oversight

City of Camden, Camden, NJ

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-09-06.

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

                                                                    Issue Date

                                                                         September 6, 1996
                                                                    Audit Case Number

                                                                         96-NY-241-1005




TO:           Frank Sagarese, Director
              Community Planning and Development Division
              New Jersey State Office


FROM:         A. Paul Kane, District Inspector General for Audit
              New York/New Jersey

SUBJECT:      City of Camden
              Community Development Programs
              Camden, New Jersey


Henry G. Cisneros, Secretary of the U. S. Department of Housing and Urban Development
(HUD), asked that we examine the operations of the City of Camden, New Jersey (Grantee)
pertaining to its Community Development Block Grant (CDBG), HOME, HOPE 3, and
Empowerment Zone programs. In addition we reviewed the collection of miscellaneous revenue
due from completed Urban Development Action Grants (UDAG) and repayments made on a loan
guaranteed under the Section 108 Loan Guarantee program. However, we did not review the
Empowerment Zone program because program activities had not been initiated (See the General
Comment section of this report). Also, we did not review an approved Emergency Shelter Grant
(ESG) because there were no expenditures during the period reviewed. The purpose of our
examination was to determine whether the Grantee carried out activities as shown in its
applications in an economical, efficient, and effective manner; complied with requirements, laws
and regulations of HUD; and charged costs to the programs which were eligible and reasonable.
The period reviewed was from January 1, 1995 through December 31, 1995, and where
appropriate, was extended to include other periods. The on-site work was performed between
March 25, 1996 and May 3, 1996.

The report contains six findings that show a need to improve the Grantee's organizational
structure and correct significant weaknesses in financial and administrative controls. The
Grantee’s financial and program records are not complete, accurate, or current. Our report
identifies unallowable costs of $801,364 and unsupported costs of $1,381,045. We have also
identified a cost efficiency of $251,400.

Within 60 days, please furnish this office, for each recommendation cited in the report, a status
report on: (1) the corrective action taken, (2) the proposed corrective action and the date to be
completed, or (3) why action is not considered necessary. Also, please furnish us copies of any
correspondence or directives issued related to the audit.
Management Memorandum



Should your staff have any questions, please contact Alexander C. Malloy, Assistant District
Inspector General for Audit, at 212-264-8000, Extension 3976.




96-NY-241-1005                             Page ii
Executive Summary
We reviewed the operations of the City of Camden (Grantee) pertaining to its CDBG, Home and
HOPE 3 programs. In addition, we reviewed the collection of miscellaneous revenue from
completed UDAGs and repayments made on a loan guaranteed under the Section 108 Loan
Guarantee program. However, we did not review the Empowerment Zone program because
program activities had not been initiated, (See the General Comment section of this report). Also,
we did not review an approved ESG because there were no expenditures during the period
reviewed. The purpose of our examination was to determine whether the Grantee carried out
activities as shown in its applications in an economical, efficient, and effective manner; complied
with requirements, laws and regulations of the U.S. Department of Housing and Urban
Development (HUD); and charged costs to the program that were eligible and reasonable.

Our review showed significant weaknesses in the Grantee's organizational structure and financial
management system. As a result, the Grantee's financial and program records are not complete,
accurate, or current. Since the Grantee's official accounting records were not readily auditable,
we had to rely on other records maintained by the Department of Development and
Redevelopment, other Grantee departments and subrecipients. Under these circumstances,
unrecorded or other inappropriate transactions may have occurred and remained undetected
during our audit tests of the Grantee's operations.




                                      The administration of HUD programs is fragmented among
 Deficiencies found
                                      several City departments and subrecipients. Lines of
                                      authority and communication are muddled and the absence
                                      of accurate, complete, and timely financial records seriously
                                      affects the Grantee's ability to administer the programs.

                                      The Grantee did not comply with program regulations prior
                                      to using $1,835,052 in CDBG funds to make payments on
                                      a loan, which is owed the City, under the Section 108 Loan
                                      Guarantee program. More significantly, $916,808 of the
                                      amount was not authorized to be drawn down because the
                                      funds had not been included in the CDBG budget or
                                      charged to any approved activity or program year.
                                      Additionally, we were unable to determine the propriety
                                      and reasonableness of the remaining $918,244, charged to
                                      various economic development and public facility activities.
                                      This has jeopardized the Grantee's ability to complete its
                                      approved activities, adversely affected HUD's ability to
                                      evaluate program progress, and diminished the rights of
                                      citizens to participate in program matters.



                                              Page iii                                 96-NY-241-1005
Executive Summary



                                  Subrecipients have not been adequately monitored by the
                                  Grantee to assure compliance with Federal requirements.
                                  The monitoring weaknesses extend to both the
                                  administrative review of reimbursements and on-site
                                  monitoring. The finding identifies $163,560 in expenditures
                                  that were not adequately supported.

                                  Finally, effective administrative practices necessary to
                                  ensure that costs paid from grant funds are allowable and
                                  reasonable have not been implemented. Consequently, the
                                  program has been charged for costs that are not adequately
                                  supported, not necessary or reasonable. Accordingly, we
                                  consider payments totaling $38,874 to be unallowable and
                                  another $299,241 to be unsupported.

                                  We are recommending actions that will strengthen the
 Recommendations to
                                  Grantee's future administration of HUD programs. We are
 mitigate problems
                                  also recommending that you require the Grantee to repay
                                  the ineligible costs of $801,364, and either repay or
                                  document the unsupported costs of $1,381,045.

                                  The results of the audit were discussed with Grantee
 Exit conference
                                  officials during the audit and at an exit conference held on
                                  August 8, 1996, attended by:

                                  City of Camden

                                Arnold W. Webster, Ph.D., Mayor
                                Patrick J. Keating, Business Administrator
                                Deborah Polk, Commissioner, Department of Development
                           & Redevelopment

                                  State of New Jersey

                                  Robert Law, State of New Jersey, Department of

Community Affairs, Division of Local
                                       Government Services, City of Camden/Fiscal Monitor

                                  Office of Inspector General

                                  Alexander C. Malloy, Assistant District
                                    Inspector General for Audit
                                  Lawrence W. Magiera, Senior Auditor


96-NY-241-1005                             Page iv
                                      Executive Summary



Garry D. Clugston, Senior Auditor
John A. Cameron, III, Auditor

The Grantee's response to the draft findings, which is dated
August 8, 1996, provides that Grantee officials concur with
the findings and are in the process of implementing all
necessary and appropriate corrective actions. Specifically,
the Mayor states:

   "We have reviewed the six findings developed during
   the Office of Inspector General audit of our HUD
   programs. The findings, concerns and recommenda-
   tions in the draft of the audit report will be used as a
   tool for the development of an overall organizational
   structure to effectively administer these programs. We
   concur with the findings and are in the process of
   implementing corrective actions with respect to each
   finding contained in your review. We look forward to
   working with the HUD Field Office in Newark in
   regard to these corrective actions."

The Grantee's response is included in this report as
Appendix B.




