oversight

Detroit Empowerment Zone Program, Detroit, MI

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-10-20.

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

                                                                      Issue Date
                                                                             October 20, 1998
                                                                      Audit Case Number
                                                                              99-CH-259-1003




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 Detroit
               Empowerment Zone Program
               Detroit, Michigan

We completed an audit of the City of Detroit’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 10 of the 73 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 accurate reporting of the Program’s accomplishments. The City: inaccurately
reported the accomplishments of its Empowerment Zone activities to HUD; overstated the amount of
leveraged funds for the Program; and incorrectly reported a program as an Empowerment Zone
activity when it was not. The City also used Zone funds that did not benefit Zone residents. The
amount of funds not properly used was small ($2,789); however, the problem was easily identifiable
and could cause more significant problems in the future if not corrected.

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 Detroit’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 correctly report the accomplishments of its Empowerment Zone
Program to HUD and in one instance used a small amount of Empowerment Zone funds that did not
benefit Zone residents. Specifically, the City: inaccurately reported the accomplishments of its
Empowerment Zone activities to HUD; overstated its leveraged funding by more than $460 million;
and incorrectly reported a program as an Empowerment Zone activity when it was not. The City also
used Zone funds that did not benefit Zone residents. The amount of funds not properly used was small
($2,789); however, the problem was easily identifiable and could cause more significant problems in the
future if not corrected.


                                       The City of Detroit incorrectly reported the actual status
 The City Incorrectly                  and progress for nine of the 10 activities we reviewed from
 Reported The                          the June 30, 1997 Performance Review. The Review
 Accomplishments Of Its                contained inaccuracies related to: seven activities’
 Zone Activities                       performance measures; eight activities’ funding; and three
                                       activities’ performance milestones.        The inaccuracies
                                       occurred because the Detroit Empowerment Zone
                                       Development Corporation, which the City contracted with
                                       to administer its Empowerment Zone Program, did not
                                       perform on-site monitoring reviews or verify the accuracy
                                       of the information included in the Performance Review. As
                                       a result, the City did not provide HUD with an accurate
                                       description of its Program accomplishments.

                                       The City of Detroit overstated the amount of estimated
 The City Overstated The               leveraged funds in the June 1997 Performance Review. The
 Amount Of Leveraged                   Review’s Executive Summary estimated that the City’s 73
 Funds By Over $460                    Empowerment Zone activities should leverage over $3 billion.
 Million                               However, supporting documentation included with the Review
                                       showed the 73 activities should leverage only $2,539,479,690.
                                       The problem occurred because the Detroit Empowerment
                                       Zone Development Corporation used information provided by
                                       the City’s Planning and Development Department and did not
                                       verify the accuracy of the information included in the
                                       Performance 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 benefit.

                                                Page iii                               99-CH-259-1003
Executive Summary



                           The City of Detroit incorrectly reported that the Industry
 The City Incorrectly      Specific Training on Health Care program included in its June
 Reported An Activity As   30, 1997 Performance Review was an Empowerment Zone
 An Empowerment Zone       Program activity. The program was included as a benchmark
 Activity                  in the City’s Strategic Plan; however, the program was
                           established prior to the City’s Zone designation. Because the
                           program was included in the Performance Review, the City
                           incorrectly reported that 54 individuals benefited and
                           $8,956,200 of cash and in-kind contributions were leveraged
                           funds. The Deputy Director of the City’s Planning and
                           Development Department could not explain why the program
                           was reported as an Empowerment Zone activity in the
                           Performance Review. As a result, the accomplishments of the
                           City’s Empowerment Zone Program were not accurately
                           reported to HUD, which created the impression that the
                           benefits of the Program were greater than actually achieved.

                           The City of Detroit did not maintain adequate oversight
 The City Did Not Have     over Empowerment Zone funds. One of the 10 activities
 Adequate Control Over     we reviewed, the Community Self Sufficiency Centers
 Zone Funds                program, used a small amount ($2,879) of Empowerment
                           Zone funds that did not benefit Zone residents. The
                           problem was easily identifiable; however, the problem
                           occurred because the Detroit Empowerment Zone
                           Development Corporation did not perform on-site
                           monitoring reviews to ensure the use of Zone funds
                           benefited Zone residents. As a result, Empowerment Zone
                           funds were not efficiently and effectively used.

                           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
                           Detroit 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 Detroit Empowerment Zone Development
                           Corporation, the Deputy Director of the City’s Planning and
                           Development Department, and HUD’s staff during the
                           audit. We held an exit conference with the Director and
                           Deputy Director of the City’s Planning and Development
                           Department on September 10, 1998. The City provided
                           written comments to our draft findings. We included

99-CH-259-1003                      Page iv
                                    Executive Summary


excerpts of the comments with each finding. The complete
text of the comments are included in Appendix C.




  Page v                                  99-CH-259-1003
Table of Contents

Management Memorandum                                                   i


Executive Summary                                                   iii


Introduction                                                         1


Findings

1    The City Inaccurately Reported The Accomplishments
     Of Its Empowerment Zone Activities                             3


2    The City Overstated Estimated Leveraged Funding                9


3    The City Incorrectly Reported A Program As An
     Empowerment Zone Activity                                     11


4    The City Did Not Have Adequate Control Over
     Empowerment Zone Funds                                        15



Management Controls                                                 19



Follow Up On Prior Audits                                           21



Appendices
      A Schedule of Questioned Costs                               23

      B Activities Reviewed                                        25


                                Page vii                  99-CH-259-1003
Table of Contents



        C Auditee Comments               45

        D Distribution                   51




99-CH-259-1003               Page viii
Introduction
The City of Detroit 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’s residents; (2) creating sustainable community development; (3) building
broad participation among community-based partners; and (4) describing a strategic vision for
change in the community.

The Empowerment Zone Program was authorized by the Omnibus Budget Reconciliation Act of
1993. The Reconciliation Act provided funding for the Program under Title 20 of the Social
Security Act. The Empowerment Zone Program was designed to provide $250 million in tax
benefits with $100 million of Social Services Block Grant funds from the Department of Health
and Human Services. As of June 30, 1998, the City of Detroit drew down $7,312,049 in
Empowerment Zone funds from the Social Services Block Grant and had spent $6,492,088.

The City of Detroit is a municipal corporation governed by a mayor and a city council. The City’s
fiscal year is July 1 through June 30. The City’s Planning and Development Department
contracted with the Detroit Empowerment Zone Development Corporation, a non-profit
organization, to administer the City’s Empowerment Zone Program.

The Mayor of the City of Detroit is the Honorable Dennis W. Archer. The Executive Director of
the Detroit Empowerment Zone Development Corporation is Denise Gray. The Director of the
City’s Planning and Development Department is Paul A. Bernard. The Corporation’s
Empowerment Zone books and records are located at One Ford Place, Detroit, Michigan.



                                      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, the
                                      Detroit Empowerment Zone Development Corporation, and
                                      administering entities of the City’s Zone activities. Based
                                      upon the activities’ funding and reported accomplishments,
                                      we judgmentally selected 10 of the City’s 73 activities
                                      reported in the June 30, 1997 Performance Review. The
                                      following table shows the 10 activities reviewed:

                                               Page 1                               99-CH-259-1003
Introduction



                                             Activity
                   1. Mexican Welcome and Retail Center
                   2. Southwest Detroit Contaminated Site Redevelopment
                      Demonstration Project
                   3. Neighborhood Partnership Academy
                   4. Recreation Facilities Enhancement Project
                   5. Arts Access
                   6. Hemoglobin Immune-deficiency Virus Prevention
                      and Intervention Strategy
                   7. Mercy Education Project
                   8. Male and Female Responsibility Program
                   9. Community Self Sufficiency Centers
                  10. Industry Specific Training on Health Care

                 To evaluate the City’s Empowerment Zone Program, we
                 reviewed records maintained by HUD, the City, the Detroit
                 Empowerment Zone Development Corporation, and the
                 administering entities. We reviewed: HUD’s guidance and
                 instructions for the Program; the City’s June 1997
                 Performance Review, the Corporation’s 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 the 10 activities selected to review
                 their documentation, reports, and correspondence.

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

                 We provided a copy of this report to the Mayor of the City,
                 the Executive Director of the Detroit Empowerment Zone
                 Development Corporation, and the Director of the City’s
                 Planning and Development Department.




