HomeMy WebLinkAbout08.B- City Manager 8.B
RESOLUTION (ID # 3720) DOC ID: 3720
CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION
Agreement/Contract Amendment
From: Allen Parker M/CC Meeting Date: 02/17/2015
Prepared by: Brandon Mims, (909) 384-
5122
Dept: City Manager Ward(s): All
Subject:
Resolution of the Mayor and Common Council of the City of San Bernardino Authorizing
the City Manager to Resolve the Findings of the Housing and Urban Development
(HUD) Department Audit of the City's Community Development Block Grant (CDBG)
Program. (#3720)
Current Business Registration Certificate: No
Financial Impact:
The first payment of$168,761 will be paid from the 2014-2015 General Government
Budget to clear up ongoing findings related to Sections 2A and 2B of the audit.
The scheduled payment of $500,000 is due on July 1, 2015 and an appropriation from
the General Fund will be included as Debt Service in the City's 2015-2016 Fiscal Year
Budget. Each payment must be made from a non-federal source, but staff has
negotiated that funds will be returned to the City's CDBG line of credit and be made
available for use on other eligible projects.
Motion: Adopt the Resolution.
Synopsis of Previous Council Action:
The Mayor and Common Council have not taken a prior action related to resolution of
the 2013 Housing and Urban Development (HUD) Department audit of the Community
Development Block Grant (CDBG) program.
Background:
The HUD Office of Inspector General (OIG) conducted a review of the City's Community
Development Block Grant (CDBG) and CDBG Recovery programs because the U.S.
Department of Housing and Urban Development's Los Angeles Office of Community
Planning and Development (CPD) expressed concerns about the City's administration
of its programming. The objective was to determine whether the City administered its
CDBG and CDBG-R program funds in accordance with applicable HUD requirements.
The audit period covered Fiscal Years 2010, 2011, and 2012. The City was awarded
the following CDBG and CDBG-R funds during that time period:
Fiscal Year CDBG CDBG-R Total
June 30, 2010 $3,602,903 $951,548 $4,554,451
Updated: 2/11/2015 by Brandon Mims I Packet Pg. 536
8.6
3720
June 30, 2011 $3,891,483 Not Applicable $3,891,483
June 30, 2012 $3,244,569 Not Applicable $,3,244,569
Total $11,690,503
Prior to the 2013 audit, the Los Angeles CPD last performed an onsite monitoring
review of the City's programs for the year ending June 30, 2006. The review identified a
lack of adequate documentation for the use of CDBG funds under the City's Code
Enforcement Program and that its reimbursement system was inadequate to determine
the funding source. In addition, in HUD's review of the program through the
Consolidated Action Plan Evaluation Report (CAPER) identified discrepancies were
found between the report and information in HUD's systems, difficulty in timely and
accurate accounting for program income and expenditures and over-spending on code
enforcement expenditures.
Results of the Audit
At the conclusion of the audit, HUD-OIG reported three findings (concerns) with the
management of the program over the audit period. First, the City improperly used or
lacked supporting documentation for its use of more than $7.16 Million in program
funds. Second, the City did not report program income generated from program
activities. Third, the City did not adequately support its procurement activities for
CDBG-R activities. As a result of these findings, the auditors questioned a total of
$7,588,889 of unsupported costs and $216,460 of ineligible costs. In lieu of suspending
City funding, HUD-OIG concluded that the current program staff should work with HUD-
LA Office to substantiate as much of the questioned costs as possible.
Updated: 2/11/2015 by Brandon Mims Packet Pg. 537
8.B
3720
Resolving the Audit Findings
Since April 2013 program staff has been working to resolve questioned costs by
creating a methodology for unsupported code enforcement costs and providing needed
support documentation to HUD Los Angeles Office. Staff has been successful in
reducing the total amount by 76%, or $5,909,867. As noted in the January 9, 2015
letter received from HUD regarding the audit (Exhibit B), HUD has agreed to accept a
total repayment of $1,895,482 over three years as follows:
Payment Date Payment Amount
July 1, 2015 $500,000
July 1, 2016 $500,000
July 1, 2017 $895,482
Total $1,895,482
Statement of the Issue
HUD is requiring the City to acknowledge the proposed payment plan with a resolution
of the Mayor and Common Council. Adoption of the attached Resolution will commit the
City to the above mentioned repayment plan and resolve all findings related to the 2013
audit (Exhibit A).
Fiscal Impact
The first payment of $168,761 will be paid from the 2014-2015 General Government
Budget to clear up ongoing findings related to Sections 2A and 2B of the audit.
The scheduled payment of $500,000 is due on July 1, 2015 and should be included as
Debt Service in the City's 2015-2016 Fiscal Year Budget. Each payment must be made
from a non-federal source, but staff has negotiated that funds will be returned to the
City's CDBG line of credit and be made available for use on other eligible projects.
Recommendadon
Staff recommends adopting the attached resolution authorizing the City Manager to
accept the proposed repayment schedule.
City Attorney Review:
Supporting Documents:
HUD Audit Resolution—3720 (DOC)
Exhibit A - HUD 2013 OIG Audit (PDF)
Exhibit B - HUD Audit Resolution Letter (PDF)
Updated: 2/11/2015 by Brandon Mims Packet Pg.538
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1 RESOLUTION NO.
2 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF
SAN BERNARDINO AUTHORIZING THE CITY MANAGER TO RESOLVE THE
3 FINDINGS OF THE HOUSING AND URBAN DEVELOPMENT (HUD)
4 DEPARTMENT AUDIT OF THE CITY'S COMMUNITY DEVELOPMENT BLOCK
GRANT (CDBG) PROGRAM
5
NOW THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON
6 COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS:
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8 SECTION 1. The Mayor and Common Council of the City of San Bernardino hereby
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9 acknowledges the findings detailed in Audit Report Number 2013-LA-1004, attached as N
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10 Exhibit A, and hereafter referred to as "the Audit." i
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11 SECTION 2. That in order to satisfy the Audit a series of payments are authorized to
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be paid from the General Fund by the dates listed below, as follows: N
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14 Payment Date Payment Amount N
July 1,2015 $500,000 M�
15 July 1,2016 $500,000 c
16 July 1,2017 $895,482 c
Total 1 $1,895,482 d
17 2!
18 SECTION 3. That a payment of$168,761 shall be submitted to HUD by February 26, a
19 2015 to resolve findings in Sections 2A and 2B.
20 SECTION 4. That a copy of this Resolution shall be forwarded to the Los Angeles
21 Community Planning and Development Office to the attention of William Vasquez as proof of a
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the City's commitment to resolve the audit.
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1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF
SAN BERNARDINO AUTHORIZING THE CITY MANAGER TO RESOLVE THE
2 FINDINGS OF THE HOUSING AND URBAN DEVELOPMENT (HUD)
DEPARTMENT AUDIT OF THE CITY'S COMMUNITY DEVELOPMENT BLOCK
3 GRANT (CDBG) PROGRAM
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5 I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and
6 Common Council of the City of San Bernardino at a meeting
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thereof, held on the day of , 2015,by the following vote,to wit:
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9 Council Members: AYES NAYS ABSTAIN ABSENT N
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10 MARQUEZ
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11 BARRIOS
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VALDIVIA C°,
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14 SHORETT N
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15 NICKEL o
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16 JOHNSON o
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17 MULVIHILL
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20 Georgeann Hanna, City Clerk
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21 The foregoing resolution is hereby approved this day of , 2015.
