Audit Report
District Inspector General for Audit
Rocky Mountain District
City And County of
Denver, Colorado
Housing Opportunity For
Persons With AIDS Program
00-DE-259-1001
February 25, 2000
U.S. Department of Housing and Urban Development
District Inspector General for Audit
633 17th Street
14th Floor
Denver, CO 80202-3607
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Audit Report
District Inspector General for Audit
Rocky Mountain District
Report: 00-DE-259-1001 Issued: February 25, 2000
TO: Guadeloupe Herrera, Director, Rocky Mountain District Office Of Community
Planning And Development, 8AD
FROM: Robert C. Gwin, District Inspector General for Audit, 8AGA
SUBJECT: City and County of Denver’s Housing Opportunity for Persons with AIDS
program Audit
We have concluded our audit of the City and County of Denver’s Housing Opportunity For Persons
With AIDS Program. The audit included six objectives to determine the effectiveness of the City
and County of Denver’s Program. Specifically: The objectives of the audit were to determine if the
City and County of Denver ensured that:
• Project sponsors admit only eligible tenants and charge appropriate tenant rents according to the
Housing Opportunity Program requirements including maximum allowable rents.
• Project sponsors expended HUD funds for only eligible program activities.
• Project sponsors complete rehabilitation of facilities prior to tenants moving into the units.
• Projects sponsors maintain the dwelling units in a safe and sanitary condition.
• Project income is appropriately accounted for and used for project related expenses.
• Project sponsors, their officials and/or owners do not have a conflict of interest in the funded
activities.
This report contains five findings related to our audit objectives and related recommendations for
improving the City and County of Denver’s Program.
Within 60 days please furnish to this office, for each recommendation in this report, a status report
on: (1) the corrective action taken; (2) the proposed corrective action and the date to be completed;
or (3) why action is considered unnecessary. Also, please furnish us copies of any correspondence
or directives issued because of the audit.
We appreciate the courtesies and assistance extended by the management and staff at the City and
County of Denver, its project sponsors and the Rocky Mountain District Office of Community
Planning and Development.
Should you have any questions, please call me or Ernest Kite, Assistant District Inspector General
for Audit, at (303) 672-5452.
00-DE-259-1001
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Executive Summary
We performed an audit of the City and County of Denver’s Housing Opportunity for
Persons with AIDS Program (herein referred to as the Housing Opportunity Program).
In addition, due to the overlapping of HUD funds (Housing Opportunity Program,
HOME, Rental Rehabilitation CDBG funds, etc.) we had to take into consideration
other various HUD funding programs in our review. Our Office also received two
complaints relating to the City and County of Denver’s Housing Opportunity Program.
We considered the complaints in developing our audit objectives and planning for the
audit.
Our review identified that the City and County of Denver needs to improve its oversight
and monitoring, and ensure that project sponsors comply with HUD requirements.
The City and County of Denver (City) began receiving Housing
The City received about Opportunity Program funding from HUD in 1992. Since that time
$6.73 million the City received a total of $6.73 million through the end of 1998.
Disbursements for Housing Opportunity Program for rental
assistance total approximately $2.46 million while the housing
development disbursements for Program’s community residences
total about $3.59 million as of November 1998.
HUD’s Housing Opportunity for Persons with AIDS Program
HUD’s Housing (hereinafter referred to the Housing Opportunity Program)
Opportunity program provides monies to be used to assist eligible persons with housing
assistance programs, including providing supportive services for
rental and mortgage assistance, that are designed to prevent
homelessness. Eligible persons are low income that also are
medically diagnosed with the acquired immunodeficiency syndrome
or infected with the human immunodeficiency virus. Rental
assistance may be used to pay monthly support for an eligible
person. Rent, mortgage, and utility payments to prevent
homelessness may not be disbursed to an individual over a period
of more than 21 weeks in any 52 week period. Program monies
may be used to acquire and rehabilitate multiunit residences
designed for eligible persons to provide a lower cost of care. Units
used to house program recipients must conform with the HUD’s
Minimum Property Standards.
The objectives of the audit were to determine if the City and
Our audit objectives County of Denver ensured that:
• Project sponsors admit only eligible tenants and charge
appropriate tenant rents according to the Housing Opportunity
Program requirements including maximum allowable rents.
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• Project sponsors expended HUD funds for only eligible
program activities.
• Project sponsors complete rehabilitation of facilities prior to
tenants moving into the units.
• Projects sponsors maintain the dwelling units in a safe and
sanitary condition.
• Project income is appropriately accounted for and used for
project related expenses.
• Project sponsors, their officials and/or owners do not have a
conflict of interest in the funded activities.
Our review identified that the City and County of Denver needs
to improve its oversight and monitoring, and ensure that project
sponsors comply with HUD requirements.
The City needs to improve its oversight and monitoring of its HUD
City needs to improve funded projects to ensure that project sponsors carry out their
its oversight of project project activities in conformity with the applicable HUD
sponsors requirements. This is particularly true since many of the sponsors
acquired and/or rehabilitated projects using more then one HUD
funded programs. Accordingly, units within each project may be
controlled by different HUD program requirements. Our review of
seven judgmentally selected projects identified that the program
sponsors were not fully complying with the appropriate HUD
funding program requirements. Improved City oversight and
monitoring is needed, if the City and HUD are to have assurances
that Federally funded projects are being properly administered. In
the past, the City relied primarily upon the project sponsors to
ensure compliance with specific HUD program requirements.
Also the City monitoring has been through informal contact with
project sponsors.
City officials also advised that they were in the process of updating
The City initiated
their monitoring procedures. According to the Director of the City
corrective actions
of Denver’s Community Development Agency, the Agency began
taking actions after our discussion of the tentative findings at the
completion of our on-site review. Specifically:
• The Agency hired a consultant to integrate its various data
bases and set up a monitoring module to ensure programs and
projects receive appropriate monitoring.
• The delayed project has received the additional funding and
should be in operation by the end of calendar year 2000.
• The City is taking action to ensure the commercial rents from
the project are being used for that project and not other
projects.
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Four of the seven project sponsors reviewed charged contract
Four of the seven rents in excess of the agreement with the City or other source of
project sponsors assistance. As a result, program participants, other programs
charged excessive rents and/or HUD programs pay excessive rent. The overcharging of
contract rents stemmed primarily from the project sponsors not
being fully knowledgeable of the various requirements and
restrictions applicable to the different funding sources or contract
restrictions applicable to their particular projects. In addition, the
City has not had effective monitoring procedures to ensure that
project sponsors charged appropriate contact rents.
According to the Director of the City of Denver’s Community
The City initiated
Development Agency, the Agency began taking actions after our
corrective actions
discussion of the tentative findings at the completion of our on-site
review. Specifically, the City is in the process of working with the
various project sponsors to ensure that appropriate rents are
charged based on the various funding sources for the projects.
Since May 1993, the City has provided to the Colorado AIDS
Colorado Aids Project Project approximately $1.018 million in funds under the HUD
Improperly Housing Opportunity for Persons with AIDS. At least $862,935 of
Administering HUD this total was used to provide rental or mortgage assistance to 948
Program Funds recipients. However, the Colorado AIDS Project has not properly
implemented the program in conformity with HUD requirements.
More specifically, the Colorado AIDS Project did not always
document the eligibility of the program participants , identify and
support the need for rental or mortgage assistance, nor ensure that
landlords received the assistance payments. As a result, neither
HUD nor the City have assurances that assistance was paid to
eligible participants. In addition, the Colorado AIDS Project
provided rental assistance in excess of the 21-week maximum
period a year specified by HUD regulation. Based upon our case
review sample of 74 out of the 948 recipients receiving assistance,
at least $37,857 was paid for ineligible assistance.
The Colorado AIDS Project failed to establish proper procedures
to ensure that assistance payments were made only in conformity
with HUD requirements. Also, the Project did not correctly verify
and document the eligibility of the program recipients. Therefore,
questionable or ineligible payments were made.
The City’s monitoring of the project also did not ensure that the
Colorado AIDS Project provided assistance to only eligible persons
and that the assistance went for rental or mortgage payments.
Moreover, the City of Denver amended their agreement with the
Colorado AIDS Project that allowed for ineligible excessive
assistance payments.
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According to the Director of the City of Denver’s Community
The City began a regular
Development Agency, the Agency began taking actions after our
review of the Colorado
discussion of the tentative findings at the completion of our site
AIDS Project
review. Specifically, the City’s Community Development Agency
implemented a regular review of the Colorado AIDS Project to
ensure compliance with HUD’s and the City’s requirements.
A project sponsor used Housing Opportunities for Persons with
Questionable Use of AIDS and Rental Rehabilitation program funds for refinancing of
$80,330 for Refinance an existing project acquisition debt, which is not specifically
an existing project authorized in the applicable HUD funding program regulations. As
a result, the use of HUD program funds totaling $80,330 is
questionable as an eligible program cost.
The project sponsor did not specify that HUD monies would be
used to refinance an existing debt in its application to the City but
that the funds would be used only to acquire and rehabilitate the
project. At the time the City approved the sponsor’s project
application, the project sponsor had already acquired the project.
Therefore, the monies were used for purposes not delineated in the
City approved application. Nonetheless, City officials considered
the refinancing to be an eligible HUD program cost. A
determination needs to be made by HUD as to its eligibility.
One of seven HUD funded projects we inspected failed to meet
Project Did Not Meet the specific HUD and City required Housing Quality Standards.