99-CH-259-1003          Page 2
                                                                                              Finding 1


       The City Inaccurately Reported The
   Accomplishments Of Its Empowerment Zone
                   Activities
The City of Detroit incorrectly reported the actual status and progress for nine of the 10 activities
we reviewed from the June 30, 1997 Performance Review. The Review contained inaccuracies
related to: seven activities’ performance measures; eight activities’ funding; and three activities’
performance milestones. The inaccuracies occurred because the Detroit Empowerment Zone
Development Corporation, which the City contracted with to administer its Empowerment Zone
Program, did not perform on-site monitoring reviews or verify the accuracy of the information
included in the Performance Review. As a result, the City did not provide HUD with an accurate
description of its Program accomplishments.


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

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

                                      The contract dated April 16, 1997, between the City of Detroit
  City’s Contract                     and the Detroit Empowerment Zone Development
  Requirements                        Corporation, states that in the performance of its monitoring
                                      responsibilities, the Corporation should: (1) review and
                                      analyze performance reports received from implementing
                                      agencies and/or supporting partners and all other
                                      documentation obtained, submissions received, and
                                      information obtained; and (2) perform on-site monitoring
                                      reviews.

                                                Page 3                                  99-CH-259-1003
Finding 1



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

                                                                                    Page
                            Activity                   Measures Funding Milestones Number
                 Mexicantown Welcome Center                             X                        26
            Contaminated Site Redevelopment                X                         X           27
                  Neighborhood Partnership                 X            X                        29
                         Academy
            Recreation Facilities Enhancement              X            X            X           31
                          Arts Access                      X            X                        34
                     Prevention Strategy                   X            X                        36
                   Mercy Education Project                 X            X            X           38
                  Male and Female Program                  X            X                        41
                  Community Self Sufficiency                            X                        43
                         Centers
                            Totals                         7            8            3

                                       The City incorrectly reported the performance measures for
  The City Inaccurately                seven activities. Performance measures are the final products
  Reported Activities’                 produced or other measurable outcomes of the activity. For
  Performance Measures                 example, the City reported in the June 1997 Performance
                                       Review that the Male and Female Responsibility Program
                                       served 6,000 individuals as of June 30, 1997. However,
                                       records maintained by the Detroit Urban League, the
                                       Program’s administering entity, showed that 3,936 individuals
                                       received services. The net affect was an overstatement of
                                       2,064 individuals. In the case of the Arts Access Activity, the
                                       City did not report any actual progress made, even though the
                                       City’s files contained information that showed 24 contracts had
                                       been completed and seven performances conducted.
                                       The City incorrectly reported funding for eight activities in the
  The City Over Reported               June 1997 Performance Review.             Funding consists of
  The Activities’ Funding              Empowerment Zone monies, non-Zone Federal funds, State
  By Over $14 Million
99-CH-259-1003                                Page 4
                                                                                      Finding 1


                                 and local funds, private donations, and in-kind contributions.
                                 The Performance Review showed that the funding for the eight
                                 activities included $23,347,323; however, the activities’
                                 funding included only $8,967,840 as of June 30, 1997. The net
                                 affect was an over reporting of $14,379,483. The City also
                                 overstated the projected leveraged funding for its
                                 Empowerment Zone Program by over $460 million (see
                                 Finding 2). The following table shows the incorrect reporting
                                 by activity:

                                                      Amount          Amount Over/Under
                            Activity                  Reported       Supported Reported
                 Mexicantown Welcome Center           $2,180,000 $2,400,000        $ (220,000)
               Neighborhood Partnership Academy          456,240       280,000          176,240
                Recreation Facilities Enhancement      6,400,000       875,000        5,525,000
                           Arts Access                 2,794,750      3,450,750       (656,000)
                       Prevention Strategy             4,818,845       858,128        3,960,717
                    Mercy Education Project              304,988       278,133           26,855
                    Male and Female Program            6,392,500              0       6,392,500
               Community Self Sufficiency Centers                0     825,829        (825,829)
                             Totals                 $23,347,323 $8,967,840 $14,379,483

                                 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.

                                 The City inaccurately reported the performance milestones for
The City Incorrectly             three activities. Performance milestones are the key interim
Reported The Activities’         actions that will result in the completion of the activity. For
Performance Milestones           example, the City’s June 1997 Performance Review showed
                                 the Mercy Education Project provided educational services
                                 to 120 girls and 108 families attended the nurturing
                                 program. However, the Project’s documentation showed
                                 that 91 Empowerment Zone girls were provided educational
                                 services and only 12 Zone families attended the nurturing
                                 program.



                                         Page 5                                   99-CH-259-1003
Finding 1


                    The incomplete and inaccurate reporting occurred because the
                    Detroit Empowerment Zone Development Corporation did
                    not perform on-site monitoring reviews or verify the
                    accuracy of the information included in the Performance
                    Review. As a result, the City did not provide HUD with an
                    accurate description of its Program accomplishments.



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

                    The City of Detroit and the Empowerment Zone
                    Development Corporation agree with the recommendations
                    and will refine their procedures to verify the accuracy of
                    information submitted.

                    Empowerment Zone Development Corporation staff
                    reported funding amounts and commitments it received
                    from the implementing agencies on a phone log to complete
                    the HUD annual Performance Review. The Corporation did
                    not have adequate computer equipment or staff to perform
                    on-site monitoring of all Empowerment Zone activities.
                    New equipment has been installed and additional staff has
                    been hired.

                    To verify the information it receives from the implementing
                    agencies, the Corporation established the following
                    procedures:

                    •      The Corporation has completed a series of reporting
                           forms to chart program activities.

                    •      The Corporation will implement an internal
                           evaluation system to track performance, hire a
                           consultant who will assist in identifying measurable
                           indicators, and hire additional staff to ensure that
                           on-site monitoring is performed on all
                           Empowerment Zone programs.

                    •      The Corporation has designed a five-point quality
                           assurance program, which redefines its performance
                           monitoring process.



99-CH-259-1003             Page 6
                                                                        Finding 1


                    The City of Detroit and the Empowerment Zone
                    Development Corporation are committed to adhering to the
                    Inspector General’s recommendations to ensure that all
                    reports will be accurate.


                    The City indicated it will take corrective actions. The actions
OIG Evaluation of   include hiring additional staff, acquiring new equipment, and
Auditee Comments    implementing new procedures to verify the accuracy of
                    information submitted to HUD. The City did not provide the
                    specific details of its planned actions with its comments.



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

                    1A.    Establishes procedures to ensure on-site monitoring
                           visits are conducted of all Empowerment Zone
                           Program activities as required by the contract with
                           the Detroit Empowerment Zone Development
                           Corporation.

                    1B.    Establishes procedures and controls to verify the
                           accuracy and completeness of information submitted
                           to HUD for the Empowerment Zone Program.




                           Page 7                                  99-CH-259-1003
                                                                                         Finding 2


       The City Overstated Estimated Leveraged
                       Funding
The City of Detroit overstated the amount of estimated leveraged funds in the June 30, 1997
Performance Review by approximately 18 percent or over $460 million. The Review’s Executive
Summary estimated that the City’s 73 Empowerment Zone activities should leverage over $3 billion.
However, supporting documentation included with the Review showed the 73 activities should
leverage only $2,539,479,690. The problem occurred because the Detroit Empowerment Zone
Development Corporation, which the City contracted with to administer its Empowerment Zone
Program, used information provided by the City’s Planning and Development Department and did not
verify the accuracy of information included in the Performance Review. Since the amount of leveraged
funding is an important indicator of the Empowerment Zone Program’s success, accurate information
needs to be presented to clearly establish the Program’s benefit.


                                      Page 4 of the June 23, 1997 EZ/EC Performance Review
 HUD’s Requirements                   instructions issued by HUD state that 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 73 Empowerment Zone activities by over $460 million.
 Estimated Leveraged                  The City reported in the Executive Summary of the June 1997
 Funds                                Performance Review that the estimated leveraged funding for
                                      the activities was over $3 billion. However, the supporting
                                      documentation included with the Review showed that the
                                      leveraged funds for the activities totaled only
                                      $2,539,479,690. The difference of $460,520,310 is an 18
                                      percent overstatement of leveraged funds.

                                      The problem occurred because the Detroit Empowerment
                                      Zone Development Corporation used information provided by
                                      the City’s Planning and Development Department that showed
                                      the Empowerment Zone Program leveraged over $3 billion.
                                      The Corporation did not verify the accuracy of information
                                      included in the Performance Review. Since the Empowerment
                                      Zone Program largely depends on leveraged funding as a
                                      measure of the success of the Program, it is imperative to
                                      accurately report the funding commitments that are
                                      provided to the Program. Inaccurate information presents a
                                      false impression of the Program’s benefits.


