oversight

The Lower Manhattan Development Corporation, New York, NY, Generally Administered Its Disaster Recovery-Funded Programs in Accordance With Applicable Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-05-23.

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

    The Lower Manhattan Development
       Corporation, New York, NY
        Community Development Block Grant Disaster
                    Recovery Funds




Office of Audit, Region 2      Audit Report Number: 2018-NY-1004
New York, NY                                         May 23, 2018
To:            Stanley A. Gimont, Deputy Assistant Secretary for Grant Programs, DG

               //SIGNED//
From:          Kimberly S. Dahl, Regional Inspector General for Audit, 2AGA
Subject:       The Lower Manhattan Development Corporation, New York, NY, Generally
               Administered Its Disaster Recovery-Funded Programs in Accordance With
               Applicable 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 Lower Manhattan Development Corporation’s
(LMDC) administration of Community Development Block Grant (CDBG) Disaster Recovery
funds covering the period April 1, 2016, through March 31, 2017. The review was performed in
response to a congressional mandate that HUD OIG continuously audit LMDC’s administration
of the $2.783 billion in Disaster Recovery funds awarded to the State of New York in the
aftermath of the September 11, 2001, terrorist attack on the World Trade Center in New York
City. During the audit period, we reviewed $6.8 million of the $11.9 million disbursed for the
two programs selected for review.
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
212-264-4174.
                   Audit Report Number: 2018- NY-1004
                   Date: May 23, 2018

                   The Lower Manhattan Development Corporation, New York, NY, Generally
                   Administered Its Disaster Recovery-Funded Programs in Accordance With
                   Applicable Requirements



Highlights

What We Audited and Why
We performed the 22nd review of the Lower Manhattan Development Corporation’s (LMDC)
administration of the $2.783 billion in Community Development Block Grant (CDBG) Disaster
Recovery funds awarded to the State of New York in the aftermath of the September 11, 2001,
terrorist attacks on the World Trade Center in New York City. The objective of the audit was to
determine whether LMDC administered its Disaster Recovery-funded Lower Manhattan Housing
and Other World Trade Center Area Improvements programs in accordance with applicable
requirements. Specifically, we reviewed $6.8 million of the $11.9 million disbursed during our
audit period for the two programs selected for review.

What We Found
LMDC generally administered its Disaster Recovery-funded Lower Manhattan Housing and
Other World Trade Center Area Improvement programs in accordance with applicable
requirements. For the $6.8 million in disbursements reviewed, LMDC ensured that
disbursements were for eligible and supported costs. In addition, LMDC provided effective
subrecipient and contractor oversight for the activities reviewed.

What We Recommend
There are no recommendations.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: LMDC Generally Administered Its Disaster Recovery-Funded Programs
         in Accordance With Applicable Requirements .............................................................. 4

Scope and Methodology ...........................................................................................5

Internal Controls ......................................................................................................7

Appendixes ................................................................................................................8
         A. Auditee Comments ...................................................................................................... 8

         B. Schedule of Disbursements as of March 31, 2017 .................................................... 9




                                                                 2
Background and Objective
The Lower Manhattan Development Corporation (LMDC) was created in December 2001 as a
subsidiary of the Empire State Development to function as a joint City-State development
corporation. An eight-member board of directors, appointed equally by the governor of New York
and the mayor of New York City, oversees LMDC’s affairs. The Empire State Development
performs all treasury functions for LMDC.

The State of New York designated LMDC to administer $2.783 billion of the $3.483 billion1 in
Community Development Block Grant (CDBG) Disaster Recovery funds appropriated by Congress
in the aftermath of the September 11, 2001, terrorist attacks on the World Trade Center to assist
with the recovery and revitalization of Lower Manhattan. Planned expenditures of Disaster
Recovery funds are documented in action plans that receive public comment and are approved by
the U.S. Department of Housing and Urban Development (HUD). As of March 31, 2017, HUD had
approved several partial action plans, a final action plan, and amendments, which allocated the
$2.783 billion to various programs and activities (see appendix B for amounts by program), and
LMDC had disbursed more than $2.4 billion, or 87 percent, of the $2.783 billion appropriated.

