We audited the City of Modesto’s Community Development Block Grant (CDBG) program. We selected the City based on a hotline complaint (HC-2017-2082) regarding the City’s rehabilitation program and the U.S. Department of Housing Development’s (HUD) and the HUD Office of Inspector General’s risk assessments. The objective of the audit was to determine whether the City used CDBG funds in accordance with HUD requirements, focusing on its rehabilitation activities.
The City did not use CDBG funds in accordance with HUD requirements. Specifically, it (1) did not follow HUD’s and its own requirements for its rental and homeowner rehabilitation projects, (2) drew CDBG funds in advance, (3) provided false information to HUD, (4) spent HUD funds inefficiently, (5) misclassified some delivery costs, and (6) did not include all recipients in its monitoring plan. These conditions occurred because of the City’s desire to show HUD that it was close to meeting timeliness requirements, its disregard for HUD’s and its own requirements, its lack of sufficient knowledge and capacity, and the failure of its policies and procedures to ensure that it monitored all of its recipients of CDBG funds. As a result, the City was unable to support that its use of more than $1.6 million in CDBG funds met HUD requirements, and it improperly used $257,737 for duplicate costs.
We recommend that the Director of HUD’s San Francisco Office of Community Planning and Development require the City to (1) support that its use of more than $1.6 million in CDBG funds met program requirements or repay the program from non-Federal funds, (2) repay the program $257,737 for duplicate costs from non-Federal funds, (3) implement policies and procedures to ensure that CDBG funds are used in accordance with program requirements, (4) provide training to its staff to ensure sufficient knowledge of CDBG program requirements, and (5) implement policies and procedures to ensure that it includes all of its CDBG recipients in its monitoring plan and that it selects objective samples.
Recommendations
Community Planning and Development
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Status2018-LA-1005-001-AOpenClosed$592,266.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on March 27, 2019Support that the $592,266 spent on the HACS rental rehabilitation projects was reasonable or repay the program from non-Federal funds.
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Status2018-LA-1005-001-BOpenClosed$401,614.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on March 27, 2019Support that the $401,614 spent on STANCO rental rehabilitation projects was reasonable and met one of HUD’s national objectives and that it completed an environmental review or repay the program from non-Federal funds.
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Status2018-LA-1005-001-COpenClosedClosed on April 18, 2019
Develop and implement policies to safeguard HUD funds by ensuring that its projects meet national objectives, have a completed environmental review, and have executed agreements for all projects and verify that work is complete before approving payment, including its rental rehabilitation projects.
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Status2018-LA-1005-001-DOpenClosedClosed on April 18, 2019
Update policies and procedures to ensure that costs are reasonable, including preparing an independent cost estimate and a detailed scope of work for each project.
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Status2018-LA-1005-001-EOpenClosed$173,508.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on April 25, 2019Support that $173,508 spent on homeowner rehabilitation project expenses was reasonable or repay the program from non-Federal funds.
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Status2018-LA-1005-001-FOpenClosedClosed on October 19, 2018
Update and implement policies and procedures to ensure that all procurements are conducted in a manner that promotes full and open competition and avoids any arbitrary action in the procurement process, including ensuring that contractors are given sufficient time to respond to solicitations.
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Status2018-LA-1005-001-GOpenClosed$257,737.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on March 27, 2019Repay from non-Federal funds $257,737 from voucher 6035061 for the duplicate draw.
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Status2018-LA-1005-001-HOpenClosed$49,666.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on September 13, 2019Support that $45,304 drawn in advance met eligibility and procurement requirements and costs were reasonable or repay the unsupported amount from non-Federal funds.
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Status2018-LA-1005-001-IOpenClosedClosed on October 19, 2018
Update its policies and procedures to ensure that the City issues payments to vendors and obtains reimbursement from HUD only after the City’s Community and Economic Development Department has verified that work is complete.
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Status2018-LA-1005-001-JOpenClosed$323,563.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on September 04, 2019Support that $323,563 spent on rehabilitation administration charged in program year 2015 costs was reasonable and benefited the City’s rehabilitation program or repay the program from non-Federal funds any amount determined to be unreasonable or ineligible.
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Status2018-LA-1005-001-KOpenClosed$69,794.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on September 04, 2019Reclassify $69,794 in employee payroll and benefits for City employees that did not work on rehabilitation-related activities or repay the program from non-Federal funds.
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Status2018-LA-1005-001-LOpenClosed$67,036.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on August 28, 2019Support that expenses were related to rehabilitation activities for $66,910 in payroll expenses charged to the rehabilitation delivery expenses activity for its former environmental review specialist or repay the program from non-Federal funds.
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Status2018-LA-1005-001-MOpenClosed$16,272.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on August 28, 2019Support that expenses were related to rehabilitation activities for $13,263 in unsupported payroll or repay the program from non-Federal funds.
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Status2018-LA-1005-001-NOpenClosed$517.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on April 01, 2019Reclassify $517 in miscellaneous expenses that was incorrectly prorated or repay the program from non-Federal funds.
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Status2018-LA-1005-001-OOpenClosedClosed on October 19, 2018
Provide training for its staff to ensure sufficient knowledge of CDBG requirements regarding when to charge delivery costs, including when to charge payroll to rehabilitation administration, versus general administrative costs.
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Status2018-LA-1005-001-POpenClosedClosed on October 19, 2018
Implement policies and procedures to ensure that the City includes all recipients of CDBG funds in its monitoring plan and that it selects objective sample items for monitoring.