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HUD NSP Monitoring of Subgrantees by Grantees, 5/5/11 Kent Buhl: So that brings us to the main event, "Monitoring of Subgrantees by Grantees." This webinar is the second in the series of webinars, and it gives advice on effective monitoring techniques in the NSP process. This webinar, building on the previous session, covering the monitoring of NSP grantees by HUD, will now discuss the monitoring of subgrantees by grantees in the execution of their NSP grants. This webinar is for NSP 1, NSP 2, and NSP 3 grantees and their partners. For those of you new to NSP webinars, please know this is an interactive event and we will include time for your questions. So with us today -- Jessie Handforth Kome from HUD central. Jessie Handforth Kome: Hello. Kent Buhl: Hi, Jessie. We thought that David might be with us today. John Laswick: No. He's got a daughter with strep throat. Kent Buhl: Oh, dear. That's no good. And so in his stead we have John Laswick also joining us. Jessie will be doing the heavy lifting today, but welcome to you both. John Laswick: Thank you. Jessie Handforth Kome: Thanks. Kent Buhl: I'll just give you the ball, Jessie. Here you go. Jessie Handforth Kome: [inaudible]. I like that when they give you the power to push the arrow. Okay. I'm Jessie Handforth Kome. I'm the deputy director of the Office of Block Grant Assistance. And John, with me now, is now promoted officially to NSP team co-leader with David Noguera. So you can imagine a round of applause going off in the background for you, John. I'm sure everybody's cheering. And today, what we're going to talk to you about is the reason that we're all here. We'll cover the agenda. We're going to be talking about your responsibilities for monitoring subrecipients and how we think about monitoring subrecipients and how we'd like you to think about monitoring subrecipients. We'll tell you about why you do it; what your obligations are -- sort of the minimum necessary; an approach to monitoring; some steps on the process; how you get ready; how you staff for it, or some ideas on that -- everybody has different ways of staffing for it; actually carrying out a monitoring visit; and findings and concerns and how you follow up, which is critical. A lot of grantees do monitor and then never do anything if they find something.

HUD NSP Monitoring of Subgrantees by Grantees, 5/5/11

So as we go through, I'll do small bursts of walking through different scenarios in the slides and then taking questions. So feel free. We definitely want this interactive. And also, on Tuesday I asked HUD staff -- and I can tell there's HUD staff and some ex-HUD staff that are also on this webinar, from looking at the participant list. And we'd like to encourage them if they have specific examples that can support, as we go along -- real-life examples in the field -- to chime in here and there. So what should you monitor? We can read off all of these reasons. Improve subrecipient and contractor performance. That's the big emphasis of the way that I like to approach monitoring, the CPD likes to approach monitoring. It's not about "gotcha" and catching you. But you really want your subrecipients and contractors to carry out the program in a way that will produce the output in the contract and the outcomes that you're funding them for. You're not funding just to get a household in the house. You're funding them because you want to stabilize the neighborhood. And monitoring is a way that you can stay on top of this and make sure the work gets done, kind of like keeping an eye on cake in the oven, and getting it out at just the right time. You want to carry out your CDBG program in a timely manner; your NSP program as well. You want to hit all of those deadlines. Comply with regs. Improve management quality. Sometimes it's another set of eyes looking at things can really help improve how programs get carried out. Solve problems before they're unsolvable. Improve communications. We talked Tuesday a lot about monitoring is a conversation; a continuing relationship. Save time. And avoid audit hassles; that's an important one. Another one is, in this budget environment, the kiss of death for programs -- I'm sitting actually in an office where I can see Capitol Hill. I can actually see the Capitol building. And it reminds that there are people watching us. You want to carry out the program in a way that doesn't make them want to cut all our funding or take it back before you can finish what you're doing. And in this budget environment, it's very important to keep that in mind as well. There are many moving parts in your program. You need a lot of people helping to carry out your program. And most NSP grantees have a lot of programs and projects and partners and payments and invoices and program design elements; data. You've got staffers running around; subgrantees; lots of different timelines and milestones; things to keep track. And it seems like it's impossible to constantly oversee every program or project. You have to approach it in a systematic way, instead of panicking the whole time and running around. We're in this for the three-year period or four-year period it takes to carry out the program, not -- for the long haul. It's a marathon, not a sprint.

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So what are your goals for monitoring? You want to assess the quality of your subgrantee's performance. And while you're there, you want to make sure that they're also in compliance with program rules, particularly the real serious tripwire rules and the terms of their contracts, the way you run them, the things that you thought were important. You want to address subgrantee management deficiency and design corrective action. You want to work with them to either improve their performance, or if they're doing well, to make sure that they can keep doing well in the future. And when they're doing really well, you want to not just highlight their accomplishments, but get out there and say, well, how can we use this subgrantee's work to make some of our other people better? Identify the best practices those other partners can use. And if you identify best practices that you think might be national best practices, let your field office know and that can be passed to us to be used as part of a toolkit or something in the resource library for NSP or for everyone. Program design is critical to program success. When we did all the needs assessments on NSP grantees -- and we've done more than 100 needs assessments now and more underway -- and we analyzed the data that we got back from the needs assessments and we looked area by area on program design and ability to finance a deal and ability to handle your own financial internal stuff and compliance issues and all the different areas that they look at. The one issue or area that grantees that were really struggling had in common -- almost without exception -- was that their program design didn't match their market or were not within their capabilities to carry out. So good program design, paying attention upfront, turns out to be critical to program success. Even grantees that we thought were low capacity, if their program design matched their market and matched their ability to carry it out, they were moving forward. Monitoring them verifies that the program is implemented as designed, or sometimes that it cannot be implemented as designed. It provides feedback both to the grantee and the subgrantees. It is a conversation. It is something that you both learn from. And it can demonstrate successful program implementation and compliance, and document subgrantee accomplishments. John Laswick: Let me throw in, Jessie, that we've had some conversations lately with grantees with different programs -- 1 and 2 -- and there's sort of a fear of amendments; and sometimes, especially with NSP 2, where they get re-rated. And let me just tell everybody that if you have a program that's not working because it's poorly designed, we are not only not opposed to your amending it, we would really support that. So it's not too late to say, hey, this just isn't going anywhere; let's switch gears and accomplish something equally meaningful but perhaps with a different unit mix or product type or whatever. Jessie Handforth Kome: Absolutely. Pleas ask for technical assistance. This is one of those extremely years that we're about to enter into -- starting in September -- where we actually have enough TA resources that if every single grantee asked for help in the current year for NSP, we could get you help.

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So if you have an issue where you are stuck, even if you just need four hours to talk to a specialist about how do I unstuck this particular deal, contact your field office. "Well, I don't know." If they can't handle your question, we have some resources in this coming year to be able to help you. And program design is one of those areas where we know that about one-third of grantees -- so far as we can tell -- have issues around program design. Sometimes it's just not knowing what you don't know. You know how it's not working but you don't know how to make it work. So in monitoring you want to reduce risk. Right upfront, you do your best to select qualified and competent partners. Although sometimes we all know that -- sometimes there are political [inaudible] by picking people that maybe aren't as qualified to you in your obligations to them. You're going to set up your management policies and procedures. We prefer that you write those down, even in a nice, terse way, with the who, what, where, when, and how stuff and how much written down. And then, monitoring verifies the competence of your partners. You're aiming to reduce risk. So you look at your partners. Are they low-risk or do they require technical assistance? Sometimes if you're trying to stabilize a neighborhood and there's a nonprofit there that isn't all you could wish, you would still fund them, but then you're going to have to give them help and you're going to have to monitor them to bring them up to speed, because that's part of your plan for stabilizing your neighborhood. It's a risky strategy, but sometimes it needs to be done. You want to allocate your scarce grant management resources efficiently. I'm talking about the [inaudible], right? You don't have a lot of grant management resources. You want to check on who's minding the store. I know who's minding the store; it's the grantee. You certify when you took the grant that you were going to be responsible for meeting all applicable requirements and laws. So the buck stops with the grantee. The grantee's responsible for implementation of the grant, even if you handed off grant management to a contractor or consultant or your subgrantees; or if you're a state and you subgranted all the grant. You are still legally responsible. Even if you're a state and gave money to entitlement, the state is responsible for ensuring those funds are used in accordance with all program requirements. And you see, this is an entitlement citation. It's because in a lot of cases -- I mean, NSP regs hold -- basically put the entitlement rules in place for the whole program, including a lot of the stuff for states. But this is a safe harbor. States are responsible for their grants. Entitlements are responsible for their grants. Nonentitlements who are coming in in NSP 3, they're legally responsible for ensuring that the funds are used in accordance with all program requirements. The use of subrecipients doesn't relieve the recipient of responsibility. If your subrecipient screws up, HUD has a legal contract with the grantee and will go after corrective actions.

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John Laswick: Let me remind the consortium -- league members, that even though they may be sort of an equal level in terms of unit of government or nonprofit or something like that, they have accepted the lead responsibility and we will be looking to them to hold the other members of the consortium to performance and compliance. I know that's not always a comfortable position to be in, but it's the position that you are in. That's the way we set this up. Jessie Handforth Kome: Right. We go from the contract we have to the lead entity in a consortium. It's their responsibility to go through the remaining contract -- the consortium agreement -- to get to the other members if something does go wrong. And so the lead entity does take on having the internal audit function and following up, even if you have subgrants. And we're going to try to stop some of the scary stuff, but we want to make sure everybody understands clearly the framework that this all rests on. So the grantee is responsible for determining adequacy of performance under subrecipient agreements. This cuts both ways. If, for example, you get an audit finding from the OIG -- who incidentally is completely independent of the program side that John and I work for at HUD. They are actually auditing us, too, at the same time, a lot of time. If the auditors make a finding or if your HUD monitors make a finding that they don't think that the performance under your agreement was adequate but you, who wrote the agreement, think that the performance was adequate, then that's something that we have to go through due process and talk about. And that happens more often then you would think. So it's important for you to be determining the adequacy of performance. If you don't do it and we do it first, then you have a question of whether you should have been looking at your own agreements and holding your subrecipients to them. And you may have some trouble with your own lawyers over that. John Laswick: Right. Jessie Handforth Kome: And then you need to take follow-up action when you do find performance problems. John Laswick: Let me throw in the flipside of looking to the consortium lead members or to the states or to whoever use us for help, come to us and say, I've got a problem subrecipient or I'm having this issue that I can't resolve on my own. We can sometimes, just by being a third party, facilitate the conversation or help clarify things for people. So we're more than happy to play that role. Again, as Jessie says, it's easier to deal with that while it's going on or when you see it coming then after the fact. Jessie Handforth Kome: Folks, when you come to us with a problem that you have and you're struggling -- you've identified the problem and you're already working on corrective action, we treat that very differently than if we go through and find a problem that you should have found or that you just were not dealing with -- that you know about and weren't dealing with.

