Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor

MEMO

DATE: September 3, 2013

TO: Larry Morrissey, Mayor

Rockford City Council

FROM: James R. Ryan, City Administrator

RE: Final Report: CSBG-Recovery Act Program & Management Review

Pursuant to your directive, I have conducted an internal review of the recent audit that was published by the
U.S. Department of Health and Human Services Office of Inspector General. In addition, you asked me to
conduct this review and to make recommendations for corrective action as well as recommendations for the
City Council regarding the Human Services Department going forward. The following report is broken up into
two parts: I) Management Analysis & Review of OIG Report and II) Management Summary Analysis &
Recommendations.

PART I
MANAGEMENT ANALYSIS & REVIEW OF OIG REPORT
On July 2013, the U.S. Department of Health and Human Services Office of Inspector General issued a public
report entitled “Rockford Human Services Did Not Always Charge Allowable Costs to the Community Services
Block Grant-Recovery Act Program (hereinafter the “OIG Report”). The objective of the report “was to
determine whether selected CSBG Recovery Act costs that the State claimed for Rockford’s program
expenditures were allowable under the terms of the Recovery Act award and applicable Federal
requirements”(OIG Report, ii).

It should be noted that nothing in the OIG Report suggested intentional wrongdoing, fraudulent practices, illegal
activities, or self-dealing by any City staff or sub-grantee with regard to the funds in question. In fact, all
program fund activities were approved in advance by the State of Illinois DCEO staff. The failures identified
within the OIG Report focus on a lack of adequate documentation, lack of program administration, expending
funds outside the grant period, and expending funds not deemed allowable according to federal grant guidelines.

The City of Rockford Human Services Department was awarded a grant for CSBG-R funds in the amount of
$1,062,800.00 on August 18, 2009, and later modified on May 10, 2010. The State of Illinois agency charged
with disbursing and administering federal CSBG-R funds was the Illinois Department of Commerce and

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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
Economic Opportunity. The grant period in which funds needed to be expended by the City of Rockford
Human Services Department was from May 1, 2009 through September 30, 2010.

OIG REPORT SUMMARY OF FINDINGS

The OIG report focuses on $598,888 in CSBG-R monies that the State DCEO claimed on behalf of Rockford.
Of the $598,888 CSBG-R funds that were audited by OIG, their summary of findings indicated that $205,296
was “unallowable” under the terms of the Recovery Act award and applicable Federal requirements. In
addition, the OIG reports asserts that the “State claimed $141,796 [on behalf of the Rockford Human Services
Department] that may not have been allocable to the Recovery Act award and thus were potentially
unallowable”(OIG Report, ii).

As it relates to the $205,296 deemed unallowable, the OIG report stated that “Rockford did not follow its
policies and procedures requiring costs be supported with source documentation, as well as comply with
Recovery Act award and Federal requirements.” As it relates to the potentially unallowable costs in the amount
of $141,796, the OIG report asserts that “Rockford did not have adequate levels of review in place to ensure
that costs charged to the Recovery Act award, including subcontractor costs, were properly allocated in
compliance with 2 CFR pt. 225.”

The OIG Report recommended that the State of Illinois: 1) return to the Federal Government unallowable costs
totaling $205,296.00; 2) work with Rockford to determine what portion of the $141,796 is allowable and refund
to the Federal government any amount determined to be unallowable; 3) ensure that Rockford revises its
policies and procedures regarding the adequate documentation of all costs charged under Federal awards and
the charging of costs during the award period; and 4) ensure that Rockford revises its monitoring procedures to
ensure that costs charged to Federal awards, including subcontractor costs, are in compliance with applicable
Federal requirements.

The OIG Report stipulates that Rockford “did not concur with our first recommendation, did not address our
second recommendation, and concurred with our third and fourth recommendations.” After review of appeal
letters from both the Rockford Human Services Department and the State of Illinois that responded to the draft
OIG Report, the draft OIG report was amended to include $4,942 in allowable costs. Other than that, the
findings and recommendations within the OIG Report were sustained after the appeal letters were filed by the
City and the State.

In a letter dated July 22, 2013 to the U.S. Department of Health & Human Services, the Illinois Department of
Commerce & Economic Opportunity agreed with the OIG recommendation to return $298,671.84 to the Federal
Government. In the letter, the State stipulates that DCEO “will instruct Rockford Human Services to reimburse
DCEO with unrestricted funds so that DCEO can reimburse the U.S. Department of Health and Human
Services.” It is important to note that DCEO did not concur with OIG’s finding that “the State does not have
adequate monitoring procedures to ensure that the CSBG Recovery Act costs claimed for Rockford’s program
expenditures were allowable, allocable, and adequately supported in accordance with terms of the Recovery Act
award and applicable Federal requirements.” In DCEO’s response, they stated that “Because of the large
injection of Recovery Funds, CAAs [Community Action Agencies] looked for new partnerships which
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Lawrence J. Morrissey
Mayor
Office of the Mayor
sometimes resulted in contracts/subcontracts. Without Recovery Act administrative resources to hire additional
staff, existing CSBG staff did not have sufficient time to adequately review contracts/subcontracts.”

OIG REPORT FINDINGS DETAIL

“Costs Inadequately Documented”. The OIG Report states that Rockford Human Services did not
adequately document $123,530. Of this amount, $100,000 is attributable to the grant that the City awarded to
the RAEDC in 2010, $15,000 is attributable to the nCenter, and $8,530 in subcontractor costs such as supplies
and meeting expenses. As you recall, due to the economic crisis, both our general fund and redevelopment fund
were severely distressed, and this was a way to continue financially supporting the RAEDC at our contractual
obligation amount. From the very beginning of discussions, it was known by administration, City staff, and the
RAEDC that any grant awarded to the RAEDC would have to fit within the guidelines of the CSBG-R grant.

A request was made by the Rockford Human Services Department to the Illinois DCEO on March 31, 2010 to
modify the grant to include $100,000 for the RAEDC and $15,000 for the nCenter in the CSBG-R grant, and it
was subsequently approved by the ILDCEO on May 10, 2010. The program objective as articulated to DCEO
for the RAEDC grant was for a job development program in which 22 people were to be served for the purposes
of job creation and retention. The program objective as articulated to the ILDCEO for the nCenter grant was a
youth initiative between Rockford Human Services to improve the lives of low-income youths through
educational means as well as to encourage and foster involvement with neighborhood groups. The program
target was to impact 100 youth. The DCEO approved both grant requests for RAEDC and the nCenter as an
eligible grant activity under the CSBG-R award.

