oversight

State of Connecticut, HOME Investment Partnerships Program, Hartford, Connecticut

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-08-29.

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

Telephone: (617) 565-5259      http://www.hud.gov/oig/oigindex.html                     Fax: (617) 565-6878



                                     U.S. Department of Housing and Urban Development
                                     New England Office of District Inspector General
                                       for Audit, 1AGA
                                     Thomas P. O’Neill, Jr. Federal Building
                                     Room 370
                                     10 Causeway Street
                                     Boston, Massachusetts 02222-1092


                                    Audit Memorandum
                                    No: 2001-BO-1006

August 29, 2001

MEMORANDUM FOR: Mary Ellen Morgan, Director, Office of Community Planning and
                Development, 1ED


FROM: Stephen D. King, Acting District Inspector General, Office of Audit, 1AGA

SUBJECT:          State of Connecticut
                  HOME Investment Partnerships Program
                  Hartford, Connecticut

We performed a review of the State of Connecticut’s HUD HOME Investment Partnerships
Program (HOME program) administered by the Department of Economic and Community
Development (DECD). Our objective was to determine whether the DECD is administering its
HOME program in compliance with HUD requirements and program objectives.

Our review disclosed that DECD used HOME funds in accordance with HOME program
objectives and requirements pertaining to the selection, cost eligibility, and resale/recapture
provisions. However, we determined that annual performance reviews are not consistently
performed. We observed that tenant file records for one project were not in accordance with
HOME requirements; one project was not completed in a timely manner in accordance with the
written HOME assistance agreement; and one project was occupied in May of 1999, however, no
annual performance monitoring reviews have been performed. HUD identified monitoring
concerns in their previous monitoring reports dating back to 1999, and DECD concurred with our
results. Consequently, there may be instances where decent, safe, sanitary, and affordable
housing, with primary attention to rental housing, for very low-income and low-income families
may be limited.

Within 60 days, please provide us with 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 review.

Should you or your staff have any questions, please contact our office at (617) 565-5259.
                                              Background

The HUD HOME Investment Partnerships Program (HOME Program) was established under
Title II of the Cranston-Gonzalez National Affordable Housing Act of 1990. The primary
objective of the program is to expand the supply of decent, safe, sanitary, and affordable housing,
with primary attention to rental housing, for very low-income and low-income families. Each
year over $1 billion is allocated among the States and hundreds of localities nationwide. As a
housing block grant, the HOME Program provides participating jurisdictions flexibility and
discretion over which housing activities to pursue. These activities may include acquisition,
rehabilitation, new construction, and resident-based rental assistance. In addition, participating
jurisdictions may provide assistance in a number of eligible forms including loans, advances,
equity investments, and interest subsidies. Up to ten percent of the HOME funds received by a
participating jurisdiction may be used for HOME Program administrative purposes.

The Department of Economic and Community Development (DECD) administers the State of
Connecticut’s HOME Program. As of April 12, 2001, the total amount of HOME grant funds
authorized for grant years 1992 through 2000 is $75,474,000. A breakdown of the grants awarded
by grant year is as follows:

                                 Grant Year              Authorized Amount
                                 1992                     $ 8,759,000
                                 1993                       6,044,000
                                 1994                      6,788,000
                                 1995                      7,896,000
                                 1996                      8,575,000
                                 1997                      8,318,000
                                 1998                      9,290,000
                                 1999                     10,007,000
                                 2000                       9,797,000
                                 Total                    $75,474,000

As of April 12, 2001, DECD disbursed over $41 million or 55 percent of the authorized HOME funds.
DECD disbursed over $5 million for administrative purposes and over $36 million for HOME projects.
DECD has funded 205 projects and 2,368 units with HOME funds under the six activity types scheduled in
HUD’s Integrated Disbursement and Information System (IDIS). A breakdown of the activities and the
number of projects funded are as follows:

                                              Project        Count                        Total   HOME
Activity (Project) Type                       Count        Percentage   Drawn Amount      Units    Units
Rehabilitation                                  18           8.78%       $ 2,355,684      586      479
Acquisition Only                                46           22.44%            919,877     64       64
New Construction                                18           8.78%            6,857,979   265      227
Acquisition And Rehabilitation                  46           22.44%           7,997,665   758      510
Tenant-Based Rental Assistance                  49           23.90%           3,782,852   n/a      379
Acquisition And New Construction                28           13.66%          14,281,582   849      709
                   TOTALS                      205          100.00%      $36,195,639      2522    2368



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The State of Connecticut disbursed a total of $20,892,775 in HOME funds for administrative
purposes and HOME projects during our audit period of July 1, 1998, through December 31, 2000.

