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HomeMy WebLinkAbout07.0-Public Comment TIME FOR CHANGE F O U N D-- A T I O N 10 -20 - 14 TIME FOR CHANGE FOUNDATION INVESTIGATIVE FINDINGS 10-20-14 Code of Federal Regulation 24 CFR § 85.36, which is the procedure in place for the competitive bid process, and in particular section (d)(3)(iv) states: "awards will be made to the responsible firm whose proposal is most advantageous to the program, with price and other factors considered" OMB-A133 Audits The City Council know has not engaged in a Single Audit Report on Federal Awards in 2 years (the OMB-A133 is required annually). The last audit, year ending June 30, 2012, revealed: • Material weaknesses identified in Financial Statements and Federal Awards (p. 16) • Instances of noncompliance with reporting requirements under the Government Auditing Standards (p. 16) • One of the major programs identified with the City being a high risk auditee HOME Investment Partnership program (p. 17) • The City did not develop a Corrective Action Plan until two years after the audit (June 16, 2014) (page 41) htt ://www.sbcount ov/atc/DBMFiles/2012%2OCount %2OoP/o2OSan%2OBema rdino%20Single%20Audit%20Report 50433892114.pdf Office of Inspector General, U.S. Dept. of HUD Audit The City was audited by Office of the Inspector General in April, 2013 and the OIG found the City of San Bernardino did not administer its Community Development Block Grant and Community Development Block Grant-Recovery Act Programs in accordance with HUD Rules and Regulations. http://www.hudoig.gov/reporto s-publications/audit-reports/city-of-san-bernardino- ca-did-not-administer-its-community 1 «(:GVAS,AND[.FISCJN,MP.V)W &SC,UTT,1kx' C:.CUKV\V-\V-U PuE111C.kfz.cc4ut4jAN7S,`o1NC 1 148 735 E.Carnegie Ur. Suite 100 San Bernardino.CA 92408 909 889 0871 T 909 889 5361 'r rarnscpa.r1et PARTNERS Brenda f__Chile.CpA,MST Kirk a. ,,t•..,.,CPA INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE Kirk A.#"rinks CPA MIttr,ewd WtlsOn,C:PA MSA.CGMA WITH REQUIREMENTS THAT COULD HAVE ADIRECT SCOU,W M"'t`',CPA.CGMA AND MATERIAL EFFECT ON EACH MAJOR PROGRAM I..t'fsrt.,Shanbef. CPA,h15T.C:C'MA AND ON INTERNAL CONTROL OVER COMPLIANCE IN '¢Y}q 7r�r<1tcr.CPA{par•attr lr ru:cusi Phillip H W;111t�r.CPA Erne.ntct. ACCORDANCE WITH OMB CIRCULAR A-133 MANAGERS;'STAPF kS,Adffi,.d A Wrrielm%C:pA.MAA TO the Ma JO MY U0.CPA,MST yor and City Council Members }',(» Mater Thkaw,CPA.MBA City of San Bernardino, California Maye S 1v;1110va_CPA,M8A Stoatg HYx.a 1.ee.C"PA,M, 8A Charles f.)e Sin;Oni,Cprk Compliance y i,ul.t7 F dllp.CPA Daniei'V Turner,(-PA,MSA We have audited the City of San Bernardino, California's G),vrd 17,Hcnw00d.CPA Compliance With the J sth i `irathtr, CPA,MDA the City) i3,rgtr Barrtr C 'r7 OMB Circular A-133tCompl Compliance Supplement)that couldehave a d the r�(,rt,P PA and material effect on each of the City's major federal programs f have a direct R`>"„'r".`::'A year ended June 30, 2012. The City's Ivan,C anzalcs.CPA,MSA Y major federal programs r are identified in the summary of auditor's results section of the schedule of findings and questioned costs, Corn li accompanying requirements of laws, regulations, contracts and grants applicable to ance with the each of its major federal programs is the responsibility of the citys management. Our responsibility is to ex res compliance based on our audit, p s an opinion on the City's We conducted our audit of compliance in standards generally accepted in the United accordance with auditing standards applicable to financial audits contained Sates of Standards, issued b America; the OMB y the Comptroller General of the United States;and r ' N t tt�,,,r Profit Organization of Audits of States, Local Government � and PUN-(:A_apt, t.,,,ts Those standards and p � and Non- that we plan and perform the audit to obtain reasonable Circular A-133 re >•r,s S rs,n aicra n,tt,,,nr,> whether quire "of CN Fvfnns noncompliance with the types onable assurance about referred to above that could have a d ect of nmer,t"I Aud,, compliance f�uwgl f--en"d,r that program occurred. requirements evidence An audit includesn examipin i effect on a n,.,5tr;etY of about the major < f,p`I „I h< A-rt7tin4,,,t5 performin City s compliance with 9. an a test basis circumstances,,erfor in such other procedures those re We believe that our as we considered necessaents and our opinion, Our audit does not audit provides y in the compliance with those d provide a le a reasonable basis for requirements. gal determination of the City's STAPII..ITY. -tCC(JRACY. TRUsr -5- Internal Control Over Compliance (continued) A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items 2012-12 and 2012-13 to be significant deficiencies. The City's responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned n the costs. W sedsid not audit the City's responses and, accordingly, we express no opinions Schedule of Expenditures of Federal Awards We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended June 30,opinions onntthose financial statementsthOur°audi ted June performed which