I was first advised from George Davis, Executive Director of the Rockford Human Services Department, that
OIG was auditing Rockford Human Services’ expenditure of CSBG-R funds via an e-mail from Director Davis
on October 7, 2011. In the e-mail, Director Davis stated that [the OIG audit] “has been expected for some time
and we don’t expect to have any major issues.” In an e-mail dated October 19, 2011, Director Davis e-mailed
me stating that a team from the HHS Office of the Inspector General would be conducting a review of our
CSBG ARRA fiscal and program activity beginning the week of November 7, 2011. In the e-mail, Director
Davis states that: “This is part of an anticipated Federal review of Illinois CSBG ARRA spending and not due
to any specific issues or concerns regarding our work. Given the fact that we received and expended over
$1[M] dollars during the one year in CSBG ARRA funds alone it is not surprising that they have selected
Rockford as part of their review. I have been assured that they are doing routine testing of fiscal and program
integrity in terms of cost allow-ability and reasonableness. Given our general accounting practices and
Department fiscal procedures I don’t expect that we will have any significant issues.”

The first indication of a problem with the RAEDC and nCenter grant was in an e-mail correspondence dated
September 28, 2012 from George Davis, Executive Director of Rockford Human Services. In that e-mail, Mr.
Davis discusses the proposed OIG findings, stating:

“This process has been ongoing since November of last year. Jennifer and I have done a brief
review of the findings. While we are confident that ILDCEO will likely support us on most of
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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
these, the major potential liability is the RAEDC disallowance of 100k (the entire amount of our
sub-grant to them) due to their inability to provide accounting records supporting their use of
ARRA funds. Also, the NCenter funding (about 15k may have to be repaid due to the fact that
they shut down and failed to provide any documentation supporting their use of ARRA sub-grant
funds. Jennifer will be following up with the agencies cited in the disallowances to press for
additional documentation – including RAEDC. There are a couple of internal findings related to
how costs were allocated for IT and rent which we may be able to fix. I will be calling our state
CSBG Director regarding what support we can expect from them on some of these items but the
RAEDC issue is not within their purview to give us a pass on according to OIG’s report.”

Prior to this e-mail, there was no indication or communication to me that there was a grant compliance issue
with regard to the CSBG-R funds granted to RAEDC or the NCenter.

“Costs Incurred Outside the Recovery Act Budget Period”. The OIG report states that Rockford Human
Services charged $72,669 in costs to the Recovery Act award that were incurred outside the budget period of
May 1, 2009 through September 30, 2010. These amounts related to various subcontractor expenses for
personnel, supplies, meeting and vehicle lease expenses made prior to and after the contracted period. In
Section 4.2 of the Terms and Conditions of the Grant Agreement between the City of Rockford and the Illinois
Department of Commerce and Economic Opportunity, the language is clear: “The Grantee must complete the
Scope of Work within the grant term.” Section 4.2B. of the contract stipulates that “Extensions of the grant
term will be granted only for good cause. Grantees requiring an extension of the grant term should submit a
written request to the Program manager prior to the grant expiration date stating the reason for the extension.”
There is no record or evidence that the Rockford Human Services Department submitted a request for extension
to cover the expenses that they sought reimbursement for under the Grant Agreement.

“Costs Charged for Entertainment”. The OIG report states that Rockford inappropriately allowed $9,097 in
entertainment costs to the Recovery Act award, $8,717 for a movie theater rental and $380 for paintballing. In
defense of the expenditure of the paintball expense, Rockford Human Services asserted that the cost was
incurred as a leadership training for the Mayor’s Youth Advisory Council. In Section 4.4B of the Grant
Agreement between the City and the ILDCEO, it states that “costs allowable under this Agreement shall
conform to the cost principles applicable to the organization incurring the costs. Units of local government
shall use the principles established in OMB Circular A-87. Nonprofit grantees shall use the principles
established in OMB Circular A-21. Commercial organization vendors or subcontractors are subject to the cost
principles under 48CFR Part 31.”

OMB Circular A-87 stipulates, as a part of Appendix B to Part 225 of the Federal Register, that “Costs of
entertainment, including amusement, diversion, and social activities and any costs directly associated with such
costs (such as ticket to shows or transportation, and gratuities) are unallowable.”(2 CFR Part 225, “Cost
Principles for State, Local and Indian Tribal Governments (OMB Circular A-87), page 51917).

“Costs Potentially Not Allocable”. The OIG report states that Rockford Human Services Department
inappropriately allocated $141,796 in certain costs claimed by Rockford and subcontracts that may not have

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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
been allocable to the Recovery Act award. The potentially not allocable charges relate to $41,805 in
microcomputer charges of the Rockford Human Services Department, $4,000 in expense to the Rock River
Training Office in Boone County, and $95,551 in expense to the Winnebago County States Attorney’s Office.

In relation to the computer charges, OIG asserts that both regular CSBG and CSBG-R funds benefitted from
computer services provided. CSBG-R was charged for the total cost of computer services, even though the
regular CSBG program benefitted. Rockford Human Services asserts in its defense that it was not cost effective
to account for and compute the costs for each grant. The State of Illinois concurred with Rockford Human
Services in its reponse to the OIG Report, and is recommending that the $41,805 not be returned. As it relates
to the rental expense for the Rock River facility, inadequate documentation was provided by Rockford Human
Services on how the funds supported the CSBG-R program.

Review of Subgrant Recipient Winnebago County State’s Attorney’s Office

As it relates to the funds that were allocated to the Winnebago County States Attorney’s Office, $79,198 in
payroll costs did not have supporting personnel activity reports as required by the Grant Agreement. In
addition, $16,793 in training expenses were deemed not to be specifically for the purpose of the sub-grant.
Inadequate and conflicting documentation for both salary and training expenses lead to OIG’s assertion that
they could not determine that the allocation was chargeable or assignable to the sub-grant in accordance with
relative benefits received. The Subgrant Agreement dated November 25, 2009 between the City and
Winnebago County States Attorney’s Office was for $100,000 “for the purpose of creating and/or enhancing a
program for the prevention and reduction of senior abuse and the creation or enhancement of a program to
intervene with first time youth offenders for the assistance of residents of Winnebago County, Illinois.”