Housing Quality Consequently, tenants and their children were exposed to safety,
Standards security and health hazards. The deficiencies in the Housing
Quality Standards went undetected since the City did not perform a
Housing Quality Standards inspection after completion of the
project’s rehabilitation. In addition, the City does not perform
regularly scheduled inspections to insure the project sponsor
continues to maintain the project within the required Housing
Quality Standards during the 20 year commitment of the project.
Without such inspection procedures, the City has limited assurance
the HUD funded projects and their dwelling units meet HUD’s
required Housing Quality Standards.
According to the Director of the City of Denver’s Community
The City initiated
Development Agency, the Agency began taking actions after our
corrective actions
discussion of the tentative findings at the completion of or site
review. Specifically, the City is now performing inspections after
the completion of rehabilitation and on an annual basis.
We also reviewed to determine if the project sponsors, their
We also reviewed for a officials and/or owners have a conflict of interest, per HUD’s
conflict of interest regulations, in the funded activities. Based on the items tested, we
concluded that no conflict of interest existed.
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The City and County of Denver’s Director of the Community
Auditee Comments Development Agency provided written comments to our draft
report on February 22, 2000. The Director, for the most part,
agreed with our audit results and implemented a number of actions
to respond to issues identified in our report. Appendix 1, of this
report, includes the Director’s comments in their entirety. We
provided our specific responses to the Director’s comments within
each finding.
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Table of Contents
Management Memorandum ................................................................. ...i
Executive Summary............................................................................... iii
Table of Contents .................................................................................. ix
Introduction............................................................................................ 1
Findings and Recommendations
1. Improvements Needed in the City’s Oversight and
Monitoring Of HUD Program Activities ................................. 5
2. Project Sponsors Charged Excessive Contract Rents .......... 11
3. Colorado Aids Project Improperly Administering
HUD Program Funds ............................................................. 17
4. Questionable Use of $80,330 HUD Funds to
Refinance an Existing Project Acquisition Debt ................... 27
5. Project Did Not Meet Housing Quality Standards................ 31
Management Controls .......................................................................... 37
Appendices
1. Auditee Comments ................................................................. 39
2. Schedule of Ineligible and Questioned Costs ........................ 43
3. Audit Distribution List............................................................ 45
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Introduction
HUD’s Housing Opportunity for Persons with AIDS Program (hereinafter referred to the Housing
Opportunity Program) provides monies to be used to assist eligible persons with housing assistance
programs, including providing supportive services for rental and mortgage assistance, that are
designed to prevent homelessness. Eligible persons are low income that also are medically
diagnosed with the acquired immunodeficiency syndrome or infected with the human
immunodeficiency virus.
Rental assistance may be used to pay monthly support for an eligible person. The maximum amount
of assistance per person is the difference between 30% of the tenant’s adjusted income and Fair
Market Rent. Short-term supported housing includes facilities to provide temporary shelter for
eligible individuals as well as rent, mortgage, and utility payments to enable eligible individuals to
remain in their own housing. Temporary Shelter facilities may not provide residence to any
individual for more than 60 days in any six month period. Rent, mortgage, and utility payments to
prevent homelessness may not be disbursed to an individual over a period of more than 21 weeks in
any 52 week period. Program monies may be used to acquire and rehabilitate multiunit residences
designed for eligible persons to provide a lower cost of care. Units used to house program
recipients must conform with the HUD’s Minimum Property Standards.
The City and County of Denver (City) began receiving Housing Opportunity Program funding from
HUD in 1992. Since that time the City received a total of $6.73 million through the end of 1998.
Disbursements for Housing Opportunity Program for rental assistance total approximately $2.46
million while the housing development disbursements for Program’s community residences total
about $3.59 million as of November 1998.
HUD’s Housing Opportunity Program grant funds furnished to the City were awarded to project
sponsors who were responsible for administering their particular segment of the Program. The City
and project sponsors often combined other HUD and Federal monies with local and private funding
to finance the activities by the project sponsors. Most of these monies were used to acquire and/or
rehabilitation multifamily structures for use by eligible program recipients. In addition to the Housing
Opportunity Program monies, HUD funds from the HUD Rental Assistance, HOME, and
Community Development Block Grant Programs were used. Also, HUD Section 8 Rental
Assistance Program funds were provided to some program recipients.
Our Office received two complaints alleging that the City of Denver’s Housing Opportunity
Program:
° Overcharged tenant rents (rents in excess of 30% of adjusted income).
° Allowed tenants to move-into units that were not clean and in good repair.
° Did not ensure that Housing Opportunity Program and HOME funds were properly
used to rehabilitate properties.
° Performed deficient monitoring of the programs and subgrantees.
° Did not ensure that property values were not inflated before awarding Housing
Opportunity Program or HOME funding.
We did consider the complaints in our planning for the audit and developing audit objectives.
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The objectives of the audit were to determine if the City and
Audit objectives and County of Denver ensured that:
methodology
• Project sponsors admit only eligible tenants and charge
appropriate tenant rents according to the Housing Opportunity
Program requirements including maximum allowable rents.
• Project sponsors expended HUD funds for only eligible
program activities.
• Project sponsors complete rehabilitation of facilities prior to
tenants moving into the units.
• Projects sponsors maintain the dwelling units in a safe and
sanitary condition.
• Project income is appropriately accounted for and used for
project related expenses.
• Project sponsors, their officials and/or owners do not have a
conflict of interest in the funded activities.
We originally planned to audit the Housing Opportunity Program
funding; however, due to the overlapping of grant monies from the
various other HUD Programs grants, we had to take into
consideration the various restrictions of these various HUD grant
programs. When a project receives multiple funding, the most
restrictive program criteria applies.
During the audit, we examined accounting records and other
pertinent Housing Opportunity Program documents from the City
and County of Denver and the project sponsors regarding the nine
selected entities. We also conducted interviews with managers
and employees of these organizations.
The City provided us a budget schedule of funded projects from
1992 to 1998. The scheduled listed eight rental assistance projects
and twenty housing developments funded with Housing
Opportunity Program funds. We judgmentally selected the largest
rental assistance program for review. This program, The Colorado
AIDS Project, received about $1,018,103 from 1992 through 1997.
In addition, we selected the two project sponsors identified in the
complaint. Each project sponsor had three projects. We also
judgmentally selected two additional project sponsors.
Our audit generally covered the period January 1, 1992 through
Scope September 30, 1998, and was extended as necessary to fully
accomplish our objectives. We performed our field work from
November 1998 through May 1999. After the completion of field
work, we discussed our tentative findings with City Officials.
Subsequently, City officials began taking actions to address issues
identified in this report. We have incorporated those actions, as
appropriate, in this report.
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We conducted the audit in accordance with generally accepted
Generally Accepted
government auditing standards.
Government Auditing
Standards
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Findings
Finding 1
Improvement Needed in the City’s Oversight and
Monitoring of HUD Program Activities
The City needs to improve its oversight and monitoring of its HUD funded projects to
ensure that project sponsors carry out their project activities in conformity with the
applicable HUD requirements. This is particularly true since many of the sponsors
acquired and/or rehabilitated projects using more then one HUD funded programs.
Accordingly, units within each project may be controlled by different HUD program
requirements. Our review of seven judgmentally selected projects identified that the
program sponsors were not fully complying with the appropriate HUD funding program
requirements. Improved City oversight and monitoring is needed, if the City and HUD
are to have assurances that Federally funded projects are being properly administered.
In the past, the City relied primarily upon the project sponsors to ensure compliance
with specific HUD program requirements. Also the City monitoring has been through
informal contact with project sponsors.
Our review focused primarily on the City and County of Denver’s
City and project sponsors implementation of the Housing Opportunity for Persons With AIDS
are to comply with HUD program. This is one of several HUD programs and projects that
program requirements the City and County of Denver administers. The City uses a
combination of several Federal, local and private funding to
implement and carryout its various housing projects and programs.
The primary HUD programs consist of the Housing Opportunity
for Persons with AIDS, HOME, Rental Rehabilitation, Community
Development Block Grant, and HUD housing subsidies. The
implementation and administration of these HUD programs by the
City is for the most part passed on to various project sponsors and
subgrantees. These sponsors and subgrantees are to carryout their
particular projects and programs in conformity with the terms of
the contract with the City. In addition, they are obligated to ensure
that the particular HUD program requirements are followed. In
like manner, the City has the overall responsibility for ensuring that
the Federal requirements for the various HUD programs and
projects are met.
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The City’s responsibility is defined in Section 85.40 of Title 24, of
the Code of Federal Regulations. The City as grantee for the
HUD funds is obligated to properly manage the day-to-day
operations of HUD grant and subgrant supported activities. The
City must monitor these supported activities to assure compliance
with applicable Federal requirements and that performance goals
are being achieved. City monitoring must cover each program,
function or activity.
Seven projects reviewed We reviewed seven projects that had received funding under the
were not fully complying Housing Opportunities for Persons with AIDS program. Our
with HUD requirements review was directed at evaluating whether the sponsors were
administering their projects in accordance with HUD program
requirements.