contained qualified med for the purpose of forming opinions on the financial statements as a whole. The report on the City's financial statements was qualified because management has not adopted a methodology for reviewing the valuation of property held for resale in the major governmental funds and the Successor Agency to the City of San Bernardino Economic Development Agency (Successor Agency) fiduciary order to is determine r at acquisition net i ioli cble value of the property, and, accordingly, property held for resale plus improvement costs. Accounting principles generally accepted in the United States of America require that the carrying amount of property held for resale, or development and sale, should not exceed net realizable value. We were unable to obtain sufficient appropriate audit evidence about the valuation of property held for resale by other auditing procedures. The amount by which this departure d°the affect assets,e fiduciary unetbalances,asets and educttions expenditures of the major governmental funds, Successor Agency is not reasonably determinable. The report on the City's financial statements was also qualified because management has not adopted and implemented a methodology for reviewing the collectability of notes receivable in the major governmental funds and the Successor Agency fiduciary fund, and, accordingly, has not considered the need to provide an allowance for uncollectible amounts. Accounting principles generally accepted in the United States of America require that an adequate allowance be provided for uncollectible receivables. We were unable to obtain sufficient appropriate audit evidence about the valuation of notes receivable by other auditing procedures. The amount by which this al funds would he affect ssets, fiduciary f net balances, and deductions expenditures of the Successor governmental fund , Agency is not reasonably determinable. -7- 7 OFFICE OF REGION LOS ANGELES, CA OFFICE of INSPECTOR ENERAL UNITED STATES DEPARTMENT O HOUSING AND URBAN DEVELOPMENT The City of San Bernardino, CA Community Development Block Grant Formula Allocation and Recovery Act Programs 0- APRIL23, 2013 i_ April 23, 2013 ,NSPECTOR GENERAL The City of San Bernardino, CA,Did Not Administer Its 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 hat«e Audited and Why _ -. V�j City We reviewed the City of San The did not operate in accordance with HUD rules Bernardino's Community Development and regulations. It used$47,699 in CDBG funds for Block Grant(CDBG) and CDBG- ineligible expenditures and lacked supporting Recovery Act(CDBG-R) programs documentation for more than $7.1 million. The City 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 (HUD) Los Angeles Office of for the $951,548 in Recovery Act funds it received. Community Planning and Development expressed concerns about the City's administration of its CDBG program. Our objective was to determine whether the City administered its CDBG and CDBG-R program funds in accordance with applicable HUD requirements. We recommend the Director of HUD's Los Angeles Office of Community Planning and Development require the City to (1)repay$47,699 in ineligible expenses from non-Federal sources, (2) support more than$7.1 million in expenses or repay the program, (3) remit$168,761 in unreported program income, and (4) demonstrate the reasonableness of$951,548 in Recovery Act funds 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. 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. The City was awarded the following Community Development Block Grant(CDBG) and CDBG-Recovery Act (CDBG-R) funds: Fiscal year CDBG CTotal 7]] Jul 1, 2009,to June 30, 2010 $3,602,903 $4,554,451 Jul 1, 2010,to June 30, 2011 $3,891,483 $3,891,483 Jul 1, 2011, to June 30, 2012 $3,244,569 $3,244,569 $11,690,503 The City filed an emergency petition for Chapter 9 bankruptcy on August 1, 2012. It will continue to operate and provide essential services to its community while working through its financial problems under the protection of the Chapter 9 bankruptcy code. The City had been using its Economic Development Agency to administer its CDBG and CDBG-R funds. 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 agency to the Economic Development Agency. As such, the City is now directly responsible for administering the program funds. 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 enforcement program and that its reimbursement system was inadequate to identify the funding 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. 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 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 have adequate procedures and lacked the capacity to monitor the program to ensure that HUD regulations were followed. As a result, more than $7.16 million in program funds was not available for decent, affordable housing and other services principally for low- and moderate- income persons. i I� The City spent$47,699 for ineligible expenses (see appendix D). The ineligible expenses included • $13,698 for services for ineligible properties, overdraws on program funds, etc.; • $14,001 in general government expenses; and • $20,000 in additional funding for its subrecipient to overcome another Federal agency fund deficiency. Ineligible Code Enforcement Expenditures Totaled $13,698 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. 