U.S. Department of Housing and Urban Development Capitol District Office of Inspector General for Audit 451 Seventh Street, S.W. Room 3154 Washington D.C. 20410-7000 December 17, 1996 Audit Related Memorandum No. 97-AO-251-1801 MEMORANDUM FOR: Fred Karnas, Acting Director for the Interagency Council for the Prevention of Homelessness [DEO] FROM: David J. Niemiec, District Inspector General, Capital District, 3GGA SUBJECT: Hotline Complaint — Community for Creative Non-Violence This memorandum provides you the results of our review of the use of funds by the Community for Creative Non-Violence (CCNV) under a subgrant from the Community Partnership for the Prevention of Homelessness (Community Partnership). The review was performed in response to a hotline complaint. The objective for which the grant funds had been awarded — development and implementation of a computerized case management system — had not been accomplished and only about $223,550 of the $630,421 received from HUD under the grant agreement was spent on case management related expenses. The remaining funds, about $406,871, were spent on items that were either not allowable or could not be determined to be allowable under the terms of the grant agreement due to a lack of supporting documentation. We asked the CCNV Vice President on numerous occasions to provide documentation to support the questioned items but the information was not provided. We therefore find it necessary to disallow the expenditures of $406,871 and recommend termination of the current grant agreement. On November 20,1996, in response to our draft report, you provided written comments indicating agreement with our proposed recommendations. We have included your response in it’s entirety as Appendix B to this report. Background In May, 1994, HUD negotiated a memorandum of understanding with the District of Columbia to transition its homeless care system from a shelter-based system to a continuum of care system. In accordance with the terms of the understanding, the District was to provide shelter and services for both the homeless and those at risk of becoming homeless. HUD agreed to provide $20 million over a 3-year period to fund the effort, known as the DC Initiative. The Community for Creative Non-Violence In August, 1994, HUD entered into a grant agreement with the District and the Community Partnership for the Prevention of Homelessness to implement the DC Initiative. The Community Partnership is a non-profit corporation selected by the District and agreed to by HUD. Among the specific duties of the Community Partnership was planning, coordinating, monitoring and contracting for the provision of shelter and support services for homeless individuals and families in the District. The Partnership agreed to monitor those providers to ensure compliance with the terms of their contracts. As part of that initiative, in November 1994, the Community Partnership awarded the Community for Creative Non-Violence a 3–year, $1,239,705 grant to establish and operate a computerized case management system. Under the terms of the grant, CCNV agreed to use grant funds only for activities described in the grant agreement and to maintain separate books for the grant in an up- to-date and good condition. Scope of Review The objective of our review was to determine whether the grant funds CCNV received from the Community Partnership to develop and implement a computerized case management program were spent for that purpose. In making this determination, we created a listing of receipts and disbursements for the period November 21, 1994, the date when the case management checking account was established, to May 15, 1996, the date the last funds were provided to CCNV by the Community Partnership. This listing was based on bank statements, canceled checks, duplicate deposit slips, duplicate certified check receipts, and other supporting documentation. The effort was necessary because the check register listings provided by CCNV did not contain transactions such as business/direct access debits and other automated withdrawals listed in the bank statements. We also used Community Partnership records to determine the amount of grant funds provided to CCNV. In addition to our review of financial transactions, we interviewed HUD, Community Partnership, and CCNV representatives. Our review was performed at CCNV and Community Partnership offices during the months of July and August 1996. The review was conducted in accordance with applicable government auditing standards and included such tests as we considered necessary. Review Results Finding - The Community for Creative Non-Violence Did Not Develop and Implement a Computerized Case Management System As of May 15, 1996, the Community Partnership provided the Community for Creative Non- Violence (CCNV) with $630,421 in HUD funds to establish and maintain a computerized case management system at the Federal City Shelter. However, CCNV had not automated the case management process and case management services were