Issue Date November 20, 1998 Audit Case Number 99-NY-241-1002 TO: FROM: Alexander C. Malloy, District Inspector General for Audit, 2AGA SUBJECT: Community Planning and Development Programs We reviewed the system of financial and management controls in use at Utica Community Action, Inc. (UCAI), a not-for-profit corporation, that has been the recipient of a substantial amount of Housing and Urban Development (HUD). Our review was initiated by complaints provided to the Office of Inspector General (OIG). These complaints included allegations of mismanagement UCAI’s operations. Accordingly, our examination was designed to evaluate the system of controls and the organizational environment in which the administered its activities in an economical manner and in compliance with applicable Federal requirements. The review period was from January 1, 1997 through December 31, 1997, and between January 26, 1998 and October 9, 1998. This report contains two findings that show that UCAI did not always comply with applicable management controls over its operations. Furthermore, we found questionable practices involving UCAI’s operation of its for-profit corporation. report on: (1) the corrective action taken, (2) the proposed corrective action and the date to be completed, or (3) why action is not considered necessary. Also, please furnish us copies of any Management Memorandum Should you or your staff have any questions, please contact William H. Rooney, Assistant District Inspector General for Audit, at 212-264-8000, Extension 3976. (THIS PAGE LEFT BLANK INTENTIONALLY) Page ii 99-NY-241-1002 Executive Summary We reviewed the system of financial and management controls in use at UCAI, a not-for-profit corporation, regarding the various Federal, State, and Locally funded programs that UCAI administers. UCAI receives a substantial amount of funds from HUD to administer Community Planning and Development programs, such as, HOME, Youthbuild and Housing Opportunities for Persons with AIDS. The purpose of the examination was to evaluate allegations of mismanagement caused by management control weaknesses in UCAI’s operations. In addition, our review was designed to determine whether UCAI administered its activities in an economical manner and in compliance with applicable Federal requirements. Our review showed significant weaknesses in the system of controls and in the environment in which the system of controls functioned. We were unable to rely upon UCAI’s financial and program records because they were not complete, current, and accurate. Additionally, we found certain inappropriate transactions indicating an inability of management to safeguard assets in an effective manner. Also, the length of our review was inordinately extended because UCAI’s was unable to provide us with documents or information in a timely manner. Under the circumstances, other inappropriate transactions may have occurred and remained undetected during our audit tests of UCAI’s operations. Appropriate controls have not been implemented or Deficiencies Found enforced because the UCAI Board of Directors have not exercised oversight and control over the operations of the agency. Weaknesses exist in UCAI’s accounting controls including cash receipts, cash disbursements, budgetary controls, and support for expenditures and transactions. In addition, we found management control weaknesses regarding UCAI equipment, agency credit cards, cellular telephones, gasoline charges and the use of bank lines of credit. UCAI has been improperly subsidizing the operations of ANKH Construction, Inc., a for-profit subsidiary of UCAI. We found questionable transactions involving conflict of interests and improper use of UCAI’s State tax exemption status. As a result, public funds have been uneconomically used to benefit ANKH business activities and may have inappropriately benefited certain UCAI employees. We are recommending actions that will strengthen UCAI’s Recommendations to future administration of HUD programs, as well as other Mitigate Problems government programs. These actions include the establishment of clear lines of authority to provide for effective Board oversight and specific actions to remedy the Page iii 99-NY-241-1002 identified controls weaknesses. In connection with UCAI’s subsidizing of ANKH’s operations, we have recommended that UCAI adopt the necessary controls to ensure that all funding received from HUD and others be used appropriately to administer approved activities. Finally, we recommend that ANKH immediately reimburse UCAI for all funds and services provided for non-programmatic work. The results of the audit were discussed with officials during Exit Conference the course of the audit, and an at an exit conference held on October 9, 1998 attended by: UCAI Officials Michael Suppa, UCAI Board Member Michael Parker, UCAI Board Member