5 I�P • $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 ($179,872), liability charges ($262,108), and telephone expenses ($101,640)with no records to support the amount attributed to the CDBG program. Further, the City was inconsistent in charging expenses to the CDBG program. For example, in 2009, it determined that$115,991 in disallowed expenses should not be reimbursed with CDBG funds. However, in 2010, it retroactively charged 20 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 percentages fluctuated for each expense charged to the program, and City staff could not explain the amounts charged. Unsupported Administrative Costs 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 allocation plan as required by 2CFR Part 225, appendix A, paragraph C.3.d (see appendix C) and used an allocation method based, for the most part, on estimates 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 result,we determined more than $1.3 million in administrative costs to be unsupported. Unsupported Sample Draws 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 vouchers submitted were not adequately documented. Specifically, these 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 '`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. 7 1D. 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. 1E. 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. 9 "a, 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 part 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: 1. Neighborhood Rehabilitation Program Income 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, 2012; however, the City reported that its loan program generated only $176,716. Additionally, the City incorrectly reported program income generated from its revolving loans for those years. • For the fiscal year ending June 30, 2010, $430 in income was reported to HUD over the actual program income generated for that year. According to the City,the difference was attributable to the understatement of income to HUD for the fiscal year ending June 30, 2009. • For the fiscal year ending June 30, 2011, the City reported$104,848 in program income, an overstatement of$1,000. The City stated that the overreporting of income was due to a clerical error. • 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. 2. Demolition Program Income The City expended$109,467 in CDBG funds for demolition costs and recuperated those funds by either direct payment from the owners of the 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 demolitions as CDBG program income in a specified general ledger. Instead, 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 "The applicable amount for the fiscal year ending June 30,2012,was$74,445. However,since the City overreported its program income for the prior year by$1,000,we netted the amount to$73,445 ($74,445-$1,000). 5$182,031-$103,436=$78,595 11 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. We recommend that the Director of HUD's Los Angeles Office of Community Planning and Development require the City to 2A. Remit to its CDBG program from non-Federal funds the $73,445 in program income that it received for the repayment of revolving loans. 2B. Remit to its CDBG program from non-Federal funds the $95,316 in program income that it received for its demolition activities. 2C. Establish and implement additional procedures and controls to ensure that program income is recorded, reported, and expended in accordance with HUD rules and requirements. We recommend that HUD's Associate Counsel for Program Enforcement 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 City, its principals, or both for intentionally not reporting revenues generated from its code compliance division as CDBG program income. 13 �Y 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 and regulations. to We recommend that the City demonstrate the reasonableness for the entire$951,548 used for the two contracts. However,we already questioned$479,446 of this amount under recommendation 1 C. To avoid double counting,we listed the difference of$472,102 as the questioned costs for recommendation 3A. 15 �Cf i 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. 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 systems for measuring, reporting, and monitoring program performance. We determined that the following internal controls were relevant to our audit objective: • Policies and procedures that management has implemented to ensure that program funds are expended in accordance with HUD rules and regulations. • Policies,procedures, and controls that management has implemented to ensure that program income generated is reported to HUD in accordance with rules and regulations. We assessed the relevant controls identified above. A deficiency in internal controls exists when the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,the reasonable opportunity to prevent, detect,or correct(1) impairments to effectiveness or efficiency of operations, (2)misstatements in financial or performance information, or(3)violations of laws and regulations on a timely basis. Significant Deficiencies 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 funds were expended in compliance with HUD rules and regulations (see findings 1 and 3). 