                                               Page 9                                99-CH-259-1003
Finding 2


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

                     The City of Detroit and the Empowerment Zone
                     Development Corporation agree with the recommendations
                     and will refine their procedures to verify the accuracy of
                     information submitted.

                     While the City of Detroit did not provide enough supporting
                     documentation to justify the $4 billion amount in leverage
                     funds, the City has not given a false impression of the
                     benefits of the Empowerment Zone. Since the City of
                     Detroit received its Empowerment Zone designation, there
                     has been a significant amount of private investment in these
                     distressed areas of the City.

                     The City of Detroit and the Empowerment Zone
                     Development Corporation are committed to adhering to the
                     Inspector General’s recommendations to ensure that all
                     reports will be accurate.



 OIG Evaluation of   We reviewed the City’s June 1997 Performance Review and
                     determined that the City overstated the estimated amount of
 Auditee Comments
                     leveraged funds for its Empowerment Zone Program. The City
                     reported that its 73 Zone activities should leverage over $3
                     billion; however, the supporting documentation with the
                     Review showed the 73 activities would leverage approximately
                     $2.5 billion. The City needs to establish procedures and
                     controls to accurately report funding amounts and
                     commitments in its Performance Reviews as required by
                     HUD’s instructions.


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

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




99-CH-259-1003              Page 10
                                                                                            Finding 3


   The City Incorrectly Reported An Activity As
        An Empowerment Zone Activity
The City of Detroit incorrectly reported that the Industry Specific Training on Health Care program
included in its June 30, 1997 Performance Review was an Empowerment Zone Program activity. The
program was included as a benchmark in the City’s Strategic Plan; however, the program was
established prior to the City’s Zone designation. Because the program was included in the
Performance Review, the City incorrectly reported that 54 individuals benefited and $8,956,200 of cash
and in-kind contributions were leveraged funds. The Deputy Director of the City’s Planning and
Development Department could not explain why the program was reported as an Empowerment Zone
activity in the Performance Review. As a result, the accomplishments of the City’s Empowerment
Zone Program were not accurately reported to HUD, which created the impression that the benefits of
the Program were greater than actually achieved.


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

                                       The City of Detroit incorrectly reported that the Industry
  City Incorrectly Reported            Specific Training on Health Care program included in the June
  A Program As Zone                    1997 Performance Review was an Empowerment Zone
  Activity                             activity. The program was included as a benchmark in the
                                       City’s Strategic Plan; however, the program was scheduled
                                       prior to the City’s Zone designation. HUD’s instructions are
                                       designed to gather information on activities resulting from the
                                       Empowerment Zone Program. The instructions contain
                                       procedures to change benchmarks. Because the City included
                                       the program in the Performance Review, it incorrectly reported
                                       that its Empowerment Zone efforts resulted in 54 individuals
                                       being trained, 40 of the 54 individuals subsequently were
                                       employed, and $8,956,200 of cash and in-kind contributions
                                       were leveraged funds.

                                       The leveraged funds consisted of: (1) $750,000 of projected
                                       Federal funds; (2) $1,111,200 of committed City funding; (3)
                                       $545,000 of projected funding from the Community
                                       Foundation of Southeast Michigan; (4) $50,000 of projected
                                       Detroit Medical Center funding; (5) $200,000 of planned
                                       funding from national and local foundations; and (6) $6.3

                                               Page 11                                 99-CH-259-1003
Finding 3


                     million of projected in-kind contributions. Funding for the
                     program did not involve Empowerment Zone monies.

                     The Program Manager for New Beginnings, the administering
                     entity of the Industry Specific Training on Health Care, said
                     New Beginnings provided information to the City to show
                     support for the City’s Empowerment Zone Program.
                     However, he said New Beginnings did not make any changes
                     to its program as a result of the Empowerment Zone Program.
                     The Industry Specific Training on Health Care program was
                     established in 1993, prior to the City’s designation as an
                     Empowerment Zone.

                     The Deputy Director of the City’s Planning and Development
                     Department could not explain why the program was reported
                     as an Empowerment Zone activity in the Performance Review.
                     Additionally, the Detroit Empowerment Zone Development
                     Corporation, which the City contracted with to administer its
                     Empowerment Zone Program, did not review the Performance
                     Review for accuracy. Since the program was not initiated as a
                     result of the Zone, the City should not have reported it as an
                     Empowerment Zone activity. 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.



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

                     The City of Detroit and the Empowerment Zone
                     Development Corporation agree with the recommendations
                     and will refine their procedures to verify the accuracy of
                     information submitted.

                     The City of Detroit and the Empowerment Zone
                     Development Corporation are committed to adhering to the
                     Inspector General’s recommendations to ensure that all
                     reports will be accurate.




 OIG Evaluation of   The City did not provide specific details on what its refined
                     procedures will entail. The City’s refined procedures should
 Auditee Comments
99-CH-259-1003              Page 12
                                                                   Finding 3


                  include controls to appropriately report Empowerment Zone
                  activities to HUD.


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

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




                        Page 13                               99-CH-259-1003
                                                                                          Finding 4


 The City Did Not Have Adequate Control Over
                 Zone Funds
The City of Detroit did not maintain adequate oversight of Empowerment Zone funds. One of the
10 activities we reviewed incurred inappropriate expenditures of Zone funds. The City
inappropriately used $2,879 of Empowerment Zone funds that did not benefit Zone residents.
Although the amount of funds involved is small in comparison to the program funds spent
($770,135), the problem was easily identifiable and is indicative of a situation that could cause
more significant problems in the future if not corrected. The problem occurred because the
Detroit Empowerment Zone Development Corporation, which the City contracted with to
administer its Empowerment Zone Program, did not perform on-site monitoring reviews to assure
Zone funds were used appropriately. As a result, Empowerment Zone funds were not used
efficiently and effectively.


                                     Title 20 of the United States Code, Section 2007(c)(1)(B)
  United States Code                 requires Empowerment Zone funds to be used to 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(f) states activities included in the
  HUD’s Requirements                 Strategic Plan may be funded from any source which provides
                                     assistance to the nominated area.

                                     The contract dated April 16, 1997, between the City of
 City’s Contract                     Detroit and the Detroit Empowerment Zone Development
 Requirements                        Corporation, states that in the performance of its monitoring
                                     responsibilities, the Corporation should: (1) review and
                                     analyze performance reports received from the
                                     implementing agencies and/or supporting partners and all
                                     other documentation obtained, submissions received, and
                                     information obtained; and (2) perform on-site monitoring
                                     reviews.




                                             Page 15                                 99-CH-259-1003
Finding 4


                           The City inappropriately used Empowerment Zone funds to
  Inappropriate Job        reimburse Warren/Connor Development Coalition for job
  Readiness Training Was   readiness training. The Coalition provided child-care services
  Paid Using Zone Funds    as part of the job readiness training. From December 1, 1997
                           to January 31, 1998, the Coalition paid 100 percent of a Child-
                           Care Worker’s salary, payroll taxes, and health insurance
                           benefits. However, the Coalition’s records showed that only
                           21 (26 percent) of the 82 residents who received job readiness
                           training were Zone residents. The City’s Strategic Plan and the
                           Coalition’s agreement required the training to be provided to
                           Zone residents. The Coalition used $2,879 of Empowerment
                           Zone funds to pay for the 61 non-Zone residents (74 percent)
                           who received child-care services.

                           The amount of funds used to provide services to non-Zone
                           residents ($2,879) was small in comparison to the program
                           funds spent ($770,135). However, the error was easily
                           identified and is indicative of a situation that could cause
                           more significant problems in the future if not corrected.
                           The Detroit Empowerment Zone Development Corporation
                           did not detect the problem because it had not conducted on-
                           site monitoring reviews.


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

                           The City of Detroit will recapture the $2,879 from
                           Warren/Connor Development Coalition, the implementing
                           agency of the Community Self Sufficiency Center, in order
                           to reimburse the Empowerment Zone Program for monies
                           misspent.


                           While the City agreed to reimburse the Empowerment Zone
 OIG Evaluation of         Program for the inappropriate use of Zone funds, the City did
 Auditee Comments          not address what controls it plans to implement to ensure
                           effective and efficient use of Zone funds. We believe the City
                           should establish procedures and controls over the use of Zone
                           funds.




99-CH-259-1003                    Page 16
                                                                      Finding 4


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

                  4A.    Reimburses the Empowerment Zone Program $2,879
                         from non-Federal funds for the child care services that
                         were inappropriately provided to the non-Zone
                         residents.

                  4B.    Establishes procedures and controls to ensure that
                         Empowerment Zone Program monies are used
                         efficiently and effectively.




