Community Redevelopment: Significant Improvements in Policies and Procedures Are Needed at NeighborWorks America
Fast Facts
NeighborWorks is a nonprofit that receives federal money to provide grants, assistance, and more to nonprofit U.S. housing and community development organizations.
Over the last decade, auditors have found problems with NeighborWorks' handling of procurement, conflicts of interest, and whistleblowers.
NeighborWorks has made changes, but hasn't always ensured the changes were fully implemented or communicated to staff. Problems continue—for example, staff don't consistently follow procurement policies.
We recommended that NeighborWorks formally train staff on procurement, and address issues in all 3 problem areas.
Highlights
What GAO Found
The mission of NeighborWorks America, a congressionally chartered nonprofit, is to revitalize neighborhoods. The organization has made progress in establishing policies, procedures, and internal controls relating to procurement, whistleblower complaints, and internal audits. But GAO found weaknesses remain.
Procurement. GAO reviewed a sample of contract files and purchase card transactions and found staff did not consistently follow procurement policies, including for documentation and supervisory approval. NeighborWorks has begun to implement a new procurement system, but the extent to which the new system will address these issues is unclear. NeighborWorks does not provide formal training on its procurement process and made some changes to its procedures without clearly communicating those changes to staff. Providing formal training to staff and clearly communicating changes in policy would help address weaknesses in the procurement process.
NeighborWorks America's Documentation of Selected Required Elements of Sample Contract Files, by Contract Size, Fiscal Years 2019–2021
Note: For more details, see figure 2 in GAO-23-105944.
Whistleblowers. NeighborWorks has a new whistleblower policy, but it does not include procedures for investigating complaints or criteria for who will conduct investigations. Developing and implementing such procedures and criteria would help ensure that potential violations of law or policy or misuse of taxpayer dollars are appropriately investigated.
Internal audits. NeighborWorks' internal audit function met most standards of The Institute for Internal Auditors—a recognized leader on internal auditing. However, it has not fully met standards on quality assurance and improvement. For example, Internal Audit has not had an external assessment—required every 5 years—since 2012. By implementing a quality assurance and improvement program, Internal Audit could assess the efficiency and effectiveness of its activities and identify opportunities for improvement.
Why GAO Did This Study
NeighborWorks received an annual appropriation of $163 million in fiscal year 2021, which accounted for most of its funding, and has around 350 employees. However, past audits have raised questions about its procurement process.
The Joint Explanatory Statement for the Consolidated Appropriations Act, 2022 includes a provision for GAO to review NeighborWorks' compliance with regulatory requirements and internal policies in several areas. This report addresses the extent to which NeighborWorks established effective policies, procedures, and internal controls for procurement, whistleblowers, and audits, among others. GAO analyzed (1) NeighborWorks' policies and procedures in these areas, (2) a nongeneralizable sample of contract files and purchase card transactions from 2019–2021, and (3) whistleblower complaints from 2016–2022. GAO also interviewed current and former staff and conducted five focus groups with current staff.
Recommendations
GAO makes 10 recommendations to NeighborWorks, including improving procurement, whistleblower, and internal audit policies and procedures and providing additional training to staff. NeighborWorks agreed with these recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Other | NeighborWorks America's President and Chief Executive Officer should ensure that the Chief Financial Officer develops and implements formal training for Procurement staff and staff in the business units who work on procurement about its procurement policies and procedures (including on writing the scope of work) and the regulatory requirements to which the organization adheres. (Recommendation 1) |
In December 2023, NeighborWorks America's management reported that they have created an action plan to address this recommendation and to date have developed training on the updated procurement policy and system and established attendance policies, including consequences for failing to attend. The plan includes next steps, such as developing additional training on the scope of work requirements and a continuous learning and training program for procurement-related staff. Management's planned completion target for fully addressing this recommendation is September 30, 2024. GAO will continue to monitor NeighborWorks' implementation of procurement training.
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| Other | NeighborWorks America's President and Chief Executive Officer should ensure that the Chief Financial Officer develops and implements a formalized process to communicate procurement policy changes to Procurement staff and staff who work on procurements across the organization before implementing changes. (Recommendation 2) |
In December 2023, NeighborWorks America's management reported that to address this recommendation they plan to charter and implement a Change Management Center of Excellence, which will be responsible for developing change management policies and processes. Management has created an action plan and to date the selected initial members have held a kickoff meeting and identified the scope for the new center. The plan includes next steps, such as completing the mission and charter for the center, reviewing current change management policies, and formulating new change management communication policies and procedures. Management's planned completion target for fully addressing this recommendation is June 31, 2024. GAO will continue to monitor NeighborWorks' implementation of a formal communication process.
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| Other | NeighborWorks America's President and Chief Executive Officer should ensure that the Chief Financial Officer finalizes and implements a plan to regularly review micropurchase transactions, including in the aggregate, for adherence to policy thresholds. (Recommendation 3) |
As of February 2024, NeighborWorks America (NWA) has taken actions that addressed the recommendation. Specifically, in August 2023, NWA distributed a memo to staff members with purchase cards that clarified the micro-purchase policy, including spending limits for the program. NWA also updated its process to monitor micro-purchase transactions made by purchase cards. The new process uses automated alerts to monitor purchase activity that has the potential to violate NWA's policies, restricts the use of purchase cards for certain Merchant Category Codes, and institutes a bi-weekly review of purchase card activity by NWA's Finance Division.