Fred Lomonto, UCAI Board Member John Furman, UCAI Program Planner Paul Martini, UCAI Controller HUD - Office of Inspector General William H. Rooney, Assistant District Inspector General for Audit Larry Magiera, Senior Auditor John Cameron, Auditor Richard Roseboom, Auditor UCAI’s Board of Directors agreed with our recom- mendations and provided written comments which are included as Appendix B to this report. Page iv 99-NY-241-1002 Table of Contents Management Memorandum i Executive Summary iii Introduction 1 Findings 1 UCAI Has Not Implemented Effective Financial and Management Controls Over Its Operations 3 2 Questionable Practices Involving UCAI’s Operation of a For-Profit Corporation 11 Management Controls 15 Follow Up On Prior Audits 17 Appendices A Schedule of UCAI Funding Sources 19 B UCAI Comments 21 C Distribution 25 Page v 99-NY-241-1002 Table of Contents Abbreviations ANKH ANKH Construction, Inc. (For-Profit subsidiary of UCAI) CDBG Community Development Block Grant CEO Chief Executive Officer HUD U.S. Department of Housing and Urban Development IPA Independent Public Accountant OIG Office of Inspector General OMB Office of Management and Budget UCAI Utica Community Action, Inc. Page vi 99-NY-241-1002 Introduction In 1966, Utica Community Action, Inc. (UCAI), a not-for-profit corporation, was incorporated in the State of New York. The corporation was established for the purpose of, among other things, surveying community needs and developing and administrating anti-poverty programs for the City of Utica, New York. UCAI is governed by a Board of Directors that consists of seventeen members. UCAI Board members represent local neighborhoods, private enterprise, and the public sector. The implementation of policies and the administration of UCAI is the responsibility of Raymond Shanley, Chief Executive Officer (CEO). The books and records of UCAI are located at 253 Genesee Street, Utica, New York 13501. During the audit period, UCAI administered numerous grants and awards provided by various public and private sources. HUD provided about 59 percent of all UCAI resources for Community Planning and Development programs, such as, Youthbuild, HOME and Housing Opportunities for Person with AIDS. In addition, during our audit period UCAI administered a HUD Section 8, Low-Income Rental Assistance Program. Included in Appendix A of this report is a schedule of funding sources that provided funding to UCAI during the audit period. The audit objectives were to: (1) evaluate UCAI’s system of Audit Objectives, Scope controls and the organizational environment in which the and Methodology controls functioned; and (2) determine if UCAI administered its activities in an economical manner; and if UCAI complied with applicable Federal requirements. The audit covered the period from January 1, 1997 through December 31, 1997. However, we reviewed activity prior and subsequent to the audit period as necessary. Based on our survey, the audit focused primarily on UCAI’s management and accounting controls and the affect that UCAI’s control environment had on conducting its operations and management practices. The field work was performed between January 26, 1998 and October 9, 1998. In order to accomplish the audit objectives the following audit procedures were performed: iExamined elements of UCAI’s control environment. iExamined UCAI records and files and interviewed staff. Page 1 99-NY-241-1002 Introduction iConducted site visits to verify property and equipment. iTested selected transactions. The audit was conducted in accordance with generally accepted government audit standards. A copy of this report was provided to UCAI. Page 2 99-NY-241-1002 Finding 1 UCAI Has Not Implemented Effective Financial and Management Controls Over Its Operations UCAI’s financial and management controls cannot be relied upon to provide current and accurate information necessary to effectively account for and administer grant programs. The implementation of adequate controls is required by various grant agreements, as well as HUD regulations and Office of Management and Budget (OMB) Circulars. Appropriate controls have not been implemented or enforced because the UCAI Board of Directors have not exercised oversight and control over the operations of the agency. Consequently, there is little assurance that program assets are adequately safeguarded and used for appropriate purposes. Moreover, there is little assurance that disbursements are reasonable and necessary, and that such costs are equitably allocated between funding sources. We believe that management control weaknesses have permitted questionable transactions to remain undetected and has allowed a gradual deterioration of UCAI’s financial condition to remain unaddressed. OMB Circular A-110, “Uniform Administrative Requirements for Criteria Grants and Agreements with