oversight

The City of New York, NY, Did Not Always Use Disaster Recovery Funds Under Its Program for Eligible and Supported Costs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-27.

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

              The City of New York, NY
      Community Development Block Grant Disaster
     Recovery-Funded Infrastructure Rehabilitation and
        Reconstruction of Public Facilities Program




Office of Audit, Region 2      Audit Report Number: 2018-NY-1007
New York, NY                                   September 27, 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 City of New York, NY, Did Not Always Use Disaster Recovery Funds Under
               Its Program for Eligible and Supported Costs




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 New York’s Community Development
Block Grant Disaster Recovery-funded Infrastructure Rehabilitation and Reconstruction of
Public Facilities 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
212-264-4174.
                    Audit Report Number: 2018-NY-1007
                    Date: September 27, 2018

                    The City of New York, NY, Did Not Always Use Disaster Recovery Funds
                    Under Its Program for Eligible and Supported Costs




Highlights

What We Audited and Why
We audited the City of New York’s Infrastructure Rehabilitation and Reconstruction of Public
Facilities Program. We selected this program for review because the City had allocated nearly
$91 million to the program and disbursed more than $59.6 million as of October 31, 2017, and as
part of our ongoing oversight of the U.S. Department of Housing and Urban Development’s
(HUD) Disaster Recovery programs. Our objective was to determine whether the City used
Disaster Recovery funds under its program for eligible and supported costs.

What We Found
The City did not always use Disaster Recovery funds under its program for eligible and
supported costs. Specifically, for one of two projects reviewed, the City did not (1) have
sufficient documentation to show that the use of salary multipliers for overhead and profit,
resulting in $594,012 in additional costs, was supported and eligible; (2) maintain adequate
documentation to show compliance with Davis-Bacon and Related Acts requirements; and
(3) identify billing and payroll errors made by subcontractors, including $1,198 in overpaid
wages and $2,689 in wages that may have been overpaid. These deficiencies occurred because
the City did not fully understand how to document compliance with Federal requirements and
relied on its subrecipient instead of performing a detailed review of invoices to ensure that they
contained adequate documentation showing compliance with requirements. As a result, HUD
did not have assurance that the City used $597,899 in Disaster Recovery funds as intended for
matching requirements for other federally funded infrastructure projects, and HUD could not be
assured that funds were disbursed for only eligible and supported costs that complied with
applicable Federal requirements.

What We Recommend
We recommend that HUD require the City to (1) provide documentation to show that the
$596,701 disbursed due to the use of multipliers and a higher than required overtime rate was for
eligible, reasonable, necessary, and supported costs or reimburse its program from non-Federal
funds; (2) reimburse its program from non-Federal funds $1,198 for overpaid wages; (3) provide
documentation showing that it has strengthened its invoice review process to ensure that costs
are eligible and supported before disbursing Disaster Recovery funds; and (4) provide
documentation showing compliance with Davis-Bacon requirements and that restitution has been
made to affected workers for any underpayments identified.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The City Did Not Always Use Disaster Recovery Funds for Eligible and
         Supported Costs ................................................................................................................ 4

Scope and Methodology ...........................................................................................9

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

Followup on Prior Audits ......................................................................................13

Appendixes ..............................................................................................................14
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 14

         B. Auditee Comments and OIG’s Evaluation ............................................................. 15




                                                                   2
Background and Objective
Hurricane Sandy damaged a variety of New York City facilities when it hit the east coast on
October 29, 2012. Critical healthcare facilities, such as public hospitals and nursing homes, and
important public spaces, such as the Rockaway Boardwalk, were among the hardest hit.
Approximately 4.7 miles of the Boardwalk and three large hospitals were severely damaged.

