oversight

City of Pomona, Pomona, CA

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-07-09.

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

                                         July 9, 1996


                                                                    Audit-Related Memorandum
                                                                 96-SF-241-1807


MEMORANDUM FOR:            Herbert L. Roberts, Director, Community Planning and
                          Development Division, 9DD



FROM:                        Gary E. Albright, District Inspector General for Audit, 9AGA


SUBJECT:                     Subgrantee Selection and Funding
                             City of Pomona Community Development
                                Block Grant (CDBG) Program
                             Pomona, California


                                     INTRODUCTION


We reviewed the propriety of the City of Pomona's (Grantee) selection and award of CDBG
program funds to subgrantees in its 1994-95 funding year. The purpose of our review was ot
determine whether the following alleged conditions existed and, if so, violated program
requirements:

1. Potential conflicts of interest by the Grantee's elected officials and the President/board
member of a subgrantee.

2. Preferential treatment may have been provided by the Grantee in awarding CDBG
program funds to certain subgrantees.

3. HUD CDBG program requirements may have been violated when subgrantees did not
achieve non-profit status or meet the conditions of the Request for Proposal (RFP) to
participate in the program.

In addition to the three allegations we reviewed, there were allegations that discrimination may
may have been applied against certain ethnic or racial groups and organizations. These
allegations are being addressed separately by HUD's Office of Fair Housing and Equal
Opportunity.
                               City of Pomona CDBG Program




                                         SUMMARY


Some of the concerns we reviewed were valid; however, others were not.

The allegations of conflict of interest violations against the City Mayor and the President/board
member of a subgrantee were not valid. Our review, however, determined there was the
appearance of a conflict of interest between a Council member's relationship with Pomona Valley
Center for Community Development (PVCCD), a subgrantee, and that person's position on the
City Council.

We did not find conclusive evidence to support a determinationthat Council members steered
funds to new subgrantees where they may have had a personal interest. We believe that the
Grantee's CDBG funding procedures were adequate to provide fora fair and competitive process.
Although our review of 20 proposals disclosed rating ni consistencies, we did not find indications
of deliberate efforts by Grantee officials to direct the award of CDBG funds to specific
subgrantees.

With respect to the concern that historically funded organizations received less or no funding,
Grantee's records showed that the Community Life Commission (CLC), which reviewed and
recommended funding to the City Council, recommended 22 proposals in the 1994-95 funding
year. Of the 22 proposals, eight were organizations h
                                                    t at received more funding in previous years
than during the 1994-95 funding year. The Grantee's records showed that these organizations
received less funding during the 1994-95 funding year due to a lack of available funds and not
because Council members steered funds to new subgrantees.

We also did not find that organizations serving Hispanics were given preferentialtreatment or
that they received the alleged 80 to 85 percent of the funds awarded. The City allocated only
24.8 percent to private organizations, including those serving Hispanics and other minority
constituents. The Grantee's public agencies received 46.9percent of awarded funds. These funds
were generally used on citywide activities designed to benefit low income residents - rather than
allocated based on the ethnic composition of Pomona's population. The remaining funds were
used for program administration and a loan repayment.

Although rating inconsistencies occurred indicating that five proposals may have been overrated
and three underrated, we did not find compelling evidence that CLC members who rated those
proposals manipulated the selection and funding process soas to serve the personal interest of
the Council members who appointed them.

The allegation that three subgrantees were new and had no track record administering the
activities for which they were funded was valid but not necessarily improper. Although we found
that these subgrantees may have been overrated and, therefore, could have been excluded from


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                                City of Pomona CDBG Program


consideration, we did not find any compelling evidence that they were given preferential
treatment.

The allegations concerning violations of the Grantee's program were valid, but those conditions
were not violations of HUD requirements. The concern was that two subgrantees had failed to
include required documents with their proposals, thus, they were ineligible for CDBG funding
consideration. The Grantee's procedures, however, allowed the Grantee the prerogative of
waiving some of its RFP requirements. Therefore, if the Grantee chose to accept proposals
without receiving all the required documents, the applicant's failure to submit documents would
not prevent its proposal from being considered for CDBG funding.

We made on-site reviews at two subgrantees to determine whether theseorganizations were using
CDBG funds to accomplish their stated objectives. The Latino Chamber of Commerce (LCC),
a subgrantee, had a problem spending the funds in a timelymanner due to high staff turnover;
however, the Grantee had already taken certain corrective actions to resolve the problem.
Chicana Service Action Center was using the funds timely and in accordance with its stated
objectives.

