oversight

City of Cheyenne, Wyoming Office of Housing and Community Development Homeowner Rehabilitation and First-time Homebuyer Assistance Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-01-26.

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

                            Audit Report
                            District Inspector General for Audit
                            Rocky Mountain District




      City of Cheyenne, Wyoming

    Office of Housing and
   Community Development
 Homeowner Rehabilitation and
    First-time Homebuyer
    Assistance Programs
                             2001-DE-1001
                            January 26, 2001

U. S. Department of Housing and Urban Development
District Office of Inspector General for Audit
633 17th Street, 14th Floor
Denver, CO 80202-3607
                                          Audit Report
                                          District Inspector General for Audit
                                          Rocky Mountain District
                                          Report: 2001-DE-1001               Issued: January 26, 2001



TO: Guadalupe Herrera, Director, Rocky Mountain Field Office of Community Planning and
                       Development, 8AD



FROM: Robert C. Gwin, District Inspector General for Audit, 8AGA

SUBJECT: City of Cheyenne, Wyoming, Office of Housing and Community Development
         Homeowner Rehabilitation and First Time Homebuyer Assistance Programs


We reviewed the City of Cheyenne, Wyoming Office of Housing and Community Development’s
administration of its HUD funded programs. On April 25, 2000, HUD staff advised us of concerns related
to the prior Administrator’s oversight of these programs and requested we perform an audit in partnership
with their onsite monitoring review. Due to the Rocky Mountain Field Office of Community Planning and
Development and the Wyoming Community Development Authority reviews, we limited our review to the
City’s funding for rehabilitation of single-family homes and first-time homebuyer assistance programs.
Specifically, we want to determine if the City of Cheyenne provided grants and/or loans for housing
rehabilitation and first-time homebuyer down payment assistance consistent with the City’s and HUD’s
requirements.

This report identifies that the City of Cheyenne’s Office of Housing and Community Development
Administrator and staff made unapproved program disbursements; did not adequately document or justify
the assistance to be and/or actually provided, did not record and collect all program loans; and
inappropriately provided assistance to persons with a conflict of interest. As a result, the City provided
$952,080 in unauthorized funding and failed to collect on over $279,891 in loans, and could not justify the
need for assistance provided. Therefore, these limited funds were not available to assist other needy
families. This occurred because the City failed to provide adequate management controls and oversight of
the Office of Housing and Community Development Administrator, staff, and its operations.

Within 60 days please furnish to this office, for the 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.
                                             2001-DE-1001

We appreciate the courtesies and assistance extended by the personnel of the City of Cheyenne, the
Wyoming Community Development Authority and the Rocky Mountain Field Office of Community
Planning and Development, during this audit. Should you have any questions, please contact Ernest Kite,
Assistant District Inspector General for Audit, at (303) 672-5452.




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Executive Summary
We performed an audit of the City of Cheyenne Office of Housing and Community Development HUD
funded housing rehabilitation and first-time homebuyer down payment assistance programs. On April
25, 2000, HUD staff advised us of concerns related to the prior Administrator’s oversight of these
programs. Due to the Rocky Mountain Field Office of Community Planning and Development, and the
Wyoming Community Development Authority’s monitoring reviews, we limited our review to the City’s
rehabilitation of single-family homes (HAND Program) and first-time homebuyer down-payment
assistance (CHOP Program).

Our audit determined that the City of Cheyenne’s Office of Housing and Community Development
Administrator and staff made unapproved program disbursements; did not adequately document or
justify the assistance to be and/or actually provided, did not record and collect all program loans; and
inappropriately provided assistance to persons with a conflict of interest. As a result, the City provided
$952,080 in unauthorized funding and failed to collect on over $279,891 in loans, and could not justify
the need for assistance provided. Therefore, these limited funds were not available to assist other needy
families. This occurred because, the City failed to provide adequate management controls and oversight
of the Office of Housing and Community Development Administrator, staff, and its operations.


                                Community Development Block Grant program is authorized under Title I
The City received about
                                of the Housing and Community Development Act of 1974. Community
$2.36 million in Community
                                Development Block Grant provides eligible metropolitan cities and urban
Development Block Grant
                                counties (called "entitlement communities") with annual direct grants.
funds
                                The grantees can use these funds to revitalize neighborhoods, expand
                                affordable housing and economic opportunities, and/or improve
                                community facilities and services, principally to benefit low to moderate-
                                income persons.

                                The City of Cheyenne, Wyoming, as an entitlement community, received
                                about $2,360,000 in HUD Community Development Block Grants funds
                                over the last four years. The City used a portion of these funds to assist
                                low to moderate-income families perform needed home repairs and in
                                assisting first time homebuyers purchase a home.

The City received about         In addition to these funds, the City received about $650,000 in HUD
$650,000 in HUD                 HOME grants funds through the Wyoming Community Development
                                Authority. Again, the City used these funds to assist low to moderate-
HOME funds
                                income families perform needed home repairs and in assisting first time
                                homebuyers purchase a home. In addition, the City provided additional
                                financial support from its general fund. The additional financial support
                                represented the required Federal match to the HOME funds plus
                                additional funds to further these programs.




