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2011 hud-oig-report-ahcoa-response-acorn-092010

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U.S. Department Housing and Urban Development
Office Inspector General for Investigation

Inspections and Evaluations Division

ACORN Housing Corporation, Inc.

Evaluation HUD Housing Counseling Grant Expenditures

September 21, 2010
IED-10-O02

Executive Summary

The Office Inspector General, Inspections and Evaluations Division, conducts independent,
objective examinations U.S. Department Housing and Urban Development (HUD)
activities, programs, operations, and organizational issues. response congressional request, performed evaluation grant funds awarded under
HUD’s Housing Counseling Program ACORN Housing Corporation, Inc. (AHC), Chicago,
IL, now operating Affordable Housing Centers America (AHCOA). wanted know
whether AHC used HUD grant funds compliance with grant agreement requirements.

During fiscal years (FY) 2008 and 2009, AHC was awarded $3,252,399 HUD comprehensive
housing counseling grants. Our tests focused HUD funds used pay the sala1y and fringe
benefit costs (salary expenses) AHC staff that provided housing counseling directly clients.
More than $2.544 million was charged the HUD grants salary expenses ($1.353 million percent 2008 and $1,191 million percent 2009).

Since many AHC’s counselors also provided counseling services funded through other
Federal and non—Federal sources,1 reviewed the cost allocation methodology and examined
available documentation support AHC’s quarterly billings the HUD grants. also
examined AHC’s other expenditures for accounting and legal services, office leases, and
employee benefits for compliance with the procurement provisions the HUD grant
agreements. observed the following during the course our evaluation: Salary expenses charged the HUD housing counseling grants were not fully supported.
Payroll records requested did not comply with Office Management and Budget (OMB)
Circular A—l22, for example, time sheets did not distribute hours grant. The caseload
allocation method used AHC for HUD—chargeable salary expenses was problematic
and unsupported. Consequently, HUD had assurance that the counselors’ salary
expenses totaling $2.544 million charged the HUD grants reflected grant—eligible
services. Ineligible salary expenses totaling $65,548.37 were charged the 2009 HUD grant.
Salary costs for counselors’ services included pay periods after employment termination
for six employees totaling $13,717.55. Also, $51,830.82 salary expenses for counselor
services incurred 2008 was billed the 2009 grant. Costs charged the HUD
grants must allowable, reasonable, and allocable according OMB Circular A—l22. Federal procurement standards were not met. AHC did not meet the procurement
standards outlined CFR (Code Federal Regulations) Part when obtained
accounting and legal services, leased office space, and sought health care and retirement
benefits from “associated” nonprofit organizations. These services were obtained
AHC without ensuring, the maximum extent practical, open and free competition.

1AHC also received funding from other Federal and non—Federal sources totaling more than $27.269 million during 2008 and 2009.

Further, cost price analysis and documentation support the basis and justification for
the services were not readily available. result, AHC could not ensure that had
obtained services for the lowest, most reasonable cost. confirm counseling services reported HUD, interviewed randomly selected AHC
clients. With one exception, clients said that they had received AHC’s counseling services and
most considered the counseling helpful. Sixteen clients succeeded finding and purchasing
homes and were also still living those homes year after seeking counseling.

For continued approval HUD—approved housing counseling agency and for future awards
consideration, AHC must bring its operations into full compliance with applicable laws,
regulations, and policies governing HUD’s Housing Counseling Program. This includes
reimbursing the program for unsupported and ineligible salary expenses charged the HUD
housing counseling grants and implementing time and activities reporting system that meets
OMB Circular A— 122 requirements. Further, AHCOA needs implement procurement system
that complies with CFR Part 84. provided draft copy the report the Assistant Secretary, Office Housing — Federal
Housing Commissioner and the executive director AHCOA August 16, 2010, and have
included their full responses appendixes and respectively. HUD’s Office Single
Family Housing (Single Family) agreed with our observations, while AHC generally disagreed.
OIG considers Single Family’s response and planned corrective action sufficient close
recommendation 2b. Recommendations through 1C, and remain open. The “Comments
and OIG Response” section this report contains evaluation the responses.