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When you're being proactive and carrying out what our requirements says is your role to determine the adequacy of performance and try to work on this, to monitor your subs, it's easier for us to just pile in there and help you, because you're already doing what you're required to do. It doesn't say that your subrecipients have to be perfect. We've never seen a perfect grantee. I would really love to. None of us are perfect. I've never been a perfect grant monitor, either. But we all work on it. We all try to take care of the main stuff and do what our legal responsibilities. So that's what we're asking you to take care of. And it's not just because it's your legal responsibilities. It's because you want to turn these neighborhoods around and try to achieve the outcomes of the notice -- stabilize these neighborhoods. That's why you picked those areas. Okay. I'm giving you another 24 CFR. I don't like this one. Part 85 and Subpart J talk about -- and Subpart J, there are two different places. Subpart J as the CDBG regs is in 24 CFR -- [audio break] -- the day-to-day operations of grant- and subgrant-supported activities. So grantees are legally responsible for that. That's what [inaudible] certified for. You need to know enough about what your subrecipients are doing and how they carry out programs so that you're comfortable taking on being responsible. We recommend that you monitor subgrant-supported activities to check on compliance and that performance goals are being achieved. It's very hard to see if performance goals are being achieved if you didn't write them into the subrecipient agreement in the first place. So that has important implications. You need to cover each program, function, or activity. You need to make sure that you're looking at each project. We just had an example today that came in -- a really egregious example where a grantee, over a period of years, has not ever monitored a particular consultant. The consultant was the consultant who helped do their draws, carry out their program -- it was a very small grantee. And they carried out some of their projects. And they had actually entered into one of our reporting systems that a project had been done, completed, and even entered beneficiary data for the household. And that project does not exist. It doesn't exist in the real world. The address isn't actually a real place. You need to have at least something basic where you check to make sure that each address is a real place in a housing program. You need to make sure that you are checking on your -- just knowing that you will be checking on the carrying out -- the implementation of your contract and covering each program, function, or activity means that you're just going to have [inaudible] compliance, because people know that you're looking, that you're paying attention; you care about your program. You want to check and see if your subgrantee's operations comply with regulation on administration. Financial management -- do they have accounting systems that are sufficient to take care of the payments for the work you're paying them for? Implementation.

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Do you pick subrecipients that achieve their performance objectives within budget, or do you provide them technical assistance if they don't? Or do you cut them off if they miss deadlines? And do you have provisions -- I know when I was a rep for the state of North Carolina, the state was at that point assessing every six months whether their subgrantees were meeting their performance objectives on schedule. And if they weren't, they unfunded the low performers and gave the money to the high performers, and told the low performers they could compete again next year. But you had to at least keep up with how well everybody else was performing. And we do give you a snapshot so you can see how you're doing against the rest of the country. And we're going to start doing that more and more frequently again. Monitoring plays a very key role in grantee program management. It helps grantees to stay informed. So if you have a city councilmember comes to you and says, "Joe, what is the subgrantee doing? Is that right? I've heard they're doing stuff -- do you know what's going on?" You want to be able to answer those questions. You want to make sure that you know whether your subgrantees are in compliance or not, or whether you need to provide them with technical assistance -- which is, of course, eligible under admin to give TA and help your subgrantees. And you want to detect fraud, waste, mismanagement; or more importantly, situations with potential for abuse really early. Now, turf out your office interns and make them go check and make sure every address actually exists. Because that's your classic fraud thing, is to make up an address that doesn't exist. It's actually more common than you think. Talk to other grantees. Find out what can go wrong and make sure that -- not in a totally paranoid way, but that you check for those things. And you can also borrow our monitoring exhibits from the CPD monitoring handbook, which we have online. We have monitoring exhibits for how we check on your subrecipient programs and you can adapt those for your own purposes. A lot of grantees have already done that. An ideal approach to monitoring avoids the "gotcha" mentality. You aren't going out there to glory in a subgrantee making a mistake and then nailing them with the blame. You are likely to make them uncooperative and resentful -- teenagers. What you really want to do is make your work as easy as possible. You want to focus on implementing the program and explain to subgrantees and subrecipients that if they're not in compliance, it can stop their work cold; it can force repayment; it can ruin relationships; and it doesn't get the program done. It's not driving units on the ground. It's not changing the world. So it's part of -- you know, the money comes with some strings on it and you just have to carry out the program in compliance with program requirements. If that is completely unworkable for you, we often have experience, looking across the country or across the field office area, where we can say, if you just tweak this in your program design, then it works. We can talk to you about ways to work with that or maybe get you technical assistance so you could figure out a source for leverage to do the other thing that's ineligible that you think you need to get the project done.

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John Laswick: Yeah. I think this last bullet's important because if you think about avoiding the "gotcha" mentality -- if you focus on program implementation and actually improving the neighborhoods and getting people into these houses, I think it gets a lot better support because that's really what we're about. And so I think it takes the focus off the monitoring agency as the bad guy and sort of puts you in a more collaborative position with your subrecipient to say, look, we're all trying to get this done; let's get it done correctly. And I think it motivates people a little bit better, in our experience. Jessie Handforth Kome: Yeah. And a lot of this is about motivation. I mean, [inaudible] in that most of your subrecipients are nonprofits with missions, and people wouldn't be working there doing that if they didn't have a sense of mission. Their mission may not completely line up with your mission, but to the extent that they do, you can really get them motivated to carry out some of this paperwork stuff that makes them a little bit crazy in order to achieve the common mission. And focusing on that makes monitoring the spoonful of sugar that helps the medicine go down. I think we have a question. We'll do one more slide and then maybe we can take that question and any others that come up. Emphasize positive feedback. Look at what's been done well. Don't go out and make findings on a grantee that has findings, and never mention that they're the best you've ever seen at quality of rehab but they failed to keep the right beneficiary documentation. Make sure that you let them know that some of the things they're doing are really done well. Check. Assume that your view isn't always correct; that you're not perfect. You can do this two ways. One is always check your facts, with an independent source, if you can, and double-check. And the second way to remember to ask questions. Like, you know, right now what I'm seeing is that this plumbing is missing; is maybe the job not done? End with a question. Find out; ask questions and see if there's another viewpoint or another way of looking at it. Create chances for dialogue. Try to walk a mile in their shoes. Develop an appreciation for the subgrantee's perspectives. If you realize -- one of the most common forms of miscommunication, particularly with organizations that have a different goal or mission then yours or one that's not quite the same, is that you'll both be using the same words for different meanings, and you'll be talking around each other. If you find a conversation that doesn't seem to want to end and it's starting to ramp up and get emotional, back up and say -- confess that you have a problem and that you don't understand what the issue is, what's going on. And maybe you guys could use some help. Ask for help. [inaudible] help is a very powerful way of resolving miscommunication and misunderstanding. Because most people really want to help solve problems if they're asked. And it gives you a common purpose, even if you're going to end up saying, look, I'm sorry; there really is noncompliance here, and because of this, this, and this; do I understand that now correctly?

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And if they agree, they may not be happy about the finding. But at least you stopped to really think through and ask about and seriously think about whether you had the right understanding of what was going on. And then you can -- even if you do end up having a finding, you can make a finding and have a corrective action that also says I, the grantee, am going to get technical assistance in this particular area, or I will talk to the field office and will apply for NSP TA for you in that particular area. John Laswick: And I know you're all thinking, I wish HUD would do this, too. I should say that the field offices are working to try to take the same approach through HUD because we haven't always had this approach. And so we're trying to improve our performance in this area, too. Jessie Handforth Kome: Yep. Does anybody have any questions? And you've got John and me together. If you need to ask questions -- I think somebody has one. Kent Buhl: Yeah. We do have a question from Diana. And here you go. So Diana, I'm going to unmute you. Are you there? Hello, Diana. Jessie Handforth Kome: Diana Wesloski? Q: Hello. Kent Buhl: There we go. Q: Okay. Yes. Our set-aside portion of our grant was for rental and we did a subrecipient agreement with Fort Pierce Housing Authority. What documents do I need to keep in my office for monitoring for that? Does that make any sense? Jessie Handforth Kome: Yes. Well, you have the agreement, of course. Q: Yes. Jessie Handforth Kome: And can you tell me where you're from? Q: St. Lucie County, Florida. Jessie Handforth Kome: St. Lucie County. You have disaster recovery money, too. Q: Yes. Jessie Handforth Kome: Yes. I used to work in the disaster recovery division. Q: Oh, okay.

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Jessie Handforth Kome: You guys come up way too often. Q: Uh-oh. Is that good or bad? Jessie Handforth Kome: Well, it's just that hurricanes really like you. Q: Oh, yes. True. Jessie Handforth Kome: I can't remember whether you were Charlie, Frances, Ivan, or Jean. Q: Not Ivan. All the rest. Jessie Handforth Kome: All the rest. Right. So you need to keep the agreement. Presumably in the agreement you're going to have requirements that the subrecipient is reporting to you on a regular basis; whether it's attached to an invoice, which is a very common method. Monthly or quarterly reports, you would have those. And you would also want to have some record that you reviewed those; that you looked at them. Because I cannot tell you how many times in monitoring a grantee and said, do you get any reports from your subrecipients, and get a box of reports that clearly have never been even opened and read; sometimes envelopes still closed. I look to see if you've actually either written on the reports or have a review check sheet. The most common way of doing it -- what the IG actually looks for is to see if you've actually written on the reports -- check, check, check -- or initials of the reviewer or something like that; "reviewed by" or something. If you found something on a report that you had a question about, something showing that you followed up; either a letter or notation from a phone call, or that the subrecipient just submitted something new and you stapled it to the original report. E-mails are very common, of course. We look for the record of the relationship as it related to the clients within terms of the agreement, so anything that might be outside the agreement that relates to program compliance. We don't look for any records of things on points on which we're not regulating, or that are not related to your policies and procedures. So if they're sending you correspondence inviting you to events, or every single last photograph of every single stage of construction, things like that; those might be stuff that you don't want your HUD people having to trip through and wade through -- [audio break] -- of their -- each subrecipient file or timeline in some kind of a collaboration portal, as a form you fill out as you go, like an Excel file, that just shows what every file should have. And it has one columns: one that shows as they come in and the date they're there, that they were received for the duration of the contract, and the other one that is a closeout checklist that just shows that you double-checked to make sure they were all there before you closed the agreement out.