        Page v                                  96-NY-241-1005
Executive Summary




                    (THIS PAGE LEFT BLANK INTENTIONALLY)




96-NY-241-1005                      Page vi
Table of Contents

Management Memorandum                                              i


Executive Summary                                                 iii


Introduction                                                       1


Findings

    1      An Effective Organizational Structure
           is Needed                                               3

    2      Weaknesses in Financial Management
           System and Related Accounting Controls                  9

    3      Monitoring of Subrecipient Performance
           Needs to be Improved                                  13

    4      Section 108 Loan Repayments Made Without
           Complying With CDBG Regulations                       19

    5      Inadequate Administrative Practices
           Resulted in Uneconomical and Unsupported
           Use of CDBG Funds                                     23

    6      Improvements Needed in the Administration
           of Housing Rehabilitation Programs                    29


Internal Controls                                                33


Follow Up On Prior Audits                                        35


                              Page vii                 96-NY-241-1005
Table of Contents




General Comment                                              37


Appendices

        A        Schedule of Ineligible and Unsupported
                 Costs, and Cost Efficiencies                39

        B        Auditee Comments                            41

        C        Distribution                                45


Acronyms

CBAC           Cooperative Business Assistance Corporation
CDBG           Community Development Block Grant
CEDC Camden Economic Development Corporation
CFR
     Code of Federal Regulations
CRA            Camden Redevelopment Agency
DDR            Department of Development and Redevelopment
ESG            Emergency Shelter Grant
EZ             Empowerment Zone
HUD            Department of Housing and Urban Development
IPA            Independent Public Accountant
JCHD           Jersey Counselling & Housing Development
OIG            Office of Inspector General
OMB            Office of Management and Budget
UDAG           Urban Development Action Grant




96-NY-241-1005                        Page viii
Introduction
Title I of the Housing and Community Development Act of 1974, established the CDBG
program. The CDBG program provides grants to States and units of local governments to aid in
the development of viable urban communities. The HOME program allows participating
jurisdictions to use the funds for a variety of housing activities, according to local housing needs.
The HOPE 3 program provides homeownership opportunities for eligible families to purchase
local government-owned single family properties. The Section 108 Loan Guarantee program
allows communities entitled to CDBG grants a means to finance up-front, certain large scale
projects beyond the scope that can be financed by annual grants.

The above described programs are administered by the Grantee and subrecipients. The Grantee
is governed by a Mayor and City Council. The Grantee's office is located at City Hall, Camden,
New Jersey. The Commissioner of the Department of Development and Redevelopment is
Deborah Polk and the Comptroller is Richard Cinaglia.

During the audit period, the Grantee administered the following grants:

•     CDBG Entitlement Grants for Program Years 1994 and 1995 totaling $8,126,000.

•     HOME Grant for $1,231,000.

•     HOPE 3 Grant for $1,495,051.




                                      The audit objectives were to determine whether the
    Audit Objectives, Scope
                                      Grantee: (1) carried out its activities as shown in its
    and Methodology
                                      applications and agreements in an economical, efficient,
                                      and effective manner; (2) complied with HUD program
                                      requirements, laws and regulations; and (3) charged costs to
                                      its HUD programs that were reasonable and eligible.

                                      The audit covered the period from January 1, 1995 through
                                      December 31, 1995. However, we reviewed activity prior
                                      and subsequent to the audit period as necessary. Based
                                      upon our survey results the audit focused primarily on the
                                      Grantee's organizational structure and related administrative
                                      and financial controls. The audit site work was conducted
                                      from March 25, 1996 through May 3, 1996.

                                      To accomplish the audit objectives the following audit
                                      procedures were performed:



                                                Page 1                                  96-NY-241-1005
Introduction



                 •   Examined records and files of the Grantee and
                     interviewed staff.

                 •   Reviewed internal controls relevant to the audit
                     objectives.

                 •   Tested selected transactions.

                 •   Evaluated monitoring activities and determined whether
                     selected subrecipients were carrying out program
                     activities defined in their agreements with the Grantee.

                 •   Performed site inspections of selected rehabilitation
                     units to determine whether all work was completed.

                 The audit was conducted in accordance with generally
                 accepted government audit standards.

                 A copy of this report was provided to the Grantee.




96-NY-241-1005            Page 2
                                                                                        Finding 1




       An Effective Organizational Structure is
                      Needed

In 1994, the Grantee reorganized the City government in an attempt to provide a more effective
and efficient operation through establishing stronger lines of accountability and responsibility.
Unfortunately, the anticipated efficiencies have not been realized in the administration of HUD
programs. The administration of the CDBG, ESG, HOME, and HOPE 3 programs has been
fragmented among several City departments and subrecipients. No single department or agency
exercises complete authority or oversight of the programs. Lines of authority and communication
are muddled and the absence of accurate, complete, and timely financial records seriously
impacts the Grantee's ability to properly administer the programs. The specific effects of the poor
organizational structure are discussed in the other audit findings contained in this report.




                                      Section 570.610 of the CDBG Regulations require grantees
 Criteria
                                      to comply with the policies guidelines and requirements of
                                      24 CFR, Part 85, OMB Circulars A-87, A-110, A-122, and
                                      A-133 as applicable. Part 85 is also applicable to the
                                      HOME and HOPE 3 programs. Moreover, the grantees
                                      responsibility to establish an effective organizational
                                      structure is defined in the policy guide section of OMB
                                      Circular A-87.       The circular provides that "Each
                                      governmental unit, in recognition of its own unique
                                      combination of staff, facilities, and experience, will have
                                      the primary responsibility for employing whatever form of
                                      organization and management techniques may be necessary
                                      to assure proper and efficient administration of Federal
                                      awards."

                                      Section 570.501(b) provides that grantees are responsible
                                      for ensuring that CDBG funds are used in accordance with
                                      all program requirements. It further provides that the use of
                                      designated public agencies, subrecipients or contractors
                                      does not relieve the grantee of this responsibility and that
                                      the grantee is also responsible for determining the adequacy
                                      of performance under subrecipient and procurement
                                      contracts.




                                               Page 3                                  96-NY-204-1005
Finding 1



                          The Department of Development and Redevelopment
 Background
                          (DDR) is identified as the lead City department
                          administering HUD programs. Our review found that the
                          DDR is not operating in that capacity because it has not
                          been given the authority to accomplish this task. In fact,
                          under the current organizational structure, the DDR has
                          very little formal involvement in any of the structured
                          processes of the City. For example, DDR is not in the line
                          of authority over contracting, purchasing, receipts and
                          disbursements as they pertain to the HUD programs. DDR
                          does not have the authority to review procurement actions,
                          contracts, or purchase orders to determine if the items are
                          allowable and eligible. While DDR has acted as a program
                          monitor, its reports carry little weight and authority.

                          To DDR's credit, it has managed to construct a reasonable
                          system of unofficial records from copies of purchase orders
                          and contracts obtained from the Comptroller and other
                          departments. While DDR's records were found to be much
                          more accurate than the Comptrollers, they are not the
                          official records and cannot be used for that purpose.

                          Authority to administer the various grant activities is
 Current Administrative
                          fragmented among City departments including the
 Structure
                          Department of Community Affairs, Housing and
                          Community Development, Environmental Affairs, Planning
                          and Health and Human Services. The Departments are
                          further broken down by divisions and bureaus. In addition,
                          the Grantee employs the Camden Redevelopment Agency
                          (CRA), a public agency, to act as the administrator for
                          several CDBG and HOME activities, as well as performing
                          monitoring of several other subrecipients. In addition, CRA
                          also acts as a subrecipient. To further complicate CRA's
                          administrative role, the City has five of its planning
                          department employees working under the direction of CRA.

