oversight

City of Philadelphia Empowerment Zone Program Philadelphia, PA

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-09-30.

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

                                                                      Issue Date
                                                                              September 30, 1998
                                                                      Audit Case Number
                                                                              98-CH-259-1006




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 Philadelphia
               Empowerment Zone Program
               Philadelphia, Pennsylvania

We completed an audit of the City of Philadelphia’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 12 of the 109 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 used $83,998 of Empowerment Zone funds that did not
benefit Zone residents; did not have documentation to show that another $32,934 of Zone funds paid
and $4,367 billed to the City benefited Zone residents or were reasonable and necessary expenses; and
spent $30,280 of Zone funds above the amount approved. The City also inaccurately reported the
accomplishments of its Empowerment Zone activities and reported one project as an Empowerment
Zone activity to HUD when it was not. As a result, Empowerment Zone funds were not used
efficiently and effectively, and the impression exists that the benefits of the City’s Empowerment Zone
Program were greater than actually achieved.

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.
Management Memorandum




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98-CH-259-1006                   Page ii
Executive Summary
We completed an audit of the City of Philadelphia’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 concluded that the City did not use its Empowerment Zone funds appropriately and did not
correctly report the accomplishments of its Empowerment Zone Program to HUD. Specifically, the
City: inappropriately used $83,998 of Empowerment Zone funds that did not benefit Zone residents;
did not have documentation to show that another $32,934 of Zone funds paid and $4,367 billed to the
City benefited Zone residents or were reasonable and necessary expenses; spent $30,280 of Zone funds
above the amount approved; inaccurately reported the accomplishments of its Empowerment Zone
activities; and reported one project as an Empowerment Zone activity when it was not.


                                       As previously mentioned, the City of Philadelphia did not
 The City Did Not Have                 maintain adequate oversight over Empowerment Zone
 Adequate Control Over                 funds. Four of the 12 activities we reviewed incurred
 Zone Funds                            inappropriate     or    questionable     expenditures   of
                                       Empowerment Zone funds. The problems occurred because
                                       the City did not adequately monitor its Empowerment Zone
                                       activities to ensure the use of Empowerment Zone funds
                                       benefited Zone residents or were reasonable and necessary.
                                       The City also did not have adequate controls to ensure the
                                       use of Zone funds was limited to the approved amount.

                                       The City of Philadelphia incorrectly reported the actual
 The City Inaccurately                 status and progress for 10 of the 12 activities we reviewed
 Reported Progress Of Its              from the June 30, 1997 Performance Review. The
 Zone Activities                       inaccuracies related to: seven activities’ performance
                                       measures; 10 activities’ funding; eight activities’
                                       performance milestones; five activities’ participating
                                       entities; and two activities’ start dates. The City also did
                                       not report obstacles encountered for one activity as required
                                       by HUD’s guidance. The inaccuracies occurred because the
                                       individual who prepared the Performance Review for the City
                                       did not use the actual accomplishments for each activity and
                                       did not verify the information reported. Instead, she reported
                                       the projected performance as the actual accomplishments. As a
                                       result, the impression exists that the benefits of the City’s
                                       Empowerment Zone Program were greater than actually
                                       achieved.
                                       The City of Philadelphia incorrectly reported that the Life Long
 The City Incorrectly                  Learning and Training Center, included in its June 30, 1997
 Reported The Center As
 A Zone Activity                                Page iii                               98-CH-259-1006
Executive Summary


                    Performance Review, was an Empowerment Zone Program
                    activity. The Center was included as a benchmark in the City’s
                    Strategic Plan; however, it was not approved as an
                    Empowerment Zone activity. The City also reported that the
                    Center served 1,210 Zone residents and leveraged $4,455,500
                    of private funds when the Center had not been started. As
                    previously mentioned, problems occurred because the
                    individual who prepared the Performance Review for the City
                    did not verify the accuracy of the information reported. The
                    individual reported planned performance measures and funding
                    as actual results. As a result, the impression exists that the
                    Center provided a benefit.

                    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
                    Philadelphia reimburses the Empowerment Zone Program
                    for the inappropriate use of Zone funds and implements
                    controls to correct the weaknesses cited in this report.

                    We presented our draft findings to the former Executive
                    Director of the City’s Empowerment Zone Program, the
                    City’s Contracts Manager for the Mayor’s Office of
                    Community Services, and HUD’s staff during the audit. We
                    held an exit conference with the City’s Contracts Manager
                    on August 19, 1998. The City provided written comments
                    to our draft findings. We included excerpts of the
                    comments with each finding and the summary of
                    Empowerment Zone activities reviewed (see Appendix B).
                    The complete text of the comments are included in
                    Appendix C.




98-CH-259-1006               Page iv
Table of Contents

Management Memorandum                                                   i


Executive Summary                                                    iii


Introduction                                                            1


Findings

1    The City Did Not Have Adequate Control Over
     Empowerment Zone Funds                                          5


2    The City Inaccurately Reported The Accomplishments
     Of Its Empowerment Zone Activities                             17


3    The Life Long Learning And Training Center Was Not An
     Approved Zone Activity And Its Status Was Incorrectly
     Reported                                                       23



Management Controls                                                 27


Follow Up On Prior Audits                                           29



Appendices
      A Schedule of Questioned Costs                               31

      B Activities Reviewed                                        33




                                 Page v                   98-CH-259-1006
Table of Contents


        C Auditee Comments             89

        D Distribution                 141




98-CH-259-1006               Page vi
Introduction
The City of Philadelphia, along with the City of Camden, New Jersey, was jointly 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’s 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. Of the $100 million, the City of Philadelphia was awarded $79 million with
the remaining $21 million going to the City of Camden. As of July 28, 1998, the City of
Philadelphia drew down and spent $19,362,045 in Empowerment Zone funds from the Social
Services Block Grant.

The City of Philadelphia is a municipal corporation governed by a mayor and a city council. The
City’s fiscal year is July 1 through June 30. The Mayor’s Office of Community Services for the
City of Philadelphia administers its Empowerment Zone Program.

The Mayor of the City of Philadelphia is the Honorable Edward G. Rendell. The former
Executive Director of the City’s Empowerment Zone Program was Carlos A. Acosta who was
replaced in August 1998. The current Executive Director is Eva Gladstein. The Executive
Director of the Mayor’s Office of Community Services for the City of Philadelphia is Gail S.
Greene. The City’s Empowerment Zone books and records are located at 1515 Arch Street,
Philadelphia, Pennsylvania.



                                     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, and
                                     administering entities of the City’s Zone activities. Based
                                     upon the activities’ funding and reported accomplishments,
                                     we judgmentally selected 12 of the City’s 109 activities

                                              Page 1                              98-CH-259-1006
Introduction


                 reported in the June 30, 1997 Performance Review. The
                 following table shows the 12 activities reviewed:

                                          Activity
                   1. Lead Abatement Program
                   2. Safety/Security Program
                   3. Supervised Child Playsite
                   4. Multipurpose Athletic Field
                   5. Child Care Conference
                   6. Cecil B. Moore Commercial Corridor
                   7. Youth Landscape Training Program
                   8. Life Long Learning and Training Center
                   9. Mini-Mobile Police Stations
                  10. Community Lending Institution
                  11. Community Capital Institution
                  12 Revolving Capital Fund

                 We limited our review for four of the 12 activities selected
                 to assessing the accuracy of the accomplishments reported
                 by the City. The four activities were the: (1) Community
                 Lending Institution; (2) Community Capital Institution; (3)
                 Cecil B. Moore Commercial Corridor; and (4) Revolving
                 Capital Fund.      We limited our review because the
                 Department of Health and Human Services’ Office of
                 Inspector General was assessing the efficiency and
                 effectiveness of the four activities as part of a separate
                 audit.

                 To evaluate the City’s Empowerment Zone Program, we
                 reviewed records maintained by HUD, the Mayor’s Office
                 of Community Services for the City, and the administering
                 entities. We reviewed: HUD’s guidance and instructions for
                 the Program; the City’s June 1997 Performance Review,
                 files, reports, and approved payment requests related to the
                 activities; and the administering entities’ voucher payments,
                 monitoring files, and supporting documentation. We visited
                 each of the administering entities for the 12 activities 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.



98-CH-259-1006           Page 2
                                               Introduction


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




          Page 3                              98-CH-259-1006
Introduction




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98-CH-259-1006                   Page 4
                                                                                            Finding 1


 The City Did Not Have Adequate Control Over
          Empowerment Zone Funds
The City of Philadelphia did not maintain adequate oversight over Empowerment Zone funds.
Four of the 12 activities we reviewed incurred inappropriate or questionable expenditures of
Empowerment Zone funds. The inappropriate and unsupported expenditures of funds accounted
for 30 percent of the Empowerment Zone funds allotted to the eight activities for which we
reviewed the efficiency and effectiveness of Zone funds. For the remaining four activities, we
limited our review to assessing the accuracy of the accomplishments reported by the City because
the Department of Health and Human Services’ Office of Inspector General was assessing the
efficiency and effectiveness of the activities as part of a separate audit. These four activities were
the: (1) Community Lending Institution; (2) Community Capital Institution; (3) Cecil B. Moore
Commercial Corridor; and (4) Revolving Capital Fund.

The City: (1) inappropriately used $83,998 of Empowerment Zone funds because the use of the
funds did not benefit Zone residents; (2) did not have documentation to show that $32,934 of
Zone funds paid and $4,367 billed to the City benefited Zone residents or were reasonable and
necessary expenses; and (3) spent $30,280 of Zone funds above the amount approved. The
problems occurred because the City did not adequately monitor its Empowerment Zone activities
to ensure the use of Empowerment Zone funds benefited Zone residents or were reasonable and
necessary. The City also did not have adequate controls to ensure the use of Zone funds was
limited to the approved amount. 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 in accordance
                                       with the Strategic Plan. Section 2007(c)(1)(C) also requires
                                       that Empowerment Zone funds 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
                                       their services.

                                       24 CFR Part 597.200(d)(ii) requires that Empowerment Zone
  HUD’s Requirements                   funds must be used to achieve or maintain the goals of the
                                       Strategic Plan. 24 CFR Part 597.200(f) states activities
                                       included in the Plan may be funded from any source which
                                       provides assistance to the nominated area.

                                                 Page 5                                98-CH-259-1006
Finding 1



                               The City of Philadelphia’s Empowerment Zone Strategic
  Strategic Plan’s             Plan required the Lead Abatement Program, the
  Requirements                 Safety/Security Program, the Supervised Child Playsite
                               Project, and the Multipurpose Athletic Field activity to
                               benefit Empowerment Zone residents.

                               The City of Philadelphia did not maintain adequate
  Oversight Of Zone Funds
                               oversight over four of the 12 activities we reviewed. The
  Was Not Adequate
                               City: used $83,998 of Empowerment Zone funds that did
                               not benefit Zone residents; did not have documentation to
                               support that another $32,934 of Zone funds paid, and
                               $4,367 billed, to the City benefited Zone residents or were
                               reasonable and necessary expenses; and spent $30,280 of
                               Zone funds above the amount approved. The following
                               table shows the problems and the activities involved:

                                                                No Support
                                                               For Benefit Or
                                                   No          Reasonableness      Over
                                 Activity         Benefit      And Necessity     Expended
                            Lead Abatement
                              Program               $83,310           $ 3,534
                            Safety/Security
                              Program                   688              6,792
                            Child Playsite
                              Project                                  26,975
                            Multipurpose
                              Athletic Field                                       $30,280
                            TOTAL                   $83,998           $37,301      $30,280

                               A detailed summary for each of the four activities is at page
                               54 for the Lead Abatement Program, page 34 for the
                               Safety/Security Program, page 40 for the Child Playsite
                               project, and page 49 for the Multipurpose Athletic Field.

                               Sea Change Environmental Services, Incorporated, the
  Empowerment Zone             administering entity for the Lead Abatement Program, used
  Funds Did Not Benefit        $83,310 of Empowerment Zone funds that did not benefit
  Zone Residents               Zone residents. The City’s Strategic Plan required that the
                               Program provide lead abatement services within the
                               Empowerment Zone. However, services were provided to
                               non-Zone individuals.



98-CH-259-1006                         Page 6
                                                                            Finding 1


                        Sea Change Environmental Services received a $100,000
                        loan from Empowerment Zone funds in 1996 to provide
                        lead abatement services to properties located in the Zone.
                        Sea Change’s records showed that only one of the five
                        properties that received services was located in the Zone.

                        The Safety/Security Program distributed safety devices
                        valued at $688 to non-Zone residents. The Safety/Security
                        Program was established to improve the public safety of
                        Empowerment Zone residents and businesses.

                        The problems occurred because the City did not adequately
                        monitor the activities to ensure the activities provided
                        services to Empowerment Zone residents to the maximum
                        extent possible. As a result, $83,998 in Zone funds were
                        not used efficiently and effectively.

                        The City and the Supervised Child Playsite Project did not
Documentation Did Not   have adequate documentation to support that
Exist To Show           Empowerment Zone residents were the recipients of
Empowerment Zone        daycare outreach and counseling services that were paid for
Funds Benefited Zone    with $22,608 of Zone funds. The Project also did not have
Residents               support to show that Empowerment Zone residents were
                        the recipients of $4,367 in services that had been billed to
                        the City but not paid. Additionally, City and administering
                        officials did not have documentation to support that
                        Empowerment Zone residents received the $6,792 worth of
                        safety devices that were distributed under the
                        Safety/Security Program or that $3,534 of administrative
                        expenses paid for with Empowerment Zone funds by the
                        Lead Abatement Program were reasonable and necessary.

                        Between March and December 1997, the Supervised Child
                        Playsite Project used Empowerment Zone funds to pay
                        outreach and counseling costs of $14,515 for an Intake
                        Specialist and $8,093 for an Outreach Specialist. The
                        project also billed the City another $2,792 for the salaries of
                        the Intake Specialist and $1,575 for the Outreach Specialist
                        for services provided during January and February 1998.
                        The Child Playsite Project paid all of the Intake Specialist’s
                        salary and 50 percent of the Outreach Specialist’s salary
                        using Zone funds. Another Empowerment Zone activity,
                        the Teen After School Evening Program, paid the remaining
                        50 percent of the Outreach Specialist’s salary.


                                  Page 7                               98-CH-259-1006
Finding 1


                       The Supervised Child Playsite Project and the
                       Safety/Security Program did not always keep adequate
                       records that showed who received the benefits of the
                       activities. The Lead Abatement Program did not maintain
                       documentation to show that administrative expenses paid
                       for with Zone funds were used for the Empowerment Zone
                       Program. The problems occurred because the City did not
                       provide adequate oversight of the three activities. As a
                       result, $32,934 of Empowerment Zone funds spent and
                       $4,367 billed to the City may not have been efficiently and
                       effectively used.

                       As of May 1998, $180,280 of Empowerment Zone funds
  The City Overspent   had been spent on the Multipurpose Athletic Field activity,
  Empowerment Zone     even though the allocation of Empowerment Zone funds
  Funds                was for only $150,000. Additionally, $429,356 of $430,000
                       in City funds available for the activity were also spent. The
                       over expenditure of Empowerment Zone funds occurred
                       because the City’s system of control for the expenditure of
                       Zone funds was not adequate.

                       The City’s procedures required the Mayor’s Office of
                       Community Services’ Fiscal Department to approve all
                       Empowerment Zone fund disbursements. The Fiscal Office
                       assigned an index code at the time of processing as a control
                       to prevent unauthorized use of the funds. However, the
                       City’s Recreation Department was able to bypass the
                       control and authorized the disbursement of $148,495 of
                       Empowerment Zone funds for construction of the activity
                       without notifying the Mayor’s Office of Community
                       Services.

                       The City’s Recreation Department was informed it had
                       authorization to spend up to $150,000 in Empowerment
                       Zone funds by the former Fiscal Director in the Mayor’s
                       Office of Community Service. The Former Director
                       provided the Department with an Initiation and Funding
                       Approval form that contained the activity’s index code. The
                       Budget Officer for the Recreation Department said since the
                       index code was provided, it was assumed the Mayor’s
                       Office had recorded the transaction. However, since the
                       Office of Community Services was not aware of the
                       disbursement processed by the Recreation Department, the
                       Office also approved the disbursement of $31,785 for the
                       acquisition of the property on which the field was to be

98-CH-259-1006                 Page 8
                                                                               Finding 1


                           constructed. The two disbursements totaled $180,280,
                           which exceeded the approved Empowerment Zone funding
                           by $30,280.

                           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 in accordance with the Strategic Plan and for
                           activities that benefit Zone residents.

                           To effectively accomplish the Empowerment Zone
                           Program’s objective, 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 City did not adequately
                           monitor its 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 or supported 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 from the City’s comments on our draft finding follow.
Auditee Comments           Appendix C, page 134, contains the complete text of the
                           comments.
                           The allegations of the findings can only be characterized as
                           shockingly inaccurate and unfair. The City spent $16 million in
                           Zone communities for economic development, education,
                           housing, public safety, and critically needed infrastructure
                           improvements in these neighborhoods. The OIG findings

                                     Page 9                               98-CH-259-1006
Finding 1


                     question less than one percent of all funds spent. The City
                     maintains that all of the Empowerment Zone funds were spent
                     to benefit Zone residents.

                     The information in the finding is based on documentation we
 OIG Evaluation of   obtained from the City’s files and the activities’ administrators.
 Auditee Comments    The information showed that not all Empowerment Zone funds
                     were used according to Federal law, HUD’s regulations, and
                     the City’s Strategic Plan. The inappropriate and unsupported
                     expenditures of funds accounted for 30 percent of the
                     Empowerment Zone funds allotted to the eight activities for
                     which we reviewed the efficiency and effectiveness of Zone
                     funds.


                     The OIG’s finding with respect to the provision of the
 Auditee Comments    Supervised Child Playsites is wrong, and as a result, the City
                     strongly objects to its inclusion in the OIG summary
                     findings.

                     The City takes exception to the OIG assertion that controls
                     over the Playsites activity were inadequate. The City and
                     the provider both have voluminous documentation to
                     support that the contracted services, necessary for the
                     achievement of the performance objectives, have been
                     provided. The City maintains an aggressive system of
                     contract monitoring, and has sufficient documentation to
                     demonstrate that the goals and objectives of this activity
                     were achieved, including the objective of providing age-
                     appropriate activities for 55 Zone children enrolled in
                     daycare.      The OIG determination that insufficient
                     documentation exists to support the intake process merely
                     underscores the problem of reporting information that the
                     provider is barred from providing, by virtue of its duty of
                     confidentiality that arises as a result of its agreement with
                     the State. The OIG was provided with the names and
                     addresses of the children identified as participating in the
                     program, and the OIG was provided with more than enough
                     information to independently verify the participation of
                     these children in the daycare program.

                     Our review determined that Child Playsite and the City did not
 OIG Evaluation of   maintain documentation to show that Empowerment Zone
 Auditee Comments    funds were effectively and efficiently used. As a result, we
                     concluded that procedures and controls were not adequate.

98-CH-259-1006                Page 10
                                                                        Finding 1



                    The City did not use Empowerment Zone funds to provide
                    daycare services to Zone residents. Instead, the City used
                    Zone funds to conduct outreach and intake services. Contrary
                    to the City’s comments, neither the City nor the Child Playsite
                    provided any documentation that showed the names and
                    addresses of the individuals who received the services. The
                    City needs to provide documentation that shows the outreach
                    and intake services primarily benefited Zone residents or
                    reimburse the Empowerment Zone Program $22,608 from
                    non-Federal funds. The City also needs to maintain similar
                    documentation for future expenditures.


                    The OIG alleges that the Philadelphia Empowerment Zone
Auditee Comments    overspent its $150,000 budget for the construction of a
                    Multipurpose Athletic Field in the American Street Zone by
                    an estimated $30,000. As a result, the OIG concluded that
                    the City’s expenditure and reporting controls were
                    inadequate.

                    It is true that the cost of the ball field exceeded budgeted
                    estimates, but the City maintains that all costs for
                    construction of the field were reasonable and necessary. It
                    is also worth noting that the Empowerment Zone funding of
                    the project was completed in partnership with the City,
                    which appropriated $800,000 toward the construction of
                    the field -- a City/Zone match of nearly three to one -- in an
                    area of the City where such recreation opportunities did not
                    exist and were critically needed.             Moreover, the
                    construction of the field has been a tremendously successful
                    project, standing as a focal point of the surrounding
                    community and serving more than 700 Zone residents.

                    The City agrees that it exceeded the authorized budget amount
OIG Evaluation of   of Empowerment Zone funds for the Multipurpose Athletic
Auditee Comments    Field. The City needs to establish procedures and controls to
                    ensure the disbursement of Empowerment Zone funds does not
                    exceed authorized amounts.


                    The OIG alleges that there was insufficient documentation
Auditee Comments    to verify that the Zone distributed $6,792 worth of smoke
                    detectors to Zone residents, and that an additional $688
                    worth of smoke detectors were distributed to non-Zone

                             Page 11                               98-CH-259-1006
Finding 1


                 residents.

                 This allegation is wrong, and moreover, it is not supported
                 by the factual evidence provided to the OIG. The crux of
                 this allegation is that the local Zone failed to provide
                 documentation to support its distribution of the smoke
                 detectors in question to Zone residents. Yet there is no
                 question that the Zone was the target of a comprehensive
                 outreach program conducted by the Zone and the
                 Philadelphia Fire Department, to ensure that Zone residents
                 received free smoke detectors to protect against the danger
                 of business and residential fires. Further, there is no
                 evidence -- none -- to show either that the smoke detectors
                 were not distributed, or that there was any malfeasance on
                 the part of the local Zone officials with respect to this
                 equipment. In fact, all evidence points to the common sense
                 conclusion -- volunteers were recruited to distribute smoke
                 detectors, flyers were distributed in the various Zone
                 neighborhoods, volunteers were clearly deployed to
                 distribute in those neighborhoods on the days in question,
                 and most significantly, routine inspections of the homes in
                 question show that smoke detectors actually were installed.
                 Further, local Zone officials who represented to the OIG
                 that the smoke detectors in question were distributed can
                 document the distribution of more than $11,000 worth of
                 smoke detectors. In this case, the evidence supports the
                 conclusion that all of the smoke detectors in question were
                 distributed as intended.

                 Finally, the OIG also questions the distribution of $688
                 worth of smoke detectors to non-Zone residents. Yet these
                 smoke detectors were distributed to homes immediately
                 adjacent to the Zone -- in most cases, literally across the
                 street. As such, they serve to protect the Zone itself from
                 the danger of fire, and as Federal regulations make clear,
                 Empowerment Zone funds are not limited for use solely
                 within the designated Zone census tracts. Instead, the
                 relevant Department of Health and Human Services’
                 regulations permit the local Zone community to define
                 residents of the Zone and the benefits they receive in a
                 manner that is consistent with the overall goal of providing
                 benefit to the Zone community. Under the circumstances,
                 the Philadelphia Empowerment Zone’s decision to provide
                 smoke detectors to homes immediately adjacent to the Zone
                 constituted a Zone benefit that is consistent with the goals

98-CH-259-1006            Page 12
                                                                          Finding 1


                    of the Empowerment Zone legislation.

                    The City did not have documentation to support that $6,792 of
OIG Evaluation of   safety equipment purchased with Empowerment Zone funds
Auditee Comments    benefited Zone residents. The City’s comments to the
                    Safety/Security Program activity (see page 100) say that the
                    City instructed administering officials to provide items
                    purchased with Zone funds only to Zone residents. We
                    determined that $688 of safety equipment was provided to
                    non-Zone residents. The City’s comments to the activity also
                    indicated the City did not dispute that the safety equipment was
                    distributed to non-Zone residents. In fact, the individuals who
                    received 95 percent of the safety devices distributed to non-
                    Zone residents lived at least 35 blocks from the Zone. Since
                    the Safety/Security Program administrator had control over
                    who received the safety devices, the devices should have been
                    provided only to Empowerment Zone residents. The City did
                    not indicate which Department of Health and Human Services’
                    regulations it believes permits the use of Zone funds outside the
                    Empowerment Zone.            However, Federal law, HUD’s
                    regulations, and the City’s Strategic Plan required that the
                    safety devices be provided to Zone residents. The City needs
                    to provide documentation to support the use of $6,792 in Zone
                    funds or reimbursement the Empowerment Zone Program
                    from non-Federal funds. The City should also reimburse the
                    Program $688 from non-Federal funds for the devices
                    distributed to non-Zone residents.


                    The OIG alleges that the Philadelphia Empowerment Zone
Auditee Comments    used $83,310 worth of Zone funds for lead abatement
                    services in the North Philadelphia Empowerment Zone, to
                    be performed by a company called Sea Change
                    Environmental Services. As the OIG is aware; however, the
                    Sea Change transaction was a loan. Therefore, the Zone
                    has limited exposure should the contractor not be able to
                    provide lead abatement services. Zone officials already
                    have provided documentation to the OIG to demonstrate
                    that Sea Change is current on its loan repayments to the
                    Empowerment Zone. Once the loan is repaid, the Zone may
                    choose to reissue these funds for additional lead abatement
                    services.

                    It is the City’s responsibility to ensure that Zone funds are
OIG Evaluation of   efficiently and effectively used. This includes taking necessary
Auditee Comments
                             Page 13                                 98-CH-259-1006
Finding 1


                   steps to maintain legal control in third party transactions so the
                   City can ensure the use of Empowerment Zone funds benefits
                   Zone residents. We did not question whether Sea Change was
                   current on its loan. The City needs to reimburse the
                   Empowerment Zone Program $83,310 from non-Federal funds
                   for services provided to non-Zone residents. The City agreed
                   to reimburse the Empowerment Zone in its comments on the
                   Lead Abatement Program activity (see page 130).
                   Additionally, the City needs to provide documentation to
                   support the $3,534 of administrative expenses paid for with
                   Empowerment Zone funds which Sea Change could not show
                   benefited the Zone. If adequate documentation cannot be
                   provided, then the City should reimburse the Empowerment
                   Zone Program $3,534 from non-Federal funds.


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

                   1A.     Reimburses the Empowerment Zone Program $83,998
                           from non-Federal funds for the lead abatement services
                           ($83,310) and safety devices ($688) that were
                           inappropriately provided to non-Zone residents.

                   1B.     Provides documentation to support that the Lead
                           Abatement Program ($3,534), the Safety/Security
                           Program ($6,792), and the Supervised Child Playsite
                           project ($22,608) used $32,934 of Empowerment
                           Zone funds to benefit Zone residents. If adequate
                           documentation cannot be provided, reimburse the
                           Empowerment Zone Program from non-Federal funds
                           for the amount that cannot be supported.

                   1C.     Provides documentation to support that the $4,367
                           billed by R.W. Brown was for services that benefited
                           Zone residents. If adequate documentation cannot be
                           provided, do not pay R.W. Brown from Empowerment
                           Zone funds for the amount that cannot be supported.

                   1D.     Provides documentation to support that future
                           expenditures of Empowerment Zone funds benefit
                           Zone residents, or limits reimbursements to the
                           amounts that can be supported.


98-CH-259-1006              Page 14
                                                 Finding 1


1E.   Instructs agencies responsible for administering
      activities to maintain documentation to support
      services received under the Empowerment Zone
      Program. Also, advises administering officials to
      provide services paid for with Empowerment Zone
      funds to Zone residents.

1F.   Reimburses the Empowerment Zone Program $30,280
      from non-Federal funds for the excess costs charged
      against Empowerment Zone funds for the
      Multipurpose Athletic Field.

1G.   Establishes procedures and controls to ensure the
      disbursement of Empowerment Zone funds does not
      exceed authorized amounts.

1H.   Establishes procedures and controls to monitor
      activities funded under the Empowerment Zone
      Program to ensure that monies are used efficiently and
      effectively.

1I.   Establishes procedures and controls to ensure that the
      goals of the Strategic Plan are met.




       Page 15                               98-CH-259-1006
Finding 1




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98-CH-259-1006                   Page 16
                                                                                             Finding 2


       The City Inaccurately Reported The
   Accomplishments Of Its Empowerment Zone
                   Activities
The City of Philadelphia incorrectly reported the actual status and progress for 10 of the 12
activities we reviewed from the June 30, 1997 Performance Review. The Review contained
inaccuracies related to: seven activities’ performance measures; 10 activities’ funding; eight
activities’ performance milestones; five activities’ participating entities; and two activities’ start
dates. The City also did not report obstacles encountered by the Youth Landscape Training
Program.. The inaccuracies occurred because the individual who prepared the Performance Review
for the City did not use the actual accomplishments for each activity and did not verify the information
reported. Instead, she reported the projected performance categories as the actual accomplishments.
As a result, 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 Philadelphia 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; the start date for the activity as a whole; and the
                                       major entities responsible for financing, managing, and
                                       operating the activity.        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.




                                                 Page 17                                98-CH-259-1006
Finding 2


                                     The City of Philadelphia inaccurately reported the
  The City Incorrectly
                                     accomplishments for 10 of the 12 activities we reviewed
  Reported The Progress Of
                                     from the June 1997 Performance Review. The status of one
  Empowerment Zone
                                     activity was accurately reported. The remaining activity,
  Activities
                                     although reported as an Empowerment Zone activity, was
                                     not (see Finding 3). The following table shows the
                                     incorrect reporting by performance category for the 10
                                     activities and the page number where a detailed summary
                                     for each activity is located:

                                                          Participating Start Page
                  Activity    Measures Funding Milestones   Entities    Date Number
                  Cecil B.
                   Moore         X          X            X              X           X        60
                 Child Care
                 Conference      X          X                                                66
                 Community
                  Lending                   X                                                70
                   Safety/
                  Security                  X            X              X                    34
                    Child
                  Playsite       X          X            X                          X        40
                  Athletic
                    Field        X          X            X              X                    49
                 Community
                   Capital                  X            X              X                    74
                 Revolving
                   Capital       X          X            X              X                    78
                   Youth
                 Landscape       X          X            X                                   83
                    Lead
                 Abatement       X          X            X                                   54
                   Totals        7          10           8              5            2

                                     The City also did not report the obstacles encountered by
                                     the Youth Landscape Training Program.            The City
                                     accurately reported the results of the Mini-Mobile Police
                                     Stations activity in the June 1997 Performance Review.