We found several areas whereby the project sponsors were not
carrying out their portions of the City’s program in accordance
with HUD requirements. The main areas of noncompliance
include the following four areas:
• Four of the seven project sponsors received contract rents
Project sponsors charged in excess of the agreement with the City or other source of
excess contract rents assistance. As a result, program participants, other
programs, and/or HUD pay excessive rent. The City did
not have procedures to ensure that project sponsors
charged appropriate contact rents. (Finding 2)
• The Colorado AIDS Project staff did not always document
Colorado AIDS Project the eligibility of the participants, their need for rental
improperly administering assistance, or ensure that landlords received the rental
HUD program funds payment. In addition, the Colorado AIDS Project provided
rental assistance for a longer period then allowed by the
regulation. As a result, neither HUD nor the City can be
assured that assistance went to eligible participants. From
our sample of 74 case files reviewed out of a total of 948,
at least $37,857 was paid for ineligible rental assistance.
The Colorado AIDS Project did not implement procedures
to ensure that rental assistance was paid to only eligible
persons. In addition, the City amended their agreement
with the Colorado AIDS Project allowing for excessive
rental payments. (Finding 3)
• A project sponsor used Housing Opportunity for Persons
Questionable use of with AIDS and/or Rental Rehabilitation program funds for
$80,330 HUD funds to refinancing of existing acquisition debt, which is not
refinance an existing authorized in the HUD regulations. As a result, these
project acquisition debt HUD program monies totaling $80,330 were used for a
questionable activity. A City official considered the
refinancing as an eligible HUD funded activity. (Finding 4)
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One of the seven projects inspected failed to meet the HUD
Project did not meet Housing Quality Standards. Consequently, tenants were exposed
HUD Housing Quality to safety, security and health hazards. The City did not perform a
Standards Housing Quality Standard inspection of the project after the
rehabilitation work was completed. Subsequent to the
rehabilitation, the City did not routinely perform Housing Quality
Inspections of the projects even though the projects must met and
conform with the requirements for a 20-year commitment period.
(Finding 5)
In addition to these areas, we noted several other instances
whereby the project sponsors were not fully complying with the
HUD requirements of the Housing Opportunity for Persons with
AIDS program. These involve:
• Delays in rehabilitation of an acquired project by a project
sponsor,
• Under utilized vacant program units,
• Units and related funding of specific HUD funded programs
not clearly identified, and
• Questionable use of commercial rental income.
These are discussed in the following sections.
Delays in Project Rehabilitation A project sponsor acquired the
After 2 years, project Gates property on April 15, 1997, for $525,431. The project
rehabilitation has not sponsor planned to rehabilitate the property into 14 studio
started apartments. The project sponsor agreed in their March 31, 1997
loan agreement with the City, that it had 19 months from the date
of the note to obtain financing to enable the redevelopment of the
property. However, the City, when it provided $485,000 for the
acquisition of the property, expected that by November 1, 1998 the
property would be rehabilitated and ready for occupancy.
As of January 1, 1999, the project sponsor had raised about
$1,934,531 of the estimated $2,277,727 needed for rehabilitation.
The project sponsor had not started the rehabilitation as of March
3, 1999 and was still short about $343,196 for the rehabilitation.
As a result, over two years have elapsed since the City provided
the $485,000 funding for acquisition and the project is not ready to
house any program eligible recipients.
Under Utilized Vacant Program Units Our physical inspection
Program units vacant due of seven projects, comprising of a total of 30 units allotted for
to lack of eligible Housing Opportunity for Persons with AIDS program, identified
applicants that five projects had a total of 5 vacant units. All the vacant units,
with the exception of one which needed to be cleaned, were ready
for occupancy by eligible program recipients. However, the
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project sponsors advised us that they did not have any eligible
applicants available to move in to these units. As a result, the units
were not being utilized.
The City did not have procedures to ensure vacant units were
being utilized and rented in a timely manner. The responsibility for
leasing vacant program units rests with the project sponsors
Specific Program Funding and Related Units Unclear The
Specific program funding City combined funding from various HUD and local sources to
and related units not finance the acquisition and rehabilitation of its various housing
clearly identified. projects. The amount of HUD funding by a specific program
determines the number of units within a project that are assigned
and applicable to that particular HUD program. The leasing of the
assigned units within a project is governed by the program
requirements and regulations of the specific funding program.
Under a contract with the City, the project sponsor is to maintain
the established number of units in the project for a particular
program for a 20-year period.
Our review noted that the project sponsors do not routinely identify
which dwelling units are assigned to and applicable to specific
HUD programs. The only method to identify a specifically
assigned unit is to question the project sponsor. Without knowing
what project dwelling units relate to a particular HUD, the City is
limited in being able to ensure that the project sponsor is properly
administering the appropriate HUD requirements.
Unrestricted Use of Commercial Rental Income One of the
City did not restrict the seven projects inspected contained rented commercial space. The
use of commercial rent restrictions placed upon the project by the City under its contract
from a project with the project sponsor do not address how a project sponsor can
use the rental income generated by commercial space rehabilitated.
The project was acquired and rehabilitated using HUD Housing
Opportunity for Persons with AIDS program, HUD HOME
program monies and Low Income Housing Tax Credits. The
HUD regulations for these two programs do not discuss how
monies generated from rehabilitated commercial space may be
used.
The project sponsor current rental income from the commercial
space amounts to $4,392 per month or $52,704 annually. The
rental amount does not include one commercial space that is
vacant.
Therefore, specific guidance from HUD is needed to determine if
the commercial rents is program income and how the commercial
rental income can be used.
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Our review of seven selected HUD funded projects shows key
Neither HUD or the City areas where HUD requirements have not been followed by the
knew if project sponsors project sponsors or the use of HUD program generated revenue
complied with program may not be properly used. As a result, the program monies may
requirements not be used for the intended purposes. The need for compliance
becomes more significant since the project sponsors are obligated
by contract with the City to operate the projects in accordance
with HUD and City requirements for twenty years.
City officials advised that they relied on the project sponsors to
City relies on project comply with the appropriate requirements. In addition, the City
sponsors for program generally performed monitoring through informal contact with its
compliance program sponsors or through meetings, correspondence, and day-
to- day management. The official advised that the City monitors
programs individually, and does not consider the multiple funding
sources when monitoring a project or its sponsor. The City’s
management information system did not provide easily accessible
information on the projects funding sources and related program
requirements.
City official advised that in the past they relied on HUD’s on-site
reviews to identify weakness in their monitoring activities. Since,
HUD reduced its monitoring activity, they must now rely on
HUD’s technical assistance for specific questions.
City officials also advised that they were in the process of updating
The City initiated
their monitoring procedures. According to the Director of the City
corrective actions
of Denver’s Community Development Agency, the Agency began
taking actions after our discussion of the tentative findings at the
completion of our on-site review. Specifically:
• The Agency hired a consultant to integrate its various data
bases and set up a monitoring module to ensure programs and
projects receive appropriate monitoring.
• The delayed project has received the additional funding and
should be in operation by the end calendar year 2000.
• The City is taking action to ensure the commercial rents from
the project are being used for that project and not other
projects.
With the implementation of improved, more comprehensive City
monitoring of its project sponsors, the City will be better able to
ensure that its HUD program grants are being used utilized and
that its program sponsors are fully complying with the applicable
HUD program requirements as well as with the City’s contract
provisions.
The City Community Development Agency Director’s written
Auditee Comments
comments reiterated the comments above. The Director also
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noted that additional outreach is being performed to market vacant
units.
The Director disagreed that the commercial rents should be
included as program income under Federal regulations.
Furthermore, the Director advised that the income from the
commercial units is not net profit, but rather income that is used to
pay off debt related to improvements made to the commercial
portion of the building.
We disagree with the Director position. As stated above, specific
guidance from HUD is needed to determine if the commercial
rents is program income and how the commercial rental income
can be used. The project sponsors have a twenty year
commitment with the City to operate the project. We want HUD
and the City to ensure that the revenues generated, as a direct
result of Federal assistance, to this project are used for the benefit
of the project.
Recommendations We recommend that the Rocky Mountain Office of Community
Planning and Development:
1A. Require the City:
• Improve it oversight procedures and monitoring system
of its subgrantees that will include evaluating projects
based on the combined HUD programs’ restrictions;
• Implement procedures for identifying specifically
assigned units within its projects that are applicable to
the particular HUD program funding and for the prompt
leasing of under utilized units within its projects to
appropriate program eligible tenants.
• Provide appropriate guidance and assistance to the
project sponsor of the Gates property for the prompt
rehabilitation and leasing of the project.
1B. Make a determination whether the commercial rents
generated by a project is program income, and if so, provide
instructions to the City on the correct use of rental revenues
received from the leasing of HUD program acquired and/or
rehabilitated commercial space.
Recommendations relating to Findings 2 though 5 are listed with
their respective finding.
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Finding 2
Project Sponsors Charged Excess Contract Rents
Four of the seven project sponsors reviewed charged contract rents in excess of the
agreement with the City and County of Denver (City) or other source of assistance. As
a result, participants, HUD and other programs pay excessive rent. The overcharging
of contract rents stemmed primarily from the project sponsors not being fully
knowledgeable of the various requirements and restrictions applicable to the various
funding sources or contract restrictions applicable to their particular projects. In
addition, the City has not had effective monitoring procedures to ensure that project
sponsors charged appropriate contact rents.
In carrying out the City’s housing programs, the City combines
Various funds sources funds from various Federal, local, and private sources to acquire,
used for City’s housing rehabilitate and/or operate its housing programs. The Federal
projects sources included various HUD programs and the Resolution Trust
Corporation. The HUD programs providing monies include the
Housing Opportunity for Persons with AIDS program, Rental
Rehabilitation program, HOME program, Community Development
Block Grant program, the Shelter Care Plus Program and Low
Income Housing Tax Credits.