iii

Table Contents

Introduction ....................................................................................................................................
Scope and Methodology ................................................................................................................ ..7
Observations Salary Expenses Were Not Fully Supported ...................................................................... ..9 Ineligible Salary Expenses Were Charged ....................................................................... Federal Procurement Standards Were Not Met ............................................................... ..l3
Recommendations ........................................................................................................................ ..l6
Comments and OIG Response ..................................................................................................... ..l7
Appendixes HUD’s Office Single Family Housing’s Comments ................................................... ..20 Affordable Housing Corporation America’s Comments ............................................. ..23 Other Federal and Non—Federal Funding Sources ........................................................... ..33 Client Case Sampling Methodology and Results ............................................................. ..35

Introduction
HUD’s Housing Counseling Program

The U.S. Department Housing and Urban Development’s (HUD) Housing Counseling
Program authorized under section 106 the Housing and Urban Development Act 1968
(12 U.S.C. (United States Code) 1701x). September 28, 2007, final rule was published
the Federal Register 55638. Current regulations governing program eligibility and
administration are codified CFR (Code Federal Regulations) Part 214. carrying out HUD—approved counseling program, grantee subject the terms and
conditions the grant agreement with HUD, which governed section 106 the Act,
applicable Federal regulations, notices funding availability for the program, HUD Handbook
7610.1, the grantee’s application submission, Assistance Award/Amendment (form HUD—1044),
and the grantee’s current HUD—approved housing counseling plan.

Regulations CFR Part provide the uniform administrative requirements for grants
between HUD and nonprofit organizations. The regulations require nonprofit grantees use
Office Management and Budget (OMB) Circular A—122, Cost Principles for Non—Profit
Organizations, determining whether costs incurred are allowable, reasonable, and allocable.
OMB Circular A—122 outlines specific guidelines for grant expenditures and the records needed support those expenditures. Part also prescribes the procurement standards for nonprofit
organizations.

ACORN Housing Corporation, Inc.

ACORN Housing Corporation, Inc. (AHC) was established nonprofit corporation the
State Louisiana March 20, 1985. AHC’s primary mission .to empower low and
moderate income individuals, families, and communities obtain and keep affordable, stable,
safe, and decent housing. [They] accomplish this through homeownership education and
counseling, access finance, housing development, and advocacy.” These services are provided
through its offices located nationwide.” AHC received its 501(c)(3) status March 1990,
retroactive March 13, 1985, the date registration.

AHC was founded organizers that worked for the Association Community Organizations
for Reform Now (ACORN) and, until recent months, maintained “association” with that
organization. During our review period, the “association” included leasing space for some
branch offices from ACORN “associated” entities and sharing certain common areas and
conference rooms. addition, accounting and legal services and employee benefits were
obtained from other “associated” nonprofit organizations that also provided similar services
ACORN. November and December 2009, AHC closed its branch offices (El Paso, Kansas City, Las Vegas, New
Orleans, Oakland, Portland, Providence, Seattle, Springfield, and Tampa), leaving its Chicago office and branch
offices open (Albuquerque, Baltimore, Bridgeport, Milwaukee, New York City, Orlando, Dallas, Philadelphia,
Phoenix, Sacramento, Fresno, Houston, Los Angeles, San Antonio, San Jose, St. Paul, Miami, and Washington,
DC).

AHC’s corporate office, located 209 West Jackson Blvd, Chicago, IL, provides administrative
and centralized management its branch offices. All expenses (e.g., vendor payments,
employee salaries) are paid out the Chicago (national) office. Funds are not distributed the
branch offices; the only distribution funding that occurs for budgetary purposes.
January 2010, AHC changed its corporate name and now operates Affordable Housing
Centers America (AHCOA). AHCOA has offices cities, States, and the District
Columbia.3

Funding Sources

HUD has been substantial funding resource for AHC, awarding more than $19 million
housing counseling grants since 1995. During fiscal years (FY) 2008 and 2009, AHC received
$3,252,399 from HUD provide comprehensive housing counseling services national
intermediary.4 $1,628,829 (effective October 2007, through September 30, 2008, 2008) $1,623,570 (effective October 2008, through September 30, 2009, 2009)

AHC also received funding from other Federal and non—Federal sources, totaling more than
$27,269 million, during the same period.5 NeighborWorks® America (NeighborWorks),
congressionally chartered nonprofit organization headquartered Washington, DC, was the
source for percent (or $25,857 million) these funds.

NeighborWorks administers the National Foreclosure Mitigation Counseling (NFMC) program
created the Consolidated Appropriations Act 2008 (P.L. (Public Law) 110-161). The
NFMC program awards grants HUD—approved housing counseling intermediaries, State
housing finance agencies, and NeighborWorks organizations provide foreclosure mitigation
counseling and legal assistance homeowners risk foreclosure.