                                     The City incorrectly reported the performance measures for
  The City Inaccurately              seven activities. Performance measures are the final products
  Reported Activities’               produced or other measurable outcomes of the activity. For
  Performance Measures               example, the City reported in the June 1997 Performance
                                     Review that the Cecil B. Moore Commercial Corridor
                                     produced a seven store retail strip mall, 16 housing units, and

98-CH-259-1006                                Page 18
                                                                                  Finding 2


                              35 new jobs. As of June 1997, there were only six prospective
                              tenants for the mall and only two of the six had signed leases.
                              The 16 housing units were a separate community development
                              project that was not connected with the Empowerment Zone
                              Program and should not have been reported to HUD. The
                              Corridor also did not create the 35 new jobs reported in the
                              June 1997 Performance Review.

                              The City over reported 10 activities’ funding in the June 1997
The City Over Reported        Performance Review. Funding consists of Empowerment
The Activities’ Funding       Zone funds, non-Zone Federal funds, State and local monies,
By Over $40 Million           private donations, and in-kind contributions. The City reported
                              the 10 activities’ funding included $49,682,243. However, the
                              activities’ funding included only $8,831,444 as of June 30,
                              1997. The net effect was an over reporting of $40,850,799.
                              Additionally, the City provided an unrealistic completion date
                              for leveraging private funds for the Community Lending
                              Institution. The following table shows the incorrect reporting
                              by activity:

                                                  Amount          Amount        Over/Under
                                 Activity        Reported        Supported       Reporting
                             Cecil B. Moore      $1,500,000       $900,000        $600,000
                          Child Care Conference      60,000          44,474         15,526
                           Community Lending     14,250,000          18,450     14,231,550
                             Safety/Security        160,000               0        160,000
                              Child Playsite        240,000               0        240,000
                              Athletic Field        369,000         580,000       (211,000)
                           Community Capital     23,094,280               0     23,094,280
                            Revolving Capital     9,600,000       7,000,000      2,600,000
                            Youth Landscape         119,963          38,520         81,443
                            Lead Abatement          289,000         250,000         39,000
                                 Totals         $49,682,243      $8,831,444    $40,850,799

                              Because of 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 that the City
                              accurately reports the funding of its activities.




                                       Page 19                                98-CH-259-1006
Finding 2


                             The City inaccurately reported eight activities’ performance
  The City Incorrectly       milestones. Performance milestones are the key interim actions
  Reported The Activities’   that will result in the completion of the activity. For example,
  Performance Milestones     the City reported that Sea Change Environmental Services
                             planned to identify and provide referral services regarding lead
                             hazards by March 1998. However, the services were not part
                             of Sea Change’s scope of work. The services were provided
                             by the City’s Department of Public Health. The accurate
                             reporting of milestones is important for HUD to accurately
                             assess the services of the Empowerment Zone Program.

                             The City inaccurately reported five activities’ participating
  The City Incorrectly       entities. Participating entities are the major entities responsible
  Reported Participating     for financing, managing, and operating an activity. For
  Entities                   example, the City reported that The Nelson Network Coalition
                             and the 3rd and Norris Playground were participating entities in
                             the Multipurpose Athletic Field. Although these organizations
                             are expected to participate in the future, neither organization
                             was participating as of June 30, 1997.

                             The City reported that the Cecil B. Moore Commercial
  The City Incorrectly       Corridor and the Supervised Child Playsite Project were
  Reported Two Activities’   initiated in December 1994 and November 1995, respectively.
  Start Dates                However, the Empowerment Zone loan agreement for the
                             Corridor, and the City employee who assisted with the planning
                             of the Project, indicated that the activities started in June 1997
                             and April 1996, respectively. As a result, the City gave HUD
                             the impression that the activities were working on achieving the
                             goals of the Strategic Plan when they were not.

                             The inaccurate reporting occurred because the City employee,
  The Report Preparer Was    who prepared the Performance Review, was not familiar with
  Not Familiar With HUD’s    HUD’s reporting requirements. She did not report the actual
  Requirements               accomplishments, instead she reported the projected
                             performance categories as actual. The Executive Director of
                             the City’s Empowerment Zone said he requested that HUD’s
                             reporting requirements be provided to everyone responsible for
                             preparing the Performance Review. However, the former
                             Director of Policy and Planning for the City decided not to
                             distribute the instructions. She believed since she was
                             designated to be responsible for the Review, she was the only
                             one who needed the information.

                             The Contracts Manager said the former Director
                             misunderstood HUD’s requirements for reporting program

98-CH-259-1006                        Page 20
                                                                      Finding 2


                   results. However, we believe that HUD’s requirements were
                   clear. As a result, the City did not accurately report the
                   accomplishments of its Empowerment Zone Program to HUD
                   and did not ensure that the goals of the Strategic Plan were
                   met. The impression exists that the benefits of the City’s
                   Empowerment Zone Program were greater than actually
                   achieved.


                   Excerpts from the City’s comments on our draft finding follow.
Auditee Comments   Appendix C, page 134, contains the complete text of the
                   comments.

                   HUD, the Department of Health and Human Services, the
                   State, and City officials agreed that the Performance Review
                   report would monitor only the planning and invoicing
                   activities of the Zone communities. The Review would not;
                   however, provide detailed reporting on the progress of the
                   Zone. The City submitted the Performance Review report
                   with the full acceptance and approval of HUD and the
                   Department of Health and Human Services. Since the
                   report was not intended to serve as a basis for measuring
                   the progress of the Zone, it is equally true that the report
                   could not have misled HUD about the progress of the Zone.
                   In fact, in several cases, the report underrepresented
                   accomplishments of the Zone.

                   Having full knowledge of the contents (and the limitations)
                   of the Performance Review report, the OIG’s continued
                   reliance on the report as the basis for its findings of
                   reporting violations is both inaccurate and unfair. Earlier
                   this year, HUD asked the Philadelphia Empowerment Zone
                   to revise its reporting format to identify specific
                   accomplishments. A corrected report was submitted to
                   HUD in advance of the release of the OIG report. In
                   addition, all local Empowerment Zone staff attended a full-
                   day training session on HUD guidelines for Performance
                   Review reporting on May 18, 1998. Despite the fact that
                   the Philadelphia Empowerment Zone satisfactorily
                   completed all of these measures, the OIG nevertheless chose
                   to publicize findings that allege reporting violations. Under
                   these circumstances, the City objects to this finding as
                   unwarranted, unfair, and unsupported by the facts.



                            Page 21                               98-CH-259-1006
Finding 2


                     The City did not provide any evidence to support an agreement
 OIG Evaluation of   that limited the Performance Review to only planning and
 Auditee Comments    invoicing of Empowerment Zone activities. In fact, HUD’s
                     Memorandum of Agreement with the City dated December 21,
                     1994 and HUD’s June 1997 Performance Review instructions
                     required the City to report on the progress made in carrying
                     out Empowerment Zone activities. The City also did not
                     identify the corrected report it said it provided to HUD.
                     However, we reviewed reports for September 1997 and
                     January 1998 that the City’s Empowerment Zone officials said
                     were a corrected copy of the June 30, 1997 Review. We found
                     that these reports also inaccurately reported the
                     accomplishments of the City’s Empowerment Zone Program.
                     The City needs to implement written procedures that ensure
                     controls are in place to show the training was effective and the
                     data reported is accurate.



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

                     2A.    Establishes procedures and controls to ensure the
                            person who prepares the Zone’s Performance Review
                            to HUD: (1) uses the actual accomplishments for each
                            activity provided by administering officials that are
                            verified; and (2) prepares a template on each loan made
                            under a commercial loan program.

                     2B.    Ensures its staff, who are responsible for preparing
                            the Performance Review, are knowledgeable of
                            HUD’s requirements for reporting actual activity’s
                            results and funding sources, and any obstacles
                            encountered for an activity.

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

                     2D.    Obtains a revised completion date from the
                            Community Lending Institution for the leveraging of
                            bank funds.




98-CH-259-1006                Page 22
                                                                                            Finding 3


   The Life Long Learning And Training Center
   Was Not An Approved Zone Activity And Its
         Status Was Incorrectly Reported
The City of Philadelphia incorrectly reported that the Life Long Learning and Training Center, included
in its June 30, 1997 Performance Review, was an Empowerment Zone Program activity. The Center
was included as a benchmark in the City’s Strategic Plan; however, it was not approved as an
Empowerment Zone activity. The City also reported that the Center served 1,210 Zone residents and
leveraged $4,455,500 of private funds when the Center had not been started. The problems occurred
because the individual who prepared the Performance Review for the City did not verify the accuracy
of the information reported. The individual reported planned performance measures and funding as
actual results. As a result, the accomplishments of the City’s Empowerment Zone Program were not
accurately reported to HUD, and the impression exists that the Center provided a benefit.


                                       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 2 of the instructions
                                       require that benchmarks must be approved by the local
                                       governing structure prior to submission to HUD for approval.
                                       Page 4 of the instructions say that 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.

                                       The City of Philadelphia incorrectly reported that the Life Long
  The Project Was Not An               Learning and Training Center included in the June 1997
  Approved Zone Activity               Performance Review was an Empowerment Zone activity. The
                                       Center was included as a benchmark in the City’s Strategic
                                       Plan; however, it was not approved as an Empowerment Zone
                                       activity. As of June 30, 1998, the Center was still in the
                                       planning phase and had not been submitted to the appropriate
                                       officials for approval. The Community Trust Board for the
                                       City’s Empowerment Zone Program, the Mayor of
                                       Philadelphia, the State of Pennsylvania, and HUD had not
                                       approved the Center as an Empowerment Zone activity.

                                       In addition to reporting that the Center was an Empowerment
                                       Zone activity, the City also included inaccurate information on
                                       the Center’s performance measures and funding in the June 30,

                                                Page 23                                98-CH-259-1006
Finding 3


                    1997 Performance Review. The Review reported the Center
                    served 1,210 Empowerment Zone residents and leveraged over
                    $4.4 million of private funds; however, the Center had not
                    served any Zone residents and did not leverage any private
                    funds. As previously mentioned, the Center had not been
                    approved as an Empowerment Zone activity and was not
                    started as of June 30, 1998.

                    The inaccurate reporting occurred because the former Director
                    of Policy and Planning, the individual who prepared the
                    Performance Review for the City, did not verify that the Center
                    was an approved Empowerment Zone activity and did not
                    report actual accomplishments for each activity. Instead, she
                    reported the Life Long Learning and Training Center’s
                    projected information as actual. The Contracts Manager for
                    the City said the former Director misunderstood HUD’s
                    requirements for reporting program results. However, we
                    believe that HUD’s requirements were clear. The 1997 EZ/EC
                    instructions state that Empowerment Zones should report final
                    products produced or other measurable outcomes of an activity
                    and the status of funding commitments at the time the report is
                    submitted. The City’s management staff, who was responsible
                    for administering the Empowerment Zone Program, also did
                    not review the Performance Review for accuracy. As a result,
                    the accomplishments of the City’s Empowerment Zone
                    Program were not accurately reported to HUD.


                    Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments   Appendix C, page 120, contains the complete text of the
                    comments.

                    The former Coordinator of Policy and Planning understood
                    the Performance Review as an invoicing and planning tool
                    rather than an evaluation mechanism that would be used for
                    the purpose of audit.

                    Where the OIG recommends that the City establishes
                    procedures and controls to appropriately report
                    Empowerment Zone activities to HUD, the City will
                    conduct a thorough assessment to determine what
                    additional action is required to comply with this
                    recommendation. It is likely that the result of this
                    assessment will include managerial-level review of future
                    reports prior to submission.

98-CH-259-1006               Page 24
                                                                         Finding 3



                    Where the OIG recommends that the City establishes
                    procedures and controls to verify the accuracy of
                    information provided to HUD, the City will conduct a
                    thorough assessment to determine what additional action is
                    required to comply with this recommendation. While the
                    City is confident that its Contracts Unit has exercised
                    adequate oversight to ensure the accuracy of its data, the
                    City also recognizes that similar procedures and controls
                    need to be extended to activities not under the oversight of
                    that Department. Moreover, the City will exercise due
                    diligence in the future to ensure that accurate information
                    has been utilized in its reporting.


                    HUD’s guidelines for the Performance Review were clearly
OIG Evaluation of   presented in writing. The former Coordinator of Policy and
Auditee Comments    Planning misunderstood the instructions. Overall, we found
                    that the City’s oversight for the preparation of the Performance
                    Review was inadequate.

                    The City plans to conduct a thorough assessment to determine
                    what actions it needs to take to accurately report
                    Empowerment Zone information to HUD. After it completes
                    its assessments, the City needs to implement procedures and
                    controls to ensure the data reported is accurate.



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

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

                    3B.    Establishes procedures and controls to verify the
                           accuracy of information submitted to HUD for the
                           Empowerment Zone Program.




                             Page 25                                98-CH-259-1006
Finding 3




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98-CH-259-1006                   Page 26
Management Controls
In planning and performing our audit, we considered the management controls of the City of
Philadelphia 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:




                                               Page 27                                 98-CH-259-1006
Management Controls


                      ·   Program Operations.

                          The City did not ensure that it met the objectives of the
                          Empowerment Zone Program. The City did not use all
                          Empowerment Zone funds to benefit Zone residents (see
                          Finding 1).

                      ·   Validity and Reliability of Data.

                          The City: (1) incorrectly reported the actual status and
                          progress for 10 of the 12 activities we reviewed from
                          the June 30, 1997 Performance Review; (2) did not
                          report obstacles encountered for one activity; and (3)
                          incorrectly reported that the Life Long Learning and
                          Training Center, included in its June 30, 1997 Performance
                          Review, was an Empowerment Zone Program activity
                          when it was not (see Findings 2 and 3).

                      ·   Compliance with Laws and Regulations.

                          The City did not follow the United States Code or
                          HUD’s regulations. Empowerment Zone funds were
                          used that did not benefit Zone residents (see Finding 1).

                      ·   Safeguarding Resources.

                          The City: (1) inappropriately used $83,998 of
                          Empowerment Zone funds because the use of the funds
                          did not benefit Zone residents; (2) did not have
                          documentation to show that $32,934 of Zone funds paid
                          and $4,367 billed to the City benefited Zone residents or
                          were reasonable and necessary expenses; and (3) spent
                          $30,280 of Zone funds above the amount approved (see
                          Finding 1).




98-CH-259-1006                 Page 28
Follow Up On Prior Audits
This is the first audit of the City of Philadelphia’s Empowerment Zone Program by HUD’s Office
of Inspector General. The latest single audit for the City covered the fiscal year ended June 30,
1996. The report contained 34 findings. None of the findings related to the Empowerment Zone
Program.




                                             Page 29                              98-CH-259-1006
Follow Up On Prior Audits




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98-CH-259-1006                       Page 30
                                                                                  Appendix A

Schedule of Questioned Costs
        Recommendation                   Type of Questioned Costs
          Number                       Ineligible 1/ Unsupported 2/


            1A                          $83,998
            1B                                           $32,934
            1C                                             4,367
            1F                           30,280
           Total                       $114,278          $37,301




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

2/   Unsupported costs are costs charged to a HUD program or activity and eligibility cannot
     be determined at the time of audit. The costs are not supported by adequate
     documentation or there is a need for a legal or administrative determination on the
     eligibility of the cost. Unsupported costs require a future decision by HUD program
     officials. This decision, in addition to obtaining supporting documentation, might involve a
     legal interpretation or clarification of Departmental policies and procedures.




                                          Page 31                                98-CH-259-1006
Appendix A




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98-CH-259-1006                   Page 32
                                                                                     Appendix B


Activities Reviewed
This appendix contains the individual evaluations for the activities we reviewed. We judgmentally
selected 12 of the City of Philadelphia’s 109 activities reported in the June 30, 1997 Performance
Review. We found that the City inappropriately used or lacked documentation to support the use
of Empowerment Zone funds, or inaccurately reported the accomplishments of its Program to
HUD for 11 activities. The following table shows the 11 activities that had problems, the location
of their evaluation in this appendix, and the finding(s) they relate to:

                                 Activity                              Page     Finding
         1. Safety/Security Program                                     34      1 and 2
         2. Supervised Child Playsite                                   41      1 and 2
         3. Multipurpose Athletic Field                                 49      1 and 2
         4. Lead Abatement Program                                      55      1 and 2
         5. Cecil B. Moore Commercial Corridor                          61         2
         6. Child Care Conference                                       66         2
         7. Community Lending Institution                               70         2
         8. Community Capital Institution                               74         2
         9. Revolving Capital Fund                                      78         2
        10. Youth Landscape Training Program                            83         2
        11. Life Long Learning and Training Center                      23         3




                                           Page 33                                 98-CH-259-1006
Appendix B


   Controls Over Safety/Security Program for
  Businesses and Residents Were Not Adequate
The City of Philadelphia did not have adequate controls over the Safety/Security Program for
businesses and residents. The City did not have documentation to support that Empowerment
Zone residents received $6,792 of safety devices purchased with Zone funds. Additionally, $688
of Zone safety devices were inappropriately provided to non-Zone residents. The City also
inaccurately reported information in the June 30, 1997 Performance Review related to funding,
performance milestones, and participating entities. The problems occurred because the City and
the agency who was administering the Program, did not exercise adequate controls over the safety
devices. Additionally, the individual who prepared the Performance Review for the City did not
use the actual accomplishments for each activity that were provided by the administering officials.
Instead, she reported the planned performance as the actual results. As a result, Empowerment
Zone funds were not used efficiently and effectively. The City also did not provide HUD with a
realistic picture of actual progress, and the impression exists that the benefits of the activity were
greater than actually achieved.


                                       The City and administering officials did not have
  Adequate Controls Were               documentation to support that Empowerment Zone
  Not Established Over                 residents received $6,792 of safety devices purchased with
  Safety Devices                       Zone funds. The administering officials did not always keep
                                       adequate records that showed to whom and where the
                                       devices were distributed. The safety devices included 1,345
                                       smoke detectors and 165 batteries.             Additionally,
                                       documentation that did include addresses showed that $688
                                       of Zone safety devices were provided to non-Zone
                                       residents. The goal of the Program is to improve the public
                                       safety of Empowerment Zone residents and businesses. The
                                       agency responsible for administering the Program did not
                                       ensure volunteers maintained records showing to whom and
                                       where safety devices were distributed. The City did not
                                       adequately monitor the activity to ensure that
                                       documentation was complete and devices were distributed
                                       to Zone residents. As a result, Empowerment Zone funds
                                       were not used efficiently and effectively.

                                       The City did not accurately report the actual status and
  The City Inaccurately                progress of the Safety/Security Program in the June 30,
  Reported The Progress Of             1997 Performance Review. The City reported that the
  The Safety/Security                  activity had received $160,000 in funding from public and
  Program                              private businesses, but no funds were received. The


98-CH-259-1006                                  Page 34
                                                 Appendix B


Safety/Security Program also did not have any commitments
from public or private businesses for the $160,000.

The City reported that Program officials met with officials
from     the   Philadelphia    Community      Development
Corporation to define the steps needed to leverage funding
for the Program’s security phase.         The June 1997
Performance Review reported the action was completed in
August 1996. Program officials met with representatives of
the City’s Department of Commerce and the West
Philadelphia Safety and Security Committee in May 1998 to
discuss whether to proceed with the Program’s security
phase. A decision is not expected until August 1998. As of
June 3, 1998, no meetings were held concerning the
leveraging of funds. The development of steps needed to
leverage funds is an important action since a major part of
the Empowerment Zone Program is leveraging outside
sources of funds.

The City reported that the Safety/Security Program initiated
a training program in March 1997 to educate residents and
businesses on how to address their concerns. However, the
training did not include any businesses. Although the City
reported that it had evaluated the training program in April
1997, it did not maintain documentation to support the
review.

The City reported that Town Watch, the Lancaster Avenue
business owners, the 52nd Street business owners, and the
Pennsylvania Department of Community Affairs were
participating entities.   These entities were originally
projected as potential participants, but none of them had
participated in the Program. Further, Town Watch was
never established as a community organization as planned.
City Officials said they anticipate the business owners and
Department of Community Affairs will participate once the
security phase of the Program begins. Accurate reporting
of participating entities helps show readers of the
Performance Review the level of interest and support for an
activity.

The Contracts Manager for the City said the inaccurate
reporting occurred because the former Director of Policy and
Planning, who prepared the Performance Review, did not use
the actual accomplishments for each activity that were provided

         Page 35                               98-CH-259-1006
Appendix B


                    by the administering officials. As previously mentioned,
                    administering officials provided information to the City, prior
                    to the June 30, 1997 Performance Review, that showed some
                    safety devices were distributed to individuals who did not live
                    within the Zone. Additionally, other documentation provided
                    by Program officials was incomplete and could not be used to
                    determine to whom safety devices were distributed. The
                    former Director reported the projected performance
                    measurements and investments as actual and did not verify the
                    accuracy of the information or if it complied with the intention
                    of the Program.

                    The Contracts Manager said the former Director also
                    misunderstood HUD’s requirements for reporting program
                    results. We believe that HUD’s requirements were clear. The
                    1997 EZ/EC Performance Review instructions state that
                    Empowerment Zones will report final products produced and
                    measurable outcomes of the activity. The former Director did
                    not provide HUD’s instructions to her staff to assist in
                    preparing the City’s June 1997 Performance Review. Instead,
                    she verbally instructed her staff to report the projected
                    information as actual. In May 1998, the City provided training
                    on HUD’s Performance Review instructions to all
                    Empowerment Zone staff and issued a memorandum that
                    indicates the City will use HUD’s procedures to prepare its
                    Performance Review for June 1998. As a result, the City’s
                    future reporting should improve in accuracy.


                    Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments   Appendix C, page 100, contains the complete text of the
                    comments.

                    The City disagrees with the OIG's overall assessment.
                    Controls and procedures were established prior to the
                    implementation of this activity to ensure that the supporting
                    documentation would be in place. These controls were
                    more than adequate to provide documentation for nearly
                    two-thirds of the smoke detectors and batteries distributed.

                    Where the documentation indicates that $688 of safety
                    equipment was distributed to non-Zone residents, the City
                    will not dispute that point.



98-CH-259-1006               Page 36
                                                  Appendix B


Although we agree that the HUD guidelines for the
Performance Review Template are clear on paper, the
implementation of this reporting format presented a problem
for the Empowerment Zone as to the agreement with the
Commonwealth of Pennsylvania and its administration of the
Empowerment Zone grant. Where the Commonwealth had
based its agreement with the City on the format previously
used for benchmark activities, there was an initial resistance by
the State to accept the new format. The Commonwealth’s
resistance was resolved in a conference call coordinated by the
Department of Health and Human Services, which included
HUD, the Commonwealth’s Grant Administrator, and the
City’s former Coordinator of Policy and Planning. The result
of this dialog was an agreement that the actual column of
the template would be used to amend benchmark activity
projections and, further, that amendments to the projections
would be explained in the narrative section of each
template.     The former Coordinator understood the
Performance Review as an invoicing and planning tool
rather than an evaluation mechanism that would be used for
the purpose of audit.

Where the OIG recommends that the City instruct
administering agencies to maintain documentation to
support benefits received under the Empowerment Zone
Program, the Mayor's Office of Community Services has
already taken steps to include reporting requirements
specific to the Empowerment Zone in all Memoranda of
Understanding with other City agencies. Where benchmark
activities are conducted by community volunteers, the City
will continue to exercise due diligence in its instruction of
community participants and provision of Empowerment
Zone address listings to ensure that proper documentation is
provided to every extent possible.

Where the OIG has recommended that the City instructs
administering officials to provide items purchased with Zone
funds only to Zone residents, the City has consistently
instructed service providers and community residents to
provide products and/or services only to Empowerment
Zone residents.

Where the OIG recommends that the City establishes
procedures and controls to monitor activities funded under
the Empowerment Zone grant to ensure that monies are
used efficiently and effectively, the City maintains that the

         Page 37                                 98-CH-259-1006
Appendix B


                     procedures and controls currently in place are more than
                     adequate to ensure efficient and effective use of Zone funds.

                     The City did not provide any evidence to support an agreement
 OIG Evaluation of   that limited the Performance Review to only planning and
 Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                     Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                     Grant Administrator recalled an agreement to alter the progress
                     reporting requirements.       The City agreed that HUD’s
                     guidelines for the Performance Review were clear. HUD’s
                     Memorandum of Agreement with the City dated December 21,
                     1994 and HUD’s June 1997 Performance Review instructions
                     required the City to report on the progress made in carrying
                     out Empowerment Zone activities. Overall, we found that the
                     City’s oversight for the preparation of the Performance Review
                     was inadequate.

                     Although the City had established procedures and controls
                     before the implementation of the activity, the procedures were
                     not sufficient to ensure supporting documentation was
                     obtained. Being able to account for two-thirds of the smoke
                     detectors and batteries distributed is not adequate control.


                     The City will continue to seek the necessary documentation
 Auditee Comments    to support the $6,792 of smoke detectors and batteries that
                     were provided to West Philadelphia Empowerment Zone
                     residents.

                     Where the OIG recommends that the City reimburse the
                     Empowerment Zone $688 for safety devices that were
                     provided to non-Zone residents, the City will identify a
                     source of non-Federal funds in order to comply with the
                     recommendation.

                     If the City cannot find the necessary documentation to support
 OIG Evaluation of   the distribution of smoke detectors and batteries, it needs to
 Auditee Comments    refund the unsupported amounts from non-Federal funds to the
                     Empowerment Zone Program.

                     Where the OIG recommends that City staff responsible for
 Auditee Comments    preparing the Performance Review report are
                     knowledgeable of HUD's reporting requirements, a
                     mandatory three hour training session was held on May 18,
                     1998, for all Empowerment Zone staff, and HUD’s

98-CH-259-1006                Page 38
                                                                     Appendix B


                    guidelines were addressed in detail. Additionally, a full-day
                    meeting was held on May 20 with the Commonwealth Grant
                    Administrator for the Empowerment Zone Program.
                    During that meeting, the Grant Administrator was presented
                    with a copy of the HUD’s guidelines.

                    Where the OIG recommends that the City establishes
                    procedures and controls to ensure the preparer of the report
                    utilizes actual accomplishments for each activity, the City is
                    in the process of re-evaluating its assignment of
                    responsibility for the coordination of the Performance
                    Review report. The City will ensure that, in the future, the
                    report will reflect actual data where required.

                    Where the OIG recommends that the City establishes
                    internal controls and procedures to verify the accuracy of
                    information submitted, the City will conduct a thorough
                    assessment to determine what additional action is required
                    to comply with this recommendation. While the City is
                    confident that the Contracts Unit has exercised adequate
                    oversight to ensure the accuracy of its data, the City also
                    recognizes that similar procedures and controls need to be
                    extended to activities not under the oversight of that
                    Department.

                    The City plans to reevaluate its assignment of responsibilities
OIG Evaluation of   for coordination of the Performance Review, has conducted a
Auditee Comments    mandatory training session for all Empowerment Zone staff,
                    and plans to conduct a thorough assessment to determine what
                    actions it needs to take to accurately report Empowerment
                    Zone information to HUD. After it completes its reevaluation
                    and assessments, the City needs to implement written
                    procedures to ensure controls are in place that show the
                    training was effective and the data reported is accurate.


                    Where the OIG recommends that the City monitors
Auditee Comments    Empowerment Zone activities to ensure they are fulfilling
                    Empowerment Zone objectives, the City maintains that the
                    contract monitoring procedures currently in place far exceed
                    any of the general guidelines issued by HUD to date.
                    Because of the lack of clear monitoring guidelines from
                    HUD, the City has developed monitoring procedures to
                    address all foreseeable contingencies. Monitoring tools
                    developed by the City include a Quality Assurance and

                             Page 39                               98-CH-259-1006
Appendix B


                                    Contract Compliance evaluation form, completed by
                                    Contract Monitors during site visits every four-to-six
                                    weeks, that specifically address goals and objectives of the
                                    HUD-approved Empowerment Zone benchmark. Where
                                    activities are conducted outside the existence of a formal
                                    contract, the City will conduct an assessment to determine
                                    what steps are necessary to fully comply with this
                                    recommendation.

                                    The problems we found with this activity were outside the
 OIG Evaluation of                  existence of a formal contract. The City needs to develop
 Auditee Comments                   procedures and controls to ensure Empowerment Zone
                                    objectives are fulfilled in those situations when a formal
                                    contract is not used.




    Controls Over the Supervised Child Playsite
            Project Were Not Adequate
The City of Philadelphia did not exercise adequate controls over the Supervised Child Playsite
Project. The City spent $22,608 of Empowerment Zone Program funds for the Project; however,

98-CH-259-1006                              Page 40
                                                                                       Appendix B


the City and the administering officials did not ensure the funds benefited Zone residents. The
City also did not accurately report the actual status and progress of the Project in the June 30,
1997 Performance Review. The Review contained inaccuracies related to: performance
measures; funding; performance milestones; and the start date. The problems occurred because
the City did not adequately monitor the Project to ensure funds benefited Zone residents. Also,
the individual who prepared the Performance Review for the City was not familiar with HUD’s
reporting requirements and did not verify the accuracy of the information reported. As a result, HUD
lacks assurance that Empowerment Zone funds were used efficiently and effectively. The City
also did not provide HUD with a realistic picture of actual progress, and the impression exists that
the benefits of the activity were greater than actually achieved.


                                      The City and the Crime Prevention Association did not have
  Adequate Controls Were              adequate documentation to support that Empowerment
  Not Established Over The            Zone residents were the primary recipients of daycare
  Project                             outreach and counseling services funded by $22,608 of
                                      Zone funds. The Association’s administering agency, R.W.
                                      Brown, did not keep records showing who received
                                      outreach efforts and who was counseled on daycare
                                      services. The City did not adequately monitor the Project
                                      to ensure that documentation was complete and that
                                      outreach and counseling services primarily benefited Zone
                                      residents.

                                      From March to December 1997, Empowerment Zone funds
                                      paid outreach and counseling salary costs of $14,515 for an
                                      Intake Specialist and $8,093 for an Outreach Specialist.
                                      Additionally, the Association billed the City another $2,792
                                      for the salaries of the Intake Specialist and $1,575 for the
                                      Outreach Specialist for services provided during January
                                      and February 1998. The Child Playsite Project paid all of
                                      the Intake Specialist’s salary and 50 percent of the Outreach
                                      Specialist’s salary using Empowerment Zone funds.
                                      Another Empowerment Zone project, Teen After School
                                      Evening Program, paid the other 50 percent of the Outreach
                                      Specialist’s salary.

