oversight

City of Troy Homebuyers Incentive (HOME) Program Troy, New York

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-01-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                       Issue Date
                                                                              January 27, 2000

                                                                       Audit Case Number
                                                                              00-NY-255-1004




TO:    Michael F. Merrill, Director, Office of Community Planning and Development
                                                Division, 2CD


FROM:          Alexander C. Malloy, District Inspector General for Audit, 2AGA


SUBJECT:       City of Troy
               Homebuyers Incentive (HOME) Program
               Troy, New York

We completed an audit of the City of Troy’s Homebuyers Incentive Program which is funded by the
HOME Program. The objective of the audit was to determine whether the City’s Department of
Planning and Community Development administered the program in compliance with applicable U.S.
Department of Housing and Urban Development (HUD) regulations and requirements.

The audit showed that the City generally complied with program regulations and requirements pertaining
to its HOME program. However, the audit also showed that the City has not complied with program
requirements pertaining to potential conflicts of interest.

Within 60 days, please furnish this office, for each recommendation cited in the 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 not considered necessary. Also, please furnish us copies of any correspondence or
directives issued related to the audit.

Should you or your staff have any questions, please contact the Office of Inspector General (OIG),
William H. Rooney, Assistant District Inspector General for Audit, at (212) 264-8000, extension 3976.
Management Memorandum




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00-NY-255-1004                 Page ii
Executive Summary
We completed an audit the City of Troy’s HOME program. The primary objective of the audit was to
determine whether the City of Troy’s Department of Planning and Community Development managed
its program efficiently and in accordance with the applicable requirements and regulations that pertain to
the HOME program.



                                        Our audit disclosed that the City generally complied with HUD
 Deficiencies Found                     regulations and requirements in administering its HOME
                                        program. However, we found that the City did not have
                                        adequate controls over the approval and processing of all
                                        grants. Specifically, we found that the City did not disclose all
                                        relevant facts to HUD in awarding a $27,500 HOME grant to
                                        the brother of the Deputy Mayor. In addition, the City did not
                                        seek HUD approval in the award of a $10,000 grant to the
                                        Mayor’s secretary.

                                        We recommend that HUD require the City to provide all
                                        information pertaining to the award of these two grants so that a
                                        determination can be made as to whether the grants represent
                                        an eligible use of program funds. If found to be ineligible, HUD
                                        should require the City to repay the amounts from non-federal
                                        funds. In addition, the City should be required to implement
                                        adequate procedures to ensure that all potential conflicts of
                                        interest are processed in accordance with program regulations.

                                        The results of the audit were discussed with City officials during
                                        the course of the audit and at an exit conference held on
                                        December 23, 1999, attended by:

                                        City of Troy

                                        Patrick T. Morphy, Corporation Counsel

                                        Office of Inspector General

                                        Thomas Cosgrove, Senior Auditor
                                        Mary Rose Michaud, Senior Auditor
                                        John Cameron, Senior Auditor




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Executive Summary


                              The City generally agreed with the finding and
                              recommendations. The City’s comments are included in
                              Appendix A.




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00-NY-255-1004               Page iv
Table of Contents

Management Memorandum                                                     i


Executive Summary                                                        iii


Introduction                                                              1


Finding

1      Conflicts of Interest May Have Occurred in the HOME
       Program                                                       3



Management Controls                                                       7


Follow Up On Prior Audits                                                 9

Appendices
       A Schedule of Unsupported Costs                              11

       B Auditee Comments                                           13


       C Distribution                                               17



Abbreviations

CFR          Code of Federal Regulations
HUD          Department of Housing and Urban Development
OIG          Office of Inspector General
TRIP         Troy Rehabilitation and Improvement Program, Inc.



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Table of Contents




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00-NY-255-1004               Page vi
Introduction
The City of Troy (City) operates under a mayor/city council form of government. In 1991, the City
entered into a Home Investment Consortium Agreement with the Town of Colonie and the City of
Schenectady, which serves as lead agency, in order to receive funding under the HOME Investment
Partnership Act (HOME). The City receives forty percent of the HOME funds awarded under the
agreement. The funds are administered through the City’s Department of Planning and Community
Development. The Deputy Director of Planning, responsible for the day to day operations of the
department is Walter VanDeloo, whose office is located at City Hall, One Monument Square, Troy,
New York. The HOME program books and records are also located at City Hall. The City has
contracted with the Troy Rehabilitation and Improvement Program, Inc. (TRIP) to assist in the
administration of the HOME program. TRIP is located at 415 River Street, Troy, New York.

