Department of Housing and Urban Development, Office of Inspector General | Housing and Urban Development | City of Atlanta Empowerment Zone Program Atlanta, Georgia

City of Atlanta Empowerment Zone Program Atlanta, Georgia

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-09-28.

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

Issue Date
September 28, 1998
Audit Case Number
98-CH-259-1005

TO: Dennis Kane, Coordinator of the EZ/EC Initiative, Office of Community
Planning and Development, DEEZ

FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest

SUBJECT: City of Atlanta
Empowerment Zone Program
Atlanta, Georgia

We completed an audit of the City of Atlanta’s Empowerment Zone Program. The objectives of our
audit were to determine whether the City: (1) efficiently and effectively used Empowerment Zone
funds to meet the objectives of its Strategic Plan; and (2) accurately reported the accomplishments of
its Empowerment Zone Program to HUD. We performed the audit based upon our Fiscal Year 1998
annual audit plan.

Based on our review of 16 of the 123 activities reported to HUD in its June 30, 1997 Performance
Review, we concluded that the City did not maintain adequate control over its Empowerment Zone
Program to assure efficient and effective use of the funds or accurate reporting of the Program’s
accomplishments. The City inappropriately: paid $739,178 for services from Empowerment Zone
funds and was billed $53,979 for services that did not benefit Zone residents; used $429,241 of
Zone funds to assist in the relocation of a business to the Zone, but the relocation of the business
resulted in decreased employment and the closing of the business in its original location which is
not an appropriate use of Zone funds; committed $400,000 of Zone funds to assist in the
relocation of another business to the Zone which will result in the closing of the business and
decreased employment in the original location; and provided $8,000 of Zone funds to assist in the
purchase of a home located outside of the Zone. The City also did not competitively bid a
contract awarded under the Empowerment Zone Program, inaccurately reported the
accomplishments of its Zone activities, and incorrectly reported nine activities as Zone activities
when they were not. As a result, Zone funds were not efficiently and effectively used, and HUD
was provided with the impression that the benefits of the Program were greater than actually
achieved.
Management Memorandum

Within 60 days, please provide us, for each recommendation made in this report, a status report on: (1)
the corrective action; (2) the proposed corrective action and the date to be completed; or (3) why
action is considered unnecessary. Also, please provide us copies of any correspondence or directives
issued because of the audit.

Should you or your staff have any questions, please contact me at (312)353-7832.

98-CH-259-1005 Page ii
Executive Summary
We completed an audit of the City of Atlanta’s Empowerment Zone Program. The objectives of our
audit were to determine whether the City: (1) efficiently and effectively used Empowerment Zone
funds to meet the objectives of its Strategic Plan; and (2) accurately reported the accomplishments of
its Empowerment Zone Program to HUD. We performed the audit based upon our Fiscal Year 1998
annual audit plan.

We found that the City did not have adequate control over its Empowerment Zone funds. Specifically,
the City inappropriately: paid $739,178 for services from Empowerment Zone funds and was
billed $53,979 for services that did not benefit Zone residents; used $429,241 of Zone funds to
assist in the relocation of a business to the Zone, but the relocation of the business resulted in
decreased employment and the closing of the business in its original location which is not an
appropriate use of Zone funds; committed $400,000 of Zone funds to assist in the relocation of
another business to the Zone which will result in the closing of the business and decreased
employment in the original location; and provided $8,000 of Zone funds to assist in the purchase
of a home located outside of the Zone. The City also did not competitively bid a contract
awarded under the Empowerment Zone Program, inaccurately reported the accomplishments of
its Zone activities, and incorrectly reported nine activities as Zone activities when they were not.
As a result, Zone funds were not efficiently and effectively used, and HUD was provided with the
impression that the benefits of the Program were greater than actually achieved.

As previously mentioned, the City of Atlanta did not
The City Did Not Have maintain adequate oversight of Empowerment Zone funds.
Adequate Control Over Four of the 16 activities we reviewed incurred inappropriate
Zone Funds expenditures or improper commitment of Empowerment
Zone funds. The City also did not competitively bid a
contract awarded under the Empowerment Zone Program.

The problems occurred because the Atlanta Empowerment
Zone Corporation, which the City contracted with to
administer its Empowerment Zone Program, did not: (1)
perform monitoring reviews to ensure services were
provided to Empowerment Zone residents; (2) have
procedures to ensure that Zone funds were awarded
according to requirements; (3) provide accurate information
to HUD for approval to use Zone funds; and (4) correctly
interpret the Federal law regarding the use of Empowerment
Zone funds to relocate businesses.

The City of Atlanta incorrectly reported the actual status
The City Incorrectly and progress for five of the 16 activities we reviewed from
Reported Zone Activities’
Accomplishments
Page iii 98-CH-259-1005
Executive Summary

the June 30, 1997 Performance Review. The 1997
Performance Review contained inaccuracies related to: four
activities’ performance measures; three activities’ funding;
two activities’ performance milestones; and one activity’s
narrative status. The inaccuracies occurred because the
Atlanta Empowerment Zone Corporation, which the City
contracted with to administer its Empowerment Zone Program,
did not verify the information included in the Performance
Review. As a result, the City did not accurately report the
accomplishments of its Empowerment Zone Program to HUD.
The impression exists that the benefits of the City’s
Empowerment Zone Program were greater than actually
achieved.

The City of Atlanta incorrectly reported activities included
The City Inaccurately in its June 30, 1997 Performance Review as Empowerment
Reported Activities As Zone Program activities when they were not. Of the 16
Zone Activities activities we selected for review from the Performance
Review, the City inappropriately reported that nine activities
were Zone activities. The nine non-Zone activities were
included as benchmarks in the City’s Strategic Plan;
however, the activities were established or scheduled prior
to the City’s Zone designation. HUD’s instructions for the
Performance Review reporting is designed to measure the
performance of Empowerment Zone activities. Because the
City included the nine non-Zone activities in the
Performance Review, the City incorrectly reported that 170
housing units were rehabbed or constructed and
$57,204,000 in funding was leveraged as a result of the
Empowerment Zone Program. The problem occurred
because the Atlanta Empowerment Zone Corporation, which
administers the City’s Empowerment Zone Program,
misunderstood HUD’s verbal instructions on the preparation of
the Performance Review and did not remove the inappropriate
benchmarks. As a result, the accomplishments of the City’s
Empowerment Zone Program were not accurately reported to
HUD, which created the impression that the benefits of the
Program were greater than actually achieved.

We recommend that the Coordinator of the EZ/EC
Recommendations Initiative, in conjunction with officials from the Department
of Health and Human Services, assure that the City of
Atlanta reimburses the Empowerment Zone Program for the
inappropriate use of Zone funds and implements controls to
correct the weaknesses cited in this report.

98-CH-259-1005 Page iv
Executive Summary

We presented our draft findings to the former Acting
Executive Director and the current Executive Director of
the Atlanta Empowerment Zone Corporation, which the
City contracted with to administer its Empowerment Zone
Program, and HUD’s staff during the audit. We held an exit
conference with the current Executive Director and the
Commissioner for the City’s Department of Planning,
Development, and Neighborhood Conservation on
September 1, 1998. The Corporation provided written
comments to our draft findings. We included paraphrased
excerpts of the comments with each finding (see Findings 1,
2, and 3) and excerpts of the comments with the summary
of activities reviewed (see Appendix B). The complete text
of the comments are included in Appendix C with the
exception of an exhibit that was not necessary for
understanding the Corporation’s comments. A complete
copy of the Corporation’s comments with the exhibit were
provided to HUD’s Coordinator of the EZ/EC Initiative and
the Director of Community Planning and Development,
Georgia State Office.

Page v 98-CH-259-1005
Executive Summary

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98-CH-259-1005 Page vi
Table of Contents

Management Memorandum i

Executive Summary iii

Introduction 1

Findings

1 The City Did Not Have Adequate Control Over
Empowerment Zone Funds 3

2 The City Inaccurately Reported The Accomplishments
Of Its Empowerment Zone Activities 13

3 The City Incorrectly Reported Nine Activities As
Empowerment Zone Activities 17

Management Controls 21

Follow Up On Prior Audits 25

Appendices
A Schedule of Questioned Costs 27

B Activities Reviewed 29

Page vii 98-CH-259-1005
Table of Contents

C Auditee Comments 65

D Distribution 99

98-CH-259-1005 Page viii
Introduction
The City of Atlanta was designated as an urban Empowerment Zone effective December 21,
1994. The objective of the Empowerment Zone Program is to rebuild communities in poverty
stricken inner cities and rural areas by developing and implementing strategic plans. The plans are
required to be based upon the following four principles: (1) creating economic opportunity for
Empowerment Zone residents; (2) creating sustainable community development; (3) building
broad participation among community-based partners; and (4) describing a strategic vision for
change in the community.

The Empowerment Zone Program was authorized by the Omnibus Budget Reconciliation Act of
1993. The Reconciliation Act provided funding for the Program under Title 20 of the Social
Security Act. The Empowerment Zone Program was designed to provide $250 million in tax
benefits with $100 million of Social Service Block Grant funds from the Department of Health
and Human Services. As of June 30, 1998, the City of Atlanta drew down $8,398,530 in
Empowerment Zone funds from the Social Services Block Grant and had spent $8,100,61512.

The City of Atlanta is a municipal corporation governed by a mayor and a city council. The
City’s fiscal year is January 1 through December 31. The City contracted with the Atlanta
Empowerment Zone Corporation, a non-profit organization and a component of the City of
Atlanta, to administer its Empowerment Zone Program.

The Mayor of the City of Atlanta and the Chairman of the Atlanta Empowerment Zone
Corporation is the Honorable Bill Campbell. The former Acting Executive Director of the
Corporation was Elbert Jenkins who was replaced in July 1998. The current Executive Director
is Joseph Reid. The Corporation’s Empowerment Zone books and records are located at 675
Ponce De Leon Avenue, North West, Atlanta, Georgia.

The objectives of our audit were to determine whether the
Audit Objectives
City: (1) efficiently and effectively used Empowerment Zone
funds to meet the objectives of its Strategic Plan; and (2)
accurately reported the accomplishments of its Empowerment
Zone Program to HUD.

We performed our on-site work between March and July
Audit Scope And 1998. To determine whether the City efficiently and
Methodology effectively used Empowerment Zone funds and accurately
reported the accomplishments of its Empowerment Zone
Program, we interviewed staff from HUD, the City, the
Atlanta Empowerment Zone Corporation, and administering
entities of the City’s Zone activities. Based upon the
activities’ funding and reported accomplishments, we
judgmentally selected 16 of the City’s 123 activities

Page 1 98-CH-259-1005
Introduction

reported in the June 30, 1997 Performance Review. The
following table shows the 16 activities reviewed:

Activity
1. Atlanta Center for Home Ownership
2. Revolving Loan for Creative Fine Arts
3. Mortgage Assistance Program
4. Revolving Loan for Corporate Courier
5. Sweet Auburn Curb Market
6. Revolving Loan Fund
7. Pittman Park Improvements
8. Joyland Park Improvements
9. Chosewood Park Tennis Courts Improvements
10. Daniel Stanton Recreation Center
11. Sidewalk Repair
12 Bridge Repair
13. Storm Drainage Improvements
14. Reynoldstown Community Revitalization Project
15. Historic District Community Revitalization Project
16. Revolving Loan Fund - Miss Piggy’s

To evaluate the City’s Empowerment Zone Program, we
reviewed records maintained by HUD, the Atlanta
Empowerment Zone Corporation, the City, and the
administering entities. We reviewed: HUD’s guidance and
instructions for the Program; the Corporation’s files,
reports, and approved payment requests related to the
activities; the City’s June 1997 Performance Review and
supporting documentation; and the administering entities’
voucher payments, monitoring files, and supporting
documentation. We visited each of the administering
entities for the 16 activities included in our audit to review
their documentation, reports, and correspondence.

The audit period covered the period July 1, 1996 to June
30, 1997. This period was adjusted as necessary. We
conducted our audit in accordance with generally accepted
government auditing standards.

We provided a copy of this report to the Mayor of the City
of Atlanta and the Executive Director of the Atlanta
Empowerment Zone Corporation. We also provided a copy
of this report to the Acting Director of the Office for Civil
Rights, Department of Health and Human Services.

98-CH-259-1005 Page 2
Finding 1

The City Did Not Have Adequate Control Over
Empowerment Zone Funds
The City of Atlanta did not maintain adequate oversight of Empowerment Zone funds. Four of
the 16 activities we reviewed incurred inappropriate expenditures or improper commitment of
Empowerment Zone funds. The inappropriate expenditures or improper commitment of funds
accounted for 49.6 percent of the Empowerment Zone funds allotted to the 16 activities. The
City inappropriately: (1) paid $739,178 for services from Empowerment Zone funds, and was
billed $53,979 for services provided, but the services did not benefit Zone residents; (2) used
$429,241 of Empowerment Zone funds to assist in the relocation of a business to the Zone, but
the relocation of the business resulted in decreased employment and the closing of the business in
its original location which is not an appropriate use of Zone funds; (3) committed $400,000 of
Empowerment Zone funds to assist in the relocation of another business to the Zone which will
result in the closing of the business and decreased employment in the original location; and (4)
provided $8,000 of Empowerment Zone funds to assist in the purchase of a home located outside
of the Zone. The City also did not competitively bid a contract awarded under the Empowerment
Zone Program.

The problems occurred because the Atlanta Empowerment Zone Corporation, which the City
contracted with to administer its Empowerment Zone Program, did not: perform monitoring
reviews to ensure services were provided to Empowerment Zone residents; have procedures to
ensure that Zone funds were awarded according to requirements; provide accurate information to
HUD when it sought HUD’s approval to use Zone funds; and correctly interpret the Federal law
regarding the use of Empowerment Zone funds to relocate businesses. As a result, Empowerment
Zone funds were not used efficiently and effectively.

Title 20 of the United States Code, Section 2007(c)(1)(B)
United States Code
requires Empowerment Zone funds to be used for activities
that benefit Zone residents.

For the purposes of our audit, we concluded activities did not
benefit Empowerment Zone residents if the activities served
less than 51 percent of Zone residents, or if the activities did
not provide benefits to Zone residents when the activity
administrators had control over who received the benefit of the
services.

Title 26 of the United States Code, Section 1391(f)(2)(F)
prohibits any action to assist any establishment in relocating
from an area outside the nominated area to the nominated area
when the relocation will result in decreased employment and
closing of the establishment in the area of original location.

Page 3 98-CH-259-1005
Finding 1

24 CFR Part 597.200(f) states activities included in the
HUD’s Requirements Strategic Plan may be funded from any source which provides
assistance to the nominated area.

45 CFR Part 92.36 states that all procurement transactions will
Department Of Health be conducted in a manner providing full and open competition.
And Human Services’ Furthermore, contract awards will be made to the lowest
Requirements responsive and responsible bidder.

The contract dated July 8, 1996 between the City of Atlanta
City’s Contract and the Atlanta Empowerment Zone Corporation states that
Requirements the Corporation will monitor subgrantee and subcontractor
activities for the Empowerment Zone Program and take
reasonable steps to ensure compliance with all applicable
laws and regulations.

The City of Atlanta did not maintain adequate oversight
Oversight Of Zone Funds
over four of the 16 activities we reviewed. The City: used
Was Not Adequate
$739,178 of Empowerment Zone funds to provide services
and was improperly billed another $53,979 for services that
did not benefit Zone residents; paid $429,241 in
Empowerment Zone funds to assist in the relocation of a
business to the Zone when the relocation of the business
resulted in decreased employment and the closing of the
business in its original location; improperly committed
$400,000 of Empowerment Zone funds to assist in the
relocation of another business that will result in the closing
of the business and decreased employment in the original
location; and inappropriately provided $8,000 of
Empowerment Zone funds to assist in the purchase of a
home located outside of the Zone. The inappropriate
expenditures or improper commitment of funds accounted
for 49.6 percent of the Empowerment Zone funds allotted
to the 16 activities. The City also did not competitively bid
the contract for the Atlanta Center for Home Ownership
program. The following table shows the total impact of the
funding problems:

Business
Activity No Benefit Relocation

98-CH-259-1005 Page 4
Finding 1

Home Ownership
Program $793,157
Creative Fine Arts $429,241
Mortgage Assistance
Program 8,000
Corporate Courier 400,000
TOTAL $801,157 $829,241

A detailed summary for each of the four activities is at page
40 for the Home Ownership program, page 59 for Creative
Fine Arts, page 37 for the Mortgage Assistance Program,
and page 52 for Corporate Courier.

The Housing Authority of the City of Atlanta, the
Empowerment Zone administering entity for the Atlanta Center for Home
Funds Did Not Benefit Ownership program, used $739,178 of Empowerment Zone
Zone Residents funds that did not benefit Zone residents. The Authority’s
contract with the Atlanta Empowerment Zone Corporation
and the affordable housing proposal required that the
program provide services for money management, home
management, and home ownership to Empowerment Zone
residents. However, services were provided to non-Zone
individuals. The problem occurred because the Corporation
did not monitor the program to ensure that Zone residents
were the beneficiaries of the program.

The Authority also billed the Atlanta Empowerment Zone
Corporation $60,651 for services provided during January and
February 1998. During this period, the program served 98 (11
percent) Zone residents out of 889 individuals served. Of the
$60,651 billed, $53,979 (89 percent x $60,651) was for
services to non-Zone residents.

The City inappropriately provided $500,000 of
Empowerment Zone Empowerment Zone funds for the revolving loan to
Funds Were Used To Creative Fine Arts of which $429,241 was outstanding as of
Relocate A Business To May 31, 1998. The funds were used to assist the relocation
The Zone and expansion of Creative Fine Arts to the Empowerment
Zone from an established location outside the Zone.
However, Federal law prohibits the use of Empowerment
Zone funds to assist a business to relocate to the Zone. The
Atlanta Empowerment Zone Corporation requested HUD’s
approval in October 1996 to use Empowerment Zone funds
for the loan; however, the Corporation did not provide

Page 5 98-CH-259-1005
Finding 1

HUD with complete or accurate information on which to
make its decision.

The City inappropriately committed $400,000 of
The City Inappropriately Empowerment Zone funds for the revolving loan to
Committed Zone Funds Corporate Courier. The Atlanta Empowerment Zone
To Relocate A Business Corporation signed a loan commitment with Corporate
Courier in September 1996 to assist the business in its
relocation and expansion into the Empowerment Zone. The
relocation will result in the closing of Corporate Courier
and decreased employment in the original location. As
previously stated, Federal law prohibits the use of
Empowerment Zone funds to assist a business to relocate to
the Zone.

The City provided $8,000 of Empowerment Zone funds to
Empowerment Zone assist in the purchase of a home located outside the Zone.
Funds Were Used To The individual who received the funding lived in the Zone
Assist In The Purchase Of and was an employee of the Atlanta Empowerment Zone
A House Outside The Corporation, which administered the Mortgage Assistance
Zone Program. The Program’s guidelines required funds to be
provided to Empowerment Zone residents who purchase a
home located within the Zone. The Corporation did not
have procedures to verify the location of a property before
giving a loan.

The Atlanta Empowerment Zone Corporation did not properly
Contract Was Not
procure its contract with the Housing Authority of the City of
Properly Procured
Atlanta. In July 1996, the Corporation signed a $4 million,
nine year contract with the Authority to provide home
ownership services to Empowerment Zone residents. The City
awarded the contract to the Authority without full and open
competition. The City planned to provide the Authority $13.2
million of Zone funds for the Authority’s modernization efforts;
however, the plan was changed because of resistance by
community leaders. In order to determine whether the contract
was reasonable, we compared the Authority’s program costs to
cost proposals we obtained from four vendors.

The costs charged by the Authority appear within an acceptable
range when compared to the vendors’ quotes. However, the
Authority’s cost is based on the volume of both Empowerment
Zone residents and non-Zone residents; whereas, the four
quotes we obtained were based on services to only

98-CH-259-1005 Page 6
Finding 1

Empowerment Zone residents. The Director of the Home
Ownership Center said the costs of the program would increase
significantly if the program only served Zone residents. As a
result, the City and HUD lack assurance that the contract costs
represented the most efficient and effective expenditure of
Empowerment Zone funds.

