OFFICE OF HOUSING AND COMMUNITY DEVELOPMENT AUDITOR S REPORT FISCAL YEARS

Transcription

1 OFFICE OF HOUSING AND COMMUNITY DEVELOPMENT AUDITOR S REPORT FISCAL YEARS

2 April 8, 2011 Ms. Deborah McColloch, Director Office of Housing and Community Development 1234 Market Street, 17 th Floor Philadelphia, PA We have examined the financial affairs of the Office of Housing and Community Development for fiscal years 2007 through 2009 pursuant to the requirements of Section (c) of the Philadelphia Home Rule Charter. A synopsis of the results of our work is provided in the executive summary to the report. We discussed our findings with your staff at an exit conference and included your written response to our comments as part of the report. We would like to express our thanks to the Office of Housing and Community Development for the courtesy and cooperation displayed toward us during the conduct of our work. Very truly yours, ALAN BUTKOVITZ City Controller cc: Honorable Michael A. Nutter, Mayor Honorable Anna C. Verna, President and Honorable Members of City Council Members of the Mayor s Cabinet

3 OFFICE OF HOUSING AND COMMUNITY DEVELOPMENT EXECUTIVE SUMMARY Why The Controller s Office Conducted the Examination Pursuant to the requirements of Section (c) of the Philadelphia Home Rule Charter, we examined the financial affairs of the Office of Housing and Community Development (OHCD) as part of our audit of the City of Philadelphia s basic financial statements. The focus of our examination was limited to determining if department management had suitably designed and placed in operation internal controls and complied with any laws and regulations related to its revenue, payroll and other expenditure activity. What The Controller s Office Found Our current audit disclosed that the OHCD took corrective action and resolved two issues disclosed in our previous report: OHCD s Policy and Planning Unit took necessary corrective action to ensure that extensions of float loans 1 will be identified as new activity in action plans submitted to the U.S. Department of Housing and Urban Development, as required by federal regulations. OHCD has taken measures to improve financial reporting by accounting for differences associated with inter-agency receivables and payables between itself and the Redevelopment Authority, which administers certain grant programs under agreement with the OHCD. What The Controller s Office Recommends The Controller s Office did not make any recommendations in the report. 1 Float loans are interim financing arrangements to provide financing support to projects that assist the grantee in accomplishing specific Community Development Block Grant housing, community, and economic development goals.

4 CONTENTS Page INTRODUCTION Background...1 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS...3 FINDINGS AND RECOMMENDATIONS OHCD Took Corrective Action on Handling Float Loan Extensions...5 Financial Reporting Differences Involving Inter-Agency Receivables and Payables were Resolved...5 AGENCY S RESPONSE Deborah McColloch, Director...6

5 INTRODUCTION BACKGROUND Powers and Duties The Office of Housing and Community Development (OHCD) was created in 1974 to develop comprehensive strategies and programs for creating viable urban neighborhoods. OHCD accomplishes its mission through the coordination of programs for housing, economic development, site improvements and community planning. Designed to benefit low and moderate income Philadelphians, these programs are funded annually through the federal government s Community Development Block Grant. OHCD s responsibilities include: Administration of contracts with public agencies, such as the Redevelopment Authority, Philadelphia Housing Development Corporation, and subrecipient non-profit organizations. Preparation of various government reports, such as the Grantee Performance Report and, most importantly, the annual Final Statement and Plan Report, which represents the OHCD s plan and corresponding budget for community development activities. Management A director of housing and two deputy directors manage the agency. OHCD s management directs a staff of approximately 74 employees, most of whom hold exempt positions. Internal Controls Management has responsibility for establishing and maintaining internal controls to safeguard the financial resources for which it is accountable. Internal controls are designed to (1) prevent or timely detect unauthorized acquisition, use, or disposition of assets, (2) ensure the reliability of financial reporting, and (3) ensure compliance with applicable laws and regulations. Financial Resources For the fiscal years under examination, management of the OHCD was accountable for the following appropriations, estimated revenues and assets: Fiscal Year Appropriations General Fund Personal services $ 0 $ 0 $ 244,025 Purchase of services 5,000,000 4,000,000 1,143,231 Grants Revenue Fund Personal services 200, , ,000 Purchase of services 115,228,644 98,667, ,949,850 1