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23 R. Carey Davis,Mayor
24 City of San Bernardino
25 Approved as to form:
26 Gary Saenz, City Attorney
27 By:
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�k�t OFFICE of Tk
INSPECTOR GENERAL Issue Date: April 23, 2013
NOUVNEG O ASNAO T U 1111T OF
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Audit Report Number: 2013-LA-1004
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TO: William Vasquez,Director,Los Angeles HUD Office of Community Planning
and Development, 9DD
Dane Narode,Associate General Counsel for Program Enforcement, CACC
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FROM:. Tanya E. Schulze,Regional Inspector General for Audit, Los Angeles Region 9,
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SUBJECT: The City of San Bernardino,CA,Did Not Administer Its Community a
Development Block Grant and Community Development Block Grant-Recovery N
Act Programs in Accordance With HUD Rules and Regulations
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Enclosed is the U.S.Department of Housing and Urban Development(HUD), Office of
Inspector General(OIG),final results of our review of the City of San Bernardino's Community o
Development Block Grant and Community Development Block Grant-Recovery Act programs. o
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HUD Handbook 2000.06,REV-4,sets specific timeframes for management decisions on M
recommended corrective actions. For each recommendation without a management decision, _
please respond and provide status reports in accordance with the HUD Handbook. Please furnish Q
us copies of any correspondence or directives issued because of the audit.
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The Inspector General Act,Title 5 United States Code, section 8L, requires that OIG post its w
publicly available reports on the OIG Web site. Accordingly,this report will be posted at
http://www.hudoig.go
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If you have any questions or comments about this report,please do not hesitate to call me at a
213=534-2471.
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r April 23,2013
*�c OFFICE of
INSPECTOR GENERAL The City of San Bernardino,CA,Did Not Administer Its
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Community Development Block Grant and Community
Development Block Grant-Recovery Act Programs in
Accordance With HUD Rules and Regulations
Highlights
Audit Report 2013-LA-1004
MEMEMEM
We reviewed the City of San The City did not operate in accordance with HUD rules
Bernardino's Community Development and regulations. It used$47,699 in CDBG funds for d
Block Grant(CDBG)and CDBG- ineligible expenditures and lacked supporting
Recovery Act(CDBG-R)programs documentation for more than$7.1 million. The City rn
because the U.S.Department of also did not report$168,761 in program income and
Housing and Urban Development's did not adequately support its procurement activities a
(HUD)Los Angeles Office of for the$951,548 in Recovery Act funds it received. U
Community Planning and Development a
expressed concerns about the City's N
administration of its CDBG program. M
Our objective was to determine whether
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the City administered its CDBG and
CDBG-R program funds in accordance a
with applicable HUD requirements. p
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We recommend that the Director of '
HUD's Los Angeles Office of a
Community Planning and Development
(1)repay$47,699 in ineligible expenses w
fi-om.non-Federal sources, (2)support
more than$7.1 million in expenses or E
repay the program, (3)remit$168,761
in unreported program income,and(4)
demonstrate the reasonableness of a
$951,548 in Recovery Act fiends used in
the procurement of two contracts. We
also recommend that HUD's Associate
Counsel for Program Enforcement
pursue civil remedies, civil money
penalties, or other administrative action,
as appropriate, against the City for
intentionally not reporting CDBG
program income. .
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TABLE OF CONTENTS
Background and Objective 3
Results of Audit
Finding 1: The City Improperly Used or Lacked Supporting Documentation
for Its Use of More Than$7.16 Million in Program Funds 5
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Finding 2: The City Did Not Report Program Income Generated From
Program Activities 10 d
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Finding 3: The City Did Not Adequately Support Its Procurement Activities j
for CDBG-R Activities 14 x
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Scope and Methodology 16 a
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Internal Controls 17 M
Appendixes a ,
A. Schedule of Questioned Costs 19 j
B. Auditee Comments and OIG's Evaluation 20 j
G 24 Criteria °
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D. Summary of Questioned Costs 28
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BACKGROUND AND OBJECTIVE
The City of San Bernardino operates under a hybrid mayor-council-city manager form of
government. Each of the seven members of the council is elected by voters within their
respective wards. The mayor and council members serve 4-year terms. Under the supervision of
the mayor,the city manager is the chief administrative officer. The city manager directs most
City departments,other than those governed by separate boards and offices of elected officials.
The city manager's office, in addition to assisting the mayor and council in policy formulation,
focuses on special projects. The City also has an elected city attorney,city treasurer,and city
clerk. c
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The City was awarded the following Community Development Block Grant(CDBG) and
CDBG-Recovery Act(CDBG-R)funds; in
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July 1,2009,to June 30,2010 $3,602,903 $951,548 $4,554,451
July 1,2010,to June 30,2011 $3,891,483 Not applicable $3,891,483 Q
July 1,2011,to June 30,2012 $3,244,569 Not a licable $3,244,56.93. 0
Total' 11,G90,5M
The City filed an emergency petition for Chapter 9 bankruptcy on August 1,2012. It will a
continue to operate and provide essential services to its community while working through its
financial problems undenthe protection of the Chapter 9 bankruptcy code. o
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The City had been using its Economic Development Agency to administer its CDBG and N
CDBG-R fiends. The Economic Development Agency is equivalent to a redevelopment agency.
The governor of California executed a proposal to eliminate all redevelopment agencies =
statewide on June 29,2011. Consequently, on January 9,2012,the City became the successor Q
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agency to the Economic Development Agency. As such,the City is now directly responsible for Z
administering the program fiends. w
HUD's Los Angeles Office of Community Planning and Development last performed an onsite
monitoring review of the City's CDBG program for the fiscal year ending June 30,2006. It
identified a lack of adequate documentation for the use of CDBG funds under the City's code r
enforcement program and that its reimbursement system was inadequate to identify the funding Q
source. In addition,HUD's review of the City's consolidated annual performance and evaluation
report submissions for the fiscal years ending June 30,2010,and June 30,2011, identified
discrepancies between the report and information in HUD's systems,difficulties in timely and
accurate accounting for program income and expenditures,and overspending on code
enforcement expenditures. As of February 2013,the City had not submitted its report to HUD
for the fiscal year ending June 30,2012,which was due September 30,2012.
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Audit Objective
Our objective was to determine whether the City administered its CDBG and CDBG-R program
funds in accordance with HUD rules and regulations. Specifically,we wanted to determine
whether program funds were used for eligible purposes and program income was reported in
accordance with regulations.
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RESULTS OF AUDIT
Finding 1: The City Improperly Used or Lacked Supporting
Documentation for Its Use of More Than $7.16 Million in
Program Funds
The City did not comply with Federal regulations when it improperly used or lacked supporting
documentation for the use of more than$7.16 million in CDBG program funds. Specifically,the
City used$47,699 in program funds for ineligible expenses,and it could not support the
eligibility of$7.11 million in program funds. The problems occurred because the City did not d
have adequate procedures and lacked the capacity to monitor the program to ensure that HUD r
regulations were followed. As a result,more than$7.16 million in program funds was not in
available for decent,affordable housing and other services principally for low-and moderate-
income persons. _
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The City spent$47,699 for ineligible expenses(see appendix D). The ineligible ¢
expenses included o
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• $13,698 for services for ineligible.properties, overdraws on program N
funds,etc.; °
• $14,001 in general government expenses;and _
• $24,000 in additional funding for its subrecipient to overcome another ¢
Federal agency fund deficiency. iz
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Ineligible Code Enforcement Expenditures Totaled$13,698 w
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The City used program funds totaling$13,698 in ineligible expenditures for the
following:
• Overdraws of$10,003 in program funds. For the fiscal year ending June ¢
30,2011,the City drew more than$2.58 million in code compliance
expenditures,but accounting records showed expenditures totaled only
$2.57 million, so program funds were overdrawn by$10,003.
• Overdraws of$1,845 for May 2011 code compliance expenditures. The
City incorrectly calculated the amount it should be reimbursed,charging
$123,885 when the actual amount totaled $122,040 in expenses.
• Reimbursement of$1,436 for services performed on ineligible properties
that were listed as non-CDBG in the City's automated Go-Enforce system.