                                      The City did not accurately report the Project’s
  The City Incorrectly                performance measures. The City reported the Project would
  Reported The Project’s              pay daycare for 25 children of Empowerment Zone residents
  Performance Measures                on a full-time basis and 30 children on a part-time basis.
                                      However, the scope of the Project was changed to assist Zone
                                      residents in obtaining daycare services through outreach and
                                      counseling, rather than paying for direct daycare services. The
                                      change to the Project occurred because the funding provided

                                               Page 41                               98-CH-259-1006
Appendix B


                          by the City was not adequate to start a new daycare program.
                          The City did not report the change in the June 30, 1997
                          Performance Review.

                          Due to the change in the Project, the Association assisted
                          parents in obtaining daycare services through its
                          administering agency, R.W. Brown. R.W. Brown had an
                          existing program that offered counseling and step-by-step
                          assistance. R.W. Brown accomplished the goals of the
                          changed Project by hiring two new staff members, an
                          Outreach and an Intake Specialist, who counseled parents
                          and explained the various assistance options and
                          procedures. The Specialists also assisted parents with the
                          necessary paperwork to enroll their children in one of R.W.
                          Brown’s programs. The City did not report the number of
                          families and children served by the Project in the
                          Performance Review.

                          The City incorrectly reported the Project received $240,000
  The City Could Not      in private funding. The Project had not received any private
  Support The Project’s   funds as of June 30, 1997, and as a result of the change in
  Private Funding         scope to the Project, had no plans for private funds. The
                          $240,000 was an estimate of subsidy commitments needed
                          to pay for actual daycare services that would have been
                          necessary under the original project scope. The private funding
                          was not intended to cover any salary costs for the Project.

                          As one of the Project’s performance milestones, the City
  The City Did Not        reported that the Project would use a consultant to conduct a
  Accurately Report The   feasibility study and acquire a site to construct a daycare center.
  Project’s Performance   However, the feasibility survey was conducted using Zone
  Milestones              residents and the decision was made to not open a new facility.
                          Instead, the project was changed to provide outreach and
                          counseling services. A contract was executed with R.W.
                          Brown Community Center effective in March 1997 to provide
                          the services. However, the June 1997 Performance Review did
                          not reflect the changes to the Project.

                          The City also reported that several of the projected
                          performance milestones regarding the commencement of the
                          child care program, the enrollment process, and testing
                          children’s learning levels were still going to occur.
                          However, since the scope of the Project was changed, the
                          City should have been aware that these milestones were no
                          longer going to occur.

98-CH-259-1006                     Page 42
                                                                         Appendix B



                         The City reported that the Project started in November 1995.
The City Incorrectly     However, the City employee who assisted in planning the
Reported The Project’s   project said the Project actually started in April 1996. The
Start Date               person who prepared the City’s Performance Review did not
                         validate the information reported. As a result, the City
                         provided HUD with information that showed the Project was
                         proceeding at a faster pace than actual.

                         The inaccurate reporting occurred because the City employee,
                         who prepared the Performance Review, was not familiar with
                         HUD’s reporting requirements. She did not report the actual
                         accomplishments, instead she reported the projected
                         performance categories as actual. The Executive Director of
                         the City’s Empowerment Zone said he requested that HUD’s
                         reporting requirements be provided to everyone responsible for
                         preparing the Performance Review. However, the former
                         Director of Policy and Planning for the City decided not to
                         distribute the instructions. She believed since she was
                         designated to be responsible for the Review, she was the only
                         one who needed the information.


                         Excerpts from the City’s comments on our draft finding follow.
Auditee Comments         Appendix C, page 106, contains the complete text of the
                         comments.

                         The City disagrees with the OIG's assessment. The OIG
                         determined that, because Empowerment Zone funds were
                         used for salaries for an outreach worker (half-time) and an
                         intake counselor, the targeted use of funds constituted the
                         entire scope of her examination. However, the benchmark
                         activity as reported on the Performance Review Template,
                         as specified in the Request for Proposals, and as included in
                         the terms of the contract with the provider, all list the
                         provision of day care services to 55 Empowerment Zone
                         children as the primary objective of this activity.

                         The City and the community panel that awarded the grant
                         considered it an efficient and effective use of Empowerment
                         Zone funds to pay for the outreach and intake positions, so
                         long as the hiring for those positions would enable the
                         provider to meet the performance objectives of the
                         benchmark. The outreach and counseling was a means to
                         achieve the governmentally approved objectives delineated

                                  Page 43                               98-CH-259-1006
Appendix B


                     in the benchmark, the Request for Proposal and,
                     subsequently, the contract.

                     The City changed the scope of services from what was in the
 OIG Evaluation of   Strategic Plan. Originally, the Child Playsite Project was to
 Auditee Comments    establish a daycare center and pay for the care of 55
                     Empowerment Zone children. The change resulted in the
                     Project providing outreach and counseling services to obtain
                     assistance to pay for the care of 55 Zone children at an
                     established facility.

                     Child Playsite had full control over who received the
                     counseling services; therefore, there was no justification to use
                     Zone funds to provide counseling to non-Zone residents.
                     However, who benefited from the outreach efforts was not
                     directly controllable. Therefore, the City needs to demonstrate
                     that Child Playsite’s outreach efforts primarily served Zone
                     residents.    Child Playsite and the City did not have
                     documentation to show who received the benefits of the
                     services provided by the Project.


                     Since the OIG has defined the scope of this activity, it did
 Auditee Comments    not consider that the City and provider both have
                     voluminous documentation to support that the contracted
                     services necessary for the achievement of the benchmark
                     goals, have been provided. Notably, in its finding, the OIG
                     does not specify what specific documentation it would
                     consider to be sufficient, and the City would appreciate
                     clarification on this point. The Pennsylvania Department of
                     Public Welfare requires its licensed agencies to keep client
                     files in a locked cabinet and to allow only Department of
                     Public Welfare representatives access to those files. The
                     City deems it noteworthy that, where R.W. Brown receives
                     more than $1 million in public funds annually for children's
                     services, the OIG's demand for documentation--as yet
                     undefined--apparently exceeds the requirements of R.W.
                     Brown's other government funding sources.

                     Child Playsite and the City did not have documentation to
 OIG Evaluation of   show who benefited from the Project. Child Playsite needs to
 Auditee Comments    maintain documentation to show the names and addresses of
                     the individuals who receive counseling services or request
                     services as a result of the outreach efforts.


98-CH-259-1006                Page 44
                                                                      Appendix B



                    The OIG has arbitrarily determined that the scope of the
Auditee Comments    project changed when, in fact, the goal has been consistently
                    to provide day care for 55 Zone children.

                    The OIG also states that the City did not report the number
                    of families and children served by the project. First, there is
                    no performance objective listed in that benchmark that
                    identifies a number of families to be served. If, however,
                    the OIG seeks to hold the City accountable to what the OIG
                    thinks should be measured, the City would request that the
                    OIG submit measurement criteria for all approved
                    benchmarks. The City does agree that it did not report the
                    number of children served in the June 1997 report.

                    As previously mentioned, our review determined that the scope
OIG Evaluation of   of services changed from what was presented in the Strategic
Auditee Comments    Plan. HUD requires Empowerment Zones to report on the
                    final products or other measurable outcomes of an activity. In
                    this instance, the Child Playsite Project needed to report on its
                    outreach and counseling efforts and the Zone residents that
                    benefited from the activities.


                    The OIG states that the City could not support the project's
Auditee Comments    private funding. The City agrees with this assessment in
                    that public funding was identified to cover the costs of day
                    care for the requisite number of Zone children.

                    Although we agree that the HUD guidelines for the
                    Performance Review Template are clear on paper, the
                    implementation of this reporting format presented a problem
                    for the Empowerment Zone as to the agreement with the
                    Commonwealth of Pennsylvania and its administration of the
                    Empowerment Zone grant. Where the Commonwealth had
                    based its agreement with the City on the format previously
                    used for benchmark activities, there was an initial resistance by
                    the State to accept the new format. The Commonwealth’s
                    resistance was resolved in a conference call coordinated by the
                    Department of Health and Human Services, which included
                    HUD, the Commonwealth’s Grant Administrator, and the
                    City’s former Coordinator of Policy and Planning. The result
                    of this dialog was an agreement that the actual column of
                    the template would be used to amend benchmark activity
                    projections and, further, that amendments to the projections

                             Page 45                                 98-CH-259-1006
Appendix B


                     would be explained in the narrative section of each
                     template.     The former Coordinator understood the
                     Performance Review as an invoicing and planning tool
                     rather than an evaluation mechanism that would be used for
                     the purpose of audit.

                     The City did not provide any evidence to support an agreement
 OIG Evaluation of   that limited the Performance Review to only planning and
 Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                     Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                     Grant Administrator recalled an agreement to alter the progress
                     reporting requirements.       The City agreed that HUD’s
                     guidelines for the Performance Review were clear. HUD’s
                     Memorandum of Agreement with the City dated December 21,
                     1994 and HUD’s June 1997 Performance Review instructions
                     required the City to report on the progress made in carrying
                     out Empowerment Zone activities. Overall, we found that the
                     City’s oversight for the preparation of the Performance Review
                     was inadequate.


                     Where the OIG recommends the City instruct administering
 Auditee Comments    agencies to maintain documentation to support benefits and
                     to provide services only to Empowerment Zone residents,
                     the City maintains that these recommendations were, in fact,
                     well-established practices long prior to this audit.

                     Where the OIG recommends that the City establishes
                     procedures and controls to monitor activities funded under
                     the Empowerment Zone grant to ensure that monies are
                     used efficiently and effectively, the City maintains that the
                     procedures and controls currently in place are more than
                     adequate to ensure efficient and effective use of Zone funds.

                     Our review determined that Child Playsite and the City did not
 OIG Evaluation of   maintain documentation to show that Empowerment Zone
 Auditee Comments    funds were effectively and efficiently used. As a result, we
                     determined procedures and controls were not adequate.


                     Where the OIG recommends that the City provide
 Auditee Comments    documentation to support that $22,608 of Empowerment
                     Zone funds spent between March and December 1997, and
                     amounts invoiced in January and February 1998, benefited
                     Zone residents, the City requests that the OIG reverse this

98-CH-259-1006                Page 46
                                                                          Appendix B


                        finding.     The City maintains that it has offered
                        documentation that is more than adequate to satisfy
                        reasonable reporting requirements based on the scope of
                        activities and objectives of this program. If the OIG
                        chooses to maintain its position that the City did not
                        adequately support services to Zone residents, the City
                        would further request that the OIG specify precisely what
                        additional documentation would satisfy its demand for
                        support.

.                       Where the OIG recommends that the City provide
                        documentation to support that future expenditures of
                        Empowerment Zone funds benefit Zone residents, the City
                        requests clarification from the OIG. The City has already
                        provided the OIG a copy of the Empowerment Zone
                        Strategic Plan that details how the initiative was to be
                        directed to support the Empowerment Zone, and
                        projections and performance objectives included in the
                        Performance Review report accomplish the same.

                        The City needs to show that counseling services were provided
    OIG Evaluation of   to Zone residents since the Child Playsite had full control over
    Auditee Comments    who it counseled. Additionally, the City needs to support that
                        outreach services primarily benefited Zone residents. The City
                        also needs to maintain similar documentation for future
                        expenditures. The Strategic Plan does not contain information
                        that supports how Empowerment Zone funds were used for
                        the daycare outreach and counseling services.


                        Where the OIG recommends that City staff responsible for
    Auditee Comments    preparing the Performance Review report are
                        knowledgeable of HUD's reporting requirements, a
                        mandatory three hour training session was held on May 18,
                        1998, for all Empowerment Zone staff, and HUD’s
                        guidelines were addressed in detail. Additionally, a full-day
                        meeting was held on May 20 with the Commonwealth Grant
                        Administrator for the Empowerment Zone Program.
                        During that meeting, the Grant Administrator was presented
                        with a copy of the HUD’s guidelines.

                        Where the OIG recommends that the City establishes
                        procedures and controls to ensure the preparer of the report
                        utilizes actual accomplishments for each activity, the City is
                        in the process of re-evaluating its assignment of

                                 Page 47                                98-CH-259-1006
Appendix B


                                      responsibility for the coordination of the Performance
                                      Review report. The City will ensure that, in the future, the
                                      report will reflect actual data where required.

                                      Where the OIG recommends that the City establish internal
                                      controls and procedures to verify the accuracy of
                                      information submitted, the City maintains that the Contracts
                                      Department has sufficient controls and procedures to verify
                                      the accuracy of its information. In the future; however, the
                                      City will ensure that this department is consulted for data on
                                      activities under contract prior to the preparation and
                                      submission of the Performance Review report.

                                      The City plans to reevaluate its assignment of responsibilities
 OIG Evaluation of                    for coordination of the Performance Review, has conducted a
 Auditee Comments                     mandatory training session for all Empowerment Zone staff,
                                      and plans to conduct a thorough assessment to determine what
                                      actions it needs to take to accurately report Empowerment
                                      Zone information to HUD. After it completes its reevaluation
                                      and assessments, the City needs to implement written
                                      procedures to ensure controls are in place that show the
                                      training was effective and the data reported is accurate.



      The Multipurpose Athletic Field Activity
      Expenditure and Reporting Controls Were
                    Inadequate
The City of Philadelphia spent $30,280 of Empowerment Zone funds above the amount approved
for the Multipurpose Athletic Field activity. This represents a 20 percent budget overrun.
Additionally, the City did not accurately report the actual status and progress of the activity. The
June 30, 1997 Performance Review contained inaccuracies related to: funding, performance
measures, performance milestones, and participating entities. The City did not have adequate
controls to ensure the expenditure of Empowerment Zone funds was limited to the approved
amount. The reporting inaccuracies occurred because the individual who prepared the
Performance Review for the City did not ascertain the actual accomplishments for each
performance category from the administering officials. Instead, she reported projected
performance as actual. As a result, the City did not provide HUD with a realistic picture of actual
progress for the activity.




98-CH-259-1006                                 Page 48
                                                                                     Appendix B


                                    As of May 1998, $180,280 of Empowerment Zone funds
The City Overspent                  had been spent on the activity, even though the allocation of
Empowerment Zone                    Empowerment Zone funds was for only $150,000.
Funds                               Additionally, $429,356 of $430,000 in City funds that were
                                    available for the project were also expended. The over
                                    expenditure of Empowerment Zone funds occurred because
                                    the City’s system of control for the expenditure of the funds
                                    was not adequate.

                                    The City’s procedures required the Mayor’s Office of
                                    Community Services’ Fiscal Department to approve all
                                    Empowerment Zone fund disbursements. The Fiscal Office
                                    assigned an index code at the time of processing as a control
                                    to prevent unauthorized use of the funds. However, the
                                    City’s Recreation Department was able to bypass the
                                    control and authorized the disbursement of $148,495 of
                                    Empowerment Zone funds for construction of the activity
                                    without notifying the Mayor’s Office of Community
                                    Services.

                                    The Recreation Department was informed it had
                                    authorization to spend up $150,000 in Empowerment Zone
                                    funds by the former Fiscal Director in the Mayor’s Office of
                                    Community Services. The former Director provided the
                                    Department with an Initiation and Funding Approval form
                                    that contained the project’s index code. The Budget Officer
                                    for the Recreation Department said since the index code
                                    was provided, it was assumed the Mayor’s Office had
                                    recorded the transaction. However, since the Office of
                                    Community Services was not aware of the disbursement
                                    processed by the Recreation Department, the Office also
                                    approved the disbursement of $31,785 for the acquisition of
                                    the property on which the field was to be constructed. The
                                    two disbursements totaled $180,280, which exceeded the
                                    approved Empowerment Zone funding by $30,280. The
                                    construction contract that the expenditure paid for was
                                    competitively bid and awarded to the lowest of the four
                                    bidders.

 The City reported that it had $50,000 in Empowerment Zone funds committed to the project.
The City Under Reported            However, Empowerment Zone funds were increased to
Funding By $211,000                $150,000 in May 1996. The City also reported it had a total of
                                   $319,000 of City funding and in-kind contributions. We
                                   determined through discussions with City staff and review of
                                   contract records that the City had no in-kind contributions, but

                                              Page 49                              98-CH-259-1006
Appendix B


                          had provided $430,000 in City funding. As a result, the City
                          under reported the total funding by $211,000 ($100,000 of
                          Empowerment Zone funds and $111,000 of City funds).

                          The City incorrectly reported the activity’s performance
 The City Incorrectly
                          measures. The Performance Review reflected that 500
 Reported Performance
                          elementary school children from a nearby school would have
 Measures
                          access to the field. As of June 1997, there were 720 children at
                          the school. We believe the fact that an additional 220 children
                          may be served by the Athletic Field is an important benefit that
                          should have been reported.

                          The City incorrectly reported a performance milestone for the
 The City Incorrectly
                          activity. The City reported that construction began on June 1,
 Reported A Performance
                          1997; however, as of June 30, 1997, construction had not
 Milestone
                          begun. The notice to proceed was dated August 8, 1997.

                          The Performance Review listed The Nelson Network Coalition
 The City Incorrectly     and the 3rd and Norris Playground as participating entities in the
 Reported Participating   activity. Although these organizations are expected to
 Entities                 participate in the future, neither organization was participating
                          as of June 30, 1997.

                          The Contracts Manager for the City said the inaccurate
                          reporting occurred because the former Director of Policy and
                          Planning, who prepared the Performance Review, did not use
                          the actual accomplishments for each activity. Instead, she
                          reported the projected performance measures and funding as
                          actual. The Contracts Manager also said the former Director
                          misunderstood HUD’s requirements for reporting program
                          results. However, we believe that HUD’s requirements are
                          clear. The 1997 EZ/EC Performance Review instructions state
                          that Empowerment Zones will report final products produced
                          and measurable outcomes of the activity.


                          Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments         Appendix C, page 113, contains the complete text of the
                          comments.

                          The City agrees that it overspent the approved budgeted
                          amount of Empowerment Zone funds by $30,280.

                          The OIG states that the City's Recreation Department was
                          able to bypass Mayor’s Office of Community Services'

98-CH-259-1006                     Page 50
                                                                      Appendix B


                    controls and access $148,495 of Empowerment Zone funds
                    for the project without notifying the Mayor’s Office of
                    Community Services of the disbursement. This is not the
                    case. The controls were established, and the proper
                    procedure for an inter-departmental transfer of funds was
                    followed. The over-expenditure was strictly due to the
                    failure to communicate this transaction within the Fiscal
                    Department.

                    Communication between departments is a part of the control
OIG Evaluation of   process; therefore, we determined that controls were not
Auditee Comments    adequate.


                    The City disagrees that Empowerment Zone funds
Auditee Comments    committed to this project were under-reporting funds by
                    $100,000. The June 30, 1997 Performance Review report
                    lists $150,000 as the actual expenditure of Empowerment
                    Zone funds, and the approval of the increase in funds for the
                    project is also noted on the Template in the narrative section
                    for that activity.

                    The City does agree that it under-reported City funds
                    committed to the project by $111,000. The City leveraged
                    the Empowerment Zone funds for this project with nearly
                    three dollars for every Empowerment Zone dollar.

                    The Performance Review that was submitted to HUD showed
OIG Evaluation of   that only $50,000 of Empowerment Zone funds were spent.
Auditee Comments


                    Although we agree that the HUD guidelines for the
Auditee Comments    Performance Review Template are clear on paper, the
                    implementation of this reporting format presented a problem
                    for the Empowerment Zone as to the agreement with the
                    Commonwealth of Pennsylvania and its administration of the
                    Empowerment Zone grant. Where the Commonwealth had
                    based its agreement with the City on the format previously
                    used for benchmark activities, there was an initial resistance by
                    the State to accept the new format. The Commonwealth’s
                    resistance was resolved in a conference call coordinated by the
                    Department of Health and Human Services, which included
                    HUD, the Commonwealth’s Grant Administrator, and the
                    City’s former Coordinator of Policy and Planning. The result

                             Page 51                                 98-CH-259-1006
Appendix B


                     of this dialog was an agreement that the actual column of
                     the template would be used to amend benchmark activity
                     projections and, further, that amendments to the projections
                     would be explained in the narrative section of each
                     template.     The former Coordinator understood the
                     Performance Review as an invoicing and planning tool
                     rather than an evaluation mechanism that would be used for
                     the purpose of audit.

                     Where the OIG recommends that the City reimburse the
                     Empowerment Zone Program with non-Federal funds for
                     the excess costs charged against this activity, the City takes
                     the position that all expenditures associated with property
                     acquisition and construction of the ball field, a Federally
                     approved project, are justifiable expenditures, and that the
                     use of federal funds is permissible for this purpose. The
                     City will, nonetheless, identify a source of additional funds
                     in order to reimburse the Empowerment Zone account.



                     The City did not provide any evidence to support an agreement
 OIG Evaluation of   that limited the Performance Review to only planning and
 Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                     Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                     Grant Administrator recalled an agreement to alter the progress
                     reporting requirements.       The City agreed that HUD’s
                     guidelines for the Performance Review were clear. HUD’s
                     Memorandum of Agreement with the City dated December 21,
                     1994 and HUD’s June 1997 Performance Review instructions
                     required the City to report on the progress made in carrying
                     out Empowerment Zone activities. Overall, we found that the
                     City’s oversight for the preparation of the Performance Review
                     was inadequate.


 Auditee Comments    Where the OIG recommends that the City establishes
                     procedures and controls to ensure the disbursement of
                     Empowerment Zone funds can only occur with the approval
                     of the Mayor’s Office of Community Services Fiscal
                     Department., it is the City's position that these procedures
                     and controls are already in place. The disbursement of
                     Empowerment Zone funds to the City's Recreation
                     Department. occurred only because the Recreation Dept.
                     received prior authorization from Mayor’s Office of

98-CH-259-1006                Page 52
                                                                     Appendix B


                    Community Services Fiscal Department. The OIG can be
                    assured; however, that Mayor’s Office of Community
                    Services current Fiscal Director will not approve such
                    interdepartmental transfers in the future without giving full
                    notification to the Empowerment Zone accountants so they
                    may properly record the transaction.

                    As previously mentioned, communication between departments
OIG Evaluation of   is part of the control process. The City needs to establish
Auditee Comments    procedures and controls to ensure there is adequate
                    communication between its departments.


                    Where the OIG recommends that the City establishes
Auditee Comments    procedures and controls to ensure the preparer of the report
                    utilizes actual accomplishments for each activity, the City is
                    in the process of re-evaluating its assignment of
                    responsibility for the coordination of the Performance
                    Review report. The City will ensure that, in the future, the
                    report will reflect actual data where required.
                    Where the OIG recommends that the City establish internal
                    controls and procedures to verify the accuracy of
                    information submitted, the City will conduct a thorough
                    assessment to determine what additional action is required
                    to comply with this recommendation. While the City is
                    confident that the Contracts Unit has exercised adequate
                    oversight to ensure the accuracy of its data, the City also
                    recognizes that similar procedures and controls need to be
                    extended to activities not under the oversight of that
                    Department.

                    The City plans to reevaluate its assignment of responsibilities
OIG Evaluation of   for coordination of the Performance Review, and plans to
Auditee Comments    conduct a thorough assessment to determine what actions it
                    needs to take to accurately report Empowerment Zone
                    information to HUD. After it completes its reevaluation and
                    assessments, the City needs to implement written procedures to
                    assure controls are in place that ensure data reported is
                    accurate.




                             Page 53                               98-CH-259-1006
Appendix B




    Controls Over the Lead Abatement Program
               Were Not Adequate
The City of Philadelphia did not maintain adequate controls over the Lead Abatement Program.
The City inappropriately used $83,310 of Empowerment Zone funds that did not benefit Zone
residents and did not have documentation to support that another $3,534 of administrative
expenses paid with Zone funds were reasonable and necessary. The City also inaccurately
reported the actual progress of the Program in the June 30, 1997 Performance Review. The
inaccuracies related to performance measures, performance milestones, and funding. The
problems occurred because the City did not monitor the Program. The individual who prepared
the Performance Review for the City did not use the actual accomplishments for each activity and
did not verify the information reported. Instead, she reported the planned performance categories
as the actual results. As a result, Empowerment Zone funds were not used efficiently and
effectively. The City also did not provide HUD with a realistic picture of actual progress, and the
impression exists that the benefits of the Program were greater than actually achieved.


                                      Sea Change Environmental Services, Incorporated, the
  The City Did Not Have               administering entity for the Lead Abatement Program, used
  Adequate Controls Over              $83,310 of Empowerment Zone funds that did not benefit
  Zone Funds                          Zone residents. The City and Sea Change also did not have
                                      documentation to ensure that an additional $3,534 of Zone
                                      funds used for administrative expenses were reasonable and
                                      necessary. The City’s Strategic Plan required that the

98-CH-259-1006                                Page 54
                                                                       Appendix B


                         Program provide lead abatement services within the
                         Empowerment Zone. However, services were provided to
                         non-Zone residents.

                         Sea Change Environmental Services received a $100,000
                         loan from Empowerment Zone funds in 1996 to provide
                         lead abatement services to properties located in the Zone.
                         The loan was provided through the Revolving Capital Fund,
                         an Empowerment Zone activity. Sea Change’s records
                         showed that only one of the five properties that received
                         services were located in the Zone. Additionally, Sea
                         Change used $3,534 of Zone funds to pay for administrative
                         costs such as employees salaries. The City and Sea Change
                         did not maintain documentation to support the use of the
                         Zone funds. The City did not monitor the Program since
                         the Empowerment Zone funds were not provided directly by
                         the City. As a result, Empowerment Zone funds were not
                         used efficiently and effectively.
                         The City incorrectly reported the Lead Abatement
The City Inaccurately    Program’s performance measures in the June 1997
Reported The Program’s   Performance Review. The City reported the Program
Performance Measures     reduced lead hazards in 800 households located in the
                         Empowerment Zone. However, as discussed above, Sea
                         Change’s records showed that only one Zone household
                         received services as of June 1997. The President of Sea
                         Change Environmental Services said she did not know how
                         the City arrived at the goal of reducing lead hazards in 800
                         households. She said the goal was unrealistic and that a
                         reasonable projection would have been 200 households by
                         May 2001. The City also did not report that jobs were
                         created by the loan to Sea Change. Sea Change provided us
                         documentation that showed two full-time employees and 13
                         temporary employees were hired as of June 30, 1997. Of
                         the 15 employees hired, three were Empowerment Zone
                         residents.

                         The City inaccurately reported the Program’s performance
The City Inaccurately    milestones in the June 1997 Performance Review. The
Reported The Program’s   performance milestones that were incorrectly reported were:
Performance Milestones
                         •   The City reported that Sea Change developed a business
                             plan for the Lead Abatement Program in November
                             1996. However, the President of Sea Change said the
                             plan was developed in May 1996.


                                  Page 55                             98-CH-259-1006
Appendix B


                           •   The Review showed that Sea Change Environmental
                               Services planned to establish its corporate structure in
                               March 1998.       However, Sea Change’s corporate
                               structure was established in July 1996 according to the
                               Articles of Incorporation.

                           •   The City reported the advertising of the Program was
                               projected to start in March 1998. However, the
                               President of Sea Change said Program brochures were
                               distributed in April 1997.

                           •   The Review showed that Sea Change planned to identify
                               and provide referral services regarding lead hazards by
                               March 1998. However, the President of Sea Change
                               Environmental Services said Sea Change was not
                               performing the services. She said the services were
                               provided by the City’s Department of Public Health.
                               The City’s Sanitarian Supervisor confirmed the services
                               were provided by the Department of Public Health.

                           The City inaccurately reported the Program’s funding in the
  The City Over Reported   June 1997 Performance Review. The Review showed that
  The Program’s Funding    the Program received $115,000 of Empowerment Zone
  By $39,000               funds and $174,000 in State/Local funding. However, as
                           discussed above, Sea Change Environmental Services
                           received a $100,000 Empowerment Zone loan. Also, the
                           Program only received $150,000 from the Philadelphia
                           Housing Development Corporation. As a result, the
                           Program’s funding was over reported by $39,000.

                           The Contracts Manager for the City said the inaccurate
                           reporting occurred because the former Director of Policy and
                           Planning, who prepared the Performance Review, did not use
                           the actual accomplishments for each activity. Instead, she
                           reported the projected performance categories as actual and did
                           not verify the accuracy of the information.

                           The Contracts Manager said the former Director also
                           misunderstood HUD’s requirements for reporting program
                           results. We believe that HUD’s requirements were clear. The
                           1997 EZ/EC Performance Review instructions state that
                           Empowerment Zones will report final products produced and
                           measurable outcomes of the activity. The former Director did
                           not provide HUD’s instructions to her staff to assist in
                           preparing the City’s June 1997 Performance Review. Instead,

98-CH-259-1006                      Page 56
                                                                      Appendix B


                    she verbally instructed her staff to report the projected
                    information as actual. In May 1998, the City provided training
                    on HUD’s Performance Review instructions to all
                    Empowerment Zone staff and issued a memorandum that
                    indicates the City will use HUD’s procedures to prepare its
                    Performance Review for June 1998. As a result, the City’s
                    future reporting should improve in accuracy.


                    Excerpts from the City’s comments on our draft finding follow.
Auditee Comments    Appendix C, page 130, contains the complete text of the
                    comments.

                    Although we agree that the HUD guidelines for the
                    Performance Review Template are clear on paper, the
                    implementation of this reporting format presented a problem
                    for the Empowerment Zone as to the agreement with the
                    Commonwealth of Pennsylvania and its administration of the
                    Empowerment Zone grant. Where the Commonwealth had
                    based its agreement with the City on the format previously
                    used for benchmark activities, there was an initial resistance by
                    the State to accept the new format. The Commonwealth’s
                    resistance was resolved in a conference call coordinated by the
                    Department of Health and Human Services, which included
                    HUD, the Commonwealth’s Grant Administrator, and the
                    City’s former Coordinator of Policy and Planning. The result
                    of this dialog was an agreement that the actual column of
                    the template would be used to amend benchmark activity
                    projections and, further, that amendments to the projections
                    would be explained in the narrative section of each
                    template.     The former Coordinator understood the
                    Performance Review as an invoicing and planning tool
                    rather than an evaluation mechanism that would be used for
                    the purpose of audit.