The Empowerment Zone Program was established to
Empowerment Zones Are
stimulate the creation of new jobs, particularly for the
Intended To Benefit Zone
disadvantaged and long-term unemployed, and to promote
Residents
revitalization of economically distressed areas. The United
States Code requires that Empowerment Zone funds must
be used for activities that benefit Zone residents.

To effectively accomplish the Empowerment Zone
Program’s objectives, Zone resources need to be spent in
the nominated area and to the benefit of Zone residents to
the maximum extent possible. Where the nature of an
activity is such that it affects both Empowerment Zone and
non-Zone residents, such as the creation of a grocery store,
then the City needs to demonstrate that the activity
primarily benefits Zone residents. Because the Corporation
did not monitor the Empowerment Zone activities to ensure
that the activities benefited Zone residents to the maximum
extent possible, the impact of the Empowerment Zone
expenditures on Zone residents was diminished.

The funds that were not efficiently and effectively used were
Title 20 funds from the Department of Health and Human
Services. Since all Federal officials have a fiduciary
responsibility to ensure the efficient and effective use of
Federal funds, we recommend that the funds that were not
appropriately used be reimbursed to the Empowerment
Zone Program. Reimbursement to the Program should not
impede the goals of the Empowerment Zone Program since
the funds will be available for appropriate Zone activities.

Excerpts paraphrased from the Atlanta Empowerment Zone
Auditee Comments Corporation’s comments on our draft findings follow.
Appendix C contains the complete text of the comments.

Page 7 98-CH-259-1005
Finding 1

The Atlanta Empowerment Zone Corporation disagrees that
the City should reimburse $1,176,419 to the Empowerment
Zone Program. The Corporation also disagrees that the City
should limit reimbursement for services billed to $6,672
because the Atlanta Housing Authority had a contractual
relationship with the Corporation. The referenced loan to
Corporate Courier is no longer valid. A new commitment has
been made for $250,000 which will be used for the acquisition
of equipment.

We believe reimbursement by the City to the Empowerment
OIG Evaluation of Zone Program is necessary because the use of Zone funds was
Auditee Comments not in accordance with Federal law, HUD’s regulations, and
the Corporation’s requirements. We acknowledge that the
Corporation may have a contractual obligation to pay the
Authority for services to non-Zone residents. We have
adjusted our recommendation to say that the City should only
use $6,672 of Zone funds to reimburse the Authority.

The new commitment to Corporate Courier may be
appropriate if Empowerment Zone funds are not used as an
incentive for Corporate Courier to relocate to the Zone. The
City needs to ensure that the use of Zone funds for the new
commitment is in accordance with Federal law.

The City will continue to take all necessary steps to ensure
Auditee Comments Empowerment Zone funds are used efficiently and effectively
and for purposes consistent with Federal law and regulation.

It is clear that the OIG made a factual error in reporting that
the agreement establishing the Atlanta Center for Home
Ownership program required that all services be provided only
to Zone residents.

The City acknowledges that it will ensure Zone funds are
OIG Evaluation of efficiently and effectively used. At the time of our review,
Auditee Comments procedures and controls were not adequate. The City needs to
establish procedures and controls to ensure that Zone funds are
properly used. We acknowledge that the Atlanta Center for
Home Ownership is not required to provide services to only
Zone residents. We adjusted our finding to reflect this fact.
For the purpose of this audit, we concluded activities did not
benefit Zone residents if the activities served less than 51
percent of Zone residents, or if the activities did not provide

98-CH-259-1005 Page 8
Finding 1

benefits to Zone residents when the activity’s administrators
had control over who received the benefit of their services.

The Atlanta Empowerment Zone Corporation has hired a new
Auditee Comments Executive Director. Among the many tasks before him is to
improve the procedures and controls to monitor Empowerment
Zone funded activities. The Corporation will continue to
improve the accuracy of the information provided to HUD.

The City should ensure that procedures and controls are
OIG Evaluation of established to monitor activities funded under the
Auditee Comments Empowerment Zone Program and to improve the accuracy of
information provided to HUD.

The Corporation has developed procedures to ensure
Auditee Comments compliance with the Mortgage Assistance Program’s
guidelines. The Corporation has assigned the responsibility of
oversight for the Program to a housing specialist.

The Corporation said it developed procedures and controls to
OIG Evaluation of ensure compliance with the Mortgage Assistance Program’s
Auditee Comments guidelines; however, the Corporation did not provide the
procedures with its comments. The Corporation assigned
responsibility for the Program to a housing specialist. The
Corporation’s Executive Director needs to ensure that
supervisory reviews over the Program are adequate.

The new Executive Director will review the Corporation’s
Auditee Comments current procurement practices and will make improvements as
needed. The intergovernmental agreement between the
Corporation and the Atlanta Housing Authority is not in
violation of the Department of Health and Human Services’
procurement standards and complies with the Office of
Management and Budget’s Common Rule. The Authority’s
per client cost is reasonable.

The Department of Health and Human Services’ regulations
OIG Evaluation of require that all procurement transactions be conducted in a
Auditee Comments manner providing full and open competition. While the
regulations and the Office of Management and Budget’s
Common Rule allow for intergovernmental agreements, the

Page 9 98-CH-259-1005
Finding 1

agreements must foster greater economy and efficiency. The
City and the Corporation could not provide assurance that the
agreement was economical or efficient.

We acknowledge that the Atlanta Center for Home
Ownership’s cost per person is reasonable; however, the
Center’s Director said the cost of the program would increase
significantly if the program only served Zone residents. Since
the Center primarily served non-Zone residents and needs to
increase the number of Zone residents served, the City needs to
ensure that the cost of the program remains competitive.

We recommend that the Coordinator of the EZ/EC Initiative,
Recommendations in conjunction with officials from the Department of Health and
Human Services, assure the City of Atlanta:

1A. Reimburses the Empowerment Zone Program
$1,176,419 from non-Federal funds for the home
ownership services ($739,178), the loan to Creative
Fine Arts ($429,241), and the mortgage assistance loan
($8,000).

1B. Only reimburses the Housing Authority of the City of
Atlanta $6,672 from Empowerment Zone funds for
services provided to Zone residents during January and
February 1998.

1C. Uses Empowerment Zone funds to fulfill the $250,000
loan commitment to Corporate Courier only if the use
of Zone funds fully complies with Federal law.

ID. Establishes procedures and controls to ensure that
Empowerment Zone funds are used efficiently and
effectively, and in accordance with Program
requirements.
1E. Ensures the Housing Authority of the City of Atlanta
provides services to Empowerment Zone residents as
required by the Atlanta Empowerment Zone
Corporation’s contract.

1F. Establishes procedures and controls to ensure that the
Atlanta Empowerment Zone Corporation monitors all
Empowerment Zone activities as required by the City’s
contract.

98-CH-259-1005 Page 10
Finding 1

1G. Ensures the Atlanta Empowerment Zone Corporation
provides complete and accurate information when
requesting approval to use Empowerment Zone funds.

1H. Ensures the Atlanta Empowerment Zone Corporation
establishes procedures and controls so that the
Mortgage Assistance Program complies with
established guidelines.

1I. Ensures the Atlanta Empowerment Zone Corporation
establishes supervisory review and oversight over the
Mortgage Assistance Program.

1J. Establishes procedures and controls to ensure that
Empowerment Zone contracts are awarded in a
manner providing full and open competition as required
by the Department of Health and Human Services.

1K. Ensures costs charged by the Housing Authority of the
City of Atlanta do not exceed those that would have
been charged if the contract had been competitively
bid.

Page 11 98-CH-259-1005
Finding 1

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98-CH-259-1005 Page 12
Finding 2

The City Inaccurately Reported The
Accomplishments Of Its Empowerment Zone
Activities
The City of Atlanta incorrectly reported the actual status and progress for five of the 16 activities
we reviewed from the June 30, 1997 Performance Review. The Review contained inaccuracies
related to: four activities’ performance measures; three activities’ funding; two activities’
performance milestones, and one activity’s narrative summary. The inaccuracies occurred because
the Atlanta Empowerment Zone Corporation, which the City contracted with to administer its
Empowerment Zone Program, did not verify the information included in the Performance Review. As
a result, the City did not accurately report the accomplishments of its Empowerment Zone Program to
HUD. The impression exists that the benefits of the City’s Empowerment Zone Program were greater
than actually achieved.

Page 3 of the December 21, 1994 Memorandum of Agreement
HUD’s Requirements between HUD and the City of Atlanta requires the City to
submit reports to HUD on the progress made in carrying out
activities specified in the Strategic Plan. Page 3 of the
Agreement also requires the City to provide HUD with a
narrative summarizing the progress made and obstacles
encountered in carrying out the Plan during each year of
designation.

The 1997 EZ/EC Performance Review instructions issued by
HUD on June 23, 1997, page 4, state for performance
measures, Empowerment Zones will report the final products
produced or other measurable outcomes of the activity. Zones
should describe: the major sources of funding, the amounts,
and the status of the commitment at the time the report is
submitted. For performance milestones, Empowerment Zones
should also report both projected and actual dates for key
interim actions that will result in the completion of the activity.

The City of Atlanta inaccurately reported the
The City Incorrectly
accomplishments for five of the 16 activities we reviewed
Reported The Progress Of
from the June 1997 Performance Review. The status of two
Empowerment Zone
activities was accurately reported. The other nine activities
Activities
although reported as Empowerment Zone activities, were
not (see Finding 3). The following table shows the
incorrect reporting by performance category for the five

Page 13 98-CH-259-1005
Finding 2

activities reviewed and the page number where a detailed
summary for each activity is located:

Narrative Page
Activity Measures Funding Milestones Summary Number
Sweet Auburn
Curb Market X X X 47
Creative Fine Arts
X X 59
Revolving Loan
Program X X 50
Corporate
Courier X X 52
Home Ownership
Program X 40
Totals 4 3 2 1

The City incorrectly reported the performance measures for
The City Inaccurately four activities. Performance measures are the final products
Reported Four Activities’ produced or other measurable outcomes of the activity. For
Performance Measures example, the City reported in the June 1997 Performance
Review that the Atlanta Center for Home Ownership program
served a total of 500 Empowerment Zone residents and the
Center had received 1,300 visitors as of June 30, 1997.
Documentation maintained by the Housing Authority of the
City of Atlanta, the program’s administering entity, showed
that only 189 Empowerment Zone residents were served
through June 30, 1997. The Authority did not maintain any
documentation to support the number of visitors to the Center.
The number of visitors was an estimate provided by the
Director of the Center.

The City over reported the funding for three activities in the
The City Over Reported June 1997 Performance Review. Funding consists of
The Activities’ Funding Empowerment Zone monies, non-Zone Federal funds, State
By Over $5 Million and local funds, private funds, and in-kind contributions. The
City reported the three activities’ funding included $6,588,388;
however, the activities leveraged funding only included
$1,228,000 as of June 30, 1997. The net affect was an over
reporting of $5,360,388. The following table shows the
incorrect funding reported for the three activities:

Amount Amount Over/Under
Activity Reported Supported Reporting

98-CH-259-1005 Page 14
Finding 2

Sweet Auburn Curb
Market $5,988,388 $500,000 $5,488,388
Creative Fine Arts 900,000 728,000 172,000
Corporate Courier 700,000 0 700,000
Totals $6,588,388 $1,228,000 $5,360,388

Because of the inaccurate reporting, a false impression was
created that more funds were committed to the activities than
actually were. Since one of the measures of success for the
Empowerment Zone Program is the amount of leveraged funds
and contributions, we believe it is imperative for the City to
accurately report the funding of its activities.

The City inaccurately reported the performance milestones for
The City Incorrectly two activities. Performance milestones are the key interim
Reported The Activities’ actions that will result in the completion of the activity. For
Performance Milestones example, the City’s June 1997 Performance Review showed
the Revolving Loan Fund program received 100 loan
requests between January and December 1996; however,
documentation maintained by the Atlanta Empowerment
Zone Corporation showed that only 12 requests were
received in 1996. The over reporting of loan requests by
the Corporation provided an exaggerated impression of
program interest.

The City reported in the June 1997 Performance Review that
The City Did Not Have Corporate Courier employed 50 persons of which 12 were
Documentation To Empowerment Zone residents. The Atlanta Empowerment
Support The Number of Zone Corporation did not have documentation to support the
Jobs Reported number of individuals reported as employed by Corporate
Courier. The President of Corporate Courier declined to
provide us information on the number of its employees and
their residency.

The individuals who prepared the 1997 Performance
Review no longer work at the Corporation. Personnel
currently working at the Empowerment Zone Corporation
said they did not know the source of the reported figures.
The Corporation did not verify the accuracy of the
information reported. We believe it is imperative that the
progress of Zone activities be verified to ensure the validity
and reliability of reported information.

Page 15 98-CH-259-1005
Finding 2

Excerpts paraphrased from the Atlanta Empowerment Zone
Auditee Comments Corporation’s comments on our draft findings follow.
Appendix C contains the complete text of the comments.

The City has taken actions to ensure procedures and
controls are in place to verify the accuracy of the
information submitted to HUD. The Empowerment Zone
Executive Director will have overall responsibility for the
Performance Review. After the Performance Review has
been completed, it will undergo a final review by the
Compliance Manager. The report will then be submitted to
the City for review and submission to HUD. The
Performance Review will undergo a total of three reviews
prior to submission to HUD. The City is confident that
these procedures will ensure the accuracy of the data
submitted to HUD.

The City’s actions should ensure the accuracy of the
OIG Evaluation of Performance Review, if properly implemented. The
Auditee Comments Corporation needs to ensure that personnel who prepare the
Performance Review use actual verified accomplishments to
report on each activity.

Recommendations We recommend that the Coordinator of the EZ/EC Initiative
assures the City of Atlanta:

2A.Establishes procedures and controls to verify the
accuracy of information submitted to HUD for the
Empowerment Zone Program.

2B. Ensures that staff, who are responsible for preparing
the Performance Review for HUD, use the actual
verified accomplishments to report on each activity.

98-CH-259-1005 Page 16
Finding 3

The City Incorrectly Reported Nine Activities
As Empowerment Zone Activities
The City of Atlanta incorrectly reported activities included in its June 30, 1997 Performance
Review as Empowerment Zone Program activities when they were not. Of the 16 activities we
selected for review from the Performance Review, the City inappropriately reported that nine
activities were Zone activities. The nine non-Zone activities were established or scheduled prior
to the City’s Zone designation. HUD’s instructions for the Performance Review reporting is
designed to measure the performance of Empowerment Zone activities. Because the City
included the nine non-Zone activities in the Performance Review, the City incorrectly reported
that 170 housing units were rehabbed or constructed and $57,204,000 in funding was leveraged
as a result of the Empowerment Zone Program. The problem occurred because the Atlanta
Empowerment Zone Corporation, which administers the City’s Empowerment Zone Program,
misunderstood HUD’s verbal instructions on the preparation of the Performance Review and did not
remove the inappropriate benchmarks. As a result, the accomplishments of the City’s Empowerment
Zone Program were not accurately reported to HUD, which created the impression that the benefits of
the Program were greater than actually achieved.

The June 23, 1997 EZ/EC instructions for Performance
HUD’s Requirements Review reporting, page 1, state the Performance Review
System is designed to measure the performance of
Empowerment Zone activities. Page 3 of the instructions
allows Zones to add, modify, or delete individual Strategic Plan
benchmarks.

The City of Atlanta inaccurately reported that nine of the 16
City Incorrectly Reported
activities included in the June 1997 Performance Review
Nine Projects As Zone
that we reviewed were Empowerment Zone activities. The
Activities
nine non-Zone activities were established or scheduled prior
to the City’s Zone designation.

HUD’s instructions are designed to gather information on
activities resulting from the Empowerment Zone Program,
and contain procedures to change benchmarks. Because the
City included the nine non-Zone activities in the
Performance Review, it incorrectly reported that its
Empowerment Zone Program: (1) rehabbed or constructed
170 housing units; (2) repaired 5,000 feet of deteriorated
sidewalks, and (3) leveraged $57,204,000 in funding. The
following chart lists the nine activities, their reported
leveraged funding, and the page number where a detailed
summary for each activity is located:

Page 17 98-CH-259-1005
Finding 3

Page
Activity Name Funding Number
Pittman Park Improvements $ 195,000 30
Joyland Park Improvements 100,000 30
Chosewood Park Tennis Courts Improvement 60,000 30
Daniel Stanton Recreation Center 286,000 30
Sidewalk Repair 2,230,000 30
Reynoldstown Community Revitalization 30,236,000 56
Historic District Community Revitalization 17,687,000 56
Storm Drainage Improvements 2,070,000 34
Bridge Repair 4,340,000 34
Total $57,204,000

The Atlanta Empowerment Zone Corporation consultant, who
assisted in preparing the Performance Review, said he received
verbal instructions from HUD and the Corporation’s former
Executive Director to include non-Zone funded activities in the
Review.

The Corporation’s staff and the consultant misunderstood the
instructions. HUD’s verbal instructions were the same as the
requirements contained in the June 1997 Performance Review
instructions. The instructions require Zones to report on
activities resulting from the Empowerment Zone Program.
Since the nine activities were not initiated as a result of the
Zone, the City should have included them in the non-Zone
activities section of the 1997 Performance Review. As a result,
the accomplishments of the Empowerment Zone were not
accurately reported to HUD, and an impression was created
that the benefits of the Empowerment Zone Program were
greater than actually achieved.

Excerpts paraphrased from the Atlanta Empowerment Zone
Auditee Comments Corporation’s comments on our draft findings follow.
Appendix C contains the complete text of the comments.

There is no requirement that the source of funding for
Empowerment Zone activities was to be made from Zone
funds. Zone residents were the beneficiaries of the
activities.
The activities were implemented as a result of the Zone
designation. The Zone designation acted as a catalyst for
implementation of the activities.

98-CH-259-1005 Page 18
Finding 3

We agree that procedures were needed to control and
ensure appropriate reporting of Empowerment Zone
activities to HUD. Monitoring procedures have been
developed to accomplish this goal.

Our finding did not question the source of funding for the
OIG Evaluation of activities. We questioned the City’s reporting of them as
Auditee Comments Empowerment Zone activities when the activities were planned
before the City’s Zone designation. The intention of the
Empowerment Zone Performance Review is to measure the
impact the Empowerment Zone Program is having on the
designated area. If an activity was planned before the City
received its designation, the Empowerment Zone Program
cannot be considered the catalyst for the activity. The City and
the Atlanta Empowerment Zone Corporation did not provide
any documentation to show that the Empowerment Zone
Program impacted the implementation of the activities.

The procedures the Corporation says it will use to ensure the
reporting accuracy of the Performance Review to HUD should
correct the problem, if properly implemented.

Recommendations We recommend that the Coordinator of the EZ/EC Initiative
assures the City of Atlanta:

3A. Establishes procedures and controls to appropriately
report Empowerment Zone activities to HUD.

Page 19 98-CH-259-1005
Finding 3

98-CH-259-1005 Page 20
Management Controls
In planning and performing our audit, we considered the management controls of the City of Atlanta in
order to determine our auditing procedures, not to provide assurance on the controls. Management
controls include the plan of organization, methods and procedures adopted by management to ensure
that its goals are met. Management controls include the processes for planning, organizing, directing,
and controlling program operations. They include the systems for measuring, reporting, and
monitoring program performance.

We determined the following management controls were
Relevant Management
relevant to our audit objectives:
Controls

· Program Operations - Policies and procedures that
management has implemented to reasonably ensure that a
program meets its objectives.

· Validity and Reliability of Data - Policies and procedures
that management has implemented to reasonably ensure
that valid and reliable data are obtained, maintained, and
fairly disclosed in reports.