                                  Scope and Methodology

To achieve our objective, we identified DECD’s planned HOME activities and goals as well as
their program accomplishments and progress as reported to HUD. We obtained and reviewed HUD
monitoring reviews. We held discussions with the appropriate personnel in the Office of
Community Planning and Development in the HUD Connecticut State Office (CSO) and DECD
staff. We identified and assessed DECD’s procedures to: commit, expend and draw down HOME
funds; ensure HOME assisted projects meet eligibility, affordability, and income targeting
requirements; ensure contractors and grantees are monitored; and ensure that all HOME assisted
housing is decent, safe and sanitary. We judgmentally selected a sample of draw downs from the
IDIS report dated February 22, 2001, and reviewed them for timeliness, supporting documentation,
and eligibility of cost. We identified DECD's use of HOME funds applied to the various types of
activities and projects. We judgmentally selected a sample of three HOME projects to review in
their entirety for compliance with HOME program objectives, written agreements, and HUD
requirements including selection, affordability, cost eligibility, tenant/income eligibility,
resale/recapture provisions, property inspections, monitoring, and closeout. We also conducted site
inspections for a sample of HOME projects to ascertain existence and assess appearance. We chose
judgmental sampling over statistical sampling due to the size of the universe.

The three DECD projects selected had $3,624,333 in HOME funds committed and disbursed.
The amount of funds disbursed for these three projects represents 10 percent of the total HOME
funds disbursed as of April 12, 2001 ($3,624,333 / $36,195,638).

Two of the three projects reviewed (Sheldon Oak Cooperative II and Parcel 10C Abbott Terrace)
are listed under the "Acquisition and New Construction" activity in IDIS and represent 11 percent
of the total HOME funds disbursed for this particular IDIS activity as of April 12, 2001
($1,566,803 / $14,281,582). The third project we reviewed (55 Grove Street) is listed as an
"Acquisition and Rehabilitation" activity and represents 26 percent of the total HOME funds
disbursed for this particular IDIS activity as of April 12, 2001 ($2,057,529 / $7,997,665).

Work was performed between March 2001 and June 2001. The audit period covered July 1, 1998
through December 31, 2000. Where appropriate, the review was extended to include other periods.

                                        Review Results

Our review disclosed that DECD is using HOME funds in accordance with HOME program
objectives and HUD requirements regarding the selection, cost eligibility, and resale/recapture
provisions. However, our review disclosed concerns with other HOME requirements.
Specifically, we found concerns with the rental housing monitoring requirements that ensures
HOME funds are used in compliance with HOME program requirements including written
agreements, rent affordability, tenant income eligibility, utility allowances, and property
inspection standards. HUD identified monitoring concerns in their previous monitoring reports


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dating back to 1999, and DECD concurred with our results. Consequently, there may be
instances where decent, safe, sanitary, and affordable housing, with primary attention to rental
housing, for very low-income and low-income families may be limited.

According to 24 CFR Part 92.504, the performance of each contractor and subrecipient must be
reviewed at least annually. In addition, on-site inspections must be performed periodically for
the applicable period specified by HUD during the period of affordability. The purposes of
performance monitoring reviews are to ensure that HOME funds are used in accordance with all
program requirements and written agreements, and taking appropriate action when performance
problems arise. The use of State recipients, subrecipients, or contractors does not relieve the
participating jurisdiction of this responsibility. Performance monitoring regulations are required
for all HOME activities, whether it is acquisition, rehabilitation, new construction, etc.