                    The City did not provide any evidence to support an agreement
OIG Evaluation of   that limited the Performance Review to only planning and
Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                    Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                    Grant Administrator recalled an agreement to alter the progress
                    reporting requirements.     The City agreed that HUD’s
                    guidelines for the Performance Review were clear. HUD’s
                    Memorandum of Agreement with the City dated December 21,
                    1994 and HUD’s June 1997 Performance Review instructions
                    required the City to report on the progress made in carrying

                             Page 57                                 98-CH-259-1006
Appendix B


                    out Empowerment Zone activities. Overall, we found that the
                    City’s oversight for the preparation of the Performance Review
                    was inadequate.


                    The City had no contractual relationship with Sea Change
 Auditee Comments   or the Lead Abatement Program. The City's contractual
                    relationship was with the North Philadelphia Financial
                    Partnership, which is required to monitor its loans in
                    accordance with lending industry standards and to provide
                    loans within the North Central Empowerment Zone. Where
                    Sea Change may be considered a third-party beneficiary to
                    the contract between the City and North Philadelphia
                    Financial Partnership, the City's ability to enforce reporting
                    requirements against that third party, absent a direct
                    contractual relationship, presents a legal question for which
                    the City will seek counsel prior to committing to a course of
                    action.

                    Where the OIG recommends that the City establish
                    procedures and controls to monitor activities funded under
                    the Empowerment Zone grant to ensure that monies are
                    used efficiently and effectively, the City maintains that it has
                    adequate procedures and controls to monitor those parties
                    with whom it has a contractual relationship. The City's
                    authority to monitor activities of a party without a
                    contractual agreement with that party is a legal question for
                    which the City will seek guidance prior to committing to a
                    course of action.

                    Where the OIG recommends that the City reimburse
                    $83,310 from non-Federal funds for the lead abatement
                    services that were inappropriately provided to non-Zone
                    households, the City agrees that the Empowerment Zone
                    account should be reimbursed for this amount. The City
                    will seek legal counsel to first explore its ability to recover
                    these funds.

                    Where the OIG recommends that the City provide
                    documentation to support $3,534 in administrative expenses
                    paid for with Empowerment Zone funds, the City will
                    attempt to solicit the documentation from both the lending
                    institution and Sea Change. If the documentation is not
                    obtained within a reasonable period of time, the City will
                    seek counsel to explore its ability to recover the full amount

98-CH-259-1006               Page 58
                                                                     Appendix B


                    questioned, and will reimburse the Empowerment Zone
                    account with any monies recovered.

                    Where the OIG recommends that City staff responsible for
                    preparing the Performance Review report are
                    knowledgeable of HUD's reporting requirements, a
                    mandatory three hour training session was held on May 18,
                    1998, for all Empowerment Zone staff, and HUD’s
                    guidelines were addressed in detail. Additionally, a full-day
                    meeting was held on May 20 with the Commonwealth Grant
                    Administrator for the Empowerment Zone Program.
                    During that meeting, the Grant Administrator was presented
                    with a copy of the HUD’s guidelines.

                    Where the OIG recommends that the City establishes
                    procedures and controls to ensure that the preparer of the
                    report uses the actual accomplishments for each activity, the
                    City is currently re-assessing its assignment of responsibility
                    for coordination of the Performance Review report. The
                    City will ensure; however, that actual data is utilized where
                    required.

                    Where the OIG recommends that the City establishes
                    procedures and controls to verify the accuracy of
                    information presented to HUD, the City maintains that the
                    Contracts Department has sufficient procedures and
                    controls through its contract monitoring process to ensure
                    the accuracy of all data associated with Empowerment Zone
                    contractual relationships. However, as in this case, the City
                    also maintains that its authority to monitor the activity of
                    parties outside a contractual relationship with the City
                    presents a legal question for which the City will seek
                    counsel prior to committing to a course of action.

                    Where the OIG recommends that the City monitor
                    Empowerment Zone activities to ensure they are fulfilling
                    Empowerment Zone objectives, the City again maintains
                    that its authority to monitor the activities of parties outside
                    a contractual relationship with the City presents a legal
                    question for which the City will seek guidance prior to
                    committing to a course of action.

                    The City plans to reevaluate its assignment of responsibilities
OIG Evaluation of   for coordination of the Performance Review, has conducted a
Auditee Comments    mandatory training session for all Empowerment Zone staff,

                             Page 59                               98-CH-259-1006
Appendix B


                                      and plans to conduct a thorough assessment to determine what
                                      actions it needs to take to accurately report Empowerment
                                      Zone information to HUD. After it completes its reevaluation
                                      and assessments, the City needs to implement written
                                      procedures to ensure controls are in place that show the
                                      training was effective and the data reported is accurate.

                                      It is the City’s responsibility to ensure that Zone funds are
                                      efficiently and effectively used. This includes taking necessary
                                      steps to maintain legal control in third party transactions.




Results of Cecil B. Moore Commercial Corridor
           Were Incorrectly Reported
The City of Philadelphia did not accurately report the actual status and progress of the Cecil B.
Moore Commercial Corridor. The June 30, 1997 Performance Review contained inaccuracies
related to: performance measures; funding; start date; performance milestones; and participating
entities. The inaccuracies occurred because the individual who prepared the Performance Review
for the City did not ascertain the actual accomplishments for each performance category from the
administering officials. Instead, she reported projected performance categories as actual. As a
result, the City did not provide HUD with a realistic picture of actual progress, and the impression
exists that the benefits of the activity were greater than actually achieved.


                                      The City inaccurately reported the Corridor’s projected
  The City Incorrectly                performance measures as actual. Specifically, the City reported
  Reported The Corridor’s             that a seven store retail strip mall, 16 housing units, and 35 new
  Performance Measures                jobs were produced. As of June 1997, there were only six
                                      prospective tenants for the mall and only two of the six, a
                                      banquet hall and a radio station, had signed leases. The 16
                                      housing units were a separate community development project
                                      that was not connected with the Empowerment Zone Program.
                                      The former Director of Policy and Planning for the City
                                      included the units to show the full range of work by the
                                      Developer. The units should not have been reported to HUD
                                      since they did not result from Empowerment Zone efforts.
                                      Additionally, no jobs had been created. The jobs are planned
                                      to be created in December 1998, when the mall is scheduled to
                                      open. At this time, the projected 35 jobs appears reasonable.



98-CH-259-1006                                 Page 60
                                                                           Appendix B


                           The City reported that $1.5 million of projected funding was
The City Over Reported     committed by the Philadelphia Industrial Development
The Corridor’s Funding     Corporation and Meridian Bank. In April 1998, ten months
By $600,000                after the $1.5 million commitment was erroneously reported,
                           the Commercial Corridor received a commitment from the
                           Development Corporation for $600,000. However, no funds
                           were committed by Meridian Bank. The Developer for the
                           Commercial Corridor said Meridian Bank was not planned as a
                           potential source of funds and he had no idea how it got
                           included in the Performance Review. The City had originally
                           included Meridian Bank as a potential source of funds during
                           the development of the activity.

                           The City did not report that the Commercial Corridor’s
                           Developer committed $50,000 from a Temple University grant
                           as of June 30, 1997. The City also did not report that
                           $250,000 from the City’s Department of Commerce was
                           committed to the Corridor in May 1997. As a result, the City
                           over reported the Corridor’s funding sources by $600,000 to
                           HUD.

                           The City reported that the Commercial Corridor project started
The City Incorrectly       in December 1994, the date the City was designated as an
Reported The Corridor’s    Empowerment Zone. However, the actual start date was June
Start Date                 1997, when the Empowerment Zone loan agreement was
                           executed with the Corridor’s Developer.

                           The City reported that the property for the Corridor was
The City Incorrectly
                           acquired in August 1996. However, according to the
Reported The Corridor’s
                           settlement statements, the purchase of the property was not
Performance Milestones
                           completed until April 1997. The City also reported that the
                           Corridor’s architectural design was completed in June 1997.
                           However, the Corridor’s Developer said the design was
                           actually completed in December 1997.

                           The City reported that two organizations: Philadelphia
The City Did Not           Commercial Development Corporation and Local Initiatives
Accurately Report The      Support Corporation were participating entities. During the
Corridor’s Participating   drafting of the Strategic Plan, the City planned to use the
Entities                   Development Corporation to assist with the Corridor’s
                           development. However, the City instead substituted the
                           Mayor’s Office of Community Services. The Developer for the
                           Commercial Corridor solicited funds from the Local Initiatives
                           Support Corporation; however, the funds were not intended
                           for an Empowerment Zone activity. Therefore, the two

                                    Page 61                               98-CH-259-1006
Appendix B


                     Corporations should not have been reported as participating
                     entities.

                     The Contracts Manager for the City said the inaccurate
                     reporting occurred because the former Director of Policy and
                     Planning, who prepared the Performance Review, did not use
                     the actual accomplishments for each activity. Instead, she
                     reported the projected performance measures and funding as
                     actual. The Contracts Manager also said the former Director
                     misunderstood HUD’s requirements for reporting program
                     results. However, we believe that HUD’s requirements are
                     clear. The 1997 EZ/EC Performance Review instructions state
                     that Empowerment Zones will report final products produced
                     and measurable outcomes of the activity.


                     Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments    Appendix C, page 96, contains the complete text of the
                     comments.

                     Although we agree that the HUD guidelines for the
                     Performance Review Template are clear on paper, the
                     implementation of this reporting format presented a problem
                     for the Empowerment Zone as to the agreement with the
                     Commonwealth of Pennsylvania and its administration of the
                     Empowerment Zone grant. Where the Commonwealth had
                     based its agreement with the City on the format previously
                     used for benchmark activities, there was an initial resistance by
                     the State to accept the new format. The Commonwealth’s
                     resistance was resolved in a conference call coordinated by the
                     Department of Health and Human Services, which included
                     HUD, the Commonwealth’s Grant Administrator, and the
                     City’s former Coordinator of Policy and Planning. The result
                     of this dialog was an agreement that the actual column of
                     the template would be used to amend benchmark activity
                     projections and, further, that amendments to the projections
                     would be explained in the narrative section of each
                     template.     The former Coordinator understood the
                     Performance Review as an invoicing and planning tool
                     rather than an evaluation mechanism that would be used for
                     the purpose of audit.

 OIG Evaluation of   The City did not provide any evidence to support an agreement
 Auditee Comments    that limited the Performance Review to only planning and
                     invoicing of Empowerment Zone activities. Neither HUD’s

98-CH-259-1006                Page 62
                                                                    Appendix B


                   Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                   Grant Administrator recalled an agreement to alter the progress
                   reporting requirements.       The City agreed that HUD’s
                   guidelines for the Performance Review were clear. HUD’s
                   Memorandum of Agreement with the City dated December 21,
                   1994 and HUD’s June 1997 Performance Review instructions
                   required the City to report on the progress made in carrying
                   out Empowerment Zone activities. Overall, we found that the
                   City’s oversight for the preparation of the Performance Review
                   was inadequate.


Auditee Comments   Where the OIG recommends that City staff responsible for
                   preparing the Performance Review report are
                   knowledgeable of HUD's reporting requirements, a
                   mandatory three hour training session was held on May 18,
                   1998, for all Empowerment Zone staff, and HUD’s
                   guidelines were addressed in detail. Additionally, a full-day
                   meeting was held on May 20 with the Commonwealth Grant
                   Administrator for the Empowerment Zone Program.
                   During that meeting, the Grant Administrator was presented
                   with a copy of the HUD’s guidelines.

                   Where the OIG recommends that the City establishes
                   procedures and controls to ensure the preparer of the report
                   utilizes actual accomplishments for each activity, the City is
                   in the process of re-evaluating its assignment of
                   responsibility for the coordination of the Performance
                   Review report. The City will ensure that, in the future, the
                   report will reflect actual data where required.

                   Where the OIG recommends that the City establishes
                   internal controls and procedures to verify the accuracy of
                   information submitted, the City will conduct a thorough
                   assessment to determine what additional action is required
                   to comply with this recommendation. While the City is
                   confident that the Contracts Unit has exercised adequate
                   oversight to ensure the accuracy of its data, the City also
                   recognizes that similar procedures and controls need to be
                   extended to activities not under the oversight of that
                   Department.

                   The City does; however, request further clarification on this
                   finding from the OIG. Where the Performance Review
                   Template does not list loan execution as a Performance

                            Page 63                               98-CH-259-1006
Appendix B


                     Milestone, it is unclear why the OIG would determine this
                     specific, unnamed activity to delineate the "Start Date" of
                     the project.      Where "site acquisition" is the first
                     Performance Milestone listed on the Template, it should
                     follow that the date of site acquisition would be the correct
                     and appropriate Start Date of the project.

                     The OIG claims that the City incorrectly reported the
                     Performance Milestones in that the City stated that the
                     property for the Corridor was acquired in August 1996.
                     The City disagrees with the OIG's assessment. Although
                     the developer did not obtain title to the property until
                     settlement of its loan, the property was, in fact, acquired in
                     August 1996, by the Philadelphia Housing Development
                     Corporation pursuant to its agreement with the Philadelphia
                     Empowerment Zone to acquire property for Zone
                     development. The Commercial Corridor properties were
                     held by the Philadelphia Housing Development Corporation
                     until execution of the loan agreement between the North
                     Philadelphia Financial Partnership and the developer.

 OIG Evaluation of   The City plans to reevaluate its assignment of responsibilities
                     for coordination of the Performance Review, has conducted a
 Auditee Comments
                     mandatory training session for all Empowerment Zone staff,
                     and plans to conduct a thorough assessment to determine what
                     actions it needs to take to accurately report Empowerment
                     Zone information to HUD. After it completes its reevaluation
                     and assessments, the City needs to implement written
                     procedures that ensure controls are in place that show the
                     training was effective and the data reported is accurate.

                     We agree that the site acquisition date for the Cecil B. Moore
                     Commercial Corridor is a better measure of the starting of the
                     activity than the loan agreement date, if the purchase preceded
                     the loan agreement. However, the Performance Review which
                     shows the start date as December 1994 is still not accurate.
                     Per the City’s comments, the site was acquired in August 1996.

                     The City indicated the Philadelphia Housing Development
                     Corporation acquired the property for the Corridor in August
                     1996, pursuant to an agreement with the Philadelphia
                     Empowerment Zone. However, based upon documentation
                     provided by the City, the purchase of the property was
                     completed in April 1997. We adjusted our finding based upon
                     the documentation.

98-CH-259-1006                Page 64
                                                                                          Appendix B




         Results of Child Care Conference Were
                  Incorrectly Reported
The City of Philadelphia incorrectly reported the results of the Child Care Conference in its June 30,
1997 Performance Review to HUD. The City inaccurately reported that: (1) 500 parents were
educated on criteria for selecting quality child care services; (2) $30,000 of in-kind contributions were
received for the conference; and (3) $30,000 of Empowerment Zone funds were spent on the
conference. Records at the City confirmed that only 55 parents attended the conference and only
$17,990 of in-kind contributions were received. Additionally, the City spent $26,484 of Zone funds for
the conference. The inaccuracies occurred because the individual who prepared the Performance
Review for the City did not use the actual accomplishments for each activity and did not verify the
information reported. Instead, she reported the planned performance measures and funding as the
actual results. As a result, the accomplishments of the City’s Empowerment Zone Program were not
accurately reported to HUD and the impression exists that the benefits of the activity were greater than
actually achieved.


                                        The City incorrectly reported in its June 30, 1997 Performance
  Conference Results Were
                                        Review that: (1) 500 parents were educated on criteria for
  Inaccurately Reported
                                        selecting quality child care services; (2) $30,000 of in-kind
                                        contributions were received for the Child Care Conference; and
                                        (3) $30,000 of Empowerment Zone funds were spent on the
                                        conference. This occurred even though the City’s files
                                        contained a June 1997 report from Matrix Research Institute,
                                        the organization the City contracted with to administer the
                                        Child Care Conference, that showed only 55 parents attended
                                        the conference and that in-kind contributions were not received
                                        as projected. The invoices in the City’s files showed only
                                        $26,484 of Empowerment Zone funds were spent.
                                        Additionally, the City’s files showed the Conference only
                                        received $17,990 of in-kind contributions.

                                        The Contracts Manager for the City said the inaccurate
                                        reporting occurred because the former Director of Policy and
                                        Planning, who prepared the Performance Review, did not use

                                                  Page 65                                98-CH-259-1006
Appendix B


                    the actual accomplishments for each activity that were provided
                    by the administering officials. As previously mentioned,
                    administering officials reported that only 55 parents attended
                    the conference, $17,990 of in-kind contributions were received,
                    and $26,484 of Empowerment Zone funds were spent. The
                    former Director reported that 500 parents attended the
                    conference, $30,000 of in-kind contributions were received,
                    and $30,000 of Empowerment Zones funds were spent. The
                    former Director reported the projected performance measures
                    and funding as actual and did not verify the accuracy of the
                    information.

                    The Contracts Manager said the former Director also
                    misunderstood HUD’s requirements for reporting program
                    results. We believe that HUD’s requirements were clear. The
                    1997 EZ/EC Performance Review instructions state that
                    Empowerment Zones will report final products produced and
                    measurable outcomes of the activity. The former Director did
                    not provide HUD’s instructions to her staff to assist in
                    preparing the City’s June 1997 Performance Review. Instead,
                    she verbally instructed her staff to report the projected
                    information as actual. In May 1998, the City provided training
                    on HUD’s Performance Review instructions to all
                    Empowerment Zone staff and issued a memorandum that
                    indicates the City will use HUD’s procedures to prepare its
                    Performance Review for June 1998. As a result, the City’s
                    future reporting should improve in accuracy.


                    Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments   Appendix C, page 90, contains the complete text of the
                    comments.

                    Although we agree that the HUD guidelines for the
                    Performance Review Template are clear on paper, the
                    implementation of this reporting format presented a problem
                    for the Empowerment Zone as to the agreement with the
                    Commonwealth of Pennsylvania and its administration of the
                    Empowerment Zone grant. Where the Commonwealth had
                    based its agreement with the City on the format previously
                    used for benchmark activities, there was an initial resistance by
                    the State to accept the new format. The Commonwealth’s
                    resistance was resolved in a conference call coordinated by the
                    Department of Health and Human Services, which included
                    HUD, the Commonwealth’s Grant Administrator, and the

98-CH-259-1006               Page 66
                                                                    Appendix B


                    City’s former Coordinator of Policy and Planning. The result
                    of this dialog was an agreement that the actual column of
                    the template would be used to amend benchmark activity
                    projections and, further, that amendments to the projections
                    would be explained in the narrative section of each
                    template.     The former Coordinator understood the
                    Performance Review as an invoicing and planning tool
                    rather than an evaluation mechanism that would be used for
                    the purpose of audit.

                    Where the OIG recommends that the City establishes
                    procedures and controls to ensure the preparer of the report
                    utilizes actual accomplishments for each activity, the City is
                    in the process of re-evaluating its assignment of
                    responsibility for the coordination of the Performance
                    Review report. The City will ensure that, in the future, the
                    report will reflect actual data where required.

                    Where the OIG recommends that City staff responsible for
                    preparing the Performance Review report are
                    knowledgeable of HUD's reporting requirements, a
                    mandatory three hour training session was held on May 18,
                    1998, for all Empowerment Zone staff, and HUD’s
                    guidelines were addressed in detail. Additionally, a full-day
                    meeting was held on May 20 with the Commonwealth Grant
                    Administrator for the Empowerment Zone Program.
                    During that meeting, the Grant Administrator was presented
                    with a copy of the HUD’s guidelines.

                    Where the OIG recommends that the City establish internal
                    controls and procedures to verify the accuracy of
                    information submitted, the City will conduct a thorough
                    assessment to determine what additional action is required
                    to comply with this recommendation. While the City is
                    confident that the Contracts Unit has exercised adequate
                    oversight to ensure the accuracy of its data, the City also
                    recognizes that similar procedures and controls need to be
                    extended to activities not under the oversight of that
                    Department.


                    The City did not provide any evidence to support an agreement
OIG Evaluation of   that limited the Performance Review to only planning and
Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                    Coordinator of the EZ/EC Initiative nor the Commonwealth’s

                             Page 67                               98-CH-259-1006
Appendix B


                 Grant Administrator recalled an agreement to alter the progress
                 reporting requirements.       The City agreed that HUD’s
                 guidelines for the Performance Review were clear. HUD’s
                 Memorandum of Agreement with the City dated December 21,
                 1994 and HUD’s June 1997 Performance Review instructions
                 required the City to report on the progress made in carrying
                 out Empowerment Zone activities. Overall, we found that the
                 City’s oversight for the preparation of the Performance Review
                 was inadequate.

                 The City plans to reevaluate its assignment of responsibilities
                 for coordination of the Performance Review, has conducted a
                 mandatory training session for all Empowerment Zone staff,
                 and plans to conduct a thorough assessment to determine what
                 actions it needs to take to accurately report Empowerment
                 Zone information to HUD. After it completes its reevaluation
                 and assessments, the City needs to implement written
                 procedures to ensure controls are in place that show the
                 training was effective and the data reported is accurate.




98-CH-259-1006            Page 68
                                                                                          Appendix B




   Accomplishments of the Community Lending
           Institution Were Misstated
The City of Philadelphia incorrectly reported the accomplishments of the Community Lending
Institution. The City’s June 30, 1997 Performance Review inaccurately reported that the Institution:
loaned $3.5 million of Empowerment Zone funds, leveraged $10.5 million from banks, and spent the
$250,000 Empowerment Zone grant. As of June 1997, no loans were made and no bank funds were
leveraged by the Institution. Additionally, the Institution only spent $18,450 of the Empowerment
Zone grant. The inaccuracies occurred because the individual who prepared the Performance Review
for the City did not use the actual accomplishments for each activity and did not verify the information
reported. As a result, the accomplishments of the City’s Empowerment Zone Program were not
accurately reported to HUD and the impression exists that the benefits of the activity were greater than
actually achieved.


                                       The Community Lending Institution had not made a loan as of
  Benefits From The                    June 1997, although the City reported that the Institution had
  Lending Institution Were             loaned $3.5 million of Empowerment Zone funds. The
  Misstated                            Institution has made progress in loaning Zone funds since June
                                       1997, and if it continues at its present pace, it should meet its
                                       goal of loaning $3.5 million by January 1999. Between
                                       November 1997 and April 1998, the Institution loaned
                                       $612,600 of Empowerment Zone funds and committed another
                                       $922,376 of the funds.

                                       The Community Lending Institution also had not leveraged any
                                       funds with banks as of June 1997. However, the Institution has
                                       begun to leverage funds. The Institution’s Cumulative Loan
                                       Status Report for April 1998 showed it leveraged $3,453,200.
                                       The Institution provided the City with monthly Cumulative
                                       Loan Status Reports that showed the actual loans made and
                                       leveraged funds. Although the City reported a January 1999
                                       completion date for the leveraging of funds, the Institution’s
                                       Executive Director said he could not provide an estimate. The
                                       total amount of funds that will ultimately be leveraged and the
                                       timing depends on the number of loans received that are
                                       accepted by participating banks. We believe the Institution


                                                 Page 69                                98-CH-259-1006
Appendix B


                    needs to analyze past trends and information to develop a
                    revised completion date for leveraging funds.

                    The Community Lending Institution spent $18,450 of the
                    Empowerment Zone grant as of June 30, 1997, in lieu of the
                    $250,000 reported to HUD. The $18,450 was for the
                    Executive Director’s salary and benefits. The administrative
                    costs were reasonable and used according to the grant
                    agreement between the City and the Institution.

                    The Contracts Manager for the City said the inaccurate
                    reporting occurred because the former Director of Policy and
                    Planning, who prepared the Performance Review, did not use
                    the actual accomplishments for each activity. The Contracts
                    Manager also said the former Director misunderstood HUD’s
                    requirements for reporting program results. However, we
                    believe that HUD’s requirements are clear. The 1997 EZ/EC
                    Performance Review instructions state that Empowerment
                    Zones will report final products produced and measurable
                    outcomes of the activity.


                    Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments   Appendix C, page 93, contains the complete text of the
                    comments.

                    Although we agree that the HUD guidelines for the
                    Performance Review Template are clear on paper, the
                    implementation of this reporting format presented a problem
                    for the Empowerment Zone as to the agreement with the
                    Commonwealth of Pennsylvania and its administration of the
                    Empowerment Zone grant. Where the Commonwealth had
                    based its agreement with the City on the format previously
                    used for benchmark activities, there was an initial resistance by
                    the State to accept the new format. The Commonwealth’s
                    resistance was resolved in a conference call coordinated by the
                    Department of Health and Human Services, which included
                    HUD, the Commonwealth’s Grant Administrator, and the
                    City’s former Coordinator of Policy and Planning. The result
                    of this dialog was an agreement that the actual column of
                    the template would be used to amend benchmark activity
                    projections and, further, that amendments to the projections
                    would be explained in the narrative section of each
                    template.     The former Coordinator understood the
                    Performance Review as an invoicing and planning tool

98-CH-259-1006               Page 70
                                                                     Appendix B


                    rather than an evaluation mechanism that would be used for
                    the purpose of audit.
                    Where the OIG recommends that the City establishes
                    procedures and controls to ensure the preparer of the report
                    utilizes actual accomplishments for each activity, the City is
                    in the process of re-evaluating its assignment of
                    responsibility for the coordination of the Performance
                    Review report. The City will ensure that, in the future, the
                    report will reflect actual data where required.

                    Where the OIG recommends that City staff responsible for
                    preparing the Performance Review report are
                    knowledgeable of HUD's reporting requirements, a
                    mandatory three hour training session was held on May 18,
                    1998, for all Empowerment Zone staff, and HUD’s
                    guidelines were addressed in detail. Additionally, a full-day
                    meeting was held on May 20 with the Commonwealth Grant
                    Administrator for the Empowerment Zone Program.
                    During that meeting, the Grant Administrator was presented
                    with a copy of the HUD’s guidelines.

                    Where the OIG recommends that the City establish internal
                    controls and procedures to verify the accuracy of
                    information submitted, the City will conduct a thorough
                    assessment to determine what additional action is required
                    to comply with this recommendation. While the City is
                    confident that the Contracts Unit has exercised adequate
                    oversight to ensure the accuracy of its data, the City also
                    recognizes that similar procedures and controls need to be
                    extended to activities not under the oversight of that
                    Department.

                    The OIG further recommends that the City obtain a revised
                    completion date from the Community Lending Institution
                    for leveraging bank funds. However, leveraging additional
                    public and private financing is an integral ongoing activity of
                    the Community Lending Institutions that will continue even
                    after Empowerment Zone funds are exhausted. In future
                    reports; however, the City will ensure that the reporting
                    error is not repeated and will include the precise dollar
                    amount leveraged as of the date of the report.



OIG Evaluation of   The City did not provide any evidence to support an agreement
                    that limited the Performance Review to only planning and
Auditee Comments
                             Page 71                               98-CH-259-1006
Appendix B


                 invoicing of Empowerment Zone activities. Neither HUD’s
                 Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                 Grant Administrator recalled an agreement to alter the progress
                 reporting requirements.       The City agreed that HUD’s
                 guidelines for the Performance Review were clear. HUD’s
                 Memorandum of Agreement with the City dated December 21,
                 1994 and HUD’s June 1997 Performance Review instructions
                 required the City to report on the progress made in carrying
                 out Empowerment Zone activities. Overall, we found that the
                 City’s oversight for the preparation of the Performance Review
                 was inadequate.

                 The City plans to reevaluate its assignment of responsibilities
                 for coordination of the Performance Review, has conducted a
                 mandatory training session for all Empowerment Zone staff,
                 and plans to conduct a thorough assessment to determine what
                 actions it needs to take to accurately report Empowerment
                 Zone information to HUD. After it completes its reevaluation
                 and assessments, the City needs to implement written
                 procedures to ensure controls are in place that show the
                 training was effective and the data reported is accurate.




98-CH-259-1006            Page 72
                                                                                      Appendix B




 Results of Community Capital Institution Were
              Incorrectly Reported
The City of Philadelphia did not accurately report the actual status and progress of the
Community Capital Institution activity. The June 30, 1997 Performance Review contained
inaccuracies related to funding, performance milestones, and participating entities. The
inaccuracies occurred because the individual who prepared the Performance Review for the City
did not ascertain the actual accomplishments for each activity and did not verify the information
reported. As a result, the City did not provide HUD with a realistic picture of actual progress,
and the impression exists that the benefits of the activity were greater than actually achieved.


                                     The City of Philadelphia’s Performance Review showed that
  The City Over Reported             the Community Capital Institution activity received
  The Activity’s Leveraged           $11,547,140 from private sources and $11,547,140 from
  Funding                            public institutions. However, as of June 30, 1997, the
                                     activity had not received any funding or commitments from
                                     private or public entities. Since June 30, 1997, the activity
                                     has leveraged over $10.6 million of commitments and, if it
                                     continues at its present rate, should meet its goal to leverage
                                     $23 million from public and private sources by September
                                     30, 1999. The commitments consisted of: (1) $10 million
                                     from General Electric Capital in February 1998; (2)
                                     $230,000 from the First Union National Bank in March
                                     1998; (3) $400,000 from Star Financial in May 1998; and
                                     (4) $50,000 from the Philadelphia Commercial
                                     Development Corporation in June 1998.

                                     The City incorrectly reported three of the activity’s
  The City Incorrectly               performance milestones. The City reported that the West
  Reported The Institution’s         Philadelphia Economic Development Committee established
  Performance Milestones             and provided training to the Institution’s loan committee in
                                     May 1997. However, the Institution’s records showed the
                                     loan committee was not provided training until December
                                     1997. The City also projected that: (1) the Economic
                                     Development Committee would develop and implement a
                                     strategy to leverage funding from public and private sources
                                     in July 1997; and (2) the Institution would open for business
                                     and make its first loan in October 1997. The Institution’s
                                     Executive Director said he would have reported that the
                                     leveraging of funds and closing of the first loan would not
                                     have occurred until early 1998; however, he said the City

                                              Page 73                               98-CH-259-1006
Appendix B


                                did not request any information from him for the June 1997
                                Performance Review.

                                The City’s June 30, 1997 Performance Review showed that:
  The City Did Not              (1) the City’s Commerce Department; (2) various pension
  Accurately Report The         plans, banks, utility companies, and health maintenance
  Institution’s Participating   organizations; and (3) the Ben Franklin Technology Center
  Entities                      were participating entities in the activity. However, the
                                entities were not participating in the activity as of June
                                1997. Subsequent to the Review, the City’s Commerce
                                Department, the First National Bank, and Star Financial
                                began participating in the activity.       The Institution’s
                                Executive Director said the activity still expects the
                                remaining entities to participate.

