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
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)