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�-- o Case number 10-19353' ($535)
o Case number 09-7949 ($753)
o Case number 09-19667 ($148)
• Duplicate costs claimed for the same amendment of tax bills for the
months of November and December 2010 totaling$414.
Ineligible Administrative Costs Totaled$14,001
Contrary to 24 CFR(Code of Federal Regulations) 570.207(a)(2),the City
charged an allocation of$14,001 in ineligible general government cost to the
program.
Ineligible Additional Funding of W,000 Was Provided to a Subrecipient
The City provided additional fiinding of$20,000 to one subrecipient to overcome d
another Federal agency fund deficiency. The Legal Aid Society already had N
received$9,500 from program funds to perform CDBG-related activities. City o
council records detailed that the subrecipient was"short on cash"and a council =
member was"hoping they could get$20,000 from unexpended CDBG funding."
We determined that the Legal Aid Society,Inland Counties Legal Services,Inc.,a i
Federal agency,was reducing its funds. As a result,the city council approved the a
allocation of$20,000 to the subrecipient to be issued due to urgent need. N
However,regulations at 2 CFR Part 225, appendix A,paragraph C.3.c state that v
any cost allocable to a particular Federal award or cost objective tinder these r
regulations may not be charged to other Federal awards to overcome fund Q
deficiencies,to avoid restrictions imposed by law or terms of the Federal awards,
or for other reasons. In addition,the cash shortage was not urgent as claimed in p
the city council notes. Records showed that the cuts in fimding were signed in o
February 2012,after the January 5,2012,general ledger entries for$20,000. The N
initial reduction in funds of about$3,500 was not scheduled to start until April D
2012. _
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Expenses totaling more than$7.1 million were unsupported because the City o
lacked documentation to support the reimbursements(see appendix D). The a
missing documentation included,among other records,checks,invoices,
contracts,and support for allocation methodologies. In some circumstances,there
were no records provided for the expenditures. The unsupported expenses
included
• More than$4.8 million in code enforcement expenditures,including but
not limited to salaries,supplies,contract services, fleet, government
outreach, etc.;
• More than$1.3 million in administrative costs; and
Case numbers were provided in place of addresses.
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o $942,266 in sample draws without adequate records to support the
expenditures.
Unsupported Code Enforcement Expenditures
The code compliance division spent$4.8 million for unsupported costs. Most of
the funds were spent on salaries and benefits for code enforcement officers. The
City used various percentages(94, 84, or 40 percent)for their code enforcement
salaries without an adequate cost allocation plan or explanation to support how
these percentages were determined. The City also charged lump-sum amounts for
expense items with no basis or records to show how the amounts were
determined. For example,in 2010,2 the City charged,among other expenses,
information technology costs ($217,024),worker's compensation benefits E
($179,872),liability charges($262,108),and telephone expenses($101,640)with r
no records to support the amount attributed to the CDBG program. Further,the
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City was inconsistent in charging expenses to the CDBG program. For example, j
in 2009,it determined that$115,991 in disallowed expenses should not be =
reimbursed with CDBG funds. However, in 2010, it retroactively charged 20 C
percent of the$115,991 to the CDBG program with no basis or explanation. This
practice continued for several months in 2010 and then stopped. Afterward,the Q
percentages fluctuated for each expense charged to the program,and City staff N
could not explain the amounts charged.
Unsupported Administrative Costs Q
The City drew down$1.3 million in unsupported program funds for its
administrative costs(refer to appendix D). It did not maintain an adequate cost o
allocation plan as required by 2CFR Part 225, appendix A,paragraph C.3.d(see o
appendix C)and used an allocation method based, for the most part,on estimates N
not supported by formal accounting and other records to support the propriety of
the costs assigned to Federal awards. Further,the City was unable to provide an =
adequate explanation or support for how the percentages were determined. As a a
result,we determined more than$1.3 million in administrative costs to be
unsupported. w
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Unsupported Sample Draws d
The City drew down$942;266 in program funds, including$462,820 in CDBG
and$479,446 in CDBG-R funds,without adequate support(see appendix D). The w
vouchers submitted were not adequately documented. Specifically,these a
expenses were not supported by source documents such as invoices. Regulations
at 24 CFR 85.20 require that grantees maintain records which adequately identify
the source and application of funds. Accounting records must be supported by
such source documentation as canceled checks,paid bills,payrolls,time and
attendance records,and contract and subgrant award documents. Contrary to the
regulations,the City did not maintain adequate accounting records to support the
2 For the fiscal year ending June 30,2011,the City budgeted$1.7 million but spent more than$2.5 million in code
compliance division expenditures. It overspent by$853,863 without HUD's approval or a formal amendment.
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draws sampled. As a result,we determined$942,266 to be unsupported,of which
$479,446 was CDBG-R funds.
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The City did not ensure that it followed all HUD rules and regulations because it
did not have adequate procedures or the capacity to monitor the program. Before
the statewide termination of redevelopment agencies,the City's Economic
Development Agency ran the CDBG program with no monitoring from the City. d
Due to the lack of program monitoring,City staff members were unable to explain
actions by the Agency before its termination. In addition,the only procedures
related to the CDBG program consisted of a binder called"A Timeline of o
Monthly Steps and Proposed Schedule." Further,the City explained that it was
not working on a new policy and procedures related to CDBG because of its short a
staffing for the program. There was only one staff member assigned to oversee
and report on the program. The inadequate procedures were due to the City's lack a
of capacity to monitor the program and not sufficiently recognizing the need for N
developing and maintaining proper controls. M
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The City used more than$7.1 million in program funds for ineligible or 0
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unsupported expenses. This condition occurred because the City did not follow c
all of HUD's rules and regulations as it did not have adequate procedures or the o
capacity to monitor the program. As a result,more than$7 million in CDBG =
funds was not available for decent, affordable housing and other services
principally for low-and moderate-income persons. a
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We recommend that the Director of HUD's Los Angeles Office of Community
Planning and Development require the City to
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1A. Repay the CDBG program$47,699 for ineligible expenses from non-
Federal funds.
1B. Provide support for$6,637,341 in unsupported costs or repay the CDBG
program from non-Federal funds.
1 C. Provide support for$479,446 in unsupported CDBG-R costs or repay the
U.S. Treasury from non-Federal funds.
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ID. Suspend the program and CDBG funding until it can demonstrate that it
has procedures and controls in place and capacity to operate its program
properly,
lE. Establish and implement sufficient internal control policies and procedures
to ensure that CDBG program funds are committed and expended in
accordance with HUD rules and requirements.
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Finding 2: The City Did Not Report Program Income Generated From
Program Activities
The City did not report program income generated from its CDBG activities in accordance with
Federal regulations. It failed to report$168,761 in program income earned from CDBG
activities. This condition occurred because the did not have any applicable program income
policies and procedures. As a result,$168,761 in CDBG funds was not available for decent,
affordable housing and other services principally for low-and moderate-income persons.
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The City did not report accurate and timely program income to HUD as required =
by Federal regulations at 24 CFR 570.504. It reported a total of$184,836 in a
program income for fiscal years ending June 30,2010,and June 30,2011. Not
only did the City erroneously report the amount of program income,the$184,836 a
in program income that it reported was inaccurately attributed to N
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• Code compliance, r
• Center for individuals with disabilities, and a
• General program administration.
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The City had not reported any program income for the fiscal year ending June 30, c
2012,because it had not submitted its applicable consolidated annual performance c
and evaluation report. _
The City's neighborhood rehabilitation program revolving loans generated Q
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$176,716 of the program income, and the remaining$8,120 was generated from
demolition costs incurred by the City. This inaccurate reporting misled HUD to w
believe that the City was reporting program income for its code compliance
activity3 when it did not. This condition occurred because the City did not have
any applicable program income policies and procedures to ensure its staff to
follow appropriate program requirements. As a result,it could not assure HUD r
that it could appropriately account for its program income for the use of decent, Q
affordable housing and other services for low-and moderate-income persons
before using additional program funds.
s The City's code compliance division received most of the entitlement grant.