                          Each of the City Departments and CRA implement
                          activities, projects, and procure materials and services. They
                          also submit contracts to the City Council for approval and
                          authorize grant payments. Further, the City Departments
                          and/or CRA also contract with at least forty subrecipients to
                          carry out grant related activities. Program monitoring
                          responsibilities vary between activities and often overlap
                          between entities, resulting in poor program oversight.


96-NY-241-1005                     Page 4
                                                                     Finding 1



                    Our review which included interviews with Grantee, CRA,
Results of Review
                    and subrecipient personnel showed that the administration
                    of HUD programs have been impeded by the current
                    organizational structure. Particular weaknesses are
                    described below.

                    Planning Process

                    The Grantee does not have a centralized and focused
                    planning process to ensure that HUD programs, private
                    funding, and City resources are used in an effective and
                    coordinated fashion. The Grantee's planning function is
                    fragmented with little emphasis on project management.

                    Currently, planning personnel are spread between different
                    offices in City Hall and also assigned to CRA. In addition,
                    it appears that other subrecipients perform certain planning
                    functions with little oversight from the Grantee.

                    Examples of the decentralization of the planning function
                    are as follows:

                    •   Planning for neighborhoods and housing is fragmented
                        between CRA, certain subrecipients, and the Division of
                        Housing Services.

                    •   Planning for parks and recreational activities flows
                        through the Department of Community Affairs.

                    •   Planning for economic development is split between
                        CRA, Department of Development and Redevelopment
                        and the Cooperative Business Assistance Corporation
                        (CBAC), a subrecipient.

                    •   Planning for land use and site plans are performed by
                        the Division of Planning. While this Division is within
                        the Department of Administration and Finance, the
                        planning staff is supervised by the CRA.

                    Budget Process

                    Serious internal control weaknesses (discussed in Finding
                    2) and the lack of a formal written budget process for HUD
                    funds has adversely affected the Grantee's ability to


                             Page 5                                 96-NY-204-1005
Finding 1



                  administer its programs. There is little assurance that HUD
                  grants and activities will not be over obligated.

                  Monitoring Process

                  The Grantee's monitoring of HUD funded activities is in
                  disarray. Specific deficiencies are discussed in Finding 3 of
                  this report, but it is suffice to say that adequate monitoring
                  is not being performed under any of the HUD programs.

                  Financial and Internal Controls

                  There is no discernable system of financial controls or
                  organizational lines of authority and communication to
                  ensure that HUD program activities are effectively
                  administered. Policies and procedures necessary to achieve
                  HUD program objectives have not been implemented.
                  Finding 2 of this report identifies significant deficiencies in
                  the financial records and lack of rudimentary internal
                  controls.

                  Programmatic Communications

                  The current organizational structure inhibits free and open
                  communication between the various departments and
                  subrecipients. The failure to develop effective lines of
                  authority and the lack of a centralized lead department to
                  administer grants has resulted in a breakdown in
                  communications and caused an aura of rivalry between
                  various entities administering activities.

                  The absence of an effective organizational structure has
                  been the underlying cause for the significant deficiencies
                  included in the findings in this report. Unless effective
                  corrective actions are taken to resolve the organizational
                  problems, it is unlikely that the Grantee will have the
                  capacity to adequately administer its grants in the future.




Recommendations   We recommend that you require the Grantee to:




96-NY-241-1005             Page 6
                                                 Finding 1



1A.   Submit an organizational plan for your review that
      meets the requirements of the various program
      regulations and OMB Circulars.

      The new organizational structure should establish
      clear lines of authority and establish a lead
      department to administer HUD programs.

      Since the organizational deficiencies extend into the
      City's operations, it is unlikely that significant
      improvements can be made unless the City
      participates in the organizational changes.

Also, we recommend that you:

1B.   Review the submitted plan and direct its
      implementation.

1C.   Advise the Grantee that unless the plan is effectively
      implemented in a timely manner, that corrective
      actions identified in Title 24 CFR Sections 570.910,
      911, and 913 will be instituted.




       Page 7                                   96-NY-204-1005
Finding 1




                 (THIS PAGE LEFT BLANK INTENTIONALLY)




96-NY-241-1005                   Page 8
                                                                                       Finding 2




Weaknesses in Financial Management System
     and Related Accounting Controls

Our review disclosed significant weaknesses in the Grantee's financial management system. The
weaknesses have adversely impacted the Grantee's assurance that HUD funds are properly
safeguarded and that adequate financial records are maintained in accordance with HUD
requirements. As a result, the Grantee's financial records are not complete, accurate, or current.
The weaknesses can be attributed to the lack of effective management oversight caused by a poor
organizational structure.




                                     The requirements mandating grantees to have effective
 Criteria
                                     financial management systems are contained in Title 24,
                                     Part 85.20 of the Code of Federal Regulations. The
                                     standards require financial systems to provide:

                                     •   Accurate, current and complete disclosure of financial
                                         transactions.

                                     •   Records that adequately identify the source and
                                         application of funds.

                                     •   Effective control and accountability for all grant cash,
                                         property and other assets.

                                     •   Accounting records that are supported by source
                                         documentation.

                                     Moreover, the Office of Management and Budget (OMB)
                                     Circular A-87, Cost Principles for State and Local
                                     Governments provides that costs must be necessary and
                                     reasonable for the proper and efficient administration of the
                                     program and that the cost be accorded consistent treatment
                                     through the application of generally accepted accounting
                                     principles.

                                     The Grantee's official accounting records are maintained by
 Background and Scope
                                     the City's Comptroller's Office. The Comptroller is



                                              Page 9                                  96-NY-241-1005
Finding 2



     responsible for maintaining general ledgers, journals, cash receipts and disbursement records
     for the CDBG, HOME, HOPE 3 and ESG programs.

                                     We reviewed the Grantee's financial management system
                                     including internal controls, accounting procedures, and
                                     purchasing policies to determine whether the Grantee was
                                     in compliance with the aforementioned criteria. We tested
                                     the accuracy of the financial records by comparing them
                                     with program records maintained by other Grantee
                                     departments, subrecipients, HUD Field Office, and the audit
                                     performed by the Independent Public Accountant (IPA).

                                     Material errors and deficiencies were found in the financial
 Results of review
                                     records maintained by the Grantee's Comptroller. The errors
                                     and deficiencies have seriously affected the accuracy of
                                     program reports, the City's annual audit, and the assurance
                                     that HUD funds are properly being used and safeguarded as
                                     evidenced by the Findings in this report.

                                     We relied on the unofficial records maintained by the
                                     Department of Development and Redevelopment for much
                                     of our audit work, because the Grantee's official accounting
                                     records were not readily auditable.

                                     Some of the more significant deficiencies and errors are
 Deficient accounting
                                     discussed in detail below.
 records
                                     1.      Grantee's General Ledger does not account for
                                             program receipts and expenditures by grant activity
                                             or grant program year.

                                     2.      Receipts and expenditures for the CDBG, ESG, and
                                             Section 108 programs are commingled in one cash
                                             account. This account is not being reconciled.