We provided the Grantee with a copy of the results of our review for comment. The Grantee
generally agreed with our draft report. We have revised portions of our draft report based upon
the Grantee's written response. The full text of the Grantee's response is included as Appendix
A to this report.


                                        BACKGROUND


Title 24 of the Code of Federal Regulations (CFR) Part 570.200(f),Means of Carrying Out
Eligible Activities, provides that subject to local law, activities eligible for CDBG assistance may
be undertaken by the recipient through its employees, or through loans or grants under
agreements with subrecipients, or by one or more public agencies, including existing public
agencies designated by the chief executive officer of the recipient.

The City of Pomona undertakes its CDBG program activities through its various public service
departments or agencies and private non-profit organizations (subgrantees). The Grantee's
procedures for competitive review of CDBG funding proposals, during the 1994-95 CDBG
funding period were as follows:

         The City issued a Request for Proposals (RFP) for CDBG funding for the program year,
         which included detailed instructions for completing a proposal, required certification
         forms and attachments, explanations forseven ranking factors and information needed to
         satisfy each factor, submission deadline, and date and time for oral presentation of
         proposals by respective applicants or sponsors.

         The Grantee's Housing Department staff reviewed the proposals for satisfactory


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         compliance with RFP requirements, eligibility of the proposed activity, etc. Proposals
         found acceptable for further consideration were then forwarded to the CLC.

         The CLC was an advisory body to the council. TheCLC's chairman was appointed by
         the Mayor. In addition, each of the six City Council members appointed a commissioner
         for a two year term on the CLC. The CLC conducted public meetings, heard oral
         presentations of each proposal, evaluated and rated how each proposal satisfied each of
         the seven evaluation factors based on a numeric scoring system, and recommended to the
         Council the winning proposals - including the recommended award amount.

         The City Council, which had authority to override the CLC's recommendation, made the
         final selections and awarded the funds.

The City's RFP procedures required each CLC member to complete a rating sheet for each
proposal, where the numeric points assigned by each member for each of the seven factors was
entered. With certain exceptions, the Grantee's policy requires that only proposals receiving a
rating of 70 points and above were considered for final ranking and funding.


The seven ranking factors are shown in the following table:


                                                          No
                           Evaluation Factors           Response       Poor   Fair   Good         Excellent

                           Project Benefit                 0            5     10      15             20

                           Self-Sufficiency Potential      0            5     10      15             20

                           Program Experience &
                           Qualifications                  0            4      8      12             15

                           Fiscal Administration           0            4      8      12             15

                           Coordination With Other
                           Agencies                        0            4      8      12             15

                           Outreach to MBE/WBE &
                           Local Contractor                0            3      5      7              10

                           Program Design                  0            2      3      4               5



                           Maximum Possible Points                                          100




There were 75 proposals submitted for the CLC's consideration for the 1994-95 CDBG fund
award. Of the 75 proposals, 50 were for public service activities, 11 for public facilities
improvements, 5 for housing, 1 for historical preservation, 3 for special economic development,
and 5 for other eligible activities. There were 28 public services and 7 other eligible activities
that received qualifying scores of 70 and above.



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                                 City of Pomona CDBG Program




                           OBJECTIVE, SCOPE, AND METHODOLOGY


The objectives of our review were to (1) determine the validity of a widerange of allegations and,
(2) if the allegations were an accurate portrayal of conditions, determine whether the conditions
violated program requirements. To accomplish our objectives, we:

         Interviewed the Los Angeles Area Office (LAAO) Community Planning and
         Development (CPD) program staff.

         Reviewed the LAAO CPD correspondence and monitoring files.

         Interviewed Grantee program officials and staff.

         Reviewed the Grantee's procedures for rating and selecting proposals for the 1994-95
         CDBG fund award.

         Selected and reviewed 20 of the 75 proposals submitted for consideration, which included
         14 winning and six losing proposals to determine the adequacy of information supplied
         to satisfy each of the seven rating factors.

         Evaluated the rating points given by each CLC member on each of the 20 proposals ot
         determine if the numerical scores were properly supported by data or information
         included in the proposals.

