Neighborhood Housing Services of Los Angeles County, Los Angeles, CA, Did Not Always Follow Program Requirements in Administering Its NSP2 | Office of Inspector General, Department of Housing and Urban Development

January 05, 2021

Community Planning and Development

2021-LA-1002

2021-LA-1002.pdf

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

Recommendation	Status	Date Issued	Summary
2021-LA-1002-001-A	Open	January 05, 2021	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.
2021-LA-1002-001-B	Open	January 05, 2021	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.
2021-LA-1002-001-C	Open	January 05, 2021	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.
2021-LA-1002-001-D	Open	January 05, 2021	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.
2021-LA-1002-001-E	Open	January 05, 2021	Develop and implement sufficient financial procedures and controls to ensure that program income is appropriately recorded and properly transferred to its NSP2 account.
2021-LA-1002-001-F	Open	January 05, 2021	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.
2021-LA-1002-001-G	Open	January 05, 2021	Amend the NSP2 action plan to include its revolving loan fund.
2021-LA-1002-001-H	Open	January 05, 2021	Adjust program income calculation methodology to ensure it is in accordance with HUD requirements.
2021-LA-1002-001-I	Open	January 05, 2021	Submit overdue NSP2 quarterly reports to DRGR and update prior reports that did not accurately report program income activity.
2021-LA-1002-002-A	Open	January 05, 2021	Provide adequate documentation to support its administrative and project delivery cost expenditures or repay the program $1,388,545 from non-Federal funds.
2021-LA-1002-002-B	Open	January 05, 2021	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.
2021-LA-1002-002-C	Open	January 05, 2021	Develop and implement a HUD-approved cost allocation plan to properly account for indirect program costs.
2021-LA-1002-002-D	Open	January 05, 2021	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.
2021-LA-1002-002-E	Open	January 05, 2021	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.
2021-LA-1002-003-A	Open	January 05, 2021	Support the reasonableness of the South Gate contract or repay NSP2 $856,692 from non-Federal funds.
2021-LA-1002-003-B	Open	January 05, 2021	Develop and implement additional procedures and controls to ensure that HUD procurement requirements are followed.