded graffiti
abatement activities were accurately accounted for and charged to the grant. Overall, $285,496
in graffiti abatement expenditures, primarily salaries and benefits, was questionable due to
discrepancies between the hours charged to the grant and the hours recorded in the employee
daily work reports and due to the City’s use of an unsupported allocation percentage.

Conclusion
The City did not administer CDBG funds in accordance with HUD requirements. It did not
ensure that funds spent on its CDBG graffiti abatement activities were accurate, adequately
documented, and properly allocated to the grants. The City did not have adequate policies and
procedures to ensure that graffiti abatement expenditures, including salaries and benefits, were
consistent in source documents, accurately calculated, and properly allocated. As a result, HUD
did not have adequate assurance that $285,496 in grant funds was used for eligible purposes.

Recommendations
We recommend that the Director of HUD’s Los Angeles Office of Community Planning and
Development require the City to

           2A.     Provide documentation to support $285,496 in graffiti abatement expenditures or
                   repay the program from non-Federal funds (appendix D).

           2B.     Develop and implement procedures and controls to ensure that graffiti abatement
                   expenditures, including salaries and benefits, are accurately charged to CDBG
                   grants and properly supported.




8
    One voucher was for $48,756, and the second was for $22,240 (appendix D).


                                                         9
Scope and Methodology
We performed our audit work at South Gate City Hall located at 8650 California Avenue, South
Gate, CA, from June 14 to December 14, 2017. Our review generally covered the period July 1,
2014, to June 30, 2017, and was expanded as necessary.

To accomplish our objective, we performed the following:
    •   Reviewed HUD regulations and requirements.
    •   Interviewed appropriate City staff personnel.
    •   Reviewed relevant City policies, procedures, and controls over the program.
    •   Reviewed HUD monitoring reports.
    •   Reviewed the City’s consolidated plans, consolidated annual performance and evaluation
        reports, and action plans.
    •   Reviewed CDBG subrecipient and City-sponsored funding agreements.
    •   Reviewed reports from HUD’s Integrated Disbursement and Information System 9 to
        obtain CDBG disbursements for the audit period.
    •   Reviewed drawdowns (vouchers) and supporting documentation for sampled program
        expenses.
    •   Reviewed the City’s audited financial statements for fiscal years 2014, 2015, and 2016.

The audit universe consisted of 36 vouchers totaling more than $4.6 million in expenditures for
the period July 1, 2014, through June 30, 2017. We used nonstatistical sample selection for our
review. We selected a total of 13 vouchers for review, 4 vouchers for the survey phase and 9
vouchers for the audit phase, for a combined total of more than $3.1 million. During the survey,
we sampled one voucher for each calendar year between 2014 and 2017 and selected the
vouchers with total amounts closest to the average voucher total cost. For the audit phase, we
selected nine vouchers, focusing on vouchers with expenditures that were areas of concern
identified in the survey, including code enforcement, graffiti abatement, and sidewalk
improvements. Further review of the City’s sidewalk improvements project showed that the
potential issue found during the survey was not systemic and no material questioned costs were
paid with CDBG funds. Our audit results were limited to the vouchers in our sample and cannot
be projected to the universe. However, the consistent issues with the code enforcement costs,




9
  HUD’s Integrated Disbursement and Information System (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.


                                                      10
discussions with City staff, and the lack of adequate policies and procedures resulted in our
questioning the entire code enforcement for the audit period.

We found that data contained in source documentation provided by the City agreed with data
contained in the HUD’s Line of Credit Control System. 10 Therefore, we assessed the data from
the City to be sufficiently reliable for our use during the audit.

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.




10
 The Line of Credit Control System is HUD’s primary grant disbursement system, handling disbursements for
most HUD programs.


                                                      11
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

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

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

    •   Effectiveness and efficiency of program operations – Implementation of policies and
        procedures to ensure that program funds are used for eligible purposes.
    •   Reliability of financial information – Implementation of policies and procedures to
        reasonably ensure that relevant and reliable information is obtained to adequately support
        program expenditures.
    •   Compliance with applicable laws and regulations – Implementation of policies and
        procedures to ensure compliance with applicable HUD rules and requirements.

We assessed the relevant controls identified above.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

    •   The City did not have adequate policies and procedures to ensure that CDBG funds spent
        for code enforcement were in accordance with program requirements (finding 1).