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It's really basic timeline and contact points. That's what I look on records. John, do you have anything to add to that? John Laswick: No. I was just meeting with an NSP 2 subrecipient on a pretty complex program last week, and they had a system that showed how a project moves through the process, from identifying the property to the environmental review to the appraisals, acquisition, and so forth. And then there were different points at which they would sort of test that information because they had a lot of different projects going on at the same time. And each of the consortium members had quite a few activities as well. I think what we're really looking for is not so much a vast volume of paper but evidence that you're paying attention. So that might be electronic. That might be paper. It doesn't have to be fancy. I think these SharePoint things have been very useful for us, for example, to have any number of people in different parts of this wonderful building of ours sharing information. And then that -- this is maybe getting ahead of it a little bit -- but if they found problems, then if the performance was slowing down or things seemed to be backing up at a particular point, they would come in and start making some calls, and so then they make some notes in the files. And then, in sort of a worst-case scenario, if it really looked like it was just not moving at all, they would make a site visit. So a HUD auditor or a HUD monitor is going to say, well, that's the kind of oversight we're looking for. Now, that doesn't solve the problem, but what you're trying it do is find the problem so that if you can, you can fix them. Q: Okay. Jessie Handforth Kome: And I like to see who's responsible, too, at the grantee level. So you'll often see people's initials after they've done a review; some kind of trail so you can tell who's doing it and who is assigned to. Because that helps a lot. When people feel responsible for their jobs or for a particular subrecipient, they tend to do a better job. At least that's in my experience. Q: Okay. That helps a lot. Jessie Handforth Kome: The other thing for the big grantees -- particularly for NSP 2 grantees, who have an internal audit requirement, so we would also be looking for evidence that your internal auditors had been active and that you had followed up on their recommendations. There are, in the CDBG entitlement regulations at 570.506 -- and there is also in the state CDBG program, I think it's over on their website -- there's a model recordkeeping guidance. At 570.506, there's a list of the records that entitlements have to keep by activity. Really, for NSP grantees, it's very, very, very similar; very close. And so you may want to make sure you have records showing that you documented eligibility, documented environmental review; you document your beneficiary information. Because those are the regulatory sticking points.

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John Laswick: Yeah. 570.506 can be a little daunting. Keep in mind that you won't -- you're not going to be doing something that requires every piece of paper on that list. Jessie Handforth Kome: Yeah. You can basically throw away economic development stuff for NSP 2 and 3. You're not going to be doing that. So that's a huge chunk of it. John Laswick: That is a good place to go for a comprehensive list of records to be maintained. Jessie Handforth Kome: And the other place you can go is the monitoring guide; again, the monitoring handbook. Because those, in fact, are the pieces of paper we'll be looking for, by the numbers. Kent Buhl: Thanks for that question, Diana. And let's go now to Sandra Donaldson. Q: Hi. Hi, Jessie. Jessie Handforth Kome: Hi. Where are you calling from? Q: I'm calling from the state of Alabama. How are you? Jessie Handforth Kome: Oh. You're not having a good month. Q: No. I'm not. No, we're not. Probably won't have for months to come, I'm sure. I have a question on OIG. I've read some of the OIG audit reports that they've completed on some of the other NSP programs. And there seems to be a common thread running through, that policies and procedures manuals are inadequate or insufficient. And my question is, is there somewhere we can go to to look for some guidance to ensure that we are -- that we do have everything? Jessie Handforth Kome: Yes, yes. Yes, there is. There's several places you can go. One for Alabama is -- if you've been really watching those audits, and they are published -- is for the grantees when they say that they're fine, you can call them up and say, can I have a copy of your manual, [inaudible]. Two, we have some of that material on the resource exchange, www.hud.gov/NSPTA. So some of that material we have out there, either as part of toolkits or for various things. And the third thing you can do is request TA on the resource exchange and ask for help going over your policies and procedures manual. I've seen Alabama, actually. You guys actually use the SharePoint and turn it outside for your CDBG disaster recovery money. And yours isn't too bad, at least for the parts that I've seen of that. So you may also just want to talk to your field office and walk through it. Because you're going to need -- a lot of the times, the OIG went after them because they hadn't been adapted to cover the NSP activities the grantee was doing.

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Q: Okay. Jessie Handforth Kome: So for example, people had a CDBG policies and procedures manual that didn't cover new construction of housing. But they were doing new construction. Q: Right. Okay. [talking over each other] Q: Right. We just wanted to make sure we weren't missing out on something. Jessie Handforth Kome: Right. And the biggest problem with the states has been -- in policies and procedures manuals is that we've asked you to take on entitlement rules for program income in your subrecipient agreement. And that means you automatically -- unless you were using the entitlement rules already, you have a hole right there. So that would be the first area I would start, if you weren't using entitlement rules. And I don't think you guys do. Q: No. Jessie Handforth Kome: Then that would be where I would look and say, you know, we probably have an okay policies and procedures manual for the environmental review, but we might have a gap over here. Q: That's a good point. Okay. John Laswick: The other source -- and it doesn't always work and maybe is a little more technical than you had in mind -- but the toolkits that we have for certain programs like buyer-driven acquisition rehab programs and things like that have a lot of steps and stages in there that might end up being helpful, at least as far as documenting that process. Q: Right. And I have looked at some of those, like the home ownership and the rentals. Okay. Thank you. Jessie Handforth Kome: But I think we've got some pieces for a couple of the procedures things. If I remember correctly, the states of North Carolina and Kansas contributed quite a lot of material to the procedures manual, and some of the spreadsheets that are in there. So they should be really adaptable for states, particularly [inaudible]. Kent Buhl: We have other questions in the queue. Would you like to take any more now or would you like to move on? Jessie Handforth Kome: Let's just take a couple more, since I do see we have a couple more hands raised. Kent Buhl: Okay. Very good. We'll go to Tammy. And I'll just read her question.

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She says, "You mentioned that some of your best grantees have a checklist at the front of their files, indicating what documentation should be in the file. Do you have a sample checklist you could share?" Jessie Handforth Kome: We don't. We've never developed one like that that I know of, John. I don't think there's one like that, a file checklist, for like any of the toolkits yet. John Laswick: Yeah. I can't think of any either, but that might be a useful task for some of our TA providers. Jessie Handforth Kome: Yeah. Not that I know of, but I do know that I've seen those, particularly in construction program files. They're really useful because you do end up with a lot of documents for construction programs; some of which are useful to us and some not. I mean, I don't look at the permit-pulling process, for example. John Laswick: Yeah. I don't think it'd be that tough to set one up through your -- each part of your program with the different elements in it for environmental reviews or for drawdowns or that sort of thing. The requirements that are spelled out in 575.506 will give you the guidelines. And again, as we say, you have to be looking at the right things. But we're more interested that you're actually looking at them than that they have a perfect checklist. Jessie Handforth Kome: Exactly. I'm trying to think. The home program may have, for some programs, a checklist that can be adapted pretty easily. But I think we should take a look, because it could be really helpful, especially if you have to be working with relatively green staff or with a whole panoply of subrecipients and you want to keep people on just a certain point of having the same records, to have that kind of thing built into your system. So we can take a look at that. Kent Buhl: And Josh just mentioned that he did find a couple of checklists related to home buyer programs on the resource exchange. Jessie Handforth Kome: Good. There we go. Yeah, there's checklists for programs -- every toolkit has a checklist in it for all the items in the toolkit. So whether you could use that for your file or not, I'm not so sure. But within toolkits, I'm not sure what checklists there are. John Laswick: Quite a few of them do, I think. Jessie Handforth Kome: Good. Kent Buhl: Sandra, your hand is up but I can't unmute because you don't have a phone icon next to your name. So if you want to call back in using these instructions, feel free. And let's go to Gail. Hi, Gail.

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Q: Hi. Gail Anderson, City of Grand Rapids; Grand Rapids, Michigan. And I just wanted initial information about the internal audit requirements for NSP 2. Jessie Handforth Kome: Okay. They were required of the grantee, and it's actually in the [inaudible]. And for people that aren't familiar with internal audit, it isn't your annual financial audit. What an internal auditor does is they go around to make sure that you have the programmatic design and control pretty much the way your rep looks at you. But an internal auditor is even more focused on, can you achieve the purposes for which you got the money? And they will make sure that you have written procedures, that you follow the procedures that management has adopted. An internal auditor -- most of the ones that we're seeing now are actually certified internal auditors. Sometimes they group out of quality control and stuff like that; QA, QC -- people have called it different things over time. Audit operations running in our grantees, those grantees run well. They usually are pretty efficient. And they sustain very, very few question costs on audit. So they don't need a lot of time to spot an issue. Q: Well, this is different than your onsite monitoring visit, then. Jessie Handforth Kome: Monitoring is what you do. An internal auditor for a grantee would do -- I'll give you an example from a disaster recovery grantee. The Lower Manhattan Development Corporation in New York, which is working on revitalizing Lower Manhattan for the last 10 years after September 11th and they're building a memorial -- they have more than 100 development partners, subrecipients, contractors, consultants. And they include the city of New York, the state of New York, the Port Authority of New York and New Jersey, all the way down to these teeny-tiny arts organizations that are getting $25,000 to buy a dance floor -- a portable dance floor. And they need to keep track of and monitor all these organizations. And so they do that. That's what the staff does. What the internal auditor does is come and say, look, you have these monitoring procedures for your subrecipients. He pulls some records and he checks to see if they're doing it, if they're following up. He goes and he checks to see, did the dance floor get purchased? Is it actually there? He'll go and he'll walk through with the contractors on the memorial site and make sure that the work's actually been checked on by the grantee, that the quality is being assured. And then he reports back to the audit committee of the organization and to the governor about what's being done. He's a one-man operation, making sure that the programmatic work is getting done. They have regular financial audits. That's not what this person does. He's saying, do you have policies and procedures and are you following them?