In the development or establishment of the various multifamily
housing projects, the City combines funds from the various sources
available. Because of the layering of funds, certain number of
units within a project are often designated as being specifically
applicable to the particular program that provided the funding. The
Federal requirements applicable to the Federal program providing
the monies would apply to the designated housing units.
For example, a multifamily project consisting of six dwelling units
could be acquired and rehabilitated using both Housing Opportunity
for Persons with AIDS program and Rental Rehabilitation program
monies. Two units might be applicable to the Housing Opportunity
for Persons with AIDS and the remaining four units would be
applicable to the Rental Rehabilitation program. The Federal
regulations for each program would govern the administration and
operation of their designated units.
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As part of our review, we examined the contract rent being
Charging of contract charged to tenants during February 1999 in seven judgmentally
rents reviewed at seven selected projects. Contract rents are the monthly rental charges
projects assessed by the project sponsor against its housing tenants. We
noted that for four of the seven projects reviewed, some tenants
were being charged excessive contract rents.
The monthly contract rent that can be charged a tenant is
Contract rents vary by
dependent upon the regulations governing the particular program
funding source or
used for the designated units in the projects. For our test month of
contract
February 1999, the amount of contract rents could range from $478
to $835. These maximum monthly contract rent charges are
summarized by type of Federal program:
• $478 for the HUD programs consisting of the Housing
Opportunity for Persons with AIDS, Rental Rehabilitation
program, HOME Program, and Shelter Care Plus program;
• $538 for projects purchased from the Resolution Trust
Corporation; and
• $835 for projects financed with Low Income Housing Tax
Credits under Internal Revenue Service requirements.
In addition, the City often specified in their contracts with the
various project sponsors that the contract rents were not to exceed
certain stated amounts. For two of the projects we reviewed, the
City contract set maximum rents of $176 and $293.
Of the seven projects we reviewed, four of the projects sponsors
Overcharging of contract were charging in February 1999 monthly contract rents to its
rents by project sponsors tenants and that in some cases exceeded the maximum rents
allowed by the particular funding program or set by contract with
the City. These four were the Jersey Street, California Street,
Logan Street and Corona Street projects.
The overcharges for these four are discussed in the following
sections.
Jersey Street Project The Jersey Street Apartments received
The Jersey Street project $167,273 in HUD HOME funds and $80,000 in HUD Housing
sponsors charged Opportunity for Persons with AIDS program funds from the City.
excessive rents The HOME funds specify that two of the six units in the project
are to remain affordable to low income families. The Housing
Opportunity for Persons with AIDS program provisions stipulate
that the remaining four units must remain affordable to low income
persons eligible under the Housing Opportunity for Persons with
AIDS program. Under HUD program provisions, the maximum
monthly contract rent that could be charged in February 1999 could
only be $478.
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However, the Jersey Street project sponsor signed an agreement
with the City limiting rent on all units at the project. The
agreement specifies initial contract rent to begin at $150 a month
with annual increases amounting to no more than the annual
percentage increase in the Fair Market Rent for Section 8 Housing
in the area. Using the percentage rate increase for each year, the
contract rents in February 1999 for the project should have been no
more than $176 per month.
However, the contract rents charged to the project tenants exceed
the maximum allowed of $176 on four of the six units. The contact
rents charged on the four units ranged from $198 to $460. This
resulted in the project sponsor being overpaid in total by
approximately $754 a month. The remaining two units were
vacant during February 1999.
In addition, two of the tenants receive rental assistance from
HUD’s Shelter Care Plus Program. The excess rent charges
resulted in the Shelter Care Plus Program being charged an
overpayment of $289 per month.
California Street Project The California project received
The California Street $94,921 in Housing Opportunity for Persons with AIDS, $59,871 in
project sponsor received Rental Rehabilitation and $30,388 in Community Development
excessive rents Block Grant program funds from the City. The City’s agreement
with the project sponsor stipulates that four of the five units must
remain available for persons eligible under the Housing Opportunity
for Persons with AIDS program.
Also for this project, the project sponsors signed an agreement with
the City limiting rent amounts. Specifically, the agreement
specifies rent for the one bedroom units to begin at $250 per month
and the three bedrooms to start at $375 per month as of April
1994. Allowable increases in these rents are to be restricted to the
annual rate of increase in the Section 8 Fair Market Rents.
Therefore, rents for our test month of February 1999 were not to
exceed $293 for the one bedroom units and $439 for the 3 bedroom
units.
The California Street Project contact rent assessed to its tenants in
February 1999 for the one bedroom units range from $350 to $470
per month and the rent for the three bedroom units were $833 per
month. These monthly contract rents exceeded the maximum of
$293 and $439 for the one bedroom and three bedroom units
respectively. As a result, the project sponsor was overpaid
approximately $1,238 for February 1999.
Moreover, four of the tenants receive rental assistance from other
HUD programs. Three received rental assistance under HUD’s
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Section 8 Housing Assistants Program. Since the monthly contract
rent was too high, the amount of overpayment in Section 8 program
assistance to the project for the three tenants was $1,111 for
February 1999. A fourth tenant was receiving rental assistance
under the HUD Shelter Care Plus program. Again since the
monthly contract rent was too high, the amount of overpayment in
rental assistance to the project for the tenant was $127 for
February 1999. The combined overpayments in HUD rental
assistance totaled $1,238 for the month.
Logan Street Project The Logan Street project received
Logan Street project $121,000 in HUD Housing Opportunity for Persons with AIDS and
sponsor charged $115,000 in HUD HOME funds from the City. The project
excessive contract rents sponsor purchased the Logan Street property from the Resolution
Trust Corporation. As a result, the Resolution Trust Corporation
maximum contract rents applied to the Logan units.
All of the contract rents for the Logan Apartment building fall
within the limitations, with the exception of the 2 bedroom unit .
The two bedroom unit cannot be assessed a monthly rent charge of
more than $604. However, our review of rent charges for
February 1999 showed the project sponsor was charging $614 for
the two bedroom unit. The tenant is paying an excess of $10 per
month.
Corona Street Project The Corona Street property received
The Corona Street $120,130 in HUD Housing Opportunity for Persons with AIDS
project sponsor charged funding from the City. The City’s agreement with the project
excessive rents sponsor stipulates that ten of the nineteen units in the project are to
remain available for persons eligible under this program. In
addition, the project sponsor purchased the project from the
Resolution Trust Corporation. Therefore, the contact rents for all
the units may not exceed the restriction imposed by the Resolution
Trust Corporation.
Five of the two bedroom units, that were designated for the
Housing Opportunity for Persons with AIDS program, were
charged in our test month of February 1999, more that the $604
limit stated in the Resolution Trust Corporations requirements.
These overcharges range from $1 to $37 per month. In total, the
overcharges amount to $80 per month.
Since the tenants were receiving rental assistance provided by the
HUD Section 8 Housing Assistance Program, the overcharge in
rental contract amount resulted in excess assistance payments
being paid by HUD.
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In summary for February 1999, City housing program participants,
Excessive contract rents as well as HUD and other programs, paid excessive amounts for
for project reviewed contract rents to project sponsors. These overcharges ranged
totaled about $24,984 from one dollar to $540 a unit per month. We estimated that the
annually overcharges at these four projects for February 1999 totaled about
$2,082 or $24,984 annually.
The overcharging of contract rents by some of the project sponsors
Project Sponsors not fully stems from one basic cause. The project sponsors in many
aware of restrictions on instances do not fully understand the various program requirements
project contract rents and restrictions required by the various funding source programs
applicable to their particular project. Instead of using the
applicable rental charge based upon the funding source program
applicable to their designated units, the project sponsors have
established monthly rental charges to its tenants on amounts that
were based upon fair market rents. At one project, the project
sponsor was not aware of the rent restriction specified in the City’s
contract with the project sponsor.
The City also relied upon the various project sponsors to charge the
City relies upon project proper monthly rent to its housing tenants. No established
sponsors to comply with procedures has been formulated by the City to perform any
contract rent provisions comprehensive reviews or evaluations of the rental activities by the
sponsors to ensure that the applicable Federal program or City
requirements are being met. City officials stated that reviews have
been conducted at some projects but the reviews were based
solely upon an individual program rather than a review applicable to
all funding sources for the project.
We noted that the records maintained by the City do not readily
identify the various funding sources that were used for each of the
funded projects. Without this information, the City is hampered in
identifying the various program requirements and restrictions that
are applicable to its housing projects and to the various designated
units within the particular projects.
According to the Director of the City of Denver’s Community
The City initiated
Development Agency, the Agency began taking actions after our
corrective actions
discussion of the tentative findings at the completion of our on-site
review. Specifically, the City is in the process of working with the
various project sponsors to ensure that appropriate rents are
charged based on the various funding sources for the projects.
The City Community Development Agency Director’s written
Auditee Comments
comments, reiterated the comments above. The Director also
noted that the Community Development Agency has moved
forward to establish a fully staffed monitoring section within the
existing compliance department. Monitoring staff will be
responsible for performing annual site visits to review source file
data for all organizations receiving funding from the agency.
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The Director disagreed with our rent computation related to the
Resolution Trust low-income rents for a two-bedroom unit in
February, 1999. Specifically, the rents could be as high as $637
rather than the $604, we identified, according to Colorado Housing
Finance Association records available at the management agent.