During this audit, we reviewed disbursements related to the following programs:

Lower Manhattan Housing program: HUD approved $54 million for this program to help achieve a
strong and vibrant Lower Manhattan community by creating and preserving affordable housing.
The program consisted of four activities, including the rehabilitation of Masaryk Towers, a 1,110-
unit development located on the Lower East Side of Manhattan. This cooperative development
consisted primarily of low-income tenants, with more than half of the shareholders qualifying for
assistance under the Housing Choice Voucher program.2 The rehabilitation work included repairs
to the building façade, replacement of balcony railings, removal and repaving of walkways and
parking areas, installation of a secure entry point, perimeter fencing, and landscaping services.

Other World Trade Center Area Improvements program: HUD approved $204.5 million for this
program to assist properties and businesses damaged by and economic revitalization related to the
attacks. The program consisted of five activities, including the West Thames Street Pedestrian
Bridge activity, which was designed to provide an alternate safe crossing and improved connections
between Battery Park City recreational facilities, residences, and commercial buildings and the
remaining Lower Manhattan area for foot traffic.
Our audit objective was to determine whether LMDC administered its Disaster Recovery-funded
Lower Manhattan Housing and Other World Trade Center Area Improvements programs in
accordance with applicable requirements.

1
    The Empire State Development administers the remaining $700 million.
2
    HUD’s Housing Choice Voucher program provides rental assistance to help very low-income families, the
    elderly, and the disabled afford decent, safe, and sanitary housing.



                                                       3
Results of Audit

Finding: LMDC Generally Administered Its Disaster Recovery-
Funded Programs in Accordance With Applicable Requirements
LMDC generally administered its Disaster Recovery-funded Lower Manhattan Housing and
Other World Trade Center Area Improvement programs in accordance with applicable
requirements. For the $6.8 million in disbursements reviewed, LMDC ensured that
disbursements were for eligible and supported costs. In addition, LMDC provided effective
subrecipient and contractor oversight for the activities reviewed.

Programs Administered in Accordance With Applicable Requirements
For the activities reviewed under the Lower Manhattan Housing and Other World Trade Center
Area Improvement programs, LMDC generally ensured that disbursements were for eligible and
supported costs and provided effective oversight for the activities. We tested more than $6.8
million of the more than $11.9 million disbursed for two activities and reviewed documentation
related to subrecipient and contractor oversight. We found no material deficiencies.
Specifically, for the more than $6.8 million in disbursements tested for the activities reviewed,
LMDC disbursed funds for eligible costs that were adequately supported and complied with the
HUD-approved partial and final action plans, subrecipient agreements, and applicable laws and
regulations. For the Masaryk Towers activity under the Lower Manhattan Housing program,
disbursements were supported with contractor invoices and architects’ certificates for payment.
For the West Thames Street Pedestrian Bridge activity under the Other World Trade Center Area
Improvement program, disbursements were supported by contractor invoices, timesheets, and
relevant pay rate and contractor fee information.

In addition, LMDC adequately monitored its subrecipients and contractors for the activities
reviewed in accordance with HUD, Federal, and City requirements. LMDC continuously
monitored subrecipient performance against goals and performance standards prescribed in
subrecipient agreements, prepared monthly and quarterly monitoring reports, and maintained
adequate supporting documentation for each of the projects. Further, procurement files were
adequately maintained, and records showed that activities met a national objective.

Conclusion
For the activities reviewed under the Lower Manhattan Housing and Other World Trade Center
Area Improvement programs, LMDC generally ensured that the disbursements were for eligible
and supported costs and provided effective subrecipient and contractor oversight in accordance
with applicable requirements.
Recommendations
There are no recommendations.




                                                4
Scope and Methodology
We conducted our audit from November 2017 through March 2018 at the LMDC office located
in Lower Manhattan. The audit covered the period April 2016 through March 2017.