                                The Contracts Manager for the City said the inaccurate
                                reporting occurred because the former Director of Policy and
                                Planning, who prepared the Performance Review, did not use
                                the actual accomplishments for each activity. Instead, she
                                reported the activities’ projected information as actual. The
                                Contracts Manager also said the former Director
                                misunderstood HUD’s requirements for reporting program
                                results. However, we believe that HUD’s requirements were
                                clear. The 1997 EZ/EC Performance Review instructions state
                                that Empowerment Zones will report final products produced
                                and measurable outcomes of the activity.


                                Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments
                                Appendix C, page 118, contains the complete text of the
                                comments.

                                Although we agree that the HUD guidelines for the
                                Performance Review Template are clear on paper, the
                                implementation of this reporting format presented a problem
                                for the Empowerment Zone as to the agreement with the
                                Commonwealth of Pennsylvania and its administration of the
                                Empowerment Zone grant. Where the Commonwealth had
                                based its agreement with the City on the format previously
                                used for benchmark activities, there was an initial resistance by
                                the State to accept the new format. The Commonwealth’s
                                resistance was resolved in a conference call coordinated by the
                                Department of Health and Human Services, which included
                                HUD, the Commonwealth’s Grant Administrator, and the
                                City’s former Coordinator of Policy and Planning. The result

98-CH-259-1006                           Page 74
                                                                     Appendix B


                    of this dialog was an agreement that the actual column of
                    the template would be used to amend benchmark activity
                    projections and, further, that amendments to the projections
                    would be explained in the narrative section of each
                    template.     The former Coordinator understood the
                    Performance Review as an invoicing and planning tool
                    rather than an evaluation mechanism that would be used for
                    the purpose of audit.

                    The City is in the process of re-evaluating its assignment of
                    responsibility for the coordination of the Performance
                    Review report. The City will ensure that, in the future, the
                    report will consistently reflect actual data where required.

                    The City will conduct a thorough assessment to determine
                    what additional action is required to comply with this
                    recommendation. While the City is confident that its
                    Contracts Unit has exercised adequate oversight to ensure
                    the accuracy of its data, the City also recognizes that similar
                    procedures and controls need to be extended to activities
                    not under the oversight of that Department.


                    The City did not provide any evidence to support an agreement
OIG Evaluation of   that limited the Performance Review to only planning and
Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                    Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                    Grant Administrator recalled an agreement to alter the progress
                    reporting requirements.       The City agreed that HUD’s
                    guidelines for the Performance Review were clear. HUD’s
                    Memorandum of Agreement with the City dated December 21,
                    1994 and HUD’s June 1997 Performance Review instructions
                    required the City to report on the progress made in carrying
                    out Empowerment Zone activities. Overall, we found that the
                    City’s oversight for the preparation of the Performance Review
                    was inadequate.

                    The City plans to reevaluate its assignment of responsibilities
                    for coordination of the Performance Review, has conducted a
                    mandatory training session for all Empowerment Zone staff,
                    and plans to conduct a thorough assessment to determine what
                    actions it needs to take to accurately report Empowerment
                    Zone information to HUD. After it completes its reevaluation
                    and assessments, the City needs to implement written


                             Page 75                               98-CH-259-1006
Appendix B


                 procedures to ensure controls are in place that show the
                 training was effective and the data reported is accurate.




98-CH-259-1006           Page 76
                                                                                       Appendix B


     Accomplishments of the Revolving Capital
         Fund Were Incorrectly Reported
The City of Philadelphia inaccurately reported the actual status and progress of the Revolving
Capital Fund in the June 30, 1997 Performance Review. The Review contained inaccuracies
related to performance measures, funding, performance milestones, and a participating entity.
The inaccuracies occurred because the individual who prepared the Performance Review for the
City did not ascertain the actual accomplishments for each performance category from the
administering officials. Instead, she reported projected performance information as actual. As a
result, the City did not provide HUD with a realistic picture of the actual progress of the Fund.


                                     The City of Philadelphia inaccurately reported the Revolving
  The Fund’s Performance             Capital Fund’s performance measures in the June 1997
  Measures Were                      Performance Review. The Review showed that the Fund
  Incorrectly Reported               assisted 30 businesses. However, as of June 30, 1997, the
                                     North Philadelphia Financial Partnership, the administering
                                     entity for the Revolving Capital Fund, reported to the City that
                                     only seven business loans were closed. The City did not report
                                     on each loan made under the Revolving Capital Fund as
                                     required by HUD. The City also did not report the number of
                                     jobs expected to be created or retained as a result of the
                                     assistance to the seven businesses. The Partnership’s records
                                     showed the seven businesses expected to create 119 new jobs
                                     and retain 1,357 existing jobs as a result of the seven loans.
                                     The records indicated that 38 of the new jobs were projected to
                                     be filled by Empowerment Zone residents, but did not
                                     comment on how many of the retained jobs affected Zone
                                     residents.

                                     The City incorrectly reported the funding for the Revolving
  The City Incorrectly               Capital Fund in the 1997 Performance Review. The Review
  Reported The Activity’s            showed that the Fund received a total of $9.6 million; however,
  Funding                            the Fund only had a commitment for $7 million as of June 30,
                                     1997. The Executive Director for the North Philadelphia
                                     Financial Partnership said the City committed $7 million of
                                     Empowerment Zone funds. The Revolving Capital Fund had
                                     not leveraged any other funds as of June 1997. Since that time
                                     the Fund has leveraged over $6 million of additional public and
                                     private funding; however, HUD’s instructions require the
                                     actual status of funding at the time the Review is submitted to
                                     be reported.


                                              Page 77                                98-CH-259-1006
Appendix B


                           The City incorrectly reported the Fund’s performance
  The City Incorrectly     milestones. The performance milestones that were inaccurately
  Reported The Fund’s      reported were:
  Performance Milestones
                           •   The City reported that the community lending fund was
                               incorporated in July 1996.          However, the North
                               Philadelphia Financial Partnership’s records showed that
                               the Partnership was incorporated in March 1996;

                           •   The Performance Review showed that the Fund’s Advisory
                               Committee/Research and Capital Planning Committee was
                               formed in July 1996. However, the City’s records showed
                               the Committee was formed in May 1995. The Committee
                               assisted in establishing the Partnership, and was dissolved
                               in March 1996; and

                           •   The City reported that marketing of the Fund’s services
                               began in May 1996. However, the North Philadelphia
                               Financial Partnership’s Executive Director said the
                               marketing of the Fund did not begin until August 1996
                               when brochures were distributed.

                           The City incorrectly reported that the North Central Business
  The City Incorrectly     Association was a participating entity in the Revolving Capital
  Reported One Of The      Fund. However, the North Philadelphia Financial Partnership’s
  Fund’s Participating     Executive Director said the Association did not exist.
  Entities
                           The Contracts Manager for the City said the inaccurate
                           reporting occurred because the former Director of Policy and
                           Planning, who prepared the Performance Review, did not use
                           the actual accomplishments for each activity. Instead, she
                           reported the activities’ projected information as actual. The
                           Contracts Manager also said the former Director
                           misunderstood HUD’s requirements for reporting program
                           results. However, we believe that HUD’s requirements were
                           clear. The 1997 EZ/EC Performance Review instructions state
                           that Empowerment Zones will report final products produced
                           and measurable outcomes of the activity.


                           Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments          Appendix C, page 123, contains the complete text of the
                           comments.
                           Although we agree that the HUD guidelines for the
                           Performance Review Template are clear on paper, the

98-CH-259-1006                      Page 78
                                                                      Appendix B


                    implementation of this reporting format presented a problem
                    for the Empowerment Zone as to the agreement with the
                    Commonwealth of Pennsylvania and its administration of the
                    Empowerment Zone grant. Where the Commonwealth had
                    based its agreement with the City on the format previously
                    used for benchmark activities, there was an initial resistance by
                    the State to accept the new format. The Commonwealth’s
                    resistance was resolved in a conference call coordinated by the
                    Department of Health and Human Services, which included
                    HUD, the Commonwealth’s Grant Administrator, and the
                    City’s former Coordinator of Policy and Planning. The result
                    of this dialog was an agreement that the actual column of
                    the template would be used to amend benchmark activity
                    projections and, further, that amendments to the projections
                    would be explained in the narrative section of each
                    template.     The former Coordinator understood the
                    Performance Review as an invoicing and planning tool
                    rather than an evaluation mechanism that would be used for
                    the purpose of audit.

                    The City did not provide any evidence to support an agreement
OIG Evaluation of   that limited the Performance Review to only planning and
Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                    Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                    Grant Administrator recalled an agreement to alter the progress
                    reporting requirements.       The City agreed that HUD’s
                    guidelines for the Performance Review were clear. HUD’s
                    Memorandum of Agreement with the City dated December 21,
                    1994 and HUD’s June 1997 Performance Review instructions
                    required the City to report on the progress made in carrying
                    out Empowerment Zone activities. Overall, we found that the
                    City’s oversight for the preparation of the Performance Review
                    was inadequate.


                    The City disagrees with the OIG's definition of assistance to
Auditee Comments    businesses, where the OIG concluded that the correct
                    performance measure was assistance to seven businesses.
                    To the contrary, one of the approved activities of the
                    Capital Fund is to provide technical assistance or referrals
                    for alternative financing to businesses/applicants. As of
                    June 30, 1997, the North Philadelphia Financial Partnership
                    provided assistance or referrals to 18 businesses in addition
                    to the seven businesses that were provided with financing.


                             Page 79                                 98-CH-259-1006
Appendix B


                     The performance measure for the Revolving Capital Fund is to
 OIG Evaluation of   financially assist 30 businesses. Only seven businesses were
 Auditee Comments    financially assisted as of June 30, 1997.


                     The City maintains that it is not required by HUD to report
 Auditee Comments    each loan. In fact, the City made a request to HUD for
                     additional guidance on this point on May 19, after the issue
                     was initially raised by OIG auditors. HUD's response to the
                     City's request is that it has never been HUD's intent that the
                     City should report on individual loans made under the
                     lending institutions; rather, HUD had informed the City
                     early in the process that it was acceptable for the City to
                     report on loans in the aggregate. It is also the City's
                     understanding that HUD will further clarify this issue when
                     the OIG's report is issued.

                     The OIG has stated that the City failed to report job
                     creation and retention projections based on the Capital
                     Fund's lending activity. This is inconsistent with the OIG's
                     overall findings that the City has failed to report actual data
                     in the Performance Review report. The HUD-approved
                     benchmark does not list job creation as a performance
                     measure; rather, the activity's objective is to assist
                     businesses with capital financing needs.

                     HUD’s 1997 EZ/EC Performance Review instructions issued
 OIG Evaluation of   on June 23, 1997 require Zones to complete a template for
 Auditee Comments    each activity that has a separate outcome. An individual loan is
                     a separate outcome. The instructions also require Zones to
                     report final products produced or other measurable outcomes
                     of an activity. Job creation is a measurable outcome of the
                     loan.


                     Where the OIG recommends that City staff responsible for
 Auditee Comments    preparing the Performance Review report are
                     knowledgeable of HUD's reporting requirements, a
                     mandatory three hour training session was held on May 18,
                     1998, for all Empowerment Zone staff, and HUD’s
                     guidelines were addressed in detail. Additionally, a full-day
                     meeting was held on May 20 with the Commonwealth Grant
                     Administrator for the Empowerment Zone Program.
                     During that meeting, the Grant Administrator was presented
                     with a copy of the HUD’s guidelines.

98-CH-259-1006                Page 80
                                                                     Appendix B



                    Where the OIG recommends that the City establish
                    procedures and controls to ensure the preparer of the report
                    utilizes actual accomplishments for each activity, the City is
                    in the process of re-evaluating its assignment of
                    responsibility for the coordination of the Performance
                    Review report. The City will ensure that, in the future, the
                    report will consistently reflect actual data where required.

                    Where the OIG recommends that the City establishes
                    procedures and controls to verify the accuracy of
                    information reported, it is the City's position that the
                    Contracts Department. did, in fact, have accurate
                    information on the level of activity under the Revolving
                    Capital Fund’s benchmark by virtue of its contract reporting
                    requirements with the North Philadelphia Financial
                    Partnership. However, in the future, the City will ensure
                    that this information is communicated to HUD vis-a-vis the
                    Performance Review report, and will not repeat its error of
                    only including projected activity in the report.

                    The City plans to reevaluate its assignment of responsibilities
OIG Evaluation of   for coordination of the Performance Review, has conducted a
Auditee Comments    mandatory training session for all Empowerment Zone staff,
                    and plans to conduct a thorough assessment to determine what
                    actions it needs to take to accurately report Empowerment
                    Zone information to HUD. After it completes its reevaluation
                    and assessments, the City needs to implement written
                    procedures to ensure controls are in place that show the
                    training was effective and the data reported is accurate.




 Accomplishments of the Youth Landscape
Training Program Were Inaccurately Reported
                             Page 81                               98-CH-259-1006
Appendix B


The City of Philadelphia incorrectly reported the actual status and progress of the Youth Landscape
Training Program in the June 30, 1997 Performance Review. The Review contained inaccuracies
related to performance measures, funding, performance milestones, and participating entities. The City
also did not ensure the Strategic Plan’s goal of training and employing Empowerment Zone residents
was achieved and did not report the obstacles encountered related to the Program. The inaccuracies
occurred because the individual who prepared the Performance Review for the City did not use the
actual accomplishments for each activity and did not verify the information reported. Instead, she
reported the projected performance categories as the actual results. As a result, the City did not
accurately report the accomplishments of the City’s Empowerment Zone Program to HUD and did not
ensure that the goals of the Strategic Plan were met. The impression exists that the benefits of the
Youth Landscape Training Program were greater than actually achieved.


                                       The City of Philadelphia inaccurately reported the Youth
 The City Incorrectly                  Landscape Training Program’s performance measures in the
 Reported The Program’s                June 1997 Performance Review. The City reported that the
 Performance Measures                  contract amount of 40 youths and four adult crew leaders
                                       received environmental training and employment
                                       opportunities. However, the City and the administering
                                       entity for the Program, Norris Square Neighborhood
                                       Project, could not provide any documentation to support
                                       the training, employment, or the names and addresses of any
                                       youths or crew leaders who participated in the Program.

                                       The City’s Strategic Plan required that Program participants
                                       be Empowerment Zone residents. The City’s June 1997 site
                                       visit report indicated that the City requested a listing of the
                                       Zone residents that were participating in the Program, but
                                       the City never received the list. As a result, HUD and the
                                       City lack assurance that the goals of the Strategic Plan were
                                       being achieved.

                                       The City over reported the funding received by the
 The City Over Reported                Program. The 1997 Performance Review showed that the
 The Program’s Funding                 Program received $39,931 of Empowerment Zone funds
 By $81,443                            and $80,032 from the Private Industrial Council. However,
                                       as of June 30, 1997, the Program has not received any Zone
                                       funds. Additionally, the Administrator for the Private
                                       Industrial Council said the Council provided only $38,520
                                       to the Program as of June 1997.

                                       The City reported that five milestones were completed in
 The City Inaccurately                 June 1996; however, the milestones were not initiated since
 Reported The Program’s                the contract for the Program was not awarded until October
 Performance Milestones                1996. The performance milestones that were inaccurately

98-CH-259-1006                                  Page 82
                                                                         Appendix B


                          reported were: the phase one provider, Norris Square
                          Neighborhood Project, would hire a landscape architect to
                          train youths from the community; the architect and crew
                          leaders would develop a data collection/inventory form, a
                          job skills curriculum, and a youth performance evaluation;
                          and the crew leaders would be assigned to teams of 10
                          youths. The City and the Project did not have any
                          documentation to show that these performance milestones
                          were completed after the contract was awarded. As a result,
                          the impression exists that the benefits of the Empowerment
                          Zone Program were greater than actually achieved.

                          The Contracts Manager for the City said the inaccurate
                          reporting occurred because the former Director of Policy and
                          Planning, who prepared the Performance Review, did not use
                          the actual accomplishments for each activity. Instead, she
                          reported the projected performance measurements and funding
                          as actual. The Contracts Manager also said the former
                          Director misunderstood HUD’s requirements for reporting
                          program results.       However, we believe that HUD’s
                          requirements were clear. The 1997 EZ/EC Performance
                          Review instructions state that Empowerment Zones will report
                          final products produced and measurable outcomes of the
                          activity.

                          The City did not report the obstacles it encountered related
The City Did Not Report   to the Program. As discussed above, the City’s June 1997
The Program’s Obstacles   site visit report indicated that the City requested a list of
                          Empowerment Zone residents participating in the Program,
                          but it never received the list. The report also showed that
                          Norris Square Neighborhood Project was not providing the
                          required services or submitting invoices. However, the
                          City’s June 30, 1997 Performance Review to HUD did not
                          report the obstacles encountered by the Program. The
                          Contracts Manager for the City said the City was not aware
                          of the requirement to report obstacles encountered by an
                          activity. However, the Memorandum of Agreement dated
                          December 21, 1994 requires the City to report obstacles
                          encountered in carrying out the Strategic Plan. The City
                          terminated the contract with Norris Square Neighborhood
                          Project in August 1997.




                                   Page 83                              98-CH-259-1006
Appendix B


                     Excerpts from the City’s comments on our draft finding follow.
 Auditee Comments    Appendix C, page 127, contains the complete text of the
                     comments.

                     Although we agree that the HUD guidelines for the
                     Performance Review Template are clear on paper, the
                     implementation of this reporting format presented a problem
                     for the Empowerment Zone as to the agreement with the
                     Commonwealth of Pennsylvania and its administration of the
                     Empowerment Zone grant. Where the Commonwealth had
                     based its agreement with the City on the format previously
                     used for benchmark activities, there was an initial resistance by
                     the State to accept the new format. The Commonwealth’s
                     resistance was resolved in a conference call coordinated by the
                     Department of Health and Human Services, which included
                     HUD, the Commonwealth’s Grant Administrator, and the
                     City’s former Coordinator of Policy and Planning. The result
                     of this dialog was an agreement that the actual column of
                     the template would be used to amend benchmark activity
                     projections and, further, that amendments to the projections
                     would be explained in the narrative section of each
                     template.     The former Coordinator understood the
                     Performance Review as an invoicing and planning tool
                     rather than an evaluation mechanism that would be used for
                     the purpose of audit.

                     The City did not provide any evidence to support an agreement
 OIG Evaluation of   that limited the Performance Review to only planning and
 Auditee Comments    invoicing of Empowerment Zone activities. Neither HUD’s
                     Coordinator of the EZ/EC Initiative nor the Commonwealth’s
                     Grant Administrator recalled an agreement to alter the progress
                     reporting requirements.       The City agreed that HUD’s
                     guidelines for the Performance Review were clear. HUD’s
                     Memorandum of Agreement with the City dated December 21,
                     1994 and HUD’s June 1997 Performance Review instructions
                     required the City to report on the progress made in carrying
                     out Empowerment Zone activities. Overall, we found that the
                     City’s oversight for the preparation of the Performance Review
                     was inadequate.

                     Where the OIG recommends that the City establishes
 Auditee Comments    procedures and controls to ensure the person who prepares
                     the Performance Review report utilizes actual
                     accomplishments for each activity, the City is currently re-
                     evaluating assignment of responsibility for coordination of

98-CH-259-1006                Page 84
                                                                     Appendix B


                    the report. The City will ensure that, in the future, actual
                    data will be utilized where required.

                    Where the OIG recommends that City staff responsible for
                    preparing the Performance Review report are
                    knowledgeable of HUD's reporting requirements, a
                    mandatory three hour training session was held on May 18,
                    1998, for all Empowerment Zone staff, and HUD’s
                    guidelines were addressed in detail. Additionally, a full-day
                    meeting was held on May 20 with the Commonwealth Grant
                    Administrator for the Empowerment Zone Program.
                    During that meeting, the Grant Administrator was presented
                    with a copy of the HUD’s guidelines.

                    Where the OIG recommends that the City establishes
                    procedures and controls to verify the accuracy of
                    information reported, it is the City's position that the
                    Contracts Department. did, in fact, have accurate
                    information on the level of activity (none) for the Landscape
                    Training program by virtue of its contract reporting
                    requirements with the administering entity, and terminated
                    that contract accordingly. However, in the future, the City
                    will ensure that this information is communicated to HUD
                    vis-a-vis the Performance Review report, and will not repeat
                    its error of only including projected activity in the report.

                    Where the OIG recommends that the City establishes
                    procedures and controls to ensure that the goals of the
                    Strategic Plan are met, the City's position is that additional
                    procedures and controls are not necessary. The City's
                    procedures and controls vis-a-vis its contract monitoring
                    and payment processes worked precisely as they should, in
                    that this contract was terminated without disbursement of
                    Empowerment Zone funds due to the administering entity's
                    failure to meet the program goals.



                    The City plans to reevaluate its assignment of responsibilities
OIG Evaluation of   for coordination of the Performance Review, has conducted a
Auditee Comments    mandatory training session for all Empowerment Zone staff,
                    and plans to conduct a thorough assessment to determine what
                    actions it needs to take to accurately report Empowerment
                    Zone information to HUD. After it completes its reevaluation
                    and assessments, the City needs to implement written

                             Page 85                               98-CH-259-1006
Appendix B


                 procedures to ensure controls are in place that show the
                 training was effective and the data reported is accurate.

                 We acknowledge that the City did a review of the activity and
                 terminated its contract before Empowerment Zone funds were
                 disbursed. However, the City reported that goals of the
                 Strategic Plan were met in its June 1997 Performance Review
                 when they were not. The City needs to establish procedures
                 and controls to ensure reviews are accomplished before
                 information is reported.




98-CH-259-1006           Page 86
                                        Appendix B




(THIS PAGE LEFT BLANK INTENTIONALLY)




                Page 87                98-CH-259-1006
                                                                                         Appendix C


Auditee Comments
                         Philadelphia Empowerment Zone
                       Mayor’s Office Of Community Services
                                   One Parkway
                              1515 Arch St.9th Floor
                              Philadelphia,Pa.19102
Heath Wolfe, Senior Auditor
Office of Inspector General
U.S. Department of Housing and Urban Development
Ohio State Office, Midwest
Room 334
200 North High St.
Columbus, OH 43215-2499

28 July 1998

Dear Mr. Wolfe;

      Attached are the City of Philadelphia revised responses for the first six audit findings of
the Office of Inspector General.

      We appreciate your giving us the opportunity to gracefully distance ourselves from the
erroneous claim made in reference to the October 30 report. Please note that other minor
changes have been made with regard to other OIG recommendations regarding the Performance
Review report and ensuring the accuracy of data.

If you have any questions, please feel free to contact me at 215-683-0462, or Carrie
DeBehnke at 683-0461.


                                                       Sincerely,




                                                       Carlos Acosta
                                                       Executive Director
                                                       Philadelphia Empowerment Zone.




               City of Philadelphia Response to Draft Finding
                                            Page 89                                    98-CH-259-1006
Appendix C


                  of the Office of Inspector General
       for the U.S. Dept. Of Housing and Urban Development
     Stating "Results of Child Care Conference Were Incorrectly Reported"

In its draft finding, the OIG states that the City of Philadelphia Empowerment Zone incorrectly
reported results as to three specific issues related to its benchmark for the Child Care Conference.
The City's response to these issues is as follows:

1)    The OIG states that the City incorrectly reported in its June 30, 1997 Performance Review
      that 500 parents were educated on criteria for selecting quality child care services. The City
      agrees that results pertaining to the number of Empowerment Zone residents in attendance
      at this conference were incorrectly reported on the Performance Review Template, and that
      the actual number of parents attending the conference was 55.

The error in reporting occurred when benchmark projections were erroneously placed in
the "actual" column of the Performance Review Template.

Although we agree that the HUD Guidelines for the Performance Review Template are clear on
paper, the implementation of this reporting format presented a problem for the Empowerment
Zone as to the agreement with the Commonwealth of Pennsylvania and its administration of the
Empowerment Zone grant. Where the Commonwealth had based its agreement with the City on
the format previously used for benchmark activities, there was an initial resistance by the State to
accept the new format. The Commonwealth's concern was that the City should only invoice
against a specific activity within an approved projected time line: if an invoice was presented to
the State for an activity for which the projected time line expired, the reimbursement would be
denied.

The Commonwealth's resistance was resolved in a conference call coordinated by Marek
Gootman of HHS, which included the former HUD Assistant to the Secretary for Community
Empowerment, the Commonwealth Title XX Grant Administrator, and the former Coordinator of
Policy and Planning for the Philadelphia Empowerment Zone. The result of this dialogue was an
agreement that the "actual" column of the template would be used to amend benchmark activity
projections and, further, that amendments to the projections would be explained in the narrative
section at the end of each template. Thus, the former Coordinator of policy and Planning
understood the Performance Review as an invoicing and planning tool rather than an evaluation
mechanism that would be used for the purpose of audit.

If, as the OIG states, the June, 1997, report leaves the impression that the Philadelphia
Empowerment Zone accomplished more than it actually has, it was never the City's intent


                                            Page 1 of 3



98-CH-259-1006                                  Page 90
                                                                                       Appendix B


to create that impression. To the contrary, the City is proud of the actual accomplishments of the
Zone initiative thus far, and recognizes that significant progress has been made in the period since
receiving the Empowerment Zone designation.

Moreover, it should be added that the City has been consistently forthcoming in responding to
HUD requests for information. The Empowerment Zone management team meetings have been
attended by HUD representatives since the Zone administration was established, and it follows
that HUD has had access to up-to-date, accurate information on the progress of this initiative.
The City has been equally forthcoming with auditors from the Office of Inspector General, and the
City has provided unlimited access to extensive internal files and records detailing information
related to benchmark activities.

(2)   The OIG states that the City incorrectly reports that $30,000 of in-kind contributions were
      made toward the Child Care Conference. Again, the $30,000 figure that appeared in the 4
      “actual” column of the report was a soft projection made by a committee of the American
      Street Community Trust Board. The correct in-kind contribution to that activity was
      $17,990. The reporting error in the Performance Review occurred due to the reasons
      stated above.

(3)   The OIG has also stated that the City reported $30,000 in Empowerment Zone funds were
      applied toward this activity. Again, this was a projection made by the community based on
      the funds allocated by the Community Trust Board for this project, and the reporting error
      occurred due to the reasons stated above. The actual expenditures for this project came in
      under budget at $26,484.

The City's response to the OIG's recommendations is as follows:

A.    Where the OIG recommends that the City establish procedures and controls to ensure the
      preparer of the report utilizes actual accomplishments for each activity, the City is in the
      process of re-evaluating its assignment of responsibility for the coordination of the
      Performance Review report. However, the City will ensure that, in the future, the report
      will reflect actual data where required.

B.    Where the OIG recommends that City staff responsible for preparing the Performance
      Review report are knowledgeable of HUD's reporting requirements, a mandatory three hour
      training was held on May 18, 1998, for all Empowerment Zone staff, and HUD Guidelines
      were addressed in detail. This training included a step-by-step analysis of several
      Performance Review Templates that had been correctly formatted upon the City's being
      made aware of the reporting errors. The Contracts Manager has since met with staff
      members individually as they have begun work on the June, 1998, Performance Review
      report. Additionally, a full-day meeting was held on May 20 with the Commonwealth Grant
      Administrator for the Empowerment Zone program. During that meeting, the Grant
      Administrator was presented with a copy of the HUD Guidelines for the first time, and is

                                            Page 2 of 3

                                                Page 91                               98-CH-259-1006
Appendix C


      now aware of the HUD-mandated format for the Performance Review Templates. Each
      Template was reviewed individually with the Grant Administrator to ensure his
      understanding of the changes to be made.

However, since carrying out these activities, the City has been notified by HUD that the
reporting format is being changed, and that HUD plans to train staff on the new format
sometime in the Fall of 1998.

      C.         Where the OIG recommends that the City establish internal controls and
                 procedures to verify the accuracy of information submitted, the City will conduct a
                 thorough assessment to determine what additional action is required to comply
                 with this recommendation. While the City is confident that the Contracts unit has
                 exercised adequate oversight to ensure the accuracy of its data, the City also
                 recognizes that similar procedures and controls need to be extended to activities
                 not under the oversight of that department.




                                             Page 3 of 3
             City of Philadelphia Response to Draft Finding
98-CH-259-1006                                  Page 92
                                                                                       Appendix B


                of the Office of Inspector General
  for the U.S. Department of Housing and Urban Development
         Stating "Accomplishments of the Community Lending institution
                              Were Misstated"

In its draft finding, the OIG states that the City of Philadelphia Empowerment Zone incorrectly
reported the accomplishments of the Community Lending Institution in its June, 1997,
Performance Review report. The City's response to the specific issues raised by the OIG are as
follows:

(1)   The OIG states that the City incorrectly reported that the Community Lending Institution
      lent $3.5 million in Empowerment Zone funds. The City agrees that, as of June 30, 1997,
      the Community Lending Institution for the American Street Empowerment Zone had not
      yet settled any Empowerment Zone loans.

The error in reporting occurred when benchmark projections were erroneously placed in
the "actual" column of the Performance Review Template.

Although we agree that the HUD Guidelines for the Performance Review Template are clear on
paper, the implementation of this reporting format presented a problem for the Empowerment
Zone as to the agreement with the Commonwealth of Pennsylvania and its administration of the
Empowerment Zone grant. Where the Commonwealth had based its agreement with the City on
the format previously used for benchmark activities, there was an initial resistance by the State to
accept the new format. The Commonwealth's concern was that the City should only invoice
against a specific activity within an approved projected time line: if an invoice was presented to
the State for an activity for which the projected time line expired, the reimbursement would be
denied.

The Commonwealth's resistance was resolved in a conference call coordinated by Marek
Gootman of HHS, which included the former HUD Assistant to the Secretary for Community
Empowerment, the Commonwealth Title XX Grant Administrator, and the former Coordinator of
Policy and Planning for the Philadelphia Empowerment Zone. The result of this dialogue was an
agreement that the "actual" column of the template would be used to amend benchmark activity
projections and, further, that amendments to the projections would be explained in the narrative
section at the end of each template. Thus, the former Coordinator of policy and Planning
understood the Performance Review as an invoicing and planning tool rather than an evaluation
mechanism that would be used for the purpose of audit.




