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Transcript for audio podcast:
NEON Head Start and CSBG Audit Reports

From the Office of Inspector General of Department of Health and Human Services

http://oig.hhs.gov

[Catherine Warren] I'm Cathy Warren, Auditor with the Office of Audit Services. Today, I'm speaking with Claudia Miller, Senior Auditor. We're talking about two recent audits at NEON, a non-profit agency in Norwalk, Connecticut. Can you tell us about NEON?

[Claudia Miller] NEON is a community action agency in southern Connecticut that provides a variety of services to low-income families in the local community, such as job training, homelessness prevention, and low-income energy assistance. We looked at two of NEON's Federally-funded programs: Head Start, which promotes school readiness for low-income children ages birth to 5, and Community Services Block Grant, or CSBG, which provides funding for services to address employment, education, and housing.

[Catherine Warren] And what did you find during these audits?

[Claudia Miller] Originally, we were just going to look at NEON's Head Start program. NEON receives about $1.5 million dollars annually to provide Head Start services to 275 children. We audited two and a half years of funding and additional Recovery Act funding and found that NEON had charged its Head Start grants more than $400,000 dollars in unallowable expenses. That's almost 12 percent of what we audited.

[Catherine Warren] What did NEON spend the money on?

[Claudia Miller] Most of the $400,000 dollars was spent on administrative and overhead costs that NEON incurred to keep the agency running. A portion of those expenses is normally permitted, but NEON charged the Head Start program more than its fair share. NEON also included some unallowable expenses, such as payments for a car that the agency CEO used for both business and personal use. About $23,000 dollars was used for things like tuition payments for non-Head Start employees and equipment that was missing.

[Catherine Warren] What made you decide to stay and audit NEON's CSBG program?

[Claudia Miller] Some of the issues that we found during our Head Start audit were systemic problems that would impact all of NEON's Federal programs. For example, the unallowable method that NEON used to charge administrative and overhead costs to its programs would impact all of NEON's Federal programs.

[Catherine Warren] So what did you find during the CSBG audit?

[Claudia Miller] NEON typically receives about $240,000 dollars annually for its CSBG program. NEON also received additional funding under the Recovery Act. We audited $513,000 dollars in costs and found that 61 percent of the funds claimed were unallowable. For example, NEON received Recovery Act CSBG funding to set up a thrift store and job training center at its Haviland Street facility. The plan was to offer retail job training upstairs and operate a thrift store downstairs where students could get real world experience. NEON charged the CSBG program $28,000 dollars to gut and renovate the building.

[Catherine Warren] Why would that be unallowable?

[Claudia Miller] The CSBG program specifically prohibits using funds to renovate a facility without a Federal waiver. The first floor was turned into a thrift store that was plagued with problems. The store was in a residential zone that prohibits retail establishments. It was closed six out of the seven times we made unannounced visits and only generated $848 dollars in sales during a 10-month period even though an additional $29,000 dollars was claimed for operating expenses for the thrift store, including payroll expenses, rent for using the space, utilities and supplies to operate the store. The CEO's ex-wife was the only employee hired to run the thrift store. In addition, NEON converted the second floor that was going to be used for a job-training site into a two-bedroom apartment that NEON rented to the CEO's ex-wife at below market rate.

[Catherine Warren] What about the rest of the unallowable expenses?

[Claudia Miller] NEON did not have strong internal controls for its Federal funds. So we found that NEON did not have adequate support for the CEO's credit card charges, gift cards that were supported with unreliable documentation and expense transfers that weren't related to any particular invoices, so we couldn't tell if the expenses were allowable CSBG expenses.

[Catherine Warren] So in total, how much money did you recommend recovering?

[Claudia Miller] We recommended recovering about $314,000 dollars of CSBG funds, which may not seem like a lot when compared to some of our other audit recoveries. But remember, these funds were supposed to be used to help some of the most vulnerable low income families.

[Catherine Warren] And what would you like people to take away from these audits?

[Claudia Miller] We want people to know that our office is working hard to protect Federal funds and ensure that they are used appropriately.

[Catherine Warren] Thank you, Claudia Miller for sharing these important audits.

[Claudia Miller] Thank you, Cathy.

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