                        Page 17                                  99-CH-259-1003
Management Controls
In planning and performing our audit, we considered the management controls of the City of Detroit in
order to determine our auditing procedures, not to provide assurance on the controls. Management
controls include the plan of organization, methods and procedures adopted by management to ensure
that its goals are met. Management controls include the processes for planning, organizing, directing,
and controlling program operations. They include the systems for measuring, reporting, and
monitoring program performance.


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

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

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

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

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

                                       We assessed all of the relevant controls identified above.

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

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



                                       ·   Program Operations.

                                               Page 19                                  99-CH-259-1003
Management Controls



                          The City did not use all Empowerment Zone funds to
                          benefit Zone residents (see Finding 4).

                      ·   Validity and Reliability of Data.

                          The City: incorrectly reported the actual status and
                          progress for nine of the 10 activities we reviewed from
                          the June 30, 1997 Performance Review; overstated the
                          estimated amount of leveraged funding; and inaccurately
                          reported one program as an Empowerment Zone activity
                          when it was not (see Findings 1, 2, and 3).

                      ·   Compliance with Laws and Regulations.

                          The City did not follow the United States Code and
                          HUD’s regulations. Empowerment Zone funds were
                          used that did not benefit Zone residents (see Finding 4).

                      ·   Safeguarding Resources.

                          The City inappropriately used $2,879 for services that
                          did not benefit Empowerment Zone residents (see
                          Finding 4).




99-CH-259-1003               Page 20
Follow Up On Prior Audits
This is the first audit of the City of Detroit’s Empowerment Zone Program by HUD’s Office of
Inspector General. The latest single audit for the City covered the fiscal year ended June 30,
1997. The report contained nine findings. None of the findings related to the Empowerment
Zone Program.




                                           Page 21                              99-CH-259-1003
                                                                                 Appendix A


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


              4A                                  $2,879
             Total                                $2,879


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.




                                     Page 23                                   99-CH-259-1003
                                                                                      Appendix B


Activities Reviewed
This appendix contains the individual evaluations for the activities we reviewed. We judgmentally
selected 10 of the City of Detroit’s 73 activities reported in the June 30, 1997 Performance
Review. We found that the City inaccurately reported the accomplishments of its Empowerment
Zone Program to HUD for 9 of the 10 activities and inappropriately used Zone funds for the
tenth. The following table shows the 10 activities that had problems, the location of their
evaluation in this report, and the finding(s) they relate to:

                                   Activity                           Page     Finding
         1. Mexicantown Welcome and Retail Center                      26         1
         2. Southwest Detroit Contaminated Site Redevelopment          27         1
            Demonstration Project
         3. Neighborhood Partnership Academy                           29         1
         4. Recreation Facilities Enhancement Project                  31         1
         5. Arts Access                                                34         1
         6. Hemoglobin Immune-deficiency Virus Prevention and          36         1
             Intervention Strategy
         7. Mercy Education Project                                    38         1
         8. Male and Female Responsibility Program                     41         1
         9. Community Self Sufficiency Centers                         43      1 and 4
        10. Industry Specific Training on Health Care                  11         3




                                          Page 25                                 99-CH-259-1003
Appendix B


    Funding for the Mexicantown Welcome and
     Retail Center was Inaccurately Reported
The City of Detroit did not accurately report to HUD the leveraged funding amount for the
Mexicantown Welcome and Retail Center project in the 1997 Performance Review. The City
reported that the project had planned funding of $2,180,000 from HUD’s Community
Development Block Grant program. However, the Mexicantown Community Development
Corporation, the project’s administering entity, provided a report showing that the project
received $2.4 million in Block Grant funds as of June 30, 1997. The net effect was an
understatement of $220,000 in funding.         The problem occurred because the Detroit
Empowerment Zone Development Corporation, which the City contracted with to administer its
Empowerment Zone Program, lacked adequate controls over its reporting process. As a result,
the City provided HUD with an incorrect picture of the funds that were applied to the
Mexicantown Welcome and Retail Center project.


                                  The City’s June 1997 Performance Review showed the
  Funding For The Project         project’s planned funding from HUD’s Community
  Was Understated By              Development Block Grant program was $2,180,000. The
  $220,000                        project’s officials provided a report to the City, prior to the
                                  June 1997 Performance Review, that showed the project
                                  received $2.4 million in Block Grant funds.                The
                                  understatement of the project’s funding occurred because
                                  the Detroit Empowerment Zone Development Corporation
                                  did not verify the information included in the Performance
                                  Review. The Corporation reported the same funding
                                  information for the project in the 1997 Review that was
                                  reported in the June 1996 Performance Review. However,
                                  HUD’s instructions require that Zones report the status of
                                  commitments at the time the Review is submitted.

                                  Because of inaccurate reporting, HUD was provided with the
                                  impression that less funds were available to the project than
                                  actual. The Empowerment Zone Program is intended to
                                  leverage outside sources of funds. When the funding data is
                                  inaccurate, HUD cannot make a proper assessment of the
                                  Program’s progress.




99-CH-259-1003                           Page 26
                                                                                     Appendix B


     Accomplishments for the Southwest
Contaminated Site Redevelopment Project Were
            Incorrectly Reported
The City of Detroit incorrectly reported the actual status and progress of the Southwest Detroit
Contaminated Site Redevelopment Demonstration Project in the June 30, 1997 Performance Review.
The Review contained inaccuracies related to performance measures and milestones. The Detroit
Empowerment Zone Development Corporation, which the City contracted with to administer its
Empowerment Zone Program, did not verify the accuracy of the information included in the
Performance Review. As a result, HUD was not provided an accurate picture of the Project’s
accomplishments.


                                    The City’s June 1997 Performance Review did not show the
  The City Did Not Report
                                    Project’s actual performance measures. The Review showed
  The Project’s Actual
                                    that six contaminated sites were projected to be cleaned up.
  Performance Measures
                                    However, based upon documentation in the Detroit
                                    Empowerment Zone Development Corporation’s files, we
                                    determined the clean up of one site, Rockwell Construction,
                                    was completed as of June 30, 1997.

                                    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: (1) the Project was in the process of organizing
  Performance Milestones
                                    its steering committee; and (2) the cleanup of site one and the
                                    investigation of sites two through four was not applicable to
                                    the Project. However, based upon documents provided by the
                                    Project to the City prior to June 30, 1997, the Project had
                                    completed the organizing of the steering committee. Also, the
                                    Project’s documentation showed that the clean up of site one
                                    and the investigation of sites two through four was started. As
                                    a result, the City did not provide HUD with an accurate
                                    description of the Project’s accomplishments.

                                    In preparation of the June 1997 Performance Review, the
                                    Detroit Empowerment Zone Development Corporation’s
                                    Executive Director said each activity was provided a copy of
                                    the June 1996 Review to update. However, the Corporation
                                    did not use the updated information that was in its files to
                                    report the progress of the Southwest Contaminated Project.
                                    No one from the Corporation knew why the information in its


                                           Page 27                                 99-CH-259-1003
Appendix B


                 files was not used to prepare the Review or could not explain
                 what information was used.

                 The Corporation’s Executive Director said on-site
                 monitoring visits were not performed because of a shortage
                 in staff. She said that the Corporation’s Coordinators
                 mainly relied on information provided by the Project and
                 they did not verify the information. We believe it is the
                 responsibility of the City and the Empowerment Zone
                 Development Corporation to ensure it has adequate staff to
                 properly monitor the Empowerment Zone Program. On-site
                 monitoring is important to ensure the reporting process is
                 accurate and meets the requirements of the City’s contract.
                 We determined the Corporation reported the same information
                 in the June 1997 Review that it reported in the June 1996
                 Review.




99-CH-259-1003          Page 28
                                                                                     Appendix B


    Accomplishments for the Neighborhood
Partnership Academy Were Incorrectly Reported
The City of Detroit incorrectly reported the accomplishments of the Neighborhood Partnership
Academy program. The City: incorrectly reported the number of workshops the program held; could
not support $241,240 of in-kind contributions reported as received for the program; and under
reported the amount of State of Michigan funds it received by $65,000. The Detroit Empowerment
Zone Development Corporation, which the City contracted with to administer its Empowerment Zone
Program, did not perform an on-site monitoring review or verify the accuracy of the information
included in the Performance Review. As a result, HUD was not provided an accurate picture of the
program and the impression exists that the benefits of the program are greater than achieved.