         Made on-site reviews at two subgrantees to verify whether funds were being used ot
         accomplish their approved and funded activities.

Our review focused only on the three general allegations of potential conflict of interest,
preferential treatment, and violations of CDBG program regulations and requirements. We did
not review allegations relating to discrimination (as identified in the Introduction of this report)
because these issues are being directly addressed by HUD's Office of Fair Housing and Equal
Opportunity (FHEO). According to FHEO officials, these allegations are currently being
addressed in a separate review of the Grantee's programthat deal specifically with discrimination
issues.

Our review generally covered the period February 1, 1994 to August 8, 1995.                   Where
appropriate, we expanded our review to consider other periods.




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                                  City of Pomona CDBG Program



                                        REVIEW RESULTS


Following are the details of the allegations and the results of our review:

1. Potential conflict of interest by Grantee officials and President/board member of a
      subgrantee.

         Conflict of interest between the City Mayor and LCC

         This allegation was not valid. Although the Grantee's records correctly showed that the
         City's Mayor was a founding member, past President, and a member of LCC, these
         occurred before LCC submitted its proposal and received the award of CDBG funds.

         Due to concern that the City Mayor may have a conflict of interest with LCC, an
         employee of the Grantee's Housing Department sought a legal opinion from the City
         Attorney on the matter. The City Attorney opinedthat the City Mayor's past membership
         and position with LCC were not conflict of interest violations, as prohibited under Title
         24 CFR Part 570.611.

         Conflict of interest between a Council member and PVCCD

         The Grantee's records showed that this Council member was serving as a board member
         of PVCCD at the time PVCCD submitted its proposal for CDBG funding. This gives the
         appearance of a conflict of interest. Our review of CLC's scoring of PVCCD's proposal
         showed that the Council member's appointee to the CLC gave a 100 point rating ot
         PVCCD's proposal. The PVCCD's proposal topped the list of winning proposals for the
         public service category with an overall rating of 90 points. When the Council voted to
         award the funds, the council member voted in favor of the award.

         Conflict of interest violation by LCC's President/board member.

         The allegation that paying LCC's President/board member with CDBGfunds, while acting
         in the capacity of Project Director, was not a conflict of interest violation. Title 24 CFR
         Part 570.206 Program Administration, paragraph (a)(1), states that reasonable cost of
         overall program management, coordination, monitoring, and evaluation may include
         expenditures for salaries, wages, and related costs of the recipient's staff, the staff of local
         public agencies, or other staff engaged in program administration.

         This issue was also brought to the attention of the City Attorney who determined that
         there was no conflict of interest. Further, the City Attorney's opinion was also referred
         to the HUD Los Angeles Area Office's Legal Division for review. LAAO's Legal
         Division concurred with the City Attorney's opinion.



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                                City of Pomona CDBG Program


2. Preferential treatment may have been provided by the Grantee in awarding CDBG
      program funds to certain subgrantees.

         The Grantee's council members steered funds to new subgrantees in which they hada
         personal interest; therefore, traditional non-profit organizations received less, or no
         funding.

         We did not find any conclusive evidence to support a determination that Council members
         steered funds to new subgrantees in which they had a personal interest. We believe that
         the Grantee's CDBG funding procedures were adequate to provide for a fair and
         competitive process.      Although our review of 20 proposals disclosed rating
         inconsistencies, we did not find indications showing inappropriate and deliberate efforts
         by Grantee officials to direct the award of CDBG funds to specific subgrantees.

         As shown in the Background section of this report, the Grantee's funding procedures
         required a multi-level review and evaluation of CDBG funding proposals. This included
         staff review of the submitted proposals for satisfactory compliance with RFP
         requirements, eligibility of the proposed activity, etc. The CLC, whose Chairman si
         appointed by the Mayor and six commissioners who are each appointed by one of the six
         council members, recommended to the Council the winning proposals and the amount
         recommended for each award. Any recommendation for award was made only after the
         commission conducted public meetings, heard oral presentations, and evaluated and rated
         how each proposal satisfied seven evaluation factors based on a numeric scoring system.