Eligible Activities

Under the terms the HUD housing counseling grants, AHC was eligible seek
reimbursement for individual counseling group education/classes, marketing and outreach
initiatives, training, computer equipment/systems, and administrative costs. AHC provides five
types comprehensive housing counseling—prepurchase counseling, predatory lending housing
counseling, home equity and refinance housing counseling for existing homeowners,
delinquency and default counseling, and HECM (home equity conversion mortgage) and reverse
mortgage counseling. AHC’s executive management emphasized that all “first—time” home Affordable Housing Centers America, “Who Are,” hits)1,5/WWW.aheoa.or:2:;’abo1:t;’wE)o  ;1:'e.cf1n, (content
current September 21, 2010) National intermediaries offer housing counseling services directly through their branch offices indirectly
through smaller affiliates operating multiple regions the country. See appendix — Other Federal and Non-Federal Funding Sources. Notices Funding Availability for the Housing Counseling Programs, published for the 2008 and 2009 grants.

buyers were serviced under the HUD grants, while the NFMC grants were restricted
delinquency and foreclosure mitigation counseling.

Expenditures

AHC used the HUD housing counseling grants primarily reimburse the salary and fringe
benefit costs (salary expenses) its counseling staff. More than $2.544 million was charged
the HUD grants salary expenses ($1.353 million percent 2008 and $1.191 million percent 2009). AHC expended both HUD grants full the end the third
quarter (June 30th) each fiscal year. The HUD grants were funded cost reimbursable basis,
permitting AHC recover the salary expenses incurred and paid its counselors. For the
NFMC grants, AHC was paid fees based three—tiered structure that defines the estimated
cost for counseling activity, capped $350 per individual client counseled. early 2008, AHC’s national office received the first two direct grants totaling more than
$25.05 million from NeighborWorks. additional $806,519 NFMC grant funds was
indirectly awarded AHC’s branch offices located California, Florida, Minnesota, and
Missouri. AHC attempted use the same system (Housing Counseling Online HCO) that
uses track its HUD cases for its NFMC cases. However, according AHC the HCO system
did not operate well with the delinquency and foreclosure cases. October 2008, AHC began
use the HELP (Home Equity Loss Prevention) system for its NFMC cases. AHC indicated that
the HCO system was used track time spent HUD counseling activities but determined
March 2008 that HCO .was far too burdensome for counselors use. .to track minutes that
they worked each case. With the foreclosure crisis exploding, and counselor caseloads doing
the same, simply was not feasible expect counselor log into HCO and then record every
minute worked every activity. .”

According AHC executive management, the nonprofit was deeply impacted the housing
market collapse 2008 and 2009. Its primary service—prepurchase counseling for first—time
and minority home buyers—was quickly supplanted families default their mortgages
and facing foreclosure. Counseling staff services were shifted address this challenge, and
caseload allocation procedures were put place determine the percentage employee
expenses billable the HUD housing counseling grants and other grants, primarily the NFMC
grants. AHC believed that the caseload allocation methodology was acceptable given the
urgency increasing foreclosure and delinquency cases under the NFMC grants.

Scope and Methodology

The objective our evaluation was determine whether AHC used its HUD comprehensive
housing counseling grant funds compliance with grant agreement requirements.
accomplish this objective, examined the accounting and administrative records and
documents supporting AHC’s use the HUD funds.7 Our examination covered the expenditure HUD funds from October 2008, through September 30, 2009; specifically, salary expenses
funded the HUD grants for staff that provided housing counseling AHC clients. Testing was limited some instances due the availability records.

Because many these counselors also provided counseling services funded through other
sources, focused the caseload allocation methodology used and the documentation
support AHC’s quarterly billings the HUD grants. also examined AHC’s expenditures for
accounting and legal services, office leases, and employee benefits for compliance with the
procurement provisions the HUD grant agreements. met with and interviewed AHC’s executive management, comptroller, and accounting
consultant gain understanding the billing processes and associated controls ensure
proper cost allocation. also interviewed current/former regional directors, branch office
managers,8 housing counselors, and random sample prepurchase housing counseling clients.9 interviewed staff from HUD’s Office Single Family Program Development, Program
Support Division, responsible for overseeing AHC’s housing counseling services, and examined
related records AHC’s quarterly LOCCS (Line Credit Control System) draws from the two
grant awards. conducted the evaluation accordance with the Quality Standards for Inspections issued
the President’s Council Integrity and Efficiency. granted request AHC’s general counsel present during interviews current regional directors and
branch office managers. See appendix — Client Case Sampling Methodology and Results.

