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Audit: Lax oversight in city savings program

Wednesday, January 24, 2018 by Jo Clifton

City employees overseeing a program to help low-income residents pay for school, buy a home or start a business failed to provide the oversight necessary to prevent waste of city and federal dollars, according to a draft audit from the Office of the City Auditor.

The program, called the Matched Savings Account, allows participants to receive up to eight times the amount they have saved, for a maximum match of $4,000 per person and $8,000 per household.

Auditors said the Neighborhood Housing and Community Development Department, which oversees the program, frequently released program funds without reviewing key supporting documents to make sure that the money was being spent appropriately.

In order to make a decision about which applicants should receive funding, NHCD puts together what are called funding authorization packets. Auditors reported that 72 percent of the funding packets they studied indicated problems. Those problems included missing documentation and “evidence that participants violated NHCD’s written program guidelines regarding maximum and minimum savings requirements.”

Auditors said that NHCD staff prioritized providing benefits to participants as opposed to oversight of the program, “resulting in program spending on questionable transactions and potentially ineligible participants.”

In total, auditors said the problematic authorizations added up to $220,000 in program funds.

Recently the federal government decided not to renew the grant, but the city has until March to spend its remaining federal funds. NHCD staff is now “considering whether or not to continue to offer this program using exclusively City funds,” the audit says.

The Council Audit and Finance Committee is scheduled to hear a presentation on the audit this morning.

Federal legislation defines the program’s purpose as promoting savings as a tool for economic self-sufficiency and to help stabilize households.

“However,” the audit says, NHCD “program staff and supervisors stated that the primary goal of the program is to transfer funds to participants, under the logic that providing capital to low-income individuals is an effective means of reducing poverty. Awarding funds is a key component of the MSA program. However, staff’s emphasis on distributing funds appears to have affected their attitude towards the safeguarding of those funds.”

In addition, auditors found that staff members believe that it was “not their job” to decide whether a participant might be misrepresenting their financial situation when applying for the program.

When the audit team discovered that one program participant had a business with $100,000 in sales, they brought it to the attention of NHCD staff. But NHCD said it would not be appropriate to reconfirm an applicant’s eligibility once they were in the program. Additionally, NHCD staff told auditors that it was not appropriate for them to evaluate participants’ proposed use of funds.

“The program supervisor asserted that the goal is to use up all of the program funds, stating the department ‘doesn’t want to send the money back, we want the customer to benefit from the asset.” Auditors stated that program funds should only be released upon evidence that they will be spent appropriately, like other taxpayer dollars.

Auditors also found that NHCD staff had authorized funds for home purchases “without reviewing evidence that the participants in question were actually in the process of buying a home.”

Although it is not clear why, auditors also found that “NHCD staff, including the program manager, approved the use of City funds to purchase a prepaid gift card for that same program manager in the amount of $616.”

The program supervisor apparently was not familiar with the city’s credit card policy and said that she approves credit card purchases without reviewing them, believing that the department’s financial staff would review the purchases for legitimacy. The financial team, however, said that it does not review purchases for legitimacy or evaluate any supporting documentation.

“We found evidence that the City’s credit card policy was violated, that oversight of the credit card purchases was particularly lax, and that purchasing practices using the city’s credit card may increase the risk of fraud,” the audit says.

Auditors found that 27 percent of the funding packets that involved use of the city’s credit card did not include evidence that the credit card use had been preapproved.

In another instance, auditors found that “the City paid both an individual and a pawn shop, ostensibly for laptops. There was no evidence that management reviewed any supporting documentation explaining why the laptops were not purchased at a retail store,” leading auditors to wonder whether the purchases were actually appropriate.

Auditors also found that the city paid $2,171 for a gaming desktop and monitor for a participant. They found no supporting documentation to explain how the purchase fit with the program, they said.

Auditors found serious problems with participants who said they were funding new businesses with the program money. Only 34 percent of the businesses that got money from the program appeared to be active, auditors said. NHCD also provided $20,000 in program funds to “a series of artists who appear to be professionally connected. Although each of the required business plans promised forthcoming albums or other work, we found no evidence that this output was released. It is possible that one individual found that it was relatively easy to receive $4,000 from the City and informed their colleagues about the opportunity,” auditors said.

Management said in its response that it had already implemented a routing review form to ensure that a program manager reviews applications before funds are released. It also promised that all applicable staff would receive updated training on use of the city credit card by the end of September and that the Finance Division will approve any purchases before transactions were done.

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This story has been corrected: The problematic authorizations add up to $220,000, not $222,000. Photo by John Flynn.

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