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Detroit Has Until Jan. to Improve Its Federal Grant Management

A report from the U.S. Department of Housing and Urban Development found that the city had 28 issues, including insufficient oversight, conflicts of interest and inaccurate documentation, in its administration of federal grants.

(TNS) — A federal review has turned up insufficient oversight, conflicts of interest and inaccurate documentation in the city's administration of federal grants, and Detroit, Mich., has until the end of January to turn over its plan to correct it.

The findings were laid out in a report from the U.S. Department of Housing and Urban Development. The federal agency conducted remote monitoring from June 7 through June 28 to assess the city's compliance with grant program requirements.

The Sept. 23 report, obtained by The Detroit News under an open records request, flagged 28 findings and one concern tied to record-keeping and spending processes for Community Development Block Grant operations overseen by Detroit's Housing and Revitalization Department in partnership with the city's Office of the Chief Financial Officer.

Officials with the city's Housing Revitalization and Development Department said Detroit has already resolved some of the issues but still must present to the U.S. Department of Housing and Urban Development its plan to address the rest by the end of January.

The federal funds are earmarked for initiatives like affordable housing, anti-poverty programs, infrastructure development and economic opportunities for low-income residents.

Procurement records for federally funded services were "either missing, incomplete, inconsistent, or inadequate," according to HUD's report.

It's unclear whether the city of Detroit would need to repay any money to the federal government if these latest issues aren't cleared up, but the city currently owes HUD about $1.8 million from problems identified in past reviews of Detroit's Motor City Match, a program to aid entrepreneurs. City officials have said they expect they eventually won't have to pay back any money from past reviews.

Officials with HUD's regional office in Chicago deferred to a national press office, which did not provide comment this week. The monitoring report was circulated within the city's Housing and Revitalization Department and Detroit's administration. It was not distributed to the City Council.

The city of Detroit has a long history of issues with grant spending. The latest audit was far more extensive than years prior, said Julie Schneider, director of Detroit's Housing and Revitalization Department and a former HUD employee who used to conduct monitoring reports.

HUD made clear Detroit's latest issues undermine confidence in the city's handling of federal money.

"The city's financial reporting loses its integrity when the cost support doesn't match the accounting entries," the HUD report warned. "Insufficient support leads to concerns over the proper use of the grant funds."

Schneider issued a response to the HUD report on Oct. 25, noting 35 corrective actions were in the works and requesting a 90-day extension through late January to complete them.

The city, she told The News, intends to develop and strengthen policies for HUD's review and then will implement them.

"I'm confident that we're going to close out these findings as soon as possible within the next couple of months based on the work that we've been doing to respond to HUD," said Schneider, who has worked for Detroit for about six years and was recently appointed to head its Housing and Revitalization Department.

HUD staff is "continuing to review all of the additional documentation that we provided," she said, and the city has provided responses when required and remains on track.

Mayor Mike Duggan did not respond to a request for comment.

The review is the latest in recent years to raise issues with the city's use of federal grant money.

In 2019, Detroit temporarily suspended the use of federal funds for Motor City Match, a program to support entrepreneurs and championed by Duggan, over its record-keeping and whether funds were used appropriately.

HUD has been monitoring the city's community block grant records since May 2018. In the last report, nine findings and one concern were issued by HUD staff.

HUD notes a "finding" is a deficiency in program performance based on a violation of a statutory or regulatory requirement. A "concern," the agency said, is a deficiency not based on a statutory or regulatory requirement but is brought to the grantee's attention.

HUD reviewed the city's Community Development Block Grant program, emergency funding for nonprofits that provide shelter and services for homeless individuals and families, funding for community development efforts as well as overall management systems. It also assessed the Housing Opportunities for Persons with AIDS Program, which Schneider said hadn't been monitored in six years.

"Typically, it is one- to two-year grants, and this one was eight grant years associated with four different programs," she said.