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Just the same way that the HUD reps, when they come in, they're looking for really similar things. The difference is when someone is -- the internal auditor is with you, sits with you, can walk in at any time. They're there. They're part of the organization or they're part of a sister organization somewhere near you. There's not usually -- although occasionally there are -- they're not usually hired hands. I mean, we do see some consultants doing this; accounting firms do internal audit kind of operations, too. So we're looking for -- it's an ongoing thing as well. They typically are with you much more often than HUD can be with you. Q: Okay. That totally clears things up a little bit. I know that I do the monitoring for our community development department. Jessie Handforth Kome: But who checks to make sure that your monitoring gets followed up on? Q: I'm sorry; I didn't hear you. Jessie Handforth Kome: Who checks to make sure your monitoring gets followed up on or that it's done according to procedures? Q: I'm not quite clear. If I understand, who checks to see that my monitoring gets followed up on? Jessie Handforth Kome: Yes. Who follows up on you? Q: Okay. Basically I write a letter in response to the things that I am able to verify when I'm onsite. And basically then that goes into the files of the contract administrators. They see that. And then HUD, if they come out, they will go through files. I'm not sure I fully understand. They'll go through files and see what I -- to look at what I've done. And on occasion they will go out and visit some of the programs. It's sort of like they ask maybe some of the same questions that I do. But when I go out, I look at the financial items and I want to verify that these expenditures really happened and all that. So I wasn't sure where this auditor came in. Jessie Handforth Kome: What the internal auditor does is if they do go and talk to a subrecipient and check some of the things that you did, they're checking it to ensure that the quality of what you do meets what your policies and procedures are. They're watching the watcher, as it were, if that's another way to look at it. But like CPAs, certified auditors we're used to, they're financial people. They don't go down and learn the regulation. A CIA will learn the regulations. Q: Right. Okay.

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Jessie Handforth Kome: They're looking at the quality of what you do, and is it compliant with your local procedures. And also, are your local procedures compliant with the regs? Q: Okay. I understand that. But you said it's required with NSP 2. Jessie Handforth Kome: Yes. Q: It made me think that that person, that there would be someone doing an internal audit of all of our contractors and developers. Jessie Handforth Kome: There is a -- I'm not going to spend too much more time on this. The lead entity is responsible for the internal audit function. Q: Okay. Jessie Handforth Kome: Okay? And they have to make a risk-based determination of who they look at. John Laswick: That's probably the state, in your case. Q: Yes. You're right. Okay. [talking over each other] Jessie Handforth Kome: The monitoring process. It's not once a year or periodic exercise. It's an ongoing process of planning, implementation and monitoring, communication, and follow-up. And the follow-up is really the monster in here. You need to design a process and keep carrying out; stay on it. It does get [inaudible] into the weeds and sometimes can drive you crazy, but you need to make sure that you stay on it. Because grantees that stay on this and stay on the monitoring do better. They deliver their programs. They pay back less money. It's a conversation with your subgrantee. It's maintaining that relationship. You want to catch problems -- ideally you catch problems before they start. There's often a training component as well inside your implementation component. Have a monitoring plan. We recommend that you develop a plan at the beginning of your program year, whatever it is, and at the beginning of your grant. Match your resources that you put into this with local needs and capacity. Sometimes you have incredibly high-capacity subrecipients. In my experience, they're a challenge, too, because you have to keep up with them. Figure out what you need to do. Have a plan that you can actually implement in terms of monitoring. If you think -- and this happens sometimes -- that you need to do more monitoring than you have capacity for, then you're going to figure out how to use more of your admin money to pick up the capacity you need.

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Rotate the subgrantees you select for in-depth monitoring. The way HUD does it is we assess the risk of our entire grantee pool, and then we select the highest-risk grantees and we select a few of the low-risk grantees just to make sure that the way we're thinking about it and what we are thinking about -- relative risk level is accurate; and also, to maintain the relationship with the subgrantees that we might not otherwise visit onsite. So you do, though, overall pay extra attention to your higher-risk subrecipients and just do limited monitoring or possibly conversation and spot check on file with your low-risk subrecipients. John Laswick: We have our own risk assessment process that we use, which is part of the monitoring handbook. So you might take a look at that. You might not have the same factors, but it shows kind of how you might weight the different types of areas of concern and then come up with an overall score. In our case, each field office does that with all of its grantees [inaudible]. Although, you know, I always thought rotating the subgrantees meant to spin them around before you took them into the auditing -- to the monitoring. Jessie Handforth Kome: You know, that explains more than it doesn't. John Laswick: I think they're already confused, anyway. Jessie Handforth Kome: High-risk subrecipients. Well, right off the bar, it's new to the CDBG program, new to NSP, new to home -- new to whatever it is that you're asking them to do. If they are a housing advocacy or organization crossing over into purchase-rehab, they're high-risk, at least until they prove themselves. If they've recently had turnover in key staff positions, a change in goals or directions, if they just incorporated -- even if they have experienced people that they haven't had their shakedown cruise yet. Remember to keep an eye on the CFO positions or the top -- their accountant positions turning, because that can be a major risk; f they've had some previous compliance or performance problems, particularly ones that are not completely resolved; if they're carrying out high-risk activities -- economic development which can only happen in NSP 1 -- or multifamily housing with tax credit involvement, things like that, really complicated financing mechanisms; or if they're undertaking multiple CDBG activities or NSP activities -- NSP activities, in this case -- for the first time or the second time. You want to look at these things as risk factors. High-risk activities include acquisitions because the Uniform Relocation Act plays through there. Because if that weird interplay between the discount requirement and the constitution of the United States and having to deal with voluntary and involuntary acquisition and things that can hurt your brain -- and because of the timing with environmental review, acquisition can be tricky. It's a high-risk thing. John Laswick: Yeah. Acquisition's also an area where there's a lot of fraud that's brought into the NSP program. So you stumble onto some real stinkers out there.

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Jessie Handforth Kome: Right. And plus, remember that this is where -- the first place in acquisition is the first place where they could be lying to you that the address actually exists. Housing. Almost every housing activity -- of course, HUD over the years had a lot of experience with this -- can have areas of corruption or fraud. The biggest single one is kickbacks for contractors and various ways of manipulating costs. Limited monitoring is for low-risk grantees only -- strong past performance; documented past performance; continuity of staff. And you might limit to operational areas where the rules have changed or the subgrantee is mostly familiar with this or they have some new stuff; or you also have concerns, not findings, or they've done some changes. They're letting you know, we have the same chief operating officer and CEO but we've had to change the person who was the head of our construction team. You want to maybe take a look at specific areas. And then periodically, as time goes on, if they stay with you, periodically you're going to want to do a broader monitoring to make sure that your assessment of how they're doing and what they do is accurate. Annual monitoring schedule. We would say annually you want to plan when during the program you're going to monitor each subgrantee. Maybe you want to tie it on a multifamily deal when inspectors are going to be there or when the bank inspector is going to be there before a draw is made. You want to time it in advance of draws so you understand what's going on. You're going to look at your program design and decide when the best time is to monitor each subgrantee. And remember, the goal is to be there before a problem happens or gets past the point where you can solve it. Be aware of the flow and pace of each activity. Sometimes you want to go early in the year and you want to detect and resolve problems early. When they're undertaking a new activity, you might want to go also before the construction season starts and make sure everything's set up so they can go really fast as you're entering the construction season. If there's something involving new procedures, new policies; if they have to do a high level of documentation or accuracy is really, really, really critical -- and there are -- tax rate projects are a classic example of getting -- your beneficiary information has to be really accurate or you lose the tax credit. When they're negotiating construction contracts, if you haven't done that before, you think you could help. That's more likely one of the HUD staff would want to be calling in technical assistance for you rather than come help you. But some grantees are very good at that stuff on their own without any assistance at all. For slow-moving activities you might say we'll go later -- later in the program year, later in the course of the program itself, since NSP is really a rifle-shot program that runs across several

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years. Because if you go too early, maybe there's nothing to review, or you're only going to review policies and procedures. It's really common for HUD on the really stressed disaster recovery grantees to go just as they put their policies and procedures in place, but before they actually implement much of anything, to spot-check those policies and procedures and make sure they've really covered everything and that they're comfortable going forward. And then, to go a year later and see how that bore out and how it works. The monitoring checklist. It has various components in it. You'll want to have a summary of the activity, status of the project, what regs apply, documentation requirements under those regs -- and then you'll take notes. What problems did you encounter? And sometimes they're going to be problem that the subrecipient comes right up to you -- the subgrantee the day you arrive says, we have this problem. And sometimes they're going to be things that you have to [inaudible] and find. You want to specify the particular items to be examined. You may not tell the subrecipient at first, but you want to know what you're going to look at. So you're going to say, we're going to look at lead hazard reduction in housing; we're going to look at beneficiary information for units in X neighborhood, carried out by this service in X period of time. Just make sure you look at the right thing, that are the things that you thought were risky when you were looking at the program. Which isn't to say that you might not change what you're doing once you get out there, especially if you find something wrong and start following a thread. Or if you've already looked at everything and it's totally boring and you want to check on something extra. That almost never happens. You usually run out of time when you're out. It promotes thoroughness and consistency to have a plan that's specific and to work your plan. Thoroughness and consistency will get the job done. We recommend that you use the standardized monitoring checklists [inaudible] workbooks that they have onsite. So far, nobody's built an app for a tablet computer or anything like that, but I'm just waiting for that. If you have one, raise your hand, please. It says the steps that you're going to use to measure compliance; what specific documents are you looking for. It increases your efficiency and quality. It collects the data in a form and a format that helps you write up the results. When a HUD rep comes and monitors you using the checklist and they type up the results while they're there, they can just cut-and-paste that stuff into the monitoring letter. And it even tells them when they need to pick up additional information. You can also see -- there's a guide called "Managing CDBG" and it has some appendices. On Chapter 5 -- I'm not as familiar with this as I am with the monitoring handbook. So John, are you aware of the "Managing CDBG"? I haven't had that training, myself, in a while.