The HOME program was created under Title II of the Cranston-Gonzalez National Affordable Housing
Act of 1990. The program has many purposes including expanding the supply of decent, safe, sanitary
and affordable housing for very low and low income Americans. Activities which may be funded under
HOME include acquisitions, rehabilitation, new constructions and resident-based rental assistance. In
addition, assistance may be provided in a number of ways, including loans, advances, equity investments
and interest subsidies. The program provides eligible low-income home buyers with financial assistance
coupled with education and counseling. The financial assistance is in the form of a loan for closing costs,
downpayment and/or principal reductions. The City forgives the loan at the end of 10 years if the
homebuyer still resides in the house. The amount of assistance provided has varied over the life of the
program.



                                         The primary objective of the audit was to determine whether the
 Audit Objectives
                                         City Department of Planning and Community Development
                                         managed its program efficiently and in accordance with the
                                         applicable requirements, laws and regulations that pertain to the
                                         HOME program.

                                         We obtained background information by:
 Audit Scope and
 Methodology                                 •   Reviewing relevant HUD regulations, requirements,
                                                 technical guides and consortium agreements.

                                             •   Examining records and reports maintained by the
                                                 Buffalo Office of Community Planning and
                                                 Development.

                                             •   Reviewing the City’s accounting records, single audit
                                                 reports, policies, and internal correspondence pertaining
                                                 to the HOME program.

                                                          Page 1                            00-NY-255-1004
Introduction


                          •   Interviewing HUD’s Buffalo Office of Community
                              Planning and Development and the City Department of
                              Planning and Community Development staff.

                    To accomplish our audit objectives, we:

                          •   Obtained an understanding of the City’s HOME
                              program by interviewing City and TRIP staff.

                          •   Reviewed operating policies, guidelines, handbooks,
                              financial records, meeting minutes and correspondence
                              files of the City.

                          •   Obtained and reviewed contracts between the City and
                              TRIP.

                          •   Selected and tested a sample of City and TRIP
                              processed grants for home buyer eligibility, file
                              documentation, and loan amount eligibility.

                          •   Reviewed and tested payments made by the City to
                              TRIP.

                    We conducted the audit from January 28, 1999 to May 28,
                    1999 in accordance with generally accepted government
                    auditing standards. The audit covered the City’s HOME
                    program from August 1, 1996 to January 31, 1999. We
                    expanded the scope of our review as necessary.

                    We conducted the audit at the City’s Department of Planning
                    and Community Development

                    A copy of this report was provided to the Auditee.




00-NY-255-1004   Page 2
                                                                                           Finding


   Conflict of Interest May Have Occurred in the
                   Home Program
Our review showed two instances where a conflict of interest may have occurred in the HOME
Program. The conflicts of interest may have occurred because the City did not disclose all relevant facts
to HUD in requesting an exception to the conflict of interest provisions in one case and failed to request
an exception to the provisions in another case. As a result, HOME funds amounting to $37,500 may
have been improperly expended and are unsupported.



                                        Section 92.356 of the HOME regulations define a conflict of
 Criteria
                                        interest by stating that no prohibited person “who exercises or
                                        has exercised any functions or responsibilities with respect to
                                        activities assisted with HOME funds or who are in a position to
                                        participate in a decision making process or may obtain a
                                        financial interest or benefit from a HOME assisted
                                        activity,…either for themselves or those with whom they have
                                        family or business ties, during their tenure or one year
                                        thereafter.” HOME regulations define a prohibited person as
                                        an employee, agent, consultant, officer, or elected official or
                                        appointed official of the participating jurisdiction or subrecipient
                                        receiving HOME funds.

                                        Upon written request of the participating jurisdiction, HUD may
                                        grant exceptions to prohibited conflicts on a case by case basis.
                                        Exceptions are considered only after the participating
                                        jurisdiction provides a disclosure of the nature of the conflict.
                                        HUD considers all relevant factors in determining whether to
                                        grant an exception.