                                              Page 1 of 3
If, as the OIG states, the June, 1997, report leaves the impression that the Philadelphia
Empowerment Zone accomplished more than it actually has, it was never the City's intent to

                                                Page 93                               98-CH-259-1006
Appendix C


create that impression. To the contrary, the City is proud of the actual accomplishments of the
Zone initiative thus far, and recognizes that significant progress has been made in the period since
receiving the Empowerment Zone designation. As of June 1, 1998, the American Street
Financial Services Center has settled $876,000 in loans, has committed an additional $646,200,
and has leveraged $1,031,290 in public and private financing as well as owner equity.

It should be also be noted that the City has been consistently forthcoming in responding to HUD
requests for information. The Empowerment Zone management team meetings have been
attended by HUD representatives since the Zone administration was established, and it follows
that HUD has had access to up-to-date, accurate information on the progress of this initiative.
Moreover, the City has been equally forthcoming with auditors from the Office of Inspector
General, and the City has provided unlimited access to extensive internal files and records
detailing information related to benchmark activities.

(2)   The OIG states that, although the City reported that $10.5 million was leveraged against
      Empowerment Zone funds, the Community Lending Institution had not leveraged any funds
      with banks as of June 1997. The City agrees with the OIG's assessment that no funds were
      leveraged as of the date of the report. The error in reporting occurred due to the reasons
      stated above. The $10.5 million erroneously reported in the "actual" column of the
      template was a soft projection based on deliberations of the Economic
      Development Committee of the American Street Community Trust Board during
      benchmark development.

(3)   The OIG states that the City incorrectly reported that the Community Lending Institution
      spent $250,000 in Empowerment Zone funds as of June 30, 1997. The City agrees that the
      lending institution had only spent $18,450 as of that date for the Executive Director's salary
      and benefits. The reporting error occurred for the reasons stated above. The $250,000 that
      appeared in the "actual" column of the template was based on projected operations
      expenses for a two-year period,

The City's response to the OIG recommendations is as follows:

A.    Where the OIG recommends that the City establish procedures and controls to ensure the
      preparer of the report utilizes actual accomplishments for each activity, the City is in the
      process of re-evaluating its assignment of responsibility for the coordination of the
      Performance Review report. However, the City will ensure that, in the future, the report
      will reflect actual data where required.

B.    Where the OIG recommends that City staff responsible for preparing the Performance



                                         Page 2 of 3
      Review report are knowledgeable of HUD's reporting requirements, a mandatory three hour
      training was held on May 18, 1998, for all Empowerment Zone staff, and HUD Guidelines

98-CH-259-1006                                 Page 94
                                                                                     Appendix B


     were addressed in detail. This training included a step-by-step analysis of several
     Performance Review Templates that had been correctly formatted upon the City's being
     made aware of the reporting errors. The Contracts Manager has since met with staff
     members individually as they have begun work on the June, 1998, Performance Review
     report. Additionally, a full-day meeting was held on May 20 with the Commonwealth Grant
     Administrator for the Empowerment Zone program. During that meeting, the Grant
     Administrator was presented with a copy of the HUD Guidelines for the first time, and is
     now aware of the HUD-mandated format for the Performance Review Templates. Each
     Template was reviewed individually with the Grant Administrator to ensure his
     understanding of the changes to be made.

C.   Where the OIG recommends that the City establish internal controls and procedures to
     verify the accuracy of information submitted, the City will conduct a thorough assessment
     to determine what additional action is required to comply with this recommendation. While
     the City is confident that the Contracts unit has exercised adequate oversight to ensure the
     accuracy of its data, the City also recognizes that similar procedures and controls need to be
     extended to activities not under the oversight of that department.

D.   The OIG further recommends that the City obtain a revised completion date from the
     Community Lending Institution for leveraging bank funds. However, leveraging additional
     public and private financing is an integral ongoing activity of the Community Lending
     Institutions that will continue even after Empowerment Zone funds are exhausted. In future
     reports, however, the City will ensure that the reporting error is not repeated and will
     include the precise dollar amount leveraged as of the date of the report.




                                           Page 3 of 3
            City of Philadelphia Response to Draft Finding

                                              Page 95                               98-CH-259-1006
Appendix C


                of the Office of Inspector General
  for the U.S. Department of Housing and Urban Development
              Stating "Results of Cecil B. Moore Commercial Corridor
                            Were Incorrectly Reported"

In its draft finding, the OIG states that the City of Philadelphia did not accurately report the actual
status and progress of the Cecil B. Moore Commercial Corridor. The City's response to the
specific issues raised by the OIG is as follows:

(1)   The OIG states that the City inaccurately reported the Performance Measures for the Cecil
      B. Moore Commercial Corridor as a seven-store retail strip mall, 16 housing units and the
      creation of 35 new jobs. The City agrees that the 16 housing units are a separate
      development project not funded by the Empowerment Zone, but were included as a
      performance measure to reflect the full range of development related to that project and
      occurring within the Zone.

       The City also agrees that it incorrectly reported the creation of a seven-store retail mall
       and 35 jobs where, as of June, 1997, when the project was not yet complete, only six
       prospective tenants existed for the strip mall and 35 jobs had not yet been created. The
       error in reporting occurred when benchmark projections were erroneously placed in the
       actual" column of the Performance Review Template.

       Although we agree that the HUD Guidelines for the Performance Review Template are
       clear on paper, the implementation of this reporting format presented a problem for the
       Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
       administration of the Empowerment Zone grant. Where the Commonwealth had based its
       agreement with the City on the format previously used for benchmark activities, there was
       an initial resistance by the State to accept the new format. The Commonwealth's concern
       was that the City should only invoice against a specific activity within an approved
       projected time line: if an invoice was presented to the State for an activity for which the
       projected time line expired, the reimbursement would be denied.

       The Commonwealth's resistance was resolved in a conference call coordinated by Marek
       Gootman of HHS, which included the former HUD Assistant to the Secretary for
       Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
       former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
       result of this dialogue was an agreement that the "actual" column of the template would be
       used to amend benchmark activity projections and, further, that amendments to the
       projections would be explained in the narrative section at the end of each template. Thus,
       the former Coordinator of policy and Planning understood the Performance

                                          Page 1 of 4
       Review as an invoicing and planning tool rather than an evaluation mechanism that
       would be used for the purpose of audit.

98-CH-259-1006                                   Page 96
                                                                                      Appendix B



      If, as the OIG states, the June, 1997, report leaves the impression that the Philadelphia
      Empowerment Zone accomplished more than it actually has, it was never the City's intent
      to create that impression. To the contrary, the City is proud of the actual
      accomplishments of the Zone initiative thus far, and recognizes that significant progress
      has been made in the period since receiving the Empowerment Zone designation.

      Moreover, it should be added that the City has been consistently forthcoming in
      responding to HUD requests for information. The Empowerment Zone management team
      meetings have been attended by HUD representatives since the Zone administration was
      established, and it follows that HUD has had access to up-to-date, accurate information on
      the progress of this initiative. Moreover, the City has been equally forthcoming with
      auditors from the Office of Inspector General, and the City has provided unlimited access
      to extensive internal files and records detailing information related to benchmark activities.

(2)   The OIG states that the City over-reported the Corridor's Investments by $600,000. The
      City agrees with this assessment. This error occurred when benchmark projections for
      leveraged investment, originally made by a committee of the Community Trust Board of
      the North Central Empowerment Zone, were erroneously placed in the "actual" column of
      the Performance Review Template. The reason for the error is stated above. The correct
      leveraged investment to date is $900,000.

(3)   The OIG also states that the City reported that the Commercial Corridor project started in
      December 1994 where, in fact, the project did not begin until June, 1997, when the loan
      agreement between the North Philadelphia Financial Partnership and the developer was
      executed. This error occurred when the benchmark projections were erroneously placed
      in the "actual" column of the Performance Review Template. The reason for the error is
      stated above. The loan agreement with the Developer was executed in June, 1997.

      The City does, however, request further clarification on this finding from the OIG. Where
      the Performance Review Template does not list loan execution as a Performance
      Milestone, it is unclear why the OIG would determine this specific, unnamed activity to
      delineate the "Start Date" of the project. Where "site acquisition" is the first Performance
      Milestone listed on the Template, it should follow that the date of site acquisition would
      be the correct and appropriate Start Date of the project.

(4)   The OIG claims that the City incorrectly reported the Performance Milestones in that the
      City stated that the property for the Corridor was acquired in August, 1996. The City
      disagrees with the OIG's assessment. Although the developer did not obtain title to the


                                            Page 2 of 4
      property until settlement of its loan, the property was, in fact, acquired in August, 1996,
      by the Philadelphia Housing Development Corporation pursuant to its agreement with the
      Philadelphia Empowerment Zone to acquire property for Zone development. The

                                              Page 97                                98-CH-259-1006
Appendix C


       Commercial Corridor properties were held by PHDC until execution of the loan
       agreement between the North Philadelphia Financial Partnership and the developer.

       The OIG also states the City incorrectly reported completion of the project's architectural
       design as June, 1997. The City agrees with the OIG in that the actual completion date of
       the design was December, 1997. This error occurred when the benchmark projections
       were erroneously placed in the "actual" column of the template. The reason for the error
       is stated above.

(5)    The OIG also states that the City did not accurately report the Commercial Corridor's
       Participating Entities. The City agrees with this assessment. The error occurred when the
       benchmark projections were erroneously placed in the "actual" column of the Template.
       The reason for the error is stated above.

The City's response to the OIG recommendations is as follows:

A.     Where the OIG recommends that City staff responsible for preparing the Performance
       Review report are knowledgeable of HUD's reporting requirements, a mandatory three
       hour training was held on May 18, 1998, for all Empowerment Zone staff, and HUD
       Guidelines were addressed in detail. This training included a step-by-step analysis of
       several Performance Review Templates that had been correctly formatted upon the City's
       being made aware of the reporting errors. The Contracts Manager has since met with staff
       members individually as they have begun work on the June, 1998, Performance Review
       report. Additionally, a full-day meeting was held on May 20 with the Commonwealth
       Grant Administrator for the Empowerment Zone program. During that meeting, the
       Grant Administrator was presented with a copy of the HUD Guidelines for the first time,
       and is now aware of the HUD-mandated format for the Performance Review Templates.
       Each Template was reviewed individually with the Grant Administrator to ensure his
       understanding of the changes to be made.

       However, since providing this training, the City has been notified by HUD that this
       reporting format is being changed, and that HUD plans to train staff on the new format
       sometime in the Fall of 1998.

B. Where the OIG recommends that the City establish procedures and controls to ensure the
   preparer of the report utilizes actual accomplishments for each activity, the City is in the
   process of re-evaluating its assignment of responsibility for the coordination of the
   Performance Review report. However, the City will ensure that, in the future, the report will
   reflect accurate data where required.

                                             Page 3 of 4

       C.        Where the OIG recommends that the City establish internal controls and
                 procedures to verify the accuracy of information submitted, the City will conduct a
                 thorough assessment to determine what additional action is required to comply

98-CH-259-1006                                  Page 98
                                                                      Appendix B


 with this recommendation. While the City is confident that the Contracts unit has
 exercised adequate oversight to ensure the accuracy of its data, the City also
 recognizes that similar procedures and controls need to be extended to activities
 not under the oversight of that department.




                             Page 4 of 4
City of Philadelphia Response to Draft Finding
       of the Office of Inspector General

                                Page 99                              98-CH-259-1006
Appendix C


  for the U.S. Department of Housing and Urban Development
                   Stating "Controls Over Safety/Security Program
                  for Businesses and Residents Were Not Adequate"

In its draft finding, the OIG states that the City of Philadelphia lacked sufficient controls over the
Safety/Security program. The City's response to the specific issues raised by the OIG are as
follows:

(1)    The OIG states in pertinent part that adequate controls were not established over the
       safety devices distributed in the West Philadelphia Empowerment Zone community, and
       that, as a result, Empowerment Zone funds were not used efficiently and effectively. The
       City disagrees with the OIG's overall assessment.

       Controls and procedures were established prior to the implementation of this activity to
       ensure that the supporting documentation would be in place. As the OIG's review has
       proven, these controls were more than adequate to provide documentation for nearly two-
       thirds of the smoke detectors and batteries distributed, i.e., the City had appropriate
       backup documentation to support the installation of more than $11,000 of smoke
       detectors and batteries to West Philadelphia Empowerment Zone residents. Where there
       was a lapse in the exercise of controls, however, it was due to the fact that the distribution
       and installation of the smoke detectors was a large-scale, primarily volunteer project
       carried out by community members, many of them youth, who admittedly may have lacked
       a clear understanding of the need for documentation.

       This activity was deliberately planned as a community-based effort for two reasons. First,
       at all levels of benchmark planning and development, City staff and community members
       are mindful that resources are limited; thus, they consistently seek methods of project
       implementation that will not squander Empowerment Zone funds. The alternative strategy
       would have been to bid this project through the Request for Proposal process, select a
       provider, and contract for the services. Then, as with other Empowerment Zone
       contracts, no payment for services would have been made without the submission and
       verification of the requisite documentation. At the same time, however, Empowerment
       Zone funds would have been used to pay for a provider's staff to canvas the
       neighborhoods, to assemble and install the smoke detectors, and to cover provider and
       City costs related to the administration of the contract--all in addition to the purchase
       price of the smoke detectors and batteries. The overall cost of the project would have
       increased dramatically and, in contrast with the benefit received, would have made the
       entire effort extremely inefficient and cost prohibitive.


                                           Page 1 of 6
       Second, implementing this activity vis-a-vis the use of community volunteers was seen as a
       highly effective outreach mechanism to increase community involvement in the
       Empowerment Zone effort, an outcome entirely consistent with HUD directives. The

98-CH-259-1006                                   Page 100
                                                                                    Appendix B


      benefits of this strategy were thought to be apparent: not only would community residents
      previously unfamiliar with the Zone gain knowledge and awareness of the EZ initiative,
      volunteers would gain an increased sense of ownership in the EZ effort by taking part in a
      project to ameliorate a serious safety issue in their community. Moreover, volunteers and
      residents alike would be given the opportunity to experience a direct, immediate and
      tangible benefit of the EZ grant. Where many of the Zone projects are much larger in
      scope and require more time to adequately plan and execute, the distribution of smoke
      detectors was a straightforward project that begged for community participation and
      timely implementation. Moreover, the desired output could be achieved while only
      generating equipment costs and a few incidental expenses to organize the volunteer effort.
      The City maintains the position that this was an extremely efficient and effective method
      of implementation as well as an efficient and effective use of Empowerment Zone funds.

      Whereas the City, mindful of the need for documentation, developed controls and
      procedures related to project implementation, arguably, the focus of the volunteers was
      not on the potential scrutiny of a federal audit. Rather, for community residents who have
      taken this process of empowerment very seriously, their primary goal was to distribute the
      smoke detectors to residents and businesses who needed them in order to prevent deaths
      and injury from fire. Although documentation was not sufficient to support the
      distribution of $6,792 of smoke detectors and batteries, those items were, in fact,
      distributed along with an additional $11,280 of smoke detectors for which the City had
      adequate controls and documentation. The City applauds those community volunteers in
      the West Philadelphia Empowerment Zone who donated their time and energy to make life
      safer for Zone residents.

      Where the documentation indicates that $688 of safety equipment was distributed to non-
      Zone residents, the City will not dispute that point. While the City has paid scrupulous
      attention to developing controls to ensure that Empowerment Zone funds benefit only
      those residents of the Zone and has provided a comprehensive Zone address listing (see
      attachment/Empowerment Zone Boundaries) to all providers and volunteers, there have
      been a few occasions, e.g., where residents living on the wrong side of a street denoting an
      Empowerment Zone boundary have been mistakenly included. Where those residents
      contiguous to the Empowerment Zone boundary are equally impoverished and the cost of
      smoke detectors de minimus, the City does not view this as an egregious error; the City,
      however, will continue to exercise caution to every extent possible in order to avoid
      further human error.

(2)   The OIG states that the City inaccurately reported the progress of the safety/security
      program. The City agrees with this finding. The reporting error occurred when

                                        Page 2 of 6
      benchmark projections were erroneously placed in the "actual" column of the Performance
      Review Template.




                                             Page 101                              98-CH-259-1006
Appendix C


       Although the City agrees that the HUD Guidelines for the Performance Review Template
       are clear on paper, the implementation of this reporting format presented a problem for the
       Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
       administration of the Empowerment Zone grant. Where the Commonwealth had based its
       agreement with the City on the format previously used for benchmark activities, there was
       an initial resistance by the State to accept the new format. The Commonwealth's concern
       was that the City should only invoice against a specific activity within an approved
       projected time line: if an invoice was presented to the State for an activity for which the
       projected time line expired, the reimbursement would be denied.

       The Commonwealth's resistance was resolved in a conference call coordinated by Marek
       Gootman of HHS, which included the former HUD Assistant to the Secretary for
       Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
       former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
       result of this dialogue was an agreement that the "actual" column of the template would be
       used to amend benchmark activity projections and, further, that amendments to the
       projections would be explained in the narrative section at the end of each template. Thus,
       the former Coordinator of policy and Planning understood the Performance Review as
       an invoicing and planning tool rather than an evaluation mechanism that would be used
       for the purpose of audit.

       If, as the OIG states, the June, 1997, report leaves the impression that the Philadelphia
       Empowerment Zone accomplished more than it actually has, it was never the City's intent
       to create that impression. To the contrary, the City is proud of the actual
       accomplishments of the Zone initiative thus far, and recognizes that significant progress
       has been made in the period since receiving the Empowerment Zone designation.

       It should be also be noted that the City has been consistently forthcoming in responding to
       HUD requests for information. The Empowerment Zone management team meetings
       have been attended by HUD representatives since the Zone administration was established,
       and it follows that HUD has had access to up-to-date, accurate information on the
       progress of this initiative. Moreover, the City has been equally forthcoming with auditors
       from the Office of Inspector General, and the City has provided unlimited access to
       extensive internal files and records detailing information related to benchmark activities.

       Finally, where the OIG has cited specific instances where objectives have not been met, it
       has failed to make clear that several aspects of this benchmark, particularly the Town
       Watch activities, are not yet complete. The City agrees that leveraging Empowerment


                                            Page 3 of 6
       Zone funds is a major part of this initiative and, to further that objective, the City
       exceeded HUD directives by developing a clear policy that mandates leveraging for every
       Empowerment Zone dollar (see attachment/Philadelphia Empowerment Zone Leveraging


98-CH-259-1006                                Page 102
                                                                                       Appendix B


       Policy). The City will continue to seek the necessary additional funds for this project as it
       has with other bench marked activities.

The City's response to the OIG recommendations is as follows:

A.     Where the OIG recommends that the City instruct administering agencies to maintain
       documentation to support benefits received under the EZ program, the Mayor's Office of
       Community Services has already taken steps to include reporting requirements specific to
       the Empowerment Zone in all Memoranda of Understanding with other City agencies.
       Where benchmark activities are conducted by community volunteers, the City will
       continue to exercise due diligence in its instruction of community participants and
       provision of Empowerment Zone address listings to ensure that proper documentation is
       provided to every extent possible.

       Where the OIG has recommended that the City instructs administering officials to provide
       items purchased with Zone funds only to Zone residents, the City has consistently
       instructed service providers and community residents to provide products and/or services
       only to Empowerment Zone residents. Every Empowerment Zone contract between the
       City and a service provider has this specific term included, and payment is not made for
       services unless the requisite documentation is presented with an invoice. As stated above,
       the City has also included in its MOUs with other City agencies reporting requirements to
       support service to Zone residents. Finally, as the City has done in the past, community
       volunteers participating in the implementation of benchmark activities will continue to be
       instructed that services are only to be provided to Zone residents.

B.     Where the OIG recommends that the City establishes procedures and controls to monitor
       activities funded under the Empowerment Zone grant to ensure that monies are used
       efficiently and effectively, the City maintains that the procedures and controls currently in
       place are more than adequate to ensure efficient and effective use of Zone funds. These
       procedures begin during benchmark development where program/project budgets and
       proposed methods of implementation are scrutinized at the community level with the
       participation of City representatives appointed by the Mayor to lend their expertise to the
       process. After projects are approved at the community level, the benchmarks are then
       forwarded to the Mayor, the Commonwealth and to HUD for governmental approval.
       Once that approval has been granted, scopes of services for projects or programs are
       given additional scrutiny at the City level prior to the issuance of a Request for Proposal
       (see attachment/Scope of Services Multi-Level Review), and Scopes are further
       negotiated with the inclusion of stringent reporting requirements once a service provider is
       selected. Program budgets are also reviewed at this time to ensure compliance with City
       Cost Principles and Guidelines.
                                             Page 4 of 6
       Once a program is implemented, the City carries out a thoughtfully developed and well
       established system of contract monitoring and technical assistance provision to ensure that
       all service providers perform in a manner consistent with the contract and Empowerment
       Zone objectives. Finally, any invoice presented by a service provider goes through a
       multi-level approval process that begins in the Contracts Dept., where the invoice is

                                              Page 103                               98-CH-259-1006
Appendix C


       reviewed against documentation submitted by the service provider. An invoice is then
       forwarded for approval at three additional administrative levels if and only if the provider
       has sufficiently documented completion of the requisite services and reporting.

       Where short-term projects are implemented at the community level in the absence of a
       formal agreement, City staff are ever mindful of the requirements governing tile use of
       Empowerment Zone funds, and community residents are instructed accordingly. Staff
       additionally supervises the efforts of volunteers to ensure compliance with these
       requirements to every extent possible.

C.     The City will continue to seek the necessary documentation to support the $6,792 of
       smoke detectors and batteries that were provided to West Philadelphia Empowerment
       Zone residents. As the Mill Creek and Parkside communities have been identified as the
       specific areas where volunteers failed to submit sufficient documentation, every effort will
       be made to re-trace the activity in those areas and provide the missing or incomplete
       documentation.

D.     Where the OIG recommends that the City reimburse the Empowerment Zone $688 for
       safety devices that were provided to non-Zone residents, the City will identify a source of
       non-Federal funds in order to comply with the recommendation.

E.     Where the OIG recommends that City staff responsible for preparing the Performance
       Review report are knowledgeable of HUD's reporting requirements, a mandatory three-
       hour training was held on May 18, 1998, for all Empowerment Zone staff, and HUD
       Guidelines were addressed in detail. This training included a step-by-step analysis of
       several Performance Review Templates that had been correctly formatted upon the City's
       being made aware of the reporting errors. The Contracts Manager has since met with staff
       members individually as they have begun work on the June, 1998, Performance Review
       report. Additionally, a full-day meeting was held on May 20 with the Commonwealth
       Grant Administrator for the Empowerment Zone program. During that meeting, the
       Grant Administrator was presented with a copy of the HUD Guidelines for the first time,
       and is now aware of the HUD-mandated format for the Performance Review Templates.
       Each Template was reviewed individually with the Grant Administrator to ensure his
       understanding of the changes to be made.

F.   Where the OIG recommends that the City establish procedures and controls to ensure the
     preparer of the report utilizes actual accomplishments for each activity, the City is in the
     process of re-evaluating its assignment of responsibility for the coordination of the

                                            Page 5 of 6
       Performance Review report. However, the City will ensure that, in the future, the report
       will reflect actual date where required.

G.     Where the OIG recommends that the City establish internal controls and procedures to
       verify the accuracy of information submitted, the City will conduct a thorough assessment

98-CH-259-1006                                 Page 104
                                                                                   Appendix B


     to determine what additional action is required to comply with this recommendation.
     While the City is confident that the Contracts unit has exercised adequate oversight to
     ensure the accuracy of its data, the City also recognizes that similar procedures and
     controls need to be extended to activities not under the oversight of that department.

H.   Where the OIG recommends that the City monitors Empowerment Zone activities to
     ensure they are fulfilling Empowerment Zone objectives, the City maintains that the
     contract monitoring procedures currently in place far exceed any of the general guidelines
     issued by HUD to date. Because of the lack of clear monitoring guidelines from HUD, the
     City has developed monitoring procedures to address all foreseeable contingencies.
     Monitoring tools developed by the City include a Quality Assurance and Contract
     Compliance evaluation form, completed by Contract Monitors during site visits every
     four-to-six weeks, that specifically address goals and objectives of the HUD-approved
     Empowerment Zone benchmark (see attachment/sample evaluation form). In cases where
     service providers fall short of those goals, technical assistance is provided to ensure
     providers remain on course and, as stated above, payment is not made unless the provider
     meets all expectations.

     However, where activities are conducted outside the existence of a formal contract, the
     City will conduct an assessment to determine what steps are necessary to fully comply
     with this recommendation.




                                         Page 6 of 6
         City of Philadelphia Response to Draft Finding
                of the Office of Inspector General
     for the U.S. Dept. of Housing and Urban Development
        Stating "Controls Over the Supervised Child Playsite Project
                           Were Not Adequate"
                                           Page 105                               98-CH-259-1006
Appendix C



In its draft finding, the OIG states that the City did not exercise adequate controls over the
Supervised Child Play Site project; that the City did not ensure the funds benefitted Zone
residents; and that the City inaccurately reported the actual status and progress of the project in
the June 30, 1997, report. The City's response to the specific issues raised by the OIG is as
follows:

(1)    The OIG claims that the City and the Crime Prevention Association did not have adequate
       documentation to support that Empowerment Zone residents were the primary recipients
       of daycare outreach and counseling services funded by $22,608 of Empowerment Zone
       funds. The OIG further states that the administering agency, R. W. Brown, did not keep
       records showing who received outreach and who was counseled on day care. The City
       disagrees with the OIG's assessment.

       First, the auditor reviewing this activity for the OIG determined that, because
       Empowerment Zone funds were used for salaries for an outreach worker (half-time) and
       an intake counselor, the targeted use of funds would constitute the entire scope of her
       examination. However, the benchmark activity as reported on the Performance Review
       Template, as specified in the Request for Proposals, and as included in the terms of the
       contract with the provider, all list the provision of day care services to 55 Empowerment
       Zone children as the primary objective of this activity.

       Where the allocated funds ($50,000) could not have covered the cost of 55 day care slots
       for one year, where the applicant had an existing day care center that could accommodate
       55 additional children, and where the applicant could meet all other goals of the activity
       (which include providing a developmentally appropriate program for the 55 children,
       assisting EZ parents to obtain child care subsidies through existing programs by offering
       counseling and step-by-step assistance, and connecting families with other services within
       the community such as health care, jobs skills programs, etc.), the City--and the
       community panel that awarded the grant--considered it an efficient and effective use of
       Empowerment Zone funds to pay for the outreach and intake positions, so long as the
       hiring for those positions would enable the provider to meet the performance objectives
       of the benchmark It stands to reason that neither the City nor the community would fund
       outreach and counseling for day care subsidies for its own sake, nor would funding be
       approved for the creation of one and a half jobs. Rather, the outreach and counseling was
       a means to achieve the governmentally approved objectives delineated in the

                                        Page 1 of 7
       benchmark, the RFP and, subsequently, the contract.

       Since the OIG has defined the scope of this activity, it did not consider that the City and
       provider both have voluminous documentation to support that the contracted services
       necessary for the achievement of the benchmark goals, have been provided. This
       documentation includes monthly calendars of activities for each age group division, Zone
       children's attendance sheets, teaching curricula, and information on other programs

98-CH-259-1006                                  Page 106
                                                                                Appendix B


available in the community, as well as monthly site visit reports completed by the City's
contract monitors who closely observed the day care services at R.W. Brown.

To substantiate outreach in particular, the City accepted as proof copies of outreach flyers
and schedules of outreach activities, as well as quarterly report narratives detailing
outreach activities. Time sheets for the outreach worker have also been made available for
review. City staff, intimately involved in Zone community activities, also has direct
knowledge of R.W. Brown's participation in North Central Empowerment Zone
committees as well as its linkages with other EZ non-profit agencies, and the City refers to
those activities in its site visit reports. Notably, in its finding, the OIG does not specify
what specific documentation it would consider to be sufficient, and the City would
appreciate clarification on this point.

As to intake counseling, R.W. Brown, a state-licensed provider of day care services,
conducts an intensive intake process and keeps extensive records and documentation
concerning counseling for parents seeking day care services for their children.
Empowerment Zone children enrolled in the day care program are no exception to this
rule; to the contrary, as nearly all Empowerment Zone families meet poverty criteria, they
require substantial counseling from intake workers in order for staff to determine eligibility
and to complete the necessary paperwork required for day care subsidies offered through
this program, and to meet its licensing agency's requirements.

Critically, however, the OIG did not mention in its finding that R.W. Brown, pursuant to a
mandate from its licensing agency, the Pennsylvania Department of Public Welfare,
declined the OIG's request that full access to these records be provided. DPW requires its
licensed agencies to keep client files in a locked cabinet and to allow only DPW
representatives access to those files (see attachment/Pennsylvania Code Title 55 Public
Welfare §§3270.183 and 3270.193).

Absent monitoring guidance from HUD, the City assumed that HUD would not counsel
the City to violate the confidentiality requirements of State agencies. Therefore,
understanding that the families of all enrolled EZ children have gone through the
mandatory intake counseling process, the City accepted as proof of intake counseling a
DPW-required, signed release that permits emergency medical treatment of the child as
well as an Empowerment Zone residency verification form for each EZ child enrolled.
The City also believes it to be self-evident that the outreach and intake process was

                                    Page 2 of 7
successful where R.W. Brown further supported the enrollment, subsidization and
attendance of 51 Zone children in its day care program.

Finally, the City deems it noteworthy that, where R.W. Brown receives more than $1
million in public funds annually for children's services, the OIG's demand for
documentation--as yet undefined--apparently exceeds the requirements of R.W. Brown's
other government funding sources.

                                       Page 107                                98-CH-259-1006
Appendix C



(2)    The OIG states that the City did not accurately report that the scope of the project was
       changed to assist Zone residents to obtain day care through outreach and counseling,
       rather than to fund 55 day care slots for Empowerment Zone residents. The City
       disagrees with this assessment.

       As supported above, the OIG has arbitrarily determined that the scope of the project
       changed when, in fact, the goal has been consistently to provide day care for 55 Zone
       children. The provision of day care for 55 children was contractually expressed,
       monitored and enforced. It was at the applicant's discretion, in its response to the RFP, to
       develop a budget that would enable that goal to be achieved with the $50,000 allocated
       for this benchmark.