Review of Subgrant Recipients of RAEDC, Rockford Youth Initiative (nCenter), and Mayor’s Youth
Advisory Council
In the Sub-grant Recipient Agreement with the nCenter dated December 19, 2009, program and reporting
requirements are described in detail in Articles 3 and 4 of the Agreement and in Attachments C and D of the
Agreement. The OIG Report states that $15,000 that went to the nCenter is disallowed due to the lack of
supporting documentation. According to the report, the Rockford Human Services Department was “unable to
provide us with any documentation to support the Rockford Youth Initiative subgrant expenses of $15,000, as
the director of this program is unavailable.” It should be noted that as late as Spring of 2011, the nCenter was
still in operation. The documentation could have been retrieved during the grant period, but it clearly was not.
Since the OIG findings came out after the nCenter had closed, Rockford Human Services had no ability to
produce supporting documentation.

One of the other central findings in the OIG Report was the expenditure of $9,097 in entertainment costs. The
entertainment costs included the rental of a movie theater ($8,717) which was used to host a movie event and
expenses related to a paintballing event ($380.00) for the Mayor’s Youth Advisory Council, which was
managed and operated under the Rockford Human Services Department. According to Director Davis, the
intent of the paintball expenditure was for a leadership training activity, and the movie expenditure was for the
Mayor’s Youth Advisory Council to have a fundraiser for the Head Start Program. If someone brought a book
to the theatre for a donation to Head Start, they would get a discounted movie pass. Rockford Human Services
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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
reimbursed the CSBG ARRA fund $6,614.66 for unused movie tickets and cash receipts, and DCEO
recommended that the Rockford Human Services Department not be responsible for this amount, but the OIG
report did not sustain either the City or DCEO’s response, because “the State was unable to provide adequate
documentation to support that the $6,615 was returned.” After the OIG Report was issued, the State, in their
July 22nd letter, stated that Rockford Human Services had reimbursed the CSBG fund $6,615, and that it would
not have to be returned.

As it relates to the OIG Report and the $100,000 in unallowable costs stemming from the RAEDC contract, the
fundamental problem was a lack of adequate reporting. While RAEDC and Rockford Human Services have
asserted that the amount went towards salaries, RAEDC failed to provide personnel activity reports to support
such costs.

In an e-mail dated May 19, 2010 from City Attorney Ron Schultz to the Community Services Director for
Rockford Human Services, Attorney Schultz states: “Here is a Supplemental Agreement to be approved by
P&D Monday night. Please review and make additions if necessary to satisfy CSBG requirements.” A
Supplemental Agreement was executed between the Rockford Human Services Department and the RAEDC on
July 12, 2010. In Section 3 of the Agreement entitled “Documentation”, the contract reads that the “RAEDC
shall provide the City, acting through its Department of Human Services, all reasonable documentation of its
activities and comply with CSBG regulations as advised by the City.”

It should be noted that no changes were ever made to the Agreement that was drafted by the City Attorney of
the Legal Department, despite the fact that the Agreement executed between the Rockford Human Services
Department and the Rockford Youth Initiative contained more extensive legal language and reporting
requirements. In fact, there is little consistency with contract language and program and reporting requirements
between the two programs, despite the fact that it is was for the same CSBG-R funding program.

As stated previously in this brief, I was first alerted that there was a problem with RAEDC’s reporting in an e-
mail dated September 28, 2012. In an e-mail correspondence dated October 1, 2012 to the Rockford Human
Services’ Director, Executive Director of the RAEDC, and Director Davis, I asked: “What have we not
documented to make it an appropriate use. We approved the expenditure based upon the recommendation that
it was an allowable use. Have we documented the expenditures throughout? That should have happened. If it
hasn’t, it needs to happen now.” On the same day of my e-mail, the Community Services Director stated the
following in response to the e-mail:

“Illinois DCEO approved it as an allowable use. The issue is that RAEDC could not identify that
they used the funds for job development. I think if they went back and showed how they
allocated job development salaries among the funds they had during that time period it may be
acceptable. As you can see RAEDC’s response was that they contract did not state they had to
document and in that respect they are correct because we ended up using the city’s boiler plate
agreement instead of a separate one. I think it is fixable but RAEDC will have to provide
something the OIG will accept.”

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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
The RAEDC Executive Director responded to my e-mail stating the following:

“Jim, we will work to achieve the language needed. We used this money for job development as requested. Mary
will lead the response to Jennifer. Jennifer can you send an example of what you is required to meet the OIG
requirement?”

In an e-mail correspondence from the Community Services Director to RAEDC’s Director of Investor Relations
dated October 5, 2012, the following direction was given to the RAEDC:

“They know that RAEDC was given $100,000 for job development creation, specifically jobs
appropriate for low-income persons. They need to see documented that RAEDC spent that
money on salaries and that the time spent can be verified as [time] spent on eligible activities.
Because RAEDC doesn’t keep time or activity sheets, my suggestion is that you use calendars
to identify time staff spent on job development and match that up with the payroll information
for that period. Allowable activities might include job fairs, meetings with potential firms
looking at Rockford, expansion of locals firms, etc. I would strongly suggest that you look first
at businesses likely to hire lower skilled workers or small businesses. This would bring some
unity to the documentation you’re providing as well as make it more appropriate for this type of
funds. Please let me know if you have more questions. I’m often out of my office often so
email will probably reach me sooner.”

These e-mails are illustrative and important on several levels. One, it verifies that reports were not being done
appropriately from the very inception of the grant award to the RAEDC. This type of direction should have
been provided at the beginning of the grant period, not after an OIG review. Secondly, it illustrates that
RAEDC was not adhering to the grant requirements as set forth in the contract. Lastly, it illustrates that the
Rockford Human Services Department was not administering the CSBG-R funds in accordance with the Grant
Agreement of August 18, 2009 and as amended May 10, 2010 between the City of Rockford and the Illinois
Department of Commerce & Economic Opportunity. While the RAEDC did provide a report detailing
activities, the personnel involved in the activity, and the hours and wages dedicated to the activity, it was clearly
done post facto, and it did not contain personnel activity reports as required by federal law, and it ultimately
was not accepted by the OIG because of that.

In a letter dated March 5, 2013 to Sheri Fulcher, Regional Inspector General for Audit Services for the
Department of Health & Human Services, in response to the draft OIG findings, Director Davis states:

“While we acknowledge that our documentation of costs fell short of requirements in a number of
cases, we wish to point out that we followed the requirements for documentation as we
understood them at the time. The haste with which Recovery Act programs and spending were
required to be implemented and the desire to minimize undue administrative expenses resulted in
shortfalls that are clear in hind-sight.”