Through the Disaster Relief Appropriations Act of 2013,1 Congress made available $16 billion in
Community Development Block Grant Disaster Recovery funds for necessary expenses related
to disaster relief, long-term recovery, restoration of infrastructure and housing, and economic
revitalization. These funds were to be used in the most impacted and distressed areas affected by
Hurricane Sandy and other declared disaster events that occurred during calendar years 2011,
2012, and 2013. The U.S. Department of Housing and Urban Development (HUD) awarded the
City of New York $4.2 billion of the authorized Disaster Recovery funds.

The City allocated nearly $91 million of the $4.2 billion to its Infrastructure Rehabilitation and
Reconstruction of Public Facilities Program to serve as the required local match to Federal
Emergency Management Agency (FEMA)-funded infrastructure projects. The projects varied in
scale and scope throughout the five boroughs, and FEMA funds covered 90 percent of the total
project cost. While the City initially covered the remaining 10 percent, it later used Disaster
Recovery funds to reimburse all or part of its local match share.

The City’s Office of Management and Budget (OMB) manages the Disaster Recovery funds for
the program and provides funds to four City agencies2 under memorandums of understanding
and subrecipient agreements. The four agencies act as implementing entities and administer
seven infrastructure projects using the funds. They are responsible for overseeing the planning,
design, and construction work and for ensuring compliance with Federal requirements for
environmental review and labor standards. OMB and the four agencies are responsible for
reviewing and monitoring the activities to ensure eligibility for Disaster Recovery funding. As
of October 31, 2017, the City had disbursed more than $59 million in Disaster Recovery funds
for the program, including more than $13 million for the two infrastructure projects reviewed.
Specifically, we reviewed the (1) Rockaway Boardwalk project and (2) New York City Health
and Hospitals project.

Our objective was to determine whether the City used Disaster Recovery funds under its program
for eligible and supported costs.




1
    Public Law 113-2, dated January 29, 2013
2
    The four city agencies are (1) the Department of Design and Construction, (2) the Economic Development
    Corporation, (3) the Fire Department of the City of New York, and (4) the Trust for Governors Island.



                                                         3
Results of Audit

Finding: The City Did Not Always Use Disaster Recovery Funds for
Eligible and Supported Costs
The City did not always use Disaster Recovery funds under its program for eligible and
supported costs. For the Rockaway Boardwalk project, the City did not (1) have sufficient
documentation to show that the use of salary multipliers for overhead and profit, resulting in
$594,012 in additional costs, was supported and eligible; (2) maintain adequate documentation to
show compliance with Davis-Bacon and Related Acts requirements; and (3) identify billing and
payroll errors made by subcontractors, including $1,198 in overpaid wages and $2,689 in wages
that may have been overpaid. These deficiencies occurred because the City did not fully
understand how to document compliance with Federal requirements and relied on its subrecipient
instead of performing a detailed review of invoices to ensure that they contained adequate
documentation showing compliance with requirements. As a result, HUD did not have assurance
that the City used $597,899 in Disaster Recovery funds as intended for matching requirements3
for other federally funded infrastructure projects, and HUD could not be assured that funds were
disbursed for only eligible and supported costs that complied with applicable Federal
requirements.

Overhead and Profit Multipliers Were Not Adequately Documented and May Not Have
Been Allowable
The City lacked sufficient documentation to show that the use of salary multipliers for overhead
and profit, resulting in $594,012 in additional costs, was supported and eligible. Federal cost
principle requirements4 at 2 CFR (Code of Federal Regulations) Part 225, appendix A, paragraph
C, required all costs to be reasonable and adequately documented. Further, procurement
regulations5 at 24 CFR 85.36(b)(9) required the City to maintain sufficient records detailing the
history of the procurement, including records to document that a cost analysis was performed as
required by 24 CFR 85.36(f)(1) and that profit was negotiated as a separate element of the price
as required by 24 CFR 85.36(f)(2). However, the City did not provide documentation showing
how the salary multipliers for overhead and profit were determined and negotiated or that it had
adequately analyzed them as part of its cost analysis. The City also did not adequately show that
the additional salary costs resulting from the use of the multipliers were allowable.