To accomplish our audit objective, we
   • Reviewed applicable laws, regulations, and program requirements.
   • Reviewed LMDC’s policies, procedures, and internal controls.
   • Reviewed audited financial statements for the years ending March 31, 2016 and 2017.
   • Reviewed HUD-approved partial and final action plans and amendments.
   • Reviewed subrecipient agreements, construction contracts, procurement files, monthly
       status reports, national objective documentation, and monitoring records related to the
       activities and disbursements selected.
   • Reviewed prior Office of Inspector General (OIG) reports and audit work papers.
   • Reviewed HUD monitoring reports and quarterly performance reports.
   • Interviewed LMDC officials.

As of March 31, 2017, LMDC had disbursed more than $2.4 billion, or 87 percent, of the $2.783
billion appropriated. During the audit period, LMDC disbursed more than $20.8 million in
disaster funds, including $6 million for its Lower Manhattan Housing program and more than
$5.9 million for its Other World Trade Center Area Improvements program. Our audit focused
on these two programs because they had the highest net disbursements during our review period.
See appendix B for more details on amounts budgeted and disbursed for each program.

Of the $11.9 million disbursed for the two programs during our audit period, more than $9
million was disbursed for the rehabilitation of Masaryk Towers and the construction of the West
Thames Street Pedestrian Bridge. We selected these two activities for review because they had
the highest amount disbursed for the two programs during our audit period. We then identified
10 disbursement vouchers during our audit period for the activities and selected a nonstatistical
sample of the three largest disbursement vouchers for testing. The three sampled vouchers
totaled more than $6.8 million.

                               Amount                                  Amount
                            disbursed for                           disbursed for     Amount
        Program                                     Activity
                              program                                  activity       sampled
                           (during period)                         (during period)
Lower Manhattan Housing       $6,000,000       Masaryk Towers        $6,000,000      $4,950,505
Other World Trade Center                     West Thames Street
                               5,914,729                              3,021,707       1,893,126
   Area Improvements                         Pedestrian Bridge

         Totals               11,914,729                              9,021,707       6,843,631




                                                5
Although this approach did not allow us to make a projection to the entire $11.9 million
disbursed for the two programs, it was sufficient to meet our objective and allowed us to review
more than 75 percent of the more than $9 million in Disaster Recovery funds disbursed for the
two activities during our audit period and more than 57 percent of the $11.9 million disbursed for
the two programs during our audit period.

For each of the disbursement vouchers selected, we reviewed documentation to determine
whether the amounts disbursed were for eligible and supported costs. For the Masaryk Towers
sample, we reviewed contractor invoices with architect certifications for payment, work
descriptions, work completed, and drawdown requests for HUD funds. For the West Thames
Street Pedestrian Bridge sample, we reviewed contractor invoices with supporting
documentation, timesheets, pay rates, and contractor fees.

To achieve our objective, we relied in part on computer-processed data generated by LMDC as
well as data maintained in HUD’s Disaster Recovery Grant Reporting (DRGR) system 3 for
background information and to select a sample of disbursements for review. Our assessment of
the reliability of these data was limited to reconciling the data recorded in DRGR during our
audit period to LMDC records. We based on our conclusions on source documentation obtained
from LMDC for the programs and activities selected for review.

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.




3
    The DRGR system was developed by HUD’s Office of Community Planning and Development for the CDBG
    Disaster Recovery program and other special appropriations. Data from the system are used by HUD staff to
    review activities funded under these programs and for required quarterly reports to Congress.




                                                        6
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   effectiveness and efficiency of operations,
•   reliability of financial reporting, and
•   compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

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

•   Program operations - Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.
•   Compliance with laws and regulations - Policies and procedures that management has
    implemented to reasonably ensure that resource use is consistent with laws and regulations.
•   Validity and reliability of data - Policies and procedures that management has implemented
    to reasonably ensure that valid and reliable date are obtained, maintained, and fairly
    disclosed in reports.
•   Safeguarding resources - Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.
We assessed the relevant 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.
We evaluated internal controls related to the audit objective in accordance with generally
accepted government auditing standards. Our evaluation was not designed to provide assurance
regarding the effectiveness of the internal control structure as a whole. Accordingly, we do not
express an opinion on the effectiveness of LMDC’s internal controls as a whole.