17 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Ineligible 1/ Unsupported 2/ number IA $47,699 1B $6,637,341 1 C $479,446 2A $73,445 2B $95,316 3A $472,1021 z Total $216,460 $7,588,889 1/ Ineligible costs are 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. Unsupported costs require the decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve legal interpretation or clarification of departmental policies and procedures. 12 In finding 1 (recommendation IQ,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. 19 a 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 Formssz 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 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 differentiate between the property locations for allocation purposes. Tracking forms will be used for employees that are no longer working for the City. Administrative Personnel in the Code Enforcement division: Administrative personnel primarily spend their time on documentation for citations, fees, penalties, notices of default, notices of hearing, hearings for liens, etc. This information is also available in Go-Enforce. Creating reports as the time period, the 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. Supervisory Staff: For Administrative supervisory staff,the same allocation percentage calculated for the Administrative staff will be used. For Inspection Supervisory staff, the percentage of total CDBG activities per Go-Enforce will be divided by all similar actions instead of being employee specific or averaging the staff percentage. Payroll Allocation Example November 2010 We arbitrarily chose an individual month to illustrate the allocation process. For 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 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 services to CDBG properties in excess of the amount originally claimed for the period.3 '`Sample of Daily Tracking Form is attached. 3 See attached example. *Attachments available upon request 21 1 OIG Evaluation of Auditee Comments Comment 1 The City disputes the unsupported costs; however, it has not provided the documentation to support the amounts in question. The City was provided with ample opportunity to produce documentation during the course of the audit. The City will be able to work with HUD to address the implementation of an acceptable allocation methodology as part of the audit resolution process for recommendation 1D. Comment 2 The OIG gave the City several opportunities to provide the records during the course of the"audit. The City will have further opportunity to provide applicable supporting documentation to HUD as part of the audit resolution process for recommendations 1 B and IC. Comment 3 The OIG gave the City sufficient opportunity to provide the supporting records in question costs during the course of our audit, from July 2012 through February 2013. As a result,we are not giving an extension to the City. The City can work with HUD to resolve the questioned costs as part of the audit resolution process. 23 it V 24 CFR 570.427, Program amendments 24 CFR 570.427(a),HUD approval of certain program amendments. 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 procurement contracts, and for taking appropriate action when performance problems arise, such as the actions described in section 570.910. 24 CFR 570.502,Applicability of uniform administrative requirements 24 CFR 570.502(a). Recipients and subrecipients that are governmental entities (including public agencies) shall comply with the requirements and standards of OMB Circular No. A-87, "Cost Principles for State, Local, and Indian Tribal Governments." 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 requirements of this part. 24 CFR 570.905,Review of continuing capacity to carry out CDBG funded activities in a timely manner. If HUD determines that the recipient has not carried out its CDBG activities and certifications in accordance with the requirements and criteria described in section 570.901 or 570.902, HUD will undertake a further review to determine whether or not the recipient has 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, types of corrective actions the recipient has undertaken and the success or likely success of such actions. 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 (B)(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 (D)(1)(a) of appendix E 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: 25 tf 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(d) 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. 