Keith Hernández, director of the Office of Community Planning and Development for HUD, in a November response to the city, noted 26 issues remained and were to be addressed by Jan. 14. Schneider said the city is assuming it has until Jan. 25 because the last correspondence with HUD didn't reject the city's extension request.

'What's Happening in Detroit Is Typical'

The city has a long history of issues with its administration of federal grants.

During the city's bankruptcy, the Ford Foundation stepped up to hire a consultant to review and recommend ways to improve how the city handled its federal grants after past funding awards had been forfeited due to poor oversight.

At the time, ex-Emergency Manager Kevyn Orr said he didn't believe any of Detroit's grant programs complied with federal rules.

An internal June 2013 report on Detroit's grant management status noted every grant-receiving department in the city had "performance issues," many of which had been identified in annual audits. The poor performance, the 2013 report noted, left Detroit in jeopardy of losing funds and led to increased federal oversight.

Former Detroit Mayor Dave Bing attempted to get a handle on the city's grant troubles with a management database and he recommended a five-person unit to monitor the process.

Under Bing, the city sought to shed three departments — human services, health and workforce development — for mishandling federal funds. The three areas together accounted for more than half of the department-specific findings and questioned costs in audits conducted in 2011 and 2012.

In November 2011, Detroit forfeited more than $9 million in weatherization funding because it didn't spend it as quickly as other communities. Another audit found a portion of an $11 million grant to provide clothes for 400 low-income job seekers helped only two people between October 2010 and September 2011.

The city's Office of the Chief Financial Officer has worked to overhaul various operations during Duggan's tenure, including grants management.

Schneider stressed to The News that the current findings, dealing primarily with record-keeping, are "of a very different nature" than issues the city had faced with federal grant administration in the past and "we are taking it very seriously."

Alexandra Abrams, a spokeswoman for the government watchdog group Citizens Against Government Waste, argues Community Development Block Grants, in general, have been problematic for years and should be eliminated "as it does not help the poor."

The use of grants was intended to be flexible, but more than $100 billion given away to local governments over the last 35 years, she said, has fallen short on accountability and results.

"In fact, the formula for eligibility does not take a community's average income into account. Several very wealthy cities with robust tax bases have received CDBGs dollars," she said. "Corrective action is necessary to reform the many problems with the program.

What's happening in Detroit, she added, is typical of such a mismanaged federal program.

"There are too many duplicative grants which lead to a significant waste of money," Abrams contends. "The problems in Detroit will only get worse."

HUD Notes Documentation Problems

Among the findings in its September monitoring, HUD noted a random review of 18 journal entries from accounting records provided by the city tied to grant administration.

Due to time constraints, HUD only was able to evaluate 10 of them. Within those, one entry for $2,307.33 was recorded on Sept. 26, 2019, but the cost documentation added up to $34,964.93 and "no explanations were provided for the $32,657.60 difference," it reads.

Another CDBG entry for $28,036.23 posted on Jan. 31, 2020, lacked documentation, and others evaluated did not include calculations for how costs were allocated to various programs, had ineligible fees, or missing drawdown documents.

"The City's financial management procedures didn't include making sure information was contained in the documentation to explain how the costs matched up to the entries in the accounting records," the HUD report notes.

For example, the report added, the United Community Housing Coalition provided a bill from New Technology Development for $19,152.33 for rental and storage space but did not provide evidence to support how that cost was allocated. The city's financial review, it reads, "did not require the detail be provided."

We 'Continue to Address Issues'

Schneider said the HUD report represents nothing more than a record-keeping issue and costs that are being disputed.

"We have been providing that documentation to HUD to make sure that those are updated, but if they were concerned that it was more than a record-keeping issue, the response wouldn't have been 'just update your policies and procedures to make sure that this doesn't happen again,'" Schneider said.

"I want to get these findings closed out quickly and make sure we're making the changes pointed out in the document," she said, adding the city is continuing to work with HUD to resolve outstanding issues with older findings from past reports.