6 INTRODUCTION Fiscal Year Appropriations (cont d) Community Development Fund Personal services 6,157,261 6,629,777 3,461,696 Purchase of services 66,057,516 66,861,041 87,444,838 Materials and supplies 267, , ,000 Equipment 102,500 80,000 35,000 Payments to other funds 30,000 30,000 30,000 Capital Projects Fund 38, , ,000 Housing Trust Fund Personal services 900,000 1,400,000 20,000,000 Purchase of services 20,200,000 20,400,000 0 Total appropriations $214,180,921 $198,787,318 $245,973,640 Estimated Revenues General Fund Locally generated non-tax $ 5,000 $ 5,000 $ 5,000 Grants Revenue Fund From other governments 115,429,000 98,847, ,130,000 Community Development Fund Locally generated non-tax 250, , ,000 From other governments 92,442,000 93,622, ,888,000 Total estimated revenues $208,126,000 $192,724,000 $244,273,000 Assets (reported balances) Petty cash $ 3,000 $ 3,000 $ 3,000 HUD escrow account 10,510,515 21,144,920 8,431,792 State escrow account 60,841 40,472 20,993 Personal property 481, , ,430 Total assets $ 11,055,780 $ 21,666,812 $ 8,903,215 2

7 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS We annually audit the basic financial statements of the City of Philadelphia, Pennsylvania as of and for its June 30 fiscal year end and issue a report thereon. Those statements include financial transactions of various city departments and agencies. We conduct our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we consider the City of Philadelphia s centralized and agency internal controls over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Philadelphia s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City of Philadelphia s internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects an agency s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the city s financial statements that is more than inconsequential will not be prevented or detected by the agency s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by an agency s internal control. 3

8 C I T Y O F P H I L A D E L P H I A O F F I C E O F T H E C O N T R O L L E R Our consideration of the Office of Housing and Community Development s (OHCD s) internal control over financial reporting was limited to determining if its internal control components for revenue, payroll, and other expenditure activity were suitably designed and placed in operation during fiscal years 2007 through 2009, and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as described above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Philadelphia s financial statements are free of material misstatement, we perform centralized and agency tests of compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. Our consideration of the OHCD s compliance with certain provisions of laws, regulations and contracts was limited to tests of revenue, payroll and other expenditure activity during fiscal years 2007 through Grant compliance was tested and reported on as part of our single audit in accordance with Office of Management and Budget Circular A-133. Our agency tests disclosed no instances of noncompliance or other matters by the OHCD that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the management of the City of Philadelphia, the OHCD, and City Council and is not intended to be and should not be used by anyone other than these specified parties. August 13, 2010 GERALD V. MICCIULLA, CPA Deputy City Controller 4

9 FINDINGS AND RECOMMENDATIONS OHCD TOOK CORRECTIVE ACTION ON HANDLING FLOAT LOAN EXTENSIONS The U.S. Department of Housing and Urban Development (HUD) allows grant recipients to use Community Development Block Grant (CDBG) funds to provide interim financing 2 to public, private nonprofit, and private for-profit organizations if the grant recipient has a fund balance available. The purpose of the interim financing, or float loan program, is to provide financing support to projects that will assist the grantee in accomplishing specific CDBG housing, community, and economic development goals. In our previous report, 3 we stated that the OHCD indefinitely extended the pay-off date for a CDBG float loan without properly identifying the loan extensions as new activity in subsequent action plans as required by Title 24 Code of Federal Regulations Specifically, the regulation requires that any extension of the float loan repayment period be considered a new float-funded activity with the same limitations and requirements of a new activity, namely, identification of how the loan funds will be used to meet a CDBG objective. During the current engagement, we observed that the OHCD s Policy and Planning Unit had taken the necessary corrective actions to ensure that float loans extending beyond the maximum loan period will be identified as new activity in its action plans submitted to HUD. We therefore consider this finding resolved and offer no additional recommendations [ ]. FINANCIAL REPORTING DIFFERENCES INVOLVING INTER-AGENCY RECEIVABLES AND PAYABLES WERE RESOLVED In our prior report, 4 we commented about there being a $12 million difference between the amount the city reported in its Comprehensive Annual Financial Report as due to the Redevelopment Authority (RDA) and the amount the RDA reported as due from the city at June 30, Most of the receivable amount, calculated by the RDA, pertained to grant programs the RDA administered under agreement with the OHCD. According to the OHCD, the RDA was unable to explain the difference, despite detailed OHCD reconciliations that were prepared and presented to RDA management. Lacking any documentation or other evidence from the RDA, the OHCD could only dispute the existence of the unreconciled receivables. We recommended that OHCD management request the RDA to provide documentation to substantiate its reported receivable balance or reduce the balance to an agreed upon realizable amount. During our current engagement, we noted that the RDA reduced the net receivable balance by establishing an allowance for doubtful accounts. This action effectively reduced the balance to a realizable amount as the Controller s Office suggested. According to the OHCD s Director of Finance and Administration, during fiscal year 2009, the RDA provided the OHCD with detailed documentation that has reduced the difference at June 30, 2009 to less than $200,000, an amount considered immaterial. We therefore consider this finding resolved and offer no additional recommendations [ ]. 2 Interim financing may not exceed 2.5 years. 3 See Office of Housing and Community Development Auditor s Report Fiscal 2006 and 2005 dated August 27, Ibid. 5

10 AGENCY S RESPONSE 6