Department of Housing and Urban Development, Office of Inspector General | Housing and Urban Development | City of Chicago Empowerment Zone Program, Chicago, IL

City of Chicago Empowerment Zone Program, Chicago, IL

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-10-15.

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

Issue Date
October 15, 1998
Audit Case Number
99-CH-259-1002

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 Chicago
Empowerment Zone Program
Chicago, Illinois

We completed an audit of the City of Chicago’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 26 of the 84 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 $670,417 of Empowerment Zone funds and was
billed $121,590 that did not benefit Zone residents; did not have documentation to show that another
$892,484 of Zone funds paid and $120,012 billed to the City benefited Zone residents or were
reasonable and necessary expenses; inaccurately reported the accomplishments of its Empowerment
Zone activities; and reported to HUD 15 projects as Empowerment Zone activities when they were
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.
Executive Summary
We completed an audit of the City of Chicago’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 $670,417 of Empowerment Zone funds and was billed $121,590 that did not
benefit Zone residents; did not have documentation to show that another $892,484 of Zone funds paid
and $120,012 billed to the City benefited Zone residents or were reasonable and necessary expenses;
inaccurately reported the accomplishments of its Empowerment Zone activities; and reported 15
projects as Empowerment Zone activities when they were not.

As previously mentioned, the City of Chicago did not
The City Did Not Have maintain adequate oversight over Empowerment Zone
Adequate Control Over funds. Nine of the 26 activities we reviewed incurred
Zone Funds inappropriate or unsupported 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;
and encouraged an administering entity to provide services
outside of the Zone.

The City of Chicago overstated the amount of estimated
The City Overstated The leveraged funds in the June 1997 Performance Review. The
Amount Of Leveraged Review’s Attachments estimated that the City’s 84
Funds By Over $143 Empowerment Zone activities should leverage $176.1 million.
Million However, supporting documentation included with the Review
showed the 84 activities would only leverage $36.6 million, a
difference of $139.5 million. The information was presented so
it appeared that the $176.1 million shown in the Attachments
was the total of the supporting documentation. The City also
overstated the projected funding by $3.7 million for 12 of 49
activities for which the City requested funding confirmations.
As a result, the City overstated the projected leveraged funding
by $143.2 million ($139.5 million + $3.7 million). The problem
occurred because: (1) the City’s reporting process lacked
effective oversight and controls to ensure the accuracy of
information presented in the Performance Review; and (2) the
City’s staff used outdated information to complete the financial
sections of the Review. Since the amount of leveraged funding

Page iii 99-CH-259-1002
Executive Summary

is an important indicator of the Empowerment Zone Program’s
success, the inaccurate information presented a false impression
of the Program’s benefits.

The City of Chicago incorrectly reported that 15 of 84
Activities Were activities in its June 30, 1997 Performance Review were
Incorrectly Reported As Empowerment Zone Program activities. The 15 activities were
Empowerment Zone not located within the City’s Federally-designated
Activities Empowerment Zone and received funding from the State of
Illinois’ Enterprise Community grant. Because the City
included the 15 activities in the Performance Review, over $7
million in funding was incorrectly reported as leveraged funds.
The problem occurred because the City’s reporting process
lacked effective oversight and controls to ensure the validity
and reliability of the information included in the Performance
Review. As a result, the City did not accurately report to HUD
its Empowerment Zone Program’s accomplishments, which
created the impression that the benefits of the Program were
greater than actually achieved.

The City of Chicago incorrectly reported the actual status
The City Incorrectly and progress for 11 of the 26 activities we reviewed from
Reported The the June 30, 1997 Performance Review. The Review
Accomplishments Of Its contained inaccuracies related to: nine activities’
Zone Activities performance measures; nine activities’ funding; six
activities’ performance milestones; and two activities’
participating entities. The inaccuracies occurred because
the City did not: (1) use the actual accomplishments
submitted by the activities’ administering entities; (2) verify
the accuracy of the information included in the Performance
Review; or (3) obtain the status of the activities from the
administering entities.

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
Chicago 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 Executive Director
of the City’s Empowerment Zone Program and HUD’s staff
during the audit. We held an exit conference with the City’s
Executive Director on August 18, 1998. The City provided
written comments to our draft findings. We included

99-CH-259-1002 Page iv
Executive Summary

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.

Page v 99-CH-259-1002
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 Overstated Estimated Leveraged Funding By
Over $143 Million 17

3 Activities Were Incorrectly Reported As Empowerment
Zone Activities 21

4 The City Inaccurately Reported The Accomplishments
Of Its Empowerment Zone Activities 25

Management Controls 31

Follow Up On Prior Audits 33

Appendices
A Schedule of Questioned Costs 35

B Activities Reviewed 37

Page vii 99-CH-259-1002
Table of Contents

C Audit Comments 81

D Distribution 105

99-CH-259-1002 Page viii
Introduction
The City of Chicago was designated as an urban Empowerment Zone effective December 21,
1994. The objective of the Empowerment Zone Program is to rebuild communities in poverty-
stricken inner cities and rural areas by developing and implementing strategic plans. The plans are
required to be based upon the following four principles: (1) creating economic opportunity for
Empowerment Zone residents; (2) creating sustainable community development; (3) building
broad participation among community-based partners; and (4) describing a strategic vision for
change in the community.

The Empowerment Zone Program was authorized by the Omnibus Budget Reconciliation Act of
1993. The Reconciliation Act provided funding for the Empowerment Zone Program under Title
20 of the Social Security Act. The Program was designed to provide $250 million in tax benefits
with $100 million of Social Services Block Grant funds from the Department of Health and
Human Services. As of June 30, 1998, the City of Chicago drew down $11,297,031 in
Empowerment Zone funds from the Social Services Block Grant and had spent $10,855,045.

The City of Chicago is a municipal corporation governed by a mayor and a city council. The
City’s fiscal year is January 1 through December 31. The City’s Department of Planning and
Development administers its Empowerment Zone Program.

The Mayor of the City of Chicago is the Honorable Richard M. Daley. The Executive Director of
the City’s Empowerment Zone Program is Avery L. Goodrich, Jr. The Commissioner of the
City’s Department of Planning and Development is Christopher R. Hill. The City’s
Empowerment Zone books and records are located at 20 North Clark, Chicago, Illinois.

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 August
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 26 of the City’s 84 activities
reported in the June 30, 1997 Performance Review. The
following table shows the 26 activities reviewed:

Page 1 99-CH-259-1002
Introduction

Activity
1. Mexican Fine Arts Museum Expansion
2. Job Link Program
3. Family Life Community Network
4. 21st Century Community Learning Centers
5. Better Days for Youth and Nuevos Futuros
6. Employer Assisted Housing Program
7. Northwest Industrial Corridor
8. Community Services West Workforce and Life Preparation
9. The Storehouse Distributions Center
10. Arts Business Incubator
11. Chicago Neighborhood Plan Program
12. Self-Sufficiency Project
13. Holistic Connection
14. Youth Economic Alternatives
15. Linking to the Service Delivery Network
16. Brownfields Redevelopment Institute
17. Woodworker/Shipping Training
18. Expansion of Services for Connections of Adult Learning Center
19. Fresh Start Program
20. Comprehensive Service Delivery Network
21. Street Intervention Program
22. Duncan YMCA Children’s Arts & Education
23. Vocational Education & Community Development Program
24. Violence Prevention Program
25. Community Youth Development Activity Network
26. West Side Residential Rehabilitation

To evaluate the City’s Empowerment Zone Program, we
reviewed records maintained by HUD, the City’s
Department of Planning and Development, 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 the administering entities for 11
of the 26 activities to review their documentation, reports,
and correspondence. We did not conduct site visits to the
remaining 15 activities since the activities were not related
to the City’s Empowerment Zone Program (see Finding 3).

The audit covered the period July 1, 1996 to June 30, 1997.
This period was adjusted as necessary. We conducted our

99-CH-259-1002 Page 2
Introduction

audit in accordance with generally accepted government
auditing standards.

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 Commissioner of the City’s Department
of Planning and Development. 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 99-CH-259-1002
Finding 1

The City Did Not Have Adequate Control Over
Empowerment Zone Funds
The City of Chicago did not maintain adequate oversight over Empowerment Zone funds. Nine
of the 26 activities we reviewed incurred inappropriate or unsupported expenditures. The
inappropriate or unsupported expenditures accounted for 49.2 percent of the Empowerment Zone
funds allotted to the 26 activities. The City: (1) inappropriately used $670,417 of Empowerment
Zone funds and was billed another $121,590 for services that did not benefit Zone residents; and
(2) lacked documentation to show that $892,484 of Zone funds paid and $120,012 billed to the
City benefited Zone residents or were reasonable and necessary expenses. The problems occurred
because the City: did not have an adequate monitoring system for its Empowerment Zone
activities that ensured the use of Zone funds benefited Zone residents; and encouraged an
administering entity to provide services outside of the Zone. 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 that Empowerment Zone funds 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 purpose 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
administrator 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.

The City of Chicago’s Empowerment Zone Strategic Plan
Strategic Plan’s required that the following activities benefit Empowerment
Requirements Zone residents: Mexican Fine Arts Museum Expansion
project; Job Link Program; Family Life Community
Network project; 21st Century Community Learning
Centers; Better Days for Youth and Nuevos Futuros
program; and the Employer Assisted Housing Program.

Page 5 99-CH-259-1002
Finding 1

The City of Chicago did not maintain adequate oversight for
Oversight Of Zone Funds
nine of the 26 activities we reviewed. Specifically, the City
Was Not Adequate
used $670,417 of Empowerment Zone funds and was billed
another $121,590 for services that did not benefit Zone
residents, and did not have documentation to support that
$892,484 Zone funds paid and $120,012 billed to the City
benefited Zone residents or were reasonable and necessary
expenses. The following table shows the amount of
inappropriate and unsupported Zone funds for the nine
activities and the page number where a detailed summary of
each activity is located:

No Support For
Benefit Or
No Reasonableness Page
Activity Benefit And Necessity Number
Mexican Fine Arts $186,396 $ 607,606 38
Job Link Program 148,622 340,165 43
Family Life Network 123,321 3,717 48
21st Century Centers 114,755 0 52
Better Days for Youth 113,686 7,540 56
Employer Housing 43,653 8,468 61
Northwest Industrial 36,171 0 66
Community Services West 25,403 0 69
Storehouse Distributions 0 45,000 73
TOTAL $792,007 $1,012,496

The Mexican Fine Arts Museum Expansion project
Empowerment Zone inappropriately expensed $186,396 to the Empowerment
Funds Did Not Benefit Zone Program. The City paid the project $148,756 of
Zone Residents Empowerment Zone funds for services that did not benefit
Zone residents. The Museum’s contract and the City’s
Strategic Plan required the services to be provided to Zone
residents. Specifically, the Museum used $85,057 of
Empowerment Zone funds to pay non-Zone youths through
March 1998. The Museum also used $63,699 of Zone funds
to pay 100 percent of seven employees’ salaries and benefits
when the employees did not spend all of their time working on
the project. Additionally, the Museum submitted invoices
totaling $37,640 to pay non-Zone youths ($24,654) and

99-CH-259-1002 Page 6
Finding 1

employees’ salaries ($12,986) from April to June 1998. As
of July 31, 1998, the invoices had not been paid.

The Job Link Program used $148,622 of Empowerment
Zone funds to pay for job placement services ($60,769) and
job skills training ($87,853) to non-Zone residents.
However, Job Link’s contract and the City’s Strategic Plan
required Job Link to provide services to Zone residents.

The Family Life Community Network project used $123,321
of Empowerment Zone funds to provide career and educational
services to non-Zone youths. The City’s Strategic Plan and the
project’s contract required the services to be provided to Zone
residents. During a monitoring review in October 1997, the
City’s Department of Human Services identified that the
project was not providing services to Zone youths as required.
However, the Department did not take corrective action nor
did it notify the appropriate City staff administering the
Empowerment Zone Program. The City did not have policies
or procedures to share information on problems identified by
various City departments during monitoring reviews.

The 21st Century Community Learning Centers used $114,755
of Empowerment Zone funds to establish learning centers at 10
schools not located within the Zone. The City’s Strategic Plan
and the Centers’ contract required that the learning centers be
established at schools within the Empowerment Zone. During
the term of the contract, there were at least 33 additional
schools in the Empowerment Zone that could have participated
in the program. The City encouraged the Board of Education,
the Centers’ administering entity, to establish training centers at
schools located outside of the Zone.

The City executed a contract with Chicago Commons
Association, the administering entity for the Better Days for
Youth and Nuevos Futuros program, to provide services to
Empowerment Zone residents. However, the program used
$48,219 of Zone funds for career and educational services
($47,294) and employment stipends ($925) to non-Zone
residents. Additionally, the program submitted invoices
totaling $65,467, which had not been paid, for additional
educational services ($37,023) and employment stipends
($28,444) to non-Zone residents.

Page 7 99-CH-259-1002
Finding 1

The Employer Assisted Housing Program inappropriately
used $25,170 of Empowerment Zone funds for home
ownership services ($22,170) and construction repairs
($3,000). The services did not support the goal of
promoting and supporting home ownership in the Zone as
required by the Program’s contract and the City’s Strategic
Plan. The construction repairs were made to a house not
related to the Program. Additionally, the Program submitted
invoices requesting $18,483 of Zone funds to pay two of its
employees when the two employees did not work on the
Program during the time period of the invoices.

The Northwest Industrial Corridor program used $30,107
of Empowerment Zone funds to pay for the services of an
Administrative Assistant. However, the Assistant had never
worked on the program. The City also inappropriately used
$6,064 of Empowerment Zone funds for lead abatement
removal services that were not part of the Northwest
Industrial Corridor program.

The City advanced Bethel New Life, the administering entity
for the Community Services West Workforce and Life
Preparation program, $25,403 of Empowerment Zone
funds. However, Bethel did not perform any of the services
required by its contract with the City. Bethel New Life used
the Empowerment Zone funds for operations that were not
related to the program.

The Mexican Fine Arts Center Museum used $502,078 of
Documentation Did Not Empowerment Zone funds for 21 employees’ salaries.
Exist To Show However, there was no supporting documentation to show that
Empowerment Zone the employees’ services benefited the Empowerment Zone
Funds Benefited Zone Program. Additionally, the Museum submitted an invoice
Residents requesting reimbursement for another $105,528 for the 21
employees’ salaries during April to June 1998. The invoice had
not been paid as of July 31, 1998.

The City paid the Job Link Program $340,165 of
Empowerment Zone funds to provide services to Zone
residents. The Program used Zone funds for job placement
services ($125,166), job skills training ($1,515), and
miscellaneous services ($213,484). Neither the City nor the
Program had documentation to show the services benefited
Zone residents.

99-CH-259-1002 Page 8
Finding 1

The City and the Family Life Community Network project did
not have documentation to support that $3,717 of
Empowerment Zone funds were used to provide career and
educational services to Zone residents. The City’s Strategic
Plan and the project’s contract required the services to be
provided to Zone residents.

The City and the Better Days for Youth and Nuevos Futuros
program did not have documentation to show that
Empowerment Zone residents benefited from $1,524 in Zone
funds used for the career and educational services ($1,359) and
employment stipends ($165). Additionally, the program lacked
supporting documentation to show that Zone residents were
the recipients of $6,016 in outreach services ($1,064) and
employment stipends ($4,952) that had been billed to the City
but not paid.

The Employers Assisted Housing Program requested $8,468 of
Empowerment Zone funds to pay 100 percent of the
Program’s Project Director’s salary, payroll taxes, and health
insurance benefits from January 1 to March 31, 1998.
However, the Project Director did not spend all of her time
working on the Program. The City and the Program did not
have documentation to show the time spent by the Project
Director on the Program.

The City reimbursed The Storehouse Distribution Center
project $45,000 for the Administrative Director, Warehouse
Manager, and the Corporate Relations Manager’s salaries.
However, the City and the Distribution Center did not maintain
documentation that identified the employees’ time spent on the
project or other activities.

The problems occurred because the City did not have an
adequate monitoring system for its Empowerment Zone
activities that ensured the use of Zone funds benefited Zone
residents. The City also inappropriately encouraged an
administering entity, the Chicago Board of Education, to
provide services outside of the Zone.

The Empowerment Zone Program was established to
Empowerment Zones
stimulate the creation of new jobs, particularly for the
Were Intended To Benefit
disadvantaged and long-term unemployed, and to promote
Zone Residents
revitalization of economically distressed areas. The United

Page 9 99-CH-259-1002
Finding 1

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 objectives, Zone resources need to be spent in
the nominated area and to the benefit of Zone residents to
the maximum extent possible. Where the nature of an
activity is such that it affects both Empowerment Zone and
non-Zone residents, such as the creation of a grocery store,
then the City needs to demonstrate that the activity
primarily benefits Zone residents. Because the 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 of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 81, contains the complete
text of the comments.

The monitoring improvements being implemented reflect a
policy of containment of problematic contracts from the
Chicago Empowerment Zone’s first funding cycle,
introduction of new monitoring requirements for first
funding cycle contracts that have not yet been executed;
and, incorporation of new monitoring requirements up-front
– as part of the application process – for the second funding
cycle.

The specific improvements made to the original monitoring
and reporting requirements include:

99-CH-259-1002 Page 10
Finding 1

1. Clear procedures to tie distribution of funds to actual
performance of subrecipients

2. Standardization of previously problematic definitions,
such as primarily serving Empowerment Zone
residents, leveraged funds, job creation, etc.

3. Increased coordination with and cooperation from
lead agencies within the City regarding monitoring
(i.e., increased utilization of existing expertise and
relationships with subrecipients)

4. Budgeting for the hiring of two additional
Empowerment Zone staff in Fiscal Year 1999 for
monitoring activities

5. Revised procedures for granting advances, consistent
with HUD’s Cash Management Improvement Act

6. Immediate initiation of corrective actions against
subrecipients who are out of compliance.

The Chicago Empowerment Zone staff currently is
conducting site visits with all Empowerment Zone
subrecipients. Those subrecipients that are not in
compliance with their contracts face several possible
consequences. Per the contract with the subrecipients, the
City of Chicago may invoke any or all of the following
remedies: the right to take over and complete the services;
the right to terminate the agreement; the right of specific
performance, and injunction or other appropriate equitable
remedy; monetary damages; the right to deem the
contractor non-responsible in future contracts awarded by
the City; and the right to demand a refund of any funds not
used in accordance with the terms of the agreement. When
the results of the staff analyses are complete -- consistent
with appropriate definitions of applicable terms -- we will
initiate all necessary corrective actions.

The City indicated that it is implementing improvements to: (1)
OIG Evaluation of tie the distribution of funds to the actual performance by
Auditee Comments subrecipients; (2) standardize problematic definitions; (3)
increase coordination and cooperation from the City’s lead
agencies; (4) hire two additional Zone staff for monitoring
activities; (5) revise procedures for granting advances; and (6)

Page 11 99-CH-259-1002
Finding 1

initiate corrective actions against subrecipients who are out of
compliance. The City’s actions should improve the oversight
of Empowerment Zone funds, if the City properly implements
and enforces its improvements. The City’s improvements to
remedy any non-compliance issues need to include
reimbursement by the City to the Empowerment Zone Program
from non-Federal funds for the inappropriate or unsupported
use of Zone funds.