                                     3.      Grantee accounting records do not accurately record
                                             the amount due from HUD programs. The
                                             outstanding CDBG grant balance is significantly
                                             understated on the General Ledger. Additionally, the
                                             HOME, HOPE 3, and ESG programs are not even
                                             included as General Ledger accounts.

                                     4.      CDBG ledger accounts are not posted in a timely
                                             manner and therefore are not current. Many


96-NY-241-1005                                Page 10
                                                                      Finding 2



                         accounts are posted annually using IPA adjusting
                         journal entries.

                  5.     Budgetary controls over the HUD programs are not
                         employed by the Comptroller's Office. There is no
                         assurance that expenditures are compared with
                         budget amounts or that funds are available for the
                         items being charged.

                  6.     Payments are processed without adequate review of
                         source documentation. Payments have been made
                         without executed contracts and/or properly prepared
                         vouchers and advices.

                  7.     HOME and HOPE 3 programs were not included in
                         the IPA annual audit. ESG funds were not identified
                         in the audits, but were erroneously included with
                         CDBG.

                  The Grantee has not established an efficient organizational
 Cause
                  structure to administer its programs. We attribute the
                  deficiencies to the lack of centralized management control
                  over the programs as well as poor communication between
                  the various autonomous departments. Further, there appears
                  to have been little effort on the part of the Grantee to ensure
                  that its system meets HUD and generally accepted
                  accounting principles. Where controls and practices have
                  been established, they are not always followed.

                  The Grantee has not complied with the HUD requirements
 Summary
                  to establish an effective financial management system. As
                  a result, HUD and the Grantee have little assurance that
                  program costs are proper, funds are being used in an
                  economical and effective manner, or that program
                  objectives are being met.




Recommendations   We recommend that you require the Grantee to:

                  2A.    Implement effective accounting controls necessary
                         to comply with HUD requirements. The corrective
                         actions should complement the organizational



                          Page 11                                   96-NY-241-1005
Finding 2



                       structure improvements instituted through Finding
                       1.

                 2B.   Conduct a review of its financial records and
                       prepare correcting entries where applicable. The end
                       product should result in books of account that can
                       be reconciled with program records.

                 2C.   Ensure that subsequent annual audits include all
                       HUD grant activities. The IPA should be instructed
                       to expand the audit period to include prior years
                       activities that were not audited.




96-NY-241-1005          Page 12
                                                                                         Finding 3




      Monitoring of Subrecipient Performance
              Needs to be Improved

The Grantee's monitoring of its subrecipients has not identified internal control weaknesses at the
subrecipients and has not detected or corrected untimely or poor performance. Consequently, the
Grantee does not have assurance that program funds were used for eligible costs and that
activities administered by subrecipients meet program objectives. We believe that adequate
monitoring has not been performed because of communication and coordination problems
between the various Grantee departments and subrecipients administering the programs.




                                      Title 24 CFR, Part 85 contains the requirements that
 Criteria
                                      grantees are to follow regarding program monitoring
                                      including the activities administered by subrecipients. In
                                      addition, Part 85 provides financial management standards
                                      that must be met by the grantee and subrecipients. Finally,
                                      24 CFR Section 570.501 provides that the grantee is
                                      responsible for determining the adequacy of performance
                                      under subrecipient agreements and for taking appropriate
                                      action when performance problems arise.

                                      We examined the program files for 9 of the 41 subrecipients
 Scope of Review
                                      identified by the Grantee as participating in the HUD
                                      programs during the audit period. We conducted site-visits
                                      to 4 of the subrecipients. The nine subrecipients were
                                      selected because our survey work either identified areas of
                                      potential weaknesses that required further review, or
                                      because the subrecipients received the largest allocation of
                                      grant funding.

                                      The purpose of our review was to evaluate the Grantee's
                                      procedures for monitoring its subrecipients. Further, to
                                      determine whether the subrecipients had implemented
                                      financial monitoring systems that would meet the
                                      requirements, and whether the subrecipients program
                                      activities were achieving the applicable program objectives.




                                              Page 13                                  96-NY-241-1005
Finding 3



                         As a result of our file reviews and site-visits we concluded
 Review results
                         that the Grantee has not implemented effective procedures
                         necessary to monitor subrecipient performance and
                         compliance with program requirements. We found that
                         Grantee files did not always contain all the required
                         documentation necessary to support program costs and
                         activities. Examples included program files that did not
                         contain; (a) the required audited financial statements, (b)
                         documentation supporting claimed costs, and (c) activity
                         progress reports.

                         Details pertaining to the more significant weaknesses are
                         discussed separately by subrecipient below.

                         1. Camden Redevelopment Agency (CRA)

                         The CRA was established by City Council ordinance to
                         carry out certain redevelopment activities. In addition to
                         administering certain activities for the Grantee, CRA was
                         also under contract to perform monitoring of selected
                         subrecipients.

                         Although under contract to monitor several subrecipients,
 Formal Monitoring Not
                         we found that no monitoring reports were provided to the
 Documented
                         Grantee during our review period. In addition, we found
                         that CRA's files contained insufficient documentation
                         supporting its monitoring activities. In addition, CRA has
                         not had timely audits performed on its operations as
                         required. The latest audit was for the period ended
                         12/31/93. The audit report contains findings identifying
                         weaknesses in the internal controls over cash receipts and
                         disbursements. These findings remain unresolved.

                         Our review of selected activities and subrecipients under
                         CRA's oversight disclosed several significant deficiencies
                         including the unsupported use of grant funds and poor
                         performance as follows:

                         Morgan Village Community Center - In June 1992, the
                         CRA contracted with the Grantee to administer this project
                         involving $100,000 in rehabilitation work funded from
                         CDBG funds.




96-NY-241-1005                   Page 14
                                                  Finding 3



Four years and $119,875.36 later, the project remains
incomplete. More significantly, we were unable to
determine the propriety and reasonableness of these costs
because the Grantee and CRA were unable to provide us
with a construction contract or adequate work
specifications. Moreover, we found that the work was
procured without the benefit of bidding. An examination of
the documentation supporting the payments disclosed that
the documentation did not adequately identify the scope of
work performed or that the work was properly inspected
prior to the payments.

T & C Child Development Company, Inc. - CRA had
administrative oversight of T & C's construction of 12 units
of new housing in East Camden. The project began in
March 1995, and is funded from the 1993 HOME and 1994
CDBG programs in the amount $88,000. To date, $43,685,
in funding has been provided with no discernable progress.
In fact, construction has not begun in part due to T & C's
failure to secure approximately one million dollars in
financing. The Grantee advised that the financial viability
of the project is now uncertain.

2.Cooperative Business Assistance Corp.(CBAC)

CBAC is a non-profit corporation that administers several
economic development loan programs for the Grantee. The
programs include CDBG and UDAG, as well as Section
108.

Because the Grantee did not thoroughly review the transfer
of its assets from the defunct Camden Economic
Development Corp. (CEDC) to CBAC, at least $251,400 in
CDBG funds have been misclassified as from other sources.

In 1993, the Grantee had an independent accountant
perform an analysis of all loans and funds at CEDC. The
analysis clearly identified $251,400 in unexpended CDBG
funds. Despite the analysis, HUD was advised that all of the
assets transferred to CBAC were from non-CDBG sources.
As a result, the Grantee has little assurance that the funds
will be used in accordance with CDBG regulations and that
the mandated program objectives are met. As a result of
our review, these funds are now available for program use


        Page 15                                 96-NY-241-1005
Finding 3



                 and are considered to be a "cost efficiency" for report
                 purposes.