                                                  7
Appendixes

Appendix A
             Auditee Comments




                    8
      Appendix B
                                       Schedule of Disbursements as of March 31, 2017
                                                                            Audit period        Cumulative        Balance
                                                         Budget as of       disbursement       disbursement      remaining
                      Program 4
                                                         Mar. 31, 2017      Apr. 1, 2016-          as of            as of
                                                                            Mar. 31, 2017 5    Mar. 31, 2017    Mar. 31, 2017
Business Recovery Program                                  $218,946,000                  $0      $218,728,643        $217,357
Job Creation & Attraction Program                           143,000,000            (25,200)       106,573,201      36,426,799
Small Firm Attraction & Retention                            29,000,000                    0       27,625,391       1,374,609
Residential Grant Program                                   236,057,064                    0      236,057,064               0
Employment Training Assistance                                  337,771                    0          337,771               0
Interim Memorial                                                309,969                    0          309,969               0
Columbus Park Pavilion                                          767,406                    0          767,406               0
History & Heritage Marketing                                  4,612,619                    0        4,612,619               0
Downtown Alliance Streetscape                                 4,000,000                    0        4,000,000               0
New York Stock Exchange Security Improvements                25,255,000                    0       24,891,703         363,297
Parks & Open Spaces                                          34,381,689             596,391        34,251,435         130,254
Hudson River Park Improvement                                72,600,000                    0       72,600,000               0
West Street Pedestrian Connection                            22,955,811                    0       22,361,533         594,278
LM (Lower Manhattan) Communication Outreach                   1,000,000                    0        1,000,000               0
Chinatown Tourism Marketing                                   1,160,000                    0        1,160,000               0
Lower Manhattan Info                                          2,548,556                    0        2,548,556               0
WTC (World Trade Center) Site                               677,053,783         (8,477,081)       627,494,184      49,559,599
Lower Manhattan Tourism Programs                              3,950,000                    0        3,950,000               0
East River Waterfront                                       168,000,000             675,159       125,189,374      42,810,626
Lower Manhattan Street Management                             9,000,000                    0        8,957,942          42,058
East Side K-8 School                                         23,000,000                    0       23,000,000               0
Fiterman Hall                                                15,000,000                    0       15,000,000               0
Chinatown LDC (Local Development Corporation)                 7,000,000                    0        6,155,543         844,457
Lower Manhattan Business Expansion                            2,670,000             240,000         2,670,000               0
Lower Manhattan Housing                                      54,000,000           6,000,000        41,206,200      12,793,800
Lower Manhattan Public Service Programs                       7,857,921                    1        7,857,921               0
Planning & Administration                                   120,922,905           3,955,126       113,441,645       7,481,260
Community & Cultural Enhancements                            85,789,823             621,943        77,074,525       8,715,298
Drawing Center                                                2,000,000                    0        2,000,000               0
Fulton Corridor                                              29,342,328             854,581        29,342,328               0
Economic Development                                          6,928,418              29,450         5,090,720       1,837,698
Transportation Improvements                                  15,835,000             568,462         5,849,859       9,985,141
Education – Other                                             3,000,000                    0        3,000,000               0
Utility Restoration and Infrastructure Rebuilding           483,382,087                    0      483,382,087               0
Disproportionate Loss                                        33,000,000                    0       33,000,000               0
Other World Trade Center Area Improvements                  204,594,000           5,914,730        46,342,200     158,251,800
Settlement Funds                                             33,741,850                    0                0      33,741,850
                       Totals                             2,783,000,000          10,953,562     2,417,829,819     365,170,181



      4
          Items appear in the order presented in the HUD-approved quarterly performance reports.
      5
          Negative amounts represent net recoveries to the program.



                                                                 9