3
    The Disaster Recovery funds discussed in this report were intended to meet the matching portion of the City’s
    FEMA-funded infrastructure projects. Matching requirements represent the portion of the costs of a federally
    assisted project or program not borne by the Federal Government.
4
    At the time of this procurement, the cost principle requirements at 24 CFR Part 225 were in effect. Grantees are
    now required to follow the cost principle requirements at 2 CFR Part 200, which includes similar requirements.
    In this case, the requirements cited are found at 2 CFR 200.403 and 200.404.
5
    At the time of this procurement, the procurement requirements at 24 CFR 85.36 were in effect. Grantees are
    now required to follow the procurement requirements at 2 CFR Part 200, which includes similar requirements.
    In this case, the requirements cited are found at 2 CFR 200.323(a), 200.323(b), and 200.318(i).



                                                          4
The cost and fee schedule attached to the consultant contract listed multipliers that were to be
applied to salary costs, and the two monthly requisitions reviewed included $594,012 in markups
from multipliers applied to both the consultant and its subconsultants. The markups were
calculated using a multiplier of 3.38, or 338 percent, against salary costs for the consultant and
multipliers of 2.8 and 2.03, or 280 and 203 percent, against salary costs for two subconsultants.
For example, if salary costs for a position were $1,000 and the multiplier for overhead and profit
was 3.38, the total cost on the requisition would be $3,380.

While the City stated that the multipliers included overhead and profit that had been negotiated
before the contracts were executed, it did not provide documentation showing (1) how the
multipliers were determined and negotiated and (2) that it had performed an analysis of the
reasonableness of the multipliers as part of its cost analysis. Further, the multiplier found in the
final contract was higher than the multiplier listed in the consultant’s September 24, 2013,
proposal for its staffing costs. While the consultant’s staff positions were listed as having a
2.09 multiplier in the September 24, 2013, proposal, they were assigned a 3.38 multiplier in the
revised proposal, dated October 15, 2013, and the final contract and the reason for the increase
was not documented.

The City also did not adequately show that the additional salary costs resulting from the use of
the multipliers were allowable. While the multipliers were included in the contract’s cost and fee
schedule for both the consultant and the subconsultant salaries, appendix C of the contract stated
that no multiplier overhead, administrative fee, or other markup would be paid to the consultant
for subcontractors’ costs or general conditions. The City stated that this provision did not apply
to subconsultant salaries. However, the contract’s definition of a subcontractor included
subconsultants, and there was a subcontract in place for their services. Due to the conflicting
information in the contract, we could not determine whether the additional salary costs for
subconsultants were allowable. Further, the costs generated by using the multipliers may not
have been allowable under Federal regulations.6

This condition occurred because the total project cost was unknown at the start of the contract
and the City believed that structuring the payments to the consultant based on actual hourly rates
with multipliers was reasonable and allowable because the markups were not calculated or
dependent on final trade costs. As a result of the issues identified, HUD did not have assurance
that the City used $594,012 in Disaster Recovery funds as intended for matching requirements
for other federally funded infrastructure projects.

Compliance With Davis-Bacon Requirements Was Not Documented
The City used two different wage determinations for the Rockaway Boardwalk project and did
not always maintain certified payroll reports that contained required information, such as the



6
    Regulations at 24 CFR 85.36(f)(4) and 2 CFR 200.323(d) prohibit the use of the cost-plus-a-percentage-of-cost
    method of contracting. While this contract was not worded directly as a cost-plus contract, the City did not
    adequately show that it was not one. In this case, the multiplier, or percentage, was applied only to salary costs
    under the contract, not to trade costs or general condition costs.