    •   The City did not have adequate procedures and controls to ensure that CDBG funds spent
        for graffiti abatement were in accordance with program requirements (finding 2).



                                                  12
Appendixes

Appendix A


                             Schedule of Questioned Costs
                          Recommendation
                                             Unsupported 1/
                              number
                                  1A               $    811,325
                                  2A                    285,496
                                Totals                 1,096,821


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve legal interpretation or clarification of
     departmental policies and procedures. In this instance, the unsupported costs included (1)
     $811,325 for code enforcement costs without documentation supporting that areas
     worked by code enforcement staff were deteriorated and the City had no set programs
     working in conjunction with CDBG code enforcement to arrest decline in a deteriorated
     area or areas and (2) $285,496 for graffiti abatement expenditures, mostly payroll,
     without adequate supporting documentation (appendix D).




                                              13
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




Comment 1




Comment 2




                               14
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 2




Comment 3




Comment 4




                               15
                         OIG Evaluation of Auditee Comments


Comment 1   We acknowledge the City’s belief that it had expended CDBG program funds in
            compliance with Federal regulations under directions received from HUD's Los
            Angeles Office of Community Planning and Development. However, although a
            HUD Community Planning and Development representative informed the City
            that its resolution and general strategy appeared to be in compliance with HUD
            guidance, the documentation submitted to HUD did not include a description of
            deteriorated conditions in specific areas. Instead, target areas identified in the
            resolution were described as a “primarily residential area where a minimum of 51
            percent of the residents in those areas are low- and moderate-income.” In
            addition, HUD did not subsequently fully assess or confirm how the City actually
            implemented the program. We found that the City’s code enforcement resolution
            and strategy did not actually change how it conducted its code enforcement
            program, and that there was inadequate support for salaries and benefits charged
            to the program.

            The City expressed surprise concerning the audit results. However, we discussed
            the code enforcement matters with the City staff during audit field work, and
            repeatedly requested documentation for the unsupported costs identified in
            finding 1. We also provided finding outlines to the City identifying the issues 25
            days before sending the draft report and later conducting an exit conference.

Comment 2   We acknowledge the City’s commitment in taking the steps necessary to address
            the issues with its code enforcement identified in the report. We also appreciate
            the City taking corrective action to develop and implement a targeted code
            enforcement strategy and policies and procedures to ensure that code enforcement
            salaries and benefits are charged and documented in accordance with program
            requirements. The City will have the opportunity to implement the planned
            changes and resolve the finding recommendations with HUD as part of the audit
            resolution process.

Comment 3   We appreciate the City taking corrective action to develop and implement policies
            and procedures to ensure that graffiti abatement expenditures, including salaries
            and benefits, are accurately charged to the CDBG grant and properly supported.

Comment 4   We acknowledge the City’s belief that it had expended CDBG program funds in
            compliance with federal regulations under direction received from HUD's Los
            Angeles Office of Community Planning and Development. The City will have
            the opportunity to provide additional documentation to HUD as part of the audit
            resolution process. We also appreciate the City’s commitment to resolve the
            findings.




                                             16
Appendix C
                                             Criteria

24 CFR 570.202(c) Code enforcement. Costs incurred for inspection for code violations and
enforcement of codes (e.g., salaries and related expenses of code enforcement inspectors and
legal proceedings, but not including the cost of correcting the violations) in deteriorating or
deteriorated areas when such enforcement together with public or private improvements,
rehabilitation, or services to be provided may be expected to arrest the decline of the area.

24 CFR 570.207(a) – Ineligible Activities. (2) General government expenses. Except as
otherwise specifically authorized in this subpart or under 2 CFR part 200, subpart E, expenses
required to carry out the regular responsibilities of the unit of general local government are not
eligible for assistance under this part.

2 CFR 200.403, Factors affecting allowability of costs.
Except where otherwise authorized by statute, costs must meet the following general criteria in
order to be allowable under Federal awards:
        (g) Be adequately documented.

2 CFR 200.430, Compensation-personal services.
(i) Standards for Documentation of Personnel Expenses
    (1) Charges to Federal awards for salaries and wages must be based on records that
    accurately reflect the work performed. These records must:
         (i) Be supported by a system of internal control which provides reasonable assurance
         that the charges are accurate, allowable, and properly allocated.

