City of Houston, Texas

ASSISTANCE LISTING 14.231 EMERGENCY SOLUTIONS GRANT PROGRAM [Contract Numbers: E-18-MC-48-0018, E-19-MC-48-0018, E-20-MC-48-0018 and E-20-MW-48-0018] FINDING NO. 2021-001: COMPLIANCE AND SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER COMPLIANCE WITH SPECIAL TESTS AND PROVISIONS (OBLIGATION, EXPENDITURE AND PAYMENT REQUIREMENTS) Condition ? During the course of our testing for compliance with the Obligation, Expenditure and Payment Requirements applicable to the Emergency Solutions Grant (ESG), we noted that the ESG funds awarded to the City of Houston, Texas (City) were not timely obligated and expended within the timelines specified in the criteria section below. For instance, annual ESG allocations (or regular annual funding) received for years 2018, 2019 and 2020 were not obligated in full within 180 days from the date when HUD signed the grant agreement and were, on average, exceeded the 180-days requirement by 220 days. Similarly, ESG-CV funds awarded in year 2020 were not obligated within 240 days from the date when HUD signed the grant agreement and exceeded the 240-days requirement by 158 days. In addition to the above, regular ESG funds for years 2018 and 2019 were not spent within the 24 months from the date when HUD signed the grant agreement and approximately 13% of unused funds remained upon expiration of 24-months. Further, the City has not been able to progressively spend the additional allocation of ESG-CV grant funds for $21.6M at the 20% specified interval by September 30, 2021, as specified within the grant agreement. Lastly, one instance (out of fifteen (15) sampled and tested) was noted where a subrecipient was not reimbursed within 30 days after receiving the subrecipient?s complete payment request and acknowledged by the Relationship Manager (per the process established by the City). The subrecipient was paid 10 days late. Criteria ? As indicated in the July 2021, OMB Compliance Supplement, ESG funds allocated to metropolitan cities must be obligated within 180 days after the date that HUD signs the agreement while ESG-CV funds must be obligated within 240 days from the date HUD signs the agreement. Grant recipients must also expend ESG funds for eligible activity within 24 months after the date HUD signs the grant agreement with the recipient. Further, up to 20% of ESG-CV funds for both first and second allocation amounts, must be spent by recipient by September 30, 2021. Grant recipients must also pay each subrecipient for allowable costs within 30 days after receiving the subrecipient?s complete payment request. Perspective Information ? Subsequent to fiscal year 2021, the City is seeking a compliance waiver from HUD to ease program requirements for obligating and spending program funds for ESG-CV grant. Cause ? The City has been overwhelmed with several grant awards with short and similar requirements for spending deadlines while also coping with delays in services due to the impact from Texas Severe Winter Storm, another federally declared disaster, and staffing shortages, shutdowns and restricted services caused by COVID-19 pandemic which, also heavily impacted its subrecipient partner organizations. Effect or Potential Effect ? The City is not in compliance with the terms of ESG grant agreement and is at risk of recapture of its ESG-CV allocated funds, as per 24 CFR ? 576.501. Identification of Repeat Finding ? Not applicable since this is a new finding. Recommendation ? Management should consider revamping its spending plan and develop mechanisms to accelerate service levels to improve spending pattern so that it could meet the award requirements for both ESG and ESG-CV funds. Further, there is a need to identify alternative service mechanisms and devote additional resources (which includes identifying additional service providers), to enhance management?s service capacity levels. Views of Responsible Officials ? Management does not disagree with this finding.

ASSISTANCE LISTING 14.218 - COMMUNITY DEVELOPMENT BLOCK GRANTS / ENTITLEMENT GRANTS FINDING NO. 2021-002: SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER COMPLIANCE WITH REPORTING REQUIREMENTS Condition ? While testing the Section 3 Annual Summary Report filed by the City of Houston, Texas (City) for fiscal year ended June 30, 2021, with the U.S. Housing and Urban Development (HUD), we noted a reporting error in the total dollar amount of construction contracts awarded during the period July 1, 2020 through June 30, 2021. The Section 3 Repot submitted on September 2, 2021 reported the construction award amount to be $181,550.75 instead of the correct amount for $658,071.75. Criteria ? The City is required to submit Section 3 HUD Form 60002 to U.S. HUD within 90 days of the end of its fiscal year. Reports filed with HUD must be accurately completed and reported data must be reconciled with underlying records. Perspective Information ? This clerical error was discovered as part of our audit process and management filed a revised Section 3 Report on November 16, 2021. Cause ? Microsoft Excel file which summarized all construction contracts awarded during fiscal year ended June 30, 2021 had a footing error that resulted in reporting an incorrect amount. Effect or Potential Effect ? Apart from reporting error, no significant effect was noted since none of the construction contracts were awarded to Section 3 businesses during fiscal year 2021. Identification of Repeat Finding ? Not applicable since this is a new finding. Recommendation ? We recommend that personnel responsible to prepare Section 3 reports should perform a thorough review of data reported in such reports to ensure consistency and accuracy of reported information. Additionally, there is a need to further strengthen the process of supervisory reviews before such reports are released for filing with U.S. HUD. Views of Responsible Officials ? Management does not disagree with this finding.

ASSISTANCE LISTING 14.218 - COMMUNITY DEVELOPMENT BLOCK GRANTS / ENTITLEMENT GRANTS FINDING NO. 2021-003: SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER COMPLIANCE WITH REPORTING REQUIREMENTS Condition ? The City, as a direct recipient of the Community Development Block Grants / Entitlement Grants, did not comply with the reporting requirements under The Federal Funding Accountability and Transparency Act. The City did not register with the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS), as such, no subaward data was reported through FSRS. Criteria ? The Federal Funding Accountability and Transparency Act (Pub. L. No. 109-282), as amended by Section 6202 of Public Law 110-252, hereafter referred as the ?Transparency Act? that are codified in 2 CFR Part 170, recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the FSRS. Perspective Information ? The City has not registered with FSR to report subaward data. Cause ? Personnel responsible for grant compliance at Housing and Community Development Department was not aware of the requirements of Transparency Act. Effect or Potential Effect ? The City is not in compliance with the terms of the grant award document set forth by the grantor and requirements of the Transparency Act. Identification of Repeat Finding ? Not applicable since this is a new finding. Recommendation ? We recommend that the City register with FSRS and report subaward data through FSRS to comply with the requirements of the Transparency Act. To do so, it will be first required to register in the System for Award Management (SAM), if it has not done so previously for another purpose and actively maintain that registration. Views of Responsible Officials ? Management does not disagree with this finding.

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