24 CFR 85.36(b), Procurement standards (1) Grantees and subgrantees will use their own procurement procedures which reflect applicable State and local laws and regulations,provided that the procurements conform to applicable Federal law and the standards identified in this section. (2) Grantees and subgrantees will maintain a contract administration system which ensures that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders. 27 i Administrative costs Unsuppor ted amount Ineligible amount FYE FYE FYE FYE FYE FYE June June 30, June 30, June 30, June 30, June 30, 30, Description 2010 2011 2012 Total 2010 2011 2012 Total Administrative costs 1 $120,000 1 $764,299 $442,520 $1,326,819 n%a $14,001 n/a $14,001 Subtotal administrative costs $120,000 $764,299 $442,520 $1,326,819 $0 $14,001 SO $14,001 Sample draws Description Unsupported amount Total Ineligible amount Total Legal Aid Society $1,265 $1,265 n/a $O Frazee $1,722 $1,722 n/a $0 Children's Fund $2,500 $2,500 n/a $0 AI-Shifa Clinic $3,052 $3,052 n/a $0 St.John's Community $1,250 $1,250 n;a $0 Youth Action Project $1,416 $1,416 n/a $0 Inland AIDS Project $1,076 $1,076 n/a $0 Community Development Department,City of San Bernardino $100,000 $100,000 n/a $0 Senior Services Program $81,313 $81,313 n/a $0 CAL Theatre Phase II $28,102 $28,102 n/a $0 Inland Fair Housing $48,785 $48,785 n/a $0 Eastside Skate Park at Speicher Park ADA Improvement CDBG-R $379,807 $379,807 n/a $0 Sun Trust Leasing, Inc. $192,339 $192,339 n/a $0 Handicap curbs and ramps(CDBG-R) $99,639 $99,639 n/a $0 Subtotal sample draws $942,266 $942,266 $0 $0 O11 -- Description Unsupported amount Total Ineligible amount Total Additional funding for Legal Aid Society ($20,000) n/a SO $20,000 $20,000 29 , � ly t w } 300 North"D" Street San Bernardino CA 92418-0001 www.sbcity.org sall (Tilar X11 CORRECTIVE ACTION PLAN June 16, 2014 Department of Housing and Urban Development Community Development Block Grant— CFDA 14.218 Grant No. B-11-MC-06-0539 HOME Investment Partnership Grant— CFDA 14.239 Grant No. M-11-MC-06-0531 Neighborhood Stabilization Program — CFDA 14.256 Grant No. B-11-MC-06-0520 Department of Energy Energy Efficiency and Conservation Block Grant-ARRA— CFDA 81.128-ARRA Grant No. DE-SC0001924 The City of San Bernardino respectfully submits the following corrective action plan for the year ended June 30, 2012. Name and address of independent public accounting firm: Rogers, Anderson, Malody & Scott, LLP 735 E. Carnegie, Suite 100 San Bernardino, California 92408 Audit period: Year ended June 30, 2012 -41- T ' � . �'? DRAFT—FORMAL REQUEST FOR INVESTIGATION Time for Change Foundation is calling for investigation into the status and handling of the above referenced Resolution which resulted following the City of San Bernardino's RFP process for the awarding of HUD Home Investment Partnerships Program funds, due to the failure to present the bid competition winner Resolution to the City Council for approval of the recommended project. BACKGROUND FACTS: The Mayor and City Council approved its 2010-2015 Five-Year Consolidated Plan on May 3,2010 as well as its 2014-2015 Annual Action Plan on April 21, 2014. Thereafter an RFP was written and published and, according to Resolution#3486,( authored by City Manager Allen Parker), the Time for Change Foundation project was found to be "consistent with the goals and objectives of the City's Action Plan, and the City's strategic direction to improve the existing housing stock." Yet,the"shovel ready"development project which was solicited by the City is stalled because the "Presentation to the City Council for approval of the recommended project" step has not been moved forward in the past three months. The published timetable for the RFP process provided the following: Release of RFP: May 26, 2014 Proposal Submittal Deadline: June 26, 2014 Review of Proposals: June 27-June 30, 2014 Presentation to City Council for approval of recommended project(s): July 7, 2014 Execution of Agreement: July 10, 2014 Although these dates were listed as "subject to change," nowhere in the RFP exists an indication that in the normal course of business there would be a three month delay in the presentation of the winning bit to the City Council for approval. To date, TFCF has received no notification as to the reason for the delay or the projected date for presentation for approval. According to 24 CFR§ 85.36(d)(3) Procurement by competitive proposals: "awards will be made to the responsible firm whose proposal is most advantageous to the program, with price and other factors considered." TFCF obtained the highest average score for their proposal by the Proposal Review Committee which was comprised of City Department Heads and other City staff. The Review Process specifically recommended funding the project based on the following factors: • Project is consistent with the goals and objectives of the City's Action Plan, and the City's strategic direction to improve the existing housing stock. • Project will serve some of the City's most disenfranchised residences, including former homeless and lower-income families. • Project