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The City failed to report$168,761 in CDBG program income to HUD in
accordance with Federal requirements. Regulations at 24 CFR 570.504(a)require
that receipts and expenditures of program income be recorded as pant of the
financial transactions of the grant program. The regulations also require that.
program income be disbursed for eligible activities before additional cash
withdrawals are made from the U.S. Treasury. The City did not report program
income for the following activities:
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1. Neighborhood Rehabilitation Program Income d
The City's repayment of revolving loans generated$249,731 in program
income for fiscal years ending June 30,2010, June 30,2011,and June 30, U)
2012;however,the City reported that its loan program generated only
$176,716. Additionally,the City incorrectly reported program income a
generated from its revolving Ioans for those years.
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• For the fiscal year ending.June 30,2010, $430 in income was reported o
to HUD over the actual program income generated for that year. M
According to the City,the difference was attributable to the
understatement of income to HUD for the fiscal year ending June 30,
2009. a
• For the fiscal year ending June 30, 2011,the City reported$104,848 in o
program income, an overstatement of$1,000: The City stated that the
overreporting of income was due to a clerical error. N
• For the fiscal year endin�June 30,2012,the City had not reported any
of its income of$73,445 generated from its revolving loans. _
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2. Demolition Program Income B
The City expended$109,467 in CDBG funds for demolition costs and x
recuperated those funds by either direct payment from the owners of the w
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properties being demolished or through tax liens placed on the properties until
the full cost was recaptured. However,the City did not record the receipt of s
demolitions as CDBG program income in a specified general ledger. Instead, w
it recorded the income in its general fund account. Overall,the City generated
a total of$182,031 in program income between 2009 and 2011, of which it
received $103,436. However,the City recorded and reported only one receipt
to HUD in the amount of$8,120. As a result, it failed to report the remaining
$95,316 in program income received from the demolition activity. Further,
according to the City,the remaining amount, $78,5955 in program income
d The applicable amount for the fiscal year ending June 30,2012,was$74,445. However,since the City '
oveireported its program income for the prior year by$1,000,we netted the amount to$73,445($74,445-$1,000).
S$182,031-$103,436=$78,595
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earned,had not been received. Once this income is received,the City should
report the amount to HUD in accordance to 24 CR 570.504(a).
Refer to table below for a summary of unreported program income.
Summary of unre orted Uro&ram income
Neighborhood Rehabilitation Revolving Loan
Program $73,445
Demolition $95,316
Total unrepo •teti program Income $168,761;
E
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The unreported program income of$168,761 was not available for decent,
affordable housing and other services principally for low-and moderate-income
persons. These conditions occurred because the City did not have program
income policies and procedures. a
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Before the City became the successor agency to the Economic Development
Agency,d the Agency administered the CDBG program. Although the City had a
general procedures regarding program income,they addressed only program
income generated from revolving loans. All other income(such as code
compliance)generated was reported under the general fund;therefore,any N
income applicable to the CDBG program would not be identified as such.
Economic Development Agency officials explained that they had told the City x
many times that the CDBG program income must be returned to the CDBG a
program.
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In 2010,the Agency had an independent consultant conduct a CDBG review. The w
consultant's report,dated January 2010,recommended that the code enforcement
program track all repayments of demolition expenses attributable to the CDBG E
program and deposit the funds into a separate account,not in general funds. As a @
result,the City established procedures for its code compliance program; a
specifically, CDBG funded inspections?in November 2010. However,the City
did not address procedures regarding demolition expenses or other activities
generating program income.
I
6 The Economic Development Agency was eliminated on June 29,2011.
7 The City's CDBG funded inspections produces revenues through fines and penalties. However,24 CFR 85.25(4)
indicates that fines and penalties are not considered program income.
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The City did not report$168,761 in program income to HUD in accordance with
Federal requirements. It inaccurately reported program information and failed to
report program income to HUD because it did not have procedures and lacked
adequate controls. As a result, $168,761 in program funds was not available for
decent, affordable housing and other services for low-and moderate-income
persons.
E
We recommend that the Director of HUD's Los Angeles Office of Community ;
Planning and Development require the City to N
0
2A. Remit to its CDBG program fiom non-Federal funds the$73,445 in =
program income that it received for the repayment of revolving loans.
2B. Remit to its CDBG program fiom non-Federal funds the$95,316 in a
program income that it received for its demolition activities. N
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2C. Establish and implement additional procedures and controls to ensure that
program income is recorded,reported,and expended in accordance with a
HUD rules and requirements.
0
We recommend that HUD's Associate Counsel for Program Enforcement
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2D. Determine legal sufficiency and if legally sufficient,pursue civil remedies
(31 U.S.0(United States Code)Section 3801-3812, 3729, or both),civil
money penalties(24 CFR 30.35),or other administrative action against the Q
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City,its principals,or both for intentionally not reporting revenues
generated fiom its code compliance division as CDBG program income. w
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LOP
Finding 3: The City Did Not Adequately Support Its Procurement
Activities for CDBG-R Activities
The City used CDBG-R funds,procured professional services,and awarded contracts without
maintaining records to support its procurement activities. This condition occurred because the
City did not adequately monitor the Economic Development Agency and relied on the Agency to
maintain the records. As a result,it paid at least$951,548 to contractors without adequate
support to show whether the services.were performed at a reasonable cost.
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Contrary to 24 CFR 85.36(b)(2),the City did not maintain a contract =
administration system. It was unable to provide documentation showing that bids d
were received for services obtained for its CDBG-R activities totaling$951,548,
the entire amount of the grant received. Specifically,the funds were used to ¢
award contracts for handicap curbs$ ($451,548)and to Speicher Park?($500,000).
The City did not adequately monitor the Agency. It relied on the Agency to v i
maintain records but did not monitor the Agency to ensure that it did so. The =
Agency has since been dissolved,and the City is now directly responsible for Q
administering the program. Although the City established purchasing procedures, 0
they did not detail the requirement of maintaining records in accordance with o
HUD rules and regulations. Overall,the City paid$951,548 to two vendors for o
services without adequate support to ensure that services paid for were obtained at N
low and competitive costs and in accordance with HUD rules and regulations.
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At the March 27,2013, exit conference,the City provided additional procurement a
records for the two contracts. However,the procurement records were still
incomplete and did not demonstrate the reasonableness of the costs charged to the w
CDBG-R funds.
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The City violated HUD procurement requirements and paid$951,548 without
adequate support to ensure that services were obtained at a low and competitive
cost. This condition occurred because the City relied on the Agency to maintain
its procurement records. Although the payments were made to unrelated third-
party vendors, it was necessary for the City to demonstrate the reasonableness of
the costs charged to the CDBG-R fiords.
8 The scope of work included construction for the Americans with Disabilities Act ramps and sidewalks for various
locations citywide.
9 The scope of work included construction of a skate park,parking lot,basketball court,and community garden and
compliance with the Americans with Disabilities Act for all onsite park improvements.
14
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We recommend that the Director of HUD's Los Angeles Office of Community
Planning and Development require the City to
3A. Demonstrate the reasonableness of the CDBG-R funds($472,102)10 used
on the two contracts and require any unsupported or unreasonable amounts
to be repaid to the U.S. Treasury.
3B. Implement and follow procurement procedures and maintain records and
project files and ensure that they are kept in accordance with HUD rules E
and regulations.
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10 We recommend that the City demonstrate the reasonableness for the entire$951,548 used for the two contracts.
However,Nye already questioned$479,446 of this amount under recommendation 1C. To avoid double counting,we
listed the difference of$472,102 as the questioned costs for recommendation 3A.
