We audited Neighborhood Housing Services of Los Angeles County’s (NHSLA) Neighborhood Stabilization Program 2 (NSP2). The audit was based on a complaint alleging questionable NSP2 financial activity, double payments to contractors, and payments to contractors for incomplete work. Our Office of Audit received the referred complaint in late 2018. However, because the complaint included concerns regarding activities and auditee actions from at least 5 years before, we did not address the specific complaint issues but instead reviewed more recent program activities. The objective of the audit was to determine whether NHSLA administered its NSP2 in accordance with program requirements, focusing on procurement and contracting, expenditures of program income, and tracking and accounting of program income.
NHSLA did not always follow program requirements in administering its NSP2. Specifically, it (1) could not support NSP2 activities in its interfund account and revolving loan fund, (2) borrowed NSP2 program income and deposited those funds into its non-NSP2 accounts, (3) could not support administrative and project delivery costs, and (4) did not have proper documentation to support the procurement of its construction contract. As a result, the U.S. Department of Housing and Urban Development (HUD) did not have assurance that more than $5.1 million in program income was used for its NSP2, $1.7 million in salary expenditures was in accordance with program requirements, and $856,692 in construction costs was reasonable.
We recommend that the Director of the Los Angeles Office of Community Planning and Development require NHSLA to (1) support the eligibility of interfund activities or repay the program $3.4 million from non-Federal funds, (2) return $529,745 in program income funds to its NSP2 account, (3) support the use of its loan proceeds or repay the program $658,261 from non-Federal funds, (4) support transfers of NSP2 funds or repay the program $500,000 from non-Federal funds, (5) support its administrative and project delivery costs or repay the program more than $1,388,545 from non-Federal funds and not reimburse another $324,478, (6) support the reasonableness of the construction contract or repay the program $856,692 from non-Federal funds, and (7) develop and implement procedures and controls for its procurement.
Recommendations
Community Planning and Development
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Status2021-LA-1002-001-AOpenClosed$3,425,679.00Questioned 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.
Provide documentation to support that program activities within NHSLA’s interfund were for eligible NSP2 activities or repay the program $3,425,679 from non-Federal funds.
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Status2021-LA-1002-001-BOpenClosed$529,745.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Return the outstanding balance of $529,745 owed to NSP2. In addition, cease the practice of depositing NSP2 funds in non-NSP2 accounts and making them available to be used or borrowed for non-NSP2 activities.
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Status2021-LA-1002-001-COpenClosed$658,261.00Questioned 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.
Provide documentation to support that $658,261 in loan proceeds was used for an eligible NSP2 activity or property or repay the program from non-Federal funds.
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Status2021-LA-1002-001-DOpenClosed$500,000.00Questioned 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.
Provide documentation to support that $500,000 in NSP funds transferred to the revolving loan fund was used for an eligible NSP2 activity or property or repay the program from non-Federal funds.
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Status2021-LA-1002-001-EOpenClosedClosed on March 13, 2025
Develop and implement sufficient financial procedures and controls to ensure that program income is appropriately recorded and properly transferred to its NSP2 account.
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Status2021-LA-1002-001-FOpenClosedClosed on March 13, 2025
Ensure it has sufficient staffing and capacity to administer the NSP2 program, including obtaining training for its staff to understand HUD requirements and how to use the DRGR system.
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Status2021-LA-1002-001-GOpenClosed
Amend the NSP2 action plan to include its revolving loan fund.
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Status2021-LA-1002-001-HOpenClosed
Adjust program income calculation methodology to ensure it is in accordance with HUD requirements.
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Status2021-LA-1002-001-IOpenClosed
Submit overdue NSP2 quarterly reports to DRGR and update prior reports that did not accurately report program income activity.
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Status2021-LA-1002-002-AOpenClosed$1,388,545.00Questioned 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.
Provide adequate documentation to support its administrative and project delivery cost expenditures or repay the program $1,388,545 from non-Federal funds.
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Status2021-LA-1002-002-BOpenClosed$324,478.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Provide supporting documentation to show whether the outstanding liability of $324,478 is correctly classified as an NSP2 liability. If not, HUD should ensure that NHSLA corrects its NSP2 cost reimbursement summary for the 12 months ending June 30, 2018, to reclassify the expenses to a non-NSP2 program. Such funds would be considered funds to be put to better use.
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Status2021-LA-1002-002-COpenClosedClosed on March 13, 2025
Develop and implement a HUD-approved cost allocation plan to properly account for indirect program costs.
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Status2021-LA-1002-002-DOpenClosedClosed on March 13, 2025
Establish written payroll policies and procedures in accordance with program requirements for the tracking, recording, and maintenance of direct costs to ensure that time distribution records are in place to support the allocation of charges.
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Status2021-LA-1002-002-EOpenClosed
Obtain training to ensure that it understands NSP2 regulations and requirements related to payroll allocation for its administrative and project delivery costs and program income calculation methodology to ensure it properly computes the amount it is allowed to charge for administrative costs.
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Status2021-LA-1002-003-AOpenClosed$856,692.00Questioned 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.
Support the reasonableness of the South Gate contract or repay NSP2 $856,692 from non-Federal funds.
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Status2021-LA-1002-003-BOpenClosedClosed on March 13, 2025
Develop and implement additional procedures and controls to ensure that HUD procurement requirements are followed.