                                                           5
correct work classifications,7 fringe benefits, and actual wages paid. The Davis-Bacon and
Related Acts require that all laborers and mechanics be paid prevailing wage rates8 on Federal
construction projects in excess of $2,000, and regulations at 29 CFR 5.5(a)(1)(i) require that any
construction contract subject to the labor standards provisions contain labor standards clauses
and a wage determination. Regulations at 29 CFR 5.5(a)(3)(i) also require contractors to
maintain payroll and basic records for all laborers and mechanics, documenting key information,
such as the name, address, and Social Security number of each worker; the correct work
classification; the hourly rates of wages paid (including rates of contributions or costs anticipated
for bona fide fringe benefits or cash equivalents); the daily and weekly number of hours worked;
the deductions taken out of gross wages; the actual wages paid; and a statement of compliance,
which serves as a certification.

The amended subcontracts showed that the City used wage determinations, dated April 4, 2014,
and November 14, 2014, to pay trade costs. While the City paid New York City’s prevailing
wage rates, the correct wage determination date for this contract was April 4, 2014. As a result
of the City’s using two different wage determinations, we were unable to determine that all
workers were paid not less than Davis-Bacon wage rates. Additionally, (1) the City did not
always maintain certified payroll reports that contained required information, such as work
classifications listed on the wage determinations, fringe benefits, and actual wages paid, and (2)
payrolls were not always certified in a timely manner.

These conditions occurred because the City relied on its subrecipient and consultant instead of
performing a detailed review of invoices to ensure that they contained adequate documentation
showing compliance with requirements. While the subrecipient sought technical assistance and
clarification from HUD and the U.S. Department of Labor on how to handle the wage
determinations, the City did not ensure that the final guidance received from HUD was
implemented. As a result of the issues identified, HUD did not have assurance that the City
complied with Davis-Bacon requirements.

Wages Were Overpaid and Billing and Payroll Errors Were Not Identified
The City disbursed $1,198 in overpaid wages and $2,689 in wages that may have been overpaid,
and it did not identify $544 in unpaid wages. Specifically, the City paid a consultant $934 for
20 staff hours incorrectly billed to the project, paid a consultant $264 for payroll errors due to
miscalculations of employees’ overtime and base pay, and may have overpaid this consultant
$2,689 for employee overtime rates that were higher than those required by Federal labor
standards incorporated into the subcontracts.9 Additionally, the City did not identify payroll


7
    While the certified payroll reports did not contain this information for one subcontractor, the City later provided
    work classifications to us separately. Further, some certified payroll reports listed union job classifications that
    did not match the work classifications listed on the wage determination.
8
    The U.S. Department of Labor determines prevailing wage rates.
9
    Federal labor standards incorporated into the subcontracts, specifically, Sections 103 and 107 of the Contract
    Work Hours and Safe Standards Act, provide that no laborer or mechanic will be required or allowed to work
    more than 8 hours in a calendar day or more than 40 hours in any workweek, unless such laborer or mechanic is
    paid at an overtime rate of one and one-half times the basic rate of pay. A higher overtime rate was not explicitly
    allowed.



                                                            6
errors, resulting in unpaid wages to six employees totaling $544. The payroll errors occurred
because the City relied on its subrecipient and did not perform a detailed review of invoices to
ensure proper calculation of payroll amounts. While the City stated that overtime rates varied
between trade unions and among positions within the same trade union, it did not provide
documentation to support overtime rates that were different from the Federal labor standards
included in the subcontracts. As a result, the City owed six affected employees $544 in unpaid
wages and disbursed $1,198 and $2,689 in Disaster Recovery funds for ineligible and
unsupported costs, respectively.

The City’s Monitoring Report Also Identified Issues
In April 2018, an OMB monitoring report10 also identified issues related to compliance with
Davis-Bacon requirements and the use of the multipliers. It recommended that the subrecipient
(1) ensure that all payrolls showed the work classifications listed on the wage determination,
including additional classifications that received approval11 from the U.S. Department of Labor;
(2) perform retroactive payroll reviews to verify that there were no underpayments; and (3) place
less reliance on the consultant by increasing its compliance-monitoring efforts. Additionally, the
report stated that the City should provide additional detail regarding the multipliers included in
staffing cost estimates, reconcile the fact that the multiplier in the executed contract exceeded
that in the cost estimate, and add a memorandum to the file or an addendum to the initial cost
estimate showing that comparable projects had similar costs. As of August 2018, OMB had not
conducted any followup to determine whether the City had implemented its recommendations,
and a final action target date for their implementation had not been established.