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| Other | NeighborWorks America's President and Chief Executive Officer should direct that the Chief Financial Officer takes steps to ensure that the PRISM system includes controls for completion, review, and approval of all required documentation, such as by periodically auditing the effectiveness of the controls. (Recommendation 4) |
In December 2023, NeighborWorks America's management reported that they have created an action plan to address this recommendation and to date have determined controls necessary to comply with procurement policies, onboarded two business analysts to develop technical requirements in the PRISM system, and presented initial requirements to the vendor for potential development. The plan includes next steps, such as implementing automated controls and completing two quarterly reviews to audit the effectiveness of those controls. Management's planned completion target for fully addressing this recommendation is September 30, 2024. GAO will continue to monitor NeighborWorks' implementation of the system.
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| Other | NeighborWorks America's President and Chief Executive Officer should ensure the Ethics Officer develops and implements procedures for documenting potential conflicts of interest and their final determinations. (Recommendation 5) |
In December 2023, NeighborWorks America's management reported that they have created an action plan to address this recommendation and to date have performed research on how conflicts of interest are assessed, monitored, and recorded at NeighborWorks' Board agencies and similar organizations. The plan includes next steps, such as working with detail attorneys from the Federal Deposit Insurance Corporation to draft procedures that cover different conflict-of-interest scenarios, revising the Code of Ethical Conflict to reflect additional staff obligations, and creating a new training course. Management's planned completion target for fully addressing this recommendation is September 30, 2024. GAO will continue to monitor NeighborWorks' implementation of documentation procedures for conflicts of interest.
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| Other | NeighborWorks America's President and Chief Executive Officer should ensure that the Ethics Officer in collaboration with the Board of Directors develops and implements written procedures for steps staff should take when receiving a whistleblower complaint and for conducting objective and independent investigations. This could include exploring entering into an agreement with an appropriate Inspector General's Office to receive and investigate NeighborWorks whistleblower complaints. (Recommendation 6) |
In December 2023, NeighborWorks America's management reported that they have created an action plan to address this recommendation and to date have held regular meetings with Federal Deposit Insurance Corporation detail attorneys to help develop whistleblower procedures and investigated options for a NeighborWorks' Board agency to conduct whistleblower investigations. The plan includes next steps, such as determining roles and responsibilities for conducting investigations, finalizing whistleblower complaint procedures, and developing an annual required training on these procedures to all staff. Management's planned completion target for fully addressing this recommendation is June 30, 2024. GAO will continue to monitor NeighborWorks' implementation of procedures for receiving and investigating whistleblower complaints.
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| Other | NeighborWorks America's President and Chief Executive Officer should ensure that the Ethics Officer in collaboration with the Board of Directors revises the whistleblower policy to include periodic follow-ups with complainants after the investigation has been completed. (Recommendation 7) |
In December 2023, NeighborWorks America's management reported that they have created an action plan to address this recommendation and to date have held regular meetings with Federal Deposit Insurance Corporation detail attorneys to help develop whistleblower procedures and completed research on a reasonable and appropriate scope for follow-up with complainants. The plan includes next steps, such as revising the whistleblower policy, creating the procedures to ensure complainants are protected from retaliation, and developing an annual required training on these procedures to all staff. Management's planned completion target for fully addressing this recommendation is June 30, 2024. GAO will continue to monitor NeighborWorks' revision of its whistleblower policy.
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| Other | NeighborWorks America's Chief Audit Executive in collaboration with the Audit Committee should develop and implement a formalized process to document and communicate restrictions on internal auditors from assessing specific operations for which they were previously responsible in accordance with The International Standards for the Professional Practice of Internal Auditing on impairments to independence or objectivity. (Recommendation 8) |
As of December 2023, NeighborWorks America (NWA) has implemented several actions that addressed the recommendation. Specifically, in October 2023, the Chief Audit Executive developed a policy statement on internal audit independence and objectivity that communicated restrictions on internal auditors from assessing specific operations for which they were previously responsible. The statement also included other best practices to prevent an auditor from being placed in a position in which the auditor may feel unable to make objective professional judgments. The Objectivity and Independence policy for the Internal Audit (IA) staff was approved by the NWA Board's Audit Committee. The policy statement was disseminated to IA staff and added to the Internal Audit Policy Manual. IA staff also completed required Ethics training.
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| Other | NeighborWorks America's Chief Audit Executive in collaboration with the Audit Committee should develop and implement a formal continuous quality assurance and improvement program that includes performing periodic self-assessments and conducting an external assessment every 5 years to adhere to The International Standards for the Professional Practice of Internal Auditing on quality assurance and improvement programs. (Recommendation 9) |
In December 2023, NeighborWorks America's management reported that they have created an action plan to address this recommendation and to date have developed draft policy guidelines for a quality assurance and improvement program, taken initial steps to contract with an external validator, completed staff quality assessment review training, and performed a gap analysis to identify corrective action for internal audit documentation. The plan includes next steps, such as approval of the draft guidelines by the Audit Committee and Board of Directors and updating the audit manual once the guidelines are approved. Management's planned completion target for fully addressing this recommendation is December 31, 2024. GAO will continue to monitor NeighborWorks' implementation of a quality assurance and improvement program.
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| Other | NeighborWorks America's Chief Audit Executive in collaboration with the Audit Committee should remove language from audit reports (starting with 2017) indicating that audits were conducted in accordance with The International Standards for the Professional Practice of Internal Auditing until an external assessment has been conducted and an internal quality assessment and improvement program that includes periodic selfassessments has been implemented. (Recommendation 10) |
As of March 4, 2024, NeighborWorks America has taken action to fully address this recommendation. NWA has removed the conformance language on 31audit reports issued between 2017 and 2021 and has reissued the reports with new language that links to the GAO report.
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