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City escapes CDBG cloud

October 10th, 2012

A scathing 2008 HUD audit that led to the firing of City of Newburgh City Manager Jean-Ann McGrane has been resolved with a hard-earned corrective action verification from the U.S. Department of Housing and Urban Development.

The notice of corrective action, dated Sept. 21, 2012, reads:

“We completed a corrective action verification of the recommendations made to HUD’s Office of Community Planning and Development (CPD) pertaining to our review of the City of Newburgh, NY’s Section 108 Loan Guarantee Program, Audit Report 2009-NY 1001, which was issued Nov. 7, 2008. The purpose of the corrective action verification was to determine whether the audit recommendations included in the subject report were properly implemented and the deficiencies cited were corrected.”

“No deficiencies were noted as result of the corrective action verification, the audit recommendations were properly implemented, and the deficiencies in the report were corrected.

The statement followed a six-week on-site review in the City Department of Planning & Development.

City Manager Richard Herbek, responding to the HUD notice of corrective action, said he was told that it is very rare for such a notice to contain no deficiencies.

Herbek shared the news at a recent City Council meeting, saying, “a HUD official told me this was only the second time in his memory that he has seen a report issued with no recommendations.”

The city manager credited Community Development Director Courtney Kain for her efforts ensuring that all corrective action recommendations were properly implemented and documented.

The audit report from the Office of the Inspector General dated Feb. 24, 2009 stated that “the City of Newburgh, New York, did not always administer its Community Development Block Grant Program in accordance with HUD requirements.”

“We audited the City of Newburgh, regarding its administration of its Community Development Block Grant (CDBG) Program because of issues identified during our initial audit of the City’s Section 108 Loan Guarantee program,” the notice from Edgar Moore, regional inspector general for Audit, 2AGA, to Vincent Hom, director of Community Planning and Development, 2ADM read.

“The objective of our audit was to determine whether the City (1) administered its CDBG program effectively, efficiently and economically in accordance with applicable rules and regulations, and (2) expended CDBG funds for eligible activities that met a national objective of the program.”

What the audit found:

“The City did not always carry out its activities effectively, efficiently, and economically in compliance with HUD regulations. Further, it expended CDBG funds for activities that did not meet a national objective of the program. Specifically, the City disbursed CDBG program funds for questionable administrative expenditures. It routinely charged certain costs, including wages, fringe benefits, and other overhead costs, to the CDBG program without adequate support or detail. Consequently, it could not ensure that only reasonable and necessary administrative costs were charged to its CDBG program.”

The report also said that the city didn’t establish adequate administrative controls to ensure that CDBG programs administered by the city or through a subrecipient complied with applicable HUD regulations.

“Specifically, it could not adequately demonstrate that CDBG program funds were used for eligible and necessary activities or that funded activities achieved program objectives. Consequently, the City’s ability to administer its programs efficiently and effectively, monitor the activities of a subrecipient, and ensure that CDBG program objectives were met was diminished,” the report stated.

“In addition, the City did not establish adequate administrative controls to ensure that contracts were properly procured and executed and that the services to be provided were clear to ensure compliance with applicable regulations. As a result, it awarded a contract for consulting services without ensuring compliance with federal procurement requirements, and the CDBG program was charged for the costs of the contract without evidence that all of the contract services provided for related to the City’s CDBG program. Consequently, program funds may have been expended for services that were not necessary or reasonable.”

What was required of the city?

The recommendation that followed required the City to provide supporting documentation to justify the eligibility of $894,793 in questionable CDBG disbursements or reimburse the program from nonfederal funds for any amounts not supported. It also required the City to establish procedures to ensure adequate monitoring of subrecipient-administered activities and that it establish procedures to ensure compliance with CDBG program requirements.

Although the city generally disagreed with the audit’s findings, it followed through with its demands, thereby avoiding future problems.

“We basically did what they told us to do,” CDBG Director Kain said.

Among the city’s corrective actions was the recovery of $1.9 million from marina developer Thomas Glendening and repayment of a loan for a proposed Crystal Lake industrial park.

By ALLAN GAUL
agaul@tcnewspapers.com

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