The HUD Inspector General audit team indicates that
Auditee Comments Empowerment Zone funds may be used only for the benefit
of Zone residents. Chicago’s Empowerment Zone, in
consultation with HUD’s Empowerment Zone Program
Office, has proceeded on the basis that the use of Zone
funds should benefit Zone residents primarily. HUD’s
Empowerment Zone Program Coordinator confirmed this
interpretation at the audit exit conference in Chicago on
August 18. In fact, the instruction distributed by HUD with
the round II designation application forms, states all
programs, services, and activities financed in whole or in
part with round II funds must be structured to benefit Zone
residents primarily; the programs, services and activities
may also benefit nonresidents.

The initial working assumption of benefit shared by HUD
and Chicago’s Empowerment Zone as a round I designee
has been confirmed in the round II instructions.

We believe that the auditors have too narrowly defined the
term benefit. Two types of activities identified by the
auditors as problematic – new housing development and
the expansion of an important cultural institution in the
Empowerment Zone – benefit Zone residents in numerous
ways, including bringing new money into the local economy,
new amenities into the neighborhood, and by improving
previously undeveloped or under-used properties. In
addition, both activities are consistent with the Strategic
Plan for Chicago’s Empowerment Zone. Under the audit
team’s overly narrow definition, these very real and
meaningful benefits would not be considered to flow from
the Empowerment Zone Program.

OIG Evaluation of HUD’s regulations and the City’s contracts required the
Auditee Comments activities to benefit Empowerment Zone residents. For the

99-CH-259-1002 Page 12
Finding 1

purpose of this audit, we concluded activities did not benefit
Empowerment Zone residents if the activities served less than
51 percent of Zone residents, or if the activities did not provide
benefits to Zone residents when the activity’s administrators
had control over who received the benefit of the services.
Since the activities had control over who received the benefits
of their services, they should have provided the services to
Zone residents. HUD’s Coordinator of the EZ/EC Initiative
said his comments that Empowerment Zone funds should
primarily benefit Zone residents does not relieve the City from
its contractual obligations to serve just Zone residents. We
adjusted our audit findings to remove the requirement that
services be provided to only Zone residents.

The auditors assumption that the City lost the opportunity
Auditee Comments to use funds for other activities when first cycle
subrecipients did not implement approved projects in a
timely manner was in error. Chicago’s Empowerment Zone
did not allocate all available funds during the first funding
cycle of the 10-year Empowerment Zone Program. No
Zone activity has been stalled for lack of funding
availability.

The auditors’ opinion that commingling of funds is not
allowed is inconsistent with the Office of Management and
Budget’s regulations which clearly allow subrecipients to
combine funds for several different programs in one account
provided the agency maintains an accurate account of
project funds.

OIG Evaluation of We determined that Bethel New Life, the administering entity
Auditee Comments for the Community Services West Workforce and Life
Preparation program, used Empowerment Zone funds for
services that were not related to the program. We explained in
our finding that Bethel New Life commingled Zone funds with
other funds; however, we did not take exception to this since
Bethel properly accounted for the funds.
.
Our conclusion that the City lost the opportunity to use funds
for other activities is based on the fact that the City
inappropriately used Zone funds and until the funds are
reimbursed to the Empowerment Zone Program, the funds are
not available for appropriate Zone activities.

Page 13 99-CH-259-1002
Finding 1

We disagree with the auditors’ opinion that a subrecipient
Auditee Comments receiving funds for staff salaries must document that a
specified percentage of a staff person’s time funded by an
Empowerment Zone grant was actually spent on the Zone
project. In the case cited by the audit team, the subrecipient
performed all tasks/deliverables in less time than it had
anticipated. Barring an unreasonable estimate of time to
perform agreed upon services, we should not seek to
penalize staff of a subrecipient for being efficient.
Empowerment Zone staff will, of course, be diligent in
reviewing subrecipients’ estimates of staff time needed to
perform required tasks and produce required deliverables.

We acknowledge that the subrecipient exceeded its
OIG Evaluation of deliverables; however, the administering entity could not
Auditee Comments support that the salary reimbursements were reasonable and
necessary to provide the deliverables. We believe the City
needs to provide documentation to support the reasonableness
and necessity of the expenses paid with Zone funds or
reimburse the Empowerment Zone Program 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 Chicago:

1A. Reimburses the Empowerment Zone Program
$645,014 from non-Federal funds that the Mexican
Fine Arts Center ($148,756), Job Link Program
($148,622), Family Life Community Network
($123,321), 21st Century Community Learning Centers
($114,755), Better Days for Youth and Nuevos
Futuros ($48,219), Employer Assisted Housing
($25,170), and Northwest Industrial Corridor
($36,171) inappropriately used for services provided to
non-Zone residents.

1B. Does not use $121,590 of Empowerment Zone funds
to reimburse the Mexican Fine Arts Center ($37,640),
Better Days for Youth and Nuevos Futuros ($65,467),
and Employer Assisted Housing ($18,483) for services
billed but provided to non-Zone residents.

99-CH-259-1002 Page 14
Finding 1

1C. Requires Bethel New Life to immediately initiate the
Community Services West Workforce and Life
Preparation program or reimburse the Empowerment
Zone Program $25,403 from non-Federal funds for the
advance to Bethel.

1D. Provides documentation to support that the Mexican
Fine Arts Center Program ($502,078), the Job Link
Program ($340,165), Family Life Community Network
($3,717), the Better Days for Youth and Nuevos
Futuros ($1,524), and the Storehouse Distribution
Center Program ($45,000) used $892,484 of
Empowerment Zone funds to benefit Zone residents. If
adequate documentation cannot be provided, then
reimburse the Empowerment Zone Program from non-
Federal funds.

1E. Does not use $120,012 of Empowerment Zone funds
to reimburse the Mexican Fine Arts Center ($105,528),
Better Days for Youth and Nuevos Futuros ($6,016),
and Employer Assisted Housing ($8,468) for services
billed without documentation to support that the funds
were used to benefit Zone residents.

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

1G. Requires the activities’ administering entities to
maintain documentation to show that Empowerment
Zone funds are used to benefit Zone residents.

1H. Establishes procedures and controls to ensure that
corrective action is taken in regard to grantees who do
not provide the required services.

Page 15 99-CH-259-1002
Finding 2

The City Overstated Estimated Leveraged
Funding by Over $143 Million
The City of Chicago overstated the amount of estimated leveraged funds in the June 1997 Performance
Review. The Review’s Attachments estimated that the City’s 84 Empowerment Zone activities should
leverage $176.1 million. However, supporting documentation included with the Review showed the
84 activities would only leverage $36.6 million, a difference of $139.5 million. The information was
presented so it appeared that the $176.1 million shown in the Attachments was the total of the
supporting documentation. The City also overstated the projected funding by $3.7 million for 12 of 49
activities for which the City requested funding confirmations. As a result, the City overstated the
projected leveraged funding by $143.2 million ($139.5 million + $3.7 million). The problem occurred
because: (1) the City’s reporting process lacked effective oversight and controls to ensure the accuracy
of information presented in the Performance Review; and (2) the City’s staff used outdated information
to complete the financial sections of the Review. Since the amount of leveraged funding is an
important indicator of the Empowerment Zone Program’s success, the inaccurate information
presented a false impression of the Program’s benefits.

Page 4 of the June 23, 1997 EZ/EC Performance Review
HUD’s Requirements instructions issued by HUD states for funding, Empowerment
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 overstated the amount of estimated leveraged funding
The City Overstated for its 84 Empowerment Zone activities by $143,230,803. The
Estimated Leveraged City reported, in Attachments 2 and 3 of the 1997 Performance
Funds Review, that the estimated leveraged funding for the activities
was $176,142,458. However, the supporting documentation
included with the Review showed that the leveraged funds for
the activities totaled only $36,657,669, a difference of
$139,484,789. The Attachments were presented in a manner
that lead the reader to conclude the total of the projected
leveraged funds on Attachments 2 and 3 was a summarization
of the supporting information.

Based upon the City’s June 1997 Performance Review, HUD’s
Illinois State Office of Community Planning and Development
used inaccurate information to assess the City’s Empowerment
Zone performance. HUD’s progress report dated November 7,
1997 showed that $43 million of Empowerment Zone funds
would leverage $176 million from public and private agencies.

Page 17 99-CH-259-1002
Finding 2

The following graph shows the relationship between the total
of leveraged funds in Attachments 2 and 3 and the total from
the supporting documents:

Estimated Leveraged Funding
1997 Performance Review

180
160 $176,142,458
140
120

Million
100
80
60
$36,657,669
40
20
0
Attachments Supporting
2&3 Documents

In addition, the $36,657,669 in leveraged funds reported in the
supporting documentation was not accurate. The City sent a
survey to 49 Empowerment Zone activities to confirm the
status and funding source information for the Performance
Review. The City could not explain why the survey was not
sent to all 84 Zone activities. Thirty-eight of the 49 Zone
activities submitted confirmations to the City. We compared
the data in the confirmations with the information shown in the
Review and identified inconsistencies for 12 of the 38 activities.
The net effect of the inconsistencies was that the estimated
leveraged funding was $3,746,014 more than the amount of
leveraged funds confirmed by the activities. As a result,
leveraged funding was overstated a total of $143,230,803
($139,484,789 + $3,746,014). The City could not explain why
the information in the Review did not agree with the
confirmations for the 12 activities.

The Assistant Commissioner for the City’s Department of
Planning and Development said the City did not verify the
accuracy of any funding information submitted by the Zone
activities because of staff shortages. We believe the City had
adequate staff to verify the accuracy of information it presented
in its Review. The City had all eight budgeted staff positions
filled during the reporting year with the exception of one
position that was vacant for two and one-half months. At the
time the Review was prepared, the City was fully staffed and

99-CH-259-1002 Page 18
Finding 2

had four more individuals working under an internship
program.

The City’s Program Coordinator said the leveraged funding
Leveraged Funding amounts reported in the 1997 Performance Review were
Amounts Were Based On obtained from the activities’ original proposals because they
Outdated Information were the best source of funding information when the Review
was prepared. However, the proposals were submitted to the
City in December 1995. As of June 30, 1997, the funding
information was at least nineteen months old and the
confirmations of funding information that the City had received
indicated some of the information was not accurate. The City
also lacked adequate supervisory oversight to ensure the
accuracy and reliability of the Performance Review.

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 92, contains the complete
text of the comments.

At the time the 1997 Performance Review was submitted,
the best funding estimates available were either from the
original proposals submitted by subrecipients or from the
investment worksheet collected from subrecipients between
the date HUD issued the Performance Review instructions
(June 23, 1997) and the date the Performance Review was
due to HUD (July 30, 1997). In the future, subrecipients’
reports will be verified by Empowerment Zone staff to
ensure accurate reporting of leveraged funds.

Procedures and controls have been established to ensure
accurate reporting of funding amounts and commitments
consistent with HUD’s instructions and to verify the
accuracy of information submitted to HUD. The specific
improvements made by the Chicago Empowerment Zone to
the original monitoring and reporting requirements include
training of all Empowerment Zone staff and lead agency staff
involved in monitoring and reporting regarding HUD’s
reporting procedures.

The City’s actions to establish procedures and controls should
OIG Evaluation of improve reporting accuracy, if the procedures and controls
Auditee Comments adequately address HUD’s Performance Review instructions
Page 19 99-CH-259-1002
Finding 2

and require verification of the accuracy of information provided
to HUD. The City’s training should address HUD’s
instructions for reporting current funding amounts and
commitments.

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

2A. Establishes procedures and controls to follow HUD’s
instructions and report current funding amounts and
commitments in Performance Reviews.

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

99-CH-259-1002 Page 20
Finding 3

Activities Were Incorrectly Reported As
Empowerment Zone Activities
The City of Chicago incorrectly reported that 15 of 84 activities in its June 30, 1997 Performance
Review were Empowerment Zone Program activities. The 15 activities were not located within the
City’s Federally-designated Empowerment Zone and received funding from the State of Illinois’
Enterprise Community grant. Because the City included the 15 activities in the Performance Review,
over $7 million in funding was incorrectly reported as leveraged funds. The problem occurred because
the City’s reporting process lacked effective oversight and controls to ensure the validity and reliability
of the information included in the Performance Review. As a result, the City did not accurately report
to HUD its Empowerment Zone Program’s accomplishments, which created the impression that the
benefits of the Program were greater than actually achieved.

The City of Chicago incorrectly reported that 15 of the 84
City Incorrectly Reported
activities in the June 1997 Performance Review were
15 Projects As Zone
Empowerment Zone activities. The 15 activities were not
Activities
located within the City’s Federally-designated Empowerment
Zone. Because the City included the 15 activities in the
Performance Review, over $7 million in leveraged funding was
incorrectly reported as leveraged Zone funds. The following
chart lists the 15 activities and their reported funding levels:

Funding
Activity Name
Arts Business Incubator $693,000

Page 21 99-CH-259-1002
Finding 3

Chicago Neighborhood Plan Program 712,925
Self-Sufficiency Project 34,300
Holistic Connection 77,142
Youth Economic Alternatives 1,087,449
Linking to the Service Delivery Network 544,000
Brownfields Redevelopment Institute 602,188
Woodworker/Shipping Training 600,000
Expansion of Services for Connections of
Adult Learning Center 91,300
Fresh Start Program 106,750
Comprehensive Service Delivery Network 250,931
Street Intervention Program 286,140
Duncan YMCA Children’s Arts & Education 1,882,667
Vocational Education & Community
Development Program 181,866
Violence Prevention Program 55,251
Total $7,205,909

The inaccurate reporting by the City also occurred in the June
1996 Performance Review.

The errors occurred because the individual who prepared the
City’s June 1997 Performance Review did not recognize that
the Enterprise Community activities were not part of the
Federally-designated Empowerment Zone Program. HUD’s
instructions cover both Federally-designated Empowerment
Zones and Enterprise Communities; therefore, the City of
Chicago included both Zone and Enterprise Community
activities in the 1996 and 1997 Performance Reviews. The
City’s Performance Reviews to HUD should not have included
the Enterprise Community activities since the activities were
located outside of the Federally-designated Zone. The
Assistant Commissioner for the City’s Department of Planning
and Development said the City’s management staff, who was
responsible for administering the Empowerment Zone Program
and the State Enterprise grant, did not examine the
Performance Reviews for accuracy. As a result, the
accomplishments of the Empowerment Zone Program were
not accurately reported to HUD and an impression was created
that the benefits of the Program were greater than actually
achieved.

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

99-CH-259-1002 Page 22
Finding 3

Fourteen (not 15) of the 84 activities in the 1997
Performance Review were located in Chicago’s three
Enterprise Communities (not a designated Enterprise
Community under the Federal program), rather than one of
the three clusters of the Chicago Empowerment Zone.
Evaluations conducted to date confirm that several of the 14
Enterprise Community activities benefit Empowerment
Zone residents, based on clients served lists or the agency’s
reporting of the geographic area they served. Contrary to
the audit team’s report, the Chicago Empowerment Zone
recognizes that the Enterprise Communities are not a part of
the Empowerment Zone Program, hence: two sets of
boilerplate contracts, two systems for assigning contract
numbers, two systems for assigning fund numbers, two
monthly expenditure reporting systems to the State, and two
sets of community representatives on the Coordinating
Council.

Procedures and controls have been established to ensure
that only Empowerment Zone activities are reported to
HUD and to verify the accuracy of information submitted to
HUD. The specific improvements made by the Chicago
Empowerment Zone to the original monitoring and
reporting requirements include training of all Empowerment
Zone staff and lead agency staff involved in monitoring and
reporting regarding HUD’s reporting procedures, and clear
separation of activities funded by Federal Empowerment
Zone dollars from Empowerment Zone and Enterprise
Community activities funded by State dollars.

The City did not indicate which one of the 15 activities that we
OIG Evaluation of reported as a non-Zone activity it believed was an
Auditee Comments Empowerment Zone activity. Our review showed that the City
reported 15 State Enterprise Community activities as
Empowerment Zone activities in the June 1997 Performance
Review even though the activities were located outside of the
Federally-designated Empowerment Zone area.
We agree that the City knew Enterprise Community activities
were not part of the Empowerment Zone Program. However,
the person who prepared the Performance Review did not
recognize the difference. We adjusted the wording in our
finding to indicate that the individual who prepared the
Performance Review was unaware of the difference.

Page 23 99-CH-259-1002
Finding 3

We do not disagree that an Enterprise Community activity that
occurs within the Empowerment Zone may benefit Zone
residents, or that the benefit can be reported as a positive action
occurring in the Zone. However, the source of the benefit
should be clearly shown so that HUD can accurately assess the
progress of the Empowerment Zone Program. The City
reported its Enterprise Community activities’ funding and
progress as if they were part of the Empowerment Zone
Program.

The City’s actions to establish procedures and controls should
improve reporting accuracy, if the procedures and controls
adequately address HUD’s Performance Review instructions
and require verification of the accuracy of information provided
to HUD. The City’s training should address HUD’s
instructions for reporting Empowerment Zone activities to
HUD.

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

3A. Establishes procedures and controls to only 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.

99-CH-259-1002 Page 24
Finding 4

The City Inaccurately Reported The
Accomplishments Of Its Empowerment Zone
Activities
The City of Chicago incorrectly reported the actual status and progress for 11 of the 26 activities
we reviewed from the June 30, 1997 Performance Review. The Review contained inaccuracies
related to: nine activities’ performance measures; nine activities’ funding; six activities’
performance milestones; and two activities’ participating entities. The inaccuracies occurred
because the City did not: (1) use the actual accomplishments submitted by the activities’
administering entities; (2) verify the accuracy of the information included in the Performance
Review; or (3) obtain the status of the activities from the administering entities. As a result, the
City did not accurately report the accomplishments of its Empowerment Zone Program to HUD. The
impression exists that the benefits of the City’s Empowerment Zone Program were greater than
actually achieved.

Page 3 of the December 21, 1994 Memorandum of Agreement
HUD’s Requirements between HUD and the City of Chicago 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; 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.

The City of Chicago inaccurately reported the
The City Incorrectly
accomplishments for 11 of the 26 activities we reviewed
Reported The Progress Of
from the June 1997 Performance Review. The remaining 15
Empowerment Zone
activities although reported as Empowerment Zone
Activities
activities were not (see Finding 3). The following table

Page 25 99-CH-259-1002
Finding 4

shows the incorrect reporting by performance category for
the 11 activities and the page number where a detailed
summary for each activity is located:

Participating Page
Activity Measures Funding Milestones Entities Number
Mexican Fine Arts X X 38
Job Link X X X 43
Family Life Network X X 48
21st Century Centers X X X 52
Better Days/ Nuevos X X X 56
Futuros
Employer Assisted X X X X 61
Housing
Northwest Industrial X X X 66
Workforce/Life X X 69
Preparation
Storehouse X 73
Distributions
Community Youth X X 76
Network
West Side X 79
Rehabilitation
Totals 9 9 6 2

The City incorrectly reported the performance measures for
The City Inaccurately nine 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 Northwest Industrial Corridor program was
expected to assist 105 individuals to obtain employment and
place at least 100 Empowerment Zone residents in jobs.
However, the two performance measures were being
performed by another Empowerment Zone activity, the Job
Link Program. Since the projections were reported by both
programs, the impression exists that more individuals will be
assisted than actually planned.