In a July 26, 2013 online issue of the Rockford Register Star regarding the OIG Report, Director Davis asserted
that “It’s not a case where we had explicit guidelines or instructions and didn’t follow them. We had no unique

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Lawrence J. Morrissey
Mayor
Office of the Mayor
guidelines.” In a discussion with Director Davis regarding this comment, Director Davis was stating that the
CSBG-R regulations and guidelines were no different than the guidelines that Rockford Human Services must
follow for the regular CSBG program that we have administered for years. The only difference was the federal
reporting requirements required by the Recovery Act. The Community Services Director for the Rockford
Human Services Department reports to Executive Director George Davis, is responsible for the overall
management of the regular CSBG program, and was responsible for the overall management of the CSBG-R
program as well. In a discussion with Director Davis, he relied heavily on the Community Services Director to
administer the CSBG program in accordance with established guidelines, laws, and procedures. Since these
guidelines were not new, as Director Davis notes, and the Community Services Director has been managing the
CSBG program for years, the guidelines should have been followed. Based upon the review of information that
is expressed in more detail in Part II of this report, it is clear that there were explicit guidelines and instructions
from the very onset of the CSBG-R Grant Agreement with the DCEO, and they were not followed in
accordance with the Grant Agreement.

As referenced earlier in this report, on July 22, 2013, the State of Illinois responded to the OIG Report by
recommending that the Rockford Human Services return $198,680.84 of the $205,296 that was deemed
“unallowable costs” under the OIG Report, and recommending that Rockford Human Services return $99,991
of the $141,796 that was deemed “potentially unallowable costs”. In total, the State of Illinois concurred with
the OIG Report that Rockford Human Services should return $298,671.84 to the Federal Government.

PART II
MANAGEMENT SUMMARY ANALYSIS & RECOMMENDATIONS
1. Return $298,671.84 in CSBG-R monies back to the U.S. Department of Health & Human Services
via the Illinois DCEO. Based on my review of the OIG report, city correspondence and contract records,
review of state and federal regulations, and the DCEO’s response to the OIG report, I concur with
DCEO’s letter dated July 22, 2013 that the City should return a total of $298.671.84 in unallowable costs
to the CSBG-R program back to the State DCEO upon a formal letter of request from the State of Illinois.
The State can in turn return the monies back to the U.S. Department of Health & Human Services. In a
discussion with Director Davis, he stated that it is his belief that the demand to return the CSBG-R funds
back to the State of Illinois can be fulfilled by using recaptured loan dollars that are currently in an
account with Rockford Human Services. This will eliminate the need to draw down General Fund dollars,
but will reduce our ability to utilize recaptured loan dollars for processing economic development loans in
the near term. My recommendation is that we get written clarification from the State to utilize
$198,671.84 in recaptured loan funds, and we expend the remaining $100,000 owed to the State out of the
Redevelopment Fund. I have already communicated to the RAEDC that our typical annual contracts of
$200,000 would have to be reduced accordingly by $100,000, most likely over a two-year period. I am
also recommending that the City seek a release of liability from further action on the matter from the
Illinois DCEO and OIG.
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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor

While Director Davis acknowledged that the City’s documentation of costs “fell short of requirements in a
number of cases,” one of the key assertions made by the Rockford Human Services Department in its
defense of the OIG Report findings was that the Department “followed the requirements for documentation as
they understood them at the time.” In addition, it is also asserted by Director Davis that “the haste with which
Recovery Act programs and spending were required to be implemented and the desire to minimize undue
administrative expenses resulted in shortfalls that are clear in hind-sight.” It should also be noted that Director
Davis stated that prior to the OIG findings, the State of Illinois DCEO, who administered the CSBG-R grant
program, gave no indication that there was a problem with the contracts or the reporting that Rockford Human
Services was submitting in support of the program.

In many respects, when I reflect back to what was happening economically and organizationally with the
City organization in 2009 and 2010, it was the perfect storm. The City was in a severe economic crisis,
along with the nation, and in turn we had to lay a significant amount of people off throughout the City
organization, implement an early retirement program, and institute hiring freezes. This left our capacity to
administer and deliver basic services stretched to the limit for our basic programs, much less be
responsible for administering new grant programs and deploying millions of stimulus funding in a very
short timeframe. While the infusion of federal stimulus dollars was intended to help the economy and
communities like Rockford, I concur with Director Davis’ statement that the directives from State and
Federal dollars to deploy the federal stimulus dollars as quickly as possible, and under a grant term from
May 2009 through September 2010, was unrealistic and lead to the problems that were revealed in the
OIG Report.

During the Federal stimulus period, the Rockford Human Services Department received over $1,000,000
in CSBG-R funds, $2,500,000 in Rapid Rehousing funds, $2,500,000 in additional Weatherization funds,
and $1,500,000 in additional Head Start/Early Head Start funds. As a result, the Department was tasked
with rapidly spending an additional $7.5 million in Federal Funds between May of 2009 and September
30, 2010. As Director Davis noted to me in response to the OIG Report, “There was not sufficient time or
resources to hire or train additional staff to administer most of these projects and the vast majority of
funds were distributed to local organizations or vendors who had both identified needs and capacity to
complete projects within the stimulus period. Outside of the HHS/OIG Report, we have had no negative
findings or reports regarding our production/deliverables or our fiscal management from any other Federal
or State agency who monitored our efforts during this period.” While we should take very seriously the
need to implement the improvements outlined in this report, it should be noted that the roughly $300,000
of findings claimed in the OIG Report amounts to approximately 4% of the grants administered and
received by the Rockford Human Services Department. Moreover, this figure does not include the
stimulus amounts received and spent by other departments such as Community Development, Public
Works, Fire, and Police Departments, which would make this percentage significantly smaller.

It is my belief that developing meaningful and thoughtful programs in the human services realm,
deploying the funds in a meaningful and accountable manner by contracting with outside agencies who
were also undergoing economic crisis, and actively managing the programs to achieve maximum benefits
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Lawrence J. Morrissey
Mayor
Office of the Mayor
and outcomes in a one-year time frame, was unrealistic. Consequently, mistakes were made, not only by
the City of Rockford and Rockford Human Services Department but the agencies that were sub-grantees
under the CSBG-R program. It should be noted that the State of Illinois also struggled, by its own
admission, in providing oversight to the CSBG-R program.