                                        The details pertaining to the deficiencies associated with the
                                        two potential conflict of interest cases are discussed below.

                                        The brother of the City’s Deputy Mayor applied for a Home
 Case 1                                 program grant in November 1996. In June 1997, the City
                                        requested HUD approval for an exception to the HOME
                                        conflict of interest provisions so that the grant could be made.
                                        HUD approved an exception in July 1997 based on the
                                        information provided. A grant in the amount of $27,500, was
                                        subsequently awarded in November 1997 to assist the brother
                                        in his purchase of a home.

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Finding



                                      However, our review of the request for an exception to the
                                      conflict of interest provisions, along with a review of the City’s
                                      processing of the grant disclosed various discrepancies. Some
                                      of the discrepancies include:

                                      In the request for an exception from the City, HUD was
 Request for Exception to
                                      informed that the property to be purchased was owned by the
 conflict of interest provisions
                                      estate of the Deputy Mayor’s father. Yet, the application file
                                      shows that the $27,500 of grant assistance was used to
                                      purchase a home that was already owned by the Deputy
                                      Mayor, his brother (applicant), and two siblings, with each
                                      having a one-fourth ownership. Since the subject property was
                                      already partially owned by the applicant, we believe that the
                                      need for a grant to purchase the property was redundant. Our
                                      belief is also substantiated by the City’s program guidelines
                                      which provide that eligible applicants must not currently own
                                      property in the City of Troy.

                                      HUD was not advised that the Deputy Mayor attended two
                                      Home Program meetings prior to his brother’s grant application.
                                      At the meetings, program issues were discussed that impact
                                      grant calculations. One of the issues eventually resulted in a
                                      program change that increased the grant by $10,000 ($17,500
                                      base grant plus a $10,000 bonus incentive).

                                      The City’s program guidelines were revised to provide an
                                      additional $10,000 grant to first time homebuyers who
                                      purchased homes in certain census tracts. The additional grant,
                                      however, was not originally available for the census tract where
                                      the subject property was located. In fact, the grant was
                                      designated for the census tract where property was located
                                      after the Deputy Mayor’s brother submitted an application.
                                      Neither the program revision nor the additional grant was
                                      disclosed to HUD.

Processing and Approval               Apart from the above, additional deficiencies were noted in the
Deficiencies                          City’s processing and approval of the grant. They include:

                                      •   The program requires the applicant to submit recent W-2
                                          forms, tax returns, paystubs and bank statements with the
                                      application. While the application was submitted in


00-NY-255-1004                     Page 4
                                                          Finding


         November 1996, the tax returns and bank statements
         were not provided until March 1997.

         •   One of the tax returns provided shows one dependent for
             the applicant while the application shows two dependents.
             The file contains no resolution of the discrepancy and the
             City used two dependents in calculating the grant. If the
             family size includes only one dependent, the grant amount
             should be $5,000 less.

         •    The objective of the City’s HOME program is to promote
              homeownership in the City of Troy and the $10,000
              incentive bonus was implemented to increase
              homeownership in certain census tract. Sine the property
                 in question was already partially owned by the
              applicant, the grant award may not have met program
              objectives.     Similarly, the $10,000 bonus is also
              questionable, since it     was intended to increase
              ownership in certain census tracts. Yet, the applicant
              occupied and partially owned the home at the time of the
              application.

         •   Finally, the applicant’s ownership interest in the property
             was not considered from a program perspective or when
             calculating the grant amount. The applicant’s equity
             position means that he was not only the buyer of the
             property, but also a seller. As a seller, the applicant stood
             to benefit from the grant in a way that may not have been
             intended by the program.

         In May 1997, the City awarded a HOME program grant of
Case 2
         $10,000 to the Secretary of the Mayor. HUD approval was
         not requested for an exception to the potential conflict of
         interest, and the City did not explain or document why HUD
         approval was not considered necessary. We believe that the
         position would appear to be covered by the conflict of interest
         regulations as a person having access to inside information.