                 Furthermore, we noted that CBAC has repeatedly
                 requisitioned CDBG funds for administration even though
                 it has significant amounts of funds in its accounts. As of
                 December 31, 1995, CBAC had $183,000 in its
                 administrative cash account and over $840,000 in cash from
                 all sources. The Grantee must monitor CBAC's requests for
                 administrative funds and require full disclosure of all
                 funding sources.

                 3. Jersey Counselling & Housing Development (JCHD)

                 JCHD is implementing the $1,495,051, 1994 HOPE 3 Grant
                 for the City. The grant is being used to develop home
                 ownership opportunities to 26 low income, first time home
                 buyers. Our review of the HOPE 3 grant showed that the
                 Grantee has not adequately addressed weaknesses
                 associated with JCHD.

                 JCHD has been delinquent in submitting annual audits of
                 operations to the Grantee. More significantly, the audits
                 submitted in 1991, 1992, and 1993, contain adverse
                 opinions by the independent auditor. The reports describe
                 JCHD's lack of adequate accounting records and an
                 inability to separate expenses by program. Despite the lack
                 of audits for 1994 and 1995, and no meaningful attempt to
                 address and correct issues raised in the prior audits, the
                 Grantee has continued to fund JCHD.

                 In addition to the unresolved audit problems, progress in
                 completing the grant activities has been slow. A January
                 1995, technical assistance visit from HUD cited the Grantee
                 for slow progress. HUD approved a one year extension to
                 facilitate property transfers. To date, only $129,973 of
                 HOPE funds have been expended with $94,613 of the
                 amount pertaining to administrative and other soft costs.

                 We believe that the results of our review and subrecipient
                 site-visits underscore the need for improvements in the
                 Grantee's monitoring of its HUD programs. Unless
                 corrective actions are implemented, the Grantee will not



96-NY-241-1005           Page 16
                                                                    Finding 3



                  have adequate assurance that subrecipients are complying
                  with program regulations.


Recommendations   We recommend that you instruct the Grantee to:

                  3A.    Monitor program activities as required by Title 24,
                         Part 85 of the Code of Federal Regulations. The
                         monitoring should include procedures to ensure that
                         fiscal and performance reports are accurate and
                         submitted within prescribed time frames.

                  3B.    Implement corrective actions that will bring the
                         financial management systems of the subrecipients
                         into compliance with program regulations.

                  We further recommend that you:

                  3C.    Determine the eligibility of the unsupported costs of
                         $119,875.36 pertaining to the Morgan Village
                         Community Center, and the $43,685 associated with
                         T & C Development. The Grantee should reimburse
                         the programs from non-Federal funds for any
                         amount determined ineligible.

                  3D.    Determine whether corrective actions are needed to
                         improve the Grantee's progress in completing its
                         HOPE 3 project.

                  3E.    Advise the Grantee to implement actions to ensure
                         that CBAC's use of the misclassified CDBG funds
                         conform to program regulations and meet the
                         required National Objectives.




                          Page 17                                 96-NY-241-1005
Finding 3




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96-NY-241-1005                   Page 18
                                                                                      Finding 4




 Section 108 Loan Repayments Made Without
     Complying With CDBG Regulations
The Grantee did not fulfill its commitment to use municipal appropriations to repay the Section
108 loan used to purchase a fire station located on Liberty and Mechanic Streets. Instead, CDBG
funds totaling $1,835,052 were used to make payments on the debt without filing the required
program amendments. The use of the CDBG funds remained undetected because adequate
accounting and program records were not maintained by the Grantee. Using CDBG funds in this
manner jeopardizes the Grantees ability to complete its approved activities, adversely affects
HUD's ability to evaluate the program's progress, and diminishes the rights of citizens to
participate in program matters.



                                    Title 24, CFR Section 570.302 provides that a grantee must
 Criteria
                                    submit a final statement including a projected use of funds,
                                    with a description of each activity in sufficient detail to
                                    allow citizens to determine the degree to which they are
                                    affected.

                                    Further, Title 24, CFR Section 570.305 provides that
                                    grantees shall provide citizens with reasonable notice of,
                                    and opportunity to comment on, such proposed changes in
                                    its use of funds.

                                    In 1991, the Grantee received approval to use $3,000,000
 Background and Scope
                                    in Section 108 funds to purchase a fire station developed
                                    and built by a nonprofit developer. The project was
                                    designed to meet the criteria of economic development
                                    through job creation and retention for moderate and low
                                    income persons. According to the Section 108 application,
                                    the loan would be repaid through annual municipal budget
                                    appropriations with future CDBG grant funds serving as
                                    security for repayment.

                                    From the first repayment due in February 1992 through
                                    February 1996, $2,235,052 has been paid on the debt. Of
                                    the amount, $400,000 was from unspent funds remaining in
                                    the Section 108 fund and $1,835,052 in CDBG funds. On
                                    April 10, 1996, subsequent to our inquiries, the City
                                    reimbursed the CDBG program with a $154,318 general



                                            Page 19                                 96-NY-241-1005
Finding 4



                 fund check for" interest only" due on the loan for 8/1/95
                 and 2/1/96.

                 Our review included an examination of the Section 108
                 loan application, purchase agreements and other supporting
                 documentation. Specifics concerning our review are
                 discussed below:

                 The Grantee has not implemented effective financial
                 controls to account for any of the HUD grants it
                 administers. The Grantee has not established a general
                 ledger that records the receipt and disbursement of funds by
                 approved grant activity or program year. No receivable or
                 payable from the City has been established, nor was
                 $916,808 of the $1,835,052 in payments recorded. In
                 addition, the use of these funds was not fully reported in its
                 performance reports to HUD.

                 The remaining $918,244 in CDBG funds used for the
                 repayments were charged to various economic development
                 and public facilities activities identified in the applicable
                 final statements. For example, $462,300 was shown in the
                 1994 Grantee Performance Report as a special activity
                 related to debt service.

                 We discussed this matter with the City's Business
                 Administrator who agreed that the City had not made the
                 required payments. He said that he believed that the City
                 had only an obligation to repay the interest on the 108
                 notes. Contrary to his assertion, the Section 108 loan
                 application states that annual municipal budget
                 appropriations would be used to retire the Section 108 debt.
                 Moreover, a memorandum dated April 13, 1993, prepared
                 by the Business Administrator informing the Fire
                 Department that the CDBG program had advanced funds
                 for the repayment of the loan and must be reimbursed.
                 However, no action was taken.

                 We believe that the matters discussed in this finding
                 constitute violations of Title 24, CFR Sections 570.302 and
                 570.305 of the CDBG Regulations. The undisclosed use of
                 CDBG funds to repay the Section 108 loan could jeopardize
                 ongoing approved activities, as well as future ones.
                 Moreover, funding for prior and future program years could


96-NY-241-1005           Page 20
                                                                    Finding 4



                  be over obligated. Without adequately prepared final
                  statements and the submission of program amendments,
                  citizens have not been provided with sufficient information
                  to allow them to determine the effect that the use of funds
                  to pay the City's debt will have on program activities.