In the July 22, 2013 letter to the OIG, DCEO Director Pollett stated:

“The CSBG Recovery Act funds were monitored by DCEO CSBG staff for both program
and fiscal compliance. The same staff received no administrative funds with which to
monitor the Community Action Agencies’ use of the Recovery Act funds, but we made a
conscious decision to monitor as time would allow because of the importance of
accountability and transparency. The DCEO used regular CSBG funds to conduct
monitoring of the Recovery Act funds although only 2 to 2.5 days were allocated for each
visit in order to conduct a fiscal review of all 36 Community Action Agencies and one
statewide migrant organization. Most of Rockford’s findings relate to
contracts/subcontracts. Because of the large injection of Recovery Act funds, CAAs
looked for new partnerships which sometimes resulted in contracts/subcontracts. Without
Recovery Act administrative resources to hire additional staff, existing CSBG staff did not
have sufficient time to adequately review contracts/subcontracts.

Since the first preliminary OIG reports were received, DCEO has stated during meetings
with the Community Action Agencies the issues and concerns identified during the OIG
reviews, and provided instruction on correcting or avoiding the situation. DCEO CSBG
staff has also updated monitoring tools to reflect some of the issues identified during the
OIG reviews including the review of contracts. DCEO will continue to provide training
and technical assistance when issues or concerns are identified.”

Rockford Human Services Department was not the only Illinois city or Community Action Agency that
was cited by OIG for failure to meet federal requirements under the CSBG-R grant program. The State of
Illinois was cited earlier this year for claiming potentially unallowable CSBG-R costs from the
Community Action Partnership of Central Illinois, and the Chicago Department of Family and Support
Services was cited this year for not always charging allowable costs under the CSBG-R program.

In my opinion, the demand for speedy deployment of federal stimulus funds by the federal government
outweighed the value of developing new programs and processes that could have achieved better
outcomes and better program compliance over a longer grant period. Highlighting this point is the fact that
of the 1,367 OIG reports that have been published through 28 federal agencies regarding the performance
of agencies during the federal stimulus, 229 OIG reports have been conducted through the Department of
Health and Human Services, more than any other federal agency. Only the Department of Housing and
Urban Development (212), Department of Energy (127) and Department of Defense (117) had similar
OIG report activity. The vast majority of the OIG report findings authored by the Department of Health
and Human Services to outside agencies throughout the nation reflected similar problems that Rockford
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Lawrence J. Morrissey
Mayor
Office of the Mayor
Human Services encountered: charging unallowable costs, not adequately reporting allowable costs, or
simply not following all of the federal requirements to the CSGB-R program.

The federal mandate to deploy and spend the CSBG-R monies in a relatively short time period lead to
quality control issues, not just for the City of Rockford and Rockford Human Services, but for the State of
Illinois and many CSBG-R grantees throughout the nation. While the OIG reports vary and include
federal, state, and local agencies, along with not-for-profit and for-profit corporations, what is clear is that
Rockford was not alone in meeting federal guidelines with regard to spending federal stimulus funds. And
when looking at the level of OIG activity in certain federal government agencies, it suggests to me that
there are structural flaws within the federal programs themselves that need to be addressed and/or
clarified. In addition, I believe federal entitlement programs administered by DHS and HUD are in
dramatic need of reform. When you look at the mountains of federal regulations and administrative
requirements for these programs, and rising oversight restrictions and declining federal funding, the
amount of monies that are able to be deployed for direct service delivery to those who need it most is
being dramatically diminished.

However, that does not discount the fact that there was federal and state guidance for these programs that
we as a City organization did not follow, Rockford Human Services did not follow, and should have.
Director Davis asserts that “the Department followed the requirements for documentation as they
understood them at the time.” I do not concur with Director Davis’ statement, because the requirements
were articulated in the Grant Agreement, and they were not followed. Rather, I believe Director Davis’
statement to Sheri Fulcher of the Regional Inspector General for Audit Services for the Department of
Health & Human Services dated Marcy 5, 2013 is more accurate, when he stated that “The haste with
which Recovery Act programs and spending were required to be implemented and the desire to minimize
undue administrative expenses resulted in shortfall that are clear in hind-sight.” If Director Davis had
stated that the Department was so busy deploying grant funds to meet the short federal timetable with
limited staffing resources, and that issues arose with meeting federal requirements and procedures due to
these time constraints, that is an argument in my opinion that is more plausible.

When the federal stimulus package first came out, I knew given our organizational constraints that we
were going to be challenged to be able to implement and deploy the stimulus funding in a meaningful and
fiscally responsible way. Given our capacity issues, we developed a stimulus team representing each
Department so that we could collaborate and share resources to build capacity for the stimulus program.
Meetings were held regularly; webinars were shared and conducted with regard to the varying federal
stimulus programs and the guidelines that were to be followed. In fact, in order to communicate all the
varied requirements of the Recovery Act, the City established an internal Sharepoint site that included
links to all the federal and state websites regarding the Recovery Act, documents related to the City’s
stimulus programs and requirements, as well as key reporting and guidance documents, such as the 2009
ARRA Document on Responsible Spending and OMB Circular Letter A-133 and OMB Circular Letter
OMB Circular A-87.

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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
This administration impressed upon all City Departments that the ARRA guidelines must be met. In fact,
in an e-mail dated September 29, 2009, Mayor Morrissey sent an e-mail asking for review of information
from the U.S. Conference of Mayors detailing the ARRA Reporting Requirements to myself, Community
Development Director Montgomery, Assistant City Administrator Valdez, and Director Davis. Director
Davis replied back to Mayor Morrissey that “We are on track with regard to all applicable reporting
requirements and do not anticipate any problems meeting the deadline and providing the appropriate
information.”

On August 18, 2009, the DCEO sent an extensive grant agreement package to Director Davis which
included grant guidelines and requirements for the CSBG-R award. It should be noted that this was well
in advance of the Sub grant Agreements signed with the RAEDC and the nCenter. On page 4 of the
DCEO Agreement, it states the following:

“Pass-Through Entity or Subgrantor Responsibilities. If you [the grant recipient] provide any
portion of this funding to another entity through a Grant Agreement or contract, you are considered to
be a pass-through entity or subgrantor. If this does occur, you must adhere to the following for any
awards or contracts entered into using the grant funds listed above:

1) Inform any subrecipient(s) of the proper Federal award identifying information (shown below) as
required by Federal regulations contained in OMB Circular A-133.

2) Advise any subrecipient(s) of requirements imposed on them by Federal laws, regulations, and
the provisions of contracts or grant agreements which provided this funding. Advise
subrecipient(s) of any supplemental requirements imposed by the pass-through entity or
subgrantor (your organization).”