We obtained our rent schedules directly form the Colorado
Housing Finance Association. The identified disagreement clearly
reiterates our position and recommendations. Specifically, that
HUD and the City provide instructions and directions to the project
sponsors as to the correct contract rent to be assessed for its
various dwelling units based upon the various funding sources used
for the particular projects and requirements for the particular
funding
Recommendations We recommend that the Rocky Mountain Office of Community
Planning and Development require the City and County of Denver:
2A. Provide instruction and direction to each of its project
sponsors as to the correct contract rent to be assessed for
its various dwelling units based upon the various funding
sources used for the particular projects and requirements
for the particular funding sources.
2B Require the project sponsors to review their assessment of
contract rents of all their tenants to determine if the proper
contract rent has been assessed and to made any
adjustments accordingly.
2C Review the action taken by the various project sponsors
under recommendation 2B to ensure that the appropriate
corrective action has been taken.
2D Establish and implement an effective monitoring system for
reviewing the assessment of contract rents by the project
sponsors to ensure that the appropriate program
requirements are being followed.
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Finding 3
Colorado Aids Project Improperly Administering HUD
Program Funds
Since May 1993, the City and County of Denver has provided to the Colorado AIDS
Project approximately $1.018 million in funds under the HUD Housing Opportunity for
Persons with AIDS (hereinafter referred to the Housing Opportunity Program). At least
$862,935 of this total was used to provide rental or mortgage assistance to 948
recipients. However, the Colorado AIDS Project has not properly implemented the
program in conformity with HUD requirements.
More specifically, the Colorado AIDS Project did not always document the eligibility of
the program participants , identify and support the need for rental or mortgage
assistance, nor ensure that landlords received the assistance payments. As a result,
neither HUD nor the City have assurances that assistance was paid to eligible
participants. In addition, the Colorado AIDS Project provided rental assistance in
excess of the 21-week maximum period a year specified by HUD regulation. Based
upon our case review sample of 74 out of the 948 recipients receiving assistance, at
least $37,857 was paid for ineligible assistance.
The Colorado AIDS Project failed to establish proper procedures to ensure that
assistance payments were made only in conformity with HUD requirements. Also, the
Project did not correctly verify and document the eligibility of the program recipients.
Therefore, questionable or ineligible payments were made.
The City’s monitoring of the project also did not ensure that the Colorado AIDS Project
provided assistance to only eligible persons and that the assistance went for rental or
mortgage payments. Moreover, the City of Denver amended their agreement with the
Colorado AIDS Project that allowed for ineligible excessive assistance payments.
The HUD Housing Opportunity for Persons with AIDS Program
Housing Opportunity (hereinafter referred to the Housing Opportunity Program)
Program funds can be provides monies to be used to assist eligible persons with housing
used for rental or assistance, including supportive services, that are designed to
mortgage assistance prevent homelessness. Eligible people are low income persons that
also are medically diagnosed with the Acquired Immunodeficiency
Syndrome (AIDS) or infected with the Human Immunodeficiency
Virus (HIV).
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During the period May 1993 through May 1997, the City of Denver
Housing assistance of
awarded about $1.018 million in Housing Opportunity Program
$862,935 has been
funds to the Colorado AIDS Project. The Colorado AIDS Project
provided to 948 persons
is a non-profit organization that provides support and financial
assistance to those that are medically qualified.
The Colorado AIDS Project has used a portion of the funds to
provide for salaries and overhead costs but the majority was used
for rental and mortgage assistance. Specifically, at least $862,935
of the $1.018 million, or about 84 percent, was used to provide
rental and mortgage assistance to 948 people during the period
January 1995 through November 1998.
In carrying out the HUD Housing Opportunity Program, the
Program assistance must Colorado AIDS Project is obligated to follow the HUD program
meet specific requirements set out in Section 574 of Title 24 of the Code of
requirements Federal Regulations. Some key provisions to be followed by the
Colorado AIDS Project are:
• Total family income is to be used as the basis for determining
rental or mortgage assistance;
• Program recipients are to be in need of the specific rental or
mortgage assistance;
• Assistance is not to be in excess of HUD contract or
regulatory limits;
• Compensation is to be used solely for rental or mortgage
assistance; and
• Program recipients are not permitted to receive duplicate or
excessive Federal assistance from other program or activity.
The Colorado AIDS Project established written policies or
procedures for administering its various programs. These are
outlined in their Case Managers Handbook. The handbook
provides guidance to case managers when determining the
eligibility for assistance and the limits for such assistance.
We wanted to know if the 948 people assisted with Housing
We reviewed program Opportunity Program funds were eligible and received payments
eligibility for 74 according to HUD and the Colorado AIDS Project requirements.
participants Therefore, we tested a judgmental sample of 74 of the 948 or
about 7.8 percent of the assistance provided to these people.
Our review identified that the Colorado AIDS Project could not
support rental and mortgage assistance payments were paid to
individuals that:
• Were income ineligible,
• Were in need of rental or mortgage assistance,
• Were not in excess of the HUD’s regulatory limits,
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• Used the payments for rental or mortgage assistance, and
• Were not already receiving Housing Opportunity Program or
other rental or mortgage assistance.
In addition, we identified that the Colorado AIDS Project case
managers did not always follow their guidance and that the
guidance did not always comply with HUD’s requirements.
These areas are discussed in the following sections.
Questionable Income Eligibility HUD regulation at Section
The family must qualify 574.3 of Title 24 of the Code of Federal Regulations requires that
as low income Housing Opportunity Program assisted person’s and their family
must qualify as low income. Specifically, HUD defines a low
income family as any individual or family whose annual incomes do
not exceed 80% of the median income for the area. HUD further
defines family as a household composed of two or more related
persons. Family also includes one or more eligible people living
with another person or persons who are determined to be important
to their care or well being.
Colorado AIDS Project Case Manager Handbook states that the
participant’s monthly income will be established by taking into
account the total household income from disability, employment,
and other sources. The handbook also states that if the participant
has a roommate the income of both may be considered.
Our review of 74 files identified that the Colorado AIDS Project
Sixty-six of 74 case files calculates a client’s income based on verification of wages, social
did not identify income security income, etc., for the individual alone. We identified that
from other family only 8 of the 74 participant files contained documentation of
members appropriate family income .
For the remaining 66 recipients, the participant files contained
information which identified other family members living with the
participant, but no documentation as to their income or why, under
HUD regulations or the Project’s own procedures, their income
should or could be excluded. As a result, the Colorado AIDS
Project is unable to show the appropriate monthly income for 66 of
the 74 participants sampled.
Need for Rental or Mortgage Assistance Unsupported
Participants must pay a HUD requires under Section 310(d) of Title 24 of the Code of
portion of the rent or Federal Regulations that the participant pay a portion of the
mortgage payment monthly rent or mortgage payment. Specifically, each person
receiving assistance must pay, including utilities, an amount which
is the higher of:
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• Thirty percent of the family's monthly adjusted income
described in detail in Title 24, Section 813.102 of the Code of
Federal Regulations;
• Ten percent of the family's monthly gross income; or
• If the family is receiving payments for welfare assistance,
from a public agency, the portion of the payments that is
designated for housing costs.
• The Colorado AIDS Project Case Managers Handbook
provided that Housing Opportunity Program funds will make up
the difference between 30 percent of the families adjusted
monthly income and the total monthly rental or mortgage
payment. The handbook did not include HUD’s specific
requirements for paying the higher of the three methods listed
above.
Participant’s portion of Due to the lack of family income information, The Colorado AIDS
rent or mortgage Project could not calculate the appropriate portion of the rental
payment could not be payment for 66 of the 74 participants reviewed. Therefore, the
determined Project could not determine if the 66 participants were paying the
correct housing payments.
Possible HUD Limits Exceeded Under Section 574.320 of
Monthly rental/mortgage Title 24 of the Code of Federal Regulations, HUD requires monthly
assistance is limited assistance for an eligible person may not exceed the difference
between the lower of the rent standard or reasonable rent for the
unit and shall be no more than the published Section 8 Fair Market
Rent or the HUD-approved community-wide exception rent,
adjusted for the unit size. Also, the rent charged for a unit must be
reasonable in relation to rents currently being charged for
comparable units in the private unassisted market and must not be
in excess of rents currently being charged by the owner for
comparable unassisted units.
Colorado AIDS project established a maximum monthly assistance
of $400 per month. The handbook does not provide for assistance
limited by the Fair Market Rents nor is the assistance adjusted for
bedroom size.
Our review disclosed that 24 of the 74 files reviewed contained no
Assistance may exceed rental or mortgage agreement. Therefore, we could not determine
HUD’s limit the appropriate contact rent or mortgage payment. A Colorado
AIDS Project official advised that they recently changed their
policy to require a copy of the agreement in the files. Prior to this
policy the case manager just need to see the agreement.
As a result, we could not determine, for 24 participants, if the
actual contact rent or mortgage payment exceeded allowable
ceiling of the Fair Market Rent, based on bedroom size. Moreover,
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we could not determine if the actual assistance provided by the
Colorado AIDS Project exceeded HUD’s limit.
Possible Rental or Mortgage Payments Used for Other
Housing Opportunity Purposes HUD requires under Section 574.310(a)(2) of Title 24
Program funds can be of the Code of Federal Regulations that the grantee shall ensure
used for rental/mortgage that grant funds will not be used to make payments for health
assistance services for any item or program.