Conclusion
The City did not fully understand how to document compliance with Federal requirements and
relied on its subrecipient instead of performing a detailed review of invoices for sufficient
supporting documentation, eligibility, and compliance before approving them for reimbursement.
As a result, HUD did not have assurance that the City used $597,899 in Disaster Recovery funds
as intended for matching requirements for other federally funded infrastructure projects. In
addition, HUD could not be assured that funds were disbursed only for eligible and supported
costs that complied with applicable Federal requirements.

Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs require the City to

          1A.      Provide documentation to show that the $594,012 disbursed due to the use of
                   multipliers was for eligible, reasonable, necessary, and supported costs or
                   reimburse its program from non-Federal funds.




10
     We did not use the findings and conclusions from this monitoring report to support our findings and conclusions.
11
     Contrary to the regulations, the payrolls sometimes showed the union job classifications instead of the wage
     determination classifications. In such cases, the City was required to request approval from the U.S. Department
     of Labor for additional classifications and wage rates, which it did not do in a timely manner.



                                                           7
          1B.      Provide documentation to show that the $2,689 disbursed due to a higher than
                   required overtime rate was supported by documentation from the trade unions or
                   reimburse its program from non-Federal funds.

          1C.      Reimburse its program $1,198 from non-Federal funds for overpaid wages due to
                   billing and payroll errors.

          1D.      Pay $544 in unpaid wages to the subcontractors of the affected employees and
                   submit evidence that these employees have been paid.

          1E.      Provide training to its staff to help ensure compliance with applicable cost
                   principle, procurement, and Davis-Bacon requirements.

          1F.      Provide documentation showing that it has strengthened its invoice review
                   process to ensure that costs are eligible and supported before disbursing Disaster
                   Recovery funds.12

          1G.      Provide documentation showing that payments made under the Rockaway
                   Boardwalk construction management services contract complied with Davis-
                   Bacon and Related Acts requirements and that restitution is made to affected
                   workers for any underpayments identified.




12
     As discussed in the Followup on Prior Audits section, we previously recommended that HUD require the City to
     strengthen its invoice review process. However, that recommendation was specific to invoices related to the
     subrecipient of a different program. Because the recommendation is still open, we do not know that any updated
     policies would impact the City’s review of invoices received from subrecipients under this program. Therefore,
     we are recommending that the City strengthen its invoice review process.



                                                          8
Scope and Methodology
We conducted our audit from January through July 2018 at the City’s office located at
255 Greenwich Street, New York City, NY, and our office located in New York City, NY. The
audit covered the period October 29, 2012, through October 31, 2017, and was expanded to
include the City’s most recent action plan, effective December 20, 2017, and a City monitoring
report, dated April 17, 2018.

To accomplish our audit objective, we interviewed City and HUD officials and reviewed
         relevant background information;
         applicable laws, regulations, and program requirements;
         the City’s policies and procedures;
         the City’s HUD-approved partial action plan and amendments;
         relevant funding agreements and amendments between HUD and the City;
         relevant memorandums of understanding, subrecipient agreements, and amendments
          among City agencies;
         HUD and City monitoring reports and annual financial reports, single audit reports,
          quarterly performance reports, and an internal audit report provided by the City; and
         data and reports from HUD’s Disaster Recovery Grant Reporting system13 and the City’s
          accounting system, Davis-Bacon wage determination rates, and FEMA project
          worksheets.