Observations
Observation Salary Expenses Were Not Fully Supported

AHC could not fully support its salary and fringe benefit costs (salary expenses) charged the 2008 and 2009 HUD comprehensive housing counseling grants. Payroll records requested
did not comply with OMB Circular A—122, for example, the time sheets did not distribute hours grant. Also, the caseload allocation methodology used AHC for HUD—chargeable salary
expenses was problematic and unsupported. result, there was assurance that the $2.544
million salary expenses allocated (charged) the HUD grants ($1.353 million 2008 and
$1.191 million 2009) reflected grant—eligible services.

OMB Circular A— 122

OMB Circular A—122, attachment paragraph Personal Services, Support Salary and
Wages, requires that

Charges awards for salaries and wages, whether treated direct costs indirect costs,
will based documented payrolls approved responsible official(s) the
organization. The distribution salaries and wages awards must supported
personnel activity reports.

Reports reflecting the distribution activity each employee must maintained for all
staff members (professionals and nonprofessionals) whose compensation charged,
whole part, directly awards. Reports maintained ...must reflect after—the—fact
determination the actual activity each employee. Each report must account for the
total activity for which employees are compensated and fulfillment their obligations
the organization. The reports must signed the individual employee, responsible
supervisory official. The reports must prepared least monthly and must coincide with
one more pay periods. 2008 and 2009 Housing Counseling Grant Agreements

Article X—Payment Requests, Documentation Expenses, requires AHC

...maintain source documentation direct costs, such invoices, receipts, cancelled
checks, and salary reports, support all LOCCS draw requests for payment. This
information must made available HUD upon request and maintained for period
least three years after the expiration the grant period date last payment, whichever
occurs first.

Pavroll Records Requested Noncompliant

AHC’s summary schedules counselors’ salary expenses, submitted HUD support its
quarterly draws housing counseling grant funds for 2008 and 2009, were based time
sheets that documented the number hours worked and leave taken counselors.

requested payroll records for two test pay periods: (1) January through February 2008 (FY
2008), and (2) December through December 27, 2008 (FY 2009). all but three cases, the
time sheets provided did not account for total activities (e.g., distribute hours grant) each
counselor daily basis. determination could not made what activities the
employees performed which grant charge for those activities. Consequently, HUD had
assurance that did not bear more than its fair share the costs incurred for salary expenses
AHC’s counselors. 2008 Test Pay Period

For the test pay period, salary expenses totaling $85,145 for employees were charged the 2008 HUD grant. AHC provided time sheets for employees and payroll register extracts
for employees“) The time sheets documented the number hours worked and leave taken
and were generally signed the employees and their supervisor. Only one the time sheets
specified time grant funding source daily basis. appears that AHC did not charge the
full amount the HUD housing counseling grant. The remaining time sheets did not account
for the total activities each counselor daily basis. 2009 Test Pay Period

For the test pay period, salary expenses totaling $74,538.56 for employees were charged
the 2009 HUD grant. AHC provided time sheets and payroll register extracts for the
employees. The time sheets documented the number hours worked and leave taken and were
generally signed the employee and the supervisor. Only the time sheets specified time grant funding source daily basis.

 

Charged HUD housing counseling grant hours I‘ 49°
Time Sheet ousing counse Ing grant ours
"Road Home” hours 51%

 

 

Charged HUD housing counseling grant hours I‘

Time Sheet ousing counse Ing grant ours
"Houston — CDBG”* hours CDBG Community Development Block Grant

The two time sheets did not agree with the allocation salary expenses (e.g., percent versus percent for employee AHC the HUD housing counseling grant using the caseload
allocation methodology (described below). The remaining time sheets did not account for the
total activities each counselor daily basis. Payroll register extracts provided for the two test pay periods were reviewed confirm existence entries for the
respective employees.

Caseload Allocation Methodology Problematic and Unsupported

AHC’s caseload allocation methodology for salary expenses the HUD housing counseling
grants proved problematic environment multiple funding sources and was unsupported. addition the more than $3.252 million 2008 and 2009 HUD grants, AHC received
funds from other Federal and non—Federal sources totaling more than $27,269 million.“
NeighborWorks was the source for percent (or $25,857 million) these funds.