Institutions of Higher Education, Hospitals, and other Non-Profit Organizations” establishes the standards for financial management systems necessary to administer Federal grants. The standards require financial systems to provide: • Records that adequately identify the source and application of funds. • Effective control over and accountability for all funds, property and other assets. • Comparison of outlays with budget amounts for each award. • Written procedures to minimize the time elapsing between the transfer of funds to the recipient from the U.S. Treasury. • Written procedures for determining the reasonableness and allowability of costs in accordance with the provisions of applicable Federal cost principles and the terms and conditions of the award. • Accounting records including cost accounting records that are supported by source documentation. Moreover, OMB Circular A-122, “Cost Principles for Non-Profit Organizations” provides that costs must be reasonable and adequately documented. In addition, costs must be applied consistently through the application of generally accepted accounting principles. Page 3 99-NY-241-1002 Finding 1 UCAI’s official accounting records are maintained by UCAI’s Background and Scope Controller. The Controller is responsible for maintaining general ledgers, journals, cash receipts and disbursement records for all Federal, State, and other programs. In addition, the Comptroller maintains the financial records for ANKH (a for-profit corporation) of UCAI. We reviewed UCAI’s financial management system including internal controls, accounting procedures, and purchasing policies to determine whether UCAI was in compliance with the aforementioned criteria. We tested selected transactions to determine whether they were accurately recorded, properly documented, and reasonable. Material errors and deficiencies were found in the financial records Results of Review maintained by UCAI. The errors and deficiencies have affected the accuracy of program reports and the assurance that grant funds were properly being used and safeguarded. In addition, we found flaws in management’s oversight of the organization that has resulted in an environment that has allowed UCAI’s system of internal controls to be circumvented. UCAI Operations Lack Effective Board of Directors Oversight and Control A recently released New York State Department of State monitoring report was critical of the Board of Directors and identified instances where the Board did not comply with New York State laws. Namely, the report contains findings that address violations of laws pertaining to the Board’s membership composition and its failure to conduct meetings in accordance with UCAI’s by-laws, and State laws including Open Meeting Laws and Roberts Rules of Order. Other deficiencies included poorly documented minutes, questionable removal and selection of Board members, and failure to properly approve certain financial transactions. Apart from the above, the OIG has received written complaints from prior UCAI employees and Board members. These complaints alleged that UCAI’s management has been instrumental in improperly structuring the Board to personally benefit management. In addition, allegations involved the alteration of Board meeting minutes, and improper voting on significant matters and transactions. Page 4 99-NY-241-1002 Finding 1 The results of our review substantiated the matters identified in the State report and some of the complaints that were forwarded to us. In particular, we found that UCAI could not produce all of the minutes supporting Board meetings, the minutes provided were not always signed, and in many instances copies of the Board minutes were given to us rather than the originals. We believe that the Board’s failure to exercise its responsibilities to ensure that the UCAI is properly administering programs has contributed to an environment that weakens the organization’s system of controls. Some of the more significant deficiencies and errors are discussed in detail below and in the other finding in this report. Deficient Accounting 1. UCAI General Ledger is not being posted in a timely manner. Controls Many transactions occurring in 1997 were not posted to the ledger through March 1998. For example, the November 1997, $850,000 purchase of the Ropewalk Apartments was not fully recorded in the books and records. 