As of October 31, 2017, the City had disbursed approximately $59.6 million in Disaster
Recovery funds for program costs related to six of the seven14 public facilities’ infrastructure
projects administered by City agencies. The infrastructure projects met the national objectives of
benefiting low- and moderate-income persons. We selected two of six projects with the highest
total disbursements, which represented more than 95 percent of the Disaster Recovery funds
disbursed and 66 percent15 of the vouchers submitted for reimbursement. Using ACL
Analytics,16 we randomly selected five vouchers for review. The disbursements for the five
vouchers totaled $13.24 million, or approximately 22 percent, of the $59.6 million in Disaster


13
     The Disaster Recovery Grant Reporting system was developed by HUD’s Office of Community Planning and
     Development for the 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.
14
     There were no disbursements for the seventh project during the audit period.
15
     There were 45 vouchers for the 6 projects, and 30 of them related to the 2 projects selected for review.
16
     Audit Command Language (ACL) Analytics is software used to perform data analysis and audit tests, enabling its
     users to identify fraud patterns and data irregularities.



                                                          9
Recovery funds disbursed for the program through October 31, 2017. Although this sample
selection method did not allow for projection to the entire $59.6 million disbursed, it was
sufficient to meet our objective.

The table below shows the amount of Disaster Recovery funds budgeted and disbursed as of
October 31, 2017, and the amount of vouchers and disbursements reviewed.

                                               Disaster      Disaster
                                                                          Number of    Dollar value
                                               Recovery     Recovery
        Project name - subproject                                          vouchers    of vouchers
                                                funds         funds
                                                                            selected     selected
                                               budgeted     disbursed

(1) Department of Parks and Recreation -
                                              $48,037,354   $48,037,354       2        $10,359,276
    Rockaway Boardwalk
(2) NYC Health and Hospitals & 428 Public
    Assistance Alternative Procedures Pilot   35,270,535     9,057,027        3         2,878,184
    Program
Fire Department of the City of New York
(3) alarm box repair
                                               2,494,133     2,432,436        0             0
(4) staff time for alarm box repair
(5) fleet repair

(6) Hazard Mitigation Grant Program:
    resiliency and mitigation measures for     4,100,000     112,609          0             0
    nursing homes and adult care facilities

(7) Trust for Governors Island                 1,027,978        0             0             0

                   Totals                     90,930,000    59,639,426        5        13,237,460


We reviewed documentation for each of the five sampled vouchers to determine whether the
amounts disbursed were for eligible and supported costs. The documentation reviewed included
contracts; subcontracts; procurement records, invoices, and supporting documentation; and
employee timesheets, payroll reports, and certified payroll transcripts. We reviewed 100 percent
of the payroll reports and certified payroll transcripts found in the two vouchers reviewed for the
Rockaway Boardwalk project. Vouchers for the New York City Health and Hospitals project did
not include payroll reports. As part of our review of the payroll reports, we recalculated payroll
amounts, including straight and overtime wages, to ensure that they were properly calculated.
Our recalculation identified six employees, who were underpaid $544 because they were paid at
an overtime rate that was less than one and a half times their basic rates of pay. If the City
provides evidence that these employees were later paid, the funds will be put to their intended
use. To verify compliance with the Davis-Bacon requirements, we reviewed vouchers to ensure
that they contained complete and accurate payroll reports. Lastly, we reviewed documentation to
verify compliance with environmental clearance and national objective requirements.

To achieve our objective, we relied in part on computer-processed data from the City’s
accounting system and HUD’s Disaster Recovery Grant Reporting system. We used the data to



                                                     10
obtain background information and to select a sample of disbursements for review. While we
did not perform a detailed assessment on the reliability of the data, we performed a minimal level
of testing and found the data to be accurate for our purposes. Specifically, we traced the
disbursements selected for review to the source documentation.

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.