         We selected 20 proposals (12 funded and 8 not funded) to test whether CLC's numeric
         scoring of the evaluation factors was justified based on supporting information included
         in the proposals and whether the basis for giving numerical scores was consistently
         applied. The results of our test disclosed rating inconsistencies in eight of the 20
         proposals. We noted that five winning proposals did not contain adequate supporting
         documents or information to justify the higher scores received. Conversely, the other
         three losing proposals contained adequate information that we believed deserved higher
         scores, yet CLC gave those proposals lower ratings. These inconsistencies, therefore,
         resulted in five proposals being overrated and three underrated. We do not believe,
         however, that these inconsistencies are sufficient to conclude that actual preferential
         treatment was given to some organizations.

         With respect to the allegation that historically funded organizations received less or no
         funding, Grantee's records showed that CLC recommended 22 proposals to the City
         Council for fund award. Of the 22 proposals, eight were organizations that received more
         funding in previous years but received less during the 1994-95 funding year. The
         Grantee's records showed that these organizations received less funding during the 1994-
         95 funding year due to the lack of available funds, and not because Council members
         steered funds to new subgrantees.

         We also reviewed minutes of the City Council's meetings but we did not find any


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                                      City of Pomona CDBG Program


         indication that Council members purposely directed funds to organizations where they
         may have had a personal interest. The minutes showed that the City Council made
         overriding changes to the number of proposals and funding levelsthat CLC previously
         recommended for approval. The changes included: (1) removing twoof 10 recommended
         proposals under Public Service, while adding four that were not recommended; (2)
         removing one of 12 recommended proposals under Economic Development/Housing,
         while adding four that were not recommended; and (3) generally reducing the funding
         levels recommended for all recipients.

         These changes, however, were in accordance with the Grantee's RFP procedures which
         provide that: (1) a final award is contingent upon the City Council's approval and
         availability of funds and, (2) the City ofPomona reserves the right to accept, negotiate or
         reject any or all proposals based on the RFP criteria, and to increase or decrease funding
         levels when in the best interest of the City and its citizens.


         Organizations serving Hispanics were given preferential treatment and received 80 to 85
         percent of the funds.

         This allegation was not valid. While it was true that Council members appointed the CLC
         members and that a majority of the council members and commissioners were Hispanics,
         we did not find any evidence to substantiate this allegation. Aside from rating
         inconsistencies discussed above, we did not find anyindication that CLC manipulated the
         selection process so as to serve the personal interest of the Council members.

         We also did not find that organizations serving Hispanics received 80 to 85 percent of the
         $2.62 million CDBG funds allocated to the Grantee. The following table shows the
         distribution of the 1994-95 CDBG funding (in millions of dollars) for the City:



                              Funds Allocated To/For:       Amount   Percent

                           Grantee's public agencies        $1,230   46.9%

                           Program administration            525     20.0%

                           Repayment of Section 8 loan       218      8.3%

                           Subtotal                         $1,973   75.2%

                           Private organizations             652     24.8%

                           Total grant funds                $2,625   100.0%



         The above table shows that only 24.8 percent, not 80 to 85 percent, was awarded ot
         private organizations which included both those serving Hispanicsand those serving other
         minority constituents of the Grantee.


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                                 City of Pomona CDBG Program


         Funds allocated to the Grantee's public agencies (46.9%) were generally used on citywide
         activities designed to benefit low income residents, and not necessarily based on the
         ethnic composition of the population.

         CDBG subgrantees, such as the LCC, PVCCD, and PYSL, were new with no prior track
         record administering the activities for which they were they funded.

         This allegation is valid but not necessarily improper. Our review of LCC's, PVCCD's and
         Pomona Youth Soccer League's (PYSL) proposals showed that these organizations were
         new participants in the Grantee's program and all three had little or no track record
         administering the activities for which they were funded. One of the seven factors that an
         applicant was required to satisfy was "Experience and Qualification" for the activities
         being requested for funding. As discussed above, we found ht at CLC may have overrated
         these three subgrantees on the "Experience and Qualifications" factor. However, as
         explained above, we did not find any compelling evidence that the scoring deficiencies
         were deliberate.

3. HUD CDBG program requirements may have been violated when subgrantees did not
     achieve non-profit status or meet the conditions of the RFP to participate in the
     program.

         Missing IRS letter evidencing non-profit status.

         This allegation was valid; however, HUD regulations do not require an IRS-designation
         establishing the non-profit status of an organization as a condition for eligibility for
         CDBG funding. Title 24 CFR Part 570.204(c) Eligible subrecipient merely defines a
         neighborhood-based non-profit organization as an association or corporation duly
         organized to promote and undertake community development activities on a not-for-profit
         basis within a neighborhood. A non-profit organization, however, may be exempt from
         Federal income tax and may obtain a tax-exempt status letter from the Internal Revenue
         Service under Revenue Code Section 501(c)(3).