· Compliance with Laws and Regulations - Policies and
procedures that management has implemented to
reasonably ensure that resource use is consistent with laws
and regulations.

· Safeguarding Resources - Policies and procedures that
management has implemented to reasonably ensure that
resources are safeguarded against waste, loss, and misuse.

We assessed all of the relevant controls identified above.

It is a significant weakness if management controls do not
provide reasonable assurance that the process for planning,
organizing, directing, and controlling program operations will
meet an organization’s objectives.

Based on our review, we believe the following items are
Significant Weaknesses
significant weaknesses:

· Program Operations.

Page 21 98-CH-259-1005
Management Controls

The City did not use all Empowerment Zone funds to
benefit Zone residents or the Zone (see Finding 1).

· Validity and Reliability of Data.

The City incorrectly reported the actual status and
progress for five of the 16 activities we reviewed from
the June 30, 1997 Performance Review (see Finding 2).
The City also incorrectly reported that nine of the 16
activities included in its June 1997 Performance Review
were Empowerment Zone Program activities when they
were not (see Finding 3).

· Compliance with Laws and Regulations.

The City did not follow the United States Code, the
Department Health and Human Services’ regulations, or
HUD’s regulations. Empowerment Zone funds were:
(1) used and did not benefit Zone residents or the Zone;
(2) paid to relocate a business to the Zone when the
relocation of the business resulted in decreased
employment and the closing of the business in its
original location which is not an appropriate use of Zone
funds; and (3) committed to assist in the relocation of
another business to the Zone which will result in the
closing of the business and decreased employment in the
original location. Also, an Empowerment Zone contract
was not awarded through a competitive process as
required (see Finding 1).

· Safeguarding Resources.

The City inappropriately: (1) paid $739,178 for services
from Empowerment Zone funds, and was billed $53,979
for services provided, but the services did not benefit
Zone residents; (2) used $429,241 of Empowerment
Zone funds to assist in the relocation of a business to the
Zone, but the relocation of the business resulted in
decreased employment and the closing of the business in
its original location which is not an appropriate use of
Zone funds; (3) provided $8,000 of Empowerment Zone
funds to assist in the purchase of a home located outside
of the Zone; and (4) committed $400,000 of

98-CH-259-1005 Page 22
Management Controls

Empowerment Zone funds to assist in the relocation of
another business to the Zone which will result in the
closing of the business and decreased employment in the
original location (see Finding 1).

Page 23 98-CH-259-1005
Management Controls

(THIS PAGE LEFT BLANK INTENTIONALLY)

98-CH-259-1005 Page 24
Follow Up On Prior Audits
This is the first audit of the City of Atlanta’s Empowerment Zone Program by HUD’s Office of
Inspector General. The latest single audit for the City covered the fiscal year ended December 31,
1996. The report contained six findings. One of the six findings is repeated in this report.

Single Audit Report This Report

The City Failed To Effectively The City Did Not Have
Monitor The Empowerment Adequate Control Over
Zone Grant (Finding 6). Empowerment Zone Funds
(Finding 1).

Page 25 98-CH-259-1005
Follow Up On Prior Audits

(THIS PAGE LEFT BLANK INTENTIONALLY)

98-CH-259-1005 Page 26
Appendix A

Schedule Of Questioned Costs
Recommendation Type of Questioned Costs
Number Ineligible 1/

1A $1,176,419
1C 400,000
Total $1,576,419

1/ Ineligible costs are questioned costs to a HUD program or activity that the auditor believes
are not allowable by law, contract, or Federal, State, or local policies or regulations.

Page 27 98-CH-259-1005
Appendix A

(THIS PAGE LEFT BLANK INTENTIONALLY)

98-CH-259-1005 Page 28
Appendix B

Activities Reviewed
This appendix contains the individual evaluations for the activities we reviewed. We judgmentally
selected 16 of the City of Atlanta’s 123 activities reported in the June 30, 1997 Performance
Review. We found that the City inappropriately used or committed Empowerment Zone funds, or
inaccurately reported the accomplishments of its Program to HUD for 15 activities. The
following table shows the 15 activities that had problems, their location in this appendix, and the
finding(s) they relate to:

Activity Page Finding
1. Pittman Park Improvements 30 3
2. Joyland Park Improvements 30 3
3. Chosewood Park Tennis Courts Improvements 30 3
4. Daniel Stanton Recreation Center 30 3
5. Sidewalk Repair Sweet 30 3
6. Bridge Repair 34 3
7. Storm Drainage Improvements 34 3
8. Mortgage Assistance Program 37 1
9. Atlanta Center for Home Ownership 41 2 and 3
10. Sweet Auburn Curb Market 48 2
11. Revolving Loan Fund 51 2
12. Revolving Loan for Corporate Courier 53 1 and 2
13. Reynoldstown Community Revitalization Project 57 3
14. Historic District Community Revitalization Project 57 3
15. Revolving Loan for Creative Fine Arts 60 1 and 2

Page 29 98-CH-259-1005
Appendix B

Five Physical Improvement Activities Were
Incorrectly Reported As Zone Activities
The City of Atlanta incorrectly reported that five activities included in its June 30, 1997 Performance
Review were Empowerment Zone Program activities. The activities were three parks that were to be
improved, a recreation center that was to be rehabilitated, and a sidewalk repair program. The
activities were included as benchmarks in the City’s Strategic Plan; however, the activities were
scheduled prior to the City’s Zone designation. Because the City included the five activities in the
Performance Review, $2,961,000 in funding was incorrectly reported as leveraged funds. The problem
occurred because the Atlanta Empowerment Zone Corporation, which administers the City’s Program,
misunderstood HUD’s verbal instructions on the preparation of the Performance Review and did not
remove the inappropriate benchmarks. As a result, the accomplishments of the City’s Empowerment
Zone Program were not accurately reported to HUD, which created the impression that the benefits of
the Program were greater than actually achieved.

The City of Atlanta incorrectly reported that five activities
City Incorrectly Reported included in the June 1997 Performance Review were
Five Projects As Zone Empowerment Zone activities. The five activities were
Activities included as benchmarks in the City’s Strategic Plan; however,
the activities were scheduled prior to the City’s Zone
designation. HUD’s instructions are designed to gather
information on activities resulting from the Empowerment
Zone Program, and contain procedures to change benchmarks.
Because the City included the five activities in the Performance
Review, it incorrectly reported that $2,961,000 in funds were
leveraged, and 5,000 feet of deteriorated sidewalks were
repaired as a result of the Zone. Funding for the five activities
did not involve Empowerment Zone monies. The following
chart lists the five activities and their reported funding levels:

Activity Name Funding
Pittman Park Improvements $195,000
Joyland Park Improvements 100,000
Chosewood Park Tennis Courts
Improvements 60,000
Daniel Stanton Recreation Center 286,000
Sidewalk Repair 2,320,000
Total $2,961,000
The Deputy Commissioner of the City’s Department of Parks,
Recreation, and Cultural Affairs said the Pittman Park, Joyland
Park, Chosewood Park, and the Daniel Stanton Recreation

98-CH-259-1005 Page 30
Appendix B

Center activities were not initiated as a result of the
Empowerment Zone Program. He said the activities resulted
from suggestions made by the City’s staff and community
residents. The four activities were included in the City’s 1993-
1994 Capital Improvements Plan for planned parks and
recreation projects.

The Budget Manager for the City’s Department of Planning,
Development, and Neighborhood Conservation and the former
Project Manager for the Corporation for Olympic
Development in Atlanta, said the Sidewalk Repair program
was initiated in connection with the Olympics. The Sidewalk
Repair program was included in the Corporation for Olympic
Development in Atlanta’s September 1993 survey. The survey
identified needed repairs to sidewalks located in 15
neighborhoods near the City’s Olympic area.

The Atlanta Empowerment Zone Corporation’s consultant,
who assisted in preparing the Performance Review, said he
received verbal instructions from HUD and the Corporation’s
former Executive Director to include non-Zone funded
activities in the Review. However, the Corporation’s staff and
the consultant misunderstood the instructions. HUD’s verbal
instructions were the same as the requirements contained in the
June 1997 Performance Review instructions that require Zones
to report on activities resulting from the Empowerment Zone
Program. Since the four activities were not initiated as a result
of the Zone, the City should have included them in the non-
Zone activities section of the 1997 Performance Review. As a
result, the accomplishments of the Empowerment Zone
Program were not accurately reported to HUD and an
impression was created that the benefits of the Program were
greater than actually achieved.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 74,
contains the complete text of the comments.

There is no HUD requirement or Department of Health and
Human Services’ requirement that states the source of
funding for Zone activities has to be funded by Zone dollars.
Zone residents directly benefited from these activities which
were addressed in the Strategic Plan. All five (5) projects
were planned over a period of time, but did not come to

Page 31 98-CH-259-1005
Appendix B

fruition until after the Empowerment Zone designation.
These projects assisted in the removal of blight and the
revitalization of the Zone. Therefore, since the projects
were effectuated after the designation of the Empowerment
Zone, these activities were correctly characterized and
should be considered accomplishments of the
Empowerment Zone.

Although the activities were scheduled prior to the
designation of the Atlanta Empowerment Zone, there was
no guarantee that these activities would have been
implemented without the Zone designation. Further, the
designation of the Atlanta Empowerment Zone accelerated
the implementation of these activities and was a catalyst for
these activities to come to fruition.

There was a need for procedures and controls for the
appropriate reporting of Empowerment Zone activities to
HUD. The Empowerment Zone has developed monitoring
procedures to address these issues that will be used for
future reporting.

Our finding did not question the source of funding for the five
OIG Evaluation of activities. We questioned the City’s reporting of them as
Auditee Comments Empowerment Zone activities when the activities were planned
before the City’s designation as a Zone. The intention of the
Empowerment Zone Performance Review is to measure the
impact the Empowerment Zone Program is having on the
designated area. If an activity was planned before the City
received its Zone designation, obviously the Empowerment
Zone Program was not the initiative for the activity. The City

98-CH-259-1005 Page 32
Appendix B

and the Atlanta Empowerment Zone Corporation did not
provide any documentation to show that the Empowerment
Zone Program impacted the five activities.

The procedures the Corporation says it will use to ensure the
reporting accuracy of the Performance Review to HUD should
correct the problem, if properly implemented.

Bridge Repair and Storm Drainage
Improvements Projects Were Incorrectly
Reported As Empowerment Zone Activities

Page 33 98-CH-259-1005
Appendix B

The City of Atlanta incorrectly reported that the Bridge Repair and Storm Drainage Improvements
projects included in its June 30, 1997 Performance Review were Empowerment Zone Program
activities. The projects were included as benchmarks in the City’s Strategic Plan; however, the projects
were scheduled prior to the City’s Zone designation. Because the City included the two projects in the
Performance Review, $6,410,000 in funding was incorrectly reported as leveraged funds. The problem
occurred because the Atlanta Empowerment Zone Corporation, which administers the City’s Program,
misunderstood HUD’s verbal instructions on the preparation of the Performance Review. As a result,
the accomplishments of the City’s Empowerment Zone Program were not accurately reported to
HUD, which created the impression that the benefits of the Program were greater than actually
achieved.

The City of Atlanta incorrectly reported that two projects
City Incorrectly Reported included in the June 1997 Performance Review were
Two Projects As Zone Empowerment Zone activities. The two projects were
Activities included as benchmarks in the City’s Strategic Plan; however,
the projects were scheduled prior to the City’s Zone
designation. HUD’s instructions are designed to gather
information on activities resulting from the Empowerment
Zone Program, and contain procedures to change benchmarks.
Because the City included the two projects in the Performance
Review, it incorrectly reported that $6,410,000 in funds were
leveraged. Funding for the two projects did not involve
Empowerment Zone monies.

The Budget Manager for the City’s Department of Planning,
Development, and Neighborhood Conservation said the Bridge
Repair and Storm Drainage Improvements projects were not
initiated as a result of the City’s Empowerment Zone Program.
He said the projects were part of the City’s infrastructure
improvements to correct overdue problems. The Bridge
Repair project included improvements to the Decatur and
Lakewood Streets bridges. The Decatur Street bridge repairs
were initiated prior to the City’s designation as an
Empowerment Zone and Lakewood Street bridge was included
in the City’s 1993-1994 Capital Improvement Program that
was prepared prior to the City’s Empowerment Zone
designation. The Storm Drainage project was included in the
Corporation for Olympic Development in Atlanta’s September
1993 survey which was also completed prior to the City being
declared an Empowerment Zone. The survey identified
improvements to storm and sanitary sewer systems located in
14 neighborhoods near the City’s Olympic area.

98-CH-259-1005 Page 34
Appendix B

The Atlanta Empowerment Zone Corporation’s consultant,
who assisted in preparing the Performance Review, said he
received verbal instructions from HUD and the Corporation’s
former Executive Director to include non-Zone funded
activities in the Review. However, the Corporation’s staff and
the consultant misunderstood the instructions. HUD’s verbal
instructions were the same as the requirements contained in the
June 1997 Performance Review instructions that require Zones
to report on activities resulting from the Empowerment Zone
Program. Since the two projects were not initiated as a result
of the Zone, the City should have included them in the non-
Zone activities section of the 1997 Performance Review. As a
result, the accomplishments of the Empowerment Zone
Program were not accurately reported to HUD and an
impression was created that the benefits of the Program were
greater than actually achieved.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 76,
contains the complete text of the comments.

There is no stated requirement that limits reported projects
to only those that are funded with the Empowerment Zone
dollars. In as much, as Empowerment Zone residents
benefited from the improvements, there was a leveraging of
dollars as stated within the Performance Report and the
benefit of the Program was accurately reported.

The projects reported, the repair of bridges and storm
drains, are projects that might not have occurred without
the Zone designation. These projects were included in the
Capital Improvement Program and the Corporation for
Olympic Development; however, the leverage concept does
not merely include the Federal and State, but also the local
government or City of Atlanta projects as well. The
planning of a project in the Capital Improvement Program
does not actually mean that the project will be implemented.
Consequently, the Zone designation acted as a trigger or a
catalyst for these projects and ensured that these projects as
well as other developments would be completed within the
Atlanta Empowerment Zone.

We agree there was a need for procedures and controls for
appropriate reporting to HUD. The Atlanta Empowerment

Page 35 98-CH-259-1005
Appendix B

Zone Corporation has developed monitoring procedures to
ensure that the reporting, from this point forward, will be
accurate and appropriate.

Our finding did not question the source of funding for the
OIG Evaluation of activities. We questioned the City’s reporting of them as
Auditee Comments Empowerment Zone activities when the activities were planned
before the City’s designation as a Zone. The intention of the
Empowerment Zone Performance Review is to measure the
impact the Empowerment Zone Program is having on the
designated area. If an activity was planned before the City
received its Zone designation, obviously the Empowerment
Zone Program was not the initiative for the activity. The City
and the Atlanta Empowerment Zone Corporation did not
provide any documentation to show that the Empowerment
Zone Program impacted the two activities.

The procedures the Corporation says it will use to ensure the
reporting accuracy of the Performance Review to HUD should
correct the problem, if properly implemented.

Zone Funds Were Inappropriately Used To
Purchase A Home Outside Of The Zone
The City of Atlanta inappropriately provided $8,000 of Empowerment Zone funds to assist in the
purchase of a home located outside the Zone. The individual who received the funding was an
employee of the Atlanta Empowerment Zone Corporation. The City contracted with the Corporation
to administer its Empowerment Zone Program. The problem occurred because the Corporation did

98-CH-259-1005 Page 36
Appendix B

not have adequate procedures to ensure that funds were awarded according to the Mortgage
Assistance Program’s guidelines. As a result, Empowerment Zone funds were not efficiently and
effectively used.

The Atlanta Empowerment Zone Corporation, the
Mortgage Assistance administering entity for the Mortgage Assistance Program,
Program’s Guidelines established guidelines on March 26, 1997. The guidelines
required funding to be provided only to Empowerment Zone
residents who are purchasing a home within the geographical
boundaries of the Zone.

The City of Atlanta inappropriately provided $8,000 of
$8,000 Of Zone Funds
Empowerment Zone funds to assist in the purchase of a home
Were Inappropriately
located outside the Zone. The individual who received the
Used
funding lived in the Zone and was an employee of the Atlanta
Empowerment Zone Corporation, which administered the
Program. The Corporation did not have procedures to verify
the location of a property before giving a loan. The
Corporation only verified that loan recipients were Zone
residents. Also, there were no procedures for supervisory
review and oversight. As a result, $8,000 of Empowerment
Zone funds were not used efficiently and effectively.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 80,
contains the complete text of the comments.

HUD’s guidance were in conflict concerning this issue.
Therefore, under local governance, we believe that the
Atlanta Empowerment Zone Corporation Board’s approval
of a policy validates the action taken.

The Atlanta Empowerment Zone Corporation Board has
expressed its intent to allow Social Service Block Grant
funds to be expended on linkage and outside communities.
This is further illustrated by the 1998 Resident Benefit
Policy that authorized expenditures in linkage/outside
communities.

We agree the Atlanta Empowerment Zone Corporation
needed procedures and controls to ensure compliance with
Mortgage Assistance Program’s guidelines. The

Page 37 98-CH-259-1005
Appendix B

Corporation’s staff has developed procedures to govern the
Mortgage Assistance Program.

The Atlanta Empowerment Zone Corporation currently has
a new Executive Director who has assigned the
responsibility of supervision and oversight of the Mortgage
Assistance Program to a housing specialist.

Our position is that the Empowerment Zone resident who
purchased a home outside the Zone was at the time believed
to be eligible to receive the $8,000 grant under the
Mortgage Assistance Program. As a Zone resident, it was
assumed, in error, that the receipt of a direct benefit to the
Zone resident constituted a correct usage of Zone funds.
Therefore, the repayment of these funds should not be
required in as much as this was an isolated case resulting
from lack of clarity as well as ambiguity of guidance
received with regard to this issue. The error made was
unintentional.

We do not know what HUD guidance the Corporation believes
OIG Evaluation of is conflicting. We evaluated the appropriateness of
Auditee Comments Empowerment Zone funds used based upon the Corporation’s
own guidelines that required Zone funds assist with the
purchase of homes located within the Zone.

The purpose of the Empowerment Zone Program is to benefit
the designated area. Under the Program’s requirements, the
Corporation’s Board does not have the flexibility to use Zone
funds to benefit linkage/outside communities.

The Corporation indicated it had developed procedures and
controls to ensure compliance with the Mortgage Assistance
Program. The Corporation did not provide the procedures
with its comments.

The Corporation assigned responsibility for the Mortgage
Assistance Program to a housing specialist. The Corporation’s
Executive Director needs to verify that supervisory reviews
over the Program are adequate.

Although the inappropriate use of Zone funds by the
Corporation for the Mortgage Assistance Program was an

98-CH-259-1005 Page 38
Appendix B

isolated occurrence, the City still needs to reimburse the
Empowerment Zone Program $8,000 from non-Federal funds.

Controls Over the Center for Home Ownership
Program Were Not Adequate
The City of Atlanta did not have adequate controls over the Atlanta Center for Home Ownership
program. The City did not ensure that $739,178 of Empowerment Zone funds benefited Zone
residents and did not competitively bid the contract that established the program. The City also
inaccurately reported the actual progress of the program in the June 30, 1997 Performance Review.
The inaccuracies related to performance measures and funding. The problems occurred because the
Atlanta Empowerment Zone Corporation, which the City contracted with to administer its
Empowerment Zone Program, did not perform monitoring reviews to ensure services were provided to

Page 39 98-CH-259-1005
Appendix B

Zone residents and verify the accuracy of the information included in the Performance Review. As a
result, Empowerment Zone funds were not used efficiently and effectively. The City also did not
provide HUD with an accurate picture of the program and the impression exists that the benefits of the
program are greater than actually achieved.