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SCOPE AND METHODOLOGY
We performed our onsite audit work primarily at the City's office,located in San Bernardino,
CA,between July 2012 and February 2013. Our audit generally covered the period January 1,
2010,through June 30, 2012. We expanded our scope as necessary.
To accomplish our audit objective,we
• Reviewed applicable HUD regulations, including Public Law 111-5;Notice of Funding
Availability Docket No. FR-5309-N-01;24 CFR Pant 570; 24 CFR Part 85;2 CFR Part
225; Office of Management and Budget(OMB) Circular A-133; HUD Handbook— E
Playing by the Rules, Guide to National Objective and Eligible Activities for Entitlement
r
Communities; Office of Community Planning and Development Handbook 6509.2;HUD in
Guidebook—A Guidebook for Grantees on Subrecipient Oversight;HUD CDBG and
Recovery Act Facts,Answers,and Questions;HUD policy alerts and notices;and =
American Recovery and Reinvestment Act of 2009 and OMB Recovery Web sites.
• Reviewed the City's internal policies and procedures.
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• Interviewed the City's staff.
• Reviewed the City's accounting records,including general ledgers,invoices,and a
supporting documentation related to the disbursements selected for review. 0
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We selected a nonrepresentative sample of draws from our audit periods t with the highest N
expenditures and auditor judgment. The City expended$12.11 million and$951,548 in CDBG o
and CDBG-R funds fiom fiscal years ending June 30, 2009,to June 30,2012,respectively. Of =
that amount,we sampled$1.27 million in CDBG funds and$432,102 in CDBG-R funds during Q
the survey phase. In the audit phase,we focused on code enforcement expenditures($4.87
million), administrative costs ($1.4 million),program income, and sampled draws. For our X
procurement review,we selected the highest expenditures,which also happened to be funded w
under the Recovery Act. The only computer data system we relied on during the audit was the c
City's Go-Enforce system, which we used to determine whether code compliance properties E
were designated as CDBG. We confirmed examples to source documents to determine that the
information was reliable enough for audit purposes. Q
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient,appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objective.
Although our audit period started January 1,2010,there were instances in which we reviewed expenditures fiom
the fiscal year ending June 30,2010,because the City did not request these expenditures to be reimbursed until the
fiscal year ending June 30,2011.
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INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization's mission,
goals,and objectives with regard to
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
c
Internal controls comprise the plans,policies,methods,and procedures used to meet the
organization's mission, goals,and objectives. Internal controls include the processes and
procedures for planning, organizing,directing, and controlling program operations as well as the N
systems for measuring,reporting, and monitoring program performance. °
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We determined that the following internal controls were relevant to our audit M
objective:
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• Policies and procedures that management has implemented to ensure that Q
program funds are expended in accordance with HUD rules and
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regulations. M
• Policies,procedures, and controls that management has implemented to N
ensure that program income generated is reported to HUD in accordance °
with rules and regulations. x
a
We assessed the relevant controls identified above. B
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A deficiency in internal controls exists when the design or operation of a control w
does not allow management or employees,in the normal course of performing their
assigned functions,the reasonable opportunity to prevent,detect,or correct(1) E
impairments to effectiveness or efficiency of operations,(2)misstatements in c
financial or performance information,or(3)violations of laws and regulations on a a
timely basis.
Based on our review,we believe that the following items are significant deficiencies:
• The City lacked adequate controls over its CDBG and CDBG-R programs to
ensure that program fiends were expended in compliance with HUD rules and
regulations(see findings 1 and 3).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Ineligible l/ Unsupported 2/
number
IA $47,699 E
113 $6,637,341
1 C $479,446
2A $73,445
2B $95,316 x
3A $472,10212 C
Total $216,460 $7,588,889 Q
1/ Ineligible costs ate costs charged to a HUD-financed or HUD-insured program or
activity that the auditor believes are not allowable by law; contract; or Federal,
State, or local policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured
program or activity when we cannot determine eligibility at the time of the audit. o
Unsupported costs require the decision by HUD program officials. This decision, o
in addition to obtaining supporting documentation,might involve legal o
interpretation or clarification of departmental policies and procedures. _
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1211,finding 1(recommendation 1C),we determined$479,446 of the$951,548 in CDBG-R funds to be unsupported
costs. To avoid double counting,we listed the difference of$472,102 as the questioned costs for recommendation
3A.
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Appendix B
AUDITEE COMMENTS AND OIG'S EVALUATION
Ref to OIG Evaluation Auditee Comments
Monday,April 8,2013
c
Tanya E. Schulze E
Regional Inspector General for Audit °'
Office of Audit(Region 9)
611 West 6 1 Street,Suite 1160 0
Los Angeles,CA 90017 _
. a.
Dear Ms. Schulze,
Q
The City of San Bernardino (CSB) received the revised draft audit report and cover o
letter dated March 28, 2013. That letter requested formal conclusions and comments M
to be submitted by April 8, 2013. Upon receipt of the report, the city hired a
consultant with experience working with both the Department of Housing and Urban a
Development (HUD) and the Office of Inspector General (OIG) in Los Angeles, 3
a
Nance Redacted.' c9
O
The City of San Bernardino disputes the OIG findings that it has unsupported costs as c
Comment 1 set forth in Finding 1. The documentation is available, but needs to be compiled in a N
format which will satisfy the OIG that all funds were used appropriately to provide D
Code Enforcement for Community Development Block Grant (CDBG) properties. _
The City is requesting approval of the following allocation methodology to be applied Q
to verifiable, documented Code Enforcement Department costs to determine
legitimate,eligible expenses related to CDBG properties. k
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Methodology
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The OIG auditors utilized the City's"Go-Enforcement"system in a limited manner to
determine whether code compliance properties were designated as CDBG.However, w`°,
that system also contains information to support all enforcement actions for each Q
property which are relevant to the direct payroll allocation of staff members. The
Comment 2 City is proposing to provide additional data from Go Enforce to support the costs set
forth in Funding 1. Allocation calculations will be
`Name Redacted has a J.D,and a B.B.A.and is licensed in her home state as a member of the Wisconsin State Bar
and Department of Regulation and Licensing as a C.P.A. In California she provides business consulting and
accounting services.She dealt with the Department of HUD administering funds for over nine years as Chief Financial
Officer of a Los Angeles nonprofit and a consultant on a similar HUD/OIG audit for a San Bernardino nonprofit.
"Names redacted for privacy reasons
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clearly defined, are readily accessible, detailed as to person, date, time, and activity
and can be reproduced by auditors.
Payroll Allocation Methodology:
Inspection Staff
Go-Enforce reports can be structured by Inspector, by dates, to list all or specific
activities,by property,all or CDBG only.We will identify how many activities within
Comment 2 a monthly range each inspector had for CDBG properties divided by the number for
all properties visited within that period to determine the allocation percentage to apply
to the salary, taxes and fringe benefits. Other available time documentation includes
individual Inspector time "Tracking Forms"z manually prepared by inspectors daily
which identifies property locations visited, time there, and whether it was CDBG or
Non-CDBG. The methods overlap depending upon the utilization of the Go-Enforce d
for a specific period within the entire audit period. Where available, we will use the
Go-Enforce as the more accurate, inclusive and verifiable documentation to readily N
differentiate between the property locations for allocation purposes. Tracking forms
will be used for employees that are no longer working for the City. _
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Administrative Personnel in the Code Enforcement division: 0
Administrative personnel primarily spend their time on documentation for citations, Q
fees, penalties, notices of default, notices of hearing, hearings for liens, etc. This c
information is also available in Go-Enforce. Creating reports as the time period, the M
Go-Enforce system identifies activities, (Warrants, Hearings, Administration and
Notices)for CDBG properties divided by those same activities for all properties.That
percentage will be utilized to allocate Administrative Staff payroll expenses. a
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Supervisory Staff: O
For Administrative supervisory staff,the same allocation percentage calculated for the c
Administrative staff will be used. For Inspection Supervisory staff,the percentage of N
total CDBG activities per Go-Enforce will be divided by all similar actions instead of
being employee specific or averaging the staff percentage. _
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Payroll Allocation Exa»rple
November 2010 x
We arbitrarily chose an individual month to illustrate the allocation process. For w
November,2010, CSB allocated 100%of the payroll expenses for specific individuals
within the department. Instead, we propose to allocate all staff who work on CDBG E
Comment 2 properties based on the above allocation percentages. Staff assigned to Commercial
properties will be excluded. All others providing direct services (Inspectors) can be
allocated individually. Using the Go-Enforce method confirms that staff provided Q
services to CDBG properties in excess of the amount originally claimed for the
period.3
Z Sample of Daily Tracking Form is attached.