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John Laswick: No. I'm not. I did get a good suggestion from one of our TA providers, [inaudible], on the West coast. He said that Marilee Hanson, who is now one of our NSP specialists in the Las Vegas office -- used to work for the City of Corona, which is a good name for a city on Cinco de Mayo -- and I tried to write Marilee; she's not around right now. But apparently she has some pretty good procedures for in-house monitoring and we'll try to get those up. I don't know if that includes some checklists and things like that. But knowing Marilee, I think it probably does. Jessie Handforth Kome: There are quite a few grantees with good monitoring checklists that we can ask around. Let me just take a look on how we're doing on -- I'm going to cover a few more slides and then we'll ask [sic] some more questions in a minute. Staffing for monitoring. We get this question a lot. How many bodies do we need for this? My preference is that you have at least one person who is specifically responsible for monitoring, if you have subrecipients, but that everybody knows a little bit about it. It's a really great training tool for a relatively new staff to go out and look over a program with somebody's who's more experienced and see what they think about it; help them do them their job better at running the program themselves at the grantee level. But you want to ensure that the staff are trained in the ideal approach and overall goals; know the program rules; know where to look things up; know correct monitoring protocol; know they're not going out there [inaudible], that they're there to solve problems. If they see something that is noncompliant, they will make a finding and provide a corrective action and a follow-up timeframe, but not in a "gotcha" kind of way; and that they will work with your standardized forms and your worksheets or whatever format that you have in a professional manner. A team approach to staffing monitoring can be best when you're going to do a comprehensive monitoring; you're monitoring a range of CDBG-funded or NSP-funded activities; or when you anticipate serious problems. Or, if the program is really, really large, you're going to have to bring a pretty big team. I know that the teams that we take on a multi-billion-dollar disaster recovery grant can run 10 to 12 people for at least a week and some of them will stay beyond and include environmental labor specialists, economic development specialists, housing specialists at various times, and some senior management. You don't need to go that overboard for NSP granting. But you want to think about who is actually needed to be there and who does staff monitoring. When you have more than one monitor, make sure everybody understands their role. So one person is going to look at physical systems and records and another's going to look at program files and requirements. We've done things where the reps for a grant will go with a financial analyst and the rep will work from the program rules and the action plan toward the invoices and the individual requests for draws, and the financial analyst will take the individual requests for draws and fill back up towards the program as a whole and trace individual draws back to the project and they sort of meet in the middle, pulling samples together.

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Preparation. You do a desk audit. You learn about changes in the subrecipient's activities. You look at those records that we're talking about before that are in a file. You identify areas that you want to look at in any onsite visits. What can you not tell, just sitting at your desk? Look at the written data you have. What application do you have from the subrecipients? Make sure you're familiar with what's required in the written agreement, then hope you're not slapping yourself in the head and saying, I missed something. Look at the progress reports and reimbursement requests and any previous monitoring. And make sure that everything from the previous monitoring has been followed up on or you take care of it when you go out. And then, the visit. You can do pre-monitoring visits. You can do TA in pre-monitoring visits, or phone calls that can reduce the likelihood of findings after a formal monitoring. Talk to the subgrantee about your monitoring procedures. A lot of grantees do startup conferences with their subs and talk to them in that, and allow them to have peer-to-peer discussions about what's going to be required of them, what's in their agreement. It's really important to read any legal agreement you sign. Talk about the information you will examine. Talk about any weaknesses you see right upfront. We picked you and we think you can do this work, but we're worried about this. And talk about how you can do corrections before a formal monitoring visit, including suggesting technical assistance. As I mentioned, we can do NSP technical assistance this coming year. There's five steps to the monitoring visit -- just basic five steps. There's a notification letter, which I always call the "I'm-a-coming" letter. There's an entrance conference where everybody sits down in the room and you introduce each other, you say what you're going to be doing in brief, you figure out where the bathrooms are and what the schedule for the week is going to be and who's doing what and who needs what. You look at documentation, you get the data you need, and you analyze it. And then you have an exit conference. It could be just at the end of that one visit or maybe you need to go away and look at some data and then have an exit conference on the phone or in another visit in a subsequent week. Then there's a follow-up -- prompt, on-time, within -- no longer than 60 days, preferably less -- monitoring letter that lays out clearly the basic stuff: here's who we visited, who we talked to, what we looked at, and walks through all of that. A notification letter says when we're coming, the scope of what we're going to look at. This is a no-surprises approach. The information you're going to look at, the duration, who is going to be coming, how much space you need, do you need access to a copier, do you need access to a computer jack; and members of the subrecipient staff that you need to talk to that should be there while you're there. And believe me, as a monitor, I can tell you as a former HUD monitor that it's really, really telling when you send a letter saying who needs to be there and you get a note in the file. I've had that happen twice, and both times there were serious problems.

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So communicate and be truthful and be honest because sometimes the things that you aren't there for are very telling as well. And be aware of that. As a monitor you need to be aware, the message you're actually getting from what happens when you get on the ground. The entrance conference -- that's your first order of business when you're onsite with the grantee. Don't do it in the middle of the week. Do it when you all arrive at your convening. Make sure you get at least the director of the NSP project and any appropriate financial program staff. Make sure everybody agrees that they understand the scope and purpose and schedule of the monitoring. And communicate that you have to do this; that you're the grantee; you're required to make sure the use of CDBG or NSP funds has been appropriate and it's going to continue to be appropriate. So for documentation, you really want to make sure that your monitoring file tells a story -- not in unbelievable detail, but a written record of the steps you followed and the information you reviewed. Take notes during conversations of subgrantee staff. Let them know you're taking notes. It's not a "gotcha" thing. You want to make sure that you both agree on what you talked about. Annotate your monitoring checklist or worksheet with the details of what you saw. You don't have to take copies of every single thing you saw at the time. Just make sure you know what you looked at. And you will use it to develop your overall conclusions, your monitoring results. If you do find noncompliance or you have a concern, that is where you would make a copy of a record to back up your finding or concern. Or document that the subgrantee is not able to produce a particular record. Identify clearly the source of the information you use. If you use the HUD monitoring checklist or an adaptation of it, it has the citation for you of what you cite for a finding. And then at the end you have an exit conference. You meet again with the key representatives. I've got to tell you, when I monitor, every day at 4:30 or 5:30 depending on the grantee office culture, I make myself available at least for 15 to 30 minutes for whoever from the grantee or subgrantee shows up. And I tell them what I've seen or what questions the day has left me with. It's a no-surprises approach that I give through an exit conference. Every grantee I've ever worked with knows what I've going to say at that exit conference. I give them these preliminary results. And that's what you'll do. Give them the preliminary results. And this is where due process really starts playing through. Give the subgrantee a chance to correct anything that you don't understand or that you maybe read something into that's not correct. Secure additional information or get subgrantee to tell you when they can provide it for you. And the subgrantee may have already fixed it. You may have told them on Monday afternoon that you had a question. By the time you get to Friday morning, they said, look, we've already fixed it and here's the paperwork. You will, most of the time, as a protective measure for them, for the auditors, you should still make the finding and document that they did the corrective action; they already gave it to you so the monitoring order is -- and when you get there, we'll talk about

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[inaudible]. You're going to open and close the finding in the same letter, if that works out that way. Don't leave it undocumented because it looks like you didn't look at it and you missed something, because it's still going to be an issue in that file; it'll still show up. And I know people hate to get findings, but sometimes they're good for them. That's my opinion and I'm sticking to it. John, you have any stuff on that? John Laswick: Well, I'm trying to correlate that to the "spoonful of sugar" analogy before. Jessie Handforth Kome: I think it was the other way around, the medicine -- right. [inaudible]. John Laswick: Yeah. You HUD people are always [inaudible]. Jessie Handforth Kome: Yeah. You're a HUD people now. John Laswick: Yeah. Jessie Handforth Kome: We're trying to make John forget that he was a grantee, but it doesn't seem to be working. Kent Buhl: We do. And let's go to Jay. Get you unmuted there -- hi, Jay. Q: Hey, good afternoon. We had a couple questions. The first was under the monitoring exhibits. We didn't see one for demolition. Is there one out there? Jessie Handforth Kome: Oh, we missed demo? Well, I think that's probably generic CDBG activity, right? But we have to work that up. That's a good catch. John Laswick: Yeah. We're working on some policy. I know it's been kind of slow in coming. It's ended up being more complex than even we could imagine. But I think that once we get this policy -- and it should be out, I'm hoping next week -- that'll be a pretty decent guide to a checklist. Because it is more complicated in NSP in the sense that you don't have that slum-and-blight type of national objective, which is more convenient for demolition. So you have a national objective and then sometimes you have to meet another national objective after you do something with it or whatever. And so it's getting a little complicated and we're trying to simplify that. I mean, I think we've got a pretty good handle on it now. But we're meeting with our attorneys tomorrow afternoon to try and get a final answer. Q: That's good. And the other question was, on DRGR, when we go in to put the monitoring in under Admin, we had a question on the program requirement category. Some of the abbreviations, while we might be right in our guessing, weren't sure exactly what they're for.

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Jessie Handforth Kome: Yeah. You know, the TA providers have been beating us up about that. And we are working towards updating those and putting out a guidance piece on that. And I'm so psyched to hear that you're putting that in into that area. We've noticed that some grantees aren't and some probably aren't even aware that it's there yet. But I've got to tell you guys, right now, make your best guesses. If you have suggestions about topics or codes that you think should be in there, please go ahead and relay that to your field offices or back up through "Ask A Question" or various ways through your NSP representative. Because we're very, very interested in feedback on that right now. It's an area that is changing, though. Q: So -- and waiting on your final guidance -- can you tell us really quick, though; there's two financial management ones? There's like an NSP financial management and a financial management one. Is there a difference to you? Jessie Handforth Kome: No. There isn't. And one of the reasons that it's all going to be changing is because -- I don't know how many of you have heard about OneCPD-TA, which is the new technical assistance format for all of this part of HUD, including CDBG homes, the homeless program, disaster recovery -- all of that is now going to have one technical assistance stream. And it's going to be coming into DRGR; in fact, it's in the process right now of making the handshake with the financial systems to come into DRGR; they've made the award. And so that's one of the reasons the codes are going to be updating. So the financial management one is not -- the NSP financial management one is the one that's going to survive -- the code that'll survive. That's one of the codes that I know. Some of the NSP-specific ones will stay. We're probably -- been asked repeatedly to add one for land banks, things like that. So we will be looking at that. But the final list just isn't developed yet. If it helps sort of mentally, they interconnect with codes that exist in an internal HUD-only monitoring system called the GMP system. And so it's taking so long because we're trying to tie the whole ribbon of it together in one interconnected thing so people don't have to learn things differently every time they change systems; which I know the people that use both IDIS and DRGR are going to be delighted to hear, because we're doing that for that, too. One of the things that you said earlier kind of set off something, though, in my brain. I'm trying to -- oh, on demolition not having its own exhibit in the monitoring handbook. That means that you just need to make sure that the demolition is eligible; that the costs charged to demolition are allowable, which means that they relate to that demolition directly; and that it's met a national objective. So you'll be using the checklist to deal with that, if there's not something for a specific activity. Because there's so many eligible activities in CDBG, there aren't specific checklists for every single kind of eligible activity. There's just the eligible activity checklist. So NSP didn't add checklists for every single NSP activity, but you can look back at the eligible activity checklist for CDBG and adapt it pretty easily for the ones where we didn't put in specific NSP ones. Does that help?