The Housing Authority of the City of Atlanta used $739,178 of
Empowerment Zone
Empowerment Zone funds that did not benefit Zone residents.
Funds Did Not Benefit
The City chose the Authority to administer the Home
Zone Residents
Ownership Center that provides services to Zone residents.
However, services were provided to non-Zone residents which
was not in accordance with the affordable housing proposal
and the Authority’s contract. The Corporation’s Board
approved the proposal on September 11, 1995 that resulted in
a contract between the Corporation and the Authority. The
contract was effective on July 15, 1996 and required that
services for money management, home management, and home
ownership be provided to Zone residents.

The Authority received $911,440 in Zone funds to provide
home ownership services through December 31, 1997. The
Authority’s records showed that only 515 (18.9 percent) of
2,717 persons served were Zone residents. Therefore, only
$172,262 of the funds spent were related to services provided
to Empowerment Zone residents. Additionally, the Authority
submitted an invoice totaling $60,651 for services provided
during January and February 1998. During this period, the
program served 98 (11 percent) Zone residents out of 889
individuals served. Of the $60,651 billed, $53,979 (89 percent
x $60,651) were for services to non-Zone residents. The
Corporation did not monitor the program to ensure that Zone
residents were the beneficiaries of the program. As a result,
Empowerment Zone funds were not used efficiently and
effectively.

The Corporation did not properly procure its contract with the
Contract Was Not Housing Authority of the City of Atlanta. In July 1996, the
Properly Procured Corporation signed a $4 million, nine year contract with the
Authority to provide home ownership services to
Empowerment Zone residents. The City awarded the contract
to the Authority without full and open competition. In order to
determine whether the contract was reasonable, we compared
the Authority’s program cost of $480 per person to cost
proposals we obtained from four vendors. The vendors
provided us cost proposals ranging from $300 to $689 per

98-CH-259-1005 Page 40
Appendix B

person. The costs charged by the Authority appear within an
acceptable range when compared to the vendors’ quotes.
However, the Authority’s cost of $480 is based on the volume
of both Empowerment Zone residents and non-Zone residents;
whereas, the four quotes we obtained were based on services
to only Empowerment Zone residents. The Director of the
Home Ownership Center said the costs of the program would
increase significantly if the program only served Zone residents.
The cost per Empowerment Zone resident served through
December 1997 was $1,770 ($911,440 Zone funds / 515 Zone
residents served).

A Board member of the Corporation and Chairperson of the
Housing Task Force said the City’s original Zone application
included a provision for $13.2 million for the Authority’s
modernization efforts; however, the provision was changed
because of resistance by community leaders. The Housing
Task Force wanted the Authority included in the Zone activity;
therefore, the Task Force developed a plan to use the Authority
to provide home ownership services to Zone residents. The
City awarded the contract to the Authority without soliciting
proposals from other home ownership counseling providers.
As a result, the City and HUD lack assurance that the contract
costs represented the most efficient and effective expenditure
of Empowerment Zone funds.

The City’s Review showed the program served a total of 500
The City Incorrectly Empowerment Zone residents and the Center had received
Reported The Number Of 1,300 visitors as of June 30, 1997. Documentation maintained
Individuals Served by the Authority only supported 189 Empowerment Zone
residents were served through June 30, 1997, and the
Authority did not maintain documentation on the number of
visitors to the Center. We determined the number of visitors
was an estimate provided by the Director of the Center. The
Director did not have any documentation to support the
estimate.

The individuals who prepared the 1997 Performance
Review no longer work at the Corporation. Personnel at
the Empowerment Zone Corporation said they did not
know where the reported figures were obtained. The
Empowerment Zone Corporation did not monitor the
program or verify the accuracy of information reported. We
believe it is imperative that the progress of Zone activities

Page 41 98-CH-259-1005
Appendix B

be monitored and verified to ensure Empowerment Zone
funds are efficiently and effectively spent.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 82,
contains the complete text of the comments.

The OIG omitted important information regarding the
Atlanta Center for Home Ownership program’s outreach
efforts to Empowerment Zone residents from the draft audit
finding. There was an on-going misunderstanding with
regard to the contract terms versus HUD’s and the Atlanta
Empowerment Zone Corporation Executive Board's
guidance on the issue of who could be served with
Empowerment Zone funds.

We acknowledge that the Authority had an extensive outreach
OIG Evaluation of program; however, the Authority’s own records showed that
Auditee Comments of the 13,000 surveys conducted, only 6,300 were sent to Zone
residents. This shows the Authority’s efforts were not directed
primarily to Zone residents.

The OIG's method of determining the Atlanta Center for
Auditee Comments Home Ownership program's per client cost must be
challenged. The $480 per client cost determination is based
on $911,440 in Empowerment Zone funds plus $392,401 in
Atlanta Housing Authority in-kind funds divided by 2,717,
the number of individuals served by the program. Since the
misuse of Empowerment Zone funds is at the heart of the
OIG's finding, the dollars the Atlanta Housing Authority
invested in the program are not a consideration.
Subtracting the in-kind dollars from the equation results in a
per client cost of $335 in Empowerment Zone funds. The
OIG’s numbers without the in-kind cost and deducting the
expenses for the build-out and furniture results in a per
client cost of $180.

The method we used to calculate the per person cost included
OIG Evaluation of all funds expended since they comprised the total cost to
Auditee Comments provide the services. Build-out expenses were a part of
operating the program. The cost proposals obtained from the
four vendors included all costs of operating the program. The
fact that some of the funds came from the Authority does not

98-CH-259-1005 Page 42
Appendix B

negate the fact that the funds were used to provide the services.
Based on the total cost to provide the services, the per person
cost was $480.

It is our position that the non-Empowerment Zone clients
Auditee Comments served by the Atlanta Center for Home Ownership program
had the same profile as Zone clients. The non-Zone clients
were low-income and expressed interest in the Zone and its
programs. Many of these clients were public housing
residents and others were Empowerment Zone Linkage
Community families. Both the Empowerment Zone Board
and the Atlanta Center for Home Ownership’s Advisory
Board have representatives from the Linkage Communities.
It is not clear how the rules and regulations for the
Empowerment Zone Program define and treat such low-
income families. However, it is clear that the OIG made a
factual error in reporting that the agreement establishing the
Atlanta Center for Home Ownership program required that
all services be provided only to Zone residents. The
agreement does not limit the Atlanta Center for Home
Ownership program's delivery of client services to only
Zone residents.

We acknowledge that by the terms of its contract, the
OIG Evaluation of Atlanta Center for Home Ownership is not required to
Auditee Comments provide services to only Zone residents. We corrected our
finding to reflect this fact. However, Federal law, the
Authority’s contract, and the affordable housing proposal
required the Center to provide services to Zone residents.
Since only 18.9 percent of the individuals served were Zone
residents, the Center did not primarily benefit
Empowerment Zone residents. For the purpose of this
audit, we concluded activities did not benefit Empowerment
Zone residents if the activities served less than 51 percent of
Zone residents, or if the activities did not provide benefits to
Zone residents when the activity’s administrators had control
over who received the benefit of the services. In the case of the
Atlanta Center for Home Ownership, the Housing Authority of
the City of Atlanta had control over who received the benefits
of its services.

The Atlanta Center for Home Ownership program was not
Auditee Comments designed to limit the program's delivery of client services to

Page 43 98-CH-259-1005
Appendix B

only Zone residents. The methodology used by the OIG in
determining benefit was flawed in that the proposed
reimbursement does not take into consideration the
performance goals for the HUD-approved activity, fixed
costs versus per client costs, and the profile of the non-
Empowerment Zone clients receiving services. Services
were not inappropriately provided to non-Zone clients, so
the City will not be reimbursing the Empowerment Zone
Program.

We believe the $739,178 repayment from non-Federal funds
OIG Evaluation of to the Empowerment Zone Program is appropriate. The
Auditee Comments Center’s contract and the affordable housing proposal
required the Center to provide services to Zone residents.
If it was the City’s intention that the Center should provide
services to non-Zone residents as well as Zone residents,
then the City needs to modify the Center’s contract.
However, the City must ensure that Empowerment Zone
residents are the primary beneficiaries of the Center’s
services.

We strongly disagree that the City should only reimburse
Auditee Comments the Authority $6,672 for the services provided to
Empowerment Zone residents during January and February
1998. The Atlanta Housing Authority is providing services
in accordance with its agreement with the Atlanta
Empowerment Zone Corporation. There is no legal basis
under the terms and conditions of that agreement to
withhold payment.

We have changed our recommendation to say that the City
OIG Evaluation of should only reimburse the Authority $6,672 from
Auditee Comments Empowerment Zone funds. We acknowledge the
Corporation may have a contractual obligation to pay the
Authority for services to non-Zone residents.

The City is reevaluating the performance of the Atlanta
Auditee Comments Empowerment Zone Corporation. A new Executive
Director has been hired. Among the many tasks before him
is to improve the procedures and controls to monitor
Empowerment Zone funded activities.

98-CH-259-1005 Page 44
Appendix B

OIG Evaluation of The City should ensure that procedures and controls are
established to monitor activities funded under the
Auditee Comments
Empowerment Zone Program.

The new Executive Director will review the Atlanta
Auditee Comments Empowerment Zone Corporation's current procurement
practices and will make improvements as needed. However,
the intergovernmental agreement between the Atlanta
Empowerment Zone Corporation and the Atlanta Housing
Authority is not in violation of the Department of Health
and Human Services’ procurement standards. This
agreement complies with the Office of Management and
Budget’s Common Rule.

The City did not competitively bid the Center’s contract to the
OIG Evaluation of Authority as required. The Department of Health and Human
Auditee Comments Services’ regulations require that all procurement transactions
will be conducted in a manner providing full and open
competition. While the regulations and the Office of
Management and Budget’s Common Rule allow for
intergovernmental agreements, the agreements must foster
greater economy and efficiency. The City and the Atlanta
Empowerment Zone Corporation could not provide assurance
that the Center’s contract was economical or efficient.

The Atlanta Housing Authority's per client cost is
Auditee Comments reasonable. The analysis conducted by the OIG supports
this conclusion. Pursuant to the Empowerment Zone’s
guidelines, the Atlanta Housing Authority has the
demonstrated capacity to deliver the services under the
housing benchmark in the Strategic Plan and has made a
long-term financial commitment to promote the program.

We acknowledge that the Center’s cost per person is
reasonable; however, the Center’s Director said the cost of the
program would increase significantly if the program only
served Zone residents. Since the Center primarily served non-
Zone residents and needs to increase the number of Zone
residents served, the City needs to ensure that the cost of the
program remains competitive.

Page 45 98-CH-259-1005
Appendix B

We will continue to improve every area of program
Auditee Comments performance including the accuracy of reported
accomplishments; however, we take exception to the
inference that the City falsified the report.

We will continue to improve every area of program
performance including the accuracy of the information
provided to HUD.

It was not our intention to infer that the City intentionally
OIG Evaluation of falsified the June 1997 Performance Review; however, the
Auditee Comments City did inaccurately report the Center’s progress. The City
must ensure that staff use actual accomplishments for each
activity when preparing the Performance Review.

The City’s improvement should include procedures and
controls to verify the accuracy of information provided to
HUD.

Accomplishments of the Sweet Auburn Curb
Market Loan Were Inaccurately Reported
The City of Atlanta incorrectly reported the accomplishments of the Sweet Auburn Curb Market
loan in the June 30, 1997 Performance Review. The City did not report the number of
Empowerment Zone businesses projected to be created or actually created from the Sweet
Auburn Curb Market loan. The City also inaccurately reported that: (1) the Empowerment Zone
loan for the Sweet Auburn Market leveraged $5,988,388 of Federal funds when it only leveraged
$500,000; (2) the Market had an 80 percent occupancy in July 1997 when it was only 55 percent
occupied; and (3) the Market developed and implemented a leasing strategy when there was no
documentation to support the accomplishment. The problems occurred because the Atlanta
Empowerment Zone Corporation, which the City contracted with to administer its Empowerment
Zone Program, did not perform monitoring reviews or verify the accuracy of the information
included in the Performance Review. As a result, HUD was not provided with a realistic picture
of actual progress, and the impression exists that the benefits of the loan were greater than
actually achieved.

98-CH-259-1005 Page 46
Appendix B

The City of Atlanta did not report the number of
The City Did Not Report Empowerment Zone businesses projected to be created or
Empowerment Zone established from the Sweet Auburn Curb Market loan.
Businesses Based on a review of the Curb Market’s loan proposal, we
determined that 23 Empowerment Zone businesses were
projected to be created. The City did not report this
information in the June 1997 Performance Review.
Additionally, we obtained documentation from the Curb
Market that showed one Empowerment Zone business was
created as of the date of the Review; however, the
Empowerment Zone business was not reported in the
Performance Review.

The City inaccurately reported that the Empowerment Zone
The City Over Reported loan for the Sweet Auburn Curb Market leveraged
The Market’s Leveraged $5,488,388 of Federal funds. The City reported the Market
Funding By $5,488,388 received $1,788,388 of Community Development Block
Grant funds and a $4.2 million Section 108 Loan as of June
30, 1997. Based on Sweet Auburn Market’s records, we
determined that the $5,488,388 ($1,788,388 of Block Grant
funds and $3.7 million of Section 108 funds) was received
prior to the City’s Zone designation in December 1994.
The only leveraged funds attributable to the Empowerment
Zone were from a $500,000 Section 108 Loan awarded in
April 1997.

The City reported the Sweet Auburn Market achieved an 80
The City Over Reported percent occupancy rate in the June 1997 Performance
The Market’s Occupancy Review. The occupancy rate was one of the Market’s
Rate performance measures. However, during our site visit to
the Market, we reviewed documentation that showed in July
1997 the Market only had an occupancy rate of 55 percent.

The City reported the leasing strategy for the Sweet Auburn
The City Could Not Market was developed and implemented in February and
Support The Market’s March 1997, respectively. However, neither the City nor
Leasing Strategy the Market could provide documentation to support the
leasing strategy. The Manager and Controller of the Sweet
Auburn Curb Market were not employed with the Market at
the time the leasing strategy was reported to have been
developed and implemented. They said they were not aware
of any leasing strategy. The leasing strategy was one of the
Market’s performance milestones.

Page 47 98-CH-259-1005
Appendix B

The individuals who prepared the 1997 Performance
Review no longer work at the Atlanta Empowerment Zone
Corporation. Personnel currently working at the
Corporation said they did not know where the reported
figures were obtained. The Corporation did not monitor the
Sweet Auburn Curb Market loan or verify the accuracy of
information reported. As a result, the information provided
to HUD in the Performance Review did not provide an
accurate picture of the potential or progress of the loan.
We believe it is imperative that the progress of Zone
activities be monitored and verified to ensure the validity
and reliability of reported information.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 66,
contains the complete text of the comments.

The Empowerment Zone currently has comprehensive
written monitoring and program evaluation procedures (see
page 91). Consistent with those procedures, annual
schedules are developed for the monitoring review of each
sub-recipient on a bi-annual basis. The City has directed the
program monitoring be a high priority for the recently
reorganized Atlanta Empowerment Zone Corporation. The
City will ensure that monitoring records and files which
document the Zone’s monitoring activities will be
maintained and available for review upon request.

98-CH-259-1005 Page 48
Appendix B

The procedures that the Corporation provided with its
OIG Evaluation of comments were in place during our review; however, they
Auditee Comments were not enforced. Our recommendation is for the City to
establish procedures to ensure the Corporation monitors all
activities as required by the City’s contract.

The City’s actions will ensure the accuracy of the Performance
Review to HUD, if properly implemented.

The Accomplishments of the Revolving Loan
Program Were Inaccurately Reported
The City of Atlanta inaccurately reported the accomplishments of the Revolving Loan Fund
program in the June 30, 1997 Performance Review. The inaccuracies related to the program’s
performance milestones and measures. The City reported the program received 100 loan requests
between January and December 1996, and disbursed $2 million of Empowerment Zone funds.
However, documentation maintained by the Atlanta Empowerment Zone Corporation, which the
City contracted with to administer its Empowerment Zone Program, showed the program
received only 12 requests in 1996 and $1,923,891 in Zone funds were disbursed as of June 1997.
The problem occurred because the Corporation did not verify the accuracy of the information
included in the Performance Review. As a result, the City did not provide HUD with an accurate
picture of the program.

The City of Atlanta inaccurately reported one of the
The City Incorrectly Revolving Loan Fund’s performance milestones in the June
Reported The Program’s 1997 Performance Review. The Review showed the
Loan Requests program received 100 loan requests between January and
December 1996; however, documentation maintained by the
Atlanta Empowerment Zone Corporation showed that only
12 requests were received in 1996. The over reporting of

Page 49 98-CH-259-1005
Appendix B

loan requests by the Zone provided an exaggerated
impression of program interest.

The City’s June 1997 Performance Review showed that the
The City Inaccurately Report
Revolving Loan Fund program disbursed $2 million of
The Fund’s Performance
Empowerment Zone funds. However, the Atlanta
Measures
Empowerment Zone Corporation’s records showed
$1,923,891 was loaned as of June 30, 1997. HUD requires
Empowerment Zones to report the actual progress of an
activity, such as the amount of Zone funds disbursed. In
this situation, the Zone showed it loaned $76,109 more than
it actually did.

The individuals who prepared the 1997 Performance
Review no longer work at the Corporation. Personnel
currently working at the Empowerment Zone Corporation
said they did not know where the reported figures were
obtained. The Corporation did not verify the accuracy of
information reported. We believe it is imperative that the
progress of Zone activities be verified to ensure the validity
and reliability of reported information.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments
comments on our draft finding follow. Appendix C, page 73,
contains the complete text of the comments.

The City’s actions will ensure the accuracy of the Performance
OIG Evaluation of Review to HUD, if properly implemented.
Auditee Comments

98-CH-259-1005 Page 50
Appendix B

Controls Over the Revolving Loan for Corporate
Courier Were Not Adequate
The City of Atlanta committed $400,000 of Empowerment Zone funds to assist in the relocation
of Corporate Courier; however, the relocation of a business that results in decreased employment
and the closing of the business in the original area is not an appropriate use of Zone funds.
Additionally, the City of Atlanta inaccurately reported the accomplishments of the loan in the June
30, 1997 Performance Review. The City reported that $700,000 in private funds were leveraged
for the loan, but the private loan had not been approved as of June 30, 1997. The City also did
not have documentation to support the number of individuals reported as employed by Corporate
Courier. The problems occurred because the staff for the Atlanta Empowerment Zone
Corporation, which the City contracted with to administer its Empowerment Zone Program,
believed that Zone funds could be committed for the loan since the funds were planned to pay for
equipment and supplies once Corporate Courier relocated. The purpose of the loan was to
relocate and expand the business; however, Federal law prohibited the use of Empowerment Zone
funds for the relocation. The Corporation also did not conduct any monitoring reviews of the
loan or verify the information included in the Performance Review. As a result, the City’s loan
commitment to Corporate Courier was not an efficient and effective use of Empowerment Zone
funds. The City also did not provide HUD with a realistic picture of the loan’s progress, and the
impression exists that the benefits of the loan were greater than actually achieved.

The City of Atlanta inappropriately committed $400,000 of
The City Inappropriately Empowerment Zone funds for the revolving loan to Corporate
Committed Zone Funds Courier. The Atlanta Empowerment Zone Corporation signed
To Relocate A Business
Page 51 98-CH-259-1005
Appendix B

a loan commitment with Corporate Courier in September 1996
to assist the business in its relocation and expansion into the
Empowerment Zone. Corporate Courier has until September
30, 1998 to use the commitment.

The Atlanta Empowerment Zone Corporation’s records
showed that its Board indicated that Empowerment Zone funds
could not be used to relocate a business to the Zone. The
Corporation’s staff advised the Board that Empowerment Zone
funds would be used for the purchase of equipment and
supplies once Corporate Courier relocated. However, Federal
law prohibits the use of Empowerment Zone funds to assist a
business to relocate to the Zone. As a result, the City’s loan
commitment to Corporate Courier was not an efficient and
effective use of Empowerment Zone funds.