3 See attached example.
*Attachments available upon request
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Other Expenses:
Office (administrative) expenses will be allocated in the same manner as the
Comment 2 Administrative staff, i.e. Monthly Hearing Agenda percentage of CDBG cases,
including supplies,postage,printing,copier.
Occupancy:
Office occupancy expenses for .(utilities, insurance, repairs, cleaning) will be
calculated a little differently. The Code Enforcement Department also inspects
properties for Weed abatement. There are 800 such properties, inspected twice
annually. Accordingly;the occupancy allocation would be based on CDBG activities
divided by all the total of all G-Enforce activities plus 1600 weed abatement
inspections. c
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Fleet Expenses: ;
Fleet expenses, including vehicles, small tools and equipment, gas, maintenance, and N
insurance will be allocated in the same manner as the Inspection Supervisory Staff. o
x
Upon approval of the direct payroll costs reconciliation procedures and indirect cost a
Comment 3 methodology,the City requests that the OIG select sample periods to confirm that all
the documentation and information is available for reconciliation and allow sufficient a
time for the city to demonstrate same. Alternatively,specifically for the payroll,if the c
OIG requires recalculation for the entire period, CSB requests that the allocation be N
made by individual staff members on an annual,rather than monthly basis in order to
expedite the process.
The City requests that the final audit report be delayed until the above allocation
Comment 3 substantiation can be completed. Please contact Brandon Mims, Deputy Director of O
Housing,if you have any questions at(909)384-5122. r
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Allen Parker
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Appendix C
CRITERIA
24 CFR 570.200, General policies
24 CFR 570.200(a)(2), Compliance with national objectives. Grant recipients under the
Entitlement and HUD-administered under the Entitlement and HUD-administered Small Cities
programs must certify that their projected use of funds has been developed as to give maximum
feasible priority to activities which will carry out one of the national objectives of benefit to low
and moderate income families or aid in the prevention or elimination of slums or blight. £
d
24 CFR 570.200(a)(5), Cost Principles. Costs incurred,whether charged on a direct or an cn
indirect basis,must be in conformance with OMB Circulars A-87, "Cost Principles for State, �
Local and Indian Tribal Governments." _
c.
d
24 CFR 570.206,Program administrative costs. Payment of reasonable administrative costs at
and carrying charges related to the planning and execution of community development activities
assisted in whole or in part with funds provided this part and,where applicable,housing N
activities (described in paragraph(g)of this section)covered in the recipients housing assistance
plan. This does not include staff and overhead costs directly related to carrying out activities
eligible under section 570.201 through 570.204,since those costs are eligible as pant of such Q
activities. c�
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24 CFR 570.206(a)(1), General management, oversight and coordination. Reasonable costs of o
overall program management, coordination,monitoring, and evaluation. Such costs include,but c
are not necessarily limited to,necessary expenditures for the following: Salaries,wages, and
x
related costs of the recipient's staff,the staff of local public agencies,or other staff engaged in
program administration. In charging costs to this category the recipient may either include the a
entire salary,wages,and related costs allocable to the program of each person whose primal-J,
responsibilities with regard to the program involve program administration assignments,or the w
pro rata share of the salary, wages,and related costs of each person whose job includes any
program administration assignments...
24 CFR 570.207,Ineligible activities r
Q
24 CFR Part 570.207(a)(2), General government expenses. Except as otherwise specifically
authorized in this subpart or under OMB Circular A-87,expenses required to carry out the
regular responsibilities of the unit of general local government are not eligible for assistance
under this part.
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24 CFR 570.427,Program amendments
24 CFR 570.427(a),HUD approval of certain program arnendrnents. Grantees shall request
prior HUD approval for all program amendments involving new activities or alteration of
existing activities that will significantly change the scope,location, or objectives of the approved
activities or beneficiaries.
24 CFR 570.501,Responsibility for grant administration
24 CFR 570.501(b). The recipient is responsible for ensuring that CDBG funds are used in
accordance with all program requirements. The use of designated public agencies,subrecipients,
or contractors does not relieve the recipient of this responsibility. The recipient is also
responsible for determining the adequacy of performance under subrecipient agreements and d
procurement contracts,and for taking appropriate action when performance problems arise, such
as the actions described in section 570.910. CO
0
24 CFR 570.502,Applicability of uniform administrative requirements a
d
24 CFR 570.502(a). Recipients and subrecipients that are governmental entities(including a
public agencies) shall comply with the requirements and standards of OMB Circular No. A-87, o
"Cost Principles for State,Local,and Indian Tribal Governments." _ ti
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24 CFR 570.506,Records to be maintained. Each recipient shall establish and maintain
sufficient records to enable the [HUD] Secretary to determine whether the recipient has met the a
requirements of this part. �?
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24 CFR 570.905,Review of continuing capacity to carry out CDBG funded activities in a N
timely manner. If HUD determines that the recipient has not carried out its CDBG activities o
and certifications in accordance with the requirements and criteria described in section 570.901 z
or 570.902,HUD will undertake a further review to determine whether or not the recipient has q
continuing capacity to carry out its activities in a timely manner. In making the determinations,
the Department will consider the nature and extent of the recipient's performance deficiencies, x
types of corrective actions the recipient has undertaken and the success or likely success of such w
actions. c
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2 CFR Part 225,appendix A,paragraph C.3.d,states,"Where an accumulation of indirect
costs will ultimately result in charges to a Federal award, a cost allocation plan will be required
as described in Appendices C, D,and E to this part." According to Appendix E, State and Local
Indirect Cost Rate Proposals,paragraph(13)(2),"...'Indirect cost rate' is a device for
determining in a reasonable manner the proportion of indirect costs each program should bear. It
is the ratio(expressed as a percentage)of the indirect costs to a direct cost base." Further,
paragraph (3)(1)(a)of appendix states,"All department or agencies of the governmental unit
desiring to claim indirect costs under Federal awards must prepare an indirect cost rate proposal
and related document to support those costs." In addition,paragraph(D)(2)(a) specifies,
"Documentation of proposals. The following shall be included with each indirect cost proposal:
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The rates proposed,including subsidiary work sheets and other relevant data,cross referenced
and reconciled to the financial data..."
2 CFR 225,Appendix A,paragraph C.3.c.Any cost allocable to a particular Federal award or
cost objective under the principles provided for in 2 CFR pant 225 may not be charged to other
Federal awards to overcome fund deficiencies,to avoid restrictions imposed by law or terms of
the Federal awards, or for other reasons.
24 CFR Part 570
24 CFR 570.500(a). Program income means gross income received by the recipient or a
subrecipient directly generated from the use of CDBG funds, except as provided in paragraph d
(a)(4)of this section. E
24 CFR 570.500(a)(1)(x). Funds collected through special assessments made against properties
owned and occupied by households not of low and moderate income, where the assessments are D
I used to recover all or part of the CDBG portion of a public improvement. _
o.