2. Receipts and expenditures for Federal, State, and other programs are commingled in cash accounts that can not be readily reconciled by grant activity or grant program year. 3. Year end amounts in UCAI’s Balance Sheet accounts do not agree with amounts shown in the Independent Public Accountant’s (IPA) report for the year ended 1996. The differences remain unresolved and appear to have resulted from UCAI’s failure to post adjusting entries provided by the IPA. Examples include: Account UCAI General Ledger IPA Report Cash $ 117,059.00 $127,642.00 Grants Receivable 416,990.00 522,239.00 Property/Equipment 370,328.00 535,061.00 4. Budgetary controls over program funds are not effectively employed. There is no assurance that expenditures are compared to budgeted amounts at the time they are incurred and paid. 5. Payments are processed without review of source documentation. Purchase orders are not always signed, issued in Page 5 99-NY-241-1002 Finding 1 numerical order, and are prepared subsequent to vendor invoices. Vendor invoices are not stamped or canceled after payment. 6. Accounts Receivable and Accounts Payable are not reconciled on a periodic basis. UCAI’s accounting personnel are unable to readily identify the make up of the accounts. 7. Transactions have been misclassified in UCAI’s books and records. The misclassifications materially affect the accuracy and reliability of the books and records. For example, we found that UCAI had misclassified security deposits as an Accounts Payment/Maintenance. 8. Journal entries do not always contain adequate explanations or support to document their purposes and propriety. Journal entries are not always reviewed and approved by supervisory personnel. This is a significant deficiency because UCAI prepares and posts hundreds of journal entries each year. 9. Documentation maintained by UCAI to support bank deposits did not always agree with the actual deposit tickets maintained by the bank. This indicates that the make up of the deposits are being improperly manipulated. 10. Accounting controls over rents collected on UCAI owned units are poor. We found differences between rents purportedly collected and supported by receipts and tenant rent cards. We found that the UCAI does not use pre-numbered receipts and does not use receipts in chronological order. In addition, we found significant weaknesses in accounting controls over tenant security deposits. Controls over the location and use of UCAI’s assets need to be Assets are not improved. Significant weaknesses exist in inventory controls over Safeguarded equipment and in the controls over the use of credit cards, gasoline, and cellular telephones. Deficiencies Noted During Review of Equipment Inventory Controls 1. Prior to November 1997, UCAI did not maintain a documented inventory of equipment or perform periodic inventory inspections. Page 6 99-NY-241-1002 Finding 1 2. Serial numbers, or tag numbers were not always included on inventory control logs. 3. Equipment located during inspections by OIG could not be traced to the inventory control logs. Controls Over Credit Cards, Gasoline, and Cellular Telephones are Weak Controls over the use of UCAI issued credit cards, cellular telephones and gasoline purchases are not sufficient to ensure that expenses incurred are reasonable and necessary for the economical operation of UCAI activities. Moreover, the poor controls provide little protection from employee abuse of UCAI assets. Credit Cards Our review of UCAI’s credit cards showed the following: a. During 1997, the CEO used UCAI’s credit card to charge $30,735 in expenses. Of the amount, over $8,282 was incurred for personal expenses and another $4,499 was incurred for charges related to a for-profit entity of UCAI. Despite the extensive use of the card for personal or other non-related charges, UCAI did not record the amounts as due from the CEO on its books and records. Timely repayments have not been made by the CEO and fees and finance charges related to $2,000 in cash advances paid to the CEO have not been assessed or paid. b. Most of the expenses charged on UCAI’s credit cards were not adequately supported with documentation including bills, invoices and credit card receipts. Therefore, we were unable to determine the reasonableness and propriety of the charges. This is significant because many of the charges were for meetings held at local restaurants. c. UCAI has not paid its credit card debt in a timely manner, incurring interest and fees on unpaid balances. UCAI Gas Charges During our three month test period, UCAI was charged $3,573 for 2,981 gallons of gasoline for six agency owned vehicles. Of that Page 7 99-NY-241-1002 Finding 1 amount, the CEO received approximately 307 gallons for use in the CEO’s UCAI leased automobile. Our review found nconsistencies between vehicles and their odometer readings and gallons purchased. More significantly, we found multiple gasoline purchases for the same vehicles within minutes. For example, on August 1, 1997, Vehicle No. 00001 was refueled at 8:22 a.m. with 22.852 gallons, again at 8:53 a.m. with 29.156 gallons, and a third time at 9:06 a.m. with 49.645 gallons. It is clear that controls over the purchase of gasoline are ineffective and that the likelihood of abuse related to the purchases is significant. UCAI Cellular Telephones