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Q: It does. Thank you. Jessie Handforth Kome: Okay. John Laswick: I got a note form Marilee Hanson. She's not able to get on the phone somehow, but she said that she will try to post some checklists for monitoring -- information and checklists and what she has from Corona together and we'll get those up on the resource exchange. Jessie Handforth Kome: Thank you, Marilee. Kent Buhl: And Shaunda [ph] asks a written agreement question. "When we sign exclusive rights to sell contracts with real estate agents, is there NSP-specific language that we need to include?" Jessie Handforth Kome: John, I think I'll let you take that. You want to take a shot at that? John Laswick: Well, I guess I'm not 100 percent what she's looking for there. Jessie Handforth Kome: I would say that, at the very least, the realtors need to be aware of the environmental review requirement, for the timing on that. John Laswick: Yeah. And certainly the fair housing rules. Jessie Handforth Kome: Definitely. And possibly the eligibility requirements; for which types of property are eligible. John Laswick: Kind of depends on what they're doing. I mean, if they're just kind of helping you buy property, that's one thing. But if there are actually [inaudible] piece of the program, then you'll need a more complex agreement, just spells out all what they have to do and what their requirements are that governs those actions. Yeah. I mean, we've certainly seen the interface between the acquisition process in terms of making an offer and then the environmental review process, which says that you can't make an offer that's unconditional until you've completed the environmental review, I think that's been a friction point. I think grantees have largely figured that out. But it's kind of one of those chicken-and-egg things. So certainly the fair housing -- yeah. The rest would sort of depend on what they're doing. But if Shaunda wants to call back in or write in or something, we could amplify that if that's not enough. Kent Buhl: She says that the agents are selling the properties for them. Jessie Handforth Kome: [inaudible] marketing.

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John Laswick: Yeah. I'm assuming that there's some kind of procurement process to select them. And so then there -- yeah. But if there are price -- in the NSP program you're limited in terms of what you can sell the house for. You can't sell it for more than the lower of total development cost or appraised value. So there's some things that kind of go against or go -- that are different from what a normal real estate person would be thinking in a particular transaction. They're going to be going normally to maximize the price. You can do that, but only to a certain point in NSP. So I think it's really the program rules and the program objectives. And I think once you get them set on that and train them -- the training materials have got to be your monitoring checklist, too. Jessie Handforth Kome: Do you think they'd understand -- do they need to be able to claim reseller recapture, depending on what you're doing? They would at least need to understand that well enough. I mean, realtors are bound to represent to their clients any strings on the real estate. So you probably would have to make sure the realtors, in order to [inaudible] their own professional obligations, they would have to understand reseller recapture, I would think. John Laswick: Yeah. I think, Shaunda, you might want to look in some of the toolkits on the developer -- there's a developer single-family acq/rehab model that probably has a lot of those pieces that you want -- probably has more than you need. But you may be able to kind of go through there and pick out some of the ones that are relevant to your program. If you're not getting technical assistance, then we can get somebody down there to look over your shoulder and make sure you're comfortable with it. Jessie Handforth Kome: Okay. We got anybody else who has a question? Kent Buhl: Let's see. "With NSP 2 organized with consortia, there's some conception that all of the consortia members are co-equals. But there is a lead grantee; correct?" Jessie Handforth Kome: Yes. There's a lead entity. They're the only ones that have a contract with HUD. John Laswick: I had one consortium that had a number of governmental entities, and the lead entity was a city; perfectly capable city. But one of the members was the county that they were in. So that's always an exciting relationship. They were just a little -- like, well, we know the program and everything but we're not used to monitoring these guys. So you just have to kind of work that out. But as lead member, that's what you get. Jessie Handforth Kome: It's actually kind of exciting being in a place -- particularly where states are taking these relationships really seriously, where they're figuring out and really seriously looking at the capacity of some of their partners and finding other ways -- and other entities, maybe -- that can actually use the money but fund the same projects and actually get them done; and at the same time, provide technical assistance to their consortia partners so that they can pick up the next project or the next one after that.

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Where we're seeing this is really an engine for like organizational capacity change. Maybe I'm crazy, but that's the kind of thing that excites me. I want people to be able to do community development and affordable housing and get the job done in the future; not just now, but going forward, too. John Laswick: Right. Well, we're both crazy, because I agree with you. Let me just say that I was at -- I'm not going to name names, but it was a particularly well-run consortium last week for several days. And a lot of the discussion was about the requirements and what you had to do when and so forth. But I think what made it encouraging, and I think feeds into my optimism about housing building, is that it was done in the context of everyone improving, as opposed to everyone getting beaten by the lead member of the consortium. It was focused on outcomes. And there was a little bit of friendly competition among the members about who was doing best. And there have been some concerns that they had; a couple of the members, which turned out to be largely that they weren't reporting what they were actually accomplishing -- but in that case they had a process in which they have a regular monitoring inside the consortium. Somebody goes out and really is kind of going around all the time. They have an internal auditor who does that and constantly challenges and is sort of the conscience of the organization; prying, making sure that everybody understands and gets it. But then, in the case where they had a concern, they actually made a site visit. So they called it escalation. And so there's a process. And everyone knows, well, if you can't solve something or you can't resolve a concern about intimidation or whatever it might be, there's a process and it's going to result in an onsite visit. And so far in their case, it had positive results from those visits. But I think what everybody knows that they're going to be reviewed and everybody's part of the same team. And there's a little bit of friendly competition about who could do better and that sort of thing. You know, it keeps people focused on the point of what we're doing, which is improving neighborhoods and getting people in houses. But it's got to be positive -- and not Pollyanna-positive, but positive in a realistic, supportive way. And that's what we're trying to do, too. [inaudible]. When we find problems, we see those as an opportunity to build capacity. And so we're not going to immediately cut off your funds or something unless it's some heinous crime that we haven't seen yet. We're trying to do that and I think that's the way states should work with their subgrantees and consortia members should work with their other members and subrecipients and so forth. And really, for the most part it's been working pretty well. Jessie Handforth Kome: So we eat that question all up. Kent Buhl: And I see no more at the moment -- oh, wait. I'm sorry. There is one more, from Gary. "To be eligible for purchase with NSP funds, must an in-filled vacant lot be foreclosed or abandoned if its use will be for redevelopment with NSP funds?"

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Jessie Handforth Kome: If it's eligibility, it has to be vacant or -- John Laswick: Or vacant. Jessie Handforth Kome: Vacant or vacant, yeah. It can be demolished or vacant. So either way, it's vacant. John Laswick: Well, it could be a vacant structure or it could be a vacant piece of land. But it doesn't have to be foreclosed or abandoned in addition to that. Jessie Handforth Kome: For NSP 1, it can be redeveloped in more ways. In NSP 2 and 3, it has to be redeveloped for housing, with NSP money paying for it. We're still debating the other part, about whether it can be redeveloped any other way. And John's going to work on getting that guidance liberated from our attorneys. John Laswick: I've got it lined up. I just want to make sure you're happy with it. Jessie Handforth Kome: Ah. Going to need glasses to read, huh? John Laswick: [inaudible]. Jessie Handforth Kome: Okay. So we've knocked out all the questions and we're going to move back to the slides a little bit. Kent Buhl: Okay. Jessie Handforth Kome: So we're going to move on from your exit conference to your monitoring results. As a result of monitoring, you may reach one or more conclusions: The performance is adequate or even exemplary; there were significant achievements; you have some concerns that need to be brought to the attention of the subgrantee in writing; technical assistance was providing or is still needed; and/or there were findings that require corrective action. And you see that "and/or"? It's quite common to have all of these things in one letter, especially in a big [inaudible] program. And we'll step through that. Identify deficiencies. You should categorize each deficiency that you found as a finding or as a concern. The way HUD sees the difference between a finding and concern is that a finding is something where -- a finding is short for a phrase -- finding of noncompliance. You found something that was not in compliance with an actual, citable program regulation, or it's inconsistent with generally accepted accounting principles; or it's out of agreement with the subgrantee.

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Or a concern is that you're looking at something that is inefficient; looks like it's going to be ineffective. If it carries on, you're going to end up with a finding. It's something that just is a problem. You want to give guidance regarding any identified deficiencies. Any conditions that require serious corrective action, like a repayment or a stopping an activity, need to be identified. This is the definition that HUD uses for a finding. So it's material noncompliance with statutory, regulatory, or program requirement for which sanctions or other corrective actions are authorized. If you look in 24 CFR 570.900 series of the entitlement roll, you can see HUD's approach to this. We make a finding, then we look to see if you the grantee still have capacity to carry out the activity correctly. Then we check to see if we need to stop the activity. If we stop the noncompliance, we work up a corrective action to stop it occurring again, if it's likely to occur again. And then we check to see if there's anything to mitigate and look at how to mitigate it. Sometimes it's repayment of funds. Very often, mitigation takes other forms. You want to make sure -- mitigation means that you want to mitigate that inefficiency on program outcomes and make sure that whatever corrective action turns the program around so it can be compliant, and use of funds can be compliant and meet the goal for the program. There's an Exhibit 2.2 of the CPD monitoring handbook that talks about sanction authority. And for finding documentation, we recommend that the way you document it is you just describe the condition. This is sort of -- it's not a pneumonic, really, but it's how we teach new reps how to understand this: condition, criteria, cause, effect, corrective action. And if you just sort of write in that format -- and you're going to see a lot of monitoring letters as grantees yourselves coming in that format -- they cover all the things that monitors and management specialists have told us really need to be there for a problem to get solved. So what was wrong in the first place? What the problem was; in the shortest language you can give, that gives the who, what, where, when, how. The regulatory and statutory specific requirements that was not met. If you cannot cite a requirement, even after you check with your field office and the research [inaudible], then it can't be a finding because it's not something regulatory, unless it's in your agreement, and then you're doing a local finding. The cause -- why the condition occurred. And sometimes that's a tricky part. That's where you really need to be onsite, to figure out the why. What happened because of the condition? Did anything happen because of the condition? Maybe they had the wrong procedures but they never carried anything out with them so there's nothing to mitigate -- the activity, stop the noncompliance, prevent it from happening again. What do I need to mitigate? And you lay out those actions needed to resolve the problem with a specific timeframe for the subgrantee to respond by. And that's part of due process, getting a specific timeframe. It's also good management.