         More important, a review of the file shows that the applicant
         may not have been income eligible for the HOME grant.
         Income from a part time job was verified by the employer as
         $3,318 per year which bought the total income to $29,318
         including $26,000 from the individual’s City employment. The

                           Page 5                          00-NY-255-1004
Finding


                      total made the applicant ineligible for a grant under the City’s
                      income guidelines. The part time income, however, was shown
                      as only $1,659 when the grant was calculated, making the
                      applicant eligible for the $10,000 grant. The file contained no
                      explanation explaining why the amount verified was not used for
                      grant computation purposes.

                      The deficiencies cited in this finding illustrate the City’s lack of
                      control over the HOME program. We believe that the City did
                      not place adequate emphasis on ensuring that potential conflict
                      of interest grants were processed with due professional care
                      and in full compliance with the regulations. Unless effective
                      controls are implemented to ensure that potential conflicts of
                      interest cases are fully disclosed and properly processed, similar
                      instances of noncompliance will occur.


                      We recommend that you:
 Recommendations
                      1A.         Reevaluate the decision that approved an exception
                              to the conflict of interest involving the Deputy Mayor.
                              Should the exception be rescinded, require the City to
                              repay the $27,500 to the program from non-federal
                              funds.

                      1B.     Require the City to explain and document the propriety
                              of the $10,000 grant awarded to the Mayor’s
                              Secretary. If it is determined that a conflict of interest
                              exists, require that the $10,000 be repaid from non-
                              federal funds.

                      1C.         Require the City to implement procedures to ensure
                              that potential conflicts of interest cases are fully
                              disclosed and processed in accordance with Section
                              92.356 of the HOME regulations.




00-NY-255-1004     Page 6
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 the systems for
measuring, reporting, and monitoring program performance.



                                      We determined the following management controls were
 Relevant Management
                                      relevant to our audit objectives:
 Controls

                                      ·   Policies and procedures to ensure that assistance was
                                          provided to eligible home buyers and properties in
                                          compliance with HUD HOME regulations.

                                      ·   Administrative controls to ensure the validity and reliability
                                          of the Home program record keeping systems.

                                      ·   Policies and procedures to ensure that HUD HOME funds
                                          were safeguarded to prevent waste, loss, and misuse.

                                      A significant weakness exists if management controls do not
 Significant Weaknesses
                                      give reasonable assurance that resource use is consistent with
                                      laws, regulations, and policies; that resources are safeguarded
                                      against waste, loss, misuse; and that reliable data are obtained,
                                      maintained, and fairly disclosed in reports. Based on our
                                      review, we believe the following item is a significant weakness
                                      as discussed in this report:

                                      The City lacks controls to ensure that all potential conflict of
                                      interest cases are fully disclosed to HUD (Finding).




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Management Controls




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00-NY-255-1004               Page 8
Follow Up On Prior Audits
A prior audit of the City of Troy was performed by an Independent Auditor for the Year Ended
December 31, 1997. The Independent Auditor’s report contained two findings pertaining to the City’s
Home program. One finding recommended that the City establish procedures to ensure their monitoring
of TRIP is properly documented. At the time of our review we found that the City had established
procedures that included monitoring TRIP’s performance. The second finding recommended that the
City establish procedures to monitor and follow-up on all letters mailed to recipients regarding resale
restrictions under the Home program. We found that the City had established procedures to follow-up
on recipients regarding resale restrictions, and, at the time of our review, were in the process of taking
legal action against certain grant recipients who were not in compliance with program regulations.




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Follow Up On Prior Audits




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00-NY-255-1004                Page 10
                                                                               Appendix A


Schedule of Unsupported Costs
           Finding
           Number                     Unsupported 1/

              1                         $37,500

           TOTAL                        $37,500




1/   Unsupported costs are costs charged to a HUD-financed or insured program or activity and
     eligibility cannot be determined at the time of audit. The costs are not supported by
     adequate documentation or there is a need for a legal or administrative determination on the
     eligibility of the cost. Unsupported costs require a future decision by HUD program
     officials. This decision, in addition to obtaining supporting documentation, might involve a
     legal interpretation or clarification of Departmental policies and procedures.