The City inaccurately reported the private funds leveraged
The City Over Reported
for Corporate Courier’s revolving loan. The City’s June
The Activity’s Funding By
1997 Performance Review showed that a $700,000 private
$700,000
bank loan was received by Corporate Courier. However,
Corporate Courier had not received the bank loan as of June
1997. Since June 1997, Corporate Courier received a
commitment of $212,500 for a private bank loan and was
awaiting approval for a $340,000 loan from the Small
Business Administration.

The City reported that Corporate Courier employed fifty
The City Lacked persons of which 12 were Empowerment Zone residents.
Documentation To However, the Atlanta Empowerment Zone Corporation did
Support The Number Of not have documentation to support the number of
Employees individuals reported. Additionally, the President of
Corporate Courier declined to provide us information on the
number of employees and their residency.

The individuals who prepared the 1997 Performance
Review no longer work at the Atlanta Empowerment Zone
Corporation. Personnel currently working at the
Corporation said they did not know where the reported
figures were obtained. The Corporation did not monitor
Corporate Courier’s loan or verify the accuracy of
information reported. As a result, the information provided
HUD in the Performance Review did not provide an
accurate picture of the progress or benefits of the loan. We
believe it is imperative that the progress of Zone activities

98-CH-259-1005 Page 52
Appendix B

be monitored and verified to ensure the validity and
reliability of reported information.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 68,
contains the complete text of the comments.

The City’s decision to commit Social Services Block Grant
funds for activities related to Corporate Courier’s relocation
into the Zone was based on HUD’s guidance. The guidance
stated in part that we have conferred with the Department
of Health and Human Services’ officials and have reached
the conclusion that Section 139(f)(2)(F) does not prohibit
an Empowerment Zone in the implementation stages of the
initiative from using Social Services Block Grant funds to
finance activities that may assist a business relocating to the
Zone.

The City and the Corporation did not request HUD’s
OIG Evaluation of approval for the Corporate Courier loan. Instead, the
Auditee Comments Corporation used the approval HUD provided for the
Creative Fine Arts’ loan as a basis for its action. However,
for the Creative Fine Arts’ loan, the Corporation did not
provide HUD with complete or accurate information on
which to base its decision. Accurate information would
have led HUD to a different conclusion since Federal law
does not permit Empowerment Zone funds to assist in the
relocation of a business to the Zone when the relocation will
result in the closing of the business in the original location.

The referenced loan commitment to Corporate Courier is no
Auditee Comments longer valid. A new commitment has been made for
$250,000 which will be used for the acquisition of
equipment. The City will continue to take all necessary
steps to ensure Empowerment Zone funds are in fact used
efficiently and effectively and for purposes consistent with
Federal law and regulation.

In those areas not clearly defined in HUD’s or the
Department of Health and Human Services’ regulations or
polices, the City will obtain prior approval from the
appropriate agency prior to committing or expending Social
Services Block Grant funds. The City offers its assurance

Page 53 98-CH-259-1005
Appendix B

that the necessary procedures and controls are in place to
manage and provide the necessary oversight for the use of
Social Services Block Grant funds. These procedures and
controls will include closer monitoring of deadlines for loan
closings.

The Corporation indicates that the necessary controls are in
OIG Evaluation of place to manage and provide the necessary oversight for the
Auditee Comments use of Empowerment Zone funds. At the time of our
review, the procedures and controls were not adequate.
The City needs to establish procedures and controls to
ensure that Zone funds are used efficiently and effectively.

The Empowerment Zone currently has comprehensive
Auditee Comments written monitoring and program evaluation procedures (see
page 91). Consistent with those procedures, annual
schedules are developed for the monitoring review of each
sub-recipient on a bi-annual basis. The City has directed the
program monitoring be a high priority for the recently
reorganized Empowerment Zone. The City will ensure that
monitoring records and files which document the Zone’s
monitoring activities will be maintained and available for
review upon request.

98-CH-259-1005 Page 54
Appendix B

The City’s actions will ensure the accuracy of the Performance
Review to HUD, if properly implemented.

Community Revitalization Projects Were
Inaccurately Reported As Empowerment Zone
Activities
The City of Atlanta incorrectly reported that the Reynoldstown and Historic District Community
Revitalization Projects included in its June 30, 1997 Performance Review were Empowerment Zone
Program activities. The Projects were included as benchmarks in the City’s Strategic Plan; however,
the Projects were established prior to the City’s Zone designation. Because the two Projects were
included in the Performance Review, the City incorrectly reported that the Projects rehabbed or
constructed 170 housing units and leveraged $47,923,000 in funding as part of the Empowerment
Zone Program. The problem occurred because the Atlanta Empowerment Zone Corporation, which
administers the City’s Program, misunderstood HUD’s verbal instructions on the preparation of the
Performance Review. As a result, the accomplishments of the City’s Empowerment Zone Program
were not accurately reported to HUD, which created the impression that the benefits of the Program
were greater than actually achieved.

The City of Atlanta incorrectly reported that two Projects
City Incorrectly Reported included in the June 1997 Performance Review were
Two Projects As Zone Empowerment Zone activities. The two Projects were
Activities included as benchmarks in the City’s Strategic Plan; however,
the Projects were established prior to the City’s Zone
designation. HUD’s instructions are designed to gather
information on activities resulting from the Empowerment
Zone Program, and contain procedures to change benchmarks.
Because the City included the two Projects in the Performance
Review, it incorrectly reported that the Projects rehabbed or
constructed 170 housing units and leveraged $47,923,000 in
funding as part of the Empowerment Zone Program.

Page 55 98-CH-259-1005
Appendix B

The leveraged funds consisted of: (1) $1,545,000 of non-
Empowerment Zone Federal funds received; (2) $1,701,000 in
funding received from the City and the State of Georgia; and
(3) $44,677,000 of projected private funding. Funding for the
two projects did not involve Empowerment Zone monies.

The Executive Directors of the two Projects said the Projects
were not initiated as a result of the Empowerment Zone
Program. The Projects were part of their organizations’
operations and were initiated prior to the City’s designation as
an Empowerment Zone.
The Atlanta Empowerment Zone Corporation’s consultant,
who assisted in preparing the Performance Review, said he
received verbal instructions from HUD and the Corporation’s
former Executive Director to include non-Zone funded
activities in the Review. However, the Corporation’s staff and
the consultant misunderstood the instructions. HUD’s verbal
instructions were the same as the requirements contained in the
June 1997 Performance Review instructions that require Zones
to report on activities resulting from the Empowerment Zone
Program. Since the two Projects were not initiated as a result
of the Zone, the City should have included them in the non-
Zone activities section of the 1997 Performance Review. As a
result, the accomplishments of the Empowerment Zone
Program were not accurately reported to HUD and an
impression was created that the benefits of the Program were
greater than actually achieved.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 78,
contains the complete text of the comments.

There is no requirement that the source of funding for
improvements in the Zone was to be made from
Empowerment Zone funds. Zone residents were the direct
beneficiaries of the revitalization projects. These benefits,
although not directly resulting from the Empowerment Zone
designation, were activities that were addressed in the
Strategic Plan (e.g. to remove blight and add vitalization to
the Zone communities.) It must be further recognized that
projects take time to come to fruition, in addition to the
difficulty of developing projects in the inner city.

98-CH-259-1005 Page 56
Appendix B

While the Projects were included in the Strategic Plan, these
Projects were implemented as a result of the Zone
designation. The Zone designation acted as a catalyst for
implementation of the Projects and utilized the concept of
leveraging by including local dollars rather than Federal or
State dollars in the implementation of these Projects to
benefit Zone residents.

We agree that procedures were needed to control and
ensure appropriate reporting of Empowerment Zone
activities to HUD. Monitoring procedures have been
developed to accomplish this goal.

Our finding did not question the source of funding for the
OIG Evaluation of activities. We questioned the City’s reporting of them as
Auditee Comments Empowerment Zone activities when the activities were planned
before the City’s Zone designation. The intention of the
Empowerment Zone Performance Review is to measure the
impact the Empowerment Zone Program is having on the
designated area. If an activity was planned before the City
received its designation, obviously the Empowerment Zone
Program was not the initiative for the activity. The City and
the Atlanta Empowerment Zone Corporation did not provide
any documentation to show that the Program impacted the
activities.

The procedures the Corporation says it will use to ensure the
reporting accuracy of the Performance Review to HUD should
correct the problem, if properly implemented.

Page 57 98-CH-259-1005
Appendix B

Controls Over the Revolving Loan for Creative
Fine Arts Were Not Adequate
The City of Atlanta did not have adequate controls over the revolving loan for Creative Fine Arts,
Incorporated. The City inappropriately used $429,241 of Empowerment Zone funds to assist in
the relocation of Creative Fine Arts to the Zone; however, the relocation of a business that results
in decreased employment and the closing of the business in its original area is not an appropriate
use of Zone funds. Additionally, the City of Atlanta inaccurately reported the accomplishments of
the loan in the June 30, 1997 Performance Review. The inaccuracies related to performance
measures and funding. The problems occurred because the Atlanta Empowerment Zone
Corporation, which the City contracted with to administer its Empowerment Zone Program,
provided inaccurate information to HUD, that resulted in HUD’s approval to use Zone funds for
the loan. The City also did not perform monitoring reviews of the loan or verify the accuracy of
the information included in the Performance Review. As a result, Empowerment Zone funds were
not used for eligible purposes. The City also did not provide HUD with the actual progress of the
loan, and the impression exists that the benefits of the loan were greater than actually achieved.

The City of Atlanta inappropriately provided $500,000 of
The City Inappropriately Empowerment Zone funds for the revolving loan to Creative
Used Zone Funds To Fine Arts of which $429,241 was outstanding as of May 31,
Relocate A Business 1998. In February 1996, staff from the Atlanta Empowerment
Zone Corporation met with the Owner of Creative Fine Arts
regarding the relocation of its operations from Norcross,
Georgia, located outside of the City’s Empowerment Zone, to
the Zone. After the meeting, the Corporation’s staff located
potential sites in the Zone where Creative Fine Arts could
relocate to. The Owner of Creative Fine Arts said she agreed
to purchase one of the sites recommended by the Corporation.
She said she submitted a loan application to the Atlanta
Empowerment Zone Corporation with assistance from the
Corporation’s staff. The loan application dated March 8, 1996
showed that the purpose of the loan was relocation and
expansion of the business to the Zone.

98-CH-259-1005 Page 58
Appendix B

The Atlanta Empowerment Zone Corporation’s Board
approved Creative Fine Arts’ loan application on August 12,
1996. On August 14, 1996, the State of Georgia informed the
Corporation that the use of Empowerment Zone funds to assist
Creative Fine Arts’ relocation to the Zone was not appropriate.
The State instructed the Corporation to seek HUD’s approval
of the loan since the State was unsure if Creative Fine Arts
planned to close its operations outside of the Zone. The
Corporation requested HUD’s approval in October 1996 to
use Empowerment Zone funds for the loan; however, the
Corporation did not provide HUD with complete or accurate
information.

The Atlanta Empowerment Zone Corporation informed HUD
that Creative Fine Arts was negotiating to acquire property in
the Zone prior to Fine Arts contacting the Corporation.
However, as previously discussed, Creative Fine Arts met with
the Corporation’s staff and purchased a site that was identified
by the staff after the meeting. The Corporation informed HUD
that Empowerment Zone funds would not be used to relocate
Creative Fine Arts to the Empowerment Zone. However,
Creative Fine Arts’ application to the Corporation indicated
that the purpose of the loan was relocation and expansion of
the business to the Zone. The Corporation also did not inform
HUD that Creative Fine Arts intended to close its operations in
Norcross, Georgia, located outside the Empowerment Zone,
and move to the Zone.

Additionally, because the disbursement of the loan proceeds
was slow, Creative Fine Arts initiated a lawsuit that indicated
the proceeds of the loan were needed to close the deal for
acquiring the property in the Empowerment Zone. Since the
persons involved with the original decision were no longer
employed by the Corporation, we could not determine the basis
for the inaccurate information provided to HUD. As a result,
Empowerment Zone funds were not used efficiently and
effectively.

The City incorrectly reported one of the loan’s performance
The City Inaccurately measures. The June 1997 Performance Review showed that
Reported The Number Of five jobs were created as a result of the loan to Creative
Jobs Created By the Loan Fine Arts. However, Creative Fine Arts provided us with
documentation that indicated eight jobs were created as of
June 1997. The eight jobs were the net increase in

Page 59 98-CH-259-1005
Appendix B

employment after Creative Fine Arts relocated to the Zone.
Of the eight jobs, two were held by Empowerment Zone
residents.

The City incorrectly reported the private funding received
The City Over Reported by Creative Fine Arts. The June 1997 Performance Review
The Leveraged Funding showed that $900,000 of private funding was received.
By $172,000 However, documentation provided by Creative Fine Arts
indicated that $728,000 of private funding was received as
of June 1997.

The individuals who prepared the 1997 Performance
Review no longer worked at the Corporation. Personnel at
the Empowerment Zone Corporation said they also did not
know where the reported figures were obtained. The
Corporation staff did not monitor the loan or verify the
accuracy of the information reported. Since a goal of the
Empowerment Zone Program is to assist in the employment
of Zone residents and to leverage private funding, we
believe it is imperative that the progress of Zone activities
be monitored and verified.

Excerpts from the Atlanta Empowerment Zone Corporation’s
Auditee Comments comments on our draft finding follow. Appendix C, page 71,
contains the complete text of the comments.

The City will continue to take all necessary steps to ensure
Empowerment Zone funds are in fact used efficiently and
effectively. In those areas not clearly defined in HUD’s or
the Department of Health and Human Services’ regulations
or polices, the City will obtain prior approval from the
appropriate agency prior to committing or expending Social
Services Block Grant funds. The City offers its assurance
that the necessary procedures and controls are in place to
manage and provide the necessary oversight for the use of
Social Services Block Grant funds. These procedures and
controls will include closer monitoring of deadlines for loan
closings.

98-CH-259-1005 Page 60
Appendix B

review, the procedures and controls were not adequate.
The City needs to establish procedures and controls to
ensure that Zone funds are used efficiently and effectively.

The City committed Social Services Block Grant funds to
Auditee Comments make this loan for activities related to the relocation of
Creative Fine Arts into the Zone based on the guidance
from HUD. To require the City to repay these funds to the
grant, unfairly penalizes the City for complying with a
written policy determination approved by both HUD and the
Department of Health and Human Services. The City
recommends that if the policy enunciated in HUD’s
correspondence is incorrect, then it is incumbent on HUD
and the Department of Health and Human Services to
promptly issue clarifying or corrected guidance to
Empowerment Zones. To our knowledge, no such
guidance has been issued. The City believes it followed the
correct course of action prior to expending Social Services
Block Grant funds for the Creative Fine Arts loan and thus
should not be made to repay these funds to the grant. If
necessary, the City will request a waiver for use of these
funds from the Department of Health and Human Services
and HUD, given the unusual circumstances involving this
case. In the future, the City will strictly adhere to HUD’s
and the Department of Health and Human Services’
policies.

We also disagree with the statement that the Zone provided
inaccurate information to HUD, that resulted in HUD’s
approval to use Zone funds for this loan. The focused
response by HUD on the specific issue of using Social
Services Block Grant funds to finance activities that may
assist a business relocating to the Zone indicates that we
articulated this issue to HUD in a clear and unambiguous
manner. We believe to suggest or imply otherwise is both
unfair and unwarranted.

The Corporation did not provide HUD with complete or
OIG Evaluation of accurate information on which to base its decision. For
Auditee Comments example, the Corporation informed HUD that
Empowerment Zone funds would not be used to relocate
Creative Fine Arts to the Zone. However, Creative Fine
Arts’ application to the Corporation showed that the

Page 61 98-CH-259-1005
Appendix B

purpose of the loan was relocation and expansion of the
business to the Zone. Accurate information would have led
HUD to a different conclusion since Federal law does not
permit Empowerment Zone funds to assist in the relocation
of a business to the Zone when the relocation will result in
the closing of the business in the original location. The City
needs to reimburse the Empowerment Zone Program
$429,241 from non-Federal funds for the inappropriate use
of Zone funds.

The City has and will continue to provide HUD the most
Auditee Comments accurate information available when requesting prior
approval to use Empowerment Zone funds. The City has
taken steps to ensure the necessary supervisory controls,
procedures, and oversight are in place to manage the use of
Empowerment Zone funds by the City.

Our recommendation was intended to improve the
OIG Evaluation of Corporation’s procedures for providing accurate
Auditee Comments information when requesting approval to use Empowerment
Zone funds. The Corporation’s response only addressed the
City’s actions, not the Corporation’s procedures.

98-CH-259-1005 Page 62
Appendix B

prior to submission to HUD. The City is confident that
these procedures will ensure the accuracy of the data
submitted to HUD.

The City’s actions will ensure the accuracy of the Performance
Review to HUD, if properly implemented.

Page 63 98-CH-259-1005
Appendix C

Auditee Comments
ATLANTA
EMPOWERMENT
ZONE
CORPORATION

September 4, 1998

Mr. Heath Wolfe, Senior Auditor
U.S. Department of Housing and Urban Development
Office of the Inspector General
77 West Jackson Boulevard
Room 2646
Chicago, IL 60604

Dear Mr. Wolfe:

Enclosed herein are the final responses from the City of Atlanta to the findings of the Department of
Housing and Urban Development , Office of the Inspector General, during your review of the Atlanta
Empowerment Zone Initiative.

Your findings have proven insightful and educational to us in our continuing efforts to improve the
efficiency and effectiveness of the management of this initiative in the City of Atlanta. We trust that the
exchange of information and views which took place throughout the review, and particularly during the out-
briefing, pointed out the need for uniform and clearly articulated policies which provide local governing
bodies maximum flexibility to act to meet the unique challenges they face.

If I or my staff may be of further assistance to your as you review our responses and prepare your final
findings, please contact me at (404) 8537485.

Respectfully,

Joseph Reid
Executive Director, AEZC

Enclosure

cc: Larry Wallace, COO
Mike Dobbins, Commissioner
John Perry, CPD, HUD

Page 65 98-CH-259-1005
Appendix C

AUDIT RESPONSE

Response to the Finding of the Inspector General for Audit, HUD

Accomplishments of the Sweet Auburn Curb Market Loan Were Inaccurately Reported

Summary of Audit Finding

The finding raised the following issues with regard to the City of Atlanta’s loan to the Sweet
Auburn Curb Market.

• The City did not report Zone business.
• The City over reported the Market’s leveraged funding by $5,488,388.
• The City over reported the Market’s occupancy rate.

Summary of Our Response.

Our response to the finding for the loan to the Sweet Auburn Curb Market is as follows:

• The City intentionally did not include data projection of businesses to be created by
the loan to the Sweet Auburn Curb Market because of confusion regarding whether
these were contractual requirements which should have been included in the report,
or non-contractual goals. When the report was prepared the interpretation of staff
was that the business projections for the Market were non-contractual goals and
therefore not firm performance measures. Consequently they were not included in
the report.

• The City acknowledges that only $500,000 was leveraged by the AEZ loan to the
Curb Market.

• The occupancy rate of the Sweet Auburn Curb Market has, on occasion, fluctuated
over a wide range. We believe the differences between the occupancy rate
reported by the City and that reported to HUD by the Curb Market is the possible
results of the methodology used and the inconsistency with which this data was
collected.

• A condition for the City to approve the Section 108 loan to the Curb Market was that
a leasing strategy be developed as one method of measuring the performance of
the Curb Market. This condition was articulated in a City ordinance and documents
related to the loan itself. The Manager of the Curb Market at the time the loan was
approved was fully aware of the leasing strategy.

• The loan to the Sweet Auburn Curb Market was made as part of an overall strategy
by the City to ensure the continued presence and operation of the Market, and an
attempt to stimulate revitalization and development in the Auburn Avenue area.
The Sweet Auburn Curb Market has for some time and continues to be the only
retail grocer serving a large segment of the City’s communities. It is a vital part of
the community and the City, and the lost of the Market would have had a

98-CH-259-1005 Page 66
Appendix C

devastating effect on many residents of the City, particularly many senior citizens
and those without the means or resources to travel to other shopping areas. The
partnership between the City and AEZ to provide the financing for the major
renovations at the Curb Market has allowed it to attract new businesses and remain
in operation to serve the residents that depend on it. We view this project as a
success for the residents, the AEZ initiative and the City.