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Our Audit Objective        Our audit objective was to determine if the City of Cheyenne provided
                           grants and/or loans for housing rehabilitation and first-time homebuyer
                           down payment assistance consistent with the City and HUD
                           requirements.

                           The HUD Rocky Mountain Field Office of Community Planning and
                           Development and the Wyoming Community Development Authority also
                           performed reviews of the City of Cheyenne Office of Housing and
                           Community Development. To avoid overlapping reviews, we elected to
                           limit our review to the City’s rehabilitation of single-family homes and
                           down payment assistance to first-time homebuyers.

                           Our audit determined that the City of Cheyenne failed to provide
                           adequate management controls and oversight of the Office of Housing
                           and Community Development prior Administrator, staff, and its
                           operations. The City of Cheyenne needs to improve its oversight and
                           monitoring of its Office of Housing and Community Development to
                           ensure that program operates as intended and within the City and HUD’s
                           guidelines.

The City did not provide   The Administrator and/or staff for the City of Cheyenne’s Office of
oversight of these         Housing and Community Development Office did not ensure that
programs                   programs operated according to the City or HUD’s requirements.
                           Specifically, the prior Administrator and/or staff,
                           Ø Allowed the HAND and CHOP programs to expend about $952,080
                             in excess of the amounts approved by the City’s Mayor,
                           Ø Did not actively seek collection on $279,891 owed by the participants
                             to the City,
                           Ø Authorized amendments to City loan agreements without proper
                             approval,
                           Ø Did not maintain a record keeping system to allow reconciliation with
                             the City’s and HUD’s accounting records, and
                           Ø Allowed persons with a conflict of interest to participate in the
                             program.

                           The City provided little, if any, oversight over the Administrator and staff
                           activities and its operations. As such, the City did not identify the lack of
                           management controls in the Office of Housing and Community
                           Development.

  The City initiated       During the first few days of the audit, it became clear that the City
  corrective actions       provided little oversight of the Housing and Community Development
                           Office or the staffs activity. Based on HUD’s and our preliminary
                           reviews, we briefed the City Attorney. The City Attorney took
                           immediate actions. First, the City canceled all open purchase orders for




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                   participants. Secondly, the City Attorney must approve all disbursements
                   of funds. In addition, the City limited assistance under the HAND and
                   CHOP program to emergency assistance.

                   The City also hired a new Administrator. The new Administrator’s first
                   task necessitated completion of the City Consolidated Plan to ensure
                   Community Development Block Grant funds for the next year. In
                   addition, the new Administrator began reviewing the most recent
                   participant folders to obtain a better understanding of the problems. The
                   new Administrator plans to use this knowledge in developing new
                   program guidelines and internal management controls over these
                   programs.

Auditee comments   The Auditee concurred with the finding. In addition, the Auditee provided
                   substantial documentation related to actual and proposed changes to the
                   programs refereed to in this report. We believe if these changes are fully
                   implemented the concerns raised in this report should be corrected. The
                   City’s written response to our draft finding is shown in Appendix A.

                   The City also requested that we provide them with a listing of loans
                   identified during the audit, to facilitate in expediting the servicing and
                   collecting the program loans. We are providing the list under a separate
                   cover.




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Table of Contents
Management Memorandum..............................................................................i

Executive Summary.........................................................................................iii

Table of Contents ........................................................................................... vii

Introduction......................................................................................................1

Finding and Recommendations


        Inadequate Management Controls Over HUD
        Funded Programs ...................................................................................5


Management Controls....................................................................................17

Follow Up on Prior Audits .............................................................................19

Appendices

         Auditee Comments...............................................................................21

        Ø Distribution ...........................................................................................................37




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Abbreviations:

CDBG         Community Development Block Grant
CHOP         Cheyenne Housing Opportunity Program
HAND               City of Cheyenne Housing Assistance and Neighborhood Development
HOME         HOME Investment Partnerships Act, Title II of the Cranston-Gonzalez
             National Affordable Housing Act
HUD          Department of Housing and Urban Development




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Introduction
BACKGROUND

The Community Development Block Grant program is authorized under Title I of the Housing and
Community Development Act of 1974, Public Law 93-383. HUD’s implementing regulations are at
Title 24 of the Code of Federal Regulations Section 570. Community Development Block Grant
provides eligible metropolitan cities and urban counties (called "entitlement communities") with annual
direct grants. The Grantees can use these funds to revitalize neighborhoods, expand affordable housing
and economic opportunities, and/or improve community facilities and services, principally to benefit low
and moderate-income persons.

In addition to the Community Development Block Grant, HUD provides funding through the Home
Investment Partnership Program (HOME). HOME is the largest Federal block grant to State and local
governments designed exclusively to create affordable housing for low-income households. Each year it
allocates more than $1 billion among the States and hundreds of localities nationwide. The program
was designed to reinforce several important values and principles of community development: HOME
provides formula grants to States and localities that use these fund for wide range of activities to build,
buy, and/or rehabilitate affordable housing for rent or homeownership or provide direct rental assistance
to low and moderate income persons.