Office of Community Planning and Development (CPD) Notice CPD-14-016, Use of CDBG
Funds for Code Enforcement Activities.
Section I. What is Code Enforcement: The CDBG program will expect that localities
emphasize health and safety issues in buildings. Ancillary efforts to address violations of codes
concerning vacant lots, signs, and motor vehicles are permitted in conjunction with efforts
regarding buildings, but should form a minor part of the code enforcement program.

Section IV. Ineligible Code Enforcement Costs: CDBG funds may be used for the costs for
inspection of code violations and enforcement of codes in deteriorating or deteriorated areas
when such enforcement together with public or private improvements, rehabilitation, or services
to be provided may be expected to arrest the decline of the area. While the cost of correcting the
violations is not an eligible code enforcement cost under §570.202(c), the regulation states that
code enforcement must be performed in conjunction with improvements, rehabilitation, or
services. The purpose of this requirement is to ensure that the deteriorated or deteriorating areas
are being made safe and sanitary for the general public, not to generate revenue via code
violation fines.




                                                  17
Grantees may trigger concerns about the eligibility of code enforcement if it appears that the
CDBG program is being used for general government expenses or if the use of CDBG funding
appears excessive in relation to the community’s overall enforcement program. …However, §
570.207(a) (2) prohibits grantees from using CDBG funds for general government expenses.

IX. Recordkeeping Requirements.
The Entitlement CDBG program regulations at § 570.506 identify records that must be kept by
grantees carrying out CDBG-assisted activities. The State CDBG program regulations at §
570.490(a) and (b) identify records that states and units of general local government must
maintain and provides that the content of records maintained by the state shall be as jointly
agreed upon by HUD and the states.

The lack of time distribution records and documentation to demonstrate use of CDBG funds for
code enforcement in eligible areas has been a significant problem for some grantees. Not having
complete and accurate documentation has resulted in monitoring findings and disallowed costs.
Grantees have been required to repay significant sums of money from non-federal funds because
they did not maintain records delineating the deteriorated or deteriorating areas, or records
demonstrating that the CDBG program only paid for code enforcement costs in those areas. To
avoid this problem, grantees should ensure that their records and documentation demonstrate
activity eligibility, national objective compliance, allowability of costs, and cost reasonableness.
In addition, grantees must ensure that their time distribution records regarding time spent
conducting code enforcement in eligible areas is accurate. Having this information readily
available is critical for grantees to avoid monitoring findings and disallowed costs....

In addition, grantees must also have records that demonstrate how activities meet the criteria for
national objectives in §§ 570.208 or 570.483. Records that grantees should maintain when
carrying out CDBG-assisted code enforcement activities include:
    • The state and local law definitions of deteriorated/deteriorating.
    • A description of the conditions of the areas in which CDBG funds are used for code
        enforcement, demonstrating that these areas meet the state local law definition of
        deteriorated/deteriorating.
    • Identification of other activities to be carried out (whether CDBG-assisted or not) that
        will arrest the decline of the areas and their funding sources.




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Appendix D
                                  Schedule of Unsupported Expenses

      Project                         Expense description         Unsupported
        ID                                                          amount
                                  Code enforcement
        591               Fiscal year 2014-2015 – entire year         $249,424

                         Includes sample salary and benefits of
                            • 7/1/2014 to 11/30/2014: $84,201

        619               Fiscal year 2015-2016 – entire year          261,902

                         Includes sample salary and benefits of
                            • 1/1/2016 to 3/31/2016: 47,547
                            • 5/1/2016 to 6/30/2016: 43,820

        645               Fiscal year 2016-2017 – entire year          300,000

                         Includes sample salary and benefits of
                            • 7/1/2016 to 12/31/2016: 142,593
                            • 1/1/2017 to 2/28/2017: 24,493
                            • 3/1/2017 to 4/30/2017: 43,294

                       Total unsupported code enforcement 11           811,325

                                  Graffiti abatement
        592               Fiscal year 2014-2015 – entire year          174,068
        624           Fiscal year 2015-2016 – drawdown 2016-2            4,203
        624           Fiscal year 2015-2016 – drawdown 2016-7           36,229
        651           Fiscal year 2016-2017 – drawdown 2017-4           22,240
        651           Fiscal year 2016-2017 – drawdown 2017-2           48,756
                       Total unsupported graffiti abatement            285,496

                                      Total unsupported               1,096,821




11
     $1 difference due to rounding.


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