       The OIG also states that the City did not report the number of families and children served
       by the project. First, there is no performance objective listed in that benchmark that
       identifies a number of families to be served, and the City would not be inclined to report a
       performance measure that the community members who developed the project did not
       consider an integral objective of that activity. If, however, the OIG seeks to hold the City
       accountable to what the OIG thinks should be measured, the City would request that the
       OIG submit measurement criteria for all approved benchmarks.

       The City does agree that it did not report the number of children served in the June, 1997,
       report.

(3)    The OIG states that the City could not support the project's private funding as the project,
       as implemented, did not require private funding. The City agrees with this assessment in
       that public funding was identified to cover the costs of day care for the requisite number
       of Zone children.

       The estimate for private funding was based on a soft projection made by the Health and
       Human Services committee of the North Central Community Trust Board during the
       benchmark development period. The projection was erroneously placed in the "actual"
       column of the Performance Review Template in the June, 1997, report.

       Although we agree that the HUD Guidelines for the Performance Review Template are
       clear on paper, the implementation of this reporting format presented a problem for the

                                              Page 3 of 7
       Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
       administration of the Empowerment Zone grant. Where the Commonwealth had based its
       agreement with the City on the format previously used for benchmark activities, there was
       an initial resistance by the State to accept the new format. The Commonwealth's concern
       was that the City should only invoice against a specific activity within an approved
       projected time line: if an invoice was presented to the State for an activity for which the
       projected time line expired, the reimbursement would be denied.

98-CH-259-1006                                Page 108
                                                                                    Appendix B



      The Commonwealth's resistance was resolved in a conference call coordinated by Marek
      Gootman of HHS, which included the former HUD Assistant to the Secretary for
      Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
      former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
      result of this dialogue was an agreement that the "actual" column of the template would be
      used to amend benchmark activity projections and, further, that amendments to the
      projections would be explained in the narrative section at the end of each template. Thus,
      the former Coordinator of policy and Planning understood the Performance Review as
      an invoicing and planning tool rather than an evaluation mechanism that would be used
      for the purpose of audit.

      If, as the OIG states, the June, 1997, report leaves the impression that the Philadelphia
      Empowerment Zone accomplished more than it actually has, it was never the City's intent
      to create that impression. To the contrary, the City is proud of the actual
      accomplishments of the Zone initiative thus far, and recognizes that significant progress
      has been made in the period since receiving the Empowerment Zone designation.

      Moreover, it should be added that the City has been consistently forthcoming in
      responding to HUD requests for information. The Empowerment Zone management team
      meetings have been attended by HUD representatives since the Zone administration was
      established, and it follows that HUD has had access to up-to-date, accurate information on
      the progress of this initiative. The City has been equally forthcoming with auditors from
      the Office of Inspector General, and the City has provided unlimited access to extensive
      internal files and records detailing information related to benchmark activities.

(4)   The OIG states that the City did not accurately report the project's performance
      milestones. The City agrees with this assessment as to the June, 1997, report. This
      occurred when benchmark projections were erroneously placed in the "actual" column of
      the Performance Review Template. The reason for the reporting error is stated above.

(5)   The OIG states that the City incorrectly reported the project start date in the June, 1997,
      report. The City agrees with this assessment. The error occurred when the projected start
      date was erroneously placed in the "actual" column of the Performance Review Template.
      The reason for the error is stated above.

                                         Page 4 of 7
      The City's response to the OIG recommendations is as follows.

A.    Where the OIG recommends the City instruct administering agencies to maintain
      documentation to support benefits and to provide services only to Empowerment Zone
      residents, the City maintains that these recommendations were, in fact, well-established
      practices long prior to this audit.




                                            Page 109                               98-CH-259-1006
Appendix C


       When a grant is awarded by the Provider Selection Panel, Contracts Dept. staff meets with
       the selected provider no less than three times to discuss contract reporting requirements.
       First, a negotiation session is scheduled with the provider's key staff responsible for the
       implementation and administration of the program. During this session, services are
       discussed in detail as are the accompanying deliverables that will substantiate the provision
       of the services and that will be required. Second, the provider attends a training session,
       which the Contracts Dept. holds three times annually, so that all providers will receive this
       extensive training either prior to or within the first two months of the contract period.
       Topics covered during what is now a day-long session include financial reporting
       requirements at the federal level (OMB Circulars A-133 and A-122) as well as the City
       level (monthly financial statements); leverage requirements and basic grantsmanship
       techniques; submission of contract deliverables with particular attention given to
       verification of service to Zone residents for a wide range of activities; an overview of the
       contract monitoring process and mutual expectations; and, finally, a discussion of the
       contract termination policy. R.W. Brown staff attended such a training session on April
       18, 1997.

       Within the first four-to-six weeks of the contract term, an initial visit is scheduled at the
       provider's site and is attended by the Contracts Manager, the Contract Monitor assigned
       to the provider and, periodically, Empowerment Zone neighborhood operations staff.
       During this initial visit, the scope of services and contract deliverables are again discussed
       in detail, with emphasis placed on how the provider will track service to Zone residents
       based on the specific activities they have contracted to perform.

       Throughout the contract term, deliverables are closely monitored by the Contract Monitor
       and the Contracts Manager. If, at any time during the contract year, the provider's
       reporting is determined to be inadequate, the Technical Assistance Specialist of the
       Contracts Dept. provides a high-level of support to the provider in order to build
       organizational capacity and to assist them to come into compliance. Moreover, during any
       period of non-compliance with reporting requirements, and particularly the requirement of
       verification of service to Zone residents, invoices will not be approved for payment until
       all requirements are met. This process has applied to R.W. Brown as it is applied to all
       Empowerment Zone service providers.

B.   Where the OIG recommends that the City establishes procedures and controls to monitor
     activities funded under the Empowerment Zone grant to ensure that monies are used

                                             Page 5 of 7
       efficiently and effectively, the City maintains that the procedures and controls currently in
       place are more than adequate to ensure efficient and effective use of Zone funds. These
       procedures begin during benchmark development where program/project budgets and
       proposed methods of implementation are scrutinized at the community level with the
       participation of City representatives appointed by the Mayor to lend their expertise to the
       process. After projects are approved at the community level, the benchmarks are then
       forwarded to the Mayor, the Commonwealth and to HUD for governmental approval.

98-CH-259-1006                                  Page 110
                                                                                      Appendix B


      Once that approval has been granted, scopes of services for projects or programs are
      given additional scrutiny at the City level prior to the issuance of a Request for Proposal,
      and Scopes are further negotiated with the inclusion of stringent reporting requirements
      once a service provider is selected. Program budgets are also reviewed at this time to
      ensure compliance with City Cost Principles and Guidelines.

      Once a program is implemented, the City carries out a thoughtfully developed and well
      established system of contract monitoring and technical assistance provision to ensure that
      all service providers perform in a manner consistent with the contract and Empowerment
      Zone objectives. Finally, as stated above, any invoice presented by a service provider goes
      through a multi-level approval process that begins in the Contracts Dept., where the
      invoice is reviewed against documentation submitted by the service provider. An invoice
      is then forwarded for approval at three additional administrative levels if and only if the
      provider has sufficiently documented completion of the requisite services and reporting.

C.   Where the OIG recommends that the City provide documentation to support that $22,608
     of Empowerment Zone funds spent between March and December, 1997, benefitted Zone
     residents, the City requests that the OIG reverse this finding. The City maintains that it has
     offered documentation that is more than adequate to satisfy reasonable reporting
     requirements based on the scope of activities and objectives of this program. If the OIG
     chooses to maintain its position that the City did not adequately support services to Zone
     residents, the City would further request that the OIG specify precisely what additional
     documentation would satisfy its demand for support.

D.   Where the OIG recommends that the City provide documentation to support amounts
     invoiced in January and February, 1998, the City's response is identical to that in (C) above,
     and the City requests that this finding be reversed as well.

E.   Where the OIG recommends that the City provide documentation to support that future
     expenditures of Empowerment Zone funds benefit Zone residents, the City requests
     clarification from the OIG. The City has already provided the OIG a copy of the
     Empowerment Zone Strategic Plan that details how the initiative was to be directed to
     support the Empowerment Zone; and projections and performance objectives included in
     the Performance Review report accomplish the same.


                                         Page 6 of 7
      As detailed above, reimbursements to administering agencies are consistently limited to
      that which can be supported. The City can provide the OIG with extensive documentation
      to support that payments have been denied to contract providers based on non-compliance
      with reporting requirements or other contract terms.

F.    Where the OIG recommends that City staff responsible for preparing the Performance
      Review report are knowledgeable of HUD's reporting requirements, a mandatory three-
      hour training was held on May 18, 1998, for all Empowerment Zone staff, and HUD

                                              Page 111                               98-CH-259-1006
Appendix C


       Guidelines were addressed in detail. This training included a step-by-step analysis of
       several Performance Review Templates that had been correctly formatted upon the City's
       being made aware of the reporting errors. The Contracts Manager has since met with staff
       members individually as they have begun work on the June, 1998, Performance Review
       report. Additionally, a full-day meeting was held on May 20 with the Commonwealth
       Grant Administrator for the Empowerment Zone program. During that meeting, the
       Grant Administrator was presented with a copy of the HUD Guidelines for the first time,
       and is now aware of the HUD-mandated format for the Performance Review Templates.
       Each Template was reviewed individually with the Grant Administrator to ensure his
       understanding of the changes to be made.

G.     Where the OIG recommends that the City establish procedures and controls to ensure the
       preparer of the report utilizes actual accomplishments for each activity, the City is
       currently re-evaluating its assignment of responsibility for the coordination of the
       Performance Review report. However, the City will ensure that, in the future, actual data
       is reflected where required.

H.     Where the OIG recommends that the City establish internal controls and procedures to
       verify the accuracy of information submitted, the City maintains that the Contracts Dept.
       has sufficient controls and procedures to verify the accuracy of its information. In the
       future, however, the City will ensure that this department is consulted for data on
       activities under contract prior to the preparation and submission of the Performance
       Review report.




                                           Page 7 of 7
            City of Philadelphia Response to Draft Finding
                   of the Office of Inspector General
     for the U.S. Department of Housing and Urban Development
               Stating "The Multipurpose Athletic Field Activity
             Expenditure and Reporting Controls Were Inadequate"


98-CH-259-1006                                Page 112
                                                                                     Appendix B


The OIG reports in this finding that the City spent $30,280 of Empowerment Zone funds over the
approved budget amount and that the City did not accurately report the actual status and progress
of the activity. The City's response to the specific issues raised by the OIG is as follows:

(1)    The OIG states that the City overspent the approved budgeted amount of Empowerment
       Zone funds for this activity by $30,280. The City agrees with this assessment.

       The OIG's reported explanation for this error is largely correct. The former Fiscal
       Director for the Mayor's Office of Community Services executed an Initiation and Funding
       Approval form in May, 1997, to authorize the expenditure of $150,000 of Empowerment
       Zone funds to the City's Recreation Department for implementation of this project. The
       transaction was not communicated or recorded internally prior to the Director's leaving
       MOCS in August, 1997. MOCS accountants, when presented with a request for $31,785
       against this project in September, 1997, approved the disbursement as their records
       indicated the entire budgeted amount was still available.

       However, the OIG also states that the City's Recreation Department was able to bypass
       MOCS' controls and access $148,495 of Empowerment Zone funds for the project
       without notifying MOCS of the disbursement. This is not the case. As the OIG has
       explained in its finding, MOCS Fiscal Director did have knowledge and gave his
       authorization for the transaction which, due to the controls exercised by the City, could
       not have occurred without his knowledge and approval. The controls were established,
       and the proper procedure for an inter-departmental transfer of funds was followed. The
       over-expenditure was strictly due to the failure to communicate this transaction within the
       Fiscal Department.

(2)    The OIG states that the City reported $50,000 in Empowerment Zone funds committed to
       this project, thereby under-reporting funds by $ 1 00,000. The City disagrees with this
       assessment. The June 30, 1997, Performance Review report lists $150,000 as the actual
       expenditure of Empowerment Zone funds, and the approval of the increase in funds for
       the project is also noted on the Template in the narrative section for that activity.

       The City does agree that it under-reported City funds committed to the project by
       $111,000. It is, in fact, noteworthy that the City leveraged the Empowerment Zone

                                             Page 1 of 4
       funds for this project with nearly three dollars for every EZ dollar. The City would not
       intentionally neglect to report that benefit.

       The $290,000 cash and $39,000 in-kind contributions reported were projections made by
       community members and City advisors involved in project planning. The error in
       reporting occurred, however, when the projections for the activity were erroneously
       placed in the "actual" column of the Performance Review Template.




                                             Page 113                               98-CH-259-1006
Appendix C


       Although we agree that the HUD Guidelines for the Performance Review Template are
       clear on paper, the implementation of this reporting format presented a problem for the
       Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
       administration of the Empowerment Zone grant. Where the Commonwealth had based its
       agreement with the City on the format previously used for benchmark activities, there was
       an initial resistance by the State to accept the new format. The Commonwealth's concern
       was that the City should only invoice against a specific activity within an approved
       projected time line: if an invoice was presented to the State for an activity for which the
       projected time line expired, the reimbursement would be denied.

       The Commonwealth's resistance was resolved in a conference call coordinated by Marek
       Gootman of HHS, which included the former HUD Assistant to the Secretary for
       Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
       former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
       result of this dialogue was an agreement that the "actual" column of the template would be
       used to amend benchmark activity projections and, further, that amendments to the
       projections would be explained in the narrative section at the end of each template. Thus,
       the former Coordinator of policy and Planning understood the Performance Review as
       an invoicing and planning tool rather than an evaluation mechanism that would be used
       for the purpose of audit.

       If, as the OIG states, the Philadelphia Empowerment Zone did not provide HUD with a
       realistic picture of actual progress for the activity, it was strictly as a result of mis-
       formatting the Performance Review Template. The City is proud of the actual
       accomplishments of the Zone initiative thus far, and recognizes that significant progress
       has been made in the period since receiving the Empowerment Zone designation.

       Moreover, it should be added that the City has been consistently forthcoming in
       responding to HUD requests for information. The Empowerment Zone management team
       meetings have been attended by HUD representatives since the Zone administration was
       established, and it follows that HUD has had access to up-to-date, accurate information on
       the progress of this initiative. The City has been equally forthcoming with auditors from
       the Office of Inspector General, and the City has provided unlimited access to extensive
       internal files and records detailing information related to benchmark activities.

                                           Page 2 of 4
(3)    The OIG states that the City reported that 500 elementary school children from a nearby
       school would have access to the ball field where, in fact, there are 720 children enrolled at
       the school who would have access to the field. The City agrees that the number of
       children having access to the ball field was under-reported.

       The 500 children identified was a soft projection made by the committee of the
       Community Trust Board during benchmark development. The reporting error occurred
       when the projection was erroneously place in the "actual" column of the Performance
       Review Template. The reason for the error is stated above.

98-CH-259-1006                                 Page 114
                                                                                        Appendix B



(4)    The OIG states that the City incorrectly reported a performance milestone indicating that
       project construction began June 1, 1997, rather than August 8, 1997, the date of the
       notice to proceed. The City agrees with this assessment. The reporting error occurred
       when the projected construction start date was erroneously placed in the "actual" column
       of the Performance Review Template. The reason for the error is stated above.

(5)    The OIG states that the City incorrectly reported the participating entities for this activity.
       The City agrees with this assessment. The reporting error occurred when the committee's
       projections were erroneously placed in the "actual" column of the Performance Review
       Template. The reason for the error is stated above.

The City's response to the specific recommendations of the OIG is as follows:

A.     Where the OIG recommends that the City reimburse the Empowerment Zone program
       with non-Federal funds for the excess costs charged against this activity, the City takes the
       position that all expenditures associated with property acquisition and construction of the
       ball field, a federally approved project, are justifiable expenditures, and that the use of
       federal funds is permissible for this purpose.

       The City will, nonetheless, identify a source of additional funds in order to reimburse the
       Empowerment Zone account.

B.     Where the OIG recommends that the City establishes procedures and controls to ensure
       the disbursement of Empowerment Zone funds can only occur with the approval of the
       MOCS Fiscal Dept., it is the City's position that these procedures and controls are already
       in place. The disbursement of Empowerment Zone funds to the City's Recreation Dept.
       occurred only because the Recreation Dept. received prior authorization from MOCS
       Fiscal Dept. The OIG can be assured, however, that MOCS current Fiscal Director will
       not approve such interdepartmental transfers in the future without giving full notification
       to the Empowerment Zone accountants so they may properly record the transaction.

C.     Where the OIG recommends that the City establish procedures and controls to ensure the
       preparer of the report utilizes actual accomplishments for each activity, the City is

                                           Page 3 of 4
       reevaluating its assignment of responsibility for the coordination of the Performance
       Review report. However, the City will ensure that, in the future, actual data will be
       reflected where required.

       Where the OIG recommends that the City establish internal controls and procedures to
       verify the accuracy of information submitted, the City will conduct a thorough assessment
       to determine what additional action is required to comply with the recommendation.
       While the City is confident that the Contracts unit has exercised adequate oversight to


                                               Page 115                                98-CH-259-1006
Appendix C


       ensure the accuracy of its data, it recognizes that similar controls and procedures need to
       be extended to activities not under the oversight of that department.




                                           Page 4 of 4
                        Philadelphia Empowerment Zone
                          Mayor’s Office of Community Services
                                      One Parkway
                                     1515 Arch St.
                                Philadelphia, Pa. 19102


Heath Wolfe, Senior Auditor

98-CH-259-1006                                 Page 116
                                                                                                 Appendix B


U.S. Dept. of Housing and Urban Development
Office of Inspector General
Ohio State Office, Midwest
Room 334
200 North High St.
Columbus, OH 43215-2499

                                       Via Facsimile and U.S. Mail


23 July 1998

Dear Mr. Wolfe;

Attached is the City of Philadelphia response to the seventh and eighth draft audit findings
submitted by the Office of Inspector General.

We apologize for the delay in submitting the response to the seventh draft finding, and greatly
appreciate your willingness to grant us additional time.

If you have any additional need for information, please feel free to call me at my new number:
215-683-0462.


Sincerely,



Carlos Acosta
Executive Director
Philadelphia Empowerment Zone




            City of Philadelphia Response to Draft Finding
                   of the Office of Inspector General
        for the U.S. Dept. of Housing and Urban Development
       Stating "Results of Community Capital Institution Were Incorrectly
                                 Reported"


In its draft finding, the Office of Inspector General states that the City of Philadelphia did not

                                                    Page 117                                    98-CH-259-1006
Appendix C

accurately report the actual status and progress of the Community Capital Institution activity. The
City's response to the specific issues cited by the OIG is as follows:

 (1)    The OIG states that the City's Performance Review over-reported the Community Capital
        Institution's leveraged funding. The City agrees with the finding of the OIG. This error
        occurred when the person responsible for preparing the report erroneously placed
        projections, made by community members during benchmark development, in the
        “actual” column of the Performance Review template.

        Although we agree that the HUD Guidelines for the Performance Review Template are
        clear on paper, the implementation of this reporting format presented a problem for the
        Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
        administration of the Empowerment Zone grant. Where the Commonwealth had based its
        agreement with the City on the format previously used for benchmark activities, there was
        an initial resistance by the State to accept the new format. The Commonwealth's concern
        was that the City should only invoice against a specific activity within an approved
        projected time line: if an invoice was presented to the State for an activity for which the
        projected time line expired, the reimbursement would be denied.

        The Commonwealth's resistance was resolved in a conference call coordinated by Marek
        Gootman of HHS, which included the former HUD Assistant to the Secretary for
        Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
        former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
        result of this dialogue was an agreement that the "actual" column of the template would
        be used to amend benchmark activity projections and, further, that amendments to the
        projections would be explained in the narrative section at the end of each template. Thus,
        the former Coordinator of policy and Planning understood the Performance Review as
        an invoicing and planning tool rather than an evaluation mechanism that would be used
        for the purpose of audit.

        If, as the OIG states, the Philadelphia Empowerment Zone did not provide HUD with a
        realistic picture of actual progress for the activity, it was strictly as a result of mis-
        formatting the Performance Review Template. The City is proud of the actual
        accomplishments of the Zone initiative thus far, and recognizes that significant progress



                                                Page 1 of 2

       has been made in the period since receiving the Empowerment Zone designation.

(2)    The OIG states that the City incorrectly reported the Capital Institutions Performance
       Milestones. The City agrees with the OIG's assessment. The reason for the reporting error
       is stated above.

(3)    The OIG also states that the City did not accurately report the Institution's Participating
       Entities. The City agrees with the OIG's assessment. The reason for the reporting error is
       stated above.


98-CH-259-1006                                     Page 118
                                                                                               Appendix B

As to the recommendations of the Office of Inspector General:

A.    Where the OIG recommends that the City provide training on HUD's reporting
      requirements to staff who are responsible for preparing the report, the City did provide
      such a mandatory training for staff on May 18, 1998, for all Empowerment Zone staff,
      and HUD Guidelines were addressed in detail. This training included a step-by-step
      analysis of several Performance Review Templates that had been correctly formatted
      upon the City's being made aware of the reporting errors. The Contracts Manager has
      since met with staff members individually as they have begun work on the June, 1998,
      Performance Review report. Additionally, a full-day meeting was held on May 20 with
      the Commonwealth Grant Administrator for the Empowerment Zone program. During
      that meeting, the Grant Administrator was presented with a copy of the HUD Guidelines
      for the first time, and was made aware of the HUD-mandated format for the Performance
      Review Templates. Each Template was reviewed individually with the Grant
      Administrator to ensure his understanding of the changes to be made.

      However, since carrying out these activities, the City has been notified by HUD that the
      reporting format is being changed, and that HUD plans to train staff on the new format
      sometime in the Fall of 1998.

B.    Where the OIG recommends that the City establish procedures and controls to ensure the
      preparer of the report utilizes actual accomplishments for each activity, the City is in the
      process of re-evaluating its assignment of responsibility for the coordination of the
      Performance Review report. The City will ensure that, in the future, the report will
      consistently reflect actual data where required.

C.    Where the OIG recommends that the City establishes procedures and controls to verify
      the accuracy of information provided to HUD, the City will conduct a thorough
      assessment to determine what additional action is required to comply with this
      recommendation. While the City is confident that its Contracts Unit has exercised
      adequate oversight to ensure the accuracy of its data, the City also recognizes that similar
      procedures and controls need to be extended to activities not under the oversight of that
      department.




                                                Page 2 of 2
            City of Philadelphia Response to Draft Finding
                   of the Office of Inspector General
        for the U.S. Dept. of Housing and Urban Development
          Stating "Life-Long Learning and Training Center Was Not
      an Approved Zone Activity and Its Status Was Incorrectly Reported"




                                                   Page 119                                   98-CH-259-1006
Appendix C

The Office of Inspector General states that the Life Long Learning and Training Center, included
by the City of Philadelphia in the June 30, 1997, Performance Review report, was nor an
approved Empowerment Zone activity, and that the City incorrectly reported performance
measures and leveraged funding. The City's response to the specific issues raised by the OIG is
as follows:

(1)   The OIG states that the City incorrectly reported that the Life-Long Learning and
      Training Center was an Empowerment Zone activity. The City agrees with this
      assessment. While it is an Empowerment Zone activity in the sense that it was included in
      the Strategic Plan, and the community is actively engaged in its planning, the benchmark
      has not yet received formal approval for the release of funds from the Community Trust
      Board or the necessary governmental entities. This activity was mistakenly included in
      the June 30, 1997, Performance Review report.

(2)   The OIG states that the City has also included inaccurate information on performance
      measures and funding in the June, 1997, Performance Review. The City agrees with this
      assessment. The inaccuracies are due to the fact that the preparer of the report erroneously
      placed projections in the "actual" column of the Performance Review template.

      Although we agree that the HUD Guidelines for the Performance Review Template are
      clear on paper, the implementation of this reporting format presented a problem for the
      Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
      administration of the Empowerment Zone grant. Where the Commonwealth had based its
      agreement with the City on the format previously used for benchmark activities, there was
      an initial resistance by the State to accept the new format. The Commonwealth's concern
      was that the City should only invoice against a specific activity within an approved
      projected time line: if an invoice was presented to the State for an activity for which the
      projected time line expired, the reimbursement would be denied.

      The Commonwealth's resistance was resolved in a conference call coordinated by Marek
      Gootman of HHS, which included the former HUD Assistant to the Secretary for
      Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
      former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
      result of this dialogue was an agreement that the "actual" column of the template would
      be used to amend benchmark activity projections and, further, that amendments to the



                                                  Page 1 of 2

      projections would be explained in the narrative section at the end of each template. Thus,
      the former Coordinator of policy and Planning understood the Performance Review as
      an invoicing and planning tool rather than an evaluation mechanism that would be used
      for the purpose of audit.

      If, as the OIG states, the Philadelphia Empowerment Zone did not provide HUD with
      a realistic picture of actual progress for the activity, it was strictly as a result of mis-
      formatting the Performance Review Template. The City is proud of the actual


98-CH-259-1006                                        Page 120
                                                                                               Appendix B

      accomplishments of the Zone initiative thus far, and recognizes that significant progress
      has been made in the period since receiving the Empowerment Zone designation.

The City's response to the recommendations of the OIG is as follows:

(A)   Where the OIG recommends that the City establishes procedures and controls to
      appropriately report Empowerment Zone activities to HUD, the City will conduct a
      thorough assessment to determine what additional action is required to comply with this
      recommendation. It is likely that the result of this assessment will include managerial-
      level review of future reports prior to submission.

(B)   Where the OIG recommends that the City establishes procedures and controls to verify
      the accuracy of information provided to HUD, the City will conduct a thorough
      assessment to determine what additional action is required to comply with this
      recommendation. While the City is confident that its Contracts Unit has exercised
      adequate oversight to ensure the accuracy of its data, the City also recognizes that similar
      procedures and controls need to be extended to activities not under the oversight of that
      department. Moreover, the City will exercise due diligence in the future to ensure that
      accurate information has been utilized in its reporting.




                                                Page 2 of 2
                                  Philadelphia Empowerment Zone
                                Mayor’s Office of Community Services
                                One Parkway 1515 Arch St. 9th Floor
                                      Philadelphia, Pa. 19102



Heath Wolfe, Senior Auditor

                                                  Page 121                                   98-CH-259-1006
Appendix C


U.S. Department of Housing and Urban Development
Office of Inspector General
Ohio State Office, Midwest
Room 334
200 North High St.
Columbus, OH 43215-2499

7 August 1998

Dear Mr. Wolfe;

    Attached is the City of Philadelphia's response to the last three draft findings of the
Office of Inspector General.

    This process has been a valuable learning experience for the Empowerment Zone, and we
have appreciated the spirit of cooperation offered by you as well as the auditors on site. It has
been a pleasure working with you all.

    We look forward to seeing you at the exit conference on August 19" in the City's Municipal
Services Building, 16th floor, conference room "X." If you have any additional questions or
concerns in the meantime, the Empowerment Zone staff remains at your disposal.

Sincerely,



Carlos Acosta
Executive Director
Philadelphia Empowerment Zone




            City of Philadelphia Response to Draft Finding
                   of the Office of Inspector General
     for the U.S. Department of Housing and Urban Development
                  Stating "Accomplishments of the Revolving Capital Fund
                               Were Incorrectly Reported"

    In its draft finding, the Office of Inspector General states that the City of Philadelphia
inaccurately reported the actual status and progress of the Revolving Capital Fund in its June 30,

98-CH-259-1006                                  Page 122
                                                                                      Appendix B


1997, Performance Review. The City's response to the specific issues raised by the OIG is as
follows:

(1)   The OIG states that the City incorrectly reported the performance measures for the
      Revolving Capital Fund. The City agrees with this assessment as to the error in reporting,
      but disagrees with the OIG's conclusions as to the level of actual activity as of June 30,
      1997, as well as its assessment of performance measures to be reported.

      First, the City agrees that the June, 1997, Performance Review report states that 30
      businesses had been assisted by the Revolving Capital Fund, and further agrees that the
      report was incorrect. The error in reporting occurred when benchmark projections were
      erroneously placed in the "actual column" of the Performance Review template.

      Although we agree that the HUD Guidelines for the Performance Review Template are
      clear on paper, the implementation of this reporting format presented a problem for the
      Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
      administration of the Empowerment Zone grant. Where the Commonwealth had based its
      agreement with the City on the format previously used for benchmark activities, there was
      an initial resistance by the State to accept the new format. The Commonwealth's concern
      was that the City should only invoice against a specific activity within an approved
      projected time line: if an invoice was presented to the State for an activity for which the
      projected time line expired, the reimbursement would be denied.

      The Commonwealth's resistance was resolved in a conference call coordinated by Marek
      Gootman of HHS, which included the former HUD Assistant to the Secretary for
      Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
      former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
      result of this dialogue was an agreement that the "actual" column of the template would be
      used to amend benchmark activity projections and, further, that amendments to the
      projections would be explained in the narrative section at the end of each template. Thus,
      the former Coordinator of Policy and Planning understood the Performance Review as
      an invoicing and planning tool rather than an evaluation mechanism that would be used
      for the purpose of audit.


                                              Page 1 of 4
      If, as the OIG states, the Philadelphia Empowerment Zone did not provide HUD with a
      realistic picture of actual progress for the activity, it was strictly as a result of mis-
      formatting the Performance Review Template. The City is proud of the actual
      accomplishments of the Zone initiative thus far, and recognizes that significant progress has
      been made in the period since receiving the Empowerment Zone designation.

      However, as to actual activity, the City disagrees with the OIG's definition of "assistance"
      to businesses, where the OIG concluded that the correct performance measure was
      assistance to seven businesses where seven loans were closed as of June 30, 1997. To the
      contrary, one of the approved activities of the Capital Fund is to provide technical
                                              Page 123                               98-CH-259-1006
Appendix C


      assistance or referrals for alternative financing to businesses/applicants. As of June 30,
      1997, the North Philadelphia Financial Partnership provided assistance or referrals to 18
      businesses in additional to the seven businesses that were provided with financing..

      Where the OIG states that the City did not report each loan made under the Revolving
      Capital Fund as required by HUD, the City maintains that it is not required by HUD to
      report each loan. In fact, the City made a request to HUD for additional guidance on this
      point on May 19, after the issue was initially raised by OIG auditors. HUD's response to
      the City's request is that it has never been HUD's intent that the City should report on
      individual loans made under the lending institutions; rather, HUD had informed the City
      early in the process that it was acceptable for the City to report on loans in the aggregate.
      It is also the City's understanding that HUD will further clarify this issue when the OIG's
      report is issued.