During a randomly selected three month period, we found that the seven UCAI cellular telephones were used for incoming and outgoing calls 7,520 times at a cost of $3,232 We also note that several calls were made on Saturdays and Sundays and during non- working hours. The extensive use of the cellular phones coupled with an elaborate in house system that incurred an additional $28,920 in costs in 1997, seems to be an uneconomical use of UCAI assets. UCAI Line of Credit Since February 1997, UCAI has increased the amount of funds drawn against its two lines of credit by 288 percent, from $115,600 to $488,436. The line of credit usage has dramatically increased the interest cost borne by UCAI because only minimal amounts of principal have been repaid. See chart as follows: OUTSTANDING BALANCE - UCAI LINES OF CREDIT DATE TOTAL ADIRANDACK UTICA BANK SAVINGS BANK Mar-97 $115,600 $65,600 $50,000 Jun-97 $115,600 $65,600 $50,000 Sept-97 $210,000 $160,000 $50,000 Dec-97 $272,000 $222,000 $50,000 Mar-98 $448,436 $398,436 $50,000 Page 8 99-NY-241-1002 Finding 1 UCAI Lines of Credit Balance Mar-98 Dec-97 Sep-97 Jun-97 Mar-97 $0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 $450,000 The UCAI Controller advised that the credit lines were used as a financing bridge while waiting for funds due from governmental agencies. In addition, the Controller advised that the line of credit amounts were UCAI discretionary funds and therefore not bound by Federal guidelines or oversight. We disagree on both contentions. First, our review showed that UCAI has not been routinely repaying the outstanding credit line with grant funds when they are received, instead, UCAI has deposited the grant funds into the general fund and in turn used them for operating costs. Secondly, since the credit line amounts were used to pay commingled costs including Federal program expenses and since Federal funds were certainly used to pay interest on the outstanding credit line amounts, Federal guidelines do apply. We are concerned that the dramatic increase in the use of the lines of credit may indicate that UCAI has cash flow problems that could jeopardize its ability to continue as a viable entity. The absence of the UCAI Board of Directors oversight and control over the operations of the agency and the ineffective system of financial and management controls are the underlying cause for the significant deficiencies included in the findings in this report. Unless effective corrective actions are taken to resolve the problems, it is unlikely that UCAI will have the capacity to adequately administer its grants and programs in the future. Recommendations We recommend that you require UCAI to: Page 9 99-NY-241-1002 Finding 1 1A. Submit a plan for your review that meets the requirements of the various program regulations and OMB Circulars. The plan should establish clear lines of authority to provide effective Board oversight of UCAI operations. In addition, specific correctives actions should be taken to remedy the deficient accounting controls and to enhance UCAI’s ability to safeguard its assets. Procedures should be implemented to stop uneconomical and inappropriate use of credit and gasoline cards, as well as excessive use of cellular telephones. Also, we recommend that you: 1B. Review the plan and direct its implementation. 1C. Advise UCAI that unless the plan is effectively implemented in a timely manner, that remedial actions including the suspension of HUD funding will be instituted. Page 10 99-NY-241-1002 Finding 2 Questionable Practices Involving UCAI’s Operation of a For-Profit Corporation Our review found that UCAI has been improperly subsidizing the operations of ANKH Construction, Inc., a for-profit subsidiary of UCAI. In addition, we found questionable transactions involving conflict of interests and improper use of UCAI’s State tax exemption status. As a result, public funds have been uneconomically used to fund ANKH business activities that are operating at a loss, and for activities that may have inappropriately benefited certain UCAI employees. We believe that the questionable practices have occurred because the UCAI Board has not exercised effective oversight of its employees and has not implemented and enforced an effective control system to safeguard UCAI assets. In 1996, UCAI created ANKH Construction, Inc., as a for-profit Background subsidiary. The stated purpose of the corporation was to generate profits on construction work in the City of Utica, New York. The corporation is controlled by UCAI’s Chief Executive Officer(CEO) and Controller and does not have any employees. All of the corporation’s work is performed by UCAI employees. Although formed in 1996, most of ANKH’s business activity occurred in 1997. We reviewed ANKH’s books and records for 1997, and conducted Scope of Review interviews with pertinent UCAI personnel