On page 13 of the Grant Agreement relating to Records Retention, it states the following:

“If any of the services to be performed under this Agreement are subcontracted and/or if subgrants are
issued/awarded for the expenditure of funds provided under this Agreement, the Grantee shall include
in all such subcontracts and subgrants, a provision that the Department, the Office of Inspector
General, and the Auditor General of the State of Illinois, or any of their duly authorized
representatives, will have full access to and the right to examine any pertinent books, documents,
papers and records of any such subcontractor or subgrantee involving transactions related to this
Agreement for a period of four (4) years following the Department’s approval of all required close-
outs (financial and/or programmatic), and any such subcontractor shall be governed by the same
requirements to which the Grantee is subject under this Agreement.”

On page 16 of the Grant Agreement relating to allowable costs and procurement, an area of finding
significantly noted in the OIG Report, it states the following:

“B. Allowable Costs. Costs allowable under this Agreement shall conform to the cost principles
applicable to the organization incurring the costs. Unit of local government shall use the
principles established in OMB Circular A-87. Nonprofit grantees shall use the principles
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Lawrence J. Morrissey
Mayor
Office of the Mayor
established in OMB Circular A-21. Commercial organization vendors or subcontractors are
subject to the cost principles under 48CFR Part 31.

The OMB Circulars can be located under the Agency Information heading on the OMB’s Internet
home page (http: www.omb.gov). Further, costs charged to this Agreement shall not exceed the
amount established in the Notice of Grant Award. The Grantee’s agency’s fiscal system must
provide for the accountability and management of grant funds in accordance with state
requirements.”

C. Procurement. When procuring property or services under this Grant, the Grantee shall use their
own procurement procedures, which reflect applicable state and local laws and regulations,
provided that the procurements conform to all applicable federal law and standards identified in
45 CFR § 92.36.”

On page 20 of the Grant Agreement, Section M. Assurances, it states the following:

“To provide that fiscal control and fund accounting procedures that follow the standards of the Office
of Management and Budget (OMB Circulars A-110 and A-122) will be established as may be
necessary to assure the proper disbursal of and accounting for federal funds paid to the State to the
Grantee under this program, including procedures for monitoring the assistance provided under this
program, and provide that at least every year the grantee shall have prepared a certified audit
performed by an independent public accountant with a CPA designation of its expenditures of
amounts received under this program and amounts transferred to carry out the purposes of this
program; a copy of the audit report shall be forwarded to the Department within 30 days of its
publication.”

Under Section B-6.12 of the Grant Agreement relating to comingling of funds, it states the following:

“The Grantee certifies that the grant funds awarded under this grant must be accounted for separately
from regularly CSBG appropriated funds or other funds, and will have a separate CFDA numbers, a
separate CAN number, and separate drawn-downs in Payment Management System.”

In summary, the Rockford Human Services Department had knowledge of the grant requirements from the
beginning, and was aware of what the requirements were, not only for the Department but for sub-grantees.
Although the Sub-grantee contracts stated that federal guidelines and reporting requirements were required,
the contracts fell short of including the language that was required through our Grant Agreement with the
DCEO. Further, given the extensive findings within the OIG Report, I do not feel enough guidance and
training was provided to Sub-grantee recipients. Communications back to sub-grantee recipients after the
draft OIG Report underscores this fact.

In addition, it is clear that we did not as an organization have a thorough legal process review regarding
grant requirements that needed to be in subrecipient and vendor contracts. Consequently, requirements that
were spelled out in the Grant Agreement did not make it into subgrant and/or vendor agreements to the
extent they should have. Also, at the Finance Department level, accounting staff did not provide a check
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Lawrence J. Morrissey
Mayor
Office of the Mayor
and balance with respect to communicating any violations of purchasing or accounting procedures related to
OMB regulations. It is also clear that the State did not have a thorough legal process review on the subgrant
recipient contracts, because they approved the contracts as submitted without correction or revisions. In
addition, they did not stipulate there were any purchasing or accounting problems until the preliminary OIG
findings were brought to their attention.

Director Davis is correct that federal regulatory guidelines and enforcement is ever increasing. In fact,
when reviewing all of the requirements put upon these funds, it is nothing short of mind-numbing, but it
does not discount the fact that the requirements were made clear from the beginning, and the City
organization and Rockford Human Services Department fell short of administering the grant in accordance
with federal regulations. Consequently, numerous subgrant recipients and/or vendors fell short of meeting
the grant requirements as well.

The Rockford Human Services Department is 100% funded with federal funds, and many of the federal
regulations and requirements cited in the DCEO Grant Agreement are not new, as Director Davis has
pointed out. They live in the world of federal reporting and requirements on a daily basis. What is clear is
that there was both a lack of capacity and a lack of adequate management oversight in administering CSBG-
R funds under this grant. Based on the problems evident in this matter and the need to improve our
organizational capacity to properly administer federal funds in a highly regulated environment, I
recommend in the sections below significant structural and organizational changes.

2. Establish a Grant Program Compliance Section within the Rockford Finance Department, with direct
support from the Rockford Legal Department. The City receives federal funds in virtually every
department of the City organization, whether it is federal highway funds, community development block
grant dollars, community services block grant dollars, or department of justice grant dollars. Increasingly,
we are seeing an escalating ramp up of federal regulatory enforcement from federal agencies regarding
federal policies, federal permitting and federal grant compliance. Given our cutbacks and capacity as an
organization, we are not set up adequately to respond to this increasing regulatory environment without
creating a more formal structure and process in which to respond.

We currently have a centralized accounting function within the City. One accountant deals strictly with
providing the accounting and financial support for the Rockford Human Services Department, and another
accountant deals with the accounting and financial support for the Community & Economic Development
Department. My recommendation is to more formalize the structure to create a Grant Program Compliance
Section, where the accounting within it strictly focuses on federal and state grant funded financial
accounting, training, reporting, and auditing of grant agreements for adherence to federal rules, as well as
local purchasing and contracting procedures. Every program and purchasing item would run through this
Finance Section if federal funding is attached to it. This will provide more of an independent check and
balance between the program managers administering federal funds within each department with a central
accountability system whose main and only job is to monitor for fiscal and reporting compliance.

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Lawrence J. Morrissey
Mayor
Office of the Mayor
Part of this recommendation also includes dedicating a large portion of a City Attorney, or outside
contractual legal services, to be the legal support for the Grant Program Compliance Section of the Finance
Department. This will include a complete review, audit, and re-write of our contracts that contain Federal
and State funds to ensure that all of the contracts, along with any sub-grantee contracts, contain sufficient
and standard language to outline the expectations of meeting Federal, State, and local law, policies, and
regulations. Given how short-staffed we are currently within the Legal Department, this may necessitate the
addition of personnel.

This new Grant Program Compliance Section will be required to report on a quarterly basis, including at
RockStat meetings, as to our progress to improve accountability and transparency within the realm of
federal compliance.