                                    The City reported the Neighborhood Partnership Academy
 The City Incorrectly
                                    completed 13 workshops for organizational and leadership
 Reported The Program’s
                                    development. However, in a July 31, 1997 report to the City,
 Workshops
                                    the program reported that it completed only seven workshops.
                                    The report was received by the City prior to the submission of
                                    the Performance Review. Our on-site review of the program
                                    found that even the number reported by the program was
                                    inaccurate. Only two workshops were held and paid for prior
                                    to June 30, 1997.

                                    The Program Manager for the Neighborhood Partnership
                                    Academy said the program completed three workshops, not
                                    seven as reported to the City. Two workshops were held prior
                                    to June 1997 and one was held subsequent to the June 1997
                                    Performance Review. The Program Manager said the person
                                    responsible for the inaccurate reporting no longer worked at
                                    the Academy, and the Manager could not explain why seven
                                    workshops were reported as completed. The Executive
                                    Director of the Detroit Empowerment Zone Development
                                    Corporation said on-site monitoring visits were not performed
                                    to verify the accuracy of information received from
                                    administering officials because of a shortage in staff.

                                    We believe shortage of staff is not a valid explanation. The
                                    Corporation’s staffing was established to be 13 persons to
                                    handle 80 activities. As of June 30, 1997, the Corporation
                                    spent $128,039 of Empowerment Zone administration funds
                                    for eight staff (62 percent of planned) who were responsible
                                    for monitoring 49 activities (61 percent of planned). The
                                    Corporation did not do any on-site monitoring of activities.

                                           Page 29                                 99-CH-259-1003
Appendix B


                           It is the responsibility of the City and the Empowerment Zone
                           Development Corporation to ensure it has adequate staff to
                           properly monitor the program. On-site monitoring is important
                           to ensure the reporting process is accurate and meets the
                           requirements of the City’s contract.

                           The City reported the program received $241,240 of in-kind
 The City Could Not
                           contributions. The Academy did not have any documentation
 Support $241,240 Of In-
                           to support the contributions and the Program Manager said the
 Kind Contributions
                           Academy has not received the in-kind contributions pledged for
                           the program. Although the $241,240 is expected to be
                           received in the future, the City’s reporting of it as received
                           gives the impression that the program is making more progress
                           than actual. Since an overall measure of success of the
                           Empowerment Zone Program is primarily dependent upon
                           leveraged private funding and contributions, it is imperative
                           that the City verifies the accuracy of reported funding.

                           The City under reported the amount of State funds it received
 The City Under Reported   by $65,000. The City reported that it received $215,000 in
 State Funding             State of Michigan funding; however, the program had received
                           a $280,000 grant, effective September 1, 1995, from the State.
                           The grant was issued to the Local Initiatives Support Coalition,
                           the program’s implementing agency, and earmarked especially
                           for the program. We could not find any information to support
                           the $215,000 or how it was calculated.




       The City Incorrectly Reported the
   Accomplishments of the Recreation Facilities
             Enhancement Project
99-CH-259-1003                    Page 30
                                                                                       Appendix B



The City of Detroit incorrectly reported the performance measures for the Recreation Facilities
Enhancement Project in the June 30, 1997 Performance Review. The City’s Recreation
Department reported improvements to a swimming pool as part of its Empowerment Zone
Program; however, the pool was located outside the Empowerment Zone and did not primarily
serve Zone residents. No Empowerment Zone funds were used for the pool’s improvements.
The City also incorrectly reported the Project’s funding and performance milestones. The Detroit
Empowerment Zone Development Corporation, which the City contracted with to administer its
Empowerment Zone Program, did not perform on-site monitoring reviews or verify the accuracy of the
information included in the Performance Review. As a result, the accomplishments of the City’s
Recreation Facilities Enhancement Project were not accurately reported to HUD, which created
the impression that the benefits of the Project were greater than actually achieved.


                                     The City’s Recreation Department reported the completion
  The Pool Did Not                   of the Kronk Pool as a benefit of the Empowerment Zone;
  Primarily Serve Zone               however, there was no documentation as of June 30, 1997
  Residents                          to support what extent, if any, the pool benefited Zone
                                     residents.    The pool was located outside of the
                                     Empowerment Zone. As of December 1997, only 22 of 189
                                     (11.6 percent) of the Pool’s members were Zone residents.
                                     Monthly reports prepared by the Project did not report that
                                     the pool was outside the Zone or explain to what extent the
                                     pool served Zone residents.

                                     The City of Detroit did not follow its Strategic Plan or the
                                     Interdepartmental Agreement for the Recreation Facilities
                                     Enhancement Project. The City’s Strategic Plan showed the
                                     Project would improve community recreation centers within
                                     the     Empowerment         Zone.         Additionally,  the
                                     Interdepartmental Agreement between the City’s Planning
                                     and Development Department and the Recreation
                                     Department requires that: (1) the Project be carried out
                                     pursuant to the terms of the Strategic Plan; and (2)
                                     recreational facilities be located within the Empowerment
                                     Zone or located at or near the edge boundaries when the
                                     facility primarily services Zone residents.

                                     The     Detroit    Empowerment         Zone      Development
                                     Corporation’s Executive Director said on-site monitoring
                                     visits were not performed because of a shortage in staff. She
                                     said that the Corporation’s Coordinators mainly relied on
                                     information provided by the Project and they did not verify
                                     the information. We believe it is the responsibility of the City
                                     and the Empowerment Zone Development Corporation to

                                            Page 31                                  99-CH-259-1003
Appendix B


                           ensure it has adequate staff to properly monitor the
                           Empowerment Zone Program. On-site monitoring is important
                           to ensure the reporting process is accurate and meets the
                           requirements of the City’s contract.

                           The City inaccurately reported the Project’s funding in the
 The City Over Reported    June 30, 1997 Performance Review. The City reported that
 The Project’s Funding     the Project’s funding consisted of: $2.3 million of Federal
                           funds; $3.5 million from the State of Michigan; and
                           $600,000 from private entities. However, as of June 1997,
                           the City’s documentation showed that the Project had only
                           received State funds of $830,000 and private funding of
                           $45,000.

                           The following table shows that the net effect of the
                           inaccurate reporting was an overstatement of over $5.5
                           million:

                                          Amount            Amount            Amount
                           Funding        Reported         Supported        Overstated
                           Federal      $2,300,000         $       0       $2,300,000
                           State             3,500,000       830,000        2,670,000
                           Private            600,000         45,000          555,000
                           Total        $6,400,000         $875,000        $5,525,000

                           The Corporation’s Coordinator who prepared the 1997
                           Performance Review said he did not have the funding
                           information available when he prepared the 1997 Review;
                           therefore, he simply reported the projected funding
                           information from the 1996 Review. Since the overall
                           measure of success of the Empowerment Zone Program is
                           primarily dependent upon leveraged funds, we believe
                           correct, up-to-date reporting of funding is necessary to
                           provide an accurate picture of the benefit of the
                           Empowerment Zone.

                           The City incorrectly reported two performance milestones
  The City Incorrectly     as complete when they were still on-going. The two
  Reported Performance     milestones were to seek funding for renovations and
  Milestones As Complete   renovate recreation facilities. The status reports prepared
                           by the City’s Recreation Department, prior to the June 1997
                           Performance Review, showed that funding sources were not
                           yet finalized and the renovation of all recreational facilities

99-CH-259-1003                     Page 32
                                                                                     Appendix B


                                     was not complete. The inaccuracies occurred because the
                                     Corporation reported information it received in a telephone
                                     conversation with the Recreation Department’s Business
                                     Manager, and did not verify the accuracy of the information
                                     prior to including it in the 1997 Performance Review.




   The Arts Access Accomplishments Were Not
               Properly Reported
The City of Detroit did not accurately report its funding commitments or the progress made for the
Arts Access project in the June 30, 1997 Performance Review. The City under reported its funding
commitments by $656,000 and did not report that 24 contracts had been completed and seven

                                            Page 33                                99-CH-259-1003
Appendix B


performances had been held. The Detroit Empowerment Zone Development Corporation, which the
City contracted with to administer its Empowerment Zone Program, did not perform on-site
monitoring reviews or verify the accuracy of the information included in the Performance Review. As
a result, the accomplishments of the Arts Access were not accurately reported to HUD, and the City
created the impression that Arts Access had made less progress than actually achieved.


