HUD OIG reviewed the FERA for the Neighborhood Stabilization Program 2 (NSP2) to determine whether the FERA complied with OMB’s updated guidance for ARRA, as well as HUD’s streamlined assessment process.
Except for one noncompliance issue involving open audit recommendations, HUD’s final assessment generally complied with OMB’s guidance and HUD’s streamlined process. HUD made general references to previous audits in its FERA but failed to specifically address certain open recommendations as required by the guidance. HUD’s final FERA for NSP2 disclosed that for each of the 11 factors assessed, the program risk was identified, in-place and planned risk mitigation techniques were identified, and the rationale for the final risk ratings was adequately described. The factors of general control environment, risk assessment, control activities, information/communication, and monitoring were adequately addressed, and the major program objectives of timeliness, clear and measurable objectives, transparency, monitoring, and reporting were adequately emphasized. As a result, OIG made no recommendations. (Audit Report: 2009-AT-0801)
HUD OIG audited selected controls within the Disaster Recovery Grant Reporting system (DRGR) related to NSP funding to assess risk assessment updates and whether NSP funds were properly safeguarded by the access controls related to DRGR. DRGR is an existing system that was modified to track close to $5.9 billion in NSP funds, the majority of which must be obligated and expended within 2 years. NSP1 funding totaled $3.9 billion. ARRA revised some of the program rules and appropriated an additional $2 billion for the program to be competitively awarded. Following the initiation of the audit, HUD decided to use DRGR to track the $2 billion in funding allocated to NSP2 in addition to the $3.9 billion allocated to NSP1.
While OIG did not find misappropriation or misuse of funds, it identified weaknesses that require HUD actions to obtain reasonable assurance that NSP funds are properly safeguarded. Specifically, (1) access control policies and procedures for DRGR violated HUD policy, (2) the system authorization to operate was outdated and based upon inaccurate and untested documentation, (3) HUD did not adequately separate the DRGR system and security administration functions, and (4) HUD had not sufficiently tested interface transactions between DRGR and the Line of Credit Control System.
HUD had identified and initiated actions in an effort to address or mitigate many of the weaknesses identified. As a result, OIG recommended that HUD (1) formalize the user access request process and strengthen access controls; (2) update and correct system documentation and resubmit the revised documentation for security certification and accreditation; (3) separate the duties of system and security administration and reassign the help desk functionality; and (4) work with its contractors to ensure that tests of drawdown controls and transaction processing reports are performed as stated in the functional requirements documentation or, if other controls are used, remove from the system documentation stated controls that are not in use. (Audit Report: 2009-DP-0007)
HUD OIG audited HUD’s ability to collect DRGR data at the level of detail necessary to adequately monitor NSP. OIG limited the review to the program established by the Housing and Economic Recovery Act of 2008 (HERA). However, the system will also be used to administer NSP grants awarded under ARRA.
As designed, DRGR can collect the basic information that HUD needs to monitor the program. HUD is developing monitoring guidance for field staff that separately addresses on-site monitoring and review of grantees’ DRGR action plans and quarterly performance reports. HUD needs to ensure that its monitoring guidance includes critically reviewing grantee reports to identify potential noncompliance issues, including unreported program income. HUD has an opportunity to do more with data collection and analysis, particularly with additional recovery programs and the associated transparency and reporting requirements. However, HUD should not substitute data collection for aggressive monitoring.
OIG recommended that HUD (1) continue to develop and implement detailed on-site monitoring guidance that incorporates information into DRGR, (2) continue to develop and implement detailed guidance requiring field staff to aggressively review grantee quarterly performance reports and drawdown vouchers, (3) require grantees to include the addresses of properties assisted under the program in quarterly performance reports, and (4) consider adding data fields to DRGR that require grantees to report compliance-related information. (Audit Report: 2009-FW-0001)
HUD OIG reviewed the City of Cincinnati, OH’s NSP to determine whether the City had the capacity to effectively and efficiently administer its program.