We found that annual performance reviews were not consistently performed for all three of the
projects reviewed. We observed that tenant file records for one project (55 Grove Street) were
not in accordance with HOME requirements, and one project (Parcel 10C Abbott Terrace) has
not been completed in a timely manner in accordance with the written HOME assistance
agreement. In addition, we observed that one project (Sheldon Oak Cooperative II) has been
occupied since May of 1999; however, no annual performance monitoring reviews have been
performed and the project potentially may not comply with HOME requirements and written
agreements regarding affordability, income targeting, and tenant eligibility.

Specifically, our review disclosed the following for each project reviewed:

       55 Grove Street (Grove Street Mutual Housing)

       The IDIS project completion date was February 7, 1997, which is the beginning of the
       affordability period for this project and continues for 15 years. We found documentation
       for only one annual desk review and on-site inspection of owner certification reports
       submitted by the Grove Street Mutual Housing project manager (both were performed in
       1999). The only on-site inspection was completed in December of 1999, nearly three
       years after project completion, and four annual performance desk reviews should have
       been completed by February 7, 2001.

       The 1999 DECD annual desk review and inspection reports indicate that the project
       complied with HOME regulations; however, in August 2000, the project came under a
       new project management agent. We reviewed the tenant files maintained by the new
       project management agent and we observed: 1) the calculation of the utility allowances is
       not documented in accordance with 24 CFR Part 92.252; 2) source documentation on
       initial income certification is not documented in accordance with 24 CFR Part 92.203;
       and 3) annual or periodic re-inspections of units have not been performed in accordance
       with 24 CFR Part 92.251.




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       Parcel 10C Abbott Terrace (Grace Congregate Care)

       The project has not been completed timely in accordance with the timetable specified in
       the written HOME Assistance Agreement between DECD and the City of Waterbury.
       According to the Agreement, all HOME funds were to be drawn down and the project
       completed by February 21, 2000, and failure to comply with the timetable shall be
       considered a material breach of the HOME Assistance Agreement unless written
       extensions were granted. All HOME funds for this project were drawn down by
       September 27, 1999; however, the project was only 94.5 percent complete as of May 24.
       2001. No granted extensions from DECD and no written extension requests from the
       City of Waterbury were executed. We found documentation for only one on-site
       inspection of the City of Waterbury's administration of the State funded HOME program,
       performed on June 23, 1999. In addition, we found no documentation on any further
       correspondence between the City of Waterbury and DECD since a last request from
       DECD for an Annual Report on May 27, 2000, which has not been submitted by the City
       of Waterbury despite two previous requests.

       Sheldon Oak II Cooperative

       The project is complete and the final payment request was processed in March 2001. The
       project has been occupied since May 1999; however, no annual performance monitoring
       reviews have been performed. Based on the available documentation and discussions
       with DECD staff, we determined that HOME funds were used in accordance with HOME
       program objectives. However, we were unable to determine if HOME funds were used in
       accordance with HUD requirements including affordability, tenant eligibility, and
       property inspections. Potentially, the project may not comply with HOME requirements
       and written agreements regarding affordability and income targeting and eligibility
       provisions.

HUD has previously identified these monitoring concerns. In a monitoring report on the State of
Connecticut HOME Program dated September 2, 1999, the HUD CSO disclosed that on-site
inspections were not being performed and State recipients had not submitted annual performance
reports as required. In a response to the HUD report, dated May 10, 2000, DECD advised that
on-site inspections would be performed and State recipients would be notified and required to
submit yearly status reports. In a HUD CSO monitoring report dated June 28, 2001, the CSO
again issued a finding regarding untimely on-site inspections and a concern with yearly
monitoring of State Block Grant grantees.

In concurring with the results provided in our draft audit memorandum, DECD advised that they
are aware of the monitoring deficiencies, and are taking steps to address the deficiencies
accordingly. In their response to the draft audit memorandum, DECD advised that their HOME
development monitoring and closeout guidelines were revised to assure that project closeouts are
completed in a timely manner. DECD believes that with the timely closeout of the projects once
the development phase is completed, DECD’s Audit and Asset Management Division will have



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all the information necessary to conduct timely on site inspections of the assets once occupied.
To smooth the transaction from the development phase to the asset management phase, DECD
plans to use a Construction Closeout Documentation Checklist as a vehicle. DECD also advised
that the Audit and Asset Management Division would be involved earlier in the process,
including the pre-occupancy stage, ensuring that 100 percent of the tenant files are reviewed by
the time of project completion.