99-CH-259-1002 Page 26
Finding 4

The Performance Review also showed that one of the
Northwest Industrial Corridor program’s performance
measures was to advise 50 businesses of the wage tax
credits available under the Empowerment Zone Program.
As of June 1997, the City did not report any
accomplishments for this measure. Bethel New Life, the
program’s administering entity, had documentation in its
files that showed 17 businesses had been informed of the tax
credits by June 30, 1997.

The City over reported nine activities’ funding in the June 1997
The City Over Reported Performance Review. Funding consists of Empowerment
The Activities’ Funding Zone monies, non-Zone Federal funds, State and local funds,
By Over $2 Million private donations, and in-kind contributions. The Performance
Review showed that the funding for the nine activities included
$7,902,290; however, the activities’ funding included
$5,674,238 as of June 30, 1997. The net affect was an over
reporting of $2,228,052. The City also overstated the
projected leveraged funding for its Empowerment Zone
Program by over $143 million (see Finding 2). The following
table shows the incorrect reporting by activity:

Amount Amount Over/Under
Activity Reported Supported Reported
Mexican Fine Arts $ 0 $ 544,400 $ (544,400)
Job Link 1,000,000 2,500 997,500
21st Century Centers 416,000 953,674 (537,674)
Better Days/ Nuevos Futuros 143,799 48,779 95,020
Employer Assisted Housing $210,000 $0 $210,000
Northwest Industrial 600,000 0 600,000
Workforce/Life Preparation 271,211 0 271,211
Community Youth Network 261,300 224,885 36,415
West Side Rehabilitation 5,000,000 3,900,000 1,100,000
Totals $7,902,310 $5,674,238 $2,228,072

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 to leverage funds and
contributions, we believe it is imperative that the City
accurately reports the funding of its activities.

Page 27 99-CH-259-1002
Finding 4

The City inaccurately reported six 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 inaccurately reported the 21st Century Community
Learning Centers’ performance milestones. The City did
not report that 19 of 21 project milestones for the
Community Learning Centers were completed. The Centers
informed the City in the January 31, 1997 progress report
that the 19 milestones were completed. As a result, HUD
was not provided an accurate picture of the Centers’
progress.

The City inaccurately reported two activities’ participating
The City Incorrectly entities. Participating entities are the major entities responsible
Reported Participating for financing, managing, and operating an activity. The City
Entities reported that Heinz Neighborhood Development was a
participating entity in the Employer Assisted Housing Program.
However, the Vice President of Development for Bethel
New Life, the Program’s administering entity, said she was
not familiar with Heinz Neighborhood Development. The
City used information included in the Program’s proposal to
report the projected participating entities in the Performance
Review.

The City also reported that the Polk Brothers Foundation,
MacArthur Foundation, and Surdna Foundation were
participating entities of the Community Services West
Workforce and Life Preparation program. The Senior Vice
President of Programs at Bethel New Life, the program’s
administering entity, said the three foundations were past
contributors and showed interest in the program, but did not
fund the program.

The incomplete and inaccurate reporting occurred because: (1)
inexperienced staff prepared the City’s Performance Review;
(2) the City did not request performance information; and (3)
the City’s management staff, who was responsible for the
administering the Empowerment Zone Program, did not
examine the Performance Review for accuracy. As a result, the
City did not accurately report the accomplishments of its
Empowerment Zone Program to HUD. The impression exists
that the benefits of the City’s Empowerment Zone Program
were greater than actually achieved.

99-CH-259-1002 Page 28
Finding 4

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 81, contains the complete
text of the comments.

We acknowledge that mistakes were made in reporting in
our July 30, 1997 Performance Report (covering the period
July 1, 1996 through June 30, 1997). Fortunately, we
became aware of those problems and started to implement
solutions shortly after the 1997 Performance Report was
filed – long before the audit was announced.

Improvements to our reporting system already have been
implemented, which will result in accurate reporting of
accomplishments. The reporting improvements being
implemented by the Chicago Empowerment Zone are the
introduction of new reporting requirements for first funding
cycle contracts that have not yet been executed, and
incorporation of the new reporting requirements up-front –
as part of the application process – for the second funding
cycle.

The specific improvements made to the original reporting
requirements (“the new system”) include:

1. Clear communication of reporting requirements (both
substantive and procedural) to subrecipients and lead
agencies which have monitoring responsibilities

2. Creation and distribution of standardized monitoring
and reporting forms -- to aid compliance and produce
results that permit apples-to-apples analysis and
reporting of accomplishments and leveraging

3. Site visits by Empowerment Zone staff to every
subrecipient to determine/verify progress and status

4. Training of all Empowerment Zone staff and lead
agency staff involved in reporting regarding HUD’s
reporting procedures.

We do not know when the City became aware of the
OIG Evaluation of inaccuracies in its June 30, 1997 Performance Review.
Auditee Comments However, the City took no action to inform HUD of the
inaccuracies or to prepare a corrected Performance Review.

Page 29 99-CH-259-1002
Finding 4

The actions the City says it has planned or taken should
improve the reporting inaccuracies, if properly implemented
and followed. However, the City needs to establish procedures
and controls to ensure that the person who prepares the City’s
Performance Review to HUD uses the actual accomplishments
for each activity as provided by the administering officials. The
City also needs to amend the contract for the Northwest
Industrial Corridor Program to accurately reflect the
performance measures the administering entity is
responsible to complete.

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

4A. Establishes procedures and controls to ensure that the
person who prepares the City’s Performance Review to
HUD uses the actual accomplishments for each activity
as provided by the administering officials.

4B. Provides training on HUD’s reporting requirements
to the staff who are responsible for preparing the
Empowerment Zone Performance Review.

4C. Establishes procedures and controls to verify the
accuracy of information submitted to HUD for the
Empowerment Zone Program.

4D. Amends the contract for the Northwest Industrial
Corridor Program to accurately reflect the
performance measures the administering entity is
responsible to complete.

99-CH-259-1002 Page 30
Management Controls
In planning and performing our audit, we considered the management controls of the City of Chicago
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 31 99-CH-259-1002
Management Controls

· Program Operations.

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

· Validity and Reliability of Data.

The City: overstated the estimated amount of leveraged
funding; inaccurately reported 15 activities as
Empowerment Zone activities when they were not; and
incorrectly reported the actual status and progress for
11 of the 26 activities we reviewed from the June 30,
1997 Performance Review (see Findings 2, 3, and 4).

· Compliance with Laws and Regulations.

The City did not follow the United States Code, HUD’s
regulations, and the City’s Strategic Plan.
Empowerment Zone funds were used that did not
benefit Zone residents and without supporting
documentation (see Finding 1).

· Safeguarding Resources.

The City: (1) inappropriately used $670,417 for services
from Empowerment Zone funds, and was billed
$121,590 for services provided, but the services did not
benefit Zone residents; and (2) lacked documentation to
show that $892,484 of Zone funds paid and $120,012
billed to the City benefited Zone residents or were
reasonable and necessary expenses (see Finding 1).

99-CH-259-1002 Page 32
Follow Up On Prior Audits
This is the first audit of the City of Chicago’s Empowerment Zone Program by HUD’s Office of
Inspector General. The latest single audit for the City covered the fiscal year ended December 31,
1996. The report contained 25 findings. None of the findings related to the Empowerment Zone
Program.

Page 33 99-CH-259-1002
Appendix A

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

1A $645,014
1B 121,590
1C 25,403
1D $892,484
1E 120,012
Total $792,007 $1,012,496

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 35 99-CH-259-1002
Appendix B

Activities Reviewed
This appendix contains the individual evaluations for the activities we reviewed. We judgmentally
selected 26 of the City of Chicago’s 84 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 all 26 activities. The following table shows the 26 activities that had problems, the
location of their evaluation in this report, and the finding(s) they relate to:

Activity Page Finding
1. Mexican Fine Arts Museum Expansion 38 1 and 4
2. Job Link Program 43 1 and 4
3. Family Life Community Network 48 1 and 4
4. 21st Century Community Learning Centers 52 1 and 4
5. Better Days for Youth and Nuevos Futuros 56 1 and 4
6. Employer Assisted Housing Program 61 1 and 4
7. Northwest Industrial Corridor 66 1 and 4
8. Community Services West Workforce and Life Preparation 69 1 and 4
9. The Storehouse Distributions Center 73 1 and 4
10. Arts Business Incubator 3
11. Chicago Neighborhood Plan Program 3
12. Self-Sufficiency Project 3
13. Holistic Connection 3
14. Youth Economic Alternatives 3
15. Linking to the Service Delivery Network 3
16. Brownfields Redevelopment Institute 3
17. Woodworker/Shipping Training 3
18. Expansion of Services for Connections of Adult Learning Center 3
19. Fresh Start Program 3
20. Comprehensive Service Delivery Network 3
21. Street Intervention Program 3
22. Duncan YMCA Children’s Arts & Education 3
23. Vocational Education & Community Development Program 3
24. Violence Prevention Program 3
25. Community Youth Development Activity Network 76 4
26. West Side Residential Rehabilitation 79 4

Page 37 99-CH-259-1002
Appendix B

Controls Over the Mexican Fine Arts Museum
Expansion Project Were Not Adequate
The City of Chicago did not maintain adequate controls over the Mexican Fine Arts Museum
Expansion project. The City inappropriately used $148,756 of Empowerment Zone funds that did
not benefit Zone residents and did not have adequate documentation to support that another
$502,078 of services paid for with Zone funds benefited Zone residents. The City also
inaccurately reported the actual progress of the project in the June 30, 1997 Performance Review.
The inaccuracies related to performance measures and funding. The problems occurred because
the City did not have an adequate monitoring system. The City also did not obtain the status of
the project or verify the accuracy of the information included in the Performance Review. As a
result, Empowerment Zone funds were not used efficiently and effectively. The City also did not
provide HUD with an accurate description of the project’s accomplishments.

The City of Chicago executed a contract with the Mexican
The City Did Not Have Fine Arts Center Museum, the administering entity for the
Adequate Controls Over project, to provide career and educational services to
Zone Funds Empowerment Zone residents for the period September 12,
1996 to September 30, 1998. The contract required that
services be provided to support the goal of providing
cultural diversity to Zone residents for employment
opportunities. However, services were provided to non-
Zone residents. The services were not in accordance with
the Museum’s contract and the City’s Strategic Plan. The
Museum used Empowerment Zone funds that did not
benefit Zone residents. The City and the Museum also did
not have adequate documentation to ensure that additional
Zone funds were used for services that benefited Zone
residents.

The following table shows the amount of Empowerment
Zone funds that were inappropriately used by the Museum
totaled $148,756 and the amount of Zone funds that lacked
supporting documentation was over $500,000:

Use of Zone Funds Inappropriate Unsupported
Non-Zone Youths $ 85,057 $ 0
Museum’s Employees 63,699 502,078
Total $148,756 $502,078
As of June 15, 1998, the Mexican Fine Arts Center Museum
Empowerment Zone received $1,102,736 in Empowerment Zone funds to provide
Funds Were Used To Pay
99-CH-259-1002
Non-Zone Residents Page 38
Appendix B

career and educational services to Zone residents. The
Museum’s records showed that 16 (21.3 percent) of 75 youth
interns employed were Zone residents. However, the City’s
contract required the Museum to employ Zone youths. The
Museum used $85,057 of Empowerment Zone funds to pay
the non-Zone youths through March 1998. Additionally, the
Museum submitted an invoice requesting $24,654 of Zone
funds to pay non-Zone youths from April to June 1998. As of
July 31, 1998, the invoice had not been paid.

The Mexican Fine Arts Center Museum also paid employees’
Inappropriate Or salaries with Empowerment Zone funds when the services
Unsupported Employee provided either did not benefit Zone residents ($63,699) or
Salaries Were Paid Using there was no support to show that they benefited Zone
Empowerment Zone residents ($502,078). The Museum used Zone funds to pay 50
Funds percent of one employee’s and 100 percent of 17 employees’
salaries, payroll taxes, and health insurance benefits between
January 1997 and March 1998. Additionally, Zone funds were
used to pay 100 percent of three part-time employees’ salaries
and payroll taxes during the same period.

During our audit, the Museum provided a schedule of the 21
employees’ estimated time spent on the project and other
activities. The Museum’s schedule showed that seven of the
21 employees that were paid 100 percent from Empowerment
Zone funds did not spend all of their time working on the
project. The time spent by the seven employees on non-Zone
activities was 20 percent by the Receptionist, 45 percent by the
Custodian, 23 percent each by three part-time Custodians, 53
percent by the Publicist, and 45 percent by the Building
Operations Manager. Based upon the Museum’s schedule,
$63,699 of Empowerment Zone funds was used to pay the
seven employees for non-Zone activities between January 1997
and March 1998. The Museum also submitted an invoice
requesting $12,986 of Zone funds to pay the seven employees
for time spent working on non-Zone activities from April to
June 1998. The invoice had not been paid as of July 31, 1998.

According to the Museum’s schedule, the remaining 14
employees worked 100 percent of their time charged on
Empowerment Zone activities. We interviewed two employees
to verify whether they spent 100 percent of their time on Zone
activities. The two employees were the Education Director
and the Assistant Development Director. Both indicated that
they did not spend 100 percent of their time on Empowerment

Page 39 99-CH-259-1002
Appendix B

Zone work, but could not provide an estimate of the time they
did spend working on Zone activities. The City and the
Museum did not maintain documentation that accounted for
the employees’ time. Since the Museum’s mission also
involved providing similar services under other programs,
HUD and the City lack assurance that $502,078 in
Empowerment Zone funds were spent to benefit Zone
residents. Additionally, the Museum submitted an invoice
requesting reimbursement for another $105,528 for the services
of the 21 employees from April to June 1998. The invoice had
not been paid as of July 31, 1998.

The Assistant Commissioner for the City’s Department of
Planning and Development said the City did not monitor the
project because it lacked sufficient monitoring procedures.

The City did not report that 16 Empowerment Zone youths
The City Did Not Report obtained employment from the project as of the June 30,
The Number Of Youths 1997 Performance Review. The project did not report the
Employed By The Project information to the City because the City only requested
information related to funding and did not request
information related to performance measures. HUD’s
instructions for the Performance Review required the City
to report measurable outcomes of an activity. The Assistant
Commissioner of the City’s Department of Planning and
Development said the City did not request the performance
measure results because it did not have sufficient staff to
verify the accuracy of the information. We believe the City
had adequate staff to verify the accuracy of information.
The City had all eight budgeted staff positions filled during
the reporting year with the exception of one position that
was vacant for two and one-half months. At the time the
Review was prepared, the City was fully staffed and had
four more individuals working under an internship program.
The interns were hired to perform special projects. One
intern’s sole responsibility was to prepare the Performance
Review.

The City inaccurately reported the project’s funding in the
The City Under Reported June 1997 Performance Review. The City reported that the
The Project’s Funding By project’s only funding source was $2.8 million of
$544,400 Empowerment Zone funds. The Performance Review did

99-CH-259-1002 Page 40
Appendix B

not show that the project had commitments of: (1) $60,000
from the State of Illinois; (2) $61,400 from the City; and (3)
$423,000 from private entities. The private funding was
provided by 25 organizations such as Kraft Foods, The
Chicago Community Trust, MacArthur Foundation, and
The Nathan Cummings Foundation. As a result, the City
under reported the project’s funding by $544,400.

The incomplete and inaccurate reporting of performance
measures and funding occurred because: (1) inexperienced
staff prepared the City’s Performance Review; (2) the City
did not request performance information; and (3) the City’s
management staff, who was responsible for administering
the Empowerment Zone Program, did not review the
Performance Review for accuracy. Since the overall
measure of success of the Empowerment Zone Program is
to assist Zone residents and leverage funding, we believe it
is imperative that the City accurately reports performance
measures and funding of its activities.

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 97, contains the complete
text of the comments.

It is important to note that the contract does not require 100
percent of Empowerment Zone resident participation for
youth internships. At the time the 1997 Performance
Review was submitted, the best funding estimates available
were either from the original proposals submitted by
subrecipients or from the investment worksheets collected
from subrecipients between the date HUD issued the
Performance Review instructions (June 23, 1997) and the
date the Performance Review was due to HUD (July 30,
1997).

Federal law and the Museum’s contract required the Museum
OIG Evaluation of
to employ Zone youths. Since only 21.3 percent of the youth
Auditee Comments interns were Zone residents, the Museum did not primarily
benefit Zone residents. For the purpose of this audit, we
concluded activities did not benefit Empowerment Zone
residents if the activities served less than 51 percent of Zone
residents, or if the activities did not provide benefits to Zone
residents when the activity’s administrators had control over
who received the benefit of the services. In the case of the

Page 41 99-CH-259-1002
Appendix B

Mexican Fine Arts Museum Expansion project, the Museum
had control over who received the benefits of the internships.

While the City indicates that it used the best funding estimates
to prepare the Performance Review, we found the Museum
had updated funding information that the City did not request.

Procedures have been established requiring all subrecipients
Auditee Comments to maintain records documenting benefits to Zone residents.
Source documentation has been requested to verify
compliance with the contract and to substantiate staff
involvement. If the subrecipient is not in compliance with
the contract, the Chicago Empowerment Zone will take
necessary corrective actions to remedy any non-compliance
issues. Procedures and controls have been established to
ensure that funds are used efficiently and effectively.
Training will be provided for existing and future staff.
Procedures and controls have been established to ensure
that project accomplishments are accurately reported and to
verify the accuracy of information submitted to HUD.

The City indicated that it has established procedures and
OIG Evaluation of controls to ensure that: (1) funds are used efficiently and
Auditee Comments effectively; (2) project accomplishments are accurately
reported; and (3) information submitted to HUD is verified for
accuracy. Additionally, the City indicated that it established
procedures to require subrecipients to maintain records to
document benefits to Zone residents. The City did not include
the procedures or controls with its comments. The City’s
corrective actions to remedy any non-compliance issues need
to include reimbursement by the City to the Empowerment
Zone Program from non-Federal funds for the inappropriate or
unsupported use of Zone funds.

Controls Over the Job Link Program Were Not
Adequate
The City of Chicago did not maintain adequate controls over the Job Link Program. The City
inappropriately used $148,622 of Empowerment Zone funds that did not benefit Zone residents
and did not have documentation to support that another $340,165 of Zone funds benefited Zone
residents. The City also inaccurately reported the actual progress of the Program in the June 30,
1997 Performance Review. The inaccuracies related to performance measures, funding, and

99-CH-259-1002 Page 42
Appendix B

performance milestones. The problems occurred because the City did not have an adequate
monitoring system. The City also did not obtain the status of the Program or verify the accuracy
of the information included in the Performance Review. As a result, Empowerment Zone funds
were not used efficiently and effectively. The City also did not provide HUD with an accurate
description of the Program’s accomplishments.

The City of Chicago executed a contract with Bethel New
The City Did Not Have Life to administer the Job Link Program. The Program was
Adequate Controls Over established to provide job placement services and job skills
Zone Funds training to Empowerment Zone residents for the period of
March 1, 1997 to February 28, 1999. On March 24, 1997,
a contract modification was executed to change the
administering entity to West Side Job Link. The contract
required that services be provided to support the goal of
training Zone residents for employment opportunities.
However, services were provided to non-Zone residents.
The services were not in accordance with Job Link’s
contract and the City’s Strategic Plan. Job Link used
Empowerment Zone funds that did not benefit Zone
residents. The City and Job Link also did not have
documentation to ensure that additional Zone funds were
used for services that benefited Zone residents.

