Introduction and Background
The U. S. Department of Housing and Urban Development (HUD) first authorized the Community Development Block Grant Program under Title I of the Housing and Community Development Act of 1974. Initially, the CDBG Program emphasized capital facilities, but later shifted the emphasis toward broader community services for low-income residents. Currently, the CDBG Program is one of four federal formula grant programs designed to provide decent housing, economic development opportunities and other public services for low- and moderate-income citizens. HOME Investment Partnerships (HOME), Emergency Shelter Grant Program (ESG) and Housing Opportunities for Persons with AIDS (HOWPA) are the three other Federal formula grant programs. HOME provides formula grants to states and localities that are often used in partnership with local nonprofit groups to fund a wide range of housing activities, including construction, purchasing and rehabilitation of affordable housing for rent or homeownership. HOME also provides direct rental assistance to low-income people.
CDBG Grant Entitlement Communities
The program provides annual grants on a formula basis to entitled cities and counties to develop viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low- and moderate-income persons. The program is authorized under Title 1 of the Housing and Community Development Act of 1974, Public Law 93-383, as amended; 42 U.S.C.-5301 <http://www.hud.gov/offices/cpd/communitydevelopment/rulesandregs/laws/sec5301.cfm> et seq.
Nature of Program
HUD awards grants to entitlement community grantees to carry out a wide range of community development activities directed toward revitalizing neighborhoods, economic development, and providing improved community facilities and services.
Entitlement communities develop their own programs and funding priorities. However, grantees must give maximum feasible priority to activities which benefit low- and moderate-income persons. A grantee may also carry out activities which aid in the prevention or elimination of slums or blight. Additionally, grantees may fund activities when the grantee certifies that the activities meet other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other financial resources are not available to meet such needs. CDBG funds may not be used for activities which do not meet these broad national objectives.
Eligible Grantees
Eligible grantees are as follows:
• principal cities of Metropolitan Statistical Areas (MSAs);
• other metropolitan cities with populations of at least 50,000; and
• Qualified urban counties with populations of at least 200,000 (excluding the population of entitled cities) are entitled to receive annual grants.
HUD determines the amount of each entitlement grant by a statutory dual formula which uses several objective measures of community needs, including the extent of poverty, population, housing overcrowding, age of housing and population growth lag in relationship to other metropolitan areas.
Eligible Activities
CDBG funds may be used for activities which include, but are not limited to:
• acquisition of real property;
• relocation and demolition;
• rehabilitation of residential and non-residential structures;
• public services, within certain limits;
• activities relating to energy conservation and renewable energy resources
• provision of assistance to profit-motivated businesses to carry out economic development and job creation/retention activities; and
• construction of public facilities and improvements, such as water and sewer facilities, streets, neighborhood centers, and the conversion of school buildings for eligible purposes;
Ineligible Activities
Generally, the following types of activities are ineligible:
• acquisition, construction, or reconstruction of buildings for the general conduct of government;
• political activities;
• certain income payments; and
• construction of new housing by units of general local government.
Requirements
To receive its annual CDBG entitlement grant, a grantee must develop and submit to HUD its Consolidated Plan <http://www.hud.gov/offices/cpd/about/conplan/>, (which is a jurisdiction's comprehensive planning document and application for funding under the following Community Planning and Development formula grant programs: CDBG <http://www.hud.gov/offices/cpd/communitydevelopment/programs/>, HOME Investment Partnerships <http://www.hud.gov/offices/cpd/affordablehousing/programs/home/>, Housing Opportunities for Persons with AIDS (HOPWA <http://www.hud.gov/offices/cpd/aidshousing/>), and Emergency Shelter Grants (ESG <http://www.hud.gov/offices/cpd/homeless/programs/esg/>). In its Consolidated Plan, the jurisdiction must identify its goals for these programs as well as for housing programs. The goals will serve as the criteria against which HUD will evaluate a jurisdiction's Plan and its performance under the Plan. Also, the Consolidated Plan must include several required certifications, including that not less than 70% of the CDBG funds received, over a one, two or three year period specified by the grantee, will be used for activities that benefit low- and moderate-income persons, and that the grantee will affirmatively further fair housing. HUD will approve a Consolidated Plan submission unless the Plan (or a portion of it) is inconsistent with the purposes of the National Affordable Housing Act or is substantially incomplete.
Following approval, HUD will make a full grant award unless the Secretary has made a determination that the grantee:
• has failed to carry out its CDBG-assisted activities in a timely manner;
• has failed to carry out those activities and its certifications in accordance with the requirements and the primary objectives of Title I of the Housing and Community Development Act of 1974, as amended, and with other applicable laws; or
• lacks a continuing capacity to carry out its CDBG-assisted activities in a timely manner.