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A concern is a deficiency that doesn't have a statutory, regulatory, or other program requirement. At HUD, sanctions and corrective actions are not authorized for concerns that may be at your local level. For management reasons, you may well decide that for concerns you can take action. Maybe their funding is lagging. And that's not a statutory or regulatory thing, but you think that you have a higher or better use for the funds; if their funding's lagging, you're going to move it. That's through a local choice as a manager. But we still want you to bring the concern to the attention of the subgrantee -- that sentence is wrong. It should say, the grantee should bring the concern to the attention of the subgrantee and recommend actions to address the concern. Now, if you don't bring it to their attention, they may never, ever know it exists. So it's important that you be their third set of eyes and give them the actions to address the concerns and provide technical assistance to get them there. Because the goal is not to do "gotcha." It's get the whole program there and achieve your goals. Documenting of a concern. You would usually just do condition, cause, and effect. And you can make suggestions under the HUD rubric for this. We just suggest or recommend action, but we don't require them. Again, your local policies and procedures may be that even for concerns -- certain kinds of concerns, particularly lagging funding when you're heading for the expenditure deadline -- may be something that you will take action on. And that would be a local finding. But we don't require you to take corrective actions if you just have a concern. That's part of your day-to-day responsibilities for management. Under response to a finding now -- or response, even if it's a concern and you decide to take action -- a subrecipient can respond by concurring and undertaking the action and providing documentation. They can agree that there's a problem but they may suggest an alternative corrective action. Maybe they do this in writing; maybe it's a meeting; maybe it's a phone call; maybe it's an e-mail. And they can provide additional information to address a finding. Maybe they say, well, after you left we found this document, or we realized that we actually did do this and here's a city council agreement on it; whoops. Be careful about those. Subgrantee response may also have some -- a certain amount of human psychology in it of, "What? You found what?" And so a lot of this -- keeping surprises out of it, keeping the emotional temperature as neutral as you can; staying professional is very, very important on findings and concerns. Monitoring -- again, to remind me, we see this as communications; a conversation; and we have a shared goal. The subgrantee is going to agree that they want to have good program management. You want to have program management. We want to have good program management. We have a very common goal there. The monitoring letter. We recommend sending it to the subgrantee within 30 days after completion of monitoring. Describe the results of the monitoring. Provide enough detail so that they understand what was covered and what they need to do. Give a written record of the monitoring review. Be sure to recognize good work and improvements if they've already taken

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action. And point out the areas where the corrective action or additional improvement is required. And include your recommendations or requirements for improvement with the schedule. And here we go. So here's the specific details we like to see in monitoring letters to make sure you're carrying out your job. Program, project, or entity monitored; the dates you were there; the names and titles of the subgrantee staff -- the grantee staff who performed the monitoring review, but I also like to see the subgrantee staff that you talk to, or at least the manager if you talked to a whole unit. A list -- this is one of my pet peeves; a listing is an item on the list -- a list of the program, project, or activity areas that you reviewed; or if they were in your original plan and you didn't review them, just briefly note that you didn't review them. Because sometimes time runs out. We all understand that. Monitoring conclusions. Clearly label your findings and concerns. Make them easy to find, easy to understand. It's really important that for subgrantees, they're really, really busy people. They're running around, doing a lot of stuff, and their managers and their CEOs and their board members are very busy. A monitoring letter with clear labels is just priceless. They can hone in on what really, really matters. And if there's findings, make sure you offer due process and opportunities for the program participant to demonstrate compliance. But make sure you give them timeframe for that subgrantee to respond to the monitoring letter. And I always like to offer technical assistance or describe the TA that occurred in the course of monitoring. They either will help you access TA, will provide you technical assistance -- here are the upcoming schedule of webinars and this one's on topic; you need to do it; here's a reason to look up additional information. You need to follow up on the monitoring results. Follow up according to the monitoring letter timeframes. If you gave them 30 days, follow up on 31. Review periodic reports. Stay on top of stuff. And schedule subsequent monitoring and include that in your plan. And make sure that you do not close findings on promises. If a subrecipient promises that they will fix something in the future, say, by when, and give me this information. Or if it's not information -- if it involves something that they don't want to be shipping around -- a lot of times you get into privacy issues -- look and make sure. Be from Missouri -- the Show Me state. Make sure you do not close on promises. I've got to tell you, a lot of people -- we all like to get along with each other. But you cannot, if you've had a finding, take someone at their word. You must get the documentation. If you don't do that, you're leaving a hole that the OIG will go right through. You are leaving a hole that noncompliance can get back in and can get much worse. If a sub knows you're not following up -- you're not going to follow up -- they'll make promises and make promises and make promises and you'll end up with noncompliance and you, the

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grantee, being in noncompliance later because of a very serious problem. I cannot tell you strongly enough. Don't close findings on promises. Okay. And here's your resources. "Managing CDBG" -- there's a guide to managing subrecipient oversight. It's quite good and it was developed with guidance from a lot of grantees. There's a grantee monitoring handbook and there's a link to it. There's an NSP monitoring overview, particularly for cross-cutting regs. And we did a monitoring webinar before on June 17th, and obviously, this week's earlier webinar. And this one will get up on the resource page as soon as possible. So now I think we have a bunch more questions, unless John wants to throw in something on this last segment we just covered. John Laswick: No. Go ahead. Jessie Handforth Kome: Okay. Questions; I see we've got a couple of hands up. Kent Buhl: Yep. And let's go to them. Let's see. Lori [ph] has a procurement question. She asks, "Are the rules for selecting a contractor the same for developers as for subrecipients? And what are the rules?" Jessie Handforth Kome: Lori, we have a [inaudible] on this on the resource exchange and you need to read it. You must procure contractors. Developers are beneficiaries. They are targets of assistance. And you can just pick them without procurement, according to federal rules. But you must, if you do that, determine reasonable cost in some way. Subrecipients may also be just picked. They don't have to go through procurement for subrecipients. But again, if you do that, you must determine necessary, reasonable cost in some way. Do a cost analysis. So the policy alerts -- I don't know what the date is for it -- that lays out the different kinds of entities, it has a big table in it that shows you which ones you compete, which ones you don't, what requirements apply. Every NSP and CDBG grantee -- because this is ancient CDBG policy that's being laid out, again, for the first time in many years, maybe more than a decade in one place. It's absolutely a must-read for CDBG and NSP grantees. John Laswick: Yeah. I think it was last August. Jessie Handforth Kome: Yeah. Very important. And once you've read it, if you still have questions, please put them into the Ask A Question. This is one of the most important areas for getting these other entities into your organ, as it were. You need to understand these rules. They're a lot more manageable than you thought. The other thing that you need to understand is you need to talk to your local procurement attorneys or whatever you use, because in some cases in some states and in some localities, we're discovering that you have to compete because of local rules, not because of our rules.

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John Laswick: Yeah, that's pretty typical. Well, and I think you also see that just for sort of political reasons or local concerns and so forth. So it's not required but it saves you trouble in the long run if they get a lot of competition and that sort of thing. Jessie Handforth Kome: It can also -- if you think you don't think you have the capacity to determine allowable cost on a [inaudible] development deal, making the developers compete can -- if cost is one of the elements that you're considering -- can help you deal with that. Kent Buhl: Let's see here. Your screens will flash for a second here. This is normal. John's pulling up a checklist that he has to show us. John Laswick: I think this is Marilee's from [inaudible]. It's a CDBG checklist. I'm just been kind of scanning through it and it has a lot of -- it's not exactly a checklist but it's a lost of questions and places to put the answers. And it's got financial systems, as you can see. And so it's pretty handy. Is there a way for us to save this, Kent? How do we -- Jessie Handforth Kome: I love how beautifully low-tech this is. John Laswick: [inaudible]. Jessie Handforth Kome: I know. I think that it's really cool. It's not scary, right? It's something you'd totally do. And all of HUD's are Word files. I mean, seriously. Kent Buhl: Probably the best way to share this would be to post it in the archives of this. John Laswick: Okay. How do I do that? We'll do it afterwards. Jessie Handforth Kome: Yeah. Kent Buhl: Okay. So when you're done there, John -- there you go. Jessie Handforth Kome: Oh, look. You came back. Okay. So do we have any more questions in the queue? Kent Buhl: Taking a look here. And no written questions. No one with their hand up at this moment. So while you're thinking of questions you've got -- Jessie Handforth Kome: Well, I think I see Marie asking for the subsection -- the 24 CFR citation on findings.