The following table shows the amount of Empowerment
Zone funds that were inappropriately used by Job Link
totaled $148,622 and the amount of Zone funds that lacked
supporting documentation was over $340,000:

Use of Zone
Funds Inappropriate Unsupported
Job Placement
Services $60,769 $125,166
Job Skills
Training 87,853 1,515
Miscellaneous
Services 0 213,484
Total $148,622 $340,165

Page 43 99-CH-259-1002
Appendix B

As of March 16, 1998, West Side Job Link received $553,538
Inappropriate Or in Empowerment Zone funds to provide job placement
Unsupported Job services and job skills training to Zone residents. Job Link’s
Placement Services Were records showed that only 43 (17.3 percent) of the 248 residents
Paid Using Zone Funds who received job placement services were Zone residents.
However, the City’s contract required Job Link to provide
services to Zone residents. Job Link used $60,769 of
Empowerment Zone funds to pay for the services to the non-
Zone residents between March 1997 and May 1998. The City
and Job Link also lacked documentation to show that $125,166
of Empowerment Zone funds used to provide job placement
services to 138 individuals benefited Zone residents. The City
and Job Link could not provide documentation which showed
the 138 individuals’ addresses.

West Side Job Link also used Empowerment Zone funds to
Inappropriate Or pay for job skills training when the training either did not
Unsupported Job Skills benefit Zone residents ($87,853) or there was not support to
Training Were Paid Using show that they benefited Zone residents ($1,515). Job Link’s
Zone Funds records showed that only 17 (22.4 percent) of the 76
individuals who received job skills training between March and
November 1997 were Zone residents. However, the City’s
contract required Job Link to provide training only to Zone
residents. The City and Job Link also could not provide
documentation to show that one person who received training
was an Empowerment Zone resident.

Of the $553,538 in Empowerment Zone funds provided to
Unsupported Services West Side Job Link, the City and Job Link lacked
Were Paid Using Zone documentation to support the use of $213,484, or the benefits
Funds provided to Zone residents. Since the City and Job Link did
not have documentation to support the use of the $213,484,
there was no assurance that Zone funds were used in
accordance with the contract and to benefit Zone residents.
The Assistant Commissioner for the City’s Department of
Planning and Development said the City did not monitor the
Program because it lacked sufficient monitoring procedures.

The City did not report the fact that the Program provided
The City Did Not Report Empowerment Zone residents with job skills training or that
The Program’s Zone residents obtained employment as of June 30, 1997.
Performance Measures Job Link’s records showed that nine Empowerment Zone
residents received job skills training and three Zone
residents were employed as of June 1997. However, this

99-CH-259-1002 Page 44
Appendix B

was not reported in the City’s June 1997 Performance
Review.

The City also did not report the fact that four businesses in
the Zone received information on wage and work tax credits
available through the Empowerment Zone Program.

We believe the City had adequate staff to verify the
accuracy of information. The City had all eight budgeted
staff positions filled during the reporting year with the
exception of one position that was vacant for two and one-
half months. At the time the Review was prepared, the City
was fully staffed and had four more individuals working
under an internship program. The interns were hired to
perform special projects. One intern’s sole responsibility
was to prepare the Performance Review.

The City inaccurately reported the Program’s funding in the
The City Over Reported June 1997 Performance Review. The City reported that the
The Program’s Funding Program’s projected private funding was $1 million.
By $997,500 However, Job Link provided a report to the City that
showed only $2,500 in private funds was received from
First Chicago Bank as of June 30, 1997. The City’s staff
could not provide an explanation of where the reported
funding information came from. As a result, the City over
reported the Program’s funding by $997,500.

The City did not report the Program’s performance
The City Did Not Report milestones in the June 1997 Performance Review. The
The Program’s Review did not show when the Program planned to: (1)
Performance Milestones develop job linkages with commercial and industrial
employers; (2) perform case management, placement, and
referral services; and (3) monitor and improve the training
system. The Director of West Side Job Link said the City

Page 45 99-CH-259-1002
Appendix B

should have reported that the three performance milestones
would be completed on February 28, 1999. The City also
did not report in the June 1997 Performance Review that
the Program had developed an organizational structure.
The Director of Job Link said the organizational structure
was developed on March 15, 1997.

The incomplete and inaccurate reporting of performance
measures, funding, and performance milestones occurred
because: (1) inexperienced staff prepared the City’s
Performance Review; (2) the City did not request
performance information; and (3) the City’s management
staff, who was responsible for administering the
Empowerment Zone Program, did not review the
Performance Review for accuracy. Since the overall
measure of success of the Empowerment Zone Program is
to assist Zone residents and leverage funding, we believe it
is imperative that the City accurately reports performance
categories of its activities.

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 102, contains the complete
text of the comments.

While the City indicates that it used the best funding estimates
OIG Evaluation of
to prepare the Performance Review, we found the Job Link
Auditee Comments Program had provided the correct funding information to the
City prior to the submission of the Performance Review.

the contract, the Chicago Empowerment Zone will take
necessary corrective actions to remedy any non-compliance
issues. Procedures and controls have been established to
ensure that funds are used efficiently and effectively.
Training will be provided for existing and future staff.
Procedures and controls have been established to ensure
that project accomplishments are accurately reported and to
verify the accuracy of information submitted to HUD.

Controls Over the Family Life Community
Network Project Were Not Adequate
The City of Chicago did not maintain adequate controls over the Family Life Community
Network project. The City inappropriately used $123,321 of Empowerment Zone funds that did
not benefit Zone residents and did not have documentation to support that another $3,717 of
services paid for with Zone funds benefited Zone residents. The City also inaccurately reported
the actual progress of the project in the June 30, 1997 Performance Review. The inaccuracies
related to performance measures and milestones. The problems occurred because the City did not
have an adequate monitoring system. The City also did not obtain the status of the project or
verify the accuracy of the information included in the Performance Review. As a result,

Page 47 99-CH-259-1002
Appendix B

Empowerment Zone funds were not used efficiently and effectively, and the City did not provide
HUD with an accurate description of the project’s accomplishments.

The Boys and Girls Club of Chicago, the administering
The City Did Not Have entity for the Family Life Community Network project, used
Adequate Controls Over $123,321 of Empowerment Zone funds that did not benefit
Zone Funds Zone residents. The City and the Club also did not have
documentation to ensure that an additional $3,717 of Zone
funds was used for services that benefited Zone residents.
The City executed a contract with the Boys and Girls Club
to provide career and educational services to Empowerment
Zone youths for the period January 1 to December 31,
1997. However, services were provided to non-Zone
youths which was not in accordance with the City’s
Strategic Plan and the Club’s contract. The contract
required that services be provided to support the goal of
preparing Empowerment Zone residents for employment.
As of June 30, 1998, the City was in the process of
executing a new contract with the Club to continue the
program for a second year.

The Boys and Girls Club received $166,615 in Empowerment
Zone funds to provide career and educational services to Zone
youths through December 31, 1997. The Club’s records
showed that 181 (23.8 percent) of 762 youths served were
Zone residents and the Club did not have adequate records to
show the residency of another 17 youths. Therefore,
documentation supported that only $39,577 of the Zone funds
spent were related to services provided to Empowerment Zone
youths. The City’s Department of Human Services performed
a monitoring review of the project in October 1997. The
Department identified that the Club was not providing services
to Zone youths as required, but it did not take corrective action
against the Club nor did it notify the City’s staff responsible for
administering the Empowerment Zone Program. The City did
not have policies or procedures to share information on
problems identified by the various City departments during
their monitoring reviews. As a result, Empowerment Zone
funds were not used efficiently and effectively.

The City did not report that nine Empowerment Zone
The City Did Not Report youths were served by the project as of the June 30, 1997
The Number Of Youths Performance Review. The project did not report the
Served By The Project information to the City because the City only requested

99-CH-259-1002 Page 48
Appendix B

information related to funding and did not request
information related to performance measures. HUD’s
instructions for the Performance Review required the City
to report measurable outcomes of an activity. The Assistant
Commissioner of the City’s Department of Planning and
Development said the City did not request the performance
measure results because it did not have sufficient staff to
verify the accuracy of the information. We believe the City
had adequate staff to verify the accuracy of information.
The City had all eight budgeted staff positions filled during
the reporting year with the exception of one position that
was vacant for two and one-half months. At the time the
Review was prepared, the City was fully staffed and had
four more individuals working under an internship program.
The interns were hired to perform special projects. One
intern’s sole responsibility was to prepare the Performance
Review.

The City inaccurately reported the project’s performance
The City Inaccurately milestones in the June 1997 Performance Review. The City
Reported The Project’s reported that the project’s proposal was approved by the
Performance Milestones Coordinating Council on July 12, 1996. However, the
City’s files showed that the Council approved the project’s
proposal on June 4, 1996. The City also did not report the
project’s projected completion date for performance
milestones related to: (1) career exploration; (2) improved
access to health care; (3) social recreation; (4) community
safety; and (5) educational opportunities for youths.

The incomplete and inaccurate reporting of performance
measures and milestones occurred because: (1)
inexperienced staff prepared the City’s Performance
Review; (2) the City did not request performance
information; and (3) the City’s management staff, who was
responsible for administering the Empowerment Zone
Program, did not review the Performance Review for
accuracy. Since the overall measure of success of the
Empowerment Zone Program is to assist Zone residents, we
believe it is imperative that the City accurately reports
performance measures and milestones of its activities.

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

Page 49 99-CH-259-1002
Appendix B

The contract for second year of this project is being
renegotiated so that the services provided over the total
contract period will, in fact, benefit the originally anticipated
number of Zone residents. If the renegotiation is unsuccessful,
the Empowerment Zone will take all necessary corrective
actions to remedy the non-compliance issues.

Procedures have been established requiring all subrecipients
to maintain records documenting benefits to Zone residents.
Source documentation has been requested to verify
compliance with the contract and to substantiate staff
involvement. If the subrecipient is not in compliance with
the contract, the Chicago Empowerment Zone will take
necessary corrective actions to remedy any non-compliance
issues. Procedures and controls have been established to
ensure that funds are used efficiently and effectively and that
corrective action is taken against grantees who do not
provide the required services. Training will be provided for
existing and future staff. Procedures and controls have been
established to ensure that project accomplishments are
accurately reported and to verify the accuracy of
information submitted to HUD.

The City indicated that it has established procedures and
OIG Evaluation of controls to ensure that: (1) funds are used efficiently and
Auditee Comments effectively; (2) corrective action is taken against grantees who
do not provide the required services; (3) project
accomplishments are accurately reported; and (4) information
submitted to HUD is verified for accuracy. Additionally, the
City indicated that it established procedures to require
subrecipients to maintain records to document benefits to Zone
residents. The City did not include the procedures or controls
with its comments. The City’s corrective actions to remedy
any non-compliance issues need to include reimbursement by
the City to the Empowerment Zone Program from non-Federal
funds for the inappropriate or unsupported use of Zone funds.

99-CH-259-1002 Page 50
Appendix B

The City Lacked Adequate Controls Over the
21st Century Community Learning Centers
Project
The City of Chicago did not have adequate controls over the 21st Century Community Learning
Centers. The City did not ensure that $114,755 of Empowerment Zone funds benefited schools
within the Zone. The City also inaccurately reported the actual progress of the Centers in the
June 30, 1997 Performance Review. The inaccuracies related to performance measures,
milestones, and funding. The problems occurred because the City: (1) encouraged the Board of
Education for the City of Chicago, the Centers’ administering entity, to establish Community
Learning Centers at non-Zone schools; (2) lacked an adequate monitoring system; and (3) did not
use the actual accomplishments submitted by the Centers’ administering entity or verify the
accuracy of the information included in the Performance Review. As a result, Empowerment
Zone funds were not used efficiently and effectively. The City also did not provide HUD with an
accurate description of the Centers’ progress.

Page 51 99-CH-259-1002
Appendix B

The Board of Education for the City of Chicago used
The City Did Not Have $114,755 of Empowerment Zone funds that did not benefit
Adequate Controls Over Zone schools. The City executed a contract with the Board
Zone Funds of Education to establish learning centers at Empowerment
Zone schools between July 1, 1996 and September 30,
1997. However, centers were established at non-Zone
schools which was not in accordance with the contract and
the City’s Strategic Plan. The City’s Plan required that
learning centers be established at schools located within the
Empowerment Zone.

The Board of Education received $741,538 in
Empowerment Zone funds to establish learning centers at
37 Zone schools through September 30, 1997. The Board’s
records showed that 10 (27 percent) of 37 schools that
established learning centers were not located in the
Empowerment Zone. Documentation showed that
$114,755 of the Zone funds spent were related to centers
established at the 10 schools.

The City inappropriately encouraged the Board of
Education to expand the 21st Century Community Learning
Centers outside of the Empowerment Zone. In a letter
dated February 13, 1996 to the Board, the City suggested
that the activity include more schools, especially in the State
of Illinois’ Enterprise Communities. During the term of the
contract, there were at least 33 additional schools in the
Empowerment Zone that could have participated in the
program.

The Assistant Commissioner for the City’s Department of
Planning and Development said the City knew that some of
the schools were not located in the Empowerment Zone.
The City believed the Centers met the guidelines established
by its Empowerment Zone Coordinating Council that
required 51 percent of the clients served be Zone residents.
However, the City’s Strategic Plan required that the
Community Learning Centers be established at Zone
schools. The Assistant Commissioner also said the City did
not monitor the activity because it lacked sufficient
monitoring procedures. As a result, Empowerment Zone
funds were not used efficiently and effectively.

The City reported that the performance measures related to
The City Incorrectly the Centers’ summer camp program were expected to be
Reported The Centers’
Performance Measures
99-CH-259-1002 Page 52
And Milestones
Appendix B

completed by September 1997 even though the measures
related to the camp program were completed in 1996. The
Centers reported in the September 30, 1996 progress report
that the measures were completed. The Centers reported
that it implemented the summer camp program at 20
schools and finished the performance measure.

The City also inaccurately reported the Centers’
performance milestones. The City did not report that 19 of
21 project milestones for the Community Learning Centers
were completed. The Centers informed the City in the
January 31, 1997 progress report that the 19 milestones
were completed. The City did not use the progress report
to prepare the Performance Review or verify the accuracy
of the data it reported in the Review. As a result, HUD was
not provided with an accurate status of the Centers’
progress.

The City inaccurately reported the funding for the 21st
The City Incorrectly Century Community Learning Centers. The City reported
Reported The Centers’ the 21st Century Learning Centers were projected to receive
Funding $416,000 of State/Local funds. However, the Centers’
Director said the Community Learning Centers did not have
a commitment or receive any State/Local funds. The
Director also said her office did not receive a request from
the City to confirm the Centers’ funding amounts. The
City’s Performance Review also did not show the non-Zone
Federal funds and private donations received by the Centers.
As of June 30, 1997, the Centers’ records showed that
$446,190 in Federal funds and $507,484 of corporate and
in-kind donations were received. As a result, the City under
reported the Centers’ funding by $537,674 ($446,190 +
$507,484 - $416,000).

The incomplete and inaccurate reporting of the performance
and financial information occurred because the City did not
use the actual accomplishments submitted by the Centers’
administering entity. The City also lacked adequate
supervisory oversight to ensure the accuracy and reliability of
the information reported.

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

Page 53 99-CH-259-1002
Appendix B

Benchmarks are currently being reevaluated to confirm that the
majority of the program participants were, in fact,
Empowerment Zone residents even though 10 of the 37
facilities were not located within the Zone. If the project is not
in compliance with the regulations, appropriate actions will be
made, including using other sources of funds for this project.

The Chicago Empowerment Zone’s actions were consistent
with the spirit of the Zone initiative. Our advice was
intended to promote similar benefits to Enterprise
Community residents and did not encourage, condone, or
authorize the inappropriate use of Zone funds. Source
documentation has been submitted by the subrecipient to
verify compliance with the contract. If the subrecipient is
not in compliance with the contract, the Chicago
Empowerment Zone will take the necessary corrective
actions to remedy any non-compliance issues.

Procedures and controls have been established to ensure
that funds are used efficiently and effectively. Procedures
and controls have been established to ensure that project
accomplishments are accurately reported and to verify the
accuracy of information submitted to HUD.

The Center’s contract and the City’s Strategic Plan required
OIG Evaluation of the Center to establish training centers within the Zone. Since
Auditee Comments 27 percent of the training centers were located outside the
Zone, the City did not enforce the requirements of the contract
and the Strategic Plan. During the term of the Centers’
contract, there were at least 33 additional schools in the Zone
that could have participated in the project. We believe the City
should reimburse the Empowerment Zone Program from non-
Federal funds for the inappropriate use of Zone funds.

We do not agree that the City’s actions were consistent with
the Zone initiative. The City’s Strategic Plan called for the
training centers to be placed within the Zone. However, the
City’s February 13, 1996 letter to the Board of Education
suggested that training centers could be located in the
Enterprise Communities.

The City indicated that it has established procedures and
controls to ensure that: (1) funds are used efficiently and
99-CH-259-1002 Page 54
Appendix B

effectively; (2) project accomplishments are accurately
reported; and (3) information submitted to HUD is verified for
accuracy. The City did not include the procedures or controls
with its comments. The City’s corrective actions to remedy
any non-compliance issues need to include reimbursement by
the City to the Empowerment Zone Program from non-Federal
funds for the inappropriate use of Zone funds.

Controls Over the Better Days for Youth and
Nuevos Futuros Program Were Not Adequate
The City of Chicago did not maintain adequate controls over the Better Days for Youth and
Nuevos Futuros program. The City inappropriately used $48,219 of Empowerment Zone funds
that did not benefit Zone residents and did not have documentation to support that another
$1,524 of Zone funds benefited Zone residents. The City also inaccurately reported the actual
progress of the program in the June 30, 1997 Performance Review. The inaccuracies related to
performance measures, funding, and performance milestones. The problems occurred because the
City did not have an adequate monitoring system. The City also did not obtain the status of the
program or verify the accuracy of the information included in the Performance Review. As a
result, Empowerment Zone funds were not used efficiently and effectively. The City also did not
provide HUD with an accurate description of the program’s accomplishments.

The City of Chicago executed a contract with Chicago
The City Did Not Have Commons Association, the administering entity for the
Adequate Controls Over program, to provide career and educational services to
Zone Funds Empowerment Zone youths for the period January 1, 1997
to June 30, 1998. The contract required that services be
provided to support the goal of providing outreach and
assistance to Zone youths for advanced education and
employment opportunities. However, services were
provided to non-Zone youths. The services were not in

Page 55 99-CH-259-1002
Appendix B

accordance with the Association’s contract and the City’s
Strategic Plan. The Association used Empowerment Zone
funds that did not benefit Zone residents. The City and the
Association also did not have documentation to ensure that
additional Zone funds were used for services that benefited
Zone residents.