                                      The City inaccurately reported the project’s funding in the
  The City Under Reported             June 30, 1997 Performance Review. The City under
  Arts Access Funding                 reported its committed funding by $656,000.            The
                                      Performance Review showed Arts Access had commitments
                                      for $2,794,750, while supporting documentation showed
                                      committed funding totaled $3,450,750. The following table
                                      shows the various categories of commitments:

                                                6/30/97 Status Commitments
                                     Source of Funds            Committed             Supported
                                     Governments-               $ 200,000             $ 465,150
                                     Local/State Participating       89,750             690,750
                                     Entities
                                     In-kind Received                 5,000                    0
                                     In-kind Committed            2,500,000            2,294,850
                                              Totals             $2,794,750           $3,450,750
                                     Amount Under Reported        $656,000

                                      The     Detroit     Empowerment        Zone     Development
                                      Corporation’s Coordinator who prepared the 1997
                                      Performance Review said he did not have the funding
                                      information available when he prepared the 1997 Review;
                                      therefore, he reported the projected funding information
                                      from the 1996 Review. The Corporation’s Executive
                                      Director said verification of the information reported in the
                                      June 30, 1997 Performance Review was not done. Since
                                      the overall success of the Empowerment Zone Program is
                                      primarily dependent upon leveraged funds, we believe
                                      correct, up-to-date reporting of funding is necessary to
                                      provide an accurate picture of the benefit of the Program.

                                      The City’s Performance Review reflected that no progress
  The City Did Not Report             had been made against the performance measures
  Progress Made                       established for Arts Access. The City showed that Arts
                                      Access planned to develop and implement an Arts Program
                                      resulting in 900 artistic contracts and 180 other arts
                                      activities that would positively affect Empowerment Zone
                                      residents by the year 2005. The City did not report any

99-CH-259-1003                               Page 34
                                                                                         Appendix B


                                       actual progress had been made, even though the City’s files
                                       contained information that showed that 24 contracts had
                                       been completed and seven performances conducted.

                                       The inaccuracy occurred because the Detroit Empowerment
                                       Zone Development Corporation reported information it
                                       received in a telephone conversation with the Business
                                       Manager for the City’s Recreation Department, and did not
                                       verify the accuracy of the information prior to including it in
                                       the 1997 Performance Review.




  Accomplishments of the HIV Prevention and
Intervention Strategy Were Incorrectly Reported
The City of Detroit inaccurately reported the accomplishments of the Hemoglobin Immune-deficiency
Virus (HIV) Prevention and Intervention Strategy. The City incorrectly reported that the Strategy
received $4,028,613 in commitments for in-kind contributions, and did not report that the Strategy
received $67,896 for emergency financial assistant services to 259 Empowerment Zone residents. The
City also could not support that most of another $790,232 of in-kind contributions for the Strategy’s
counseling, testing, case management services, and risk reduction education program actually benefited
Zone residents. The Detroit Empowerment Zone Development Corporation, which the City
contracted with to administer its Empowerment Zone Program, did not perform on-site monitoring

                                             Page 35                                  99-CH-259-1003
Appendix B


reviews or verify the accuracy of the information included in the Performance Reviews. As a result,
HUD was not provided an accurate picture of the activity and the impression exists that the benefits of
the Strategy are greater than achieved.


                                       The City of Detroit’s Performance Review showed the
 The City Inaccurately                 Strategy had commitments for $4,818,845 of in-kind
 Reported That The HIV                 contributions. The Executive Director of the implementing
 Strategy Received                     agency, the Wellness House of Michigan, said all of the in-kind
 $4,028,613                            contributions were received. The providing organizations
                                       estimated the value of the counseling, testing, education, and
                                       case management services totaled $790,232. Therefore,
                                       $4,028,613 of in-kind contributions was erroneously reported.

                                       The Executive Director of the Wellness House of Michigan
                                       said he had no idea what information the Detroit
                                       Empowerment Zone Development Corporation used when
                                       it prepared the Performance Review. The individuals who
                                       prepared the 1997 Performance Review no longer work at
                                       the Corporation. Personnel at the Corporation said they
                                       also did not know where the reported figures came from.
                                       Since the Strategy did not receive Empowerment Zone
                                       funds, they believed it was not necessary to monitor the
                                       activity or verify the accuracy of the information reported.
                                       However, since the overall measure of success of the
                                       Empowerment Zone Program is primarily dependent upon
                                       leveraged private funding and contributions, we believe it is
                                       imperative that the progress of Zone activities be monitored
                                       and verified.

                                       The City did not report that emergency assistance valued at
 The City Did Not Report               $67,896 was provided to 259 Zone residents under the
 Assistance Valued At                  Strategy’s Health Emergency Lifeline Program. The Program
 $67,896 Was Provided                  pays for services such as rents, security deposits, medical
                                       prescriptions, and utilities. The Program helps those who are
                                       in jeopardy of becoming homeless, or having their utilities
                                       turned-off. It also provides funding for residents with
                                       insufficient funds to purchase medicines.

                                       For the $790,232 of in-kind services that were provided, the
 The City Could Not                    City reported that 6,176 Empowerment Zone residents
 Support Benefits To Zone              received HIV risk reduction education, 457 Zone residents
 Residents                             received HIV counseling and testing, and 758 Zone residents
                                       received case management services.            The Detroit
                                       Empowerment Zone Development Corporation and the

99-CH-259-1003                                 Page 36
                                                                                         Appendix B


                                    implementing agency did not have records to validate the
                                    number of residents served through the three activities. Of the
                                    three activities, only one had records to show its services
                                    benefited Zone residents. HIV counseling and testing was
                                    provided to 457 Zone residents at a total cost of $60,324.

                                    As a result, HUD lacks assurance that $729,908 ($790,232-
                                    $60,324) actually benefited Zones residents. The Executive
                                    Director of the Wellness House of Michigan said the lack of
                                    records occurred because there was no money to support
                                    coordinated, collaborative efforts, especially for special projects
                                    related to assessment and data collection. We believe that if
                                    the City is going to report information as resulting from Zone
                                    activities, then it needs to have a method to verify the accuracy
                                    of the information reported.




      Accomplishments of the Mercy Education
         Project Were Incorrectly Reported
The City of Detroit inaccurately reported the actual status and progress of the Mercy Education
Project in the June 30, 1997 Performance Review. The inaccuracies related to performance
measures, funding, and performance milestones. The Detroit Empowerment Zone Development
Corporation, which the City contracted with to administer its Empowerment Zone Program, did not
perform on-site monitoring reviews or verify the accuracy of the information included in the
Performance Review. As a result, the accomplishments of the Project were not accurately reported
to HUD, which created the impression that the benefits of the Project were greater than actually
achieved.




                                           Page 37                                    99-CH-259-1003
Appendix B


                             The City of Detroit did not report the progress made by the
 The City Did Not Report     Project in the June 1997 Performance Review. The Review
 The Project’s Performance   showed that the Project planned to increase by 50 percent
 Measures                    the educational and family support services to at-risk
                             families over the 1994 level. The Project’s records
                             indicated that a 76 percent increase for women and 36
                             percent increase for girls was achieved as of June 30, 1997.
                             However, the City did not report this in the Performance
                             Review.

                             The City also inaccurately reported the Project’s
                             performance measures in the 1997 Performance Review.
                             The City reported that 30 women received educational and
                             family support services. However, records maintained by
                             the Mercy Education Project showed that 44 women from
                             the Empowerment Zone were served as of June 30, 1997.

                             The     Detroit     Empowerment      Zone        Development
                             Corporation’s Executive Director said on-site monitoring
                             visits were not performed because of a shortage in staff. She
                             said the Corporation’s Coordinators mainly relied on
                             information provided by the Project and they did not verify
                             the information reported. We believe it is the responsibility of
                             the City and the Empowerment Zone Development
                             Corporation to ensure the Corporation has adequate staff to
                             comply with the terms of its contract to monitor the
                             Empowerment Zone Program. On-site monitoring is important
                             to ensure the reporting process is accurate and meets the
                             requirements of the City’s contract.

                             The City inaccurately reported the Project’s funding in the
 The City Over Reported      June 30, 1997 Performance Review. The Review showed
 The Project’s Funding By    that the Project: (1) received $132,488 from the Sisters of
 $26,855                     Mercy; (2) had a projected commitment of $140,000 in
                             contracted services to support the Project; (3) received
                             $6,000 from the Raymond O’Leary Fund; (4) received no
                             funding from the Conrad Hilton Fund for Sisters; (5)
                             received $1,500 from New Detroit, Incorporated; and (6)
                             received $25,000 from private foundations. However, as of
                             June 1997, the Project’s documentation showed that: (1)
                             only $117,711 was received from the Sisters of Mercy; (2)
                             no commitment existed for the contracted services of
                             $140,000; (3) $12,700 was provided by the Raymond
                             O’Leary Fund; (4) $17,300 was received from the Conrad


99-CH-259-1003                      Page 38
                                                                                Appendix B


                               Hilton Fund; (5) $7,000 was provided by New Detroit; and
                               (6) $123,422 was provided by various private foundations.