The housing counseling service costs were either charged salary expenses the HUD housing
counseling grants fees the NeighborWorks’ NFMC grants. For counselors who provided
services under both grants, reimbursement their salary costs for HUD billing purposes was
based percentage derived from the ratio HUD NFMC cases opposed using the
actual number hours attributable the HUD housing counseling grant. For example, AHC
billed HUD for the services employees during the test pay period 2009. The
percentage salary expenses HUD was employees billed 100 percent, employees billed percent, employees billed percent, and employees billed under percent.

Also, missing was documentation the actual activities support the percentages allocations the HUD grant. noted above, review payroll records for employees for the 2009
test pay period showed that time sheets were maintained; however, there were only two cases
which employees’ time sheets specified time grant funding source daily basis. Despite
the breakout time grant funding source, AHC charged the HUD housing counseling grant
the amount salary expenses using the caseload allocation methodology instead the actual
numbers hours reported the counselors their time sheets. Because the multiple
funding sources, careful control cost allocation was imperative reduce the risk
inequitable charges when counselors’ time was split between HUD, NFMC, and/or other funding
sources.

Availability records impeded our attempt trace AHC’s summary schedules counselors’
salary expenses the housing counseling activities that occurred during the two test pay periods.
AHC’s deputy director explained that would difficult provide the information for some
cases due office closures and dismissal personnel, which resulted the transfer client
cases other counselors, and the nature the system used record case activities. According the deputy director, the historical data (electronic records) for the transferred cases longer
existed the HCO system. interviewed random sample clients that AHC reported HUD having received
one—on—one prepurchase housing counseling during the period April June 30, 2009.12 the
clients interviewed, said they spent minutes less with counselor face—to—face See appendix — Other Federal and Non-Federal Funding Sources. These clients received counseling from branch offices located nationwide, including Albuquerque, Springfield,
Providence, and Tampa. Refer appendix — Client Case Sampling Methodology and Results.

interviews, stated that they spent hours, and another clients said hours. Five
recalled spending between and hours total group and face—to—face counseling sessions. Six
other clients, who participated the group session only, recalled spending between and
hours the seminars.

Observation Ineligible Salary Expenses Were Charged

AHC billed the 2009 HUD housing counseling grant for the salaries six employees who
were longer employed with the nonprofit. also billed the grant for salary expenses incurred
before the October 2008, the start date the grant. For cost eligible for
reimbursement under the HUD grant, must allowable, reasonable, and allocable according OMB Circular A—l22. The ineligible salary expenses totaled $65,548.37.

Costs Billed for Salaries Terminated Employees

AHC’s billing salary expenses for counselor services included pay periods after employment
termination for six employees, resulting the grant being overbilled $13,717.55 (see table
below). AHC billed the services 105 counselors HUD 2009. examined
employee personnel files, which included employees that were identified potential
overbilling cases, during our analysis AHC records. For the eight employees, documentation
confirming termination dates consistent with our prior analysis was present for four employees,
the termination date was not the personnel file one employee, and the personnel file one
employee was missing. Documentation for two employees supported conclusion that
overbilling occurred. Atlanta 2/27/2009 180 $20.93 100% $3,767.40 Chicago 3/13/2009 540 $11.65 52% $3,271.32 Dallas 3/13/2009 $23.19 75% $1,565.33 Providence 2/13/2009 270 $12.53 67% $2,266.68 Seattle 12/5/2008 $17.77 100% $1,599.30 Washington, 12/15/2008 $14.29 97% $1,247.52

Total $13,717.55 interviewed three the terminated employees. Two confirmed the date termination. The
third said that she had terminated her employment weeks earlier than the date cited AHC’s

records.

Costs Incurred 2008 Billed 2009 Grant

AHC billed salary expenses for services performed 2008—September through
September 30, 2008—to its 2009 grant award. Article III the HUD grant provides that
“[t]he Period Performance shall begin October 2008 and expires midnight
September 30, 2009.” Further, article — Price, Period Availability Funds, states

that the “Grantee may charge the Grant only Allowable Costs resulting from obligations
incurred during the Performance Period.”

Because AHC counseling services were performed and costs incurred before the authorized start
date the 2009 HUD grant, the costs were ineligible for reimbursement. The ineligible
costs totaled $51,830.82. AHC had drawn its 2008 housing counseling award full
June 30, 2008. stipulated the grant agreements (article — Statement Work), HUD
handbook, and other guidance, HUD funds are not intended cover the total costs carrying
out grantee’s counseling program.