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Appendix A




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00-NY-255-1004          Page 12
                             Appendix B


Auditee Comments




                   Page 13     00-NY-255-1004
Appendix B




00-NY-255-1004   Page 14
          Appendix B




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Appendix B




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00-NY-255-1004          Page 16
                                                                                        Appendix C


Distribution
Mayor, City of Troy, Home Program, Troy, New York (2)
Deputy Secretary, SD, Room 10100
Chief of Staff, S, Room 10000
Special Assistant to the Deputy Secretary for Project Management, SD,
   Room 10100
(Acting) Assistant Secretary for Administration, S, Room 10110
Assistant Secretary for Congressional & Intergovernmental Relations, J,
    Room. 10120
Senior Advisor to the Secretary, Office of Public Affairs, S, Room 10132
Director of Scheduling and Advance, AL , Room 10158
Counselor to the Secretary, S, Room 10234
Deputy Chief of Staff, S, Room 10266
Deputy Chief of Staff for Operations, S, 10226
Deputy Chief of Staff for Programs and Policy, S, Room 10226
Deputy Assistant Secretary for Public Affairs, W, Room 10222
Special Assistant for Inter-Faith Community Outreach, S, 10222
Executive Officer for Administrative Operations and Management, S, Room 10220
Senior Advisor to the Secretary for Pine Ridge Project, W, Room 10216
General Counsel, C, Room 10214
Director, Office of Federal Housing Enterprise Oversight, O, 9th Floor Mailroom
Assistant Secretary for Housing/Federal Housing Commissioner, H Room 9100
Office of Policy Development and Research, R, Room 8100
Assistant Secretary for Community Planning and Development, D, Room 7100
Government National Mortgage Association, T, Room 6100
Chief Procurement Officer, N, Room 5184
Assistant Secretary for Public and Indian Housing, P, Room 4100
Chief Information Officer, Q Room 3152
Assistant Secretary for Fair and Equal Housing Opportunity, E, Room 5100
Director, Office of Departmental Operations and Coordination, I, Room 2124
Chief Financial Officer, F, Room 2202
Office of Deputy General Counsel, CB, Room 10220
Director, Enforcement Center, V, 200 Portals Building, 1250 Maryland Avenue
      SW, Washington, DC 20024
Director, X, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW,
       Suite 800, Washington, DC 20024
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Bldg., 1280
      Maryland Avenue SW, Washington, DC 20024

(Acting ) Secretary’s Representative, New York/New Jersey, 2AS (2)
Senior Community-Builder Coordinator, 2CS, Buffalo, Area Office (2)

                                                      Page 17                             00-NY-255-1004
Appendix C


Director, Office of Community Planning & Development, 2CD,
        Buffalo Area Office (2)
Assistant General Counsel, New York/New Jersey, 2AC
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director, Office of Budget, FO (Room 3270)
CFO, Mid-Atlantic Field Office, 3AFI (2)
Office of Community Planning & Development, (Attention: Audit Liaison, DOT,
         Room 7220 (2)
Departmental Audit Liaison Officer, FM Room 2206 (2)
Acquisitions Librarian, Library, AS ( Room 8141)

Steve Redburn, Chief
Office of Management and Budget
725 17th Street, NW Room 9226
New Executive Office Building
Washington, DC 20503

Deputy Staff Director
Counsel Subcommittee on Criminal Justice
Drug Policy & Human Resources
B373 Rayburn House Office Building
Washington, DC 20515

The Honorable Fred Thompson
Chairman
Committee on Governmental Affairs
340 Dirksen Senate Office Building
United States Senate
Washington, DC 20510-6250

The Honorable Joseph Lieberman
Ranking Member
Committee on Governmental Affairs
706 Hart Senate Office Building
United States Senate
Washington, DC 20510-250


Honorable Dan Burton
Chairman
Committee on Government Reform
2185 Rayburn Building

00-NY-255-1004                       Page 18
                                                               Appendix C


House of Representatives
Washington, DC 20515-6143


Henry A. Waxman
Ranking Member
Committee on Governmental Reform
2204 Rayburn Building
House of Representatives
Washington, DC 20515-4305

Subcommittee on General Oversight & Investigations
O'Neill House Office Building - Room 212
Washington, DC 20515
(Attention: CindyFogleman)


Director, Housing & Community Development Issue Area
US GAO, 441 G Street, NW, Room 2474
Washington, DC 20548
(Attention: Judy England-Joseph)




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