3. Restructure the Rockford Human Services Department.

For the last several years, the City has been successful in obtaining a waiver from the Federal Government
from having to pay a local match to the Department of Health & Human Services Office of Head Start due
to our financial condition. Federal funding is continuing to decline, even as federal oversight and regulatory
control is increasing. Given this reality, my recommendation is to restructure the Rockford Human Services
Department as it currently exists and fold the majority of the current program functions of the Rockford
Human Services Department into the City’s Community & Economic Development Department.

The Rockford Human Services Department is one of the few Community Action agencies in Illinois and
across the nation that are under the governance structure of a government agency. Most Community Action
agencies (29 out of 40 in Illinois) developed and have remained independent private not-for-profit agencies.
For example, the City of Peoria operates their Community Action Agency through a non-profit organization
called Peoria Citizens Committee For Economic Opportunity, Inc.

The Rockford Community Action Agency became part of the City of Rockford in the 1970s in response to
problems that arose when the agency was a stand-alone non-profit organization. Because the majority of its
operations were federally funded and because it worked with an outside CAA Board, and because it worked
throughout both Boone and Winnebago Counties, it had developed procedures and practices separate from
the rest of the City organization. There has always been this conflict that as a Community Action Agency, it
has a separate governing board with its own set of rules, and those rules don’t always operate consistently
with the City of Rockford rules and regulations. For example, some CSBG and HUD grant submittals and
agreements have historically not gone to City Council for approval, and some grant agreements are executed
by the Human Services Director, as opposed to the Mayor, which is City policy. Many expenditures that
typically would go through City Council with any other Department have not always happened with the
Rockford Human Services Department. This has not just been a recent phenomenon, but systemic. This
administration has not felt comfortable with this duality and conflict with City policy, and we have made
that known to Director Davis and other senior staff in the Human Services Department. Some of those
practices have been addressed, but others have not. A more consistent City Council approval policy for
grant fund requests and grant agreements must be implemented in the future.

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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
Our administration has made numerous and continuous strides to integrate and make consistent the practices
of Human Services into the rest of the organization. We have also integrated Human Services activities and
programs into the Rockstat reporting process, but clearly more program monitoring is needed. We have
helped create and support community partnerships between Human Services and the local Workforce
Investment Board and the Rockford Housing Authority. We have initiated program partnerships like our
Prisoner Re-entry Network involving Human Services, RHA, and the Workforce Investment Board. We
have demanded more accountability in programs like Head Start, which have been extremely difficult given
the “islands” that are created by the State and Federal bureaucracies. We have reviewed and cross-checked
subgrant agreements funded through HUD and identified disturbing concentrations of crime and calls for
service at homeless prevention scattered home sites, and developed policies to improve this situation. We
have worked hard to support and foster collaborative case management and improved systems to improve
outcomes for program participants and identify and eliminate systemic abuses where program violators or
criminals are allowed to continue to receive benefits. We have made very good improvements, but clearly
more improvements to process and procedure need to occur.

Despite the fact that there is a Community Action Agency Board, contracts, grant agreements, subgrant
agreements, and expenditures must adhere to City governance procedures and requirements. In the future, I
am recommending that all grant requests for funding, grant agreements, contracts, subrecipient contracts,
loan agreements, and purchasing must be in compliance with City regulations, regardless of whether there is
an independent Community Action Agency Board.

Although establishing the Human Services Department as an independent not-for-profit is an option, there is
no agency that currently exists within the region that has the financial capacity to support such a mission, in
my opinion, with the exception of perhaps Rock River Training. They currently are the City’s fiscal agent
for the administration of federal and state workforce investment funds. Another consideration could be the
Rockford Housing Authority. An example of that in Illinois is that the Community Action Agency in
McHenry County is operated by the McHenry County Housing Authority.

In order to provide better oversight and management of federal funds, more efficiently and effectively align
programs, and diversify funding streams to accomplish similar programmatic missions, I believe our best
alternative is to consolidate program functions into the Community & Economic Development Department.
The consolidation would be accomplished by:

A. Formation of a new Housing and Community Services Division of the Community & Economic
Development Department: Currently, Rockford Human Services administers several housing
programs, including emergency shelter, transitional housing, permanent supportive housing, homeless
prevention, lead abatement, and permanent crisis relocation assistance to residents of Winnebago and
Boone Counties. My recommendation is that these programs be consolidated into existing housing
programs administered by the Community & Economic Development Department.

Under the consolidation, the existing Neighborhood Development Division would be reorganized into
the Housing and Community Services Division, responsible for the delivery of all housing programs,
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Lawrence J. Morrissey
Mayor
Office of the Mayor
energy and weatherization programs, and community services programs for both community
development block grant and community service block grant funds. This would enable both
Departments to use personnel resources more flexibly and efficiently, as well as developing a unified
Consolidated Plan for the expenditures of federal funding.

The Community Services staff currently leases space from the Winnebago County Health Department at
$114,016 excluding electric and telecommunication service. The lease term with Winnebago County
expires May 31, 2015. However, given the fact that a total of $95,991 of CSBG-R monies that were
awarded to the Winnebago County States Attorney’s Office ($79,198 in salary expenses and $16,793 in
training expenses) were deemed unallowable by both OIG and DCEO because the salary payments were
not supported by personnel activity reports and the fact that the training expenses were not incurred
specifically for the purpose of the subgrant, my hope is that Winnebago County would work with us on
terminating the lease at an earlier date. Relocating staff to City Hall on the 2nd floor will cut lease
expenses significantly and reduce overhead for both federal funding sources by the consolidation. The
existing inspection staff of the Community & Economic Development staff will also be able to assist
with the weatherization program, and I believe efficiencies will be gained here.

In order to facilitate this consolidation, I recommend that a new position be established, the Deputy
Director of Housing and Community Services, to manage the housing, energy, and community services
programs for the City. This position would also have the overall management oversight of the Head
Start programs until, or if, a transition occurs as outlined below. I recommend that Executive Director
George Davis fill the role of Deputy Director of Housing and Community Services, as he has the
requisite knowledge, skills and abilities throughout the programs administered to maintain continuity of
service delivery. I have reviewed this report in detail with Executive Director Davis, as well as the new
position, and Executive Director Davis is supportive of the new role, as well as in support of the
proposed recommendations. The Director of Economic and Community Development, along with the
Deputy Director of Housing and Community Services, the Director of Finance, Director of Legal, and
Director of Human Resources, would work on the consolidation transition as it relates to personnel and
potential personnel impacts.