The following table shows the amount of Empowerment
Zone funds that were inappropriately used by the
Association totaled $48,219 and the amount of Zone funds
that lacked supporting documentation was $1,524:

Use of Zone
Funds Inappropriate Unsupported

Youth Services $47,294 $1,359

Youth Stipends 925 165
Total $48,219 $1,524

As of January 23, 1998, the Chicago Commons Association
Inappropriate Or received $138,448 in Empowerment Zone funds to provide
Unsupported Services career and educational services to Zone residents. The
Were Paid Using Zone Association’s records showed that 201 (64.2 percent) of 313
Funds youths served were Zone residents. However, the City’s
contract required the Association to provide services to Zone
youths. The Association used $47,294 of Empowerment Zone
funds to pay for the services to the non-Zone youths between
April and December 1997. The City and the Association also
lacked documentation to show that $1,359 of Empowerment
Zone funds used to provide services to three youths benefited
Zone residents. The City and the Association could not
provide documentation to show the three youths’ addresses.
The Association has submitted three invoices, which have not
yet been paid, for $37,023 in Empowerment Zone funds to pay
for the services to non-Zone youths from January to May
1998. The Association also requested $1,064 to pay for
services to the three youths that lacked supporting
documentation.

99-CH-259-1002 Page 56
Appendix B

The Chicago Commons Association also paid employment
Inappropriate Or stipends to youths with Empowerment Zone funds when the
Unsupported Zone Funds stipends either did not benefit Zone residents ($925) or there
Were Used To Pay was no support to show that they benefited Zone residents
Youths ($165). The Association’s records showed that nine (47.4
percent) of 19 youths that were paid stipends between April
and December 1997 were Zone residents. However, the City’s
contract required the Association to provide stipends to Zone
residents. The City and the Association also could not provide
documentation to show that two youths that received stipends
were Empowerment Zone residents. The Association has
submitted three invoices, which have not been paid, requesting
$28,444 of Zone funds to pay non-Zone youths from January
to May 1998. The Association also requested $4,952 to pay
stipends to 13 youths; however, the Association did not have
documentation to support that the youths were Zone residents.

The Assistant Commissioner for the City’s Department of
Planning and Development said the City did not monitor the
program because it lacked sufficient monitoring procedures.

The City did not report the fact that the program served
The City Did Not Report Empowerment Zone youths or that Zone youths obtained
The Program’s paid internships as of June 30, 1997. The Association’s
Performance Measures records showed that 14 Empowerment Zone youths were
provided career and educational services and seven Zone
youths were employed as of June 1997. However, this was
not reported in the City’s June 1997 Performance Review.
The program did not report the information to the City
because the City only requested information related to
funding and did not request information related to
performance measures. HUD’s instructions for the
Performance Review required the City to report measurable
outcomes of an activity. The Assistant Commissioner of the
City’s Department of Planning and Development said the
City did not request the performance measure results
because it did not have sufficient staff to verify the accuracy
of the information. We believe the City had adequate staff
to verify the accuracy of information. The City had all eight
budgeted staff positions filled during the reporting year with
the exception of one position that was vacant for two and
one-half months. At the time the Review was prepared, the
City was fully staffed and had four more individuals
working under an internship program. The interns were

Page 57 99-CH-259-1002
Appendix B

hired to perform special projects. One intern’s sole
responsibility was to prepare the Performance Review.

The City inaccurately reported the program’s funding in the
The City Over Reported June 1997 Performance Review. The City reported that the
The Program’s Funding program’s projected private funding was $143,779. The
By $95,000 private funding consisted of $95,000 from the State of
Illinois and $48,779 from various private entities. However,
the State funding was not dedicated specifically to the
program and the Association could not provide
documentation showing that the State funds benefited the
program. As a result, the City over reported the program’s
funding by $95,000.

The City did not report the program’s performance
The City Did Not Report milestones in the June 1997 Performance Review. The
The Program’s Review did not show when the Association’s proposal was
Performance Milestones approved by the Coordinating Council. However, the
City’s files indicated the proposal was approved on
September 3, 1996. The Review also did not show the
program’s planned completion date for the project
milestones. The Association’s Program Evaluator said the
June 1997 Performance Review should have shown that the
planned completion date for the project milestones would be
March 31, 1998.

The incomplete and inaccurate reporting of performance
measures, funding, and milestones occurred because: (1)
inexperienced staff prepared the City’s Performance
Review; (2) the City did not request performance
information; and (3) the City’s management staff, who was
responsible for administering the Empowerment Zone
Program, did not examine the Performance Review for
accuracy. Since the overall measure of success of the
Empowerment Zone Program is to assist Zone residents and
leverage funding, we believe it is imperative that the City
accurately reports the performance of its activities.

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 99, contains the complete
text of the comments.

It is important to note that the contract does not require 100
percent of Empowerment Zone resident participation for

99-CH-259-1002 Page 58
Appendix B

youth internships. At the time the 1997 Performance
Review was submitted, the best funding estimates available
were either from the original proposals submitted by
subrecipients or from the investment worksheets collected
from subrecipients between the date HUD issued the
Performance Review instructions (June 23, 1997) and the
date the Performance Review was due to HUD (July 30,
1997).

The program’s contract and the City’s Strategic Plan required
OIG Evaluation of
the program to employ Zone youths. Since 35.8 percent of the
Auditee Comments youths served and 52.6 percent of youth stipends were
provided to non-Zone residents, the program did not fully
benefit Empowerment Zone residents. For the purpose of this
audit, we concluded activities did not benefit Empowerment
Zone residents if the activities served less than 51 percent of
Zone residents, or if the activities did not provide benefits to
Zone residents when the activity’s administrators had control
over who received the benefit of the services. Since the Better
Days for Youth and Nuevos Futuros program had control over
who received the benefits of the services and the stipends, we
believe Empowerment Zone funds were inappropriately used.

While the City indicates that it used the best funding estimates
to prepare the Performance Review, we found the program had
updated funding information that the City did not request.

Page 59 99-CH-259-1002
Appendix B

reported; and (3) information submitted to HUD is verified for
accuracy. Additionally, the City indicated that it established
procedures to require subrecipients to maintain records to
document benefits to Zone residents. The City did not include
the procedures or controls with its comments. The City’s
corrective actions to remedy any non-compliance issues need
to include reimbursement by the City to the Empowerment
Zone Program from non-Federal funds for the inappropriate or
unsupported use of Zone funds.

Controls Over the Employer Assisted Housing
Program Were Not Adequate
The City of Chicago did not maintain adequate controls over the Employer Assisted Housing
Program. The City inappropriately used $25,170 of Empowerment Zone funds that did not
benefit the Zone. The City also inaccurately reported the actual progress of the Program in the
June 30, 1997 Performance Review. The inaccuracies related to performance measures, funding,
performance milestones, and participating entities. The problems occurred because the City did
not have an adequate monitoring system. The City also did not obtain the status of the Program
or verify the accuracy of the information included in the Performance Review. As a result,
Empowerment Zone funds were not used efficiently and effectively. The City also did not provide
HUD with an accurate description of the Program’s accomplishments.

The City of Chicago executed a contract with Bethel New
The City Did Not Have Life, Incorporated, the administering entity for the
Adequate Controls Over Employer Assisted Housing Program, to provide services
Zone Funds that would promote housing in the Empowerment Zone for
the period October 23, 1996 to December 31, 1997. The
contract required that services be provided to promote and
support home ownership in the Zone. However,
Empowerment Zone funds paid for services that did not
benefit the Zone. The services also were not in accordance
with Bethel’s contract and the City’s Strategic Plan.

The following table shows the amount of Empowerment
Zone funds that were inappropriately used by Bethel totaled
$25,170:

Use of Zone Funds Inappropriate
Home Ownership
Services $22,170
Construction Repairs 3,000

99-CH-259-1002 Page 60
Appendix B

Total $25,170

Bethel New Life used $22,170 of Empowerment Zone funds to
Inappropriate Services pay for the cost of three of its employees to provide home
Were Paid Using Zone ownership services through the Program. The three employees
Funds were the former and current Administrative Assistants to the
Vice President of Development and a Development Specialist.
The costs included the employees’ salaries, payroll taxes, and
health insurance benefits from January 1 to September 30,
1997. However, the Administrative Assistants and the
Development Specialist did not work on the Program.

Bethel has submitted three additional invoices, which have not
been paid, for $18,483 in Empowerment Zone funds to pay for
the Program’s Project Director from October 1 to December
31, 1997 ($8,468) and the current Administrative Assistant
from October 1, 1997 to March 31, 1998 ($10,015).
However, neither of the individuals worked on the Program
during these time periods. Bethel also requested $8,468 in
Zone funds to pay 100 percent of the Program’s Project
Director’s salary, payroll taxes, and health insurance benefits
from January 1 to March 31, 1998. However, the Project
Director said she did not spend all of her time working on the
Program. The City and Bethel did not have documentation to
support the time spent by the Project Director on the Program.

The Assistant Commissioner for the City’s Department of
Planning and Development said the City did not monitor the
Program because it lacked sufficient monitoring procedures.

Bethel also used $3,000 in Empowerment Zone funds to pay
Inappropriate Zone Funds for repairs to a house not related to the Program. The City’s
Were Used To Pay staff acknowledged that they were aware of the inappropriate
Construction Repairs payment and had deducted $3,000 from one of Bethel’s
invoices to correct the problem. However, we found that the
deduction was not made. A Program Coordinator for the
City’s Empowerment Zone Program could not explain why the
deduction was not made.

The City did not report the Program’s performance
The City Did Not Report measures in the June 1997 Performance Review. As of June
The Program’s 1997, Bethel New Life’s records showed that the Program:
Performance Measures (1) identified and marketed 14 housing units; (2) sold one
home in the Empowerment Zone; and (3) leveraged
$91,000 in mortgage funds. However, this information was

Page 61 99-CH-259-1002
Appendix B

not reported in the Performance Review. The City also
inaccurately reported the projected completion date for the
Program’s performance measures. The Review showed that
the Program’s performance measures were expected to be
completed in September 1997. However, Bethel’s Vice
President of Development said the June 30, 1997 Review
should have shown a planned completion date of December
31, 1997 for the performance measures.

The Program did not report the information to the City
because the City only requested information related to
funding and did not request information related to
performance measures. HUD’s instructions for the
Performance Review required the City to report measurable
outcomes of an activity. The Assistant Commissioner of the
City’s Department of Planning and Development said the
City did not request the performance measure results
because it did not have sufficient staff to verify the accuracy
of the information. We believe the City had adequate staff
to verify the accuracy of information. The City had all eight
budgeted staff positions filled during the reporting year with
the exception of one position that was vacant for two and
one-half months. At the time the Review was prepared, the
City was fully staffed and had four more individuals
working under an internship program. The interns were
hired to perform special projects. One intern’s sole
responsibility was to prepare the Performance Review.

The City over reported the Program’s funding in the June
The City Over Reported 1997 Performance Review. Based upon information
The Program’s Funding provided by Bethel, the City reported that the Program
By $210,000 planned to receive $210,000 in private funding. However,
Bethel’s Vice President of Development said private funds
were not involved in the Program. The Vice President of
Development could not explain why Bethel inaccurately
reported the Program’s private funding to the City. The
over reporting of the Program’s funding occurred because
the City did not verify the accuracy of the information
provided by Bethel.

The City’s June 1997 Performance Review did not show the
The City Did Not Report progress made by the Program. The City did not report the
The Program’s Program’s performance milestones that were completed as
Performance Milestones of June 30, 1997. For example, the Review showed the
Program planned to identify financial institutions to

99-CH-259-1002 Page 62
Appendix B

participate in the Program by December 16, 1996.
However, Bethel’s records showed that First Chicago Bank,
the Program’s first participating institution, was not
identified until March 1997. The City’s Performance
Review also reported that workshops for home buyers were
planned to begin in March 1997. However, Bethel’s
records showed that the first workshop was held on January
4, 1997. The City also did not report the fact that the
Program held five workshops for home buyers as of June
30, 1997.

The City also inaccurately reported the Program’s projected
completion date for its performance milestones. The City’s
June 1997 Performance Review showed that the Program
planned to: (1) identify employer groups to participate in
the Program by December 16, 1996; and (2) complete the
development of a spin-off program by June 16, 1997.
However, Bethel’s Vice President said the June 30, 1997
Review should have reported a planned completion date of
December 31, 1997 for both performance milestones.

The City inaccurately reported the Program’s participating
The City Inaccurately entities. The June 1997 Performance Review showed that
Reported The Program’s Heinz Neighborhood Development was a participating
Participating Entities entity in the Program. However, Bethel’s Vice President of
Development said she was not familiar with Heinz
Neighborhood Development. The City used information
included in the Program’s proposal to report the projected
participating entities in the Performance Review.

The incomplete and inaccurate reporting of performance
measures, funding, performance milestones, and
participating entities occurred because: (1) inexperienced
staff prepared the City’s Performance Review; (2) the City
did not request performance information; and (3) the City’s
management staff, who was responsible for administering
the Empowerment Zone Program, did not examine the
Performance Review for accuracy. Since the overall
measure of success of the Empowerment Zone Program is
to assist Zone residents and leverage funding, we believe it
is imperative that the City accurately reports the
performance of its activities.

Page 63 99-CH-259-1002
Appendix B

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 101, contains the complete
text of the comments.

While the City indicates that it used the best funding estimates
OIG Evaluation of to prepare the Performance Review, we found the City did not
Auditee Comments verify the accuracy of the information provided to HUD. The
City was unaware the information was not accurate.

Procedures have been established requiring all subrecipients
Auditee Comments to maintain records documenting benefits to Zone residents.
Source documentation will be submitted by the subrecipient
to verify staff involvement in the project. If the subrecipient
is not in compliance with the contract, the Chicago
Empowerment Zone will take necessary corrective actions
to remedy any non-compliance issues. Funding has been
withheld until the necessary documentation is submitted.
The $3,000 in funds will be added to the advance total as a
liability. Procedures and controls have been established to
ensure that funds are used efficiently and effectively.
Training will be provided for existing and future staff.
Procedures and controls have been established to ensure
that project accomplishments are accurately reported and to
verify the accuracy of information submitted to HUD.

99-CH-259-1002 Page 64
Appendix B

Zone Program from non-Federal funds for the inappropriate or
unsupported use of Zone funds.

Controls Over the Northwest Industrial Corridor
Program Were Inadequate
The City of Chicago did not have adequate controls over the Northwest Industrial Corridor
program. The City inappropriately reimbursed Bethel New Life, the administering entity of the
Northwest Industrial Corridor program, $36,171 from Empowerment Zone funds for costs that
were not related to the program. The City also did not accurately report the actual status and
progress of the program in the June 30, 1997 Performance Review. The Review contained
inaccuracies related to performance measures, funding, and performance milestones. The
problems occurred because the City did not have an adequate monitoring system, and it lacked a
reporting process with effective oversight and controls to ensure the reliability of the information
included in the Performance Review. As a result, Empowerment Zone funds were not used
effectively and efficiently, and the City did not provide HUD with an accurate description of the
program’s position and objectives.

Bethel New Life used $30,107 of Empowerment Zone funds
The City Did Not Have to pay for the cost of its Administrative Assistant to the
Adequate Controls Over Senior Vice President of Operations. The costs included the
Empowerment Zone Assistant’s salary and health benefits between January 1,
Funds 1997 and December 31, 1997. However, the
Administrative Assistant had never worked on the
Northwest Industrial Corridor program. The City also
inappropriately used $6,064 of Empowerment Zone funds to
reimburse Bethel for other services not related to the program.
The services related to lead abatement removal that were not
part of the City’s Empowerment Zone Program. The
Assistant Commissioner for the City’s Department of
Planning and Development said the City did not monitor the
program because it lacked sufficient monitoring procedures.
As a result, $36,171 of Empowerment Zone funds were not
used efficiently and effectively.

The City incorrectly reported the program’s performance
The City Inaccurately measures in the June 1997 Performance Review. The
Reported The Program’s Review showed that the program was expected to: (1) assist
Performance Measures 105 individuals to obtain employment; and (2) place at least
100 Empowerment Zone residents in jobs. However,
Bethel’s Vice President of Development said the two
measures were being performed by another Empowerment

Page 65 99-CH-259-1002
Appendix B

Zone activity, the Job Link Program. The Job Link
Program included projections for the two measures as part
of its Program. Therefore, the projections were reported
twice and the impression exists that more individuals will be
assisted than actually planned.

The Performance Review also showed that one of the
program’s performance measures was to advise 50
businesses of the wage tax credits available under the
Empowerment Zone Program. As of June 1997, the City
did not report any accomplishments for this measure.
Bethel’s files showed that 17 businesses had been informed
of the tax credits by June 30, 1997.

The City over reported the program’s funding in the June
The City Over Reported 1997 Performance Review. Based upon a worksheet
The Program’s Funding provided by Bethel New Life, the City reported in the
By $600,000 Performance Review that the program expected to receive
$600,000 in private funds. The City did not verify the
accuracy of the information provided and Bethel New Life
did not have documentation to support the reported private
funding.

The City reported that the Northwest Industrial Corridor
The City Inaccurately program planned to establish an industrial training program
Reported The Program’s by June 1, 1997 as contained in the contract with Bethel
Performance Milestones New Life. However, the Vice President of Development for
Bethel said the training program was not expected to be
established until March 1, 1998. The City did not request
information related to performance milestones when it
prepared the Performance Review.

The City also reported that the Northwest Industrial
Corridor program would establish a job database by June 1,
1997 as required by the contract. However, the database
was created by another Empowerment activity, the Job Link
Program, and had been completed by June 30, 1997. Since
the City did not verify the information it reported in its
Performance Review, it did not detect that the database had
already been created and it did not alter Bethel’s contract to
eliminate the requirement.

The incomplete and inaccurate reporting of performance
measures, funding, and milestones occurred because: (1)
inexperienced staff prepared the City’s Performance

99-CH-259-1002 Page 66
Appendix B

Review; (2) the City did not request performance
information; and (3) the City’s management staff, who was
responsible for administering the Empowerment Zone
Program, did not examine the Performance Review for
accuracy. Since an important measure of success for the
Empowerment Zone Program is the amount of assistance
provided to Zone residents and leveraged private funding,
we believe it is imperative that the City accurately reports
the performance information for its activities.

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 95, contains the complete
text of the comments.

Source documentation has been requested to substantiate
staff involvement with the project. If the subrecipient is not
in compliance with the contract, the Chicago Empowerment
Zone will take necessary corrective actions to remedy any
non-compliance issues. Performance measures will be
reestablished with the subrecipient to reflect the desired
output. Funding has been withheld pending submission of
the appropriate deliverables. Procedures and controls have
been established to ensure that funds are used efficiently and
effectively. Training will be provided for existing and future
staff. Procedures and controls have been established to
ensure that project accomplishments are accurately reported
and to verify the accuracy of information submitted to
HUD.

The City indicated that it has established procedures and
OIG Evaluation of controls to ensure that: (1) funds are used efficiently and
Auditee Comments effectively; (2) project accomplishments are accurately
reported; and (3) information submitted to HUD is verified for
accuracy. The City did not include the procedures or controls
with its comments. The City’s corrective actions to remedy
any non-compliance issues need to include reimbursement by
the City to the Empowerment Zone Program from non-Federal
funds for the inappropriate use of Zone funds.

Page 67 99-CH-259-1002
Appendix B

Controls Over Community Services West
Workforce and Life Preparation Were Not
Adequate
The City of Chicago did not maintain adequate controls over the Community Services West
Workforce and Life Preparation program. The City advanced $25,403 of Empowerment Zone
funds to Bethel New Life, the program’s administering entity, and no services were subsequently
performed. Bethel New Life commingled the Empowerment Zone funds with funds from their
other activities and used the Zone funds for operations that were not related to the program. The
City did not adequately monitor the program to ensure services were provided. Additionally, the
City inaccurately reported the program’s funding and participating entities encountered in the
June 30, 1997 Performance Review. The City reported the program had $271,211 in private
funds when it had none; and that the program had not encountered any obstacles when it had a
significant obstacle. The inaccurate reporting occurred because the individual who prepared the
Performance Review was inexperienced and the City did not examine the Performance Review for
accuracy prior to submission. As a result, the City did not efficiently and effectively use the
Empowerment Zone funds it advanced for the program. The City also did not provide HUD with
a realistic description of the program’s position to achieve its objectives.