                  Additionally, Title 24, Part 85.20 of the CFRs requires that
                  the grantee's financial management system have accurate,
                  current and complete disclosure of financial transactions
                  and that a grantee maintain records which adequately
                  identify the source and application of funds.




Recommendations   We recommend that you require the Grantee to:

                  4A.    Either reimburse the CDBG Program for the
                         $762,490 ($916,808 less the $154,318 City
                         reimbursement) related to the unaccounted for use
                         of program funds, or submit the appropriate
                         program amendments.

                  4B.    Implement procedures to ensure that sufficient
                         financial management controls exist to properly
                         account for HUD funds and that will result in
                         accurate reporting of program progress.




                          Page 21                                 96-NY-241-1005
Finding 4




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96-NY-241-1005                   Page 22
                                                                                      Finding 5




 Inadequate Administrative Practices Resulted
   in Uneconomical and Unsupported Use of
               CDBG Funds

Effective administrative practices necessary to ensure that costs paid from grant funds are
allowable and reasonable have not been implemented. Consequently, the program has been
charged for costs that are not adequately supported, not necessary or reasonable, or that do not
meet the objectives of the program. The finding can be attributed to the absence of a grants
management structure that clearly defines lines of authority and communication.




                                    OMB Circular A-87, Cost Principles for State and Local
 Criteria
                                    Governments provides that grantees are responsible for the
                                    efficient and effective administration of grant programs
                                    through sound management practices. In addition, Title 24
                                    CFR, Part 85.40 provides that grantees are responsible for
                                    managing the day-to-day operations of grant and subgrant
                                    supported activities to ensure compliance with applicable
                                    Federal requirements.

                                    Apart from the above, the procurement of property and
                                    services by grantees are governed by the requirements of
                                    Title 24 CFR, Part 85.36.

                                    We reviewed selected transactions that occurred during our
 Scope of Review
                                    audit period and extended the review to prior or subsequent
                                    periods, where necessary. The review examined the
                                    procurement and contracting processes used for the
                                    transactions, the documentation supporting the costs related
                                    to the transactions, and the allowability and reasonableness
                                    of the expenditures.

                                    Widespread weaknesses were found in the methods used to
 Results of Review
                                    procure and contract for services, to purchase supplies and
                                    equipment, and in reviewing costs for allowability and
                                    reasonableness. The weaknesses will be discussed generally




                                             Page 23                                96-NY-241-1005
Finding 5



                 in the subsections below, followed by specific costs that are
                 unallowable or not adequately supported.


                 Grantee Routinely Circumvents State Procurement Statutes

                 The Grantee routinely uses the "Extraordinary
                 Unspecifiable Services" (EUS) provision of State Statutes
                 to avoid bidding or competitive negotiations. We share the
                 concerns expressed in the State Treasurer's Report on
                 Camden that the use of EUS contracts is one of the most
                 troubling aspects of the purchasing system. Our review
                 found the following conditions:

                 •   Sole or limited source designations were used to avoid
                     bidding even though it is obvious that the contracted
                     service was offered by numerous vendors in the
                     community. (See Finding 6 for example)

                 •   Services to be provided were described as
                     "unspecifiable" even though the services were not of an
                     unusual nature and were of the type generally seen in
                     grant programs.

                 •   EUS designations were used to approve contracts for
                     services already provided.

                 Payments Processed Without Executed Contracts

                 Our review of disbursements found several instances where
                 the Grantee paid for services without executing a contract.
                 This was particularly evident in the Department of
                 Community Affairs where at least fifteen vendors were
                 providing services without contracts. At least three of these
                 vendors were funded through the CDBG program.

                 Contract Provisions Are Poorly Defined

                 Many of the contracts reviewed during the audit did not
                 contain scope of services provisions that adequately
                 described the actual services to be performed. Instead, the
                 contracts contained similar boilerplate language and
                 references to attachments that consisted of little more than
                 budgetary information submitted by the vendor.


96-NY-241-1005           Page 24
                                                                       Finding 5



                    Additionally, many of the contracts did not contain well
                    defined time frames in which the services were to be
                    performed.

                    Grantee Payment Advice Forms Improperly Prepared

                    Improvements are needed in the preparation of payment
                    Advices prepared by the Grantee to document the receipt of
                    goods and services. The Advice is one of the primary
                    documents used to support disbursements. Examples of
                    problems found included Advices that were not signed by
                    the receiver of the goods or services, and missing dates.

                    System of Purchasing Supplies and Equipment Needs
                    Improvement

                    Better control and coordination is needed between
                    departments purchasing supplies and equipment. Currently,
                    departments purchase supplies and equipment without
                    regard to collective purchasing procedures. As a result,
                    departments may be ordering supplies that are available or
                    stockpiled in other departments.

                    We also noted that program funds have been used to
                    purchase over $95,000 in computer equipment with little
                    evidence that the Grantee evaluated it needs prior to the
                    purchases. Much of the equipment purchased was far more
                    sophisticated than would be ordinarily needed, including
                    high-tech sound cards, stereo speakers, CD ROMs and a
                    preponderance of software. In addition, practically all work
                    stations contained laserjet or color jet printers.

                    We believe that more planning should be involved in
                    decisions to purchase expensive equipment to ensure that
                    only necessary items are purchased in amounts reasonable
                    to complete the required tasks.

                    During our review of controls over the disbursement of
Unallowable and
                    program funds we found certain expenditures that were
Unsupported costs
                    either not allowable or were inadequately supported. The
                    costs were incurred because effective procedures were not
                    established to ensure costs were eligible and supported prior
                    to incurrence.



                            Page 25                                  96-NY-241-1005
Finding 5



                 Grant Funds Used For Parades, Parties, Entertainment

                 Our review of program funds expended for public service
                 for the period January 1, 1995 through February 16, 1996,
                 showed that $47,309 was charged for entertainment type
                 costs. Examples of the costs included:

                 •    Purchase of ten floats for the Christmas parade
                      ($6,500).

                 •    Television coverage of Holiday parade ($3,500).

                 •    Purchase of pumpkins for pumpkin hunt event ($1,850).

                 •    Two Senior citizen bus trips ($3,943).

                 While we realize the desirability of providing entertainment
                 to the residents of Camden, we believe that the grant funds
                 would be more beneficially used to improve the
                 deteriorating conditions of the City's neighborhoods.

                 We believe that a HUD determination as to the
                 reasonableness of the $47,309 in costs is needed. Further,
                 a HUD eligibility determination will be needed to ascertain
                 whether the activities meet the National Program objective
                 of low to moderate income designation, and represent a
                 public service as defined by 24 CFR, Section 570.201.

                 Contract For Intergovernmental Relations Services

                 CDBG funds were used to pay $35,000 to a consultant for
                 intergovernmental relations. We reviewed the necessity and
                 reasonableness of the costs, as well as the procurement and
                 work product produced. The review found several
                 deficiencies that render the costs as unallowable. Particulars
                 are as follows:

                 1.      Services were deemed to be extraordinary and
                         unspecifiable, so no bidding or Request For
                         Proposals process was followed.