to determine whether ANKH’s activities were separate and distinct from those of the UCAI. In addition, the review was performed to ensure that ANKH was being used for the intended purpose and that its activities were free of potential conflicts of interest. Our review found that the UCAI control weaknesses discussed in Review Results Finding 1 of this report have negatively affected ANKH and UCAI’s ability to appropriately account for related transactions. As a result, funds and services provided by UCAI to subsidize ANKH’s operations may not be fully accounted for and transactions involving possible conflicts of interests have occurred and remained undetected. Particular weaknesses are discussed below. Page 11 99-NY-241-1002 Finding 2 UCAI Improperly Funding ANKH Despite being a not-for-profit agency receiving the majority of its funds from governmental sources, UCAI has subsidized the activities of ANKH. At December 31, 1997, UCAI’s had booked receivables due from ANKH in the amount of $44,619 dollars. We were unable to verify whether the amount was accurate and included all of the costs due to UCAI, because of the poor condition of UCAI and ANKH’s books and records. However, we believe that the use of UCAI’s resources to subsidize the for profit operation at ANKH does not comply with UCAI’s not-for-profit status or with the intent of its funding agencies. Conflicts of Interest and Related Party Transactions Our review of ANKH’s operations disclosed at least two less than arms length transactions involving UCAI’s CEO were, in our opinion, inappropriate and represented conflicts of interest. Also, we found that ANKH performed contract work on a property owned by a relative of a UCAI management employee. These situations are explained as follows. Unpaid Home Improvements on CEO’s Residence During 1997, ANKH performed free repairs to the CEO’s residence totaling at least $5,990. Our review of ANKH’s books and records showed that an account receivable due from the CEO was not recorded in the books and records and that the CEO has not been billed nor did the CEO pay for the improvements. This is noteworthy since the majority of ANKH’s costs attributed to the repairs were subsidized by UCAI. We consider the transaction to be a conflict of interest and contrary to HUD regulations. Specifically, Section 570.611 provides that no person who exercise or have exercised any functions or responsibilities with respect to the Community Development Block Grant (CDBG) activities or who are in a position to participate in a decision making process or gain inside information with regard to such activities, may obtain a personal or financial interest or benefit from a CDBG assisted activity, or have an interest in any contract, subcontract or agreement with respect thereto, or the proceeds there-under, either for themselves or those with whom they have Page 12 99-NY-241-1002 Finding 2 family or business ties, during their tenure or for one year thereafter. ANKH Used as an Conduit for a Questionable UCAI Advance to the CEO On August 7, 1997, the UCAI Board approved a $10,000 salary advance to the CEO, payable in 60 days at one percent above the prime interest rate. Subsequent to the advance, certain questionable actions were taken that relieved the CEO of the responsibility to repay the advance. A brief discussion of these questionable actions are as follows: a. No actions to withhold or garnish the CEO’s salary was attempted after the advance became delinquent. b. Without UCAI Board approval, the Controller reclassified the advance to a note receivable. The Controller’s justification for the reclassification was that the CEO was unable to repay the advance. c. Instead of reclassifying the advance as a note receivable, the Controller transferred the advance to an account titled “Disposable Inventory”. d. On October 5, 1997, ANKH approved an arrangement that provided the CEO with $250 a month for the use of the CEO’s personal garage to store ANKH equipment. The monthly fee was to be used to repay the salary advance/receivable. Our review found that the arrangement did not result in any repayments. More importantly, our review of ANKH records, inspections, and interviews show that ANKH did not store any of its equipment at the CEO’s personal garage. We believe the above transactions benefited the CEO by permitting him to receive the $10,000 advance without repaying it. The sequence of events occurred without scrutiny because of the poor control environment at UCAI. Identity of Interest Contract for Building Improvements During the review period, ANKH performed building improvements totaling at least $20,216.74 on property owned by the brother of UCAI’s Director of Construction Services. Due to the poor condition of ANKH’s records we were unable to Page 13 99-NY-241-1002 Finding 2 determine the propriety and reasonableness