                               The following table shows that the net effect of the
                               inaccurate reporting was an overstatement of the Project’s
                               funding by $26,855:

                             Source of            Amount         Amount          Amount
                              Funding             Reported      Supported       Overstated
                         Sisters of Mercy
                                                 $132,488      $117,711         $14,777
                         Contracted
                         Services                 140,000              0        140,000
                         Raymond
                         O’Leary                    6,000        12,700           (6,700)
                         Conrad Hilton
                                                        0        17,300         (17,300)
                         New Detroit                1,500         7,000          (5,500)
                         Private
                         Foundations               25,000       123,422         (98,422)
                         Total                   $304,988      $278,133         $26,855

                               The Corporation’s Coordinator who prepared the 1997
                               Performance Review said he did not have the funding
                               information available when she prepared the 1997 Review;
                               therefore, she simply reported the same funding information
                               from the 1996 Review. Since the overall measure of
                               success of the Empowerment Zone Program is primarily
                               dependent upon leveraged funds, we believe correct, up-to-
                               date reporting of funding is necessary to provide an
                               accurate picture of the benefit of the Empowerment Zone.

                               The City incorrectly reported the Project’s performance
The City Incorrectly           milestones in the June 1997 Performance Review. The
Reported The Project’s         Review showed that 120 girls received educational services
Performance Milestones         and 108 families attended the nurturing program. However,
                               the Project’s documentation showed that 91 Empowerment
                               Zone girls were provided educational services and only 12
                               Zone families attended the nurturing program. Since the
                               overall success of the Empowerment Zone Program is to
                               assist Zone residents, we believe that it is imperative that
                               the City accurately reports the performance of its activities.




                                       Page 39                                99-CH-259-1003
Appendix B




      Accomplishments of the Male and Female
      Responsibility Program Were Incorrectly
                      Reported
The City of Detroit inaccurately reported the actual status and progress of the Male and Female
Responsibility Program in the June 30, 1997 Performance Review. The inaccuracies related to
performance measures and funding. The Detroit Empowerment Zone Development Corporation,
which the City contracted with to administer its Empowerment Zone Program, did not verify the
accuracy of the information included in the Performance Review. As a result, the accomplishments
of the Program were not accurately reported to HUD, which created the impression that the
benefits of the Program were greater than actually achieved.




99-CH-259-1003                             Page 40
                                                                            Appendix B


                            The City of Detroit over reported the number of individuals
The City Over Reported      served by the Male and Female Responsibility Program in
The Number Of               the June 1997 Performance Review. The Review showed
Individuals Served By The   that 6,000 individuals were served by the Program as of
Program                     June 30, 1997; however, records maintained by the Detroit
                            Urban League, the Program’s administering entity, showed
                            that only 3,936 individuals received services. The net affect
                            was an overstatement of 2,064 individuals.

                            The inaccurate reporting occurred because the Detroit
                            Empowerment Zone Development Corporation did not use
                            information provided by the Detroit Urban League which
                            showed the correct number of individuals served as of June
                            30, 1997. The Corporation reported the number of
                            individuals that was projected to be served by the Program.

                            The City inaccurately reported the Program’s funding in the
The City Over Reported      June 30, 1997 Performance Review. The Review showed
The Program’s Funding       that the Program had projected funding of: (1) $2 million in
By Over $6 Million          non-Empowerment Zone Federal funds; (2) $3,840,870
                            from the United Way; and (3) $551,630 from the Kellogg
                            Foundation. However, as of June 1997, the Program did
                            not have a commitment for the $2 million of Federal funds
                            or the funding from the Kellogg Foundation. Also, the
                            United Way funds were not specifically dedicated to the
                            Program and the Detroit Urban League could not provide
                            documentation that showed the funds were used for the
                            Program. As a result, the Program’s funding was over
                            stated by $6,392,500.
                            The Corporation’s Coordinator who prepared the 1997
                            Performance Review said he did not have the funding
                            information available when she prepared the 1997 Review.
                            Therefore, she reported the same funding information as
                            reported in the 1996 Review. Since the overall measure of
                            success of the Empowerment Zone Program is primarily
                            dependent upon leveraged funds, we believe correct, up-to-
                            date reporting of funding is necessary to provide an
                            accurate picture of the benefit of the Empowerment Zone.




                                  Page 41                                 99-CH-259-1003
Appendix B




 Controls Over the Community Self Sufficiency
     Centers Program Were Not Adequate
The City of Detroit did not maintain adequate controls over the Community Self Sufficiency
Centers program. The City inappropriately used $2,879 of Empowerment Zone funds that did not
benefit Zone residents. Although the amount of funds involved is small in comparison to the
program funds spent ($770,135), the problem was easily identifiable and is indicative of a
situation that could cause more significant problems in the future if not corrected. The City also
inaccurately reported the program’s funding in the June 30, 1997 Performance Review. The
problems occurred because the Detroit Empowerment Zone Development Corporation, which the
City contracted with to administer its Empowerment Zone Program, did not perform on-site
monitoring reviews 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 financial position.

99-CH-259-1003                              Page 42
                                                                           Appendix B




                          The City of Detroit executed an agreement with
The City Did Not Have     Warren/Connor Development Coalition, the administering
Adequate Controls Over    entity of the program, to provide job readiness and health
Zone Funds                and human services to Empowerment Zone residents for the
                          period of July 31, 1996 to December 31, 2004. The
                          contract required that services be provided to support the
                          goal of assisting Zone residents for employment
                          opportunities. However, services were provided to non-
                          Zone residents.

                          The amount of funds used to provide services to non-Zone
                          residents ($2,879) was small in comparison to the program
                          funds spent ($770,135). However, the error was easily
                          identified and is indicative of a situation that could cause
                          more significant problems in the future if not corrected.
                          The Detroit Empowerment Zone Development Corporation
                          did not detect the problem because it had not conducted on-
                          site monitoring reviews.

                          The City inappropriately used Empowerment Zone funds to
Inappropriate Job         reimburse Warren/Connor Development Coalition for job
Readiness Training Was    readiness training. The Coalition provided child-care services
Paid Using Zone Funds     as part of the job readiness training. From December 1, 1997
                          to January 31, 1998, the Coalition paid 100 percent of a Child-
                          Care Worker’s salary, payroll taxes, and health insurance
                          benefits. However, the Coalition’s records showed that only
                          21 (26 percent) of the 82 residents who received job readiness
                          training were Zone residents. The City’s Strategic Plan and the
                          Coalition’s agreement required the training to be provided to
                          Zone residents. The Coalition used $2,879 of Empowerment
                          Zone funds to pay for the 61 non-Zone residents (74 percent)
                          who received child-care services.

                          The City did not report the funding received by the program
The City Did Not Report   in the June 1997 Performance Review. The Review showed
The Funding Received By   that the program was allocated $8 million in Empowerment
The Program               Zone funds and had projected funding of $111,120 from the
                          City’s Employment and Training Department. However,
                          the City’s records indicated that $770,135 of Zone funds
                          were provided to the Coalition as of June 30, 1997.
                          Additionally, the Coalition’s records showed that the
                          program received $55,694 from the City’s Employment and
                          Training Department as of June 1997.

                                Page 43                                  99-CH-259-1003
Appendix B



                 The Detroit Empowerment Zone Development Corporation
                 did not obtain the program’s funding information for the
                 June 1997 Performance Review. The Corporation simply
                 reported the same funding information from the 1996
                 Review. Since the overall measure of success of the
                 Empowerment Zone Program is primarily dependent upon
                 leveraged funds, we believe correct, up-to-date reporting of
                 funding is necessary to provide an accurate picture of the
                 benefit of the Empowerment Zone.




99-CH-259-1003          Page 44
                                                                                      Appendix C


Auditee Comments
                                                                    2300 Cadillac Tower
                                                                    Detroit, Michigan 48226
                                                                    Phone 313-224-6380
                                                                    Fax 313-224-1629
City of Detroit
Planning & Development Department



September 21, 1998



Heath Wolfe
Senior Auditor
Department of Housing and Urban Development
Office of Inspector General
Columbus, Ohio 43215

Dear Mr. Wolfe:

      Attached please find the City of Detroit’s response to the audit findings for the June 30,
1997 Performance Review.