The City did not exercise adequate control over Empowerment
Controls Over Advances Zone funds. The City advanced Bethel New Life $25,403 of
Were Not Adequate Empowerment Zone funds in April 1997, even though the
contract between the City and Bethel did not have a
provision for an advance. Bethel did not perform any
services as required by the contract. Bethel New Life
deposited the Empowerment Zone funds in an account and
commingled them with funds from their other activities.
From our review of the account’s transactions, we
determined that Bethel used the Empowerment Zone funds
for operations that were not related to the program.

The Assistant Commissioner for the City’s Department of
Planning and Development said the problem occurred because
the City did not adequately monitor the progress of
Community Services West due to a shortage of staff. The
Director of Contracts Management for Chicago Mayor’s
Office of Workforce Development said Bethel New Life did
not submit quarterly progress reports, since they had nothing to
report. The City did not recognize that the lack of reporting

99-CH-259-1002 Page 68
Appendix B

reflected a lack of progress and the City had not performed any
on-site verification.

The City advanced the funds to Bethel New Life as part of its
standard operating procedure. Under the City’s procedures,
upon execution of a contract, subgrantees may request an
advance amount based on 45 days of operations or 12 and one-
half percent for a one-year contract. Since no action had been
taken by Bethel New Life to meet the objectives of the
program, it had no need for an advance. The City did not
verify the need for a cash advance.

Since Bethel New Life commingled the Empowerment Zone
funds and used the funds for operations that were not
related to the program, the City the lost the opportunity to
use the funds on a project that was actively working to
achieve Empowerment Zone objectives.

In the June 30, 1997 Performance Review on the Community
The City Incorrectly Services West Workforce and Life Preparation program, the
Reported The Program’s City of Chicago incorrectly reported the program received
Commitments and $271,211 in commitments from private investors. The
Participating Entities worksheet provided to the City by Bethel New Life showed
that there was no private funding for the program.

The City reported that the Polk Brothers Foundation,
MacArthur Foundation, and Surdna Foundation were
participating entities. A note on the worksheet stated the
grants of the participating organizations had been exhausted
prior to the program starting due to time delays. The Senior
Vice President of Programs at Bethel New Life said the three
foundations were past contributors and showed interest in the
program, but did not fund the program. Therefore, the receipt
of $271,211 in private funding was erroneously reported. The
lack of private funding is a major obstacle blocking the
program from meeting its objectives.

The Assistant Commissioner for the City’s Department of
Planning and Development said the inaccurate reporting
occurred because the Performance Review was prepared by
inexperienced staff. She said the City’s management staff, who
was responsible for administering the Empowerment Zone
Program, did not examine the Review for accuracy.

Page 69 99-CH-259-1002
Appendix B

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 91, contains the complete
text of the comments.

The contract has been extended to enable the subrecipient
to fully implement the project. If the subrecipient does not
comply with the contract, the Chicago Empowerment Zone
will take necessary corrective actions to remedy any non-
compliance issues. Advance procedures have been revised
and are consistent with the Cash Management Improvement
Act. Procedures and controls have been established to
ensure that funds are used efficiently and effectively, and
quarterly reports are received from all subrecipients.
Training will be provided for existing and future staff.
Procedures and controls have been established to ensure
that project accomplishments are accurately reported and to
verify the accuracy of information submitted to HUD.

The City disagrees that the subrecipient incorrectly
deposited Zone funds into an account with funds from other
sources. According to the Office of Management and
Budget’s Circular A-110, separate depository accounts are
not required for Empowerment Zone funds. The
subrecipient acknowledges that the advance is a liability.

Our review questioned the use of Empowerment Zone funds.
OIG Evaluation of We determined that Empowerment Zone funds were used for
Auditee Comments services that were not related to the Community Services West
program. We did not take exception to the subrecipient
depositing Zone funds in an account with funds from other
sources. The City indicated that it has established procedures
and controls to ensure that: (1) funds are used efficiently and
effectively; (2) project accomplishments are accurately
reported; (3) information submitted to HUD is verified for
accuracy; and (4) quarterly reports are received from all
subrecipients. The City did not include the procedures or
controls with its comments. The City’s corrective actions to
remedy any non-compliance issues need to include
reimbursement by the City to the Empowerment Zone Program
from non-Federal funds for the inappropriate use of Zone
funds.

The Cash Management Improvement Act does not apply to the
City. We adjusted our finding accordingly.

99-CH-259-1002 Page 70
Appendix B

Controls Over The Storehouse Distributions
Center Project Were Not Adequate

Page 71 99-CH-259-1002
Appendix B

The City of Chicago did not have adequate controls over The Storehouse Distributions Center
project. The City reimbursed The Storehouse Distributions Center $45,000 from Empowerment
Zone funds for three of its employee’s salaries; however, there was no documentation to support
the reimbursement was a benefit to the Zone. The Storehouse’s three employees were the
Administrative Director, Warehouse Manager, and the Corporate Relations Manager. The City
also did not report the actual status of the project’s performance measures in the June 30, 1997
Performance Review. The problems occurred because the City did not have an adequate
monitoring system. The City also lacked a reporting process with effective oversight and controls
to ensure the reliability of the information included in the Performance Review. As a result, HUD
lacks assurance that Empowerment Zone funds were used efficiently and effectively, and was not
provided with an accurate description of the project’s progress.

The City of Chicago could not support that $30,000 of
The City Did Not Have
reimbursements for two of The Storehouse’s employees’
Adequate Controls Over
salaries benefited the Empowerment Zone. The City used
Zone Funds
Zone funds to pay the salaries of The Storehouse’s
Warehouse Manager and Corporate Relations Manager.
The reimbursements were for 50 percent of the Managers’
salaries between October 1, 1996 and September 30, 1997.
However, the City and The Storehouse did not maintain
documentation that showed the time the Managers spent on
The Storehouse project or other activities.

The City also inappropriately used $15,000 of
Empowerment Zone funds to reimburse The Storehouse for
50 percent of its Administrative Director’s salary. The City
and The Storehouse did not maintain documentation to
support the time the Administrative Director spent on The
Storehouse project or other activities. Additionally, the
City reimbursed another Empowerment Zone activity, the
Job Link Program, for the Administrative Director’s time.
The Administrative Director provided training and
enrollment services to the Job Link Program. In relation to
the Administrative Director’s training responsibilities, we
were able to use training records to determine that the
Administrative Director provided 48 hours of employment
training under the Job Link Program. The Job Link
Program used Empowerment Zone funds to reimburse The
Storehouse $1,000 for the Director’s training services.

The City did not have an adequate monitoring system that
required the review of supporting documentation and
evaluation of the appropriateness of payments in all
instances. Appropriateness of payments were not evaluated

99-CH-259-1002 Page 72
Appendix B

when grantees were associated with more than one
Empowerment Zone activity, but the activities were
monitored by different City departments. The Mayor’s
Office of Workforce Development monitored the Job Link
Program, and the City’s Department of Planning and
Development monitored The Storehouse Distributions
Center.

The Assistant Commissioner for the City’s Department of
Planning and Development said the City needed to improve
monitoring reviews. She also said the City needed to
incorporate controls into its monitoring system to address the
situation where grantees have multiple Empowerment Zone
contracts that are monitored by different City Departments. As
a result, HUD lacks assurance that Empowerment Zone funds
were used efficiently and effectively.

The City did not report the actual progress of the project’s
The City Did Not Report performance measures in the June 1997 Performance
The Project’s Progress Review. The Storehouse Distribution Center provided a
report dated July 18, 1997 to the City that showed The
Storehouse had exceeded its performance measures as of June
30, 1997. However, the Performance Review did not reflect
that The Storehouse increased its membership by 221
members, the number of donors by 74 organizations, and the
amount of its operation handling fees by $82,803.

The Assistant Commissioner for the City’s Department of
Planning and Development said the Performance Review
was prepared by an intern for the City. She also said the
City’s management staff, who was responsible for
administering the Empowerment Zone Program, did not
examine the Performance Review for accuracy. Since the
overall measure of success of the Empowerment Zone
Program is to assist Zone residents, we believe it is
imperative that the City accurately reports performance
measures of its activities. As a result, the City understated the
progress of The Storehouse project.

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 94, contains the complete
text of the comments.

The subrecipient agreement was based upon output as
measured by the benchmarks. It is critical to note that the

Page 73 99-CH-259-1002
Appendix B

subrecipient not only met, but exceeded, all the agreed upon
benchmarks. Specifically, the subrecipient’s planned
benchmarks were: increase membership to 270 members
(ACTUAL 409); increase donors to 75 (ACTUAL 110);
and increase the amount of operation handling fees to
$75,000 (ACTUAL $168,129). Therefore, the salary
reimbursements were justified.

Procedures and controls have been established to ensure
that funds are used efficiently and effectively. Training will
be provided for existing and future staff. Procedures and
controls have been established to ensure that project
accomplishments are accurately reported and to verify the
accuracy of information submitted to HUD.

We acknowledge that the project exceeded its deliverables;
OIG Evaluation of however, the administering entity could not support that the
Auditee Comments salary reimbursements were reasonable and necessary to
provide the deliverables. The City needs to provide
documentation to support the reimbursements, or reimburse
the Empowerment Zone Program from non-Federal funds.

The City indicated that it has established procedures and
controls to ensure that: (1) funds are used efficiently and
effectively; (2) project accomplishments are accurately
reported; and (3) information submitted to HUD is verified for
accuracy. The City did not include the procedures or controls
with its comments.

Accomplishments of the Community Youth
Development Activity Network Were
Incorrectly Reported
The City of Chicago did not accurately report the actual status and progress of the Community
Youth Development Activity Network program. The City’s June 30, 1997 Performance Review

99-CH-259-1002 Page 74
Appendix B

contained inaccuracies related to the program’s performance measures and funding. The
inaccuracies occurred because the City’s reporting process lacked effective oversight and controls to
ensure the validity and reliability of the information included in the Performance Review. As a result,
HUD was not provided an accurate picture of the program.

The City of Chicago did not report the number of youths
The City Did Not Report served by the program in the June 1997 Performance
That 597 Youths Were Review to HUD. The program served 597 youths as of
Served June 30, 1997. The Network did not report the information
to the City because the City only requested information
related to investments and did not request information
related to performance measures. The Assistant
Commissioner of the City’s Department of Planning and
Development said the City did not request the performance
information because it did not have sufficient staff to verify
the accuracy of the information. HUD’s instructions for the
Performance Review required the City to report measurable
outcomes of an activity. As a result, HUD was not
provided an accurate picture of the benefit of the program.

The City of Chicago’s Performance Review showed the
The City Overstated The program’s planned private funding was $261,300.
Program’s Funding However, in a report provided to the City by the Executive
Director of AGAPE Youth Development and Family
Services, the entity administering the program, AGAPE
estimated it would receive only $138,695 in private funding.

AGAPE also reported that it received $25,799 in State of
Illinois funding and $20,000 in City funds. The City did not
report these amounts in the Performance Review.
Additionally, AGAPE received $40,391 of in-kind
contributions but did not report this, since the City did not
request the information. As a result, the City understated
$25,799 in State funding, $20,000 in City funds, and
$40,391 of in-kind contributions for the program.

The following table shows that the net effect of the
inaccurate reporting was an overstatement of $36,415:

Over Under
Funding Reported Reported Net Effect
Private $122,605
State ($25,799)
City (20,000)

Page 75 99-CH-259-1002
Appendix B

In-kind (40,391)
Total $122,605 ($86,190) $36,415

The incomplete and inaccurate reporting of performance
and financial data occurred because: (1) inexperienced staff
prepared the City’s Performance Review; (2) the City did
not request the performance information because, as
previously mentioned, it did not have the staff to verify the
information; and (3) the City’s management staff, who was
responsible for administering the Empowerment Zone
Program, did not examine the Performance Review for
accuracy. Since the overall measure of success of the
Empowerment Zone Program is to assist Zone residents by
leveraging private funds and contributions, we believe it is
imperative that the City accurately reports performance
measures and funding of its activities.

Excerpts from the City of Chicago’s comments on our draft
Auditee Comments finding follow. Appendix C, page 91, contains the complete
text of the comments.

At the time the 1997 Performance Review was submitted,
the best funding estimates available were either from the
original proposals submitted by subrecipients or from the
investment worksheets collected from subrecipients between
the date HUD issued the Performance Review instructions
(June 23, 1997) and the date the Performance Review was
due to HUD (July 30, 1997). Training will be provided for
existing and future staff. Procedures and controls have been
established to ensure that project accomplishments are
accurately reported and to verify the accuracy of
information submitted to HUD.

While the City indicates that it used the best funding estimates
OIG Evaluation of to prepare the Performance Review, we determined the City
Auditee Comments had updated funding information in its files which it did not use
for the Review.

The City indicated that it has established procedures and
controls to ensure that project accomplishments are accurately
reported, and information submitted to HUD is verified for
accuracy. The City did not include the procedures or controls
with its comments.

99-CH-259-1002 Page 76
Appendix B

Funding for the West Side Residential
Rehabilitation Project was Inaccurately
Reported
The City of Chicago did not accurately report the leveraged funding amounts for the West Side
Residential Rehabilitation project in the 1997 Performance Review to HUD. The City did not
report the project had a $1.1 million pending commitment from the City’s Department of
Housing. The City also over reported the project’s planned private funding by $2.2 million. The
net effect was an overstatement of $1.1 million in planned funding. The problem occurred
because the City lacked adequate controls over its reporting process. As a result, the City

Page 77 99-CH-259-1002
Appendix B

provided HUD with an unrealistic picture of the funds that will be applied to the West Side
Residential project.

The City’s June 1997 Performance Review showed the
Funding For The Project project’s planned funding from the City was $1.1 million. The
Was Overstated By $1.1 project’s officials provided a report to the City, prior to the
Million June 1997 Performance Review, that showed the project
received $1.1 million from the City and had the City’s
commitment for an additional $1.1 million. The City did not
include the additional $1.1 million of committed funds because
its procedures required that only actual funds provided should
be reported, not commitments. However, HUD’s instructions
require that Zones report confirmed commitments.

The City’s Performance Review also reported that the project’s
planned private funding was $3.9 million. The project’s report
to the City showed that only $1.7 million in private funding was
planned. The private funding consisted of $600,000 from the
Resurrection Trust Fund and $1.1 million from the First
National Bank of Chicago. City officials could not provide an
explanation for the inaccurate reporting of the project’s private
funding.

Because of inaccurate reporting, a false impression was created
that more funds were committed to the project than actually
were. The Empowerment Zone Program is intended to
leverage outside sources of funds. When the planned
funding data is inaccurate, HUD cannot make a proper
assessment of the Program’s progress.

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

At the time the 1997 Performance Review was submitted,
the best funding estimates available were either from the
original proposals submitted by subrecipients or from the
investment worksheets collected from subrecipients between
the date HUD issued the Performance Review instructions
(June 23, 1997) and the date the Performance Review was
due to HUD (July 30, 1997). Procedures and controls have
been established to ensure accurate reporting of leveraged
funds and to verify the accuracy of information submitted to
HUD.

99-CH-259-1002 Page 78
Appendix B

The City indicated that it has established procedures and
controls to ensure accurate reporting of leveraged funds, and
the information submitted to HUD is verified for accuracy.
The City did not include the procedures or controls with its
comments.

Page 79 99-CH-259-1002
Appendix C

Auditee Comments
September 2, 1998

Via Overnight Delivery

Mr. Heath Wolfe
Senior Auditor
U.S. Department of Housing and Urban Development
Office of Inspector General for Audit, Midwest
200 North High Street, Room 334
Columbus, Ohio 43215-2499

RE: Chicago’s Empowerment Zone – Response to Draft Audit Findings

Dear Mr. Wolfe:

Thank you for the opportunity to respond to the draft audit findings promulgated by the audit
team. We are glad to provide clarity about the Chicago Empowerment Zone’s accomplishments
and the improvements we have made to our original operations and procedures. We also
appreciate the opportunity to point out items where we disagree with the interpretations
employed and conclusions drawn by the auditors.

All efforts of Chicago’s Empowerment Zone have been focused on the four key principles
established by HUD at the inception of the Empowerment Zone initiative and underlying the
formation of its strategic plan (per 24 CFR 597.200(c)):

1. Economic opportunity
2. Sustainable community development
3. Community-based partnerships
4. Strategic vision for change.

Chicago’s Empowerment Zone is proud of our progress to date. We remain committed to
ever-increasing efficiency and effectiveness in reaching the critically important goals of the
EZ initiative for the benefit of some of the neediest communities in our city. A summary of
the accomplishments of Chicago’s EZ during its first funding cycle is attached hereto as Exhibit
A and made a part hereof. Highlights of those accomplishments include:

• In the first funding cycle, the Chicago’s EZ/EC Coordinating Council approved 73
programs and projects within seven Strategic Initiatives identified in Chicago’s
Strategic Plan. More than $43 million of EZ funds have been committed to these
programs and projects.

• The EZ is revitalizing industrial and commercial corridors, improving the

Page 81 99-CH-259-1002
Appendix C

attractiveness of industrial areas and assisting small businesses through
entrepreneurial training. Eleven programs are providing job training and placement
services to EZ residents. Services provided through these programs include
workforce readiness, specific skills training, and job placement follow-up.

• More than 400 housing units, including owner-occupied and rental property, and
100 units of single-room apartments are being constructed by seven community-
based development organizations to help meet the needs of low and very-low
income EZ residents.

• Six community-based health centers are increasing their capacity to serve EZ
residents by building new facilities or expanding services at existing facilities.

• Five day care centers will be constructed in the EZ to provide safe, affordable, high-
quality day care to more than 1,100 children. The parents of many of these children
are returning to or entering the job market for the first time under welfare-to-work.

RESPONSE TO HUD AUDIT FINDINGS

The audit team’s findings fall into two basic categories: (1) inaccurate reporting and (2) improper
or unsupported use of funds. The audit team identified three broad findings of inaccurate reporting
– regarding actual progress and status of funded programs, non-Empowerment Zone activities, and
leveraged funds. We acknowledge that mistakes were made in reporting in our July 30, 1997
Performance Report (covering the period July 1, 1996 through June 30, 1997). Fortunately, we
became aware of those problems and started to implement solutions shortly after the 1997
Performance Report was filed – long before the audit was announced.

Despite some serious problems and setbacks which we experienced during the first three years of
the program (including a complete overhaul of our coordinating council and the tenure of three
different directors), we now are on the right track in both our substantive and administrative
activities. We are confident that the specific improvements and corrections (detailed below) will
address all of the problems experienced during the beginning phase of Chicago’s EZ program and
that our reporting hereafter will accurately reflect the actual progress and status of funded
programs, only EZ activities, and all leveraged funds.