We believe DECD further needs to consider how they will ensure compliance with annual
performance monitoring and on-site inspection. DECD’s response addresses the need to
complete timely project closeouts, so the Audit and Asset Management Division can perform
initial rent and occupancy monitoring. However, DECD does not provide written guidance or
assurances that performance monitoring and on-site inspection will be conducted annually on
projects that have previously been closed.



Recommendations

We recommend that your office require DECD to:

   A. Identify all HOME projects in which annual performance monitoring and on-site
      inspection is outstanding.

   B. Develop and implement a plan to complete outstanding monitoring reviews, including
      estimated dates for completion on each project.

   C. Develop written procedures to ensure annual performance monitoring and on-site
      inspections are conducted in accordance with HUD regulations.




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                                                                                  Appendix A

Distribution
Deputy Assistant Inspector General for Audit, GA
Assistant Inspector General for Audit, GA
Assistant Inspector General for Investigation, GI
Acting Director, Program Research and Planning Division, GAP
Director, Information Systems Audit Division, GAA
Counsel to the Inspector General, GC
Central Records, GF
Semi-Annual Report Coordinator, GF
Assistant Inspector General, Office of Management & Policy, GF
Director of Internal Affairs, GF
Secretary, S
Deputy Secretary, S
Chief of Staff, S
Acting Associate General Deputy Assistant Secretary for Administration
Acting Assistant Secretary for Congressional and Intergovernmental Relations, J
DAS for Congressional and Intergovernmental Relations, JI
Deputy Chief of Staff for Policy & Programs, S
Deputy Chief of Staff for Intergovernmental Affairs, S
Senior Advisor to the Secretary, S
Senior Staff Member, S
Director, Center for Faith-Based and Community Initiatives, AK
Executive Officer for Administrative Operations and Management, S
General Counsel, C
Deputy General Counsel for Housing Finance and Operations, S
Assistant Secretary for Housing/Federal Housing Commissioner, H
General Deputy Assistant Secretary for Housing, H
Office of Government National Mortgage Association, T
Director, Office of Departmental Equal Employment Opportunity, U
Chief Procurement Officer, N
Director, Office of Departmental Operations and Coordination, I
Office of the Chief Financial Officer, F
Chief Information Officer, Q
Acting Director, Enforcement Center, DEC
Acting Director, Real Estate Assessment Center, X
Director, Office of Multifamily Assistance Restructuring, Y
Assistant to the Secretary and White House Liaison, F
Press Secretary/Senior Communications Advisor to the Secretary, W
Director, Office of Healthy Homes and Lead Hazard Control, L
Director, National Office of Labor Relations, SL
Acting Secretary’s Representative, 1AS
Special Agent-In-Charge, 1AGI
Primary Field Audit Liaison Officer, 3AFI
Special Projects Coordinator, HF
Departmental Audit Liaison Officer, FMA


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Appendix A

Auditee
Acquisitions Librarian, Library, AS
District Inspector General (2-11)

Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, 1700G Street, NW,
Room 4011, Washington, DC 20552
Sharon Pinkerton, Staff Director, Subcommittee on Criminal Justice, Drug Policy & Human
Resources, B373 Rayburn House Office Bldg., Washington DC 20515.

Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human
Resources, B373 Rayburn House Office Bldg., Washington, DC 20515

Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neill House
Office Building, Washington, DC 20515

Stanley Czerwinski, Associate Director, Resources, Community, and Economic Development
Division, United States General Accounting Office, 441 G Street, NW, Room 2T23,
Washington, DC 20548

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

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 Bldg., United States Senate, Washington, DC 20510

The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn Bldg.,
House of Representatives, Washington, DC 20515

The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204
Rayburn Bldg., House of Representatives, Washington, DC 20515

Andy Cochran, House Committee on Financial Services, 2129 Rayburn H.O.B., Washington, DC
20515




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