complies with HOME Program regulations, and requires subsidies that are far below the maximum subsidies allowed by the program. I I I i t l t1 r • Project does not require forgiveness of HOME funds. The City will receive program income based on anticipated residual receipts. • Project is shovel-ready, and will be completed within the required 24-month timeframe. • Developer has leveraged private financing to make the project financially feasible. FINDINGS: (A) The OIG found it necessary to review the City of San Bernardino's CDBG and CDBG- Recovery Act programs because of mismanagement of federal funds in April, 2013 finding that the "city did not operate in accordance with HUD rules and regulations." (B) The City of San Bernardino has not conducted its annual audit as required by law for the years ending June 30, 2013 and June 30, 2014. (C) The Single Audit Report on Federal Awards conducted on the City of San Bernardino for year ending June 30, 2012, the City found the City to be non-compliant, deficient and to have material weaknesses in the management of federal funds, including HUD funds. The City has failed to resolve the many auditing issues found in that report. In fact, two years later, the City is not following their own Corrective Action Plan or their own procedures, as outlined above. (D) To the contrary, TFCF posts its annual audit findings and has had zero negative findings. In fact, the financial transparency of TFCF shows that TFCF has always been successful in its management of federal funds. INVESTIGATIVE REQUEST: It seems prudent that an investigation take place into the inconsistencies described above, which may be illustrative of continued mismanagement of HUD funds by the City of San Bernardino. There has been no explanation of the reasoning for the City Council failing to present the winning competitive bid to the City Council for approval,according to its own Resolution and procurement procedures. Two plans were made by the City, a 5 year plan and a specific 1 year action plan. The proposal submitted by TFCF was found to be consistent with the goals and objectives of both of the City's plans as well as financially feasible. Perhaps the City is engaging in the same mismanagement of federal funds, which was considered to be deficient to the level of being a material weakness during the City's last Single Audit Report. THE PROJECT The Phoenix Village Project which is the subject of the competitive bid process, will offer affordable, attractive, supportive housing that meets the needs the most at risk families in the San Bernardino area. The Project will produce 6 living spaces comprised of 1 and 2 bedroom units. TFCF proposed to acquire and rehabilitate four structures located on one contiguous parcel. Two of the structures — comprising four units — are deeded as 2bd/lbath duplexes complete with attached garages. The other two structures consist of a single-family building and a detached garage. This single-family building will be converted into one 2bd/l bath unit and one 1 bd/l bath unit. The detached garage will remain in order to serve as additional parking and storage for the c!� I t +t R two units located in the front of the parcel. The site will offer ample green space with playground facilities for the children to play away from the street. Dedicated garages, driveways, and parking will be provided for each unit. The interior will be customized to fit the needs of the incoming tenant families and will provide not only employment opportunities in the community but an avenue for low income women to attain permanent housing where no other opportunities exist. TFCF/Kim Carter has experience as the Owner/Developer of the Phoenix Square, low income housing development, built in 2012, which was met with high praise from both federal and local elected officials as well as with local businesses. This J ro'ect earned the City of San Bern rdin p a os Crime Prevention through Environmental Design certification. The main reasons behind the aesthetic and quality of the housing product are the fact that a concerted effort was made to ensure the financial resources generated from the project had a local impact. We are proud to say that p J p p Y 75% of those resources were spent right here in our own town. Additionally, our Section 3 hires came from both our shelter programs and the local Housing Authority, ensuring that the residents of our City were very much included. TFCF is always creating strategies to recycle dollars into our community and we are committed that our upcoming projects will aid in the economic recovery of the City of San Bernardino. TFCF is almost 60 days past its project start date due to the unexplained delays of the City Council in failing to present the winning bid Resolution for approval. Another City Council meeting is scheduled for today and again the Resolution which should have been up for approval back in July, is not on the agenda. If you need any additional facts or clarification, please do not hesitate to contact me. Very Truly Yours, Kim Carter Executive Director