Response to IG’s Recommendations:

A. Establish procedures to ensure that the Atlanta Empowerment Zone Corporation monitors
all Empowerment Zone activities as required by the City’s contract.

The Empowerment Zone currently has comprehensive written monitoring and program
evaluation procedures (TAB 11). Consistent with those procedures, annual schedules are
developed for the monitoring review of each sub-recipient on a bi-annual basis. The City has
directed the program monitoring be a high priority for the recently reorganized Empowerment
Zone. The City will ensure that monitoring records and files which document the Zone’s
monitoring activities will be maintained and available for review upon request.

B. Establish procedures and controls to ensure the accuracy of Performance Review
information submitted to HUD for the Empowerment Zone Program.

The City has taken actions to ensure procedures and controls are in place to verify the
accuracy of the information submitted to HUD. The Empowerment Zone Executive Director
will have overall responsibility for the Performance Review. After the Performance Review has
been completed it will undergo a final review by the Compliance Manager. The report will then
be submitted to the City for review and submission to HUD. The Performance Review will
undergo a total of three reviews prior to submission to HUD. The City is confident that these
procedures will ensure the accuracy of the data submitted to HUD.

Conclusion

We request that the IG withdraw the audit finding related to the Sweet Auburn Curb Market.

AUDIT RESPONSE

Page 67 98-CH-259-1005
Appendix C

Response to the Finding of the Inspector General for Audit, HUD

Controls Over the Revolving Loan Fund for Corporate Courier Were Not Adequate

Summary of Audit Finding

The finding raised the following issues with regard to the City of Atlanta’s loan commitment to
Corporate Courier, Inc.

• The City inappropriately committed Zone funds to relocate a business
• The City over reported the activity’s funding by $700,000
• The City lacked documentation to support the number of employees.

General Comments Regarding This Finding

The loan to Corporate Courier was never consummated and consequently no SSBG funds
were expended. The circumstances may warrant a reiteration of the policies governing the
uses of SSBG funds and the need to maintain supporting files and records. The City requests
that this finding be deleted.

Summary of Our Response

Our response to the finding for the loan commitment to Corporate Courier, Inc. is as follows:

• The City’s decision to commit SSBG funds for activities related to Corporate
Courier’s relocation into the Zone was based on HUD’s guidance which stated in
part that “We have conferred with HHS officials and have reached the conclusion
that Section 139(f)(2)(F) does not prohibit an Empowerment Zone in the
implementation stages of the initiative from using EZ/EC SSBG funds to finance
activities that may assist a business relocating to the Zone”. A copy of that
correspondence is attached. Our interpretation of HUD’s response was that it
provided a clear determination on this issue, and we acted on this guidance
accordingly. The decision by the City to obtain prior approval from HUD before
committing SSBG funds to assist Corporate Courier in relocating to the Zone clearly
demonstrated our commitment to act in compliance with applicable Federal policies.

• At the time the 1997 Performance Review was being prepared the terms and
conditions of the loan to Corporate Courier were still being developed. It was
anticipated that based on the limits on the amount of SSBG funds could be used in
the total loan package, and the total amount of funding being sought by Corporate
Courier that the remaining funds above the SSBG funds would come from private
sources. The1997 Performance Review was prepared using the best information
available to us at the time. Based on that information, and the fact that the loan
was expected to close within forty-five to sixty days, the funding information was
included in error in the report. However, when it was realized that the loan to
Corporate Courier was not going to close, the Performance Review had already
been submitted.

98-CH-259-1005 Page 68
Appendix C

• A standard practice of the City is to negotiate targets or goals for businesses
receiving SSBG funded loans that will provide a direct benefit to the residents of the
Zone. In the case of Corporate Courier there was mutual agreement that this
company would attempt to employ up to twelve Zone residents as part of the fifty
employee workforce expected to be employed by Corporate Courier once it
relocated into the Zone. At the time the 1997 Performance Review was being
prepared the loan to Corporate Courier was expected to close within forty-five to
sixty days and the employment goals were included in error in the Performance
Review. However, when it was realized that the loan to Corporate Courier was not
going to close the Performance Review had already been submitted.

Response to IG’s Recommendations:

A. Do not use Empowerment Zone funds to fulfill the $400,000 loan commitment to Corporate
Courier.

The referenced loan commitment to Corporate Courier is no longer valid. A new commitment
has been made for $250,000 which will be used for the acquisition of equipment. The City will
continue to take all necessary steps to ensure EZ funds are in fact used efficiently and
effectively and for purposes consistent with Federal law and regulation.

B. Establish procedures and controls to ensure that Empowerment Zone funds are used
efficiently and effectively.

The City will continue to take all necessary steps to ensure EZ funds are in fact used efficiently
and effectively. In those areas not clearly defined in existing HUD or Department of Health
and Human Services (HHS) regulations or polices, the City will obtain prior approval from the
appropriate agency prior to committing or expending SSBG funds. The City offers its
assurance that the necessary procedures and controls are in place to manage and provide the
necessary oversight for the use of SSBG funds.
These procedures and controls will include closer monitoring of deadlines for loan closings.

C. Establish procedures to ensure that the Atlanta Empowerment Zone Corporation monitors
all Empowerment Zone activities as required by the City’s contract.

See previous response to this recommendation at TAB 1.

D. Establish procedures and controls to ensure the accuracy of Performance Review
information submitted to HUD for the Empowerment Zone Program.

See previous response to this recommendation at TAB 1.

Conclusion:

We request that the IG withdraw the audit finding related to the loan commitment to Corporate
Courier, Inc.

Page 69 98-CH-259-1005
Appendix C

AUDIT RESPONSE

Response to the Finding of the Inspector General for Audit, HUD

98-CH-259-1005 Page 70
Appendix C

Controls Over the Revolving Loan Fund for Creative Fine Arts (CFA) Were Not
Adequate

Summary of Audit Finding

The finding raised the following issues with regard to the loan to Creative Fine Arts.

• The City inappropriately committed Zone funds to relocate a business.
• The City inaccurately reported the number of jobs created by the loan.
• The City over reported the leveraged funding by $172,000.

Summary of Our Response.

Our response to the finding for the loan to Creative Fine Arts is as follows:

• Prior to arriving at the decision to use SSBG funds to assist Creative Fine Arts in
relocating to the Zone, the City requested HUD to provide a clarification and/or
determination on the applicability of the provisions of United States Code, Section
139(f)(2)(F) to EZ programs and projects. The response from HUD stated in part
that “We have conferred with HHS officials and have reached the conclusion that
Section 139(f)(2)(F) does not prohibit an Empowerment Zone in the implementation
stages of the initiative from using EZ/EC SSBG funds to finance activities that may
assist a business relocating to the Zone”. A copy of that correspondence is
attached. Our interpretation of HUD’s response was that it provided a clear
determination on this issue, and we acted on this guidance accordingly. The
decision by the City to obtain prior approval from HUD before committing SSBG
funds to assist CFA in relocating to the Zone clearly demonstrated our commitment
to act in compliance with applicable Federal policies.

• We also disagree with your statement that the Zone “provided inaccurate
information to HUD, that resulted in HUD’s approval to use Zone funds for this
loan”. The focused response by HUD on the specific issue of using SSBG funds to
“finance activities that may assist a business relocating to the Zone” indicates that
we articulated this issue to HUD in a clear and unambiguous manner. We believe
to suggest or imply otherwise is both unfair and unwarranted.

• The City acknowledges that it inadvertently over reported the leveraging of the loan
to Creative Fine Arts.

Response to IG’s Recommendations:

A. Establish procedures and controls to ensure that Empowerment Zone monies are used
efficiently and effective.

See previous response to this recommendation at TAB 2.

B. Reimburse the Empowerment Zone Program $429,241 from non-Federal funds for the
inappropriate use of Zone funds for the loan to Creative Fine Arts.

Page 71 98-CH-259-1005
Appendix C

The City committed SSBG funds to make this loan for activities related to the relocation of CFA
into the Zone based on the guidance from HUD. To require the City to repay these funds to
the grant unfairly penalizes the City for complying with a written policy determination approved
by both HUD and HHS. The City recommends that if the policy enunciated in the attached
HUD correspondence is incorrect, then it is incumbent on HUD and HHS to promptly issue
clarifying or corrected guidance to EZ’s. To our knowledge no such guidance has been
issued. The City believes it followed the correct course of action prior to expending SSBG
funds for the CFA loan and thus should not be made to repay these funds to the grant. If
necessary, the City will request a waiver for use of these funds from HHS and HUD given the
unusual circumstances involving this case. In the future the City will strictly adhere to HUD and
HHS policies.

C. Ensure that the Atlanta Empowerment Zone Corporation provides accurate information
when requesting approval to use Empowerment Zone funds.

The City has and will continue to provide HUD the most accurate information available when
requesting prior approval to use Empowerment Zone funds. The City has taken steps to
ensure the necessary supervisory controls, procedures and oversight are in place to manage
the use of Empowerment Zone funds by the City.

D. Establish procedures to ensure that the Atlanta Empowerment Zone Corporation monitors
all Empowerment Zone activities as required by the City’s contract.

See previous response to this recommendation at TAB 1.

E. Establish procedures and controls to ensure the accuracy of Performance Review
information submitted to HUD for the Empowerment Zone.

See previous response to this recommendation at TAB 1.

Conclusion:

We request that the IG withdraw the request for reimbursement related to the loan to Creative
Fine Arts.

DRAFT AUDIT RESPONSE

Response to the Draft Finding of the Inspector General for Audit, HUD

Accomplishments of the Revolving Loan Program Were Inaccurately Reported

98-CH-259-1005 Page 72
Appendix C

Summary of Draft Audit Finding

The draft finding raised the following issues with regard to the reported accomplishments of
the revolving loan program:

• The City incorrectly reported the program’s loan requests.
• The City over reported the fund’s performance measures.

Summary of Our Response.

Our response to the draft finding that the City inaccurately reported the accomplishments of
the revolving loan program is as follows:

• During the first year of the EZ initiative the Atlanta Empowerment Zone (AEZ)
instituted an unsolicited proposal process. In response to this announcement the
City received well over one hundred proposals from individuals seeking loans and
grants. The City believes that the information reported in the Performance Review
reflects the total proposals received for both loans and grants. The City regrets the
obvious confusion in the reporting of this data and will provide corrected data upon
request.

Response to IG’s Recommendations:

A. Establish procedures and controls to verify the accuracy of information submitted to HUD
for the Empowerment Zone Program.

See Previous Finding

Conclusion:

We request that the IG withdraw this draft finding.

AUDIT RESPONSE

Response to Finding of Inspector General for Audit, HUD

Activities Were Incorrectly Reported As Empowerment Zone Activities

Page 73 98-CH-259-1005
Appendix C

Summary of Findings.

The audit findings raised five (5) issues of City reporting of Empowerment Zone activities.

• The City incorrectly reported five (5) activities in the June 1997 Performance Review as
Empowerment Zone activities;
• The five (5) activities included three (3) parks to be improved; a recreation centers to be
rehabilitated; and a sidewalk repair program.
• All the activities were included as benchmarks in the City’s Strategic Plan;
• The inclusion of the five (5) projects resulted in $2,961,000.00 in inaccurate reporting since
these activities were scheduled prior to the City’s Zone designation.

Summary of Our Response.

Our response to the audit finding of the incorrect reporting of Empowerment Zone Activities is
as follows:

• The Deputy Commissioner of the City of Atlanta, Department of Parks and Recreation and
Cultural Affairs was correct in the statement that the park improvements were conceived
prior to the Zone’s designation. However, the improvements to the parks, the sidewalks,
and the recreation center all benefited the Zone residents.
• None of the projects that developed independently of the Zone were tracked, so it was
difficult to determine the impact all the projects occurring in the Zone actually had on the
Zone residents.
• Although no Empowerment Zone funds were used in these project activities, the project
activities benefited Zone residents.
• The use of Zone funds was not required for the project to be considered a Zone project or
for the residents to reap benefit from the project activities.
• The Zone assisted activities supported the Strategic Plan.

EZ/EC Instructions for Performance Review Reporting.

The EZ/EC Instructions on page 1 discuss reporting successes and assessing the program
pursuant to the Strategic Plan; and on page 3 changes in the benchmarks are discussed. 24
CFR 597.200(d)(20) states that agencies in State and local government are to work together in
new ways that are responsive to the Strategic Plan. Therefore, the $2,961,000.00 in funds
and the 5,000 feet of deteriorated sidewalks repaired in the Zone were reported correctly.

There is no HUD requirement or HHS requirement that states the source of funding for Zone
activities has to be funded by Zone dollars. The Zone residents directly benefited
from these activities which were addressed in the Strategic Plan. All five (5) projects were
planned over a period of time, but did not come to fruition until after the Empowerment Zone
designation. These projects assisted in the removal of blight and the revitalization of the Zone.
Therefore, since the projects were effectuated after the designation of the Empowerment
Zone, these activities were correctly characterized and should be considered accomplishments
of the Empowerment Zone.

98-CH-259-1005 Page 74
Appendix C

Although the activities were scheduled prior to designation of the Atlanta Empowerment Zone,
there was no guarantee that these activities would have been implemented without the Zone
designation. Further, the designation of the Atlanta Empowerment Zone accelerated the
implementation of these activities and was a catalyst for these activities to come to fruition
(e.g. the sidewalks complimented the Strategic Plan).

Response to IG’s Recommendations.

A. Establishes procedures and controls to appropriately report Empowerment Zone
Activities to HUD.

There was a need for procedures and controls for the appropriate reporting of Empowerment
Zone Activities to HUD. The Empowerment Zone has developed monitoring procedures to
address these issues that will be used for future reporting.
(see attachment)

B. Establishes procedures and controls to verify the accuracy of information submitted to HUD
for the Empowerment Zone Program.

See previous response to this recommendation at TAB 1.

Conclusion.

We request the IG to withdraw the finding related to the inaccurate reporting of Empowerment
Zone Activities to HUD.

AUDIT RESPONSE

Response to Finding of Inspector General for Audit, HUD

Page 75 98-CH-259-1005
Appendix C

Bridge Repair and Storm Drainage Improvements Projects Were Incorrectly Reported
As Empowerment Zone Activities

Summary of Findings.

The audit finding addressed two (2) issues of reporting by the City of Atlanta as Empowerment
Zone Projects.

• The City incorrectly reported two (2) projects in June, 1997 as a part of the Performance
Review as Empowerment Zone activities;
• The two (2) projects were included as benchmarks in the City’s strategic Plan even though
the projects were scheduled before the City’s Zone designation;
• The City incorrectly reported $6,410,000 in leverage funds because no Empowerment
Zone funds were used for these projects.

Summary of Our Response.

Our response to the finding of incorrect reporting is as follows:

• The projects reported were part of the infrastructure improvements to correct overdue
problems. These projects, while being conceived and scheduled prior to the Zone’s
designation, occurred during the Empowerment Zone reporting period. Consequently, the
Zone residents did receive benefit from these projects, regardless of the time of conception
or no use of Empowerment funds to carry out these projects.
• Due to a lack of a tracking system during this period, it is not possible to know all the
projects that were occurring and the impact these projects were having on the
Empowerment Zone residents.
• With regard to funding, it is not necessary for Empowerment Zone dollars to be used as
funding for the activity.
• Lack of funding by the Empowerment Zone does not diminish the benefit received by Zone
residents.
• These were Zone assisted activities that support the Strategic Plan

EZ/EC Instructions for Performance Review Reporting.

The EZ/EC Performance Review Reporting Instructions states that …..”Describe successes
and assess progress against each long term goal…. In the Strategic Plan and describe
successes and progress in terms of economic, social and physical outcome, such as increased
public services to the community, jobs created, businesses started and housing units
built/rehabilitated.”

On page 3 of the Instructions, is stated “The EZ/EC Performance Review System enables
each community to add, modify, or delete individual benchmarks from time to
time.”….”Consistent with the local government policy EZ/EC initiative, any new
benchmark governing structure prior to submission for Federal review.” 24 CFR 597.200
(d)(20) states an element of the Strategic Plan is the explanation of how
different agencies in State and local governments work together in ways that are new and
responsive to implement the Strategic Plan. In accordance with the foregoing, the reporting of
$6,410,000.00 in leveraged funds was not incorrect.

98-CH-259-1005 Page 76
Appendix C

There is no stated requirement that limits projects to be reported to only those that are funded
with the Empowerment Zone dollars. Inasmuch as Empowerment Zone residents benefited
from the improvements, there was a leveraging of dollars as stated within the Performance
Report and the benefit of the Program was accurately reported.

The projects reported, the repair of bridges and storm drains are projects that might not have
occurred without the Zone designation. These projects were included in the Capital
Improvement Program (CIP) and the Corporation for Olympic Development, however, the
leverage concept does not merely include the federal and state, but also the local government
or City of Atlanta projects as well. The planning of a project in the CIP does not actually mean
that the project will be implemented. Consequently, the Zone designation acted as a “trigger”
or a catalyst for these projects and ensured that these projects as well as other developments
would be completed within the Atlanta Empowerment Zone.

Response to IG’s Recommendations.

A. Establishes procedures and controls to appropriately report Empowerment Zone Program
activities to HUD.

We agree there was a need for procedures and controls for appropriate reporting to HUD. The
Atlanta Empowerment Zone Corporation has developed monitoring procedures to ensure that
the reporting, from this point forward will be accurate and appropriate.

B. Establishes procedures and controls to verify the accuracy of information submitted to HUD
for the Empowerment Zone Program.

See previous response to this recommendation at TAB 1.

Conclusion.

We request the IG withdraw the finding related to the inaccurate reporting of improvement
projects.

AUDIT RESPONSE

Response to Finding of Inspector General for Audit, HUD

Page 77 98-CH-259-1005
Appendix C

Community Revitalization Projects Were Inaccurately Reported As Empowerment Zone
Activities

Summary of Findings

The audit finding raised two (2) issues regarding the City of Atlanta’s reporting of Community
Empowerment Zone Projects.

• The City incorrectly reported two (2) projects in the June 1997 Performance Review as
Empowerment Zone activities;
• The two (2) projects were included as benchmarks in the City’s Strategic Plan although the
projects were established prior to the City’s Zone designation;
• By including the two (2) projects in the Performance Review, the City incorrectly reported
the Projects rehabbed or constructed 170 housing units and leveraged $47,923,000 in
funding as part of the Empowerment Zone Program.

Summary of Our Response.

Our response to the finding of incorrect reporting is as follows:

• We acknowledge that the Executive Directors of the two (2) projects stated that the
Projects were not initiated as a result of the Empowerment Zone Program; the projects
were a part of those organizations’ operations and were initiated prior to the City’s
designation as an Empowerment Zone. However, it was envisioned that the conditions
created in the Zone, regardless of whether there was actual knowledge of the project
occurring, did not prevent these projects from being eligible activities. Consequently, the
City’s reporting of these two (2) projects, as eligible activities was correct. The City ‘s
reporting of these projects goes to the heart of the concept of leverage because these
activities benefited the Zone as a whole.
• Since no one was tracking activities, it was not possible to always know what projects were
resulting.
• It was not essential that the projects in question were funded by the Empowerment Zone.
The concern is with the Zone residents benefiting from the Project.
• Regardless of whether or not the project was not funded by the Zone or a direct outgrowth
of the Zone designation, does not prevent the project from being a good project or
beneficial to Zone residents.
• The delay of systems for reporting by HUD also had an impact on the reporting of the City.
• The activities were Zone assisted activities which supported the Strategic Plan.

EZ/EC Instructions for Performance Review Reporting.