not provided as originally proposed. In Audit-Related Memorandum Page 2 No. 97-AO-251-1801 The Community for Creative Non-Violence addition, CCNV, through the actions of its vice president/executive director, used grant funds for purposes other than those agreed to under the grant agreement. As a result, grant funds intended to help the homeless were used for ineligible activities. Therefore, we are disallowing $406,871 as not being spent on grant related items and are recommending the termination of the grant agreement. Performance Case management is comprised of: assessment interviews, case plan development, services identification, monitoring, follow-up services, and files and records maintenance. The benefits of an automated case management system is improved record-keeping in order to free time for client contact; better tracking of client services provided while at the shelter and after they leave; and improved gathering of statistical information for reporting and evaluation. To achieve this end, CCNV was awarded grant funds for case management software development, computer and office equipment, salaries and benefits for case management staff and other case management related expenses, including a 10 percent administrative fee for overhead expenses. While grant funds were expended, the goal of implementing an automated case management system was not achieved. Funds were expended for some case management related expenses such as staff salaries, some computer hardware, and software development, but the case management process was never automated as originally planned. We did not evaluate the effectiveness of the case management services that were being provided without the automated system. A separate report was prepared by a consultant hired by the Community Partnership assessing the value of the case management services being provided under the grant. We were provided a briefing of that study and have allowed the salary costs to remain an acceptable cost of the grant even though the case management function did not achieve the desired level of service as originally proposed. Based on our review of receipts and disbursements for the automated case management program at CCNV, we determined the $406,871 in disallowed costs as follows: Money provided to CCNV 1 $ 630,421 Less: Case Management Expenses (203,227) Less: Overhead of 10% (20,323) Total Amount Disallowed $ 406,871 In reviewing the case management checking account, we had to isolate the HUD receipts and the case management expenses due to some commingling of funds. We reviewed the transactions in 1 Only $618,521 was traced to the checking account. An $11,900 check issued May 15,1996 could not be traced because the May 1996 bank statements were not provided. Audit-Related Memorandum Page 3 No. 97-AO-251-1801 The Community for Creative Non-Violence the account for the period November 21, 1994 through April 30, 1996 and were able to determine the following: Receipts: HUD $618,521 Other 2 271,124 Total Receipts $889,645 Disbursements: Case Management $203,227 Other Expenses 3 674,485 Total Disbursements $877,712 During the period we reviewed, on numerous occasions, the case management staff have had their paychecks returned because of insufficient funds even though the Community Partnership provided the necessary funds to cover theses expenses. The CCNV also has not paid the income tax liabilities for either the District of Columbia or the Federal withholding taxes. We were advised that some taxes were paid in 1994, however we were not provided any documentation supporting this statement and did not note any payments of these items during our review. The breakdown occurred because CCNV did not have an adequate system in place to control the receipt and disbursement of funds. Specifically, there was no separation of duties. CCNV's Vice President/Executive Director controlled all financial aspects of the case management program. He prepared the grant drawdown requests, received and deposited the grant funds, approved all purchases with grant funds, prepared and signed the checks, accessed grant funds through both manual and automated debit transactions, and established a credit card account using the grant monies and he was the cardholder. Because of the lack of controls normally provided by separating duties, the Vice President/Executive Director was able to totally control the case management program with little or no oversight or input by the CCNV Board of Directors. Another contributing factor was the lack of a timely audit of CCNV that could have identified and prevented the further misapplication of the grant funds after the first year of the grant implementation. An OMB Circular A-133 audit is required for grantees receiving in excess of $100,000 and is to be submitted within 60 days of the year end. The report was not provided to the Community Partnership until May, 1996 instead of November 1995, a delay of six months. 2 Other income includes private donations and a $75,000 grant from the DC Government(restricted funds) for the Hypothermia Program. 