The Colorado AIDS Project Case Managers Handbook also states
that any financial assistance provided will be paid directly to the
landlord or vendor.
For our sample of 74 participants, the Colorado AIDS Project
Housing Opportunity
issued 528 checks totaling $158,575. We reviewed the 528
Program payments may
canceled checks to determine if the payee and endorser agreed.
be used for questionable
For 13 of the 528 checks having a total of $3,679, we identified that
purpose
the payee of the check did not agree with the endorser of the
check. For example, one check was endorsed to a hair salon.
Accordingly, the Colorado AIDS Project’s rental or mortgage
payments may be used for some other unauthorized purpose.
The Colorado AIDS Project management advised that they
routinely give the check to the participants for delivery to the
landlords and assume that the checks were given to the landlords.
Under this procedure, the Colorado AIDS Project has no
assurance the payments are being used solely for their intended
purpose.
Assistance Period of Only 21 Weeks a Year Exceeded
HUD limits the number Under HUD program requirements set out in Section 574.330(a)
of monthly assistance of Title 24 of the Code of Federal Regulations, rental and mortgage
payments assistance is only to be provided to eligible program recipients for
no more that 21 weeks in any 52 week period.
The Colorado AIDS Project Case Managers Handbook provides
that a participant can receive no more then six monthly rental
assistance payments in their Colorado Aids Project Housing
Opportunity Program year. A Colorado AIDS Project official
advised that their program year started the first month a person
received assistance.
In addition, the City of Denver amended their agreement with the
Colorado AIDS Project to change the allowed rental assistance
from 21 weeks to 26 weeks a year. This change exceeds the
maximum assistance allowed by HUD regulations. Neither the
Colorado AIDS Project nor the City officials could explain why the
change was made nor who authorized the change.
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For our sample of 74 participants, rental payments beginning in
HUD limits the number 1995 were examined to determine if the Colorado AIDS Project
of monthly assistance exceed the HUD limit of no more then 21 weeks of assistance in
payments any 52 week period. We identified that 36 of the 74 sample, or 48
percent, of the participants received payments that exceeded the
21 week limit. The number of overpayments received by
participants ranged from 1 to 8. In total, we identified 108
overpayments disbursed and these overpayments ranged from
$166 to $3,200 per participant.
As a result, the Colorado AIDS Project provided at least
$34,178.23 in ineligible rental and mortgage assistance to 36
participants.
Duplicate Assistance Provided Participants As stated above,
Recipients are not to HUD requires that the participant pay a portion of their monthly
receive duplicate rental or mortgage payment. Therefore, the participants should not
program assistance receive duplicate assistance from any program or from more than
one HUD program.
The Colorado AIDS Project Case Managers Handbook states that
Housing Opportunity Program funds will not pay Section 8
payments or any subsidized housing.
We reviewed the rent rolls obtained during our review of selected
Some participants Housing Opportunity Program projects and compared the names
received duplicate and vendors to the Colorado AIDS Project program recipients. We
assistance benefits identified one Housing Opportunity Program assisted rental project
where three participants were only required to pay 30 percent of
income in rent, but also received rental assistance from the
Colorado AIDS Project for the full contract rent. Therefore, these
three participants received assistance from two sources under the
same program. Moreover, their excessive assistance exceeded the
participants’ required monthly rental payment.
As a result, the Colorado AIDS Project provided participants with
rental assistance, when the participant were already receiving
Housing Opportunity Program funding.
Due to these deficiencies, neither HUD nor the City of Denver can
Neither HUD or the City be sure that the Colorado AIDS Project provided rental assistance
assured Colorado AIDS payments to persons that:
Project provided
appropriate assistance • Were income ineligible,
• Were in need of rental or mortgage assistance,
• Were not in excess of the HUD limits,
• Used the payments for rental assistance, and
• Were not already receiving Housing Opportunity Program
assistance or other rental assistance.
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Moreover, we identified that the Colorado AIDS Project provided
Colorado AIDS Project at least $37,857 in ineligible Housing Opportunity Program
provided at least $37,857 payments, because the payments exceeded the 21 week limit in a
of ineligible assistance 52 week period or the checks were not cashed by the payee.
These deficiencies were caused from four basic problems. First,
Proper verification and the Colorado AIDS Project failed to implement procedures to
administrative procedures ensure that the requirements of the HUD Housing Opportunity
not followed Program were properly established and implemented. Second, the
Case Managers Handbook, that is followed by the case managers
in determining the eligibility and administer the program, contained
provisions that were contrary to the HUD program requirements.
Third, the contract between the City and the Colorado AIDS
Project specified program provisions to be followed that exceeded
the HUD requirements. The fourth cause is the Colorado AIDS
Project did not properly verify and document the program eligibility
of the recipients.
Without proper controls and administrative procedures, the
Colorado AIDS Project has minimal assurance that the program
recipients are eligible for the HUD Housing Opportunity Program
and that the participants are being paid the correct rental or
mortgage assistance.
In addition to these four causes, the City’s monitoring did not
City did not ensure ensure that the Colorado AIDS Project provided assistance to only
compliance with HUD eligible persons and that the assistance went for rental payments.
requirements The City advised that they routinely monitored the Colorado AIDS
Project. However, the City’s monitoring was not detailed enough
to identify the issues we found. The City also advised that they
rely on the project sponsor and their annual audit to identify
regulatory issues.
The City official also advised that HUD’s past monitoring provided
a basis to identify program weakness. However, HUD does not
routinely monitor the program and no system has been
implemented to identify regulatory concerns in the program
execution.
Furthermore, the City’s agreement with the Colorado AIDS
Project allowed for the excess payments. A City official advised
that they did not adequately review the agreement to ensure that it
complied with HUD’s requirements.
According to the Director of the City of Denver’s Community
The City began a regular
Development Agency, the Agency began taking actions after our
review of the Colorado
discussion of the tentative findings at the completion of our site
AIDS Project
review. Specifically, the City’s Community Development Agency
implemented a regular review of the Colorado AIDS project to
ensure compliance with HUD’s and the City’s requirements.
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The City Community Development Agency Director’s written
Auditee Comments
comments reiterated the comments above. The Director also
noted that the Colorado AIDS Project is making every effort to
determine income and to identify family members. The subject
population tends to be quite transient and individuals do not always
have a steady source of income.
The Director also commented that the Colorado AIDS Project
staff now keep copies of leases and mortgage statements in clients'
files rather than in a separate master file which had previously
been the practice and according to Colorado AIDS Project staff,
they have always kept copies of leases/mortgage statements on file
and would have shown those document to the auditor, but were not
questioned about the existence of the documents.
We disagree with the statements from the Colorado AIDS Project.
The auditors ask for copies of the leases an or mortgage
agreements from the Colorado AIDS staff and were advised that
they recently changed their policy to require a copy of the
agreement in the files. Prior to this policy the case manager just
needed to see the agreement. Moreover, the audit staff meet with
the Colorado AIDS Management and staff during and after the
completion of field work to discuss our results. At no point in these
meeting did the staff of the Colorado AIDS Project advise that
additional records were available.
The Director also commented that the participants may have a
roommate for one month or one week, live alone for a month and
then move in with someone for a month. In other words, they do
what they have to do to keep a roof over their head and often
times they try to help others who are in the same situation.
We applaud the work of the Colorado AIDS Project and
appreciate the difficulty in performing their work. However, as
stated in the finding, the assistance provided from Federal funds
and under HUD regulations require that eligibility and amount of
assistance be based on specific program requirements.
Recommendations We recommend that the Rocky Mountain Office of Community
Planning and Development have the City:
3A. Require the Colorado AIDS Project to implement proper
procedures and controls that will:
• Correctly identify and support the income eligibility of
program recipients;
• Correctly calculate the monthly assistance within
HUD established requirements;
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• Ensure that assistance is actually provided for rental or
mortgage payments;
• Provide assistance for only 21 weeks per year; and
• Ensure that duplicate assistance is not provided.
3B. Require the Colorado AIDS Project to correctly determine
the eligibility of its program recipients and adjust the
amount of monthly assistance. Any over payments or
excess assistance needs to be repaid to the City. This will
include the $37,857 identified and discussed above in the
finding.
3C. Amend the City’s contract with the Colorado AIDS
Project to ensure the contract complies with HUD
program requirements.
3D. Review the revised Colorado AIDS Project procedures
after they have been implemented to ensure their program is being
carried out in conformity with HUD and City requirements. This
would include ensuring that all excess or ineligible assistance is
properly determined and refunded to the City.
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Finding 4
Questionable Use of $80,330 HUD Funds to Refinance an
Existing Project Acquisition Debt
A project sponsor used Housing Opportunities for Persons with AIDS and Rental
Rehabilitation program funds for refinancing of an existing project acquisition debt,
which is not specifically authorized in the applicable HUD funding program regulations.
As a result, the use of HUD program funds totaling $80,330 are questionable as an
eligible program cost.
The project sponsor did not specify that HUD monies would be used to refinance an
existing debt in its application to the City but that the funds would be used only to
acquire and rehabilitate the project. At the time the City approved the sponsor’s project
application, the project sponsor had already acquired the project. Therefore, the monies
were used for purposes not delineated in the City approved application. Nonetheless,
City officials considered the refinancing to be an eligible HUD program cost. A
determination needs to be made by HUD as to its eligibility.