Observation Federal Procurement Standards Were Not Met

AHC did not meet the procurement standards outlined CFR Part when obtained
accounting and legal services, leased office space, and sought health care and retirement benefits
from “associated” nonprofit organizations.” These services were obtained AHC without
ensuring, the maximum extent practical, “open and free” competition. Further, cost price
analysis and documentation support the basis and justification for the services was not readily
available. AHC’s executive director told that AHC operated this manner because its
managers believed that these transactions met Federal procurement requirements and resulted
lower costs AHC. result, AHC could not ensure that had obtained services for the
lowest, most reasonable cost. CFR Part

Article the HUD grant agreements provides paragraph that the recipient subject
the requirements CFR Part 84, applicable. Section 84.43 these regulations provides
that

All procurement transactions shall conducted manner provide, the maximum
extent practical, open and free competition. The recipient shall alert organizational
conflicts interest well noncompetitive practices among contractors that may restrict eliminate competition otherwise restrain trade.

Section 84.45 requires the recipient perform some form cost price analysis connection
with every procurement action. Moreover, section 84.46 requires the “procurement records and
files for purchases excess the small purchase threshold include... (a) basis for contractor
selection, (b) justification for lack competition when competitive bids offers are not
obtained, and (c) basis for award cost price.”

Accounting and Legal Services

AHC obtained accounting and legal services from nonprofit organization, Citizens Consulting,
Incorporated (CCI), during part our review period. The accounting services that CCI provided
included accounts payable and payroll functions. CCI charged AHC fees based percentage “Associated” organizations are described AHC’s financial statements nonprofits that are controlled
independent boards directors but share certain common operating costs. AHC’s total expenditures (3.84 and 4.55 percent during 2008 and 2009). AHC’s financial
statements showed that CCI was paid total $345,174. portion these costs was charged
the HUD housing counseling grants through AHC’s indirect cost rate.

AHC obtained CCI’s services without soliciting “open and free” offers from other accounting
and legal services firms. consequence, AHC could not demonstrate that the costs CCI’s
services reflected required competitive pricing process.

According AHC’s executive director, the arrangement with CCI was intended provide AHC
with quality services reasonable price because specialized servicing only AHC and other
ACORN—related organizations. AHC also surveyed the financial statements other nonprofit
organizations 2007 and concluded that generally spent lower percentage its total
expenditures these services.

Given the variances the types and structures the nonprofit organizations surveyed and
quality services obtained, did not consider AHC’s conclusions compelling consistent
with the expectations pricing based “open and free” competition. Rather, associated
nonprofit, CCI’s services were essentially sole source arrangement that lacked “arms

lengt ” basis for demonstrating cost reasonableness. According the executive director, the
quality CCI’s services deteriorated substantially after hurricane Katrina 2005, prompting
AHC end its relationship with CCI 2009.

Office Leases

AHC leased branch office space from “associated” nonprofit organizations without obtaining
competitive bids quotes from other office space providers. The nonprofit organizations
included ACORN San Jose and Sacramento, CA; Elysian Fields Corporation, Inc., New
Orleans, LA; and New Mexico Organizing and Support Center, Inc., Albuquerque, NM.
Leasing arrangements, some instances, included sharing the use common areas and
conference rooms with the other nonprofit organization. Branch office leasing costs were
charged directly the HUD housing counseling grants based the ratio total payroll costs
payroll costs attributable the HUD grants.14 letter, dated July 14, 2010, AHC’s general counsel asserted that AHC managers who found
space for branch offices .looked competitors’ offerings. The problem that was not
documented, not that did not happen.” Attached the letter was information showing
comparisons rents per square foot paid AHC 2008 and 2009 market rent data for
“class office space” provided two commercial real estate firms for cities where branch
offices were located. most instances, these comparisons showed that rental rates paid AHC
were less than the market rates provided the real estate firms. For some locations, however, comparable data were available. believe that the market rate comparisons were inadequate substitute for competitive
procurement process. The market data provided averages; the data did not necessarily provide
information specific the locations and timeframes for which AHC leased branch office space.

“Refer observation — Salary Expenses Were Not Fully Supported.

Moreover, because the cited leasing arrangements were with “associated” nonprofits, the lease
arrangements were essentially sole source transactions, not “arms lengt ” competition.