         According to the Grantee's staff, its procedures require non-profit organizations
         submitting a proposal to enclose a copy of an IRS letter as evidence of its non-profit
         status. This is a Grantee requirement rather than HUD's requirement.

         We found that the IRS non-profit tax-exemption letter accompanying the Mexican
         American Political Association's (MAPA) proposal was issued in the name of MAPA
         Voter Registration & Education Corporation, an entirely different non-profit entity.
         However, PYSL's proposal did not include a similar non-profit tax-exemption letter or any
         other documentation supporting its non-profit status.




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                                 City of Pomona CDBG Program


         Audited financial statements and proof of liability insurance were not submitted.

         This allegation was also valid. Instead of providing an audited financial statement as
         required in the RFP, LCC merely provided an unaudited 2-month period profit and loss
         statement. Also, LCC did not have a liability insurance policy. LCC used a copy ofa
         "slip and fall" liability insurance certificate of the shoppingcenter where LCC was renting
         an office to satisfy the Grantee's proof of liability insurance requirement.

         MAPA did not submit a copy of an audited financial statement but included a statement
         stating that this was unnecessary because MAPA had no outstanding debts or equipments.
         MAPA correctly submitted a copy of its own liability insurance policy.

         The Grantee's procedures, however, allow it to waive some of its RFP requirements.
         Therefore, if the Grantee chose to accept proposals without receiving all the required
         documents, the applicant's failure to submit documents would not prevent its proposal
         from being considered for CDBG funding.

In our opinion, the conditions that may have prompted the allegations were due to the Grantee's
less than strict compliance with its ownestablished RFP procedures. We believe that in order to
avoid the appearance of preferential treatment, the Grantee should not deviate from any of its
procedures - especially during the qualification and rating process.

Auditee Comments:

The Grantee generally agreed with the results of our review and stated that it had made
substantial improvements to its CDBG program administration. The Grantee, however, disagreed
with the portion of our draft report thatstated that the CLC members were not familiar with RFP
procedures and related program guidelines. The Grantee claimed that CLC members worked
extensively with program staff to establish the RFP procedures and jointly reviewed program
guidelines prior to the City Council's review and approval of subgrantees.

OIG Evaluation of Auditee Comments:

Based on our evaluation of the Grantee's response, we deletedour draft comments concerning
the CLC's possible unfamiliarity with RFP procedures. Accordingly, we also deleted a
recommendation addressing the same issue.


                                     RECOMMENDATION


We recommend you instruct the Grantee to require its program staff to enhance its existing
policies and practices, for accepting, ranking, and funding proposals for CDBG program
activities, by fully documenting the basis for waivers or exemption from the stated policies.



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                               City of Pomona CDBG Program


We are not controlling the above recommendation under the Departmental Automated Audits
Management System; therefore, there is no need for you to provide us with status reports on
action taken.

We have provided a copy of this report to the Grantee. If you have any questions concerning this
report, please call me or Glenn Warner, Assistant District Inspector General for Audit, at (415)
436-8101.



Appendices:
     A. Auditee Comments
     B. Distribution




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                                                         Appendix A
                                                          Page 1 of 3




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                                                         Appendix A
                                                          Page 2 of 3




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                                                         Appendix A
                                                          Page 3 of 3




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                                                                               Appendix B
                                   DISTRIBUTION


Area Coordinator, 9DS
Office of Comptroller, (Attn: K. Brockington), 6AF
Director, Office of Community Planning and Development, 9DD
Director, Accounting Division, 9AFF
Assistant to the Deputy Secretary for Field Management, SC (Room 7106)
Chief Financial Officer, F (Room 10166) (2)
Deputy Chief Financial Officer for Operations, FO (Room 10166) (2)
Audit Liaison Officer, John Simmons, DG (Room 7212) (3)
Assistant Director, US GAO, 820 1st St., NE Union Plaza, Bldg. 2, Suite 150,
 Washington, DC 20002, Attn: Jim Wells
Severo Esquivel, City Administrator, City of Pomona, 505 South Garey Avenue,
 Pomona, CA 91766




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