The EZ/EC Instructions provided as part of the Performance Review System stated on
page 1 under Executive Summary….”Describe successes and assess progress against each
long term goal…in the Strategic Plan and describe successes and progress in
terms of economic, social, and physical outcome, such as increased public services to the
community, jobs created, businesses started, and housing units built/rehabilitated.”
Page 3 referenced in the audit findings under Section B. Making Occasional Benchmark
Changes states: “The EZ/EC Performance Review System also enables each community to
add, modify, or delete individual benchmarks from time to time.” … “Consistent with the local

98-CH-259-1005 Page 78
Appendix C

empowerment policy EZ/EC initiative, any new benchmark activities, major modifications, or
deletions of activities must be approved by the local governing structure prior to submission for
Federal review.” Further, 24 CFR 597.200 (d)(20) states an element of the Strategic Plan is
the explanation of how different agencies in State and local governments work together in
ways that are new and responsive to implement the Strategic Plan. It is reasonable to
conclude the $1,701,000.00 in funding received from the City and the State of Georgia plus
the $44,6 77,000.00 in private funding, were leverage funds even though Empowerment Zone
funds were not involved.

There is no requirement that the source of funding for improvements in the Zone was to be
made from Empowerment Zone funds. The Zone residents were direct beneficiaries of the
revitalization projects. These benefits, although not directly resulting from the Empowerment
Zone designation, were activities that were addressed in the Strategic Plan (e.g. to remove
blight and add vitalization to the Zone communities.) It must be further recognized that
projects take time to come to fruition, in addition to the difficulty of developing projects in the
inner city.

While the projects were included in the Strategic Plan, these projects were implemented as a
result of the Zone designation. The Zone designation acted as a catalyst for implementation of
the projects and utilized the concept of leveraging by including local dollars rather than federal
or state dollars in the implementation of these projects to benefit Zone residents.

Response to IG’s Recommendations.

A. Establishes procedures and controls to appropriately report Empowerment Zone Program
activities to HUD.

We agree that procedures were needed to control and ensure appropriate reporting
of Empowerment Zone activities to HUD. Monitoring procedures have been developed
to accomplish this goal.

B. Establishes procedures and controls to verify the accuracy of information submitted
to HUD for the Empowerment Zone.

See previous response to this recommendation at TAB 1.

Conclusion.

We request the IG withdraw the finding related to the inaccurate reporting of Revitalization
projects as Empowerment Zone activities.

AUDIT RESPONSE

Response to Finding of Inspector General for Audit, HUD

City Inappropriately Used $8,000 of Zone Funds

Page 79 98-CH-259-1005
Appendix C

Summary of Audit Finding

The finding raised the following issues with regard to the City of Atlanta’s monitoring of the
Mortgage Assistance Program (MAP).

• The City did not have adequate controls over the MAP program;
• The City did not appropriately use $8,000 in the purchase of a home outside the Zone;
• The Corporation did not have the procedures to verify loan recipients were Zone
Residents; and
• There were no procedures for supervisory review and oversight.

Summary of Our Response.

Our response to the finding for the MAP program is as follows:

• At the time of the grant, there was limited staffing at the Atlanta Empowerment Zone
Corporation (AEZC) due to a reorganization . The interim management team at the
AEZC was unfamiliar with the nuisances of the MAP program. There was a
misconception that linkage/outside communities were eligible to receive funds under
the MAP program. Consequently, the purchaser of the home was believed to be eligible
to apply for the $8,000 grant as a Zone resident. This was the only home purchased
outside the Zone, consequently an isolated instance. Further, the AEZC Board and
HUD guidance were in conflict concerning this issue. Therefore, under local
governance, we believe that the AEZC Board’s approval of a policy validates the action
taken.

The following detailed response will outline our disagreement with the audit finding and why
we believe the IG should withdraw this finding.

HUD Requirements.

HUD regulations for Urban Empowerment Zones and Enterprise Communities are codified in
24 CFR Part 597. The IG relied on 24 CFR 597.200 (d) (ii)…”Empowerment Zone funds must
be used to achieve and maintain the goals of the Strategic Plan…’’ However, the regulation
cited does not adequately represent the full intent of the Strategic Plan as outlined by
President Bill Clinton.

• President Clinton has propounded the rights of local governments to make their own
decision concerning governance. In this regard, the Executive Board of the Atlanta
Empowerment Zone Corporation (AEZC) has the ability and the right to make decisions
concerning the inclusion or exclusion of linkage/other communities for the receipt of
Empowerment Zone funds.

• In the absence of clarity on this issue by the Executive Board of the AEZC and the
guidance received by HUD, which are in conflict, the actions of the AEZC Board
prevails.

• The AEZC Board has expressed its intent to allow Social Service Block Grant (SSBG)
funds to be expended on linkage/outside communities. This is further illustrated by

98-CH-259-1005 Page 80
Appendix C

the1998 Resident Benefit Policy that authorized expenditures in linkage/outside
communities.

Response to the IG’s Recommendations

A. Ensures the Atlanta Empowerment Zone Corporation established procedures and controls
so that the Mortgage Assistance Program complies with established guidelines.

We agree the AEZC needed procedures and controls to ensure compliance with MAP
guidelines. AEZC staff has developed procedures to govern the MAP program.

B. Ensures the Atlanta Empowerment Zone Corporation establishes supervisory review and
oversight over the Mortgage Assistance Program.

The AEZC currently has a new Executive Director who has assigned the responsibility
of supervision and oversight of the MAP program to a housing specialist.

C. Reimburses the Empowerment Zone Program $8,000.00 from non-Federal funds for
services inappropriately provided to the Corporation’s employee.

Our position is that the Empowerment Zone (EZ) resident who purchased a home outside the
Zone was at the time believed to be eligible to receive the $8,000.00 grant under the MAP
program. As a Zone resident, it was assumed, in error, that the receipt of a direct benefit to
the Zone resident constituted a correct usage of Zone funds. Therefore, the repayment of
these funds should not be required inasmuch as this was an isolated case resulting from lack
of clarity as well as ambiguity of guidance received with regard to this issue. The error made
was unintentional.

Conclusion.

We request the IG to withdraw the audit finding related to the inappropriate use of $8,000.00 in
Zone funds.

Response to Finding of the Inspector General for Audit, HUD

Controls Over the Center for Home Ownership Were Not Adequate

Summary of Audit Finding

The audit findings raised several issues with respect to the City of Atlanta's performance

Page 81 98-CH-259-1005
Appendix C

monitoring of the Atlanta Center for Home Ownership (ACH) program.

· The City did not have adequate controls over the ACH program;
· The City did not ensure that $739,178 of Empowerment Zone funds benefited Zone
residents;
· The City did not competitively bid the contract that established the program; and
· The City did not accurately report the actual progress of the program in the June 30, 1997
Performance Audit

Summary of Our Response.

We disagree with the draft audit finding for the ACH program for the following reasons.

· The IG made a factual error in reporting that the agreement between the AEZC and AHA
establishing the ACH program required all ACH services to be provided to Zone residents
only. The agreement did not restrict the ACH program in the delivery of client services to
only Zone residents.
· ACH served 515 Zone residents in a 10 month period. Consequently, AHA exceeded its
obligation under the agreement to serve 120 Zone residents in the first year. AHA served
100% of the Zone residents it was contracted to serve and then served an additional 395
Zone residents, in less than one (1) year.
· The IG failed to acknowledge that the AEZC as a quasi governmental agency and the AHA
another quasi governmental agency entered into an intergovernmental agreement for the
ACH program pursuant to federal rules and regulations. The ACH program, therefore, was
not subject to procurement regulations cited by the IG.
· For every $1.00 the EZ expended toward service delivery, AHA and ACH program
leveraged an additional $1.15.
· The IG inaccurately calculated the ACH program's per client costs. Our analysis reveals that
the ACH program per client cost in EZ service related dollars is $180 as compared to the
average IG vendor cost of $495.
· The IG omitted important information regarding the ACH program outreach effort to EZ
residents from the draft audit finding.
· There was an on-going misunderstanding with regard to the contract terms versus HUD and
the Executive Board's guidance on the issue of whom could be served with Empowerment
Zone funds.

The following detailed response will outline our disagreement with the draft finding and
why we believe the IG should withdraw it.
HUD Requirements.

HUD regulations for Urban Empowerment Zones and Enterprise Communities are promulgated at
24 CFR Part 597. The IG relied on 24 CFR 597.200(d)(12)(ii), ". . . Empowerment Zone funds
must be used to achieve and maintain the goals of the Strategic Plan . . . " and 24 CFR 597.200(f),
". . . activities included in the Plan may be funded from any source which provides assistance to
the nominated area." It is not clear how the cited regulations support the IG's position on the

98-CH-259-1005 Page 82
Appendix C

different issues. It would appear, however, that the cited regulations are selective in nature and
do not adequately represent the full breath and intent of the regulations with respect to the ACH
program.

24 CFR 597.200(d)(12)(ii) also provides in paragraph (A)(2) that one of the program options is
to support ". . . programs that promote home ownership, education or other routes to economic
independence for low-income families, youths, and other individuals." We will argue that the
ACH program utilized Empowerment Zone funds pursuant to the Strategic Plan by promoting
home ownership as a route to economic independence for low-income families and other low-
income individuals.

As stated in the IG's draft finding, it is important that activities included in the Strategic Plan be
funded from sources which will provide assistance to the Empowerment Zone area. The
regulations at 24 CFR 597.200(d)(20) state that one of the elements of the Strategic Plan is to
explain how different agencies in State and local governments will work together in new
responsive ways to implement the Strategic Plan. In addition, 24 CFR 597.200(d)(6) states that
the Strategic Plan should provide evidence that key partners have the capacity to implement the
Plan. Finally, 24 CFR 597.201 states that one of the criteria for evaluating the Strategic Plan will
be the extent to which State and local governments are committed to providing support to
implement the Plan. We will argue that the City of Atlanta partnered with The Housing Authority
of the City of Atlanta, Georgia (AHA) to promote the ACH program through an
intergovernmental agreement in the spirit and letter of the regulations in order to achieve and
maintain the goals of the Strategic Plan.

Department of Health and Human Services Requirements.

The IG cited the provisions in 45 CFR 92.36 that require all procurement transactions to be
conducted in a manner providing full and open competition, and that contract awards will be
made to the lowest responsive and responsible bidder.

Not cited by the IG, 45 CFR 92.36(b)(5) states the following:

To foster greater economy and efficiency, grantees and subgrantees are encouraged to
enter into State and local intergovernmental agreements for procurement or use of
common goods and services.

The same language appears in the Uniform Administrative Requirements for Grants and
Cooperative Agreements to State and Local Governments (OMB Common Rule).
We will argue that the City of Atlanta through the Atlanta Empowerment Zone Corporation
(AEZC) entered into an intergovernmental agreement with AHA in connection with the ACH
program. Therefore, regulations at 45 CFR 92.36 as cited by the IG are not applicable to the
intergovernmental agreement for the ACH program.

Empowerment Zone (EZ) Funds Did Not Benefit Zone Residents.

Page 83 98-CH-259-1005
Appendix C

The IG noted in the draft finding that AHA received $911,440 in EZ funds from July 15, 1996,
the effective date of the agreement between the AEZC and AHA, through December 31, 1997.
Because 515 of the 2,717 clients AHA served were EZ residents, the IG concluded that only
18.9% or $172,262 in EZ funds paid to AHA were related to services provided to EZ residents.
The remainder of the EZ funds or $739,178 provided services to non-EZ residents. The IG used
the same methodology to determine that only $6,672 is reimbursable to AHA under its invoice
totaling $60,651 for services provided to 98 EZ residents (out of 889 total clients) during January
and February 1998. These assumptions, however, are flawed for a number of reasons.

The ACH program is being administered in accordance with the affordable housing proposal.
Pursuant to the narrative for the housing benchmark in the HLTD-approved Strategic Plan, 1800
families are to be assessed for homeownership over the life of the ACH program. The agreement
between the AEZC and AHA stated that the ACH would serve at least 120 EZ residents on an
annual basis. For the period beginning in late February 1997 (the ACH opened on February 27,
1997) through December 31, 1997, 2,717 clients were served under the ACH program. 515 of the
total clients served were EZ residents. This number represents 28.6% of the Benchmark goal and
429% of the annual performance requirement under the intergovernmental agreement.

The statistics on the ACH program's extensive outreach effort to EZ residents was examined and
verified by the IG during the time of the on-site review, yet the value of this effort to the program
was not acknowledged by the IG. Two full-time Outreach Specialists representing one-third of
funded staff positions are engaged in the outreach effort on a daily basis. Calendars, flyers, and
event notices are either mailed or hand distributed monthly to over 3000 EZ residents. Flyers and
event notices are posted in 30 different Empowerment Zone locations each month. The ACH
program's EZ direct mailing list includes churches, public and private schools, day care facilities,
community based groups, and libraries. The ACH program began its targeted campaign of
outreach to EZ residents in the fall of 1996, six months before the ACH opened. Outreach staff
gave numerous presentations to Zone residents between August 1996 and December 31, 1996.
Continuing the effort, ACH staff averaged six presentations per week to EZ audiences between
January 1997 and June 30, 1997 with an average meeting size of 40. In the second half of 1997,
ACH staff added relocated EZ public housing residents to the mailing list. Staff also increased the
number of flyers distributed door-to-door within the Zone communities in order to facilitate
meetings with EZ residents. During the period from July 1, 1997 through December 31, 1997,
the ACH staff distributed or mailed notices and flyers to EZ residents, and made presentations to
approximately 4,520 EZ residents. Disregarding the extensive advertisement and promotion of
the ACH program to EZ residents, the IG did not factor the cost of the outreach effort into the
analysis presented in the draft audit finding.
Although 100% of the clients served by the ACH program were not EZ residents, it is important
to note that the non-EZ clients were low-income families and other low-income individuals
pursuant to EZ guidelines. 319 of the 2,717 were public housing residents and another 1,883 were
EZ Linkage Community and other low-income clients.

Comparison of Income Ranges for Empowerment Zone Clients and
Non-Empowerment Zone Clients*
(February 27, 1997 Through December 31, 1997)

98-CH-259-1005 Page 84
Appendix C

Empowerment Zone Clients
30%
26%
25% 23%

20% 20% 20%

15%

10% 5%

\ 5% 3%

0 -$5000 $5001 - 10,000 $10,001 - 15,000

$15,001 - 20,000 $20,001 - 25,000 $25,001 - 30,000

Non Empowerment Zone Clients
30%
26%
25% 22%

20% 18%

15% 15%

10% 8%
6%
5%

0 -$5000 $5001 - 10,000 $10,001 - 15,000

$15,001 - 20,000 $20,001 - 25,000 $25,001 - 30,000

* Information on Non-Empowerment Zone Clients is based on a random sample of 367 files
representing 20% of the total client files.

Clients who were not residents of the EZ indicated that they came to the ACH to find out about
EZ programs, or were considering moving into the Zone. An analysis of whether or not the
program was benefiting low-income people was conducted during the IG review. A random
sample of 367 client files revealed that the ACH is serving clients who match the profile of EZ
residents. Coupling this data with the fact that non-EZ clients expressed an interest in the Zone

Page 85 98-CH-259-1005
Appendix C

adds weight to the argument that the ACH program was serving the targeted population, either
those currently residing in the EZ or those that could reasonably be expected to reside in the EZ
based on their expressed interest.

The charts on the preceding page support this argument. The charts demonstrate that the income
ranges for EZ and non-EZ clients were nearly identical. The sole or major source of income of
11% of all EZ clients is derived from Social Security, SSI, VA, or TANF, while a comparable
number of non-EZ clients (10% of the sample) had similar federally funded income sources. This
analysis further indicated that the percentage of clients receiving government housing benefits
(public housing or Section 8) in the two groups was also comparable --- 33% of the EZ clients
versus 34% of the non-EZ clients were receiving some form of housing assistance.

The IG's methodology for allocating costs to EZ and non-EZ clients failed to recognize the fixed
costs associated with the initial implementation of the ACH program and the provision of ongoing
services. As stated above, the ACH program exceeded the affordable housing benchmark and the
performance requirements under the intergovernmental agreement. An accurate analysis would
contemplate the start-up expenses for a new program and conclude that such expenses represent
the cost of doing business. Even before the first client stepped across the threshold of the ACH,
the build out expense and the cost of furnishing the space totaled $423,343. To tie the expense of
these sunk costs to a per-client cost allocation based on EZ resident benefit over the first four
months instead of the 10-year term of program is wrong. After all, the ACH is in the Zone to
serve EZ clients. This fact alone justifies the build-out expense. Office rent for the period in
question totaled another $37,500. This expense would fall in the same category as the build-out
and furniture expenses --- if you build it they will come, but if they don't, you still have to pay the
rent.

We must also consider the other expenses tied to the ongoing administration of the ACH program
such as salaries and benefits, office supplies, telephones and equipment, and so on. Here again
these expenses become fixed costs. We have to realize that in establishing a rigid performance
standard that is focused on arbitrary boundaries rather than the interests of low-income families
can adversely impact the program's ability to develop sustainable communities through home
ownership. Would the IG have the ACH turn low-income clients away simply because they did
not reside in the Zone? If so, the fixed costs for ongoing administration would still remain the
same. To establish these expenses as incremental costs is a flawed analysis. In exceeding its
goals, it can be concluded that the ACH program served EZ residents at the fixed costs for the
program and served the additional non-EZ clients at no cost. In the final analysis, as a new
program in its first year of operation, we argue that the expended EZ funds were used in an
efficient and effective manner.

Contract Was Not Properly Procured.

As previously stated, the OMB Common Rule recognizes the importance of intergovernmental
agreements in the procurement and delivery of services. The IG questioned the efficiency and
effectiveness of the intergovernmental agreement between the AEZC and AHA. To support the
IG's argument, the cost proposals from four housing counseling vendors were presented.

98-CH-259-1005 Page 86
Appendix C

Supposedly, the four vendors can provide housing counseling services at a per client cost ranging
from $300 to $689. This range was then compared to an incorrectly calculated ACH program per
client cost of $480. The IG claimed that although the ACH program per client cost would fall
within the vendor range, the vendors' cost proposals were based on EZ clients, while the ACH
program's cost included both EZ and non-EZ clients. The IG did not indicate how the vendor
cost proposals were obtained or the criteria on which the vendors based their proposals. For
example, the criteria used to define EZ residents and to draw a distinction between EZ and non-
EZ clients would enlighten us as to the validity of the cost proposals. As we have demonstrated
above, there is no distinction. EZ clients and non-EZ clients share the same income
characteristics. To believe there is a difference between a low-income family that lives in the
Zone and one that may live just outside of the Zone on the next street is flawed social science.

The IG's method of determining the ACH program's per client cost must be challenged as well.
The $480 per client cost determination is based on $911,440 in EZ funds plus $392,401 in AHA
in-kind funds divided by 2,717. Since the misuse of EZ funds is at the heart of the IG's finding,
the dollars AHA invested in the program are not a consideration. Subtracting the in-kind dollars
from the equation results in a per client cost of $335 in EZ funds. The following chart recaps our
analysis of the IG's numbers.

Cost Ranges For Services Average Within Range
IG Vendors $300-$689 $495
ACH Program $335-$480 $408

Using the IG's numbers without the in-kind costs and deducting the expenses for the build-out and
furniture results in an ACH program per client cost of $180. Obviously, the efficiency and
effectiveness of the ACH program's costs are superior.