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Kent Buhl: Yes. Jessie Handforth Kome: That would be the 900 series. John Laswick: And I think it's on 911, [inaudible]? Jessie Handforth Kome: Well, you want to look at -- the 24 CFR 900. A lot of times grantees won't look at them. But HUS uses them when we monitor. And there's Subpart O. John Laswick: [inaudible] corrective and remedial action. Jessie Handforth Kome: 905 and 910. John Laswick: Right. Well, as you can see, this is a kind of tiered -- when you look at the actions authorized -- [audio break] -- again following a schedule, etc., etc. So it doesn't go right to the death sentence. Jessie Handforth Kome: No. We try to avoid that. It's a lot of work. [talking over each other] Jessie Handforth Kome: I think we do have a hand up. Kent Buhl: Okay. Let's go to Rich Molloy. Hi, Rich. Q: Hi. Good afternoon from sunny Oregon here. When we go out and do our monitorings -- Jessie Handforth Kome: Sunny Oregon? Q: Yeah. It was a joke. Jessie Handforth Kome: Yeah. Okay. [talking over each other] Q: When you go out and do the monitorings, the things that we run into is sort of extravagant purchases on procurement and those sorts of things. I mean, when you make the -- what's the decision making threshold for saying to the subgrantee or the developer to have to pay money back? You know, like when they do things like buy an extravagant refreigerator or appliances that they shouldn't have purchased. I mean, those are simple examples. How do you deal with a finding on that? Do you need to make them pay it back? Do you give them a warning? Do you say -- Jessie Handforth Kome: You need to know before you go out what you're going to do. You need to say, in our community the person who goes and monitors has authority to make a judgment

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call within, say $500 or $1,000. You can make a judgment call based on the situation as long as you document it, whether you decide to make them pay it back or not. If you think you can stop them from doing stupid things like that and prevent it from happening again without moving to a mitigating action, make that call and document it. If you think that -- they're talking back to you; they're not listening to what you're saying; they're going to stay out of compliance, and it's not inside your authority, your judgment amount that you can make a judgment call on, then you're probably going to need to move to a posture of asking for the money back. You need to have a really good idea before you go out how you determine necessary reasonable cost to check if the subrecipient did that. If they went through a process of trying to determine reasonable cost but you just came to a conclusion that you don't feel is really supportable, that's a technical assistance opportunity. And I would hope that you would have the authority to say on this particular occasion, you don't need to pay it back. But if you're looking at a pattern, and if you're looking at a subrecipient who wants to market -- you think they're setting up to try to market to people over 120 percent of median -- or especially if what they're doing is putting together homes that just aren't going to be reasonably salable to people inside the income limits, then you have a real serious problem and you need to approach it. But you need to have a plan going out. You will always have some surprises that you didn't think of and you'll have to come back to your supervisors and think about how to have a plan going forward. But if possible, try to anticipate things like that happening, because they're pretty predictable. Q: Yeah. It's mostly grantees without experience or they throw somebody into the job and they just buy things. Jessie Handforth Kome: Right. John Laswick: Yeah, that's a training opportunity. The other thing I would say, though, is -- because we get this question -- that we've discouraged in the past sort of upper-end fixtures and granite countertops and those sort of -- as the stand-in for those kinds of things. And given the market that you're competing for, at least on the upper end, if people are seeing granite countertops every place they go, it's not inappropriate for you to be putting in granite countertops in if you expect to sell your houses. So all I'm saying is I'm not speaking for the Granite Countertop Council of America. But you might want to just kind of look at, well, maybe everything we did in CDBG and HUD isn't exactly suited for 100 percent of what we're doing here.

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Jessie Handforth Kome: Something to look at. Though I must say, speaking for the anti-granite countertop people, I'm an extremely serious cook. I worked as a sous chef through college. And I cannot stand granite. I've broken granite countertops before and I can't stand them. John Laswick: So you're [inaudible]. You probably like concrete countertops. But whatever. Jessie Handforth Kome: I would love to have a concrete countertop. But right now I just have one that if I change my mind and destroy it or whatever, I can rip it out and recycle it. Q: We haven't seen those; just a lot of Deep Zero [sic] refrigerators or whatever those are. Jessie Handforth Kome: Yeah. Their problem is they're totally not energy-efficient, and they can create a problem who's trying to live affordably. John Laswick: But there can be extenuating circumstances. I mean, not necessarily for that equipment, but somebody who's got a disability or something and they need some special equipment. So just make sure you're taking it all into account. Q: All right. Jessie Handforth Kome: Great. You know, sometimes -- and speaking exactly to the giant refrigerator thing, because I saw it once in a subrecipient. When I started digging into it I discovered that the subrecipient had a lot of college students from an elite university working on it, and they really did think that they were buying the low-end stuff. It just never occurred to them, literally. I was dealing with three staffers on a low-income housing group and they never had been inside a Sears. So -- John Laswick: Wow. If it says an HQS, you know, provide an appliance that meets the family's needs. And if they've got eight kids, it might be a little bit bigger. Q: Sure. Okay. John Laswick: Okay. But I think the trend is -- the point that Jessie was making is the key thing. If they're doing it all the time and not paying attention, they're not thinking about it, then you have a bigger problem then if you have somebody who's just kind of made a couple mistakes. Q: Okay. I just want to be careful in case the OIG comes out and they have to do a payback, because we had a minor one on the replacement reserve. Jessie Handforth Kome: But that's why you want to document what your thinking process was. Q: Right. Jessie Handforth Kome: If you decide to walk away from this first one because it's inside a certain small amount and you stopped and presented and you didn't think there was anything to mitigate this one time, that's okay. But document it. Don't leave no paper trail.

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Q: Okay. Jessie Handforth Kome: This is a puzzle. You've dealt with the puzzle. You've solved it. And going forward you're going to be in compliance in this way. The OIG will totally get bored looking at that and go the other way. Q: Okay. That's our goal. Thank you. Jessie Handforth Kome: Yeah. The goal is to at the end of the first week of any audit, OIG knows that they don't need to be talking to you. You want them bored. You want your HUD monitors bored to death. It's all here. Kent Buhl: We have come to the end of our scheduled time. We do have a couple more questions left. Do you have time to take them, Jessie? Jessie Handforth Kome: Yeah, I do. I don't have anything to do until 5:30; right, John? John Laswick: Unless you want to start early. Kent Buhl: So Gary asks, "How often should you monitor a normally functioning NSP grant?" Jessie Handforth Kome: That's something you have to determine. I'm not going to tell a grantee that. I would say that if you're not constantly -- you're literally constantly talking to your subrecipients and going back and forth with them and reviewing at least certain items whenever they do draws-- which should be regularly, not once a year -- then you're really not doing your job. How often should you monitor onsite? That's your call. You have to assess risk in your overall portfolio and what they're doing and what things you can just know, review where you are, and when you have to go out there. I would say that at least once in the life of the grant you better go make sure those addresses exist. John Laswick: Right. But I think that ongoing contact is the real deal, because that's when you're in touch with your grantee, and then the onsite stuff is less important. When you're talking to them on a regular basis, every week or two, and have a feel for what's going on, and you have a level of comfort, you might not need a visit soon. But if everything -- if all their DRGR reports and funding requests are coming in messed up and confusing and you're paying attention to this and you can't get straight answers, you might want to be out there next week. So it really varies. But what's important is the constant communication, regular communication. Jessie Handforth Kome: Okay. Anybody else? Okay. Kent Buhl: Gary, we did you. And now let's go to Yanik [ph], who's had his [sic] hand up. Hi, Yanik.

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Jessie Handforth Kome: Hi. Q: Hi. My name is Yanik and I invest in neighborhood housing. And I have two questions. One has to do with grantee monitoring and the other one has to with HUD monitoring. And I [inaudible] answer. Jessie Handforth Kome: Go ahead. Q: Okay. If for example, the grantee is going to the subrecipients to do the monitoring and realized that there is a problem, and the grantee can tell the entity, this is a problem; can you fix it? In order to enforce what they want, could they go ahead and tell them, until you fix that problem, we're going to hold all your draws? You know, there will be no new payments for any activities. Or should we just hold only the draw for that specific activity that has the problem? Jessie Handforth Kome: It's up to you. Q: [inaudible] grantee? Jessie Handforth Kome: It's you, the grantee, are going to know the facts on the ground. If you have a finding related to a specific activity with a subrecipient and they're being cooperative and compliant and helpful for you, you might go ahead and make draws for their other activities. But if you have a subrecipient and you're making a finding on a particular activity and they are not in agreement with you, if your agreement allows it you can hold their draws. That's up to the grantee and the grantee's management. I must say, if you are going to make a finding on a subrecipient that's related not to a specific activity but to financial management and it's a serious one, I would tend to hold all their draws until you get things sorted out. That's very serious. But that would be my recommendation. It's still the grantee's call, if the grantee is the one on the hook to HUD for compliance on the overall grant. What's the risk of letting the sub go forward or not? And you're going to have to make the judgment call. Q: Okay. Thank you. The second question has to do with HUD monitoring. If HUD finds out that there is a problem with one specific -- it finds one specific subgrantee that spent the money in such a way and it's wrong, and they want to get the money back now, when they're asking for the money back, is it a specific transaction that they want that money back; they don't want that activity anymore? Or are they going to ask for all the grant back? Jessie Handforth Kome: Typically a monetary finding that doesn't involve fraud is going to result in asking for funds back that aren't related to the activity that you made the specific finding on. But I would need to know a lot more details about what you're talking about before I could completely answer that question. I must say, it is incredibly rare for us to ask for an entire grant back, unless you have an egregious finding.

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Q: Okay. Thank you so much. Kent Buhl: I see no more questions. Jessie Handforth Kome: Okay. Kent Buhl: But John's going to show us something again. Jessie Handforth Kome: There it is. Corrective and remedial actions at 579.10. John Laswick: So this is what we use. This is where we start. And then we kind of veer. Jessie Handforth Kome: Oh, come on. We don't use [inaudible]. That's old-fashioned. John Laswick: Yeah. It's all electronic now. Anyway, just to let people know we're actually working on it. Kent Buhl: Duly noted. [talking over each other] John Laswick: [inaudible]. We just want to give you something to take home to your kids. Jessie Handforth Kome: Yeah. I'm very grateful for you. John Laswick: We saw torture equipment today at work, honey. Yes. Jessie Handforth Kome: Okay. So Kent, you want to wrap it up and bring us home? Kent Buhl: I do. And when you leave the webinar, you'll be taken a very brief SurveyMonkey form. We do appreciate you taking a minute or two to fill that out and give us feedback. Thank you in advance for that. And a big thank-you for Jessie Kome for being here today. This is all very helpful. Thanks to John Laswick for his insights as well. There's a Q&A webinar next Tuesday that you may be interested in, and that's open for all NSP topics. So I'm sure we'll see some of you at that. So with that, take care, everyone. Have a great day. John Laswick: Okay. Thank you. Jessie Handforth Kome: Thank you very much. (END)

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