Health Care and Retirement Benefits

AHC obtained health care benefits for its employees from two “associated” nonprofit
organizations during our review period: the Council Health Plan and Community Health
Insurance Plan (CHIP). According AHC’s financial statements, Council Health Plan was paid
$829,660 during 2008 and 2009, ending June 2009. HUD records showed that CHIP
charged AHC set rate ($442.62) each month for each employee the payroll. The costs
both plans were billed the HUD counseling grants based percentages employee gross
pay charged the HUD grants. AHC ended its relationship with CHIP and was the process obtaining health insurance for its employees soliciting quotes from independent providers early 2010. AHC provided evidence that had solicited quotes from other health care
providers, required, before entering into these arrangements with Council Health Plan and
CHIP.

AHC’s retirement funds were managed associated organization called Council Benefit
Association (CBA) during part the review period. Contributions were made generally the
basis percent participating employee’s gross pay. 2008 and 2009, AHC
incurred costs connection with this retirement plan $460,630 and $384,693, respectively.
These costs were charged the HUD grants based the percentage employee’s gross pay
charged HUD. Again, AHC did not seek obtain the retirement plan services provided
CBA from other providers.

Attached the AHC general counsel’s July 14, 2010, letter was July 13, 2010, memorandum
from AHC’s outside legal counsel regarding health care and retirement benefit services provided the “associated” nonprofits. The memorandum described the .considerable efforts taken the boards trustees responsible for the administration CHP [Council Health Plan] and
CBA and responsible for replacing CHP with CHIP. One the four trustees was the president AHC.” example, the memorandum stated that .selection accountants for CBA
was the subject formal Request for Proposal.” However, the nonprofits for AHC’s health
care and retirement benefits were not the HUD grantee. the grantee, AHC was obligated
follow procurement requirements the selection these providers. evidence was presented
indicating that had done before participating Council Health Plan, CHIP, CBA.

CBA stopped accepting payroll contributions 2009 and began process dissolution. the

end 2009, AHC established its own qualified Employee Retirement Income Security Act
retirement plan with the assistance independent providers retirement services.

Recommendations

For continued approval HUD—approved housing counseling agency and for future awards
consideration, AHC (now operating AHCOA) must bring its operations into full compliance
with applicable laws, regulations, and policies governing HUD’s Housing Counseling Program.
The inability fully support salary expenses allocated the HUD grants raises serious concerns
about the integrity those charges, particularly given the millions Federal and non—Federal
dollars made available AHC 2008 and 2009. Further, services procured from ACORN
“associated” organizations failed meet the required tests “open and free competition.” Cost price analysis and documentation support the basis for the services procured were not
readily available. result, AHC could not ensure that had obtained services for the lowest,
most reasonable cost. recommend that HUD’s Office Single Family Housing, Program Support Division,
require AHCOA

1A. Provide support for the salary and fringe benefit costs (salary expenses) allocated the 2008 and 2009 HUD grants reimburse the HUD Housing Counseling Program for
amounts unsupported from non—Federal funds. minimum, the amount
reimbursement should include the $159,683 for the two test pay periods ($85,145 for
2008 and $74,538 for 2009).

1B. Reimburse the HUD Housing Counseling Program $65,548.37 from non—Federal funds
for the ineligible salary expenses ($13,717.55 and $51,830.82) charged the 2009

grant.

1C. Implement time and activities reporting system that complies with OMB Circular
122 and procurement system that complies with the terms CFR Part 84. recommend that HUD’s Office Single Family Housing, Program Support Division

2A. Consider placing AHCOA “inactive” status while initiates corrective actions
address the exceptions and recommendations (1A through 1C) this report.

2B. Provide AHCOA with technical assistance and guidance needed.

Comments and OIG Response
HUD’s Office Single Family Housing commend HUD’s Office Single Family Housing’s (Single Family) efforts expand
oversight through contract services ensure ongoing compliance reviews all housing
counseling intermediaries’ financial and administrative practices. Expansion oversight efforts include review financial and administrative practices will help improve and further
strengthen HUD’s Housing Counseling Grant program. Single Family’s response the draft
report included appendix

OIG Response

Single Family asserts that appendix not relevant the OlG’s major observations and
recommends removal the appendix from the final evaluation report. disagree with Single
Family’s assertion. The appendix provides description the sampling methodology used and
reflects the results the interviews performed. The appendix was adjusted accordingly with
additional information, deemed necessary. agree with Single Family’s planned actions require AHCOA provide documentation
address observations and resolve the related recommendations. OIG considers Single Family’s
response and planned corrective action sufficient close recommendation 2b. However,
regarding recommendation 2A, follow—up performance review Single Family crucial
determine whether AHCOA has taken actions correct the deficiencies identified this report
and ensure compliance with Federal requirements. Recommendations through 1C, and
remain open. OIG will follow—up with Single Family determine the status the corrective
actions taken.