                 2.      Contract for the services was prepared but never
                         executed.



96-NY-241-1005            Page 26
                                                  Finding 5



3.     Scope of services provisions of the contract required
       the contractor to perform many and varied services
       over a 12 month period beginning July 1993.
       However, the total contract was paid by August 6,
       1993, with no evidence that most of the services
       were provided.

4.     Documentation supporting the services provided
       consisted mainly of documents prepared prior to the
       contract. Some of the documents were prepared as
       early as 1992.

5.     Documents prepared after the contract award were
       all dated in July 1993. The documents were of
       questionable value since they consisted of press
       releases, newspaper articles, and photocopied faxes
       of an evaluation of the Community Development
       Banking Act of 1993, performed by an unrelated
       entity.

6.     Evidence that any of the materials or services were
       used by the Grantee could not be found. Grantee
       personnel were unable to demonstrate the
       reasonableness, use, or need for the services.

       Accordingly, we consider the $35,000 to be
       unallowable since it does not represent a necessary
       and reasonable expense to the program.

Services Provided Without Executed Contract

We consider costs amounting to $24,800, paid to two
vendors without the benefit of competition or executed
contracts to be unsupported. Particulars are as follows:

Contract 11-95-281 (Payment $10,000)

Funds were paid to a weekly publication for unspecified
advertising of community affairs. The total contract is for
$14,000, disbursed at a rate of $1,750 to $2,000 per month.

Contract 6-95-134 ($14,800)




        Page 27                                 96-NY-241-1005
Finding 5



                  Funds were paid to a music school for an unspecified music
                  program. The payments were made between August and
                  December 1995.



Recommendations   We recommend that you require the Grantee to:

                  5A.    Cease its practice of routinely designating contracts
                         as extraordinary and unspecifiable unless it can
                         adequately document the condition.

                  5B.    Implement procedures to ensure that goods and
                         services are procured according to HUD
                         requirements.

                  5C.    Institute contracting procedures that will ensure that
                         all services procured are supported by an executed
                         contract containing a detailed scope of services and
                         performance time frames.

                  5D.    Implement controls to ensure that costs are eligible,
                         reasonable, and documented prior to payment.

                  5E.    Adopt policies and procedures that will control and
                         coordinate the purchase of supplies and equipment.
                         Prior to the purchase of equipment, the Grantee
                         should carefully analyze it's needs to ensure that the
                         appropriate items are purchased.

                  5F.    Reimburse the program with non-Federal funds for
                         the unallowable cost of $35,000.

                  5G.    Provide justification or documentation on the
                         unsupported costs to enable the necessary eligibility
                         determinations to be made.

                  5H.    Reimburse the program with non-Federal funds for
                         any of the unsupported costs found to be ineligible.




96-NY-241-1005            Page 28
                                                                                        Finding 6




  Improvements Needed in the Administration
     of Housing Rehabilitation Programs


The Grantee has incurred high delivery and administrative costs under its housing rehabilitation
programs. We attribute the high cost to inefficient management caused by the absence of an
effective organizational structure. As a result, we are questioning the reasonableness of certain
personnel costs charged to CDBG and are recommending procedural and procurement
improvements to lower the cost of delivering rehabilitation activities.




                                     The Grantee's rehabilitation programs are administered by
 Background
                                     the Division of Housing Services (DHS), a component of
                                     the Department of Housing and Community Development.
                                     DHS administers four single family programs, one HOME
                                     First Time Home Buyers Program, and oversees a
                                     subrecipient's administration of a HOPE 3 project.

                                     DHS charges the salaries of ten employees directly to
                                     rehabilitation delivery costs for processing applications for
                                     assistance. In addition, DHS contracts with five consultants
                                     who perform initial inspections and prepare work write-ups.
                                     Further, administrative costs are charged for 100 percent of
                                     the Commissioner of the Department of Housing and
                                     Community Development and two of his support staff,
                                     despite the fact that they provide minimal administrative
                                     support.

                                     We randomly selected 36 of 163 rehabilitation cases
 Scope of Review
                                     completed during the 1995 program year. The examination
                                     included an analysis of the processing and a review of
                                     documentation contained in the case files. Moreover, we
                                     selected 12 of the cases for inspections to determine if the
                                     rehabilitation had been successfully completed.

                                     Apart from the above, we analyzed program delivery and
                                     related administrative costs charged to the CDBG program.




                                             Page 29                                  96-NY-241-1005
Finding 6



                 We also reviewed the procedures used to select consultants
                 and evaluated the reasonableness and necessity of the cost.

                 Our case file reviews and property inspections found that
 Results
                 the cases were processed in accordance with the Grantee's
                 procedures and that all the required rehabilitation work had
                 been performed. However, we found that the Grantee has
                 incurred an inordinate amount of costs to administer and
                 deliver its rehabilitation programs. Further, we found
                 weaknesses in the procurement methods used to employ
                 consultants. The weaknesses are discussed in detail below.

                 High Program Delivery Costs

                 Our analysis of the program charges related to delivery of
                 the rehabilitation programs found that the costs exceeded
                 the established national average reported in CPD-91-22,
                 Productivity Guide for CDBG Rehabilitation Programs. For
                 example, the delivery costs for single family and HOME
                 programs for 1995, were 32.59 percent of the total funds
                 expended. Conversely, the Productivity Guide established
                 22 percent as a national average.

                 While we recognize that the Productivity Guide is not an
                 absolute criteria on which to solely base conclusions, we
                 believe it is a useful measure of productivity. Especially,
                 considering the simplistic nature of the rehabilitation
                 programs administered by the Grantee and the relatively
                 moderate work load in process.

                 The high delivery costs can in part be attributed to the use
                 of consultants in addition to the ten employees assigned to
                 DHS. We believe that this arrangement may not be efficient
                 or economical. Moreover, the Grantee's current
                 organizational structure does not provide a system of
                 checks and balances needed to ensure that the cost of
                 administering activities is reasonable. The Grantee should
                 determine if duplications of effort are occurring and
                 whether more productivity should be expected of its staff.

                 Administrative Costs Related to Rehabilitation Are
                 Excessive




96-NY-241-1005           Page 30
                                                                              Finding 6



                           Apart from the delivery cost, we noted that the full salary of
Administrative costs are
                           the Commissioner and his support staff totaling $124,132
unsupported
                           for 1995 was charged to the CDBG program.

                           Our review of these charges showed that they were not
                           reasonable and could not be supported. Our determination
                           is based on the organization structure of the Department of
                           Housing and Community Development. Contrary to the
                           Departments name, it does not administer all CDBG
                           programs, but is limited to the rehabilitation programs
                           identified above. DHS is only one of five bureaus under the
                           auspices of the Commissioner and his support staff.

                           Four of these bureaus employing over forty people perform
                           City, not CDBG duties (Examples, include rent control,
                           licensing and inspections, etc.). We found little
                           documentary evidence to justify the charges, and believe
                           that actual administrative duties performed by the
                           Commissioner take up a proportionally small amount of his
                           time. Accordingly, we consider the charges to be
                           unsupported pending a HUD determination identifying the
                           correct allocation of costs to CDBG.

                           Reassigned DHS Employee Charge to Program

                           Our review of payroll transactions found that the CDBG
                           program has been charged $3,874.40 in salary costs for a
                           DHS employee transferred to the Bureau of Licenses. Since
                           the Bureau of licenses does not perform CDBG eligible
                           activities, the salary is not an allowable charge to the
                           program.