Regarding the allegations of improper or unsupported use of EZ funds, we detail below our
disagreement with certain pertinent definitions and assumptions employed by the auditors and with
certain conclusions derived therefrom that are relevant to these allegations. As explained below,
efforts are underway by the EZ staff to determine compliance or non-compliance of each program
and project on the basis of definitions and interpretations that are consistent with the

spirit of the EZ initiative and confirmed by the HUD EZ program office. When the analysis is
complete, we will immediately take any necessary corrective actions.

99-CH-259-1002 Page 82
Appendix C

A. Improvements to our monitoring and reporting system already have been
implemented, which will result in accurate reporting of accomplishments, EZ
activities only, and leveraging in the future.

The monitoring and reporting improvements being implemented by the Chicago EZ reflect a three-
part strategy: first, a policy of “containment” of problematic contracts from the Chicago EZ’s first
funding cycle; second, introduction of the new monitoring and reporting requirements for first
funding cycle contracts that have not yet been executed; and, third, incorporation of the new
monitoring and reporting requirements up-front – as part of the application process – for the
second funding cycle.

The specific improvements made by the Chicago EZ to the original monitoring and reporting
requirements (“the new system”) include:

1. Clear communication of reporting requirements (both substantive and procedural) to sub-
recipients and lead agencies which have monitoring responsibilities

2. Creation and distribution of standardized monitoring and reporting forms -- to aid
compliance and produce results that permit apples-to-apples analysis and reporting of
accomplishments and leveraging

3. Clear procedures to tie distribution of funds to actual performance of sub-recipients

4. Standardization of previously problematic definitions, such as “primarily serving EZ
residents,” leveraged funds, job creation, etc.

5. Site visits by EZ staff to every sub-recipient to determine/verify progress and status

6. Increased coordination with and cooperation from lead agencies within the City re:
monitoring (i.e., increased utilization of existing expertise and relationships with sub-
recipients)

7. Budgeting for the hiring of two additional EZ staff in FY 1999 for monitoring activities

8. Training of all EZ staff and lead agency staff involved in monitoring and reporting
regarding HUD’s reporting procedures

9. Clear separation of activities funded by federal EZ dollars from EZ/EC activities funded by
state dollars

10. Revised procedures for granting advances, consistent with HUD’s Cash Management
Improvement Act
11. Immediate initiation of corrective actions against sub-recipients who are out of compliance,
as required.

Page 83 99-CH-259-1002
Appendix C

B. Areas of Disagreement in Interpretation.

1. EZ Funds Should Benefit EZ Residents Primarily.

The HUD IGA audit team indicates that EZ funds may be used only for the benefit of EZ residents.
Chicago’s EZ, in consultation with HUD’s EZ program office, has proceeded on the basis that the
use of EZ funds should benefit EZ residents primarily. HUD’s EZ Program Coordinator confirmed
this interpretation at the Audit Exit Conference in Chicago on August 18. In fact, the instruction
distributed by HUD with the Round II Designation application forms (entitled Preliminary
Guidelines Round II EZ/EC SSBG Grants for Empowerment Zones) specifically states:

Resident Benefit: All programs, services and activities financed in whole or in part
with Round II EZ/EC SSBG funds must be structured to benefit EZ residents
primarily; the programs, services and activities may also benefit nonresidents.
(Emphasis added.)

The initial working assumption of “benefit” shared by HUD and Chicago’s EZ as a Round I
designee has been confirmed in the Round II instructions.

2. The Definition of “Benefit” Should Be Broader.

In addition, we believe that the auditors have too narrowly defined the term “benefit.” Two types
of activities identified by the auditors as problematic – new housing development and the
expansion of an important cultural institution in the EZ – benefit Zone residents in numerous ways,
including by bringing new money into the local economy, new amenities into the neighborhood,
and by improving previously undeveloped or under-used properties. In addition, both activities are
consistent with the Strategic Plan for Chicago’s EZ. Under the audit team’s overly narrow
definition, these very real and meaningful benefits would not be considered to flow from the EZ
program.

3. Appropriate Combination of Funds in One Account is Authorized.

The auditors’ opinion that commingling of funds is not allowed is inconsistent with the Office of
Management and Budget regulations which clearly allow sub-recipients to combine funds for
several different programs in one account provided the agency maintains an accurate account of
project funds. (See OMB Circular A-110, (i) (1))

4. Chicago’s Empowerment Zone Did Not Lose Any Opportunity to Fund Other Activities.

The auditors assumption that the City lost the opportunity to use funds for other activities when
first cycle sub-recipients did not implement approved projects in a timely manner was in error.
Chicago’s EZ did not allocate all available funds during the first funding cycle of the 10-year EZ
program. No EZ activity has been stalled for lack of funding availability.

99-CH-259-1002 Page 84
Appendix C

5. Chicago’s EZ Has Focused on Deliverables Contained in Each Project’s Contract.

We disagree with the auditors’ opinion that a sub-recipient receiving funds for staff salaries must
document that a specified percentage of a staff person’s time funded by an EZ grant was actually
spent on the EZ project. In the case cited by the audit team, the sub-recipient performed all
tasks/deliverables in less time than it had anticipated. Barring an unreasonable estimate of time to
perform agreed upon services, we should not seek to penalize staff of a sub-recipient for being
efficient. EZ staff will, of course, be diligent in reviewing sub-recipients’ estimates of staff time
needed to perform required tasks and produce required deliverables.

C. The Chicago Empowerment Zone will take all appropriate action to ensure that sub-
recipients are in compliance with all contractual obligations.

The Chicago EZ staff currently is conducting site visits with all EZ sub-recipients. Those sub-
recipients that are not in compliance with their contracts face several possible consequences. Per
the contract with the sub-recipients, the City of Chicago may invoke any or all of the following
remedies: the right to take over and complete the services; the right to terminate the agreement;
the right of specific performance, and injunction or other appropriate equitable remedy; monetary
damages; the right to deem the contractor non-responsible in future contracts awarded by the City;
and the right to demand a refund of any funds not used in accordance with the terms of the
agreement. When the results of the staff analyses are complete -- consistent with appropriate
definitions of applicable terms -- we will initiate all necessary corrective actions.

Please see Exhibit B, attached hereto and made a part hereof, for our specific responses to the
draft audit findings and recommendations.

In conclusion, Chicago’s Empowerment Zone is proceeding into the second phase of its 10-year
life span having clarified our direction within the spirit of the EZ initiative, as confirmed with the
HUD EZ program office. We invite anyone with questions about the audit or our response or the
Chicago EZ program, in general, to contact me directly at (312) 744-9623.

Very truly yours,

Avery L. Goodrich, Jr.
Empowerment Zone Director

c.c. The Honorable Richard M. Daley, Mayor
Christopher R. Hill, Commissioner of Planning and Development

EXHIBIT A:
A Summary of Chicago Empowerment Zone
Accomplishments During its First Funding Cycle

Page 85 99-CH-259-1002
Appendix C

(By Strategic Initiative)

Economic Empowerment

. The Fund for Community Redevelopment is developing a 75,000 square foot shopping
center in the North Kenwood/Oakland communities using $472,909 in EZ funds. The site
will be anchored by a grocery store and bank and will be supported by smaller stores
offering neighborhood goods and services.

. Gappie Development Corporation created a retail center at the intersection of King Drive
and 35th Street. This is a $1.7 million project receiving $300,000 in EZ funds.

. The West Humboldt Park Community Development Council was awarded $100,000
toward the revitalization of the Chicago Avenue Commercial Corridor from Kedzie to
Pulaski.

. The Lawndale Coalition was awarded $100,000 toward the revitalization of three
commercial areas in the Lawndale community.

. The Eighteenth Street Development Corporation was awarded $521,000 toward the
revitalization of commercial areas in the Pilsen community.

Affordable and Accessible Housing

. The St. Edmund’s Redevelopment Corporation received $1.5 million to rehabilitate six
multi-family buildings. This project will provide sixty-six new residential units for low and
very-low income residents in the Washington Park community.

. The Fund for Community Redevelopment received $1,272,990 to rehabilitate two vacant
multi-family apartment buildings located at 811 E. 46th Street and 4001 S. Ellis Avenue in
the Kenwood/Oakland area. This project will provide 102 units of affordable and
accessible housing to low-income families.

. The Renaissance Corporation was awarded $3 million dollars to rehabilitate the
historically significant Wabash YMCA building in the Douglas community area. The
project will provide 101 single-room occupancy units to serve homeless, elderly, mobility-
impaired, and chronically mentally ill people. This project will also provide comprehensive
health and human services to residents as well as community members at a well equipped,
on-site health and recreational facility.

Linking Health and Human Services

· Six new child and family service centers, each receiving between $1.2 and $1.5 million,
will be built in the Empowerment Zone in 1999 by the grantees listed below:

99-CH-259-1002 Page 86
Appendix C

The Center for New Horizon will rehabilitate a portion of the historic Singer
Mansion in the 4500 block of South Drexel.

El Hogar del Nino will expand existing day care services in the Pilsen/Little Village
Cluster of the Empowerment Zone.

The Family Resource Center Partnership will assist in building a child care center
in the Lawndale community.

The Westside Planning and Development Corporation will acquire and rehabilitate
a 3-story building at 4920 West. Madison.

The YMCA will build a new child care center at 825 South Kedzie.

The Chicago Housing Authority will renovate the Charles Hayes Center at Robert
Taylor Homes. In addition to the day care center, this site will also house the
Family Investment Center which provides employment counseling, training, and
placement through CHA’s Resident Employment Development Initiative (REDI)
Program.

. The Westside Primary Health Care Expansion Project is the result of a collaboration
between four community health centers–Circle Family Care, Erie Family Health Center,
Miles Square Health Center, and Sinai Family Health Center–operating six sites serving
Empowerment Zone residents. This project will receive $2,243,238 to expand access to
health care by increasing staff, hours of operation, and outreach to the community.

. Komed Health Center, in cooperation with the Chicago Department of Public Health, will
receive $750,000 to build a new center to serve the Kenwood/Oakland and Grant
Boulevard communities.

. Alivio Medical Center will receive $1,700,000 to add six exam rooms to the current health
center and to develop a second primary care center.

. St. Anthony Hospital, in partnership with The Resurrection Project, will receive $997.049
to construct and operate a family health center as part of the larger Little Village Family
Resource Center.

. Sinai Family Health Center will receive $885,000 to relocate and expand services currently
provided at its 3,000 square foot El Centro facility into a 15,000 square foot facility.

Building on Cultural Diversity

. The Chicago Park District will receive $1,458,700 to create a multi-purpose facility within

Page 87 99-CH-259-1002
Appendix C

the historic Garfield Park Conservatory. This project will provide space to organizations
for community meetings, receptions, lectures, large group training and other educational
and cultural activities, and will also provide training and internships for community
residents.

. Little Black Pearl received $466,020 to develop a workshop to introduce African-
American children to art as a means of personal expression and as a potential career path.

. St. Malachy School received $550,900 to establish an arts education program that
integrates intensive music training visual arts, wood workshops and dance with its existing
academic curriculum.

. Tobacco Road, Inc. was awarded $1,000,000 to develop a cultural center, including a
theater, on 47th Street.

Youth Futures

. The Community TV Network will receive $154,140 to develop a training program for
Zone youth at Garfield Alternative High School. This project will also provide low-cost
production services to Empowerment Zone businesses and organizations.

. Cristo Rey High School in the Pilsen/Little Village Cluster of the Empowerment Zone will
receive $400,000 to create a school-to-work training program that places students at the
work site one full day each week, with the remaining four days spent in the classroom.

. Community Services West will receive $211,962 to develop a training program targeted to
high school drop-outs.

. The Boys and Girls Club of Chicago will receive $145,410 to establish a job center in the
West Cluster of the Empowerment Zone that will provide school-to-work programs for
high school students and employment programs for adults and out-of-school youth.

. Instituto del Progreso Latino was awarded $543,724 to design and implement entry-level
technical training and post-secondary technical training programs for Empowerment Zone
youth in the Pilsen/Little Village Cluster of the Empowerment Zone.

. Chicago Youth Centers was awarded $90,000 to expand the Elliot Donnelly Youth Center
in the South Cluster of the Empowerment Zone.

. Allison Foundation for Better Living will receive $430,000 to rehabilitate an 18,000
square foot building that will be used as a multi-functional youth center.

. The Youth and Family Resource Center will receive $761,900 to expand their Youthnet

99-CH-259-1002 Page 88
Appendix C

Program in the North Kenwood/Oakland communities.

. West Humboldt Park Family and Community Development will receive $175,000 to
develop an After-School Youth Center at 744 N. Monticello.

EXHIBIT B:
Chicago’s Empowerment Zone’s Response
to Specific Draft Audit Findings

Draft Audit Finding : “Activities Were Incorrectly Reported As Empowerment Zone
Activities”

Page 89 99-CH-259-1002
Appendix C

Response: Fourteen (not 15) of the 84 activities in the 1997 Performance Review were located
in Chicago’s three Enterprise Communities (not a designated EC under the Federal program),
rather than one of the three clusters of the Chicago Empowerment Zone. Evaluations conducted
to date confirm that several of the 14 EC activities benefit EZ residents, based on “clients
served” lists or the agency’s reporting of the geographic area they served. Contrary to the
audit team’s report, the Chicago EZ recognizes that the ECs are not a part of the EZ program,
hence: two sets of boilerplate contracts, two systems for assigning contract numbers, two
systems for assigning fund numbers, two monthly expenditure reporting systems to the State,
and two sets of community representatives on the Coordinating Council. Responses to the
specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Establish procedures and controls to only Procedures and controls have been
report EZ program activities to HUD. established to ensure that only EZ activities
are reported to HUD.
B. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of
submitted to HUD for the Empowerment information submitted to HUD.
Zone Program.

Draft Audit Finding: “Funding for West Side Residential Rehabilitation project was
inaccurately reported.

Response: At the time the 1997 Performance Review was submitted, the best funding estimates
available were either from the original proposals submitted by sub-recipients or from the
investment worksheet collected from our sub-recipients between the date HUD issued the
Performance Review instructions (June 23, 1997) and the date the Performance Review was due
to HUD (July 30, 1997). In the future, sub-recipients’ reports will be verified by EZ staff to
ensure accurate reporting of information. Responses to the specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Establish procedures and controls to Procedures and controls have been
follow HUD’s instructions for reporting established to ensure reporting of activity’s
activity’s investments in the Performance investments according to HUD instructions.
Review.
B. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of

99-CH-259-1002 Page 90
Appendix C

provided to HUD. information submitted to HUD.

Draft Audit Finding: “Accomplishments of the Community Youth Development Activity
Network were incorrectly reported.”

Response: At the time the 1997 Performance Review was submitted, the best funding estimates
available were either from the original proposals submitted by sub-recipients or from the
investment worksheet collected from sub-recipients between the date HUD issued the
Performance Review instructions (June 23, 1997) and the date the Performance Review was due
to HUD (July 30, 1997). In the future, sub-recipients’ reports will be verified by EZ staff to
ensure accurate reporting of leveraged funds and project deliverables. Responses to the specific
recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Provide training on HUD’s reporting Training will be provided for existing and
requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance
Review.
B. Establish procedures and controls to Procedures and controls have been
ensure the person who prepares the City’s established to ensure that project
Performance Review to HUD uses the accomplishments are accurately reported.
actual accomplishments for each
Empowerment Zone activity provided by
the administering officials.
C. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of
provided to HUD. information submitted to HUD.

Draft Audit Finding : “Controls over Community Services West Workforce and Life
Preparation were not adequate.”

Response: The City disagrees with the auditors’ finding that the sub-recipient incorrectly
deposited EZ funds into an account with funds from other sources. According to OMB Circular
A110, separate depository accounts are not required for EZ funds. The sub-recipient
acknowledges that the advance is a liability and the Chicago EZ has extended the contract to
allow for full implementation of the project. In the future, sub-recipients’ reports will be verified
by EZ staff to ensure accurate reporting of leveraged funds, project deliverables, and obstacles
encountered. Responses to the specific recommendations are:

Page 91 99-CH-259-1002
Appendix C

that monies are used efficiently and
effectively.
B. Require Bethel New Life to immediately The contract has been extended to enable the
initiate the Community Services West sub-recipient to fully implement the project.
Workforce and Life Preparation Program If the sub-recipient does not comply with
or reimburse the Empowerment Zone contract requirements, the Chicago EZ will
Program $25,403 from non-Federal funds take necessary corrective actions to remedy
for the advance to Bethel. any non-compliance issues.
C. Revise its procedures on giving advances Advance procedure has been revised and is
of Empowerment Zone funds to be consistent with the Cash Management
consistent with the Cash Management Improvement Act.
Improvement Act.
D. Establish procedures and controls to Procedures and controls have been
ensure quarterly progress reports or established to ensure quarterly reports from
negative reports are submitted by all sub-recipients.
grantees.
E. Provide training on HUD’s reporting Training will be provided for existing and
requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance
Review.
F. Establish procedures and controls to Procedures and controls have been
ensure the person who prepares the City’s established to ensure that project
Performance Review to HUD uses the accomplishments are accurately reported.
actual accomplishments for each
Empowerment Zone activity provided by
the administering officials.
G. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of
provided to HUD. information submitted to HUD.

Draft Audit Finding: “The City overstated leveraged funding by over $143 million.”

Response: At the time the 1997 Performance Review was submitted, the best funding estimates
available were either from the original proposals submitted by sub-recipients or from the
investment worksheet collected from sub-recipients between the date HUD issued the
Performance Review instructions (June 23, 1997) and the date the Performance Review was due
to HUD (July 30, 1997). In the future, sub-recipients’ reports will be verified by EZ staff to
ensure accurate reporting of leveraged funds. Responses to the specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Establish procedures and controls to Procedures and controls have been
follow HUD’s instructions and report established to ensure accurate reporting of

99-CH-259-1002 Page 92
Appendix C

current funding amounts and funding amounts and commitments
commitments in Performance Reviews. consistent with HUD instructions.
B. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of
submitted to HUD for the Empowerment information submitted to HUD.
Zone Program.

Draft Audit Finding: “Controls over the Family Life Community Network project were not
adequate.”

Response: The contract for the second year of this project is being renegotiated so that service
provided over the total contract period will, in fact, benefit the originally agreed upon number of
Zone residents. If the renegotiations are unsuccessful, the EZ will take all necessary corrective
actions to remedy non-compliance issues. In the future, sub-recipients’ reports will be verified
by EZ staff to ensure accurate reporting of leveraged funds and project deliverables. Responses
to the specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Require the Boys and Girls Club to Procedures have been established requiring all
maintain documentation to show that sub-recipients to maintain records
Empowerment Zone funds are used to documenting benefits to Zone residents
benefit Zone residents. consistent with appropriate definitions of
“benefit to Zone residents.”
B. Reimburse the Empowerment Zone Source documentation has been requested and
Program $123,321 from non-Federal will be verified for compliance with contract.
funds for services inappropriately If sub-recipient is not in compliance with
provided to non-Zone youths. contract, the Chicago EZ will take necessary
corrective actions to remedy any non-
compliance issues.