of the cost. Also, we were unable to ascertain the scope of work performed. This is significant since UCAI advanced the majority of the money for the work performed. We believe that transactions of this nature involving related parties should not be financed by UCAI funds that are earmarked for other not-for-profit activities. State Tax Exempt Status Our review of ANKH vendor invoices disclosed many instances where goods and services were provided without the appropriate State tax being paid. Instead, the invoices were identified as UCAI purchases and therefor considered to be tax exempt. While the amount of unpaid taxes were relatively small in dollar amount, the problem is yet another questionable practice involving UCAI’s inability to account for its transactions appropriately. The matters discussed in this finding constitute non-compliances with HUD regulations and OMB Circulars. Specifically, the provisions of OMB Circular A-110, requiring effective control over and accountability for all funds, property, and other assets. In addition, provisions of A-122, requiring costs to be necessary and reasonable have not been met. Unless immediate corrective actions are taken to ensure that the activities of UCAI and ANKH are separate, the inefficient and inappropriate use of program funds will continue. Recommendations We recommend that you require the UCAI to: 2A. Direct the Board of Directors to adopt and implement the necessary controls and safeguards to ensure that all funding received by UCAI from HUD and other governmental agencies are only used to appropriately administer approved UCAI not-for-profit activities. 2B. Immediately reimburse UCAI for all funds and services provided to ANKH for non-programmatic work activities. 2C. Implement procedures that ensure that conflicts of interest do not occur and that employees and officials of UCAI, cannot use their positions for improper gain. Page 14 99-NY-241-1002 Finding 2 2D. Comply with all State tax laws and to implement procedures to ensure that UCAI’s tax exemption privileges are not improperly used by others. Page 15 99-NY-241-1002 Management Controls In planning and performing our audit, we considered the management controls of UCAI in order to determine our audit 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 that the following management control Relevant Internal Controls were relevant to our audit objectives: iProgram Operations - Policies and procedures that management has implemented to reasonably ensure that a program meets its objectives. iValidity 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. iCompliance with Laws and Regulations - Policies and procedures that management has implemented to reasonably ensure that resource use is consistent with laws and regulations. iSafeguarding Resources - Policies and procedures that management has implemented to reasonably ensure that resources are safeguarded against waste, loss, and misuse. We assessed 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 that significant weaknesses exist in the following areas: Page 17 99-NY-241-1002 Appendix A iProgram Operations - The UCAI did not use all of its funds to benefit the residents of the City Utica, New York (Finding 1). iValidity and Reliability of Data - Receipts and expenditures of Federal, State and Local funds are commingled in cash accounts and can not be readily reconciled by activity (Finding 1). iCompliance with Laws and Regulations - The UCAI did not follow the requirements in OMB Circular A-110, Uniform Administrative Requirements for Grants and agreements of Higher Education, Hospitals and Other Not-for-profit organizations. Also, UCAI did not follow OMB Circular A-122, Cost Principals for Non-Profit Organizations (Finding 1). iSafeguarding Resources - UCAI has been improperly subsidizing the operations of its for-profit entity (Finding 2). Page 18 99-NY-241-1002 Follow Up On Prior Audits An audit of UCAI was performed by an Independent Public Accountant (IPA) for the period ending December 31, 1996. The report contained two findings of non-compliance that cited documentation for verification of income status was not available for review. No audits subsequent to the aforementioned were completed as of July 1998. Page 19 99-NY-241-1002 Appendix A Schedule of UCAI Funding Sources Contract Contract Percentage Funding Source Date Amount of Total US Dept. of Health and Human Services Jan-97 $322,624 3.8% Private Donations Jan-97 7,000 0.1% NYS Office of Children & Family Jan-97 28,000 0.3% NYS Dept. of Health & Social Services Jul-96 45,000 0.5% NYS Dept. of Health & Social Services Jul-97 45,000 0.5% Central New York Development Services Office Jan-97 45,000 0.5% Central New York Development Services Office Jan-97 10,000 0.1% US Dept. of Health and Human Services Jan-97 40,000 0.5% US Dept. of Energy Aug-96 296,640 3.5% US