• a�
24 CFR 570.503(b)(3),Prograin income. The agreement shall include the program income a
requirements set forth in § 570.504(c). The agreement shall also specify that,at the end of the o
program year,the grantee may require remittance of all or part of any program income balances ti
(including investments thereof held by the subrecipient(except those needed for immediate cash
I needs, cash balances of a revolving loan fund,cash balances from a lump sum drawdown, or
I cash or investments held for section 108 security needs). Q
24 CFR 570.504(a),Recording program income. The receipt and expenditure of program
income as defined in § 570.500(a)shall be recorded as part of the financial transactions of the N
grant program. o
(b)Disposition ofprograin income received by recipients. _
(1)Program income received before grant closeout may be retained by the recipient if the Q
income is treated as additional CDBG funds subject to all applicable requirements
governing the use of CDBG Rinds.
(2) If the recipient chooses to retain program income,that program income shall be W
disposed of as follows: c
(i)Program income in the form of repayments to, or interest earned on, a revolving fund
as defined in section 570.500(b)shall be substantially disbursed from the funds before
additional cash withdrawals are made from the U.S.Treasury for the same activity. a
(ii) Substantially all other program income shall be disbursed for eligible activities before
additional cash withdrawals are made from the U.S. Treasury.
(iii)At the end of each program year,the aggregate amount of program income cash
balances and any investment thereof(except those needed for immediate cash needs, cash
balances of a revolving loan fund, cash balances fiom a lump-sum drawdown, or cash or
investments held for section 108 loan guarantee security needs)that,as of the last day of
the program year,exceeds one-twelfth of the most recent grant made pursuant to section
570.304 shall be remitted to HUD as soon as practicable thereafter,to be placed in the
recipient's line of credit.
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24 CFR 570.504(b)(3). Program income on hand at the time of closeout shall continue to be
subject to the eligibility requirements in subpart C and all other applicable provisions of this part
until it is expended.
24 CFR 85.25(4) Governmental revenues. Taxes,special assessments, levies,fines,and other
such revenues raised by a grantee or subgrantee are not program income unless the revenues are
specifically identified in the grant agreement or Federal agency regulations as program income..
i
24 CFR 85.36(b),Procurement standards
(1) Grantees and subgrantees will use their own procurement procedures which reflect applicable d
State and local laws and regulations,provided that the procurements conform to applicable w
Federal law and the standards identified in this section. Y
(2)Grantees and subgrantees will maintain a contract administration system which ensures that cn
contractors perform in accordance with the terms, conditions,and specifications of their
contracts or purchase orders. _
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8.B.b
Appendix D
SUMMARY OF QUESTIONED COSTS
Code enforcement expenditures, administrative costs,sample draws 13
n q IIk�y��ajLSppL�p.1 J-��.?rr" 1 ar`p �` K�sF �,•'c r��?��'- i' ���y„ '`�r V y t� 1 r'"c. d r^&-�.^ l^,
l i�F+^4Y�''i'^XYf'.yM��ST���i���t ly� Mf 1 1 4 ."rl l !^?, ✓ ��'YY A =M,�- 1�.....2T�`x� ���I 'S P�
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Unsuppor ted amount Ineli ible flinount-
-FYE FYE
FYE'k FYE FYE Jane TX June
Jute 30, June 30, June 30, 30, luie 30, 30, a�Ei
Description 2010 2011 2012 Total 2010 2 011 >2012 Totaf;.
CD
Salaries&benefits $1,183,855 $1,641,609 $1,070,000 $3,895,464Y:-':.tJa n/a :iiJfl. : $0`
Supplies $4,439 $36,447 $40,886
D
Tools&equipment $686 $686 tV n/a n/a' `
o; C.
Printing $1,907 1 $417 $2,324 $0.`
Postage $12,350 $12,350 n/a $0 Q
Copy machine&copier $1,057 $3,320 $4,378
A/tt Ala
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Other operating expenses $651 $651
Garage $5,750 $5,750 trla
IT**charges in house $5,000 $217,024 $222,024 ::'. ii'Na n/a iv-
a
C7
Telephone $2,500 $101,640 $104,140 '=.:::;ii7a n/a tt/a ` S0 O
M
Communications $2,475 $2,475 . : :Na` o
Fleet&fuel $7,400 $30,073 $37,473 ``..`;, it/a i>/a n/a SO `V
Worker's compensation $179,872 $179,872 n/a t>la Iva $0' _
Liability charges $262,108 $262,108 tUa t>la
Membership dues $2,175 $2,175 n/a n/a nla- $0
Medical supplies $591 $591 n/a nla Ja $0
X
Contract services,county w
assessor,medical
supplies,county auditor;
lock services,
.c
government outreach, L)
co
county clerk,etc. $41,609 $41,609 tr/a S1,850 rile $1,850 Q
20%of expense items $32,746 $32,746 n/t n/a
Subtotal code
enforcement
extenditures $1,228,070 $2,549,632 $1,070,000 $4,847,702 $0 $1,850 :. $0 $1,850`
13 The schedule is a summary of the questioned costs identified during the audit. We provided a detailed itemized
listing of questioned costs with the audit report to the City and to HUD.
28
Packet Pg. 567
B.B.b
MR. �[.. � N L .airy ru •% ,a ^-Y r'�i,'., x,., �✓�A'( a ;,.., 'ter' y„�,K ✓r'uy -..u�o--i K,,ays y '. {'.
i1fillilS ' IRIST - .
{ < /s.1 �"
Unsu ported amount Ineti ible.alnount
FYE FYE FYE FX F1'E June
June 30, June 30, June 30, Jiiiie30; : Julie 30, 30;,
Description 2010 2011 2012 Total 2010 2011:'- : <`2012 :' Totet;::
Administrative costs $120,000 $764,299 $442,520 $I,326,819 n/a $1:4;OO.I`. '.`..'ii/a' $14,001`
Subtotal
administrative costs $120,006 $764,299 $442,520 $1,326,819 0 $14,001 0: $14,001.
c
r• j t f T^J. -
} i�3+cd YJt �YUf.Y�. 'd•�f C.vSJ",jTir1 fti iaG"'��fi`t Y'^`n •T.I� 4� "`i i fR',»JlY
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d
Description Unsupported amount Total Ineh ib..e.Aniauzit: Total.: .
cn
Legal Aid Society $1,265 $1,265 $0
Frazee $1,722 $1,722
Q)
Children's Fund $2,500 $2,500 ti/aU c
U
Al-Shifa Clinic $3,052 $3,052 iila $0
St.John's Community $1,250 $1,250 c°�
ti
Youth Action Project $1,416 $1,416
Inland AIDS Project $1,076 $1,076 n/a $0
Community
Development Q
0
Department,City of O
San Bernardino $100,000 $100,000 u/a $O:r M
Senior Services e
Program $81,313 $81,313 nla0.: N
CAL Tlieatre Phase II $28,102 $28,102
Inland Fair Housing $48,785 $48,785 nla $0' Q
Eastside Skate Park at
Speicher Park ADA
Improvement
CDBG-R $379,807 $379,807 nLa0 w
Sun Trust Leasing, r
Inc. $192,339 $192,339
Handicap curbs and
ramps(CDBG-R $99,639 $99,639 Lila $0.: ;n
Subtotal sample " Q
draws $942,266 $942,266 $0 S0
r a�Z i v3 a
�r �.. y-
'�.,r�i � ,,"..�.,'��a"'��.,�r ✓.u�t Kab .r.,��� 4:+u„ '�� f+4}s,€��'_�U t,.•t �..c'�S�jf��5r��''a�t���'' .rr,Ti��..���' z_ rte,,.�a
Description Unsupported amount Total Ineligible:amount' Total
Additional funding for
Legal Aid Society
$20,000) ii/a $0 $20,000 $20,000':
29
Packet Pg. 568
8
Overdrew for FYE
June 30,2011.
Drew$2,581,509
when expenditures
totaled only
$2,571,506 n/a 1,.:.003;;`: :.'.:t°:;:>:. ':':: :' ': 100
Overdrew for May
2011. The City added
incorrectly,and
records revealed only !