                                                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:

   Program operations – Policies and procedures that management has implemented to
    reasonably ensure that a program meets it 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 data are obtained, maintained, and fairly
    disclosed in reports.
   Safeguard 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.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

       The City did not have adequate controls to ensure that it always used Disaster Recovery
        funds for eligible and supported costs (finding).




                                                  12
Followup on Prior Audits
The City of New York, NY, Could Improve Its Invoice Review Process Before Disbursing
Disaster Funds Under Its Public Housing Rehabilitation and Resilience Program, Audit
Report 2017-NY-1012, Issued September 21, 2017

The following recommendation relevant to our objective was still open at the time of this report:

   1B. Provide documentation showing that it has strengthened its invoice review process to
      ensure that costs are eligible and supported before disbursing disaster funds to its
      subrecipient under the program.

The prior report identified concerns related to the City’s reliance on a subrecipient to review
contractor invoices under its Public Housing Rehabilitation and Resilience Program. While the
circumstances are different, the issue of not obtaining sufficient documentation before disbursing
funds is similar to the issues identified in our current report. On January 12, 2018, we agreed
with HUD’s proposed management decision for this recommendation. The final action target
date for completing the corrective actions was May 28, 2018. As of September 2018, HUD had
not closed the recommendation or requested an extension to the final action target date.




                                                13
Appendixes

Appendix A


          Schedule of Questioned Costs and Funds To Be Put to Better Use
        Recommendation                                    Funds to be put
                           Ineligible 1/ Unsupported 2/
            number                                         to better use 3/
                1A                                 $594,012
                1B                                    2,689
                1C               $1,198
                1D                                                       $544

              Totals              1,198             596,701               544


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.
3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this case, the $544 represents unpaid wages for six
     employees. If the City pays the subcontractors of the affected employees and ensures
     that the employees have been paid, the funds will be put to their intended use.




                                              14
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




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Ref to OIG   Auditee Comments
Evaluation




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Ref to OIG
             Auditee Comments
Evaluation




Comment 1




Comment 2




Comment 2


Comment 3




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Ref to OIG   Auditee Comments
Evaluation




Comment 4




Comment 5




Comment 6




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Ref to OIG            Auditee Comments
Evaluation




Comments 1, 2 and 3




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Ref to OIG
             Auditee Comments
Evaluation




Comment 4




Comment 5




Comment 5




Comment 7




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Ref to OIG         Auditee Comments
Evaluation




Comment 7




Comment 8




Comments 4 and 5




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                         OIG Evaluation of Auditee Comments


Comment 1   The City disagreed with our finding and believed that it provided sufficient
            documentation to support costs associated with the Rockaway Boardwalk project
            and demonstrated that all cost were eligible and supported. We disagree that the
            City provided sufficient documentation. Therefore, as part of the audit resolution
            process, it will need to provide documentation to HUD or repay from non-Federal
            funds any amount that it cannot support.

Comment 2   The City contended that staff multipliers are common practice for New York City
            public construction projects and are consistently used. It also noted that while
            using a construction management contract allowed flexibility due to the
            complexity of the project, the multipliers established up front provided reasonable
            certainty to the parties. However, the City did not provide adequate
            documentation to show how the reasonableness of the multipliers was determined
            and negotiated, and to show that it complied with Federal procurement
            requirements, such as the 24 CFR 85.36(f)(2) requirement that profit be
            negotiated as a separate element of the price. Further, Federal cost principal
            requirements at 2 CFR Part 225, appendix A, paragraph C, required all costs to be
            reasonable and adequately documented. The contractor and subcontractor names
            included in the auditee comments were redacted for privacy reasons.