I also recommend that CSBG Small Business loans be moved from its existing to personnel structure to
the Economic Development Division of the Community & Economic Development Department. Mark
Williams, current Economic Development Manager, would be in charge of this program and it would
align our economic development programs more efficiently and improve outcomes. I would also
suggest that we analyze and discuss subcontracting the loan program to the RLDC where we have
already subcontracted other City loan programs. Since this change would require State approval, we can
move this program to Community Development in the interim.

The Community Action Agency Board would remain unchanged and be operated out of the Rockford
Community & Economic Development Department.

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Lawrence J. Morrissey
Mayor
Office of the Mayor
B. Analyze Transitioning the Head Start Program into an expanded partnership or delegation role
with Rockford School District 205 or to a not-for-profit entity:
Head Start programs vary widely in terms of local administration across the country. According to the
Outsourcing Report conducted by Baker Tilly dated January 6, 2011, of the 46 entities managing Head
Start programs in Illinois, only four are government agencies (including Rockford). Twenty-one (21)
are Community Action Agencies, Seventeen (17) are non-profit organizations, and four (4) are public
school systems. The federal funding requires a 1:4 match; however, as stated previously, the City has
requested and received a waiver from the federal government for the matching requirement over the past
five years due to our financial condition.

The Baker Tilly report revealed that Head Start teachers in Rockford are typically compensated higher
than Head Start teachers in other areas of the State. This is largely due to the fact that the City’s
compensation system is higher than the traditional structure of non-profit Community Action Agencies.
Quite simply, organizationally, the structure does not work well under a municipal governance structure.
With increased wages, and the current federal sequester on federal funds, the result is that we are
serving fewer children under the Early Head Start and Head Start programs when our goal should be to
serve the most children in the most effective manner. In 2010, for example, the Rockford Human
Services Head Start program budget served 632 students at a cost of roughly $8,414 per student per
year. During this same time, according to the Department of Health & Human Services, the national
average cost per student was $7,600.

According to U.S. Department of Health and Human Services, the City may not redesignate the
operation of the Head Start program to a third party. Likewise, the City cannot elect to outsource or
delegate operations to another entity without prior federal approval. It may, however, choose to wholly
discontinue its operation of the Head Start program. Under that scenario, HHS would send out a nation-
wide Request for Proposal process for agencies to submit to provide the program.

With HHS permission, the City could become an approved delegating grantee and delegate the
operations of Head Start to a third party. Since the Rockford Human Services Department currently has
a partnership with the Rockford School District Early Childhood Program, delegating Rockford School
District 205 as the subgrant recipient may be a good option in the future. It should be noted that through
the delegation process, grantees maintain ultimate responsibility for quality of services and must monitor
for compliance issues. The advantage of moving the Head Start program to Rockford School District
205 would be the alignment of early childhood programming into a more consistent curriculum that has
more certified early childhood teachers that achieve better results.

Statistics have shown that District 205 is achieving better test performance results than the Head Start
program with similar demographics. However, it should be noted that even though test scores are higher
under District 205 than in Head Start, there is considerable discussion and debate as to whether it is an
“apples-to-apples” comparison. District 205 utilizes “free and reduced lunch” as a socioeconomic
benchmark for at-risk children in poverty, and there is considerable discussion on whether that is an
adequate comparative when looking at the performance analysis of the District 205 Early Childhood
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Lawrence J. Morrissey
Mayor
Office of the Mayor
Program and the Rockford Human Services Head Start programs. Another differential between
programs is that all of the District 205 teachers have four-year degrees in early childhood education,
whereas many Head Start teachers do not. Since the 2012/13 academic year, the Rockford Head Start
program has formed an early childhood partnership with District 205 where they are working
collaboratively on case management as well as jointly in the classroom for 3 and 4-year old students.
Based on the Common Formative Assessment data in the areas of language and literacy and
mathematics, the test scores for 3 and 4-year olds starting in the Fall and then retesting in the Spring of
2013 are quite promising. If our ultimate goal is improving educational attainment, it is prudent for us
to continue to explore an expanded partnership or restructuring of the Head Start operation in order to
improve educational results and be financially sustainable.

While transitioning Head Start to a non-profit agency is possible, it is uncertain if any non-profit
currently has the financial and organizational capacity to absorb the Head Start organization. I
recommend that an Early Childhood Committee be established between the City, Rockford School
District 205, local leaders, and leaders in early childhood to develop conceptual plans for restructuring
and improving the current Head Start programs, and make such recommendations to the U.S.
Department of Health & Human Services. As a community, nothing is more important than developing
a more comprehensive and effective early childhood program in order to have children be able to meet
standard achievement levels in reading and mathematics by the 3rd grade. Long-term, we need to also
consider whether we should transition our role as grantee for Head Start to Rockford School District 205
or another entity. Alternatively, we may also want to consider transitioning our role to that of a grantee
to a sub-grantee relationship with a partner like School District 205 providing primary operations
support. Long-term, these structures would better align City resources into our core mission of
delivering municipal services, and it would better align the Head Start program with the Rockford
School District or another qualified non-profit educational entity to improve educational outcomes.

SUMMARY REMARKS
Government transparency and accountability is critical to maintain the trust and credibility of the citizens
we serve, whether it is at the State, Federal, or Local level. Our organization is committed to continuous
improvement. Indeed, the very corporate values of the City of Rockford include the words accountability,
customer focus, innovation, and openness. We continuously and consistently strive to improve our
operations through a vigorous review of our performance every month through our RockStat process. When
we identify problems, we have put forward solutions. We should continue that tradition in this matter.

Meeting service demands in an increasing federal regulatory environment with reduced personnel and
financial resources has been challenging. Clearly, when reviewing the OIG report and numerous documents
related to the federal stimulus, mistakes were made by the organization and the Rockford Human Services
Department. It is not surprising that they were made in a time when our organization and our community
were in one of the largest economic crisis since the Great Depression. These report recommendations
respond to the issues identified by the OIG Report and they provide an outline for improved efficiency and
improved organizational and community alignment at a time of continued financial challenge. If we are to
adhere to our organizational values accountability, openness, and transparency, and if we are to be self-
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Excellence Everywhere

Lawrence J. Morrissey
Mayor
Office of the Mayor
critical as an organization in order to improve our organization and improve service delivery to our citizens,
I believe these recommendations are necessary.

I anticipate there will be significant discussions with City Council regarding these recommendations, as well
as further discussion regarding timing of implementation on organizational and personnel restructuring. I
look forward to discussing next steps.

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