3 The Other expenses are classified In Appendix A. Audit-Related Memorandum Page 4 No. 97-AO-251-1801 The Community for Creative Non-Violence The report, prepared by CCNV's CPA firm for the 15 months ended September 30, 1996 questioned over $200,000 of the Year 1 funds of $319,456. The questioned funds were used for operations, fundraising, or were disbursed to the Executive Director and could not be supported. Had the report been timely the Community Partnership could have prevented CCNV from receiving additional funds for that six month period. Even though the Community Partnership sent numerous letters threatening the cutoff of funds if the financial reviews and audit were not received, the Community Partnership still continued to send funds even though the CCNV did not have the audit conducted. Since the time of our initial inquiry CCNV has not had access to the remaining grant funds. The last grant funds provided to CCNV were in May 1996. The Community Partnership has been maintaining the case management program through the use of an outside administrator. Recommendations We recommend that your office: - reduce the funds to the Community Partnership by an amount equal to our disallowed costs, - instruct the Community Partnership to seek reimbursement for the expenses from the CCNV from non-federal funds and cancel the remaining grant. - suspend CCNV and its Vice President/Executive Director from receiving additional HUD funding and initiate debarment actions. - instruct the Community Partnership, for future grantees, to conduct some type of evaluation prior to the release of Funds to ensure that the subgrantees have adequate accounting controls, and data collection systems in place to account for and control the receipt of funds. - instruct the Community Partnership to perform additional onsite monitoring of the grantees including reviews of the grant financial records. - meet with the Community Partnership and make a determination as to whether the case management services at CCNV should be continued or terminated. If terminated, the Community Partnership should seek to obtain the physical items purchased by the grant funds. These items should include the computers that were charged to the grant and the case management software that was developed. These recommendations are consistant with those actions that you stated would be taken in Audit-Related Memorandum Page 5 No. 97-AO-251-1801 The Community for Creative Non-Violence response to our draft report and are being restated for audit follow-up purposes. * * * * Within 60 days, please give us, for each recommendation made 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 considered unnecessary. Also, please furnish us copies of any correspondence or directives issued because of this audit. We appreciate your cooperation during this review. If you have any questions, please contact Donald W. Cairns, Assistant District Inspector General for Audit at (202) 708-0351. Audit-Related Memorandum Page 6 No. 97-AO-251-1801 The Community for Creative Non-Violence Appendix A Other Expenses Category in the Case Management Account General Shelter Expenses $177,984 Unidentified Miscellaneous Expenses 98,699 Fundraising and/or 25th Anniversary Celebration 120,145 Payments made to Vice President/Executive Director 40,865 Rental Payments for Vice President/Executive Director 3,876 Unidentified Withdrawal Items on Bank Statements 56,400 Medical Insurance for Vice President/Executive Director 2,004 Credit Card -Vice President/Executive Director (Signator) 30,705 Unidentified Checks Made out to Cash 92,157 Unidentified Automated Withdrawals on Bank Statements 51,650 Total Other Expenses: $674,485 Audit-Related Memorandum Page 7 No. 97-AO-251-1801 The Community for Creative Non-Violence Appendix B Page 1 of 5 Audit-Related Memorandum Page 8 No. 97-AO-251-1801 The Community for Creative Non-Violence Appendix B Page 2 of 5 Audit-Related Memorandum Page 9 No. 97-AO-251-1801 The Community for Creative Non-Violence Appendix B Page 3 of 5 Audit-Related Memorandum Page 10 No. 97-AO-251-1801 The Community for Creative Non-Violence Appendix B Page 4 of 5 Audit-Related Memorandum Page 11 No. 97-AO-251-1801 The Community for Creative Non-Violence Appendix B Page 5 of 5 Audit-Related Memorandum Page 12 No. 97-AO-251-1801 The Community for Creative Non-Violence Appendix C Distribution Deputy Assistant Secretary for Economic Development, DE (Room 7204) Director, Interagency Council on the Homeless, DEO (Room 7204) Audit Liaison Officer, Office of Community Planning and Development, DG (Room 7214) Assistant to the Deputy Secretary for Field Management, SDF, (Room 7106) Chief Financial Officer, F, (Room 10164) (2) Deputy Chief Financial Officer for Operations, FF, (Room 10166) (2) Audit-Related Memorandum Page 13 No. 97-AO-251-1801
Hotline Complaint, Community for Creative Non-Violence
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-12-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)