The City and County of Denver uses HUD monies coming from
Monies from several
the Housing Opportunities for Persons With AIDS, Rental
HUD programs used to
Rehabilitation Grant and HOME programs to fund some of its
fund City housing
housing activities. The City provides the HUD monies to project
activities
sponsors who acquire and rehabilitate a project that is used to
provide housing for eligible tenants. The conditions and
requirements relating to the use of the HUD monies differs
somewhat by the HUD program that is involved.
The refinancing of an existing acquisition or rehabilitation debt is
Refinancing of an
not listed as an eligible activity for the Housing Opportunities for
existing project debt is
Persons with AIDS (hereinafter referred to Housing Opportunity
eligible under the HOME
program) program under Section 574.300 of Title 24 of the Code of
program only
Federal Regulations, nor the Rental Rehabilitation Grant Program
under Section 511.10(f) of Title 24 of the Code of Federal
Regulations. However, the HOME program specifically includes
the refinancing of debt under Section 92.206 (b) of Title 24. More
specifically, the Home program regulations state that the cost to
refinance existing debt is an eligible activity, as long as the project
is being rehabilitated with HOME funds.
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A project sponsor submitted an application to the City and County
Project sponsor
of Denver for the acquisition and rehabilitation of the Humboldt
requested funding for
project. The sponsor requested $82,750 of Housing Opportunity
Humboldt project
program funds and $57,770 of HOME funding for the project. The
acquisition and
application indicated that only $62,550 of the $82,750 Housing
rehabilitation
Opportunity program monies and all of the $57,700 of HOME
funds would be used for the acquisition of the project.
On May 21, 1996 the City approved the project sponsor’s
City approved sponsor’s application and awarded the project sponsor with a total of
application and provided $159,144 in HUD funds. These funds consisted of $82,750 in
HUD funding Housing Opportunity program monies and $76,394 in Rental
Rehabilitation funds, rather than the HOME program as set out in
the sponsor’s application to the City. City officials could not
provide any reason as to why Rental Rehabilitation monies were
awarded to the sponsor rather that the HOME program funds.
The project sponsor signed an agreement with the City for the
$159,144 on July 12, 1996.
In a July 29, 1996 letter to the City, the project sponsor stated the
following planned funding sources and uses would be used for the
Humboldt project.
FUNDING SOURCE USE AMOUNT
Housing Opportunity for
Persons With AIDS Funds Acquisition $82,750
Rental Rehabilitation Program
Funds Acquisition $33,041
Rental Rehabilitation Program
Funds Construction $43,353
Bank Loan Acquisition $50,000
Private Donation Construction $66,400
In August 1996, the project sponsor requested and received all of
the $159,144 in HUD funds.
Subsequently, in October 1996, the project sponsor used $80,330 of
Sponsor used HUD the $159,144 HUD funding to refinance a previous $165,750 bank
funds to refinance prior loan into a new loan of $85,449.95. The previous loan was used to
project acquisition debt acquire the Humboldt property on February 7, 1996, some three
months prior to the time when the City approved the sponsor’s
application to only acquire and rehabilitate the property. The
documentation relating to the $80,330 HUD program funds used to
refinance the $165,751 loan was unclear as to the exact amount of
Housing Opportunity program and Rental Rehabilitation program
funds that were used.
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In our discussions with the project sponsor, the sponsor told us that
they had planned to repay the bank loan once HUD funds were
received. In addition, a loan fact sheet used by the City to evaluate
the sponsor’s application identified that $115,791 of the $159,144
would be used to refinance the acquisition of the Humboldt
property. The City official responsible for the approval of the
funding advised us that they considered the refinancing an eligible
activity for the Housing Opportunity and the Rental Rehabilitation
programs.
In our opinion, the use of $80,330 in HUD funds to refinance an
Use of HUD program existing acquisition debt is questionable as an eligible program cost
funds to refinance an because:
existing acquisition debt
is questionable project
• Neither Housing Opportunity program and Rental
cost
Rehabilitation program regulations specifically authorized
program funds to be used to refinance an existing debt; and
• The application and subsequent correspondence relating to the
Humboldt project stated the HUD funds would be used to only
acquire and rehabilitate the project.
Had the City provided HOME program funds for the refinancing of
the existing debt, the cost would also be questionable since HOME
program monies were not used to rehabilitate the property.
In conclusion, a determination needs to be made by HUD as to
whether the refinancing of the existing project acquisition debt is
eligible under the specific funding program requirements.
The City Community Development Agency Director’s written
Auditee Comments
comments reiterated that the technically the activity was
refinancing. However, it was not to refinance a "seasoned loan"
that would allow the borrower to take money away from the table.
After funding was approved by the Community Development
Agency, a short-term bridge loan from the non-profit's line-of-
credit from a local bank was used to purchase the property. This
was done to expedite the process because the City funds could not
be made available in time to meet the closing date for the
purchase. It should be noted that in this housing market, a property
can be lost if the buyer does not close on the prescribed closing
date. Nearly all properties have several back up contracts. The
line-of-credit loan was not a long term loan and if it had been it
would have carried an interest rate that would have been so high,
the project would not have been financially feasible.
We appreciate the difficulty in acquiring properties for these
projects and the related problems with timing the various
applications and grant awards. However, as stated in the finding,
program monies are not specifically authorized in connection with
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the refinancing of the existing acquisition debt. We will await the
opinion from the HUD Office of General Counsel to resolve this
issue.
Recommendations We recommend that the Rocky Mountain Office of Community
Planning and Development:
4A. Obtain a legal opinion from the Office of General Counsel
as to the eligibility of refinancing of the existing debt for the
Humboldt project with Housing Opportunity for Persons
with AIDS program and Rental Rehabilitation program
funds;
4B Provide the appropriate instructions and guidance to the
City based upon the legal decision. If the legal decision is
that program monies cannot be used in connection with the
refinancing of the existing acquisition debt, require the City
to reimburse the HUD programs from non-Federal funds
and to submit the appropriate evidence of repayment to
HUD.
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Finding 5
Project Did Not Meet Housing Quality Standards
One of seven HUD funded projects we inspected failed to meet the specific HUD and
City required Housing Quality Standards. Consequently, tenants and their children
were exposed to safety, security and health hazards. The deficiencies in the Housing
Quality Standards went undetected since the City did not perform a Housing Quality
Standards inspection after completion of the project’s rehabilitation. In addition, the
City does not perform regularly scheduled inspections to insure the project sponsor
continues to maintain the project within the required Housing Quality Standards during
the 20 year commitment of the project. Without such inspection procedures, the City
has limited assurance the HUD funded projects and their dwelling units meet HUD’s
required Housing Quality Standards.
HUD awarded several program grants to the City and County of
The City awarded HUD Denver to be used in carrying out the City’s housing program.
funds to project sponsors HUD grant funds were provided under the HUD Housing
Opportunities for Persons With AIDS program, HUD Rental
Rehabilitation program and/or HUD HOME program. HUD
monies were combined by the City with other non-Federal funds to
finance the acquisition and rehabilitation of several housing projects
consisting of six or more dwelling units.
The acquisition and rehabilitation of the projects as well as the
subsequent operation of the projects are to be performed by
independent project owners or sponsors under agreements with the
City and County of Denver. These agreements require the project
sponsors to operate the projects in conformity with the applicable
HUD program requirements for a period of twenty years.
Under the provisions of the HUD program grants, the acquired and
HUD requires that the rehabilitated projects as well as their subsequent operation must
project meet minimum meet certain Housing Quality Standards. These standards are
habitability standards specified in the applicable program sections of Title 24 of the Code
of Federal Regulations. Basically, the Housing Quality Standards
require:
• Structures must be structurally sound and pose no hazard to
the tenants,
• Project must afford adequate security for tenants and their
belongings, and
• Project must be maintained in sanitary condition.
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A City inspector told us that the City uses the Section 8 Housing
Quality Standards as the basis for their inspection of project units.
In addition, assisted units under the Housing Opportunity for
Persons with AIDS program and non-program assisted units must
meet their Housing Quality Standards.
We physically inspected seven projects that had been acquired and
One of seven project did
rehabilitated with HUD program funds for compliance with the
not meet Housing Quality
required Housing Quality Standards. This involved judgmentally
Standards
selecting and inspecting forty seven of the seventy-nine units in the
seven projects.
We found that six of the projects meet the HUD Housing Quality
Standards. However, the seventh project, which is referred to as
the Humboldt property, did not meet the standards. We identified
the following safety and health hazards relating to the exterior of
the Humboldt project:
• A temporary electrical meter and outlets attached to the rear
fence and electrical outlets poses an electrical hazard to
tenants and the children that played in the enclosed area behind
the project.
• Gas meters located on the driveway with no barriers to prevent
damage to the gas lines and meters from cars parking in the
driveway.
• Garbage and old furniture in the rear area of the building
presenting a hazard to tenants and the children that played in
the area behind the project.
• Access to the basements of the side units was only covered
with a plywood covering, allowing easy entrance to the
basement of the unit. Moreover, one tenant complained about
being robbed during the day and her family installed an alarm
system for the unit.
In addition, our inspection of all six units in the Humboldt property
identified the following Housing Quality Standard violations:
• Garbage and building materials were not cleaned out of the
basement areas (two units),
• Leaking water heaters (two units),
• Exposed electrical wire (one unit) and
• Cracked and leaking toilet (one unit).