Sincerely,



Paul A. Bernard
Director

kh

cc:    Joseph Vassallo, P&DD
       Charlayne Parker, P&DD
       Sylvia Robinson, P&DD
       Leonard Artola, P&DD
       Denise Gray, EZDC




                                          Page 45                                   99-CH-259-1003
Appendix C


Finding #1 – Inaccurate reporting of accomplishments
The following program’s accomplishments were incorrectly reported in the City of Detroit’s June 30,1997
Performance Review:

1.   HIV Prevention and Intervention Strategy
2.   Neighborhood Partnership Academy
3.   Southwest Contaminated Site Redevelopment
4.   Recreation Facilities Enhancement Project
5.   Mercy Education Project Were Incorrectly Reported
6.   Arts Access
7.   Male and Female Responsibility

RECOMMENDATIONS for HIV Prevention and Intervention Strategy

We recommend that the Director of the Community Planning and Development, Michigan State Office,
assures that the City of Detroit:

A. Establish procedures to ensure on-site monitoring visits are conducted of all Empowerment Zone
   Program activities as required by the contract with the Detroit Empowerment Zone Development
   Corporation.

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

RECOMMENDATIONS for Neighborhood Partnership Academy

We recommend that the Coordinator of the EZ/EC Initiative Office assures that the City of Detroit:

A. Establish procedures to ensure on-site monitoring visits are conducted of all Empowerment Zone
   Program activities as required by the contract with the Detroit Empowerment Zone Development
   Corporation.

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

RECOMMENDATIONS for Southwest Contaminated Site Redevelopment Project

We recommend that the Coordinator of the EZ/EC Initiative Office assures that the City of Detroit:

A. Establish procedures to ensure on-site monitoring visits are conducted of all Empowerment Zone
   Program activities as required by the contract with the Detroit Empowerment Zone Development
   Corporation.

B. Establish procedures and controls to ensure the person who prepares the City’s Performance Review to
   HUD uses actual accomplishments for each Empowerment Zone activity provided by the administering
   officials.



99-CH-259-1003                                  Page 46
                                                                                            Appendix C

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

RECOMMENDATIONS for Recreation Facilities Enhancement Project

We recommend that the Coordinator of the EZ/EC Initiative Office assures that the City of Detroit:

A. Establish procedures to ensure on-site monitoring visits are conducted of all Empowerment Zone
   Program activities as required by the contract with the Detroit Empowerment Zone Development
   Corporation.

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

RECOMMENDATIONS for Mercy Education Project

We recommend that the Coordinator of the EZ/EC Initiative Office, in conjunction with officials from the
Department of Health and Human Services, assures that the City of Detroit:

A. Establish procedures to ensure on-site monitoring visits are conducted of all Empowerment Zone
   Program activities as required by the contract with the Detroit Empowerment Zone Development
   Corporation.

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

RECOMMENDATIONS for Male and Female Responsibility Program

We recommend that the Coordinator of the EZ/EC Initiative Office, in conjunction with officials from the
Department of Health and Human Services, assures that the City of Detroit:

A. Ensure that staff, who are responsible for preparing the Performance Review to HUD, use the actual
   accomplishments for each activity.

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


Finding #2 - The City incorrectly reported a program as an Empowerment
Zone Activity.

The following program’s accomplishments were incorrectly reported as an Empowerment Zone Activity in
the City of Detroit’s June 30, 1997 Performance Review:

1. Industry Specific Training on Health Care




                                               Page 47                                    99-CH-259-1003
Appendix C

RECOMMENDATIONS for Industry Specific Training on Health Care

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

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

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

Finding #3 – Overstatement of Leveraged Funds

The City of Detroit overstated the amount of estimated leveraged funds in the June 30, 1997
Performance Review by over $460 million. The Review’s Executive Summary estimated that the
City’s 73 Empowerment Zone activities should leverage over $3 billion. However, supporting
documentation included with the Review showed the 73 activities should leverage only
$2,539,479,690. The problem occurred because the Detroit Empowerment Zone Development
Corporation, which the City contracted with to administer its Empowerment Zone Program, used
information provided by the City’s Planning and Development Department and did not verify the
accuracy of information included in the Performance 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 benefit.

RECOMMENDATIONS

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

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

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

Finding #4 – Lack of Control of EZ funds.

The City of Detroit did not maintain adequate controls over the Community Self Sufficiency
Centers program. The City inappropriately used $2,879.00 of Empowerment Zone funds that did
not benefit Zone residents. Although the amount of funds involved is small in comparison to the
program funds spent ($770,135), the problem was easily identifiable and is indicative of a
situation that could cause more significant problems in the future if not corrected. The City also
inaccurately reported the program’s funding in the June 30, 1997 Performance Review. The
problems occurred because the Detroit Empowerment Zone Development Corporation, which the
City contracted with to administer its Empowerment Zone Program, did not perform on-site
monitoring reviews 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 financial position.

99-CH-259-1003                                  Page 48
                                                                                                Appendix C

1. Community Self Sufficiency Center

RECOMMENDATIONS

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

A. Reimburse the Empowerment Zone Program $2,879.00 from non-Federal funds for the job readiness
   training that was inappropriately provided to the non-Zone residents.

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

C. Establish procedures to ensure on-site monitoring visits are conducted of all Empowerment Zone
   Program activities as required by the contract with the Detroit Empowerment Zone Development
   Corporation.

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

RESPONSE TO ALL FINDINGS

The City of Detroit and the Empowerment Zone Development Corporation (EZDC) agrees with the
recommendations and will refine its procedures to verify the accuracy of information submitted.

EZDC staff reported funding amounts and commitments it received from the implementing agency on a
phone log to complete the HUD annual performance review. All projects were informed that the
information was for the HUD annual performance review. EZDC did not have adequate computer
equipment or staff to perform on-site monitoring of all Empowerment Zone activities, at that time. New
equipment has been installed and additional staff has been hired.

To verify the information it receives from the implementing agencies, EZDC established the following
procedures:
• EZDC has completed a series of reporting forms to chart program activities.
• EZDC will implement an internal evaluation system to track performance, hire a consultant that will
    assist in identifying measurable indicators, and hire additional staff to ensure that on-site monitoring is
    performed on all Empowerment Zone programs.
• EZDC has designed a five-point quality assurance program, which redefines its performance
    monitoring process.

The City of Detroit will recapture the $2,879.00 from Warren/Connor Development Coalition, the
implementing agency of the Community Self Sufficiency Center, in order to reimburse the Empowerment
Zone Program for monies misspent.

While the City of Detroit did not provide enough supporting documentation to justify the
four billion dollar amount in leverage funds, the City has not given a false impression of the benefits of the
Empowerment Zone. Since the City of Detroit received its Empowerment Zone designation there has been
a significant amount of private investment in these distressed areas of the City. Since 1996, General


                                                  Page 49                                     99-CH-259-1003
Appendix C

Motors has invested $227 million dollars in upgrading their equipment and machinery at their Cadillac
Plant and another $137 million dollars has just been committed. These investments have resulted in the
retention of 3,800 jobs.

The Chrysler Corporation’s investments have been even greater. Since 1996, Chrysler has begun investing
what will eventually be over $1.4 billion dollars in their Mack Engine Plants. In 1997, they began a $504
million dollar investment at their Jefferson North Assembly Plants. These investments have resulted in the
creation and retention of over 5,400 jobs.

In May 1997 construction began on a new 400,000 square foot facility in the southwest region of the
Empowerment Zone. Renaissance Global Logistics (RGL) an OJ Group Company was awarded a contract
from the Ford Motor Company’s Complete Knockdown Design. RGL plans on consolidating and exporting
over 30 million cubic feet annually of vehicle production components from North America to South
America and the Asia/Pacific Region. Its first shipment is scheduled to be released in November 1998.
This investment has resulted in the creation of over 150 jobs.

Another Detroit Empowerment Zone success is the Empowerment Zone Financial Institution Consortium
(EZFIC), which is comprised of eleven financial institutions that established a private partnership to
develop alternative lending programs for the Empowerment Zone. Between the years 1995 and 1997,
EZFIC made $665,099,701 in loans within the Empowerment Zone. This has resulted in over a 300 %
increase in loans made in that area prior to the Empowerment Zone designation. In the first two quarters of
1998, EZFIC has surpassed their goals for entire year.

The City of Detroit and the Empowerment Zone Development Corporation (EZDC) are committed to
adhering to the Inspector General’s recommendations to ensure that all reports will be accurate and that the
residents of the Empowerment Zone benefit from the program.




99-CH-259-1003                                   Page 50
                                                                                 Appendix D


Distribution
Secretary's Representative, Midwest
Senior Community Builder, Michigan State Office
Director of Community Planning and Development, Michigan 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, Detroit Empowerment Zone Development Corporation
Mayor, City of Detroit
Director of Planning and Development Department, City of Detroit


                                        Page 51                                99-CH-259-1003