Dept. of Energy Apr-97 307,000 3.6% NYS Dept. of Social Services Apr-97 500,000 5.9% US Dept. of Housing and Urban Development Jan-97 240,218 2.8% US Dept. of Housing and Urban Development Apr-97 100,000 1.2% US Dept. of Housing and Urban Development Jun-97 200,000 2.3% US Dept. of Housing and Urban Development Apr-97 400,000 4.7% US Dept. of Housing and Urban Development Apr-97 498,750 5.9% NYS Dept. of Parks and Recreation Apr-97 61,515 0.7% National Office of Community and National Service Oct-96 104,000 1.2% National Office of Community and National Service Oct-97 147,481 1.7% NYS Dept. of Labor Mar-97 286,128 3.4% US Dept. of Housing and Urban Development Jan-97 348,720 4.1% US Dept. of Housing and Urban Development Apr-96 190,000 2.2% US Dept. of Housing and Urban Development Apr-97 190,000 2.2% US Dept. of Housing and Urban Development Nov-96 46,620 0.5% US Dept. of Housing and Urban Development Nov-97 66,400 0.8% US Dept. of Housing and Urban Development Jan-97 103,392 1.2% US Dept. of Housing and Urban Development May-97 118,548 1.4% US Dept. of Housing and Urban Development Jan-97 45,800 0.5% US Dept. of Housing and Urban Development Apr-97 2,477,868 29.1% Tenants - Rent Receipts Jan-97 240,000 2.8% NYS Dept. of Social Services Jan-97 25,600 0.3% NYS Dept. of Social Services Jan-97 30,000 0.4% Oneida County Department of Health Mar-97 30,750 0.4% Oneida County Department of Health Oct-97 46,000 0.5% NYS Dept. of Labor Sep-96 143,166 1.7% NYS Dept. of Labor Sep-97 143,166 1.7% NYS Dept. of Health Jul-96 150,000 1.8% NYS Dept. of Health Jul-97 150,000 1.8% NYS Dept. of Health Jan-97 12,000 0.1% NYS Dept. of Health Jul-97 13,200 0.2% NYS Dept. of Education Jul-96 22,261 0.3% NYS Dept. of Education Jul-97 38,098 0.4% NYS Dept. of Education Jul-96 22,950 0.3% NYS Dept. of Education Jul-97 18,000 0.2% Mohawk Valley Perinatal/Prenatal Network Dec-96 6,000 0.1% NYS Office of Children & Family Jan-97 75,000 0.9% NYS Office of Children & Family Oct-97 75,000 0.9% TOTAL $8,512,895 100.0% Total Funding - US Dept. of HUD $5,026,316 59.0% Total HUD Funding - (Excluding Section 8) $2,548,448 29.9% Page 19 99-NY-241-1002 Appendix A (THIS PAGE LEFT BLANK INTENTIONALLY) Page 22 99-NY-241-1002 Appendix B Page 26 99-NY-241-1002 Appendix B Page 26 99-NY-241-1002 Appendix B Page 26 99-NY-241-1002 Appendix B Page 26 99-NY-241-1002 Appendix C Distribution Secretary’s Representative, 2AS, New York /New Jersey Director, Community Planning and Development Division, 2CD (2) Field Comptroller, Midwest Field Office, 5AF CFO, Mid-Atlantic Field Office, 3AFI Buffalo Area Coordinator, 2CS Assistant to the Deputy Secretary for Field Policy and Management, SDF, (Room 7106) Office of Deputy Assistant Secretary for Grant Programs, DG, (Attn: Audit Liaison Officer, Room 7214) (5) Deputy Assistant to the Secretary for Labor Relations, SLD (Room 7118) Director, Office of the Budget, FO (Room 3270) Acquisition Librarian, Library, AS (Room 8141) Chief Financial Officer, F (Room 10164) (2) Deputy Chief Officer for Finance, FF (Room 10164) (2) Associate General , Office of Assisted Housing and Community Development, CD (Room 8162) Executive Director, Utica Community Action, Inc., Utica, New York Inspector General, G (Room 8256) Public Affairs Officer, G (Room 8256) Counsel to Inspector General, GC (Room 8260) Internet Coordinator, GAA (Room 8172) Assistant Inspector General for Audit, GA (Room 8286) Deputy AIGA, GA (Room 8286) Director, Research and Planning, GAP (Room 8180) Director, Financial Audits Division, GAF (Room 8282) Semi-Annual Coordinator, GA (Room 8254) Central Files, GS (Attention: Mary E. Dickens) (Room 8266) (2) SAC, Office of Investigation, 2GI (Room 3430B) AIG, Office of Investigation, GI (Room 8274) Deputy AIG, Office of Investigation, GI (Room 8274) Director, Housing & Community Development Issue Area US GAO, 441 G Street, NW (Room 2474) Washington, DC 20548 Attention: Judy England-Joseph) Page 25 99-NY-241-1002 Appendix B Director, HUD Enforcement Center 1240 Maryland Avenue, Suite 2000 Washington, DC 20024 Subcommittee on General Oversight & Investigations O’Neill House Office Building - Room 212 Washington, DC 20515 (Attention: Cindy Sprunger) Honorable John Glenn Ranking Member Committee on Governmental Affairs United States Senate Washington, DC 20515-4305 Honorable Fred Thompson Chairman Committee on Governmental Affairs United States Senate Washington, DC 205150-4305 Mr. Pete Sessions Government Reform & Oversight Committee Congress of the United States House of Representatives Washington, DC 20510-6250 Honorable Dan Burton Chairman Committee on Government Reform & Oversight House of Representatives Washington, DC 20515-6143 Page 26 99-NY-241-1002
Utica Community Action, Inc., Utica, New York
Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-11-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)