The City did not have sufficient capacity to effectively and efficiently administer its program. It lacked adequate policies, procedures, and controls to ensure that NSP funds were used effectively and efficiently and
in accordance with applicable requirements. Further, it did not have sufficient staff to assist in administering the program to ensure that it had sufficient capacity to effectively and efficiently administer program funds. Lastly, HUD did not include special conditions in its NSP grant agreement with the City.
OIG recommended that HUD require the City to (1) implement adequate policies, procedures, and controls to ensure that NSP funds are used effectively and efficiently and in accordance with applicable requirements and (2) hire additional staff and/or contract with another organization to assist in administering the program to ensure that it has sufficient capacity to effectively and efficiently administer program funds. OIG also recommended that HUD include special conditions in its NSP grant agreement with the City, including but not limited to (1) requiring the City to submit documentation describing how past HOME program performance issues were or are being resolved and explaining whether they will impact the administration of NSP, (2) performing additional monitoring, and (3) providing technical assistance to the City. (Audit Report: 2009-CH-1801)
HUD OIG audited the NSP of the Los Angeles County Community Development Commission, Los Angeles, CA, to determine whether the County had sufficient capacity and the necessary controls to manage and administer its NSP.
OIG found no evidence indicating that the County lacked the capacity to adequately administer its current NSP funding. The County has applied for additional funding under ARRA to continue its NSP activities, and its procedures and controls should be adequate to administer the continuation of the program. As a result, OIG made no recommendations. (Audit Report: 2009-LA-1017)
HUD OIG reviewed the NSP of Cook County, IL, to determine whether the County had the capacity to effectively and efficiently administer its program. Congress amended NSP and increased its funding as part of ARRA. The County, as part of a consortium, submitted an application to HUD, dated July 14, 2009, which totaled more than $75 million in additional NSP funds under ARRA.
The County needs to improve its capacity to effectively and efficiently administer its NSP since it had not established sufficient policies, procedures, and controls for its program as of September 9, 2009. However, it should have sufficient staff to administer its NSP if it implements the revised staffing plan and budget provided to OIG on August 5, 2009, hires individuals with experience in the planned activities, and provides adequate training. Further, HUD did not include special conditions in its NSP grant agreement with the County. (Audit Report: 2009-CH-1802)
HUD OIG reviewed the City of Boston, MA’s Department of Neighborhood Development to determine whether the City had the capacity to effectively and efficiently administer its NSP under the provisions of HERA and ARRA.
The Department should be able to meet Federal requirements for administering the NSP funds under HERA and ARRA. Specifically, the Department can develop sufficient capacity to administer its NSP and ensure that NSP funds are properly administered. However, it must revise its procedures for allocating costs to Federal programs and ensure that it follows proper, fair, and equitable procurement practices If these discrepancies are corrected, HUD can generally be assured that the City will accurately account for its use of NSP funding under HERA and ARRA and use that funding only for eligible program activities. OIG recommended that the City ensure that corrective action is completed on deficiencies noted in Audit Report 2009-BO-1011 that were
related to the allocation of payroll costs and to following proper procurement procedures. HUD and the City agreed with the recommendation. (Audit Report: 2009-BO-1802)
HUD OIG reviewed the operations of the City of Brockton, MA’s grantee, Building a Better Brockton, Inc. (recipient), which has responsibility for administering the City’s NSP, to determine whether the City and/or its recipient had the capacity to effectively and efficiently administer its NSP under the provisions of HERA and ARRA.
The recipient did not have the capacity to effectively and efficiently administer its NSP. Specifically, it lacked adequate internal controls over the areas of financial reporting and procurement and adequate staffing to administer the program effectively. In addition, there were potential conflict-of-interest issues among the recipient, its board members, and several of the subrecipients that would receive NSP funding.
OIG questioned the recipient’s ability to administer potential NSP2 funding until it can satisfactorily address and demonstrate adequate controls over the areas of financial reporting, procurement, and staffing and the conflicts of interest. (Audit Report: 2009-BO-1803)