C. Provide documentation to support that Source documentation has been requested and
the $3,717 of career and educational will be verified for compliance with contract.
services which were paid with If sub-recipient is not in compliance with
Empowerment Zone funds benefited contract, the Chicago EZ will take necessary
Zone residents. If adequate corrective actions to remedy any non-
documentation cannot be provided, then compliance issues.
the City should reimburse the
Empowerment Zone Program $3,717
from non-Federal funds.
D. Establish procedures and controls to Procedures and controls have been established
ensure that: (1) Activities funded under to (1) ensure that funds are used efficiently
the Empowerment Zone Program use and effectively, and (2) ensure that corrective

Page 93 99-CH-259-1002
Appendix C

moneys efficiently and effectively; and action is taken against grantees who do not
(2) Corrective action is taken against provide required services.
grantees who do not provide the
required services.
E. Provide training on HUD’s reporting Training will be provided for existing and
requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance
Review.
F. Establish procedures and controls to Procedures and controls have been established
ensure the person who prepares the to ensure that project accomplishments are
City’s Performance Review to HUD accurately reported.
uses the actual accomplishments for each
Empowerment Zone activity provided by
the administering officials.
G. Establish procedures and controls to Procedures and controls have been established
verify the accuracy of information to verify the accuracy of information submitted
submitted to HUD to HUD.

Draft Audit Finding: “Controls over the Storehouse Distributions Center project were not
adequate.”

Response: The sub-recipient agreement was based upon output as measured by the contract
benchmarks. It is critical to note that the sub-recipient not only met, but exceeded all agreed
upon benchmarks. Therefore, the salary reimbursements were justified. Future contract
provisions will address deliverables, rather than staff time required to meet the deliverables. In
the future, sub-recipients’ reports will be verified by EZ staff to ensure accurate reporting of
project accomplishments. Responses to the specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Establish procedures and controls to Procedures and controls have been established
ensure that activities funded under the to ensure that funds are used efficiently and
Empowerment Zone Program use effectively.
monies efficiently and effectively.
B. Provide documentation to support the The sub-recipient agreement was based upon
salary reimbursements of $45,000 for output as measured by the benchmarks. The
the Storehouses’s Administrative sub-recipient not only met, but exceeded, all
Director, Warehouse Manager, and the agreed upon benchmarks. Specifically, the sub-

99-CH-259-1002 Page 94
Appendix C

Corporate Relations Manager. If recipient planned benchmarks were: increase
adequate documentation cannot be membership to 270 members (ACTUAL 409);
provided, then reimburse the increase donors to 75 (ACTUAL 110); and
Empowerment Zone Program $45,000 increase amount of operation handling fees to
from non-Federal funds. $75,000 (ACTUAL $168,129). Therefore, the
salary reimbursements were justified.
C. Provide training on HUD’s reporting Training will be provided for existing and
requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance
Review.
D. Establish procedures and controls to Procedures and controls have been established
ensure the person who prepares the to ensure that project accomplishments are
City’s Performance Review to HUD accurately reported.
uses the actual accomplishments for
each Empowerment Zone activity
provided by the administering officials.
E. Establish procedures and controls to Procedures and controls have been established
verify the accuracy of information to verify the accuracy of information submitted
submitted to HUD to HUD.

Draft Audit Finding: “Controls over the Northwest Industrial Corridor Program were
inadequate.”

Response: Performance measures will be re-established with sub-recipient to reflect desired
output. Administrative controls have been put in place by the EZ staff to address sub-recipient
progress deficiencies. Funding has been withheld pending submission of appropriate
deliverables. In the future, sub-recipients’ reports will be verified by EZ staff to ensure accurate
reporting of leveraged funds, performance measurements, and project accomplishments.
Responses to the specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Establish procedures and controls to Procedures and controls have been
monitor activities funded under the established to ensure that funds are used
Empowerment Zone Program to ensure efficiently and effectively.
that monies are used efficiently and
effectively.
B. Reimburse the Empowerment Zone Source documentation has been requested to
Program $36,171 from non-Federal funds substantiate staff involvement with the
for inappropriate payment of the project. If sub-recipient is not in compliance

Page 95 99-CH-259-1002
Appendix C

Administrative Assistance’s salary and with contract, the Chicago EZ will take
health benefits and the lead abatement necessary corrective actions to remedy any
removal. non-compliance issues.
C. Amend the contract with Bethel New Life Performance measures will be re-established
to accurately reflect the performance with sub-recipient to reflect desired output.
measures Bethel New Life is responsible
to complete.
D. Establish procedures and controls to Procedures and controls have been
ensure the person who prepares the City’s established to ensure that project
Performance Review to HUD uses the accomplishments are accurately reported.
actual accomplishments for each
Empowerment Zone activity provided by
the administering officials.
E. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of
submitted to HUD information submitted to HUD.

Draft Audit Finding: “The City lacked adequate controls over the 21st Century Community
Learning Centers project.”

Response: Benchmarks are currently being reevaluated to confirm that the majority of the
program participants were in fact EZ residents even though 10 of the 37 facilities were not
located within the EZ. If this project is not in compliance, appropriate corrective actions will be
taken, including using other sources of funds for this project. In the future, sub-recipients’
reports will be verified by EZ staff to ensure accurate reporting of leveraged funds,
performance measurements, and project accomplishments. Responses to the specific
recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Do not advise administering entities to Our advice was intended to promote similar
provided services to individuals and benefits to EC residents and did not
organizations outside of the encourage, condone, or authorize
Empowerment Zone. inappropriate use of EZ funds. We
acknowledge that EZ funds will be used only
for activities that benefit primarily Zone
residents.

99-CH-259-1002 Page 96
Appendix C

B. Establish procedures and controls to Procedures and controls have been
monitor activities funded under the established to ensure that funds are used
Empowerment Zone Program to ensure efficiently and effectively.
that monies are used efficiently and
effectively
C. Reimburses the Empowerment Zone Source documentation has been requested of
Program $114,755 from non-Federal sub-recipient to verify compliance with
funds for the Community Learning contract. If sub-recipient is not in
Centers established at non-Zone schools. compliance with contract, the Chicago EZ
will take necessary corrective actions to
remedy any non-compliance issues.
D. Establish procedures and controls to Procedures and controls have been
ensure the person who prepares the City’s established to ensure that project
Performance Review to HUD uses the accomplishments are accurately reported.
actual accomplishments for each
Empowerment Zone activity provided by
the administering officials.
E. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of
submitted to HUD information submitted to HUD.

Draft Audit Finding: “Controls over the Mexican Fine Arts Center Museum expansion
project were not adequate.”

Response: Supporting documents will be submitted by sub-recipient to verify compliance with
contract. The City will remedy any non-compliance issues once the review is complete.
However, it is important to note that the contract does not require 100% EZ resident
participation for youth internships. Funding has been withheld until these issues are resolved.
At the time the 1997 Performance Review was submitted, the best funding estimates available
were either from the original proposals submitted by sub-recipients or from the investment
worksheet collected from sub-recipients between the date HUD issued the Performance Review
instruction s (June 23, 1997) and the date the Performance Review was due to HUD (July 30,
1997 In the future, sub-recipients’ reports will be verified by EZ staff to ensure accurate
reporting of leveraged funds and project accomplishments. Responses to the specific
recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Require the Mexican Fine Arts Center Procedures have been established requiring
Museum to maintain documentation to all sub-recipients to maintain records
show that Empowerment Zone funds are documenting benefits to Zone residents.
used to benefit Zone residents.
B. Reimburse the Empowerment Zone Source documentation has been requested to
Program $148,756 from non-Federal funds verify compliance with contract and to
for the inappropriate payments to the non- substantiate staff involvement. If sub-

Page 97 99-CH-259-1002
Appendix C

Zone youth ($85,057) and the cost of the recipient is not in compliance with contract,
seven employees ($63,699) that were the Chicago EZ will take necessary corrective
inappropriately paid with Zone funds. actions to remedy any non-compliance issues.
C. Provide documentation to support that the Source documentation has been requested to
$502,078 of career and educational verify compliance with contract. If sub-
services that were paid with Empowerment recipient is not in compliance with contract,
Zone funds benefited Zone residents. If the Chicago EZ will take necessary corrective
adequate documentation cannot be actions to remedy any non-compliance issues.
provided, then the City should reimburse
the Empowerment Zone Program
$502,078 from non-Federal funds.
D. Do not use Empowerment Zone funds to Source documentation has been requested to
reimburse the Mexican Fine Arts Center verify compliance with contract and to
Museum $62,294 for the cost of the non- substantiate staff involvement. Funding has
Zone youths($24,654) and the Museums been withheld until necessary documentation
seven employees that worked on non-Zone is submitted to EZ staff. If sub-recipient is
activities ($37,640) during April to June not in compliance with contract, the Chicago
1998. EZ will take necessary corrective actions to
remedy any non-compliance issues.
E. Require Mexican Fine Arts Center Source documentation has been requested to
Museum to provide documentation to verify compliance with contract and to
support the request for reimbursement of substantiate staff involvement. Funding has
$105,528 for the 17 employees during been withheld until necessary documentation
April to June 1998 benefitted is submitted to EZ staff. If sub-recipient is
Empowerment Zone residents. If not in compliance with contract, the Chicago
documentation cannot be provided, the EZ will take necessary corrective actions to
City cannot use Empowerment Zone funds remedy any non-compliance issues.
to reimburse the Museum.
F. Establish procedures and controls to Procedures and controls have been
monitor activities funded under the established to ensure that funds are used
Empowerment Zone Program to ensure efficiently and effectively.
that monies are used efficiently and
effectively.

G. Provide training on HUD’s reporting Training will be provided for existing and
requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance Review.
H. Establish procedures and controls to Procedures and controls have been
ensure the person who prepares the City’s established to ensure that project
Performance Review to HUD obtains accomplishments are accurately reported.
information on the actual accomplishments
for each Empowerment Zone activity.
I. Establish procedures and controls to verify Procedures and controls have been

99-CH-259-1002 Page 98
Appendix C

the accuracy of information submitted to established to verify the accuracy of
HUD. information submitted to HUD.

Draft Audit Finding: “Controls over the Better Days for Youth and Nuevos Futuros
program were not adequate.”

Response: Response: Supporting documents will be submitted by sub-recipient to verify
compliance with contract. The City will remedy any non-compliance issues once the review is
complete. However, it is important to note that the contract does not require 100% EZ resident
participation for youth internships. At the time the 1997 Performance Review was submitted, the
best funding estimates available were either from the original proposals submitted by sub-
recipients or from the investment worksheet collected from sub-recipients between the date HUD
issued the Performance Review instruction s (June 23, 1997) and the date the Performance
Review was due to HUD (July 30, 1997. In the future, sub-recipients’ reports will be verified by
EZ staff to ensure accurate reporting of leveraged funds, performance measurements, and
project accomplishments. Responses to the specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A Require the Chicago Commons Procedures have been established requiring
Association to maintain documentation to all sub-recipients to maintain records
show that Empowerment Zone funds are documenting benefits to Zone residents.
used to benefit Zone residents.
B. Reimburse the Empowerment Zone Source documentation has been requested to
program $48,219 from non-Federal funds verify compliance with contract. If sub-
for the services inappropriately provided to recipient is not in compliance with contract,
non-Zone youths ($47,294) and the the Chicago EZ will take necessary corrective
stipends that were inappropriately paid to actions to remedy any non-compliance issues.
the non-Zone youths ($925).

C. Provide documentation to support that the Source documentation has been requested to
$1,359 of career and educational services verify compliance with contract. If sub-
and $165 of stipends that were paid with recipient is not in compliance with contract,
Empowerment Zone funds benefitted Zone the Chicago EZ will take necessary corrective
residents. If adequate documentation actions to remedy any non-compliance issues.
cannot be provided, then the City should
reimburse the Empowerment Zone
Program $1,524 from non-Federal funds.
D. Do not use Empowerment Zone funds to Source documentation has been requested to
reimburse the Chicago Commons verify compliance with contract. Funding has
Association $65,476 for the services been withheld until necessary documentation
provided to non-Zone youths ($37,023) is submitted. If sub-recipient is not in
and the stipends paid to non-Zone youths compliance with contract, the Chicago EZ
($28,444) from January to May 1998. will take necessary corrective actions to
remedy any non-compliance issues.

Page 99 99-CH-259-1002
Appendix C

E. Require Chicago Commons Association to Source documentation has been requested
provide documentation to support the and will be review by EZ staff. If sub-
request for reimbursement of $1,064 for recipient is not in compliance with contract,
the services provided to three youths and the Chicago EZ will take necessary corrective
$4,952 for the stipends paid to 13 youths actions to remedy any non-compliance issues.
from January to May 1998 benefitted
Empowerment Zone residents. If
documentation cannot be provided, the
City cannot use Empowerment Zone funds
to reimburse the Association.
F. Establish procedures and controls to Procedures and controls have been
monitor activities funded under the established to ensure that funds are used
Empowerment Zone Program to ensure efficiently and effectively.
that monies are used efficiently and
effectively.
G. Provides training on HUD’s reporting Training will be provided for existing and
requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance Review.
F. Establish procedures and controls to Procedures and controls have been
ensure the person who prepares the City’s established to ensure that project
Performance Review to HUD obtains accomplishments are accurately reported.
information on the actual accomplishments
for each Empowerment Zone activity.
G. Establish procedures and controls to verify Procedures and controls have been
the accuracy of information submitted to established to verify the accuracy of
HUD. information submitted to HUD.

Draft Audit Finding: “Controls over the Employer Assisted Housing program were not
adequate.”

Response: Administrative controls have been put in place to address subrecipient progress
deficiencies. The contract was renegotiated and funding has been withheld pending submission
of appropriate deliverables and documentation. At the time the 1997 Performance Review was
submitted, the best funding estimates available were either from the original proposals submitted
by sub-recipients or from the investment worksheet collected from sub-recipients between the
date HUD issued the Performance Review instruction s (June 23, 1997) and the date the
Performance Review was due to HUD (July 30, 1997). In the future, sub-recipients’ reports will
be verified by EZ staff to ensure accurate reporting of leveraged funds, performance
measurements, project accomplishments, and participating entities. Responses to the specific
recommendations are:

99-CH-259-1002 Page 100
Appendix C

HUD IG Recommendations Chicago Empowerment Zone’s Response
A. Establish procedures and controls to Procedures and controls have been established
monitor activities funded under the to ensure that funds are used efficiently and
Empowerment Zone Program to ensure effectively.
that monies are used efficiently and
effectively.
B. Reimburse the Empowerment Zone Source documentation will be submitted by
Program $22,170 from non-Federal funds sub-recipient to substantiate staff involvement
for Bethel New Life’s three employees in the project. If sub-recipient is not in
that were inappropriately paid from Zone compliance with contract, the Chicago EZ will
funds. take necessary corrective actions to remedy
any non-compliance issues.
C. Deduct the $3,000 of construction repairs $3,000 in funds will be added to advance total
that were inappropriately paid with the as a liability.
Empowerment Zone funds from Bethel
New Life’s future reimbursements. If the
City does no make the necessary
deductions, then the City should
reimburse the Empowerment Zone
Program $3,000 from non-Federal funds
for the inappropriate use of Zone funds.
D. Do not use Empowerment Zone funds to Source documentation will be submitted by
reimburse Bethel New Life $18,483 for sub-recipient to verify staff involvement in the
the Administrative Assistant’s ($10,015) project. If sub-recipient is not in compliance
and the Project Director’s ($8,468) salar with contract, the Chicago EZ will take
costs while they did not work on the necessary corrective actions to remedy any
Program. non-compliance issues.
E. Require Bethel New Life to provide Source documentation will be submitted by
documentation to support the request for sub-recipient to verify staff involvement in the
the $8,468 for the salary costs paid to the project. Funding has been withheld until
Program’s Project Director from January necessary documentation is submitted. If sub-
to March 1998. If documentation cannot recipient is not in compliance with contract,
be provided, the City cannot use the Chicago EZ will take necessary corrective
Empowerment Zone funds to reimburse actions to remedy any non-compliance issues.
Bethel.
F Provide training on HUD’s reporting Training will be provided for existing and
requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance
Review.
G. Establish procedures and controls to Procedures and controls have been established
ensure the person who prepares the City’s to ensure that project accomplishments are
Performance Review to HUD obtains accurately reported.
information on the actual

Page 101 99-CH-259-1002
Appendix C

accomplishments for each Empowerment
Zone activity.
H. Establish procedures and controls to Procedures and controls have been established
verify the accuracy of information to verify the accuracy of information submitted
submitted to HUD. to HUD.

13 Draft Audit Finding: “Controls over the Job Link program were not adequate.”

Response: Supporting documents will be submitted by sub-recipient to verify compliance with
contract. The City will remedy any non-compliance issues once the review is complete. At the
time the 1997 Performance Review was submitted, the best funding estimates available were
either from the original proposals submitted by sub-recipients or from the investment worksheet
collected from sub-recipients between the date HUD issued the Performance Review instruction
s (June 23, 1997) and the date the Performance Review was due to HUD (July 30, 1997). In the
future, sub-recipients’ reports will be verified by EZ staff to ensure accurate reporting of
leveraged funds, performance measurements, and project accomplishments. Responses to the
specific recommendations are:

HUD IG Recommendations Chicago Empowerment Zone’s Response
A Require West Side Job Link to maintain Procedures have been established requiring
documentation to show that all sub-recipients to maintain records
Empowerment Zone Funds are used to documenting benefits to Zone residents.
benefit Zone residents.
B. Reimburse the Empowerment Zone Source documentation has been requested to
Program $148,622 from non-Federal verify compliance with contract. If sub-
funds for job placement services recipient is not in compliance with contract,
($60,769) and the job skills training that the Chicago EZ will take necessary corrective
were inappropriately provided to the non- actions to remedy any non-compliance issues.
Zone residents ($87,853).
Provide documentation to support that the Source documentation has been requested and
$125,166 of job placement services, $1,515 will be review by EZ staff. If sub-recipient is
of jobs skills training, and the $213,484 of not in compliance with contract, the Chicago
miscellaneous services that were paid with EZ will take necessary corrective actions to
Empowerment Zone funds benefitted Zone remedy any non-compliance issues.
residents. If adequate documentation cannot
be provided, then the City should reimburse
the Empowerment Zone Program $340,165
from non-Federal funds.
D. Establish procedures and controls to Procedures and controls have been
monitor activities funded under the established to ensure that funds are used
Empowerment Zone Program to ensure efficiently and effectively.
that monies are used efficiently and
effectively.
E. Provide training on HUD’s reporting Training will be provided for existing and

99-CH-259-1002 Page 102
Appendix C

requirements to the staff who are future staff.
responsible for preparing the
Empowerment Zone Performance
Review.
F. Establish procedures and controls to Procedures and controls have been
ensure the person who prepares the City’s established to ensure that project
Performance Review to HUD obtains accomplishments are accurately reported.
information on the actual
accomplishments for each Empowerment
Zone activity.
G. Establish procedures and controls to Procedures and controls have been
verify the accuracy of information established to verify the accuracy of
submitted to HUD. information submitted to HUD.

Page 103 99-CH-259-1002
Appendix D

Distribution
Secretary's Representative, Midwest
Director of Community Planning and Development, Illinois State Office
Director of Field Accounting, Midwest
Deputy Secretary, SD
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Deputy Assistant Secretary for Public Affairs, W (Room 10220)
Chief of Staff, S (Room 10000)
Director, Office of Budget, ARB (Room 3270)
Counselor to the Secretary, S (Room 10234)
Senior Advisor to the Secretary for Communications and Policy, S (Room 10222)
Field Comptroller, Midwest
Assistant General Counsel, Midwest
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 Chicago Empowerment Zone
Mayor, City of Chicago
Commissioner of the Department of Planning and Development, City of Chicago

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