Citizen Participation
A grantee must develop and follow a detailed plan which provides for, and encourages, citizen participation and which emphasizes participation by persons of low- or moderate-income, particularly residents of predominantly low- and moderate-income neighborhoods, slum or blighted areas, and areas in which the grantee proposes to use CDBG funds. The plan must:
• provide citizens with reasonable and timely access to local meetings, information, and records related to the grantee's proposed and actual use of funds;
• provide for public hearings to obtain citizen views and to respond to proposals and questions at all stages of the community development program, including at least the development of needs, the review of proposed activities, and review of program performance;
• provide for timely written answers to written complaints and grievances; and
• Identify how the needs of non-English speaking residents will be met in the case of public hearings where a significant number of non-English speaking residents can be reasonably expected to participate.
The City of Jonesboro meets the above criteria by;
• Being a principal city of a MSA
• Participating in only eligible activities
• Maintaining an active citizens participation committee
• Spending funds in manner consistent with national objectives
Finances
The chart below from HUD’s website quantifies the decline in overall CDBG funds since 2004. The 2006 year funding was 11.1 % below 2005 and 15.3% below 2004. The federal government has implemented an overall reduction in grant funds over the past two years and anticipates further reduction in funds in the future.
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2003 Enacted <http://www.hud.gov/offices/cpd/about/budget/index.cfm>2004
Enacted <http://www.hud.gov/offices/cpd/about/budget/index.cfm>2005
Enacted <http://www.hud.gov/offices/cpd/about/budget/index.cfm>2006 Enacted <http://www.hud.gov/offices/cpd/about/budget/index.cfm>2006 Enact. vs. 2005 Enact.Percent Change |
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Community Development Block Grants <http://www.hud.gov/offices/cpd/communitydevelopment/programs/>: |
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Entitlement |
3,037,677 |
3,031,592 |
2,876,923 |
2,592,790 |
(284,134) |
-9.9% |
|
Non-Entitlement |
1,301,862 |
1,299,254 |
1,232,967 |
1,111,196 |
(121,771) |
-9.9% |
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Insular |
[6,955] |
[6,959] |
6,944 |
6,930 |
(14) |
-.2% |
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Subtotal |
4,339,538 |
4,330,846 |
4,116,835 |
3,710,916 |
(405, 919) |
-9.9% |
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Set Asides (see CDBG Set Asides <http://www.hud.gov/offices/cpd/about/budget/cdbgsetasides.cfm>)565,371 |
603,469 |
584,946 |
466,884 |
(118,360) |
-20.2% |
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TOTAL CDBG |
4,904,910 |
4,934,315 |
4,701,781 |
4,177,800 |
(524,279) |
-11.1% |
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Administration
The audit guidelines used to ascertain the following information were the following five areas: 1.) Control environment, 2.) Risk Assessment, 3.) Control Activities, 4.) Information and Communication and 5.) Monitoring. Exhibit 1 in back of report further explains the areas of each covered. CDBG primary areas of concern among the five are control activities and monitoring with the remainder generally satisfactorily addressed.
The CDBG department is not a problem department; however it has one problematic area with three very distinct sets of issues which require prompt attention to prevent further deterioration. The problematic area is management oversight. The three distinct areas are Time, Contract, and Compliance Management.
Time Management Oversight encompasses a written Consolidated Plan and 2007 Action Plan. Each has definite required deadlines. Ms. Vickers is the only full time employee. She is assisted by one part- time employee with minimal experience in the community development/grant realm.
CDBG department had three major leadership changes in 2005 coupled with a financial software conversion by the city. These led to major delays in projects plus an uncertainty in the financial status of the program fund reimbursements. Ms. Vickers spent the majority of 2006 catching up on the prior years projects and implementing the 2006 Action Plan. Of the $577,189 spent in 2006, $172,057 was from 2004, $237,468 was from 2005 and $ 167,664 was for actual 2006 projects. Ms. Vickers is well aware of the tremendous backlog of projects and is cognizant of the volume of work needed to bring the projects back to a timely schedule. However, Ms Vickers is to be encouraged by her inroads in the backlog of projects. Yet, numerous projects remain uncompleted with new projects being formulated by the new Action and Consolidated plans due this year.
The City of Jonesboro’s current consolidated plan expired December 31, 2006. HUD regulations stipulate the following “ In order to facilitate continuity in its program and to provide accountability to citizens, each jurisdiction should submit its consolidated plan to HUD at least 45 days before the start of its program year. In no event will HUD accept a submission earlier than November 15 prior to or later than August 16 of the federal fiscal year for which the grant funds are appropriated. Failure to receive the plan by August 16 will automatically result in a loss of the CDBG funds to which the jurisdiction would otherwise be entitled. With the exception of the August 16 date noted in this section, HUD may grant a jurisdiction an extension of the submission deadline for good cause.”