                           Reasonableness of Costs Related to Consultant Services
                           Not Supported

                           During the period under review, the Grantee entered into
                           contracts with five consultants to provide rehabilitation
                           work write-ups and perform inspections. The aggregate
                           amount of the contracts totalled $103,000.

                           Our review showed that the Grantee has not established
                           effective procedures as required by Part 85.36 of the
                           Regulations. The Grantee avoided the bidding requirements
                           established by the New Jersey State statutes by declaring


                                   Page 31                                  96-NY-241-1005
Finding 6



                  the contract work as "extraordinary and unspecifiable".
                  Moreover, the Grantee certified to the City Council that this
                  type of contract was required because of "scarce
                  availability" of firms available to bid on the work. The mere
                  fact that five consultants were involved in the contract work
                  seems to dispute this contention.

                  In addition to the above, we found that the contracts
                  executed with the consultants were not applicable for the
                  services to be rendered. The contracts used were identical
                  in form to contracts executed with subrecipients and
                  contained many nonapplicable clauses. Examples of clauses
                  included program income, relocation, acquisition and
                  disposition of real property, etc.

                  In summary, the weaknesses and deficiencies discussed in
                  this finding have unnecessarily increased the costs of
                  administering the Grantee's rehabilitation programs. Close
                  adherence to the provisions of the CDBG regulations, State
                  of New Jersey statutes, and the cost provisions of OMB
                  Circular A-87 will enable the Grantee to establish a reliable
                  system to evaluate the reasonable of costs.




Recommendations   We recommend that you require the Grantee to:

                  6A.    Reimburse the program with non-Federal funds for
                         the ineligible salary costs of $3,874.40.

                  6B.    Provide all documentation on the unsupported and
                         excessive administrative costs to enable the
                         necessary eligibility determination to be made.

                  6C.    Reimburse the program with non-Federal funds for
                         the unsupported costs found to be ineligible.

                  6D.    Assess the cost that it is incurring to deliver the
                         rehabilitation programs and streamline the process
                         to ensure that delivery costs are reasonable.

                  6E.    Adopt procurement procedures that will result in
                         open competition and ensure that costs attributed to
                         consultants are necessary and reasonable. Also,


96-NY-241-1005            Page 32
                                         Finding 6



ensure that the contracts executed with consultants
contain only applicable clauses.




 Page 33                               96-NY-241-1005
Internal Controls
In planning and performing our audit, we evaluated internal management controls with respect
to selected auditing procedures. The evaluation was not intended to provide an opinion on the
overall adequacy of the internal controls.

Internal controls are management's adopted plan, methods and procedures to assure resource use
is consistent with laws, regulations, and policies; resources are safeguarded against waste, loss,
and misuse; and reliable data are obtained, maintained, and fairly disclosed in reports.




                                     We determined that the following internal control
 Relevant Internal
                                     categories were relevant to our audit objectives:
 Controls
                                     •   Controls over cash receipts and disbursements.

                                     •   Controls over the monitoring HUD programs.

                                     •   Controls over procurement and contracting.

                                     •   Controls over supporting documentation for costs.

                                     •   Controls over property and equipment.

                                     A significant weakness exists if internal controls do not
                                     give reasonable assurance that: (a) resource use is
                                     consistent with laws, regulations, and policies; (b) resources
                                     are safeguarded against waste, loss and misuse; and (c)
                                     reliable data are obtained, maintained, and fairly disclosed
                                     in reports.

                                     Our review found significant weaknesses in all of the
                                     internal controls tested. The control weaknesses are detailed
                                     in the six findings contained in this report.




                                              Page 33                                 96-NY-241-1005
Internal Controls




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96-NY-241-1005                      Page 34
Follow Up On Prior Audits
An audit of the Grantee was performed by an Independent Auditor (IA) for the period ended June
30, 1995. The report contained one audit finding pertaining to the Grantee's inability to reconcile
its accounting records with various Federal and State Funding documentation. This finding was
repeated in both the 1993 and 1994 audits. To date, meaningful corrective actions have not been
implemented.




                                              Page 35                                  96-NY-241-1005
Follow Up On Prior Audits




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96-NY-241-1005                      Page 36
General Comment
In December 1994, President Clinton announced the designation of the Philadelphia/Camden
Empowerment Zone (EZ) . Camden's portion of the $100 million funding is $21 million. The
Camden Empowerment Zone Trust Commission is the governing structure and consists of 35
members made up of community residents.

Since receiving the designation, progress in implementing the program has been slow. The
reasons for the slow progress are varied, but tend to mirror the organizational problems impeding
the administration of other HUD programs.

To accelerate the progress, HUD, the Grantee, and the State of New Jersey has begun to
implement actions to improve the administration and delivery of EZ funds to the City. In this
regard, a non-profit organization called the Camden Empowerment Zone Corporation has been
established, a Board of Trustees have been appointed, and By-Laws have been adopted. It
appears that these actions have put the implementation of the EZ back on schedule and should
result in a successful implementation of program activities.




                                             Page 37                                 96-NY-241-1005
General Comments




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96-NY-241-1005                     Page 38
                                                                                      Appendix A

Schedule of Ineligible and Unsupported Costs,
and Cost Efficiencies
       Finding                                                                     Cost
       Number               Ineligible (1)          Unsupported (2)           Efficiency (3)
           3                                              $163,560                $251,400
           4                    $762,490                   918,244
           5                      35,000                     72,109
           6                        3,874                  227,132
         Total                  $801,364                $1,381,045                $251,400


(1) Costs clearly not allowed by law, contract, HUD or local agency policies and regulations.

(2) Costs not clearly eligible or ineligible but warrant being contested (e.g. lack of satisfactory
    documentation to support the eligiblity of the costs, etc.).

(3) A cost efficiency is an action by management in response to the Inspector General's
    recommendations to prevent improper obligation or expenditure of funds or to avoid further
    unnecessary expenditures.




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Appendix A




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96-NY-241-1005                   Page 40
                             Appendix B

Auditee Comments




                   Page 41   96-NY-241-1005
Appendix B




96-NY-241-1005   Page 42
          Appendix B




Page 43   96-NY-241-1005
Appendix B




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96-NY-241-1005                    Page 44
                                                                          Appendix C

Distribution
Secretary's Representative, 2AS, New York/New Jersey
Director, Community Planning and Development Division, 2FD (2)
Director, Accounting Division, 2AAF, New York/New Jersey
Special Assistant, 2FS, New Jersey State Office (3)
Assistant to the Deputy Secretary for Field Management, SDF,
 Room 7106
Office of the Deputy Assistant Secretary for Grant Programs, DG
 (Attention: Audit Liaison Officer, Room 7212)     (3)
Acquisitions Librarian, AS (Room 8141)
Chief Financial Officer, F, Room 10164 (2)
(Acting) Deputy Chief Financial Officer, FF Room 10166 (2)
Associate General Counsel, CD, Room 8162
Field Comptroller, Midwest Field Office, 5AF
Assistant Director in Charge, US GAO, 820 lst Street NE, Union
 Plaza, Building 2, Suite 150, Washington, DC 20002 (2)
Mayor, City of Camden, Camden, New Jersey
Commissioner, Department of Development and Redevelopment, City of Camden, New Jersey




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