Following a watchdog report in January from the city's Office of Inspector General, HUD proposed that $2.6 million in grant funds be paid back based on an initial review of Motor City Match program documents from past years.

However, upon providing further documentation in October, the Housing and Revitalization Department reduced that to $1.8 million, "and we continue to address issues and are awaiting HUD's response," Schneider said.

She added that while she doesn't anticipate it, any money that would have to be paid back would not leave the city or result in a net loss of federal funds.

"But to be clear, if HUD determines that we do in fact need to repay anything, the city would pay that money back into the Detroit program to use for other eligible expenses here in Detroit," she said. "It would not be sent back to Washington. Any repayment, if necessary, would be made using a non-federal source, such as the city's general fund."

Motor City Match Issues

Duggan launched Motor City Match in 2015 to jump-start entrepreneurship in the city.

The initiative came under federal review in 2019 over record-keeping practices and questions over the appropriate use of funds. The findings prompted HUD to ask the city to temporarily suspend the use of federal dollars in May of that year until the concerns that the program was not adequately targeting low- to moderate-income areas were addressed.

In a January report, Detroit Inspector General Ellen Ha detailed excessive spending and a lack of oversight for the match program. Duggan and his administration countered the findings as "not in step with reality."

Ha's report noted weak controls for issuing payments and that nearly 77 percent of the businesses the program assisted failed.

HUD spokesman Mike Burns told The News in late October that HUD issued findings following the January inspector general report and that HUD did allow spending of those funds to resume in September.

"There were outstanding issues (in the Motor City Match program) we're working with the city to resolve," he said at the time. "The program has started back up with sufficient controls in place by the city to make sure funds are being spent with HUD guidelines going forward."

Ha told The News this week she has not received any additional complaints about the prior monitoring report. If HUD has already made findings and proposed corrective action, she said, it is not necessary to duplicate efforts that will likely produce the same results.

"However, that does not mean that OIG would not become involved, if necessary," Ha said in a statement. "It is our hope that the city's leadership seriously considers recommendations made by our office and HUD to make corrections in the city's process and procedures to prevent future issues with grant funding."

In 2018, after previous monitoring concluded, city officials disclosed to HUD about a dozen instances of either city employees or their relatives participating in and benefiting from the Motor City Match Program.

The News previously reported three city workers had received nearly $30,000 in subsidies under the program despite guidelines barring them.

HUD, in its latest report, advised the city to provide disciplinary actions for violators. In the November response letter to Detroit, Hernández noted the city is complying with Federal Conflict of Interest regulations and closed out that finding.

The mayor this spring touted plans to use $26 million in pandemic relief dollars to double Motor City Match grants, providing $500,000 each quarter to new start-up businesses for the next three years.

Motor City Match wasn't the only grant-funded initiative with a conflict of interest noted by HUD.

Conflict Issues Surface

Detroit Health Department's Chief Public Health Officer Denise Fair Razo sits on the board of directors of the Southeastern Michigan Health Association, which the health department has contracted to provide administrative and fiduciary services for its federally funded Housing Opportunity for Persons with AIDS program.

" Detroit Health Department's written conflict of interest provisions are inadequate," the monitoring report reads. "And although HRD ( Housing and Revitalization Department) has written conflict of interest provisions, there are no internal review or enforcement procedures in place to ensure sub-recipients and other city departments comply with those provisions (this was a documented issue with the Motor City Match program as well)."

In this instance, Schneider said they will be submitting a letter of exception request saying Fair Razo doesn't have any ability to influence contracts or spending in that role.

"This is a lot of policies and procedures, administrative updates that we need to make," she said. "It wasn't a concern about whether or not we're spending money on things that are eligible under the federal guidelines or that there are people benefiting from it that aren't the target population."

(c)2021 The Detroit News. Distributed by Tribune Content Agency, LLC.

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