The consolidated plan for the City of Jonesboro was due November 15, 2006 but is required by no later than August 16, 2007, given the city’s calendar fiscal year for CDBG. Ms Vickers is extremely aware of the fact that the Consolidated Plan needs written. However, HUD regulations changed in early 2006 requiring the inclusion of national performance measurements in the new 5-year plan. The city’s new plan must include these measurements to be in compliance and ensure continued CDBG funding. Ms. Vickers advised me HUD has offered to assist her in writing the Consolidated Plan and she intends to accept the help.
In addition to the 5-year Consolidated Plan, a 2007 Action Plan must be written and approved as soon as possible. This document outlines the city’s anticipated budget plans for the CDBG funding. My review of the 2006 Action Plan noted a major divergence of planned versus used funds. The following chart demonstrates the differences. Ms. Vickers stated that her predecessor wrote the 2006 Action plan and the backlog of work from 2005 hindered the fruition of the 2006 plan as outlined.
2006 Action Plan
Expected Funds Use Actual Funds Spent
1.) Public Facilities - $ 0.00 Public Facilities - $166,440
2.) Public Services - $ 85,578 Public Services - $298,871
3.) Redevelopment - $ 75,000 Redevelopment - $ 10,562
4.) Housing - $291,820 Housing - $ 645
5.) Administration - $113,100 Administration - $100,671
Total $ 565,498 Total $577,189
Recommendation - Time Management
1.) Request Administration safeguard proper time to complete the Consolidated and 2007 Action Plan within assigned deadlines.
2.) Administration, Department Heads, and Citizen Advisory groups input should be utilized to verify a more accurate reflection of expected versus actual expenses.
3.) Compliance issues and proactive scheduling for projects must be employed.
4.) Request outside review and help by HUD for both plans is needed to make certain only eligible activities are awarded funding and ascertain inclusion of national performance measures in Consolidate Plan.
Response
Contract Management
CDBG expenditures for 2006 totaled $577,189 and were divided among five major categories. These were Public Facilities $166,440 or 28.84%, Public Services $298,871 or 51.78%, Redevelopment Program $10,562 or 1.83%, Housing Program $645 or 0.11% and Administration $100,671 or 17.44%.
The Continuum of Care collection represents a wide array of service providers to the target area outlined by HUD’s national guidelines. Providers for 2006 were 1.) Northeast Arkansas Regional AIDS Network ( NARAN), 2.) Focus, INC, 3.) Hispanic Community Services Inc.,(HCSI), 4.) Jonesboro Urban Renewal Housing Authority, (JURHA) and 5.) Mid South Health Systems. The funds disbursed to these organizations represent 20.73 % of total CDBG expenditures and 40.03% of Public Services expenses for 2006. Please see Exhibit 2 at back of report.
Given CDBG department leadership changed three times in 2005, that years project disbursements were delayed. 2005 Continuum Care Contracts were not signed until May 23, 2006. However, a review of procedures demonstrated a failure to follow established city disbursement policy. The following is a timeline regarding the 2005 contract disbursements.
1. Requisition for Checks February 23, 2006
2. Checks were Printed March 03, 2006
3. Resolution approving April 18, 2006
4. Contracts Signed May 23, 2006
5. Checks to grantees May 30, 2006
Subrecipients had seven days or less to deposit the check to avoid the 90 day void clause on check. Ms. Vickers informed me that she kept the checks under lock and key in her office from time of printing until disbursement. I asked the City Accountant the process for proper disbursement of funds. He indicated that any amount over $1,000 requires a purchase order, signed by department head, completed documentation and G/L account number before checks are printed. The documentation required in this case was the contracts, which were not completed until May 23, 2006. I informed Ms Vickers that this was not proper procedure for disbursement of funds after December 15, 2006. She indicated this would be corrected for the 2007 disbursements. I asked why not 2006 disbursements. Ms Vickers indicated that the 2006 Continuum Care checks were printed December 08, 2006, and would be held as before until contracts were signed some time in late January. Resolutions approving the 2006 Continuum contracts were approved January 16, 2007 at the regular Council meeting.
R & R Contracting, INC. was awarded the Daybreak/Magnolia sewer project. Construction began in October 2006. The project budget was $178,596 with the City of Jonesboro paying for $160,481 and City Water and Light offering $18,115 for reimbursement. As of December 15, 2006 three itemized bills totaling $126,564 of the $178,596 have been submitted and paid. All three bills were signed off by R & R Contracting, INC, and Miller-Newell, Engineering firm hired to oversee the project. However, city officials and Ms. Vickers had not signed off on the detailed bills for November and December. This contradicts the process of confirming the receipt of purchased items/services as outlined in COJ purchasing manual page three (3), number five under city department responsibilities. Once again this demonstrates a failure to follow established city procedures. This scenario also demonstrates a lack of contract management as required per purchasing manual page three number six. Lax contract management oversight was cited at the most recent Freeman and Company external audit as a reportable weakness.