$122,040,not
$123,885 cr/a $Q
Subtotal other $0 $0 $31;8 $ X31,848.`
c
Total unsupported(code Total ineligible(code E
enforcement,administrative, enforcement,administrative, m
sample draws,and other sample draws,and other
Totals uestioned costs $7,116,787 uestioned costs $47,699 CO
0
*FYE=fiscal year ending x
*IT=information technology C
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30
Packet Pg.569
i
o°`'PS°`"'°F,a U.S.Department of Housing and Urban Development
* Los Angeles Area Office,PacificlHawali
611 West Sixth Street
,+tN DEYt-,O
Los Angeles,California GOO
AR-4 9 20-
Allen Parker,City Manager
City of San Bernardino
201 North`EE"Street, Suite 301
San Bernardino,CA 92401-1507
0
Dear Mr.Parker: D
o.
SUBJECT: Office of the Inspector General(OIG)Audit Report Number 2013-LA-1004
Community Development Block Grant(CDBG)Program Q
Resolution Action for Findings 113 and 1C-Findings 2A and 2B o
N
r•
During our meeting with the City of San Bernardino on November 12,2014,we
agreed on actions to be taken to resolve all of the OIG Audit monetary findings on the City's w
CDBG program. This letter is to memorialize the actions that were agreed upon between the
City and the Department. o
FINDINGS 113 and 1C N
The sum total of-questioned costs for Findings 1B and 1C totaled$7,116,786.
Documentation to support$5,221,304 of these challenged costs was provided to HUD for Q
review and was found to be sufficient and acceptable. Based our review,an amount of
$1,895,482(out of the original$7,116,786 amount)will be required to be paid back to the =
City's line of credit with non-federal funds. Please note that the City will be able to utilize m
these funds for fixture CDBG-eligible activities. -.
IUD has agreed to the City a three-year(3)repayment schedule to satisfy this w
finding. We have agreed to a multi-year repayment schedule due to the financial hardships
the City is experiencing. The time-frame and repayment amounts are as presented below: E
July 1,2015 $500,000 .2
July 1,2016 $500,000 Q
July 1,2017 $895,482
Total $1,895,482
The City must provide a copy of a City Council resolution agreeing to the repayment
term outlined above. Please note that failure to comply with this agreement will result In
funds being reduced from the City's CDBG line of credit,
Packet Pg. 570
• 8.B.c
FINDINGS 2A and 213
The resolution of this finding was not covered during the November 12,2014
meeting;however,we have been informed by the City that it would be fully addressed in the
very near future. The City's Audit findings are significantly past the resolution period
provided by OIG.
The City's former redevelopment agency received$168,761 in program income that
was not receipted and utilized for eligible CDBG activities. The City has acknowledged this
liability and its intention to reimburse its CDBG line of credit with non-federal funds. At this
date,repayment of$168,761 would relieve the City from having to further investigate and E
document this issue, Given that the City has agreed to this figure,any fiirther efforts by the
City would not be constructive. N
0
Please reimburse your CDBG line of credit in the amount of$168,761 with non-
CL
federal funds in order to clear OIG finding sections 2A and 2B.
U
a
We want to recognize the efforts of you and your staff and consultants to greatly
CD
reduce the City's overall liability. The actions taken by the City sliould improve the
oversight and effectiveness of the CDBG program,
a�
i+
Please provide a copy of the City Council resolution and documentation of the J
repayment of the CDBG program income no later than February 13,2015. Should you have o
any questions,please contact Chin Woo Choi,Program Manager,or myself at(213)534-
2571 and (213)534-2555,respectively. o
o:
Very Sincerely, o
. � m
r
William G.Vasquez,Director
Office of Community Planning w
and Development w
d
E
• s
w
Q
Packet Pg. 571
Entered into Rec. at MCC Mtg. `� 1/1,57
i
2/17/2015
by'
Agenda ttem No:
by:
City Clerk
C
�Ly%o ar
ggrnrlinn
MCC Meeting— February 17
Item 8b
Resolution of the Mayor and Common Council of the
City of San Bernardino Authorizing the City Manager
to Resolve the Findings of the Housing and Urban
Development (HUD) Department Audit of the City's
Community Development Block Grant (CDBG)
Program.(#3720)
Background
• During the Spring of 2013 the Office of
Inspector General audited the City's CDBG and
CDBG-R programs for three fiscal years:
—June 30,2010
—June 30,2011
—June 30,2012
• $11,690,503 of Federal Fundding
Auditors' Findings
• Auditors Findings:
1. City did not have support for approximately$7
million dollars
2. City did not report program income for some
activities
3. City did not adequately support its procurement
activities for CDBG-R
1
2/17/2015
Staff Response
• Support documents for various transactions
was not available during the audit,however,
funds were spent in eligible areas.
• Program Income was not reported correctly
during the audit period.
• The procurement documents for CDBG-R were
not available during the time of the audit
Audit Result
• City staff was directed to work directly with
HUD Los Angeles Office to support as much of
questioned and/or unsupported costs.
• Since April 2013 staff has been working with
HUD LA to resolve audit findings.
• Staff has been successful in reducing the audit
finding amount to$1,895,482,about 76%less
than the original finding.
Tonight's Action
• Tonight's Resolution: -
-Authorizes the City Manager to settle the audit
–Authorizes a payment of$168,761 from the
current fiscal year
—Authorizes future payments of$500,000 on July 1,
2015,$500,000 on July 16,2016 and$895,482 on
July 1,2017 —
2
2/17/2015
Questions
3
2/17/2015
MCC Meeting— February 17
Item 8c
Resolution of the Mayor and Common Council of the City of 5an Bernardino
Rescinding Resolution Number 2014-382 and Authorizing the City Manager to
Enter into a C.—I with Mercy House LWing Centers for the Operation of the
Service Access Center,Appropriating and Allocating$200,000 of Emergency
5olutions Grant Funding; and Designating City-Owned Property Within
5eccombe Lake(Butler Building)for Use as the Central Drop-In/Service Access
Center.(N3118)
Background
• Council approved the Homeless Intervention Action
Plan(HIAP). Section 6 of that policy document
directed the release of a Request for
Qualifications/Proposal(RFQ/RFP)for a"centralized
service access center."
• The HIAP also identified$200,000 of Emergency
Solutions Grant(ESG)funds to finance the
centralized service access center.
• An RFP was circulated between August 18 and
September 11,2014
Background
• Council authorized the City Manager to negotiate a
contract between Mercy House and the City on
November 3,2014
• Council also designated the site at 241 West 9th
Street(Easter Seals Building)as the proposed site of
the new access center.
1
2/17/2015
Statement of the Issue
• Staff is before Council tonight to finalize the following
issues related to the development of the access
center:
—Approval to enter into the attached ESG agreement for the
services outlined in Exhibit B.
—Approval to change the location of the access center
Approval to Enter Into Contract
• Resolution 2014-382(as prepared)did not
authorize the City Manager to enter into an
agreement.
Butler Building
• 247 East 7th Street(Inside Seccombe Lake)
• Metal frame building currently being co-
occupied by Urban Conservation Corp and San
Bernardino NOW.
• Fewer public safety concerns, low impact on
economic development and lower
rehabilitation costs.
2
i
2/17/2015
Butler Building
• The renovation costs at the Easter Seals'
building are prohibitively high,approximately
$500,000
• Proposed new locations were evaluated by
staff for accessibility to Downtown,impact on
economic development,public safety,
rehabilitation costs and timeliness.
T
'ye
3
2/17/2015
Public Safety Concerns
• Police Chief Jarrod Burguan
Structural/Rehabilitation
• Mark Persico and Tony Frossard
Impact to the Park
• Mickey Valdivia
4
2/17/2015
Questions
5
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