      Finally, the OIG has stated that the City failed to report job creation and retention
      projections based on the Capital Fund's lending activity. First, this is inconsistent with the
      OIG's overall findings that the City has failed to report actual data in the Performance
      Review report. Second, the HUD-approved benchmark does not list job creation as a
      performance measure; rather, the activity's objective is to assist businesses with capital
      financing needs. Where job creation and retention is a secondary, but important, benefit to
      the increased availability of business financing in the Zone, the City has asked the lending
      institutions to provide this information voluntarily for the purpose of data collection and
      evaluation of the Empowerment Zone initiative's impact overall. Similarly, the City has
      requested like information from all recipients of Empowerment Zone funds, including non-
      profits receiving grants for quality-of-life programs. However, where job creation or
      retention is not specifically listed in the benchmark as a performance measure, the City
      would not be inclined to report it as such in that format.

(2)   Where the OIG states that the City incorrectly reported the Capital Fund's funding, the City
      agrees with that assessment. The Capital Fund was capitalized at $7 million as noted by the
      OIG. However, the North Philadelphia Financial Partnership did actually receive a $9.6
      million contract with the City, with the additional $2.6 million reflecting funds


                                            Page 2 of 4
      allocated for loans to support other benchmarked projects.

      The City also agrees that it incorrectly reported the leveraged funding as of June 30, 1997.
      The error occurred when the projections were erroneously placed in the actual column of
      the Performance Review template. The reason for the reporting error is stated above.

(3) The OIG also states that the City incorrectly reported the Capital Fund's performance
     milestones. The City agrees with this assessment. The error in reporting occurred when
     projections made during benchmark development were erroneously placed in the actual
     column of the Performance Review template. The reason for the error is stated above.

98-CH-259-1006                                  Page 124
                                                                                        Appendix B



(4)   The OIG has also stated that the City incorrectly reported the activity's Participating
      Entities. The City agrees with this assessment. The reporting error occurred when
      benchmark projections were incorrectly placed in the actual column of the Performance
      Review template. The reason for the error is stated above.

The City's response to the specific recommendations of the OIG is as follows:

A.    Where the OIG recommends that the City provide training on HUD's reporting
      requirements to staff who are responsible for preparing the Performance Review report, the
      City did provide such a mandatory training on May 18, 1998, for all Empowerment Zone
      staff, and HUD Guidelines were addressed in detail. This training included a step-by-step
      analysis of several Performance Review Templates that had been correctly formatted upon
      the City's being made aware of the reporting errors. The Contracts Manager has since met
      with staff members individually as they have begun work on the June, 1998, Performance
      Review report. Additionally, a full-day meeting was held on May 20 with the
      Commonwealth Grant Administrator for the Empowerment Zone program. During that
      meeting, the Grant Administrator was presented with a copy of the HUD Guidelines for the
      first time, and was made aware of the HUD-mandated format for the Performance Review
      Templates. Each Template was reviewed individually with the Grant Administrator to
      ensure his understanding of the changes to be made.

      However, since carrying out these activities, the City has been notified by HUD that the
      reporting format is being changed, and that HUD plans to train staff on the new format
      sometime in the Fall of ]998.

B.    Where the OIG recommends that (1) the City establish procedures and controls to ensure
      the preparer of the report utilizes actual accomplishments for each activity, the City is in the
      process of re-evaluating its assignment of responsibility for the coordination of the
      Performance Review report. The City will ensure that, in the future, the report will
      consistently reflect actual data where required. However, where the OIG recommends that
      the City prepares a template on each loan made under a commercial loan program, the


                                             Page 3 of 4
      City maintains that this is not necessary, and that HUD is satisfied to have loan activity
      reported in the aggregate.

C.    Where the OIG recommends that the City establishes procedures and controls to verify the
      accuracy of information reported, it is the City's position that the Contracts Dept. did, in
      fact, have accurate information on the level of activity under the Revolving Capital Fund
      benchmark by virtue of its contract reporting requirements with the North Philadelphia
      Financial Partnership. However, in the future, the City will ensure that this information is
      communicated to HUD vis-a-vis the Performance Review report, and will not repeat its
      error of only including projected activity in the report.

                                                Page 125                               98-CH-259-1006
Appendix C




                                            Page 4 of 4
            City of Philadelphia Response to Draft Finding
                   of the Office of Inspector General
     for the U.S. Department of Housing and Urban Development
           Stating "Accomplishments of the Youth Landscape Training Program
                              Were Inaccurately Reported"

     The Office of Inspector General reports that the City of Philadelphia inaccurately reported
the accomplishments of the Youth Landscape Training program. The City's response to the
specific issues raised by the OIG is as follows:

98-CH-259-1006                                 Page 126
                                                                                       Appendix B



(1)   The OIG states that the City incorrectly reported the program's performance measures.
      The City agrees with this assessment. The reporting error occurred when activity
      projections, formulated by community members during benchmark development, were
      erroneously placed in the actual column of the Performance Review template.

      Although we agree that the HUD Guidelines for the Performance Review Template are
      clear on paper, the implementation of this reporting format presented a problem for the
      Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
      administration of the Empowerment Zone grant. Where the Commonwealth had based its
      agreement with the City on the format previously used for benchmark activities, there was
      an initial resistance by the State to accept the new format. The Commonwealth's concern
      that the City should only invoice against a specific activity within an approved     projected
      time line: if an invoice was presented to the State for an activity for which the projected
      time line expired, the reimbursement would be denied.

      The Commonwealth's resistance was resolved in a conference call coordinated by Marek
      Gootman of HHS, which included the former HUD Assistant to the Secretary for
      Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
      former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The
      result of this dialogue was an agreement that the "actual" column of the template would be
      used to amend benchmark activity projections and, further, that amendments to the
      projections would be explained in the narrative section at the end of each template. Thus,
      the former Coordinator of Policy and Planning understood the Performance Review as
      an invoicing and planning tool rather than an evaluation mechanism that would be used
      for the purpose of audit.

      If, as the OIG states, the Philadelphia Empowerment Zone did not provide HUD with a
      realistic picture of actual progress for the activity, it was strictly as a result of mis-
      formatting the Performance Review Template. The City is proud of the actual
      accomplishments of the Zone initiative thus far, and recognizes that significant progress has
      been made in the period since receiving the Empowerment Zone designation.


                                             Page 1 of 3
      It is important to note that, where the OIG reports that the administering entity for the
      program could not provide documentation to support the program activities and could not
      ensure that the goals of the Strategic Plan were being achieved, the City terminated its
      contract with that entity without the disbursement of any Empowerment Zone funds.

(2)   The OIG states that the City over-reported the funding received by the program. The City
      agrees with this assessment. As noted above, the City released no Empowerment Zone
      funds to the administering entity. The funding attributed to the Private Industry Council
      was a two-year projection made by the community during project development. The


                                               Page 127                               98-CH-259-1006
Appendix C


      reporting errors occurred when projections were erroneously placed in the actual column
      of the Performance Review template. The reason for the errors is stated above.

(3)   The OIG also states that the City Inaccurately reported the activity's Performance
      Milestones. The City agrees with this assessment. The reason for the reporting errors is
      stated above. Again. it is important to note that, where the City could obtain no
      documentation of program activity from the administering entity, the City terminated the
      contract for this program without releasing any Empowerment Zone funds.

(4)   The OIG states that the City did not report the program's obstacles in the June 30, 1997,
      Performance Review report. The City agrees that it did not detail obstacles in relation to
      carrying out the Strategic Plan on the Performance Review template. The City did report,
      however, that the contract for this project was terminated due to non-compliance on the
      part of the provider, and that the reallocation of the Empowerment Zone funds was under
      committee review.

The City's response to the recommendations of the OIG is as follows:

A.    Where the OIG recommends that the City establishes procedures and controls to ensure
      the person who prepares the Performance Review report utilizes actual accomplishments for
      each activity, the City is currently re-evaluating assignment of responsibility for
      coordination of the report. However, the City will ensure that, in the future, actual date will
      be utilized where required.

B.    Where the OIG recommends that City staff responsible for preparing the report are
      knowledgeable of HUD's reporting requirements, the City did provide a mandatory training
      on May 18, 1998, for all Empowerment Zone staff, and HUD Guidelines were addressed in
      detail. This training included a step-by-step analysis of several Performance Review
      Templates that had been correctly formatted upon the City's being made aware of the
      reporting errors. The Contracts Manager has since met with staff members individually as
      they have begun work on the June, 1998, Performance Review report. Additionally, a full-
      day meeting was held on May 20 with the Commonwealth Grant


                                          Page 2 of 3
      Administrator for the Empowerment Zone program. During that meeting, the Grant
      Administrator was presented with a copy of the HUD Guidelines for the first time, and was
      made aware of the HUD-mandated format for the Perfon-nance Review Templates. Each
      Template was reviewed individually with the Grant Administrator to ensure his
      understanding of the changes to be made.

      However, since carrying out these activities, the City has been notified by HUD that the
      reporting format is being changed, and that HUD plans to train staff on the new format
      sometime in the Fall of ]998.


98-CH-259-1006                                 Page 128
                                                                                       Appendix B


C.   Where the OIG recommends that the City establishes procedures and controls to verify
     the accuracy of information reported, it is the City's position that the Contracts Dept. did, in
     fact, have accurate information on the level of activity (none) for the Landscape Training
     program by virtue of its contract reporting requirements with the administering entity, and
     terminated that contract accordingly. However, in the future, the City will ensure that this
     information is communicated to HUD vis-a-vis the Performance Review report, and will not
     repeat its error of only including projected activity in the report.

D.   Where the OIG recommends that the City establishes procedures and controls to ensure
     that the goals of the Strategic Plan are met, the City's position is that additional procedures
     and controls are not necessary. Is illustrative in this case, the City's procedures and
     controls vis-a-vis its contract monitoring and payment processes worked precisely as they
     should, in that this contract was terminated without disbursement of Empowerment Zone
     funds due to the administering entity's failure to meet the program goals.




                                            Page 3 of 3
            City of Philadelphia Response to Draft Finding
                   of the Office of Inspector General
     for the U.S. Department of Housing and Urban Development
                    Stating "Controls Over the Lead Abatement Program
                                   Were Not Adequate"

     The OIG states in pertinent part that the City did not exercise adequate controls over the
Lead Abatement program and that the City did not monitor the program; therefore,
Empowerment Zone funds were not used efficiently and effectively. The City's response to

                                               Page 129                               98-CH-259-1006
Appendix C


specific issues raised by the OIG is as follows:

(1)   The OIG states that the City did not have adequate controls over Zone funds used for this
      program. The City did not monitor this program as it was structured as a benchmarked
      loan to be provided through the Empowerment Zone Revolving Capital Fund for North
      Central Philadelphia. The City believed that the responsibility for monitoring the loan was
      that of the North Philadelphia Financial Partnership, the party with whom Sea Change had
      its loan agreement. While the City was unaware that Sea Change was using its loan funds
      to provide lead abatement services outside the Empowerment Zone, even if it did have
      knowledge, it is arguable whether the City had a legal right to intervene in the contractual
      relationship between Sea Change and NPFP. However, the City agrees that, in this case,
      Empowerment Zone funds were not used efficiently or effectively.

(2)   The OIG states that the City inaccurately reported the program's Performance Measures.
      The City agrees with this assessment. The reporting error occurred when activity
      projections, formulated by community members during benchmark development, were
      erroneously placed in the actual column of the Performance Review template.

      Although we agree that the HUD Guidelines for the Performance Review Template are
      clear on paper, the implementation of this reporting format presented a problem for the
      Empowerment Zone as to the agreement with the Commonwealth of Pennsylvania and its
      administration of the Empowerment Zone grant. Where the Commonwealth had based its
      agreement with the City on the format previously used for benchmark activities, there was
      an initial resistance by the State to accept the new format. The Commonwealth's concern
      was that the City should only invoice against a specific activity within an approved
      projected time line: if an invoice was presented to the State for an activity for which the
      projected time line expired, the reimbursement would be denied.

      The Commonwealth's resistance was resolved in a conference call coordinated by Marek
      Gootman of HHS, which included the former HUD Assistant to the Secretary for
      Community Empowerment, the Commonwealth Title XX Grant Administrator, and the
      former Coordinator of Policy and Planning for the Philadelphia Empowerment Zone. The


                                           Page 1 of 4
      result of this dialogue was an agreement that the "actual" column of the template would be
      used to amend benchmark activity projections and, further, that amendments to the
      projections would be explained in the narrative section at the end of each template. Thus,
      the former Coordinator of policy and Planning understood the Performance Review as
      an invoicing and planning tool rather than an evaluation mechanism that would be used
      for the purpose of audit.

(3)   The OIG also states that the City inaccurately reported the program's Performance
      Milestones. The City agrees with this assessment. The reporting errors occurred when the
      projections formulated by the community during project development were erroneously

98-CH-259-1006                                     Page 130
                                                                                         Appendix B


      placed in the actual column of the Performance Review template. The reason for the
      reporting errors is noted above.

(4)   The OIG states that the City over-reported the program's funding by $39,000. The City
      agrees with this assessment. The reporting error occurred when benchmark projections
      formulated by the community during project development were erroneously placed in the
      actual column of the Performance Review template. The reason for the error is stated
      above.

The City's response to the recommendations of the OIG is as follows:

A.    Where the OIG recommends that the City instructs agencies responsible for administering
      activities to maintain documentation to support services, and to provide services only to
      Zone residents, these are practices that the City enforces in all its contractual relationships
      with administering agencies.

      Where a contract exists between the City and a service provider, the City has consistently
      instructed service providers to provide services and/or products only to Empowerment
      Zone residents. Every Empowerment Zone contract between the City and a provider has
      this specific term included. In addition, all new provider's attend a full-day briefing session
      coordinated by the Zone's Contracts Dept. where the providers receive specific instruction
      on Zone residency verification processes and submission of documentation of services to
      Zone residents, in addition to other instruction on contract deliverables, fiscal audit
      requirements, seeking required leverage, and more. Finally, payment is not made for
      services performed under any contract unless the required documentation is presented with
      the invoice.

      However, in this case, the City had no contractual relationship with Sea Change or the Lead
      Abatement program. The City's contractual relationship was with the North Philadelphia
      Financial Partnership, which is required to monitor its loans in accordance with lending
      industry standards and to provide loans within the North Central Empowerment Zone.
      However, where Sea Change may be considered a third-party beneficiary to the contract
      between the City and NPFP, the City's ability to enforce

                                            Page 2 of 4
      reporting requirements against that third party, absent a direct contractual relationship,
      presents a legal question for which the City will seek counsel prior to committing to a
      course of action.

B.    Where the OIG recommends that the City establish procedures and controls to monitor
      activities funded under the Empowerment Zone grant to ensure that monies are used
      efficiently and effectively, the City maintains that it has adequate procedures and controls to
      monitor those parties with whom it has a contractual relationship. As indicated above, the
      City's authority to monitor activities of a party without a contractual agreement with that


                                                Page 131                                98-CH-259-1006
Appendix C


     party is a legal question for which the City will seek guidance prior to committing to a
     course of action.

C.   Where the OIG recommends that the City reimburse $83,310 from non-federal funds for the
     lead abatement services that were inappropriately provided to non-Zone households, the
     City agrees that the Empowerment Zone account should be reimbursed for this amount.
     The City will seek legal counsel to first explore its ability to recover these funds.

D.   Where the OIG recommends that the City provide documentation to support $3,534 in
     administrative expenses paid for with Empowerment Zone funds, the City will attempt to
     solicit the documentation from both the lending institution and Sea Change. If the
     documentation is not obtained within a reasonable period of time, the City will seek counsel
     to explore its ability to recover the full amount questioned, and will reimburse the
     Empowerment Zone account with any monies recovered.

E.   Where the OIG recommends that the City ensures its staff is knowledgeable of HUD's
     reporting requirements, the City did provide a mandatory training on May 18, 1998, for all
     Empowerment Zone staff, and HUD Guidelines were addressed in detail. This training
     included a step-by-step analysis of several Performance Review Templates that had been
     correctly formatted upon the City's being made aware of the reporting errors. The
     Contracts Manager has since met with staff members individually as they have begun work
     on the June, 1998, Performance Review report. Additionally, a full-day meeting was held
     on May 20 with the Commonwealth Grant Administrator for the Empowerment Zone
     program. During that meeting, the Grant Administrator was presented with a copy of the
     HUD Guidelines for the first time, and was made aware of the HUD-mandated format for
     the Performance Review Templates. Each Template was reviewed individually with the
     Grant Administrator to ensure his understanding of the changes to be made.

     However, since carrying out these activities, the City has been notified by HUD that the
     reporting format is being changed, and that HUD plans to train staff on the new format
     sometime in the Fall of]998.

F.   Where the OIG recommends that the City establishes procedures and controls to ensure that
     the preparer of the report uses the actual accomplishments for each activity, the City

                                            Page 3 of 4
     is currently re-assessing its assignment of responsibility for coordination of the Performance
     Review report. The City will ensure, however, that actual data is utilized where required.

G.   Where the OIG recommends that the City establishes procedures and controls to verify
     the accuracy of information presented to HUD, the City maintains that the Contracts Dept.
     has sufficient procedures and controls through its contract monitoring process to ensure the
     accuracy of all data associated with Empowerment Zone contractual relationships.
     However, as in this case, the City also maintains that its authority to monitor the activity of


98-CH-259-1006                                 Page 132
                                                                                       Appendix B


     parties outside a contractual relationship with the City presents a legal question for which
     the City will seek counsel prior to committing to a course of action.

H.   Where the OIG recommends that the City monitor Empowerment Zone activities to ensure
     they are fulfilling Empowerment Zone objectives, the City again maintains that its authority
     to monitor the activities of parties outside a contractual relationship with the City presents a
     legal question for which the City will seek guidance prior to committing to a course of
     action.




                                            Page 4 of 4




                                              Page 133                                98-CH-259-1006
Appendix C




                    PHILADELPHIA EMPOWERMENT ZONE

                 RESPONSES TO SUMMARY FINDINGS OF THE

     OFFICE OF INSPECTOR GENERAL FOR THE U.S. DEPARTMENT

                   OF HOUSING AND URBAN DEVELOPMENT

                                   SEPTEMBER 22, 1998




I.     Introduction

        The City of Philadelphia and the Philadelphia Empowerment Zone submit the following
responses to the Summary Findings of the Office of the Inspector General (OIG) at the
Department of Housing and Urban Development (HUD). The City and the Empowerment Zone
have chosen to submit a formal written response in order to refute, on a point by point basis, the
allegations of the Summary Findings, which can only be characterized as shockingly inaccurate
and unfair.

        From its inception, the Philadelphia Empowerment Zone has worked tirelessly and with
great effectiveness to build hope, economic opportunity and the chance for thousands of low-

98-CH-259-1006                                 Page 134
                                                                                      Appendix B


income Philadelphians to share a meaningful stake in the future for themselves, their families and
our City as a whole. Moreover, the City determined that, in the spirit of the legislation that
created the Empowerment Zones throughout the nation, it would work in partnership with the
residents of the Zone communities to build a neighborhood-based network of governance for the
Zones.

        As a result, Philadelphia’s three Empowerment Zone communities -- American Street,
West Philadelphia and North Philadelphia -- have developed strong Community Trust Boards that
help manage and promote growth in these neighborhoods. The Trust Boards, comprised of Zone
residents and representatives of local businesses working together with City economic
development officials, also have fostered the development of effective community-based loan
programs that have assisted in the attraction or retention of scores of businesses in the Zone
communities. These community representatives, together with Empowerment Zone officials and
the City’s elected and appointed leaders, have triggered a rebirth of economic opportunity and
hope for the future in the Zone communities. Indeed, that has been the primary goal of the $79
million Philadelphia Empowerment Zone program since the awarding of the Zone first was
announced by HUD on December 22, 1994. Almost four years later, there remains much work to
be done, but it is fair to say that in Philadelphia, the Empowerment Zone has been a tremendous
success, having created or retained 1,400 jobs in communities that desperately need them, while at
the same time helping to rebuild those neighborhoods to encourage further economic
development.
        Since the day that Philadelphia’s award first was announced, the City also has been
steadfast in its determination to work cooperatively with HUD officials to guarantee that Zone
funds would not be wasted, and that the programs created and resources expended in the Zone
communities would be managed efficiently and effectively to benefit Zone residents. As a result,
the City and HUD worked to define reporting procedures and to set measurable performance
goals to monitor the progress of the Empowerment Zone program in Philadelphia.

        No one disputes that the process put in place to monitor Zone activities has helped City
and federal officials quantify the substantial progress that the Philadelphia Empowerment Zone
has made. Philadelphia Empowerment Zone has worked diligently, efficiently, and with
measurable success to achieve the goals of the Empowerment Zone program. The OIG's
conclusions no doubt were based on the fact that local Zone officials worked with HUD,
representatives from the Department of Health and Human Services (HHS) and a variety of State
economic development representatives to guarantee that monitoring reports submitted to the OIG
and to State inspectors conformed to all relevant reporting requirements. In fact, the Performance
Review Report upon which the OIG bases its Summary Findings was completed in consultation
with these officials

       Given the City’s commitment to insure full and accurate reporting, City officials were
shocked to discover that -- despite having worked closely with HUD, HHS, and State officials to
submit reports of Empowerment Zone activities as directed by these agencies -- the OIG’s
Summary Findings alleged irregularities in one-third (or four) of the 12 Philadelphia
Empowerment Zone activities it monitored during the course of a five-month investigation
conducted by three full-time investigators earlier this year. In addition, the OIG found that the

                                              Page 135                              98-CH-259-1006
Appendix C


Performance Review Report -- prepared and submitted at HUD’s direction -- had been completed
incorrectly, and therefore mischaracterized the accomplishments of the Zone.

         These allegations are wrong, and worse, they unfairly tarnish the accomplishments of the
Philadelphia Empowerment and those who worked diligently to complete the report in the manner
contemplated by HUD officials. The fact is that during the period in which the OIG tested
activities in the Philadelphia Empowerment Zone, the Zone expended $16 million in Zone
communities, for economic development, education, housing, public safety, and critically needed
infrstructure improvements in these neighborhoods. No one questions that these funds were spent
to benefit the Zone and Zone residents. In fact, the OIG findings question less than one percent
of all funds expended in the Zone during the period in question. The City maintains that all of
these funds were spent to benefit Zone residents, as set forth more fully in following responses to
each of the OIG’s Summary Findings.

Response to OIG Summary Finding re: Incorrect Performance Review Report

        As noted, the Performance Review Report dated June 30, 1997 was completed at the
direction of HUD officials, together with representatives from HHS, and the Commonwealth of
Pennsylvania. Representatives of these agencies worked with the City to ensure that the
Philadelphia Empowerment Zone would fully disclose all of its planning and invoicing activities in
the Zone. The goal, of course, was to provide a full and complete accounting of these activities.
Interestingly, the parties could not reach a consensus on how best to recreate a “benchmarking”
format in the Report that would satisfy the requirements originally imposed by HUD.
Accordingly, HUD, HHS, State and City officials eventually agreed that the Performance Review
Report would monitor only the planning and invoicing activities of the Zone communities; it
would not, however, provide detailed reporting on the progress of the Zone. The City submitted
the Performance Review Report with the full acceptance and approval of HUD and HHS. Since
the Report was not intended to serve as a basis for measuring the progress of the Zone, it is
equally true that the report could not have misled HUD about the progress of the Zone. In fact,
in several cases, the Report underrepresented accomplishments of the Zone.

        Having full knowledge of the contents (and the limitations) of the Performance Review
Report, the OIG’s continued reliance on the Report as the basis for its findings of reporting
violations is both inaccurate and unfair. Earlier this year, HUD asked the Philadelphia
Empowerment Zone to revise its reporting format to identify specific accomplishments. A
corrected report was submitted to HUD in advance of the release of the OIG report. In addition,
all local Empowerment Zone staff attended a full-day training session on HUD guidelines for
Performance Review reporting on May 18, 1998. Despite the fact that the Philadelphia
Empowerment Zone satisfactorily completed all of these measures, the OIG nevertheless chose to
publicize findings that allege reporting violations. Under these circumstances, the City objects to
this finding as unwarranted, unfair, and unsupported by the facts.

Response to OIG Summary Finding re: Supervised Child Playsites (R. W. Brown)

       The OIG’s finding with respect to the provision of supervised child playsites is wrong, and

98-CH-259-1006                                 Page 136
                                                                                         Appendix B


as a result, the City strongly objects to its inclusion in the OIG Summary Findings.

        At issue is whether the Philadelphia Empowerment Zone provided daycare services,
identified as supervised child playsites, to 55 Zone children who were enrolled in the program.
Provision of day care services was the primary goal of this activity, as evidenced by the
Performance Review Report, as specified in the Request for Proposals, and as included in the
terms of the contract with the daycare services provider. This goal was achieved by utilizing
Empowerment Zone funds to pay for outreach and intake counseling that was essential to any
meaningful provision of daycare services. By using Empowerment Zone funds to assist in the
placement of children in daycare service programs offered through other funding services, the
Zone fostered the placement of 55 children -- many of whose parents had no other realistic hope
of obtaining daycare for their children -- in quality daycare programs.

        The City also takes exception to the OIG assertion that controls over this activity were
inadequate. The City and the provider both have voluminous documentation to support that the
contracted services, necessary for the achievement of the performance objectives, have been
provided. The City maintains an aggressive system of contract monitoring, and has sufficient
documentation to demonstrate that the goals and objectives of this activity were achieved,
including the objective of providing age-appropriate activities for 55 Zone children enrolled in day
care. The OIG determination that insufficient documentation exists to support the intake process
merely underscores the problem of reporting information that the provider is barred from
providing, by virtue of its duty of confidentiality that arises as a result of its agreement with the
State. As a practical matter, however, the OIG was provided with the names and addresses of the
children identified as participating in the program, and the OIG was provided with more than
enough information to independently verify the participation of these children in the daycare
program.

Response to OIG Summary Finding re: Multi-Purpose Athletic Field

        The OIG alleges that the Philadelphia Empowerment Zone overspent its $150,000 budget
for the construction of a Multi-Purpose Athletic Field in the American Street Zone by an
estimated $30,000. As a result, the OIG concluded that the City’s expenditure and reporting
controls were inadequate.

         It is true that the cost of the ballfield exceeded budgeted estimates, but the City maintains
that all costs for construction of the field were reasonable and necessary. It is also worth noting
that the Empowerment Zone funding of the project was completed in partnership with the City,
which appropriated $800,000 toward the construction of the field -- a City/Zone match of nearly
three to one -- in an area of the City where such recreation opportunities did not exist and were
critically needed. Moreover, the construction of the field has been a tremendously successful
project, standing as a focal point of the surrounding community and serving more than 700 Zone
residents.

Response to OIG Summary Finding re: Safety and Security Program (Smoke Detectors)


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Appendix C


        The OIG alleges that there was insufficient documentation to verify that the Zone
distributed $6,792 worth of smoke detectors to Zone residents, and that an additional $688 worth
of smoke detectors were distributed to non-Zone residents.

         This allegation is wrong, and moreover, it is not supported by the factual evidence
provided to the OIG. The crux of this allegation is that the local Zone failed to provide
documentation to support its distribution of the smoke detectors in question to Zone residents.
Yet there is no question that the Zone was the target of a comprehensive outreach program
conducted by the Zone and the Philadelphia Fire Department, to ensure that Zone residents
received free smoke detectors to protect against the danger of business and residential fires.
Further, there is no evidence -- none -- to show either that the smoke detectors were not
distributed, or that there was any malfeasance on the part of the local Zone officials with respect
to this equipment. In fact, all evidence points to the common sense conclusion -- volunteers were
recruited to distribute smoke detectors, flyers were distributed in the various Zone
neighborhoods, volunteers were clearly deployed to distribute in those neighborhoods on the days
in question, and most significantly, routine inspections of the homes in question show that smoke
detectors actually were installed. Further, local Zone officials who represented to the OIG that
the smoke detectors in question were distributed can document the distribution of more than
$11,000 worth of smoke detectors. In this case, the evidence supports the conclusion that all of
the smoke detectors in question were distributed as intended.
         Finally, the OIG also questions the distribution of $688 worth of smoke detectors to non-
Zone residents. Yet these smoke detectors were distributed to homes immediately adjacent to the
Zone -- in most cases, literally across the street. As such, they serve to protect the Zone itself
from the danger of fire, and as federal regulations make clear, Empowerment Zone funds are not
limited for use solely within the designated Zone census tracts. Instead, the relevant HHS
regulations permit the local Zone community to define “residents” of the Zone and the benefits
they receive in a manner that is consistent with the overall goal of providing benefit to the Zone
community. Under the circumstances, the Philadelphia Empowerment Zone’s decision to provide
smoke detectors to homes immediately adjacent to the Zone constituted a “zone benefit” that is
consistent with the goals of the Empowerment Zone legislation.

Response to OIG Summary Finding re: Lead Abatement Program Controls

        The OIG alleges that the Philadelphia Empowerment Zone used $83,310 worth of Zone
funds for lead abatement services in the North Philadelphia Empowerment Zone, to be performed
by a company called Sea Change Environmental Services. As the OIG is aware, however, the Sea
Change transaction was a loan. Therefore, the Zone has limited exposure should the contractor
not be able to provide lead abatement services. Zone officials already have provided
documentation to the OIG to demonstrate that Sea Change is current on its loan repayments to
the Empowerment Zone. Once the loan is repaid the Zone may choose to re-issue these funds for
additional lead abatement services.




98-CH-259-1006                                 Page 138
            Appendix B




Page 139   98-CH-259-1006
Appendix C




                 (THIS PAGE LEFT BLANK INTENTIONALLY)




98-CH-259-1006                   Page 140
                                                                                 Appendix D


Distribution
Secretary's Representative, Mid-Atlantic
Director of Community Planning and Development, Pennsylvania State Office
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)
Assistant General Counsel, Mid-Atlantic
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Director of Administrative Service Center 1, New York 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, City of Philadelphia Empowerment Zone
Mayor, City of Philadelphia
Executive Director, Mayor’s Office of Community Services, City of Philadelphia




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