Written policy and procedures would assist in preventing such management oversight problems and identify area of weakness before they grow into major problems.
Recommendation - Contract Management
1.) Follow established city disbursement procedure with completed documentation obtained before checks are written and disbursed.
2.) Checks written for disbursement should not be held for more than 7 days if at all possible. Utilize a receipt process requiring two people to release checks if held longer than seven days. Do not keep checks in CDBG office.
3.) Administration and department head developing a checklist for projects ensuring established procedures are followed.
4.) Allow notification of missing signatures by Finance department.
5.) Establish written standardized procedures/contracts for Contract Management Oversight considering most common projects. i.e. Continuum of Care, Subsistence Grants etc.
Response
Compliance Management
Webster dictionary defines Compliance as “The act of complying with a wish, request, or demand; acquiescence”. In this case laws or regulations are the points for complying. CDBG has numerous laws and regulations for compliance management. Exhibit 3 at the back of the report lists the minimum CDBG compliance requirements for contracts or other projects.
At the start of my audit written policies and procedures addressing how the varied rules and regulations were to be covered were not in place. An informal arrangement of compliance was in place. Ms Vickers is currently working on obtaining or writing formal policy and procedures for all areas, but at present minimal written policies are in place.
R & R Contracting was reviewed by Freeman and Company in their outside audit. The Davis Bacon employment data was not found in the file and was a reportable item in the audit. My review of the file indicated that the appropriate information has subsequently been obtained and placed in the file. Ongoing compliance monitoring is required to prevent recurrence. Said monitoring would also prevent possible funding from being stopped due to lack of compliance with regulations.
Demolition files for years 2005 and 2006 were reviewed. New procedures for ensuring compliance with appropriate regulations were implemented in late 2005 and early 2006. These procedures are much more time consuming than previously utilized by the city, but are more thorough and better protect the citizen’s rights and city environment. The steps included are as follows:
Ø Owner/ Demolition Address
Ø Mailing Address
Ø Property Description/ County Data
Ø Completed Application
Ø Disclaimer/Verified
Ø Before Picture
Ø Arkansas Heritage
Ø Title Search
Ø Asbestos Check Approval
Ø Notice of Intent to ADEQ
Ø Notify utilities
Ø Schedule Demolition
Ø Notice to Proceed Work Order
Ø Notify Sanitation(s)
Ø Inspect/Approval
Ø After Picture
Ø Receiver Contractor Invoice
Ø Requisition / P.O.
Ø Copy of Check
Year 2006 listed four homes in the aforementioned process and four homes awaiting application return for a total of eight. All four in process are up to the title search ordered step.
Demolition 2005 working files listed 15 houses. As of December 31, 2006 only two in process with one completed demolition. Ms. Katherine Metcalf and Mr. Douglas Box were the owners of the two homes in process. The completed demolition was finished on June 29, 2006.
Demolitions 2005 deleted files listed 21 houses. The files for these homes did not contain a written explanation as to why they were selected for demolition and then removed from the list. The files contain minimal notes on the properties. Ms Vickers indicated to me that a majority were removed from the list due to the owner’s ability to pay for the demolition. I indicated that all homes chosen and then removed from list should provide written explanation to prohibit a charge of capricious removal or discrimination.
The procedures implemented are to be commended for regarding proper regulatory compliance, however, timeliness versus liability risk should be uppermost in administrative thought and processes.
All Continuum of Care contracts for 2005 were reviewed. My review identified a consistent pattern of five items specified in Contracts missing from files. These are as follows:
1.) Quarterly Reports
2.) EEOC Information required within 30 days of contract
3.) Copy of signature card and bank statements of separate bank account required by funds
4.) Copy of OMB-A-133 audits if required for Subrecipient
5.) Inspection of Labor and Nondiscrimination posters and EEO Notices.
A major area of compliance is monitoring. Given the thoroughness which the Continuum Contracts are written the monitoring required is extensive and necessary. Ms. Vickers was made aware of the deficiencies and stated she would work on obtaining the information. The funds were disbursed in May 2006 and the audit was after December 15, 2006, or more than ample time to obtain required information for 2005 files.
Recommendations - Compliance Management
1.) Establish weekly/monthly tracking system for compliance.
2.) Follow established city procedures for disbursement of funds. Develop checklist to ensure accountability by Department Head, Director of Grants, and Mayor’s office.
3.) Develop Checklist to ensure bills submitted for payment from contracts are reviewed and signed by proper authorities. I.e. Department head and City official(s).
4.) Establish written standardized Compliance Monitoring Procedures for all aspects of CDBG contracts etc.
5.) Establish Plan Management procedures to ensure deadlines for Plans are met.
6.) Require input and cooperation from all affected departments on demolitions
Response