Comment 3   The City contended that it provided a comparison of six open construction
            manager contracts that used consultant staff multipliers similar to the range
            proposed by the consultant for the Rockaway Boardwalk project. However, the
            comparison was dated March 2017, or more than 3 years after the contract was
            executed, and it lacked contextual information, such as contract dates and the
            funding sources. As a result, we could not fully evaluate the comparison
            provided. Further, we found that some of the multipliers in the revised October
            2013 proposal and contract were higher than those proposed in September 2013
            and fell outside of the range of multipliers used in the contracts the City included
            in its comparison. As part of the normal audit resolution process, the City will
            need to provide documentation to show that the $594,012 disbursed due to the use
            of multipliers was for eligible, reasonable, necessary, and supported costs or
            reimburse its program from non-Federal funds.

Comment 4   The City stated that reconciling the City’s prevailing wage rates with those
            required by Davis-Bacon was challenging, and noted how there are some
            inconsistencies across Federal agencies. Further, the City indicated that
            contractors were asked to create crosswalks for worker titles and that it worked
            with the Department of Labor to add comparable titles when needed. Last, it
            contended that it believed all workers were paid the higher of the two wage rates
            and stated that it would provide documentation to support that conclusion.
            However, our review found that the City did not always maintain the crosswalks



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            for worker titles and comparable titles added by the Department of Labor. As a
            result of this and the different dates used for wage determinations, we could not
            determine compliance with Davis-Bacon requirements. As part of the normal
            audit resolution process, the City will need to provide documentation showing
            that payments made under the contract complied with Davis-Bacon requirements
            and that restitution is made to affected workers for any underpayments identified.

Comment 5   In response to the section of the report related to overpayments of wages and
            payroll errors, the City contended that it believed all workers were entitled to and
            paid, at a minimum, the higher of the two wage rates and stated that the consultant
            would be providing additional documentation to support that conclusion.
            However, as discussed in the finding, the City disbursed $1,198 in overpaid
            wages and $2,689 in wages that may have been overpaid, and it did not identify
            $544 in underpaid wages. As part of the normal audit resolution process, the City
            will need to provide documentation to (1) show that it reimbursed its program for
            overpaid wages, (2) support wages that may have been overpaid or reimburse its
            program, and (3) pay $544 in underpaid wages to the subcontractors and submit
            evidence that the employees have been paid.

Comment 6   The City contended that it did not rely solely on a review by its subrecipient prior
            to seeking Federal reimbursement. It indicated that as evidenced by its invoice
            review guidelines, the City performed a review of the invoices in question prior to
            submission for HUD reimbursement. However, the guidelines required the
            subrecipient to perform a detailed review of the invoice and invoice packages, and
            required the City to conduct only a subsequent pre-payment review of a sample of
            invoices. Further, our review found that the City had not performed a detailed
            review of the invoices sampled because under the Invoice Review Guidelines it
            was not responsible for doing so.

Comment 7   The City contended that OMB performed an adequate review to ensure
            compliance with applicable cost principle, procurement, and Davis-Bacon
            requirements, as mentioned in this report. The City indicated that OMB met with
            its subrecipient to resolve recommendations related to Davis-Bacon requirements
            and provided documentation supporting its efforts. It also contended that OMB
            held frequent trainings, both internally and with City partners, on cost principle,
            procurement, and Davis-Bacon requirements. However, because the City had not
            yet implemented the recommendations issued by OMB and we found similar
            instances of noncompliance during our audit, we recommend that HUD require
            the City to provide training to its staff to help ensure compliance with cost
            principle, procurement, and Davis-Bacon requirements.

Comment 8   The City contended that it has continuously had robust controls to review costs
            for eligibility and for supporting documentation. Since the completion of the
            Rockaway Boardwalk project, it added a pre-payment review process and
            clarified review responsibilities of different members of the review team. Further,



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the City stated that it is open to adding additional controls if our office has
specific recommendations. While we acknowledge that the City had some
controls for eligibility and for supporting documentation, at the time of our
review, the City did not ensure that the invoices contained sufficient
documentation to show compliance with requirements. As part of the normal
audit resolution process, the City will need to provide documentation showing
that it has strengthened its invoice review process since then to ensure that costs
are eligible and supported before disbursing Disaster Recovery funds.




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