Affordable Housing Corporation America (AHCOA)

AHCOA’s response the draft report did not change the reported observations: (1) salary
expenses charged the HUD housing counseling grants were not fully supported; (2) ineligible
salary expenses totaling $65,548.37 were charged the 2009 HUD grant; and (3) Federal
procurement standards were not met. While AHCOA generally does not agree with several
the observations, the response purports that they have completed many the corrective
measures suggested the OIG. HUD Single Family responsible for ensuring resolution and
implementation the evaluation recommendations. commend AHCOA’s efforts bring its
operations into compliance with Federal requirements and its willingness resolve the issues
identified the report.

AHCOA’s response the draft report included appendix Names individuals
contained within the body the response have been redacted. addition the formal
response, AHCOA provided various supplemental documents that are referenced attachments its response the draft report. These supplemental documents, identified “Confidential —
Not for Public Dissemination” AHCOA’s legal counsel, are being provided separately
Single Family’s Program Support Division.

OIG Response Allocation Salary Expenses Grants

The observation was adjusted accordingly reflect the additional payroll records submitted
AHCOA for the 2008 test pay period.

AHCOA’s response states that its records support the allocation counselor salary expenses
the HUD grant. disagree with AHCOA’s assertion, the observation and related
recommendations remain. all but three cases, the time sheets did not reflect the total activities
(e.g., distribution activities) each counselor daily basis required OMB Circular
A—l22. determination could not made what activities the employees performed
which grant charge for those activities. HUD has assurance that the salary expenses
charged the HUD grants reflected grant—eligible services. also disagree with AHCOA’s assertion that its caseload allocation method meets Federal
grant requirements. AHCOA’s claim that the impracticality tracking time spent grant was
the impetus for the caseload methodology does not absolve AHCOA from maintaining auditable
records client services and related grant expenditures required the terms the HUD
housing counseling grants. The observation and related recommendations remain.

Salary expenses AHCOA for its counselors represent direct costs charged directly the
grant for which the counseling service was provided. AHCOA’s assertion that the counselor
salary expenses are shared joint costs and the inference that OMB Circular A—l22’s treatment indirect costs applies incorrect. Indirect costs are costs incurred for common joint
objectives (e. g., accounting, human resources, and salaries executive management) that cannot specifically attributed particular final cost objective.

AHCOA’s claim that its caseload allocation system meets the criteria OMB Circular A—l22
and results equitable distribution joint costs not proven. stated AHCOA’s response
the salary expenses are direct costs. effect, AHCOA’s response supports our position that the
system does not comply with the Circular. The caseload allocation system place used
percentage derived from the ratio HUD NFMC cases, instead the actual number hours
worked employees attributable particular grant, determine the amount salary
expenses charge the HUD grants. Further, the time sheets (pre— and post—caseload allocation
system) did not distribute counselors’ time activity. The time sheets only captured the total
hours worked per day and did not contain any details (with the exception three cases)
how the time should charged grant other funding source.

AHCOA’s response asserted that OIG’s chart the draft report did not include
delinquency cases that were handled AHCOA counselors. The response specifically states
that these cases were handled pursuant HUD funding. Based that assertion, the table has
been removed. However, the table’s removal does not invalidate our observation that salary
expenses charged the HUD grants were unsupported. also note the delinquency list
reviewed OIG did not include any information differentiate case branch office. Specific Salary Expenses

AHCOA did not dispute that ineligible salary expenses were charged the 2009 HUD
housing counseling grant. Based the supplemental information provided AHCOA,
determined that the total ineligible salary expenses charged the grant was 65,548.37.
AHCOA charged the grant $13,717.55 for terminated employees’ salaries and $51,830.82 for
counseling services costs that were incurred before the 2009 authorized start date. Procurement

AHCOA asserts that services and rental space were procured fair and reasonable rates for all
instances cited. However, based review and consideration AHCOA’s response the
observation remains the same. The procurement accounting and legal services, office space,
and benefits through “associated” nonprofits did not demonstrate “open and free” competition
accordance with CFR Part 84.

Appendix — HUD’s Office Single Family H0using’s Comments (.§“:‘«‘l!‘£':V".i' {)R.:-’».:.V§}{ “

     

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