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After our inspection, the project sponsor removed the temporary
Project sponsor removed electrical meter and outlets attached to the rear fence of the
the electrical hazard property. Thus, the electrical hazard was eliminated.
These deficiencies in the Humboldt project went undetected and
Tenants unnecessarily
uncorrected since the rehabilitation work was completed in August,
exposed to safety,
1996. The City did not performed any Housing Quality Standards
security and health
inspections of the project prior to our inspection. As a result,
hazards
tenants have been unnecessarily exposed to safety, security and
health hazards.
HUD monies totaling $159,144, comprising of $82,750 in Housing
HUD funding of Opportunities for Persons with AIDS program funds and $76,394
$159,144 for the in Rental Rehabilitation program funds, were used on the
Humboldt project is acquisition and rehabilitation of the Humboldt property. Since the
questionable rehabilitated project failed to meet HUD Housing Quality
Standards, the eligibility of the HUD funds is questionable.
Subsequent City Subsequent to our project inspection, the City did perform its first
inspection found similar Housing Quality Standards inspection of the Humboldt project on
Housing Quality March 15, 1999. The City inspection was performed about two
Standards violations and a half years after the Humboldt project’s rehabilitation was
completed.
The City inspector advised us that they also failed the six units in
the project. The City’s inspection identified similar failed items to
those we identified in our inspection. Moreover, the City identified
an ongoing problem with the project’s heating system. The City
inspector stated to us that the project sponsor will be required to
correct the Housing Quality Standards deficiencies. When the
violations are corrected, another inspection would be performed to
verify the problems are corrected.
The City did not perform a Housing Quality Standards review prior
to the tenants first moving into the rehabilitated projects.
Systematic City Housing According to the City’s Housing Quality Standards inspector, no
Quality Standards inspections were performed after the rehabilitation was completed.
inspections are not made Instead, a City rehabilitation specialists performed a walk through
inspection of only the completed rehabilitation work. As a result,
inspections are not made of its HUD funded housing projects to
ensure that the properties meet the required Housing Quality
Standards.
In addition, the City’s does not have a specific procedures for
The City does not performing regular scheduled inspections of its HUD funding
perform regularly housing to ensure the properties and related units meet the Housing
scheduled inspections Quality Standards. The City inspector informed us that depending
on the condition of the projects and units, inspections may be done
annually or less frequently, but no formal inspection schedule is
established. The inspector also told us that projects inspections are
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scheduled on a non routine basis depending upon prior experience
with the project sponsors.
The City’s current procedures do not provided adequate assurance
City lacks assurance
that Housing Quality Standards were met at the completion of the
Standards are met during
rehabilitation work nor continue to meet the required standards
life of its projects
over the 20 year life of the project.
According to the Director of the City of Denver’s Community
The City initiated
Development Agency, the Agency began taking actions after our
corrective actions
discussion of the tentative findings at the completion of our on-site
review.
The City Community Development Agency Director’s written
Auditee Comments
comments disagreed that the City did not perform an inspection of
the property after completion of the rehabilitation work, but did
agree that the City did not perform its first annual inspection. The
Director commented that the tenants made inappropriate changes
to property and failed to remove their trash from the property. The
Director advised that they are working with the property
management agents to take a more active role in performing
regular site visits to the properties.
We disagree that the City performed an adequate inspection of the
property at the completion of construction work. Our inspection
identified two major safety issues that should have been identified
at the completion of the rehabilitation work. Specifically,
• A temporary electrical meter and outlets attached to the rear
fence and electrical outlets poses an electrical hazard to
tenants and the children that played in the enclosed area behind
the project.
• Gas meters located on the driveway with no barriers to prevent
damage to the gas lines and meters from cars parking in the
driveway.
These items should, at a minimum, been identified by the City’s
inspection at the completion of construction.
Recommendations We recommend that the Rocky Mountain Office of Community
Planning and Development:
5A. Require the City establish and implement inspection
procedures to ensure projects meet Housing Quality
Standards after the completion of the rehabilitation and
prior to the move-in of tenants;
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5B. Require the City establish and implement a formal
inspection scheduling and follow up procedures of its HUD
funded projects to ensure its HUD funded projects
conform to the required Housing Quality Standards for the
20 year life of the projects;
5C. Require the City have the Humboldt project sponsor take
sufficient actions to correct the Housing Quality Standards
deficiencies identified at the failed project; and
5D. Evaluate that the City’s inspection procedures and
scheduling are properly being implemented and that
Housing Quality Standards deficiencies at the failed project
are corrected.
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Management Controls
In planning and performing our audit, we obtained an understanding of the management controls that
were relevant to our audit. Management is responsible for establishing effective management
controls. Management controls, in the broadest sense, include the plan of organization, methods,
and procedures adopted by management to ensure that its goals are met. Management controls
include the processes for planning, organizing, directing, and controlling program operations. They
include systems for measuring, reporting, and monitoring program performance.
We determined the following City and County of Denver’s
Management controls (hereinafter referred as City) management controls were relevant
assessed to our audit objectives:
• Grant oversight of the Housing Opportunity for Persons with
AIDS grant recipients;
• Rents charged to participants by the grant recipients;
• Grant funds were expended for eligible recipients and
activities; and
• Assisted units met the minimum Housing Quality Standards.
The following audit procedures were used to evaluate the
Assessment procedures management controls:
• Interviews with City officials and grant recipients;
• Review of the City’s HUD program award and monitoring
files;
• Review of grant recipients records on eligibility of participants
and use of grant funds;
• Physical inspection of a sample of grant projects assisted with
Housing Opportunity for Persons with AIDS grants; and
• Evaluation of HUD’s and the City’s established policies and
procedures for implementing the Housing Opportunity for
Persons with AIDS Program.
A significant weakness exists if management controls do not give
Significant weaknesses reasonable assurance that resource use is consistent with laws,
regulations, and policies; that resources are safeguarded against
waste, loss, and misuse; and that reliable data is obtained and
maintained, and fairly disclosed in reports. Based on our audit, we
identified the following significant weaknesses:
• The City did not adequately monitor grant recipients for
program compliance (Finding 1);
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• Program grantees did not ensure program recipients were
charged appropriate rents (Finding 2);
• Program grantees did not ensure that grant funds were
furnished to eligible persons or that the grant assistance did not
exceed specifically allowed amounts (Finding 3),
• Program grant funds were used for questionable activities,
(Finding 4); and
• The City did not ensure that all program assisted units meet the
minimum Housing Quality Standards (Finding 5).
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Appendices
Appendix 1 - Auditee Comments
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Appendix 2 - Schedule Of Questioned Amounts
Finding Ineligible Amount (1) Unnecessary Cost (2)
1 (a) 52,704
3 $37,857
4 80,330
Total $37,857 $133,034
(a) amount of annual commercial rents
Questioned costs include ineligible costs, unsupported costs, and
unnecessary/unreasonable costs:
1. Ineligible costs are those that are questioned because of an alleged violation
of a provision of a law, regulation, contract, grant, cooperative agreement, or
other agreement or document governing the expenditure of funds.
2. Unnecessary costs are those which are not generally recognized as ordinary,
prudent, relevant, and/or necessary within established practices.
Unreasonable costs exceed the costs that would be incurred by the ordinarily
prudent person in the conduct of a competitive business.
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Appendix 3 - Audit Distribution List
City and County of Denver
Assistant Secretary for Community Planning and Development, Room 7100
Director, Office of HIV/AIDS, Room 7154
Secretary’s Representative, 8AS (2)
Deputy Secretary, SD, Room 10100
Chief of Staff, S, Room 10000 (2)
Office of Administration, S, Room 10110
Assistant Secretary for Congressional and Intergovernmental Relations, J, Room 10120
Senior Advisor to the Secretary, Office of Public Affairs, S, Room 10132
Deputy Assistant Secretary for Public Affairs, W, Room 10222
Counselor to the Secretary, S, Room 10234
General Counsel, C, Room 10214
Office of Policy Development and Research, R, Room 8100
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7106
Chief Procurement Officer, N, Room 5184
Chief Information Officer, Q, Room 3152
Chief Financial Officer, F, Room 2202
Deputy Chief Financial Officer for Operations, FF, Room 10166
Director, Office of Budget, FO, Room 3270
Departmental Audit Liaison Officer, FM, Room 2206
Headquarters Audit Liaison Officer, Housing, HF, Room 9116
Acquisitions Librarian, Library, AS, Room 8141
Director, Office of Information Technology, AMI, Room 160
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen
Senate Office Building, United States Senate, Washington, DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706
Hart Senate Office Building, United States Senate, Washington, DC 20510
Honorable Dan Burton, Chairman, Committee on Governmental Reform, 2185 Rayburn Bldg.,
House of Representatives, Washington, DC 20515
Henry A. Waxman, Ranking Member, Committee on Governmental Reform, 2204 Rayburn
Bldg., House of Representatives, Washington, DC 20515
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neil House
Office Building, Washington, DC 20515
Mr. Pete Sessions, Government Reform and Oversight Committee, Room 212, O’Neil House
Office Building, Washington, DC 20515
Director, Housing and Community Development Issue Area, United States General Accounting
Office, 441 G Street, NW, Room 2474, Washington, DC 20548 (Attention: Judy
England-Joseph )
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street,
NW, Room 9226, New Executive Office Building, Washington, DC 20503
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46
City and County of Denver's Housing Opportunity for Persons with AIDS Program Audit
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-02-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)