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Judicial Watch • HUD OIG Report AHCOA Response Acorn 752011

HUD OIG Report AHCOA Response Acorn 752011

HUD OIG Report AHCOA Response Acorn 752011

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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-10-002 

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, perfonned 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 salary and fringe benefit costs (salaty 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 .191 million percent .FY 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: 

Payroll records requested did not comply with Office Management and Budget (OMB) Circular A-122, 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 

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-122. 

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. D'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. Reeonnncndations through lC, and remain open. The "Comments and OIG Response" section this report contains evaluation the responses. 
Table Contents 
Introduction
......................................................................................... ............................................. 

Scope and Methodology ...................... ....................... ..................................................................... 

Observations 
Salary Expenses Were Not Fully Supp0rted ................... ......... ............................................ Ineligible Salary Expenses Were Charged

......................................................................... 
Federal Procurement Standards Were Not Met .......... ..................................................... 

Recommendations

............ ...................... ................ ........................................................................ 

Comments and OIG Response

............ ........................ ......................................... .......................... 

Appendixes 
HUD's Office Single Family Housing's Comments .....................................................20 Affordable Housing Corporation America's Comments
............................................... 
Other FedeJal and Non-Federal Funding Sources .............................................................33 
Client Case Sampling Methodology and Results ............................................................... 

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 arc 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 ... 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.2 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. 
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 (AH A). has offices citjes, 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, AIIC 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 effoctivc 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 (NcighborWorks), 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 of2008 (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. ABC's executive management emphasized that all "first-time" home 

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 foes based three-tiered structure that defines the estimated cost for counseling activity, capped $350 per individual client counseled. early 2008, C'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 ... track minutes that they worked each case. With the foreclosure crisis exploding, and counselor caseloads doing the same, simply was not feasib1e 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 scrvicc-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 ABC'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. 
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 llUD 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 managcrs,11 housing counselors, and random sample ofprepurchase housing counseling clients.We 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 AllC's general counsel present during interviews current regional directors and 
branch office managers. Sec 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 $1.19t 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 dctcnnination 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. 

Article X-Payment Requests, Documentation Expenses, requires AHC 
... maintain source docwnentation 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. 

ABC'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. CDAU -Community nevelopment 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. 

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 
11funds 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 break.out 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' 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 prcpurchasc 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 Resul. 
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-122. The ineligible salary expenses totaled $65,548.37. 
Costs Billed for Salaries Terminated 
AHC's billing salary expenses for counselor services included pay periods after employment tennination for six employees, resulting the grant being overbilled $13, 717 .55 (see table 
below). AHC billed the services 105 counselors llUD 2009. examined employee personnel files, which included employees that were identified potential overbilling cases, during our analysis AHC records. For the eight employees, documentation confinning 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. 

Total $13,717.55 interviewed three the te1minated employees. Two confirmed the date tennination. The third said that she had terminated her employment weeks earlier than the date cited C's records. 
Costs lncurred 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]hc Period Performance shall begin October 2008 and expires midnight 
September 30, 2009." Further, article IX-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 llUD 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 arc not intended over the total costs carrying out grantee's counseling program. 
Observation .t'ederal 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.13 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 ptocurement 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." 
and Services 
AHC obtained accounting and legal services from nonprofit organization, Citizens Consulting, Incorporated (CCT), 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 descnbed !C's financial statements nonprofits that are controlled 
independent boards ofdirectors but share certain conuoon operating costs. ABC's total expenditures (3.84 and 4.55 percent during 2008 and 2009). C'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 C'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 length" 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 CCT 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 conforence 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. 
14Refer observation -Salary Expenses Were Not Fully Suppo11cd. 
Moreover, because the cited leasing arrangements were with "associated" nonprofits, the lease arrangements were essentially sole source transactions, not "arms length" 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 llUD counseling grants based percentages employee gross pay charged the HUD grants. AHC ended its relationship with ClllP 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 and2009, 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 llcalth Plan] and CBA and responsible for replacing CHP with CHIP. One the four trustees was the president AHC." example, the memorandwn 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 IIUD'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 	Provide support for the salary and fringe benefit costs salaiy 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). 	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. 	Implement time and activities reporting system that complies with OMB Circular A122 and procurement system that complies with the terms of24 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 (IA through lC) this report. 

2B. 	Provide AllCOA with technical assistance and guidance needed. 
Comments and OIG Response 

HUD's Office Single Family Housing commend IIUD'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 D's Housing Counseling Grant program. Single Family's response the draft report included appendix 

OIG 
Single Family asserts that appendix Dis not relevant the OIG'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 lC, 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) ineligibJe 
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. connncnd AHCOA's efforts bring its 
operations into compliance with Federal requirements and its willingness resolve the issues 
identified the report. 
AHCOA 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, arc being provided separately Single Family's Program Suppo11 Division. 
OIG 
Allocation Salary Expenses Grants 
The observation was adjusted accordingly reflect the additiona] 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-122. determination could not made what activities the employees perfonned 
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-122's treatment indirect costs applies incorrect. lndircct costs arc 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-122 and results equitable distribution joint costs not proven. stated AHCOA's response the salary expenses arc 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 nwnbcr 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 tluee cases) how the time should charged grant other funding source. 
AHCOA's response asserted that OlG'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 infonnation differentiate case branch office. Specific SaJ:ary Expenses 
AHCOA did not dispute that ineligible salary expenses were charged the 2009 HUD housing counseling grant. Based the supplemental infonnation 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 einployees' 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 tlu-ough "associated" nonprofits did not demonstrate "open and free" competition accordance with CFR Part 84. 
Appendix -HUD's Office Single Family Housing's Comments 

n:((Uin:nicnls, OIG condu1.k