Furthermore, several factors concerning the capacity of the vendors were not considered nor
disclosed by the IG.
Ability to administer program on a reimbursable basis without program interruption.
· Financial capacity to advance funds upward to over $400,000 to further program goals.
· Capacity of the vendors to deliver housing counseling services within the Zone.
· Location of vendors in relation to client population.
· Construction project management capacity to procure an architect for design services and a
general contractor to effect the build-out of the space.
Even though a competitive bid process is inappropriate and not a requirement of a procurement
under an intergovernmental agreement, it is quite apparent that AHA would have been the most
responsive and responsible bidder. AHA had the experience, the capacity, the financial
wherewithal, and the access to the client population. After all, 51% of all EZ residents are also
residents of AHA public housing. This is the reason that the original proposal under the housing
benchmark included $13.2 million in public housing modernization funding. This proposal was
renegotiated to provide funding for the self-sufficiency center for homeownership to provide
housing counseling, a down payment assistance program, and an owner occupied housing
rehabilitation program. AHA agreed to administer the self-sufficiency program because it was
believed that over the 10-year life of the program the majority of the clients would be public

Page 87 98-CH-259-1005
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housing residents. A competitive bidding process would not have been applicable to this
initiative. Returning to the vendors, one last point needs to be considered. Were any of the
vendors willing to commit $2,417,000 in actual and in-kind services to EZ clients" AHA did!
AHA expended $392,401 in actual and in-kind funds through December 31, 1997. The ACH
program raised an additional $123,405 in in-kind services, products, and supplies from lenders,
non-profits, a university, and the business community. The following chart demonstrates the
value of the AEZC's partnership with AHA.

Analysis of Leveraged Dollars Through December 31, 1997

EZ Funded Services* ACH In-Kind Services Leverage Ratio
$450,597 $515,806 1.00:1.15

*Funded service delivery costs only. Sunk costs associated with the build-out, furniture, and rent are not included in the total.

For every $1.00 the EZ expended toward service delivery, AHA and the ACH program
contributed an additional $1.15. Our analysis can only lead to one conclusion --- an
intergovernmental agreement between the AEZC and AHA was not only the most efficient and
effective means of providing the ACH program, it was also the right thing to do for low income
families seeking these services.

The City Incorrectly Reported the Number of Individuals Served.

The 1997 Performance Review of the ACH program covers the period of operation from
February 27, 1997 through June 31, 1997. The program was just over four months old when the
report was submitted and substantial progress had been made to get the program off the ground,
but the IG's draft finding did not reflect this. Due to the fact that the original EZ staff is no longer
employed by the AEZC, it cannot be determined at this time how they arrived at the reported
figures for the 1997 Performance Review. It is clear, however, that the current numbers for
program activities are accurate. Not only do we agree that the progress of Zone activities must
be monitored and verified to ensure that EZ funds are efficiently and effectively spent, but we also
believe that the ACH program is achieving the goals of the benchmark for which the EZ funds
were earmarked.

Response to the IG's Recommendations.

A. The City must ensure that the Authority only provides services to
Empowerment Zone residents.

It is our position that the non-EZ clients served by the ACH program had the same profile
as EZ clients. The non-EZ clients were low-income and expressed interest in the Zone
and its programs. Many of these clients were public housing residents and others were EZ
Linkage Community families. Both the EZ Board and the ACH advisory board have
representatives from the Linkage Communities. It is not clear how the rules and
regulations for the EZ program define and treat such low-income families. However, it is
98-CH-259-1005 Page 88
Appendix C

clear that the IG made a factual error in reporting that the agreement establishing the ACH
program required that all services be provided only to Zone residents. The agreement
does not limit the ACH program's delivery of client services to only Zone residents.

B. The City must reimburse the EZ program $739,178 from non-federal funds for
services inappropriately provided to non-Zone residents.

We strongly disagree with this recommendation. As stated above, the ACH program was
not designed to limit the ACH program's delivery of client services to only Zone residents.
The methodology used by the IG in determining benefit was flawed in that the proposed
reimbursement does not take into consideration the performance goals for the HUD-
approved bench-mark activity, fixed costs versus per client costs, and the profile of the
non-EZ clients receiving services. Services were not inappropriately provided to non-EZ
clients, so the City will not be reimbursing the EZ program.

C. The City must only reimburse the Authority $6,672 for the services provided to EZ
residents during January and February 1998.

We strongly disagree with this recommendation. In addition to the response to
Recommendation B, AHA is providing services in accordance with its agreement with the
AEZC. There is no legal basis under the terms and conditions of that agreement to
withhold payment.

D. The City must establish procedures and controls to monitor activities funded under
the EZ program.

The City is reevaluating the performance of the AEZC. A new Executive Director has
been hired. Among the many tasks before him is to improve the procedures and controls
to monitor EZ funded activities.

E. The City must establish procedures and controls to ensure that Zone contracts are
awarded in a manner providing full and open competition as required by the
Department of Health and Human Services.

The new Executive Director will review the AEZC's current procurement practices and
will make improvements as needed. However, the intergovernmental agreement-between
the AEZC and AHA is not in violation of HHS procurement standards. This agreement
complies with the OMB Common Rule.

F. The City must ensure costs charged by the Authority do not exceed those that would
have been charged if the contract had been competitively bid.

As proven above, AHA's per client cost is reasonable. The analysis conducted by the IG
supports this conclusion. Pursuant to EZ guidelines, AHA has the demonstrated capacity

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to deliver the services under the housing benchmark in the Strategic Plan and has made a
long-term financial commitment to promote the program.

G. The City must ensure its staff who are responsible for preparing the Performance
Review for HUD uses the actual accomplishments for each activity.

We will continue to improve every area of program performance including the accuracy of
reported accomplishments; however, we take exception to the inference here that the City
falsified the report.

H. The City must establish procedures and controls to verify the accuracy of the
information provided to HUD.

We will continue to improve every area of program performance including the accuracy of
the information provided to HUD.

Conclusion.

We request that the IG withdraw the draft audit finding related to the ACH program.

ATLANTA EMPOWERMENT ZONE
CORPORATION

98-CH-259-1005 Page 90
Appendix C

PROGRAM MONITORING AND
PERFORMANCE AUDIT PROCEDURES

Effective Date: May 1, 1997
(This supersedes all previous versions)

POLICY

The Atlanta Empowerment Zone Corporation (AEZC) will maintain a proactive monitoring and
evaluation program for all Federally assisted programs/projects administered by the AEZC. This
monitoring program consists of Courtesy Visits, Programmatic Progress Visits, Technical
Assistance Visits and Performance Audits.
These programs are administered by designated AEZC staff and implemented as
described herein.

RESPONSIBILITIES

Program Evaluation Specialist

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The Program Evaluation Specialist is responsible for:

• administration and implementation of the AEZC Program Monitoring and
Performance Audit Procedures;

• conducting semi-annual Performance Audits of all Federally assisted
programs/projects administered by the AEZC;

• providing administrative Technical Assistance (TA) to sub-recipients as
needed;

• ensuring the resolution of major findings as described herein and;

• coordinating internally and with the City of Atlanta, Georgia Department of
Community Affairs (DCA) or other Federal, state or local agencies to ensure laws or regulations
applicable to AEZC administered programs/projects are adhered to and monitored as required.

Discipline Directors/Development Officers

Discipline Directors/Development Officers are responsible for:

• ensuring Requests for Proposals, contracts and agreements for their respective
programs/projects include language which advises sub-recipients or prospective sub-recipients
that they will be subject to program/project monitoring and semi-annual Performance Audits by
the AEZC if awarded a loan or grant to implement a Federally funded activity administered by the
AEZC;

• developing a programmatic progress site visit schedule for each of their
respective sub-recipients to observe program/project implementation and provide

98-CH-259-1005 Page 92
Appendix C

programmatic technical assistance as required. The frequency of these visits will be based on
program/project complexity, its nature and the expertise/sophistication of the sub-recipient.
However, each sub-recipient will be visited by the Discipline Director/Development Officer at
least quarterly;

• establishing procedures, utilizing site visits or other methods, to facilitate the
early identification and/or resolution of potential problem;

• through a systematic review of program/project operations during
programmatic progress visits, reviewing program/project related correspondence, and other
communications with sub-recipients, identifying the need for 1) technical
assistance, 2) changes or adjustments in program/project implementation methodology, 3)
amendments to program/project contracts or agreements and, 4) any actions or changes that may
affect the eligibility of the project/program or sub-recipient;

• ensuring completion of an AEZC Sub-Recipient Site Visit Reports (TAB 14) to
document each programmatic progress or technical assistance visit;

• accompanying the Program Evaluation Specialist and Sub-Recipient Specialist
during Courtesy Visits to sub-recipients and;

• promptly advising the Program Evaluation Specialist of any financial or administrative
problems requiring Technical Assistance (TA) or other assistance. Assist,
as required, in the delivery of TA or other assistance rendered to a sub-recipient.

Sub-Recipients

Sub-recipients are responsible for:

• executing benchmark program/projects as specified and agreed to in agreement(s) and
contract(s), and any attendant terms and conditions, between the sub-recipient and AEZC;

• being knowledgeable of and in compliance with all Federal, state and City of Atlanta
laws, ordinances, regulations and policies applicable to their Federally assisted program/project
and which are funded and administered by the AEZC;

• ensuring they are thoroughly knowledgeable of and in compliance with the contents of
the AEZC Sub-Recipient Manual, the policies contained herein and all other Federal, state and
local polices, regulations applicable to the administration of their program/project and;

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• fully cooperating in the resolution of performance audit or financial
management findings and complying with any related directives from the AEZC.

Sub-Recipient Specialist

The Sub-Recipient Specialist is responsible for:

• implementation of the AEZC Financial and Management Systems for Sub-
Recipients;

• providing financial management and internal controls Technical Assistance
(TA) to sub-recipients and;

• conduct of financial reviews during semi-annual Performance Audits.

TYPES OF MONITORING VISITS

Courtesy Visits: Courtesy Visits will be conducted by the Program Evaluation Specialist and
Sub-Recipient Specialist to make initial "face to face" contact with a sub-recipient
and their staff, discuss program/project monitoring and performance audit requirements and
procedures, financial management procedures, sub-recipient responsibilities,
determine the need for technical assistance, and discuss and/or resolve any AEZC sub-recipient
operations/compliance issues. Sub-recipients will be notified in writing of pending Courtesy
Visits, and the specific day and time agreed to by both the sub-recipient and Program Evaluation
Specialist. The appropriate Discipline Director and/or Development Officer will accompany the
Program Evaluation Specialist and Sub-
Recipient Specialist on all Courtesy Visits.

Technical Assistance Visits: Technical Assistance (TA) Visits will be conducted to
assist or advise a sub-recipient on how to accomplish a specific monitored task to ensure
compliance with an applicable policy, procedure, regulation or law. An AEZC Sub-Recipient Site
Visit Report will be completed for each TA Visit. A copy will be retained by the Program
Evaluation Specialist, the Sub-Recipient Specialist and a copy provided
to the sub-recipient. TA Visits will be conducted by the Program Evaluation Specialist, Sub-
Recipient Specialist and Discipline Directors/Development Officers.

Programmatic Progress Visits - Programmatic Progress Visits will be conducted by the Discipline
Directors/Development Officers to observe and/or review progress on program implementation
and provide programmatic TA if required. The frequency of these visits will be based on
program/project complexity, its nature and the expertise/sophistication
of the sub-recipient. However, each sub-recipient will be visited by the Discipline
Director/Development Officer at least quarterly.

98-CH-259-1005 Page 94
Appendix C

Performance Audits - A Performance Audit is a review and examination of all areas,
programmatic and financial (Note 1), related to execution of the terms and conditions of the
agreement or contract between the AEZC and sub-recipient. The AEZC Sub-
Recipient Performance Audit Visit Checklist (TAB 15) will serve as a basic guideline for
conducting a Performance Audit. However, sub-recipients are advised that Performance Audits
may deviate from this checklist based on the nature and complexity of the program/project, and
issues/problems which may surface during the Performance Audit.
A copy will be retained by the Program Evaluation Specialist and the Sub-Recipient Performance
Audits will be conducted by the Program Evaluation Specialist and Sub-Recipient Specialist.

Close-Out Audit: Close-Out Audits will be conducted at the termination of a program/project to
ensure compliance with applicable financial, programmatic and procurement policies, procedures
and regulations. Close-Out Audits will be conducted
no later than fourteen days prior to program/project termination. The exact day and time will be
agreed to by the AEZC staff and sub-recipient. The primary focus of these audits will be to
determine final disposition of supplies and equipment, reconciliation of drawdowns with bank
statements, invoices and receipts, determination of the amount of final program/project drawdown
and to reiterate program/project records/files retention requirements. An AEZC Sub-Recipient
Site Visit Report will be completed for each Close-Out Audit. A copy will be provided to the
sub-recipient. Disputes that arise
during Close-Out Audits will be provided to the AEZC Director of Administration for resolution.

Special Monitoring Visits: Special Monitoring Visits will be conducted to provide
intense administrative, financial or programmatic review for programs/projects which
were suspended and have been reinstated. These programs/projects will be subject to bi-weekly
programmatic progress monitoring and monthly abbreviated (Note 2)
Performance Audits for a period of at least ninety days. Special Monitoring Visits will be
conducted by the Program Evaluation Specialist, Sub-Recipient Specialist and Discipline
Directors/Development Officers.

NOTES:
(1) The financial review conducted during a Performance Review does not meet the
requirements of the annual financial audit completed by a Certified Public Accountant (CPA)
which will be required by some sub-recipients. Questions regarding annual audits should be
directed to the AEZC Chief Financial Officer (CFO).
(2) These Performance Audits will focus only on the issues/problems which were the
(3) basis for the major findings.

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PROCEDURES

Frequency of Visits

Programmatic Progress Visits: The frequency of these visits is based on
program/project complexity, its nature and the financial/programmatic technical
expertise/sophistication of the sub-recipient. However, each sub-recipient will be visited
by the appropriate Discipline Director/Development Officer at least quarterly.

Courtesy Visits: Courtesy visits will be conducted within forty-five days of loan, grant
or contract/agreement closing. Sub-recipients will be notified in writing of upcoming Courtesy
Visits. The specific day and time will be agreed to by both the sub-recipient
and Program Evaluation Specialist.

Technical Assistance Visits: Technical Assistance (TA) Visits normally visits will be conducted
in response to a request from a sub-recipient. However, the Executive Director or Director of
Administration may, upon receipt of creditable and reliable information or recurring indication
that a sub-recipient is experiencing program/project administration problems, direct that a meeting
be held between the sub-recipient and designated AEZC staff. A determination will be made as to
the existence or degree of the problem, and a recommendation for resolution made.

Performance Audit: Initial Performance Audits will be conducted no later than six months from
the date of the Courtesy Visit and continue semi-annually until program/project termination. Sub-
recipients will be given reasonable notification for pending visits, usually within a thirty-day
window. The specific day and time may be coordinated with the sub-recipients no later than
fourteen days prior to the AEZC's
desired date for the Performance Audit.

Close-Out Audit: Close-Out Audits will be conducted no later than fourteen days prior
to program/project termination. Sub-recipients will be given written notice of an
upcoming Close-out Visit

Conducting Performance Audits

Performance Audits will be initiated by discussions between the sub-recipient and the Program
Evaluation and the Sub-Recipient Specialist on any areas or issues of concern. For all
Performance Audits the sub-recipient or acceptable designate will be available to:
1) respond to questions, 2) discuss program/project progress or problems, 3) identify the need for
any technical or other assistance, and 4) discuss recommended changes in program/project scope
or objectives. Sub-recipients will ensure all requested records and files are available and a
temporary work area (desk/table and 2 chairs) is made available. Upon completion of the
Performance Audit, the sub-recipient will be given a summarized

98-CH-259-1005 Page 96
Appendix C

briefing and a written report within fourteen days. Findings made during the
Performance Audit will be processed in accordance with the "Resolution of Findings" paragraph
below. An AEZC Sub-Recipient Site Visit Report will be completed for each Performance Audit.

Areas to be Reviewed

At a minimum, appropriate and applicable items listed on the AEZC Sub-Recipient Monitoring
Visit Checklist (TAB 15) will be reviewed for each program/project during Performance Audits.
Sub-recipients are advised, however, that all areas, programmatic
and financial, related to activities funded with AEZ funds are subject to review.

Performance Audit Findings

Minor Findings: A minor finding is a finding which does not indicate any misconduct, deceit or
intentional violation of law, regulation, statute, regulation, contract or
agreement. Findings, recommended actions for resolution and follow-up actions will be recorded
on the AEZC Sub-Recipient Site Visit Report.

Major Findings: A major finding is a finding of misconduct, deceit, and/or a systematic
or pattern of clear violation of law, regulation, statute, contract or agreement. Upon discovery of
a major finding the Program Evaluation Specialist and/or the Sub-Recipient Specialist will
conduct an immediate review/assessment to ascertain the nature and scope of the violation(s).
They will provide a brief summary of the violation(s) to the
appropriate Discipline Director/Development Officer, Chief Financial Officer, Director of
Operations, and Director of Administration. Depending on the nature of the violations a decision
will be made regarding the need for a legal opinion and the involvement of other agencies or
entities.

Resolution of findings

Minor Findings: Minor findings will be addressed through technical assistance from the
appropriate AEZC. Any action or practice which constitutes a violation of law, statute,
regulation contract or agreement must terminate immediately. Sub-recipients will cooperate fully
with the AEZC staff in the prompt resolution of minor findings.

Major Findings: The Program Evaluation Specialist is responsible for coordinating with the
Director of Administration, other AEZC staff or legal counsel on the development of
recommendations for the resolution of major findings. Recommendations for resolution
of major findings may include but are not limited to:

• termination of a program/project
• suspension of program/project funding subject to conditions
• removal of an individual(s) from the program/project

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Appendix C

• directing changes in the operational procedures of the program/project
• changing the scope or objectives of a program/project
• modifying the program/project contract

Recommendations will be provided to the Executive Director for a decision. The Department of
Housing and Urban Development (HUD), the Department of Housing and Community
Development and the Georgia Department of Community Affairs will be promptly advised of all
program/project termination’s.

The decision to reinstate funding for a program/project will be made by the Executive Director.
Sub-recipients must diligently comply with all the terms, conditions and
agreements established as conditions for reinstatement of their program/project. These programs
will undergo monitoring as indicated in the "Special Monitoring Visits " paragraph above.

98-CH-259-1005 Page 98
Appendix D

Distribution
Secretary's Representative, Southeast/Caribbean
Director of Community Planning and Development, Georgia State Office
Director of Field Accounting, Southeast/Caribbean
Deputy Secretary, SD
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Deputy Assistant Secretary for Public Affairs, W (Room 10220)
Chief of Staff, S (Room 10000)
Director, Office of Budget, ARB (Room 3270)
Counselor to the Secretary, S (Room 10234)
Senior Advisor to the Secretary for Communications and Policy, S (Room 10222)
Field Comptroller, Southeast/Caribbean
Assistant General Counsel, Southeast/Caribbean
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Director of Administrative Service Center 2, Georgia State Office
Assistant Secretary for Community Planning and Development, D (Room 7100)
Audit Liaison Officer for Community Planning and Development, COM (Room 7228) (3)
Assistant to the Secretary for Labor Relations, (Acting), SL (Room 7118)
Acquisitions Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10164) (2)
Deputy Chief Financial Officer for Finance, FF (Room 10164) (2)
General Counsel, C (Room 10214)
Associate General Counsel, Office of Assisted Housing and Community Development, CD
(Room 8162)
Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W.,
Room 2474, Washington DC 20548
The Honorable John Glenn, Ranking Member, Committee on Governmental Affairs, United
States Senate, Washington DC 20515-4305
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, United
States Senate, Washington DC 20515-4305
The Honorable Dan Burton, Chairman, Committee on Government Reform and Oversight, United
States House of Representatives, Washington DC 20515-6143
Mr. Pete Sessions, Government Reform and Oversight Committee, Congress of the United
States, House of Representatives, Washington, DC 20510-6250
Ms. Cindy Sprunger, Subcommittee on General Oversight and Investigations, Room 212,
O'Neil Office Building, Washington DC 20515
Acting Director of the Office for Civil Rights, Department of Health and Human Services,
200 Independence Avenue S.W., Room 515, Washington DC 20201
Inspector General, Department of Health and Human Services, 330 Independence Avenue S.W.
Room 5246, Washington DC 20201
Executive Director, Atlanta Empowerment Zone Corporation
Mayor, City of Atlanta, and Chairman of the Board of Directors, Atlanta Empowerment Zone
Corporation

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