HUD defines low- and moderate-income persons, as members of a family earning no more than 80
percent of the area median income. Grantees must use at least 70 percent of Community Development
Block Grant funds for activities that principally benefit low to moderate-income persons.

The City of Cheyenne received about $2,360,000 in HUD Community Development Block Grants
funds over the last four years. The City used a portion of these funds to assist low-income families
perform needed repairs to their homes and in purchasing a home. In addition to these funds, the City
received about $650,000 in HUD HOME grants through the Wyoming Community Development
Authority. Again, the City used these funds to assist low-income families in purchasing a home and in
helping, existing low-income homeowners perform needed repairs to their homes. The City provided
additional funds from its general fund. These funds were required as a match to the HOME funds plus
additional funds to further these programs.

The Director of the HUD Rocky Mountain Field Office of Community Planning and Development
advised the Rocky Mountain Office of Inspector General for Audit that they had concerns about the
activities of the City of Cheyenne Office Housing and Community Development, related to providing
housing rehabilitation grants and/or loans and down payment assistance to first time homebuyers. The
Director of the HUD Rocky Mountain Office of Community Planning and Development advised that
their Office would also be performing a monitoring review of the City of Cheyenne’s CDBG activities
and requested that we accompany them on the review.




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                                            2001-DE-1001


During our on site review, the HUD Rocky Mountain Field Office of Community Planning and
Development performed a monitoring review of the City of Cheyenne’s Community Development Block
Grant activities. They issued a report to the City on September 6, 2000. The report identified similar
items identified in our report. Before the issuance of the report, the HUD Rocky Mountain Field Office
of Community Planning and Development restricted the City’s access to HUD funds. Specifically,
HUD required that the City submit invoices for HUD’s review and approval before allowing the draw
down of funds. Due to the review by HUD, we elected not to perform a review of the City’s entire
Community Development activities. Instead, we relied on their review to identify other areas of
noncompliance.

Also during our on site review, the Wyoming Community Development Authority performed a
monitoring review of the City of Cheyenne’s HOME grant. The Wyoming Community Development
Authority monitoring again identified a number of issues similar to our report. The Wyoming Community
Development Authority advised the City of Cheyenne, in a report dated July 17, 2000, that their review
identified a number of concerns where the City’s program failed to comply with its HOME grant
agreement. Specifically, the City’s program was not administered consistent with the City's program
Policies and Procedures and did not comply with Federal Regulations. The Wyoming Community
Development Authority advised that the City would be required, at a minimum, to reimburse the HOME
program a total of $49,890.64. In addition, based upon the substantial number of findings, no HOME
funds will be available to the City of Cheyenne until such time as the City of Cheyenne can provide
cohesive and complete documentation that it has resolved the problems identified in the Wyoming
Community Development Authority report.


Audit objectives               Due to the Rocky Mountain Field Office of Community Planning and
                               Development and the Wyoming Community Development Authority
                               reviews, we limited our review to the City’s rehabilitation of homes and
                               assistance to first time homebuyers. Specifically, we want to determine if
                               the City of Cheyenne provided grants and/or loans for housing
                               rehabilitation and first-time homebuyer down payment assistance
                               consistent with the City’s and HUD’s requirements.

                               During the audit, we examined City of Cheyenne Office of Housing and
                               Community Development records on the assistance provided. In addition,
                               we examined the City’s accounting records related to the assistance
                               provided and interviewed appropriate City staff.

                               The City could not provide us with summary records of the assistance
                               provided. However, the City did maintain a file folder for each family
                               assisted. We used this information to develop a database of the
                               assistance provided. We also selected a judgmental sample of files to
                               provide examples of the issues identified in the report.

Scope and Methodology          Our audit generally covered the period of January 1997 through April
                               2000 and we extended the period as necessary to fully accomplish our



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                                  2001-DE-1001


                      objective. We performed our fieldwork in May and June 2000 and in
                      August 2000.

Generally Accepted    We conducted the audit in accordance with Generally Accepted
Government Auditing   Government Auditing Standards.
Standards




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Finding
Inadequate Management Controls Over HUD Funded
Programs
Under the City of Cheyenne’s homeowner rehabilitation and first time homebuyer assistance programs,
the City’s Office of Housing and Community Development Administrator and staff made unapproved
program disbursements; did not adequately document or justify the assistance to be and/or actually
provided, did not record and collect all program loans; and inappropriately provided assistance to
persons with a conflict of interest. As a result, the City provided $952,080 in unauthorized funding and
failed to collect on over $279,891 in loans, and could not justify the need for assistance provided.
Therefore, these limited funds were not available to assist other needy families. This occurred because,
the City failed to provide adequate management controls and oversight of the Office of Housing and
Community Development prior Administrator, staff, and its operations.



HUD requires grantees           Under the HUD funded Community Development Block Grant and
maintain financial              HOME programs, the City is obligated to comply with specific HUD
                                regulations in carrying out their program. Under provisions of Title 24 of
management systems
                                the Code of Federal Regulation, Part 85.20, the City is to establish and
                                maintain financial management systems that provide for effective control
                                and accountability for all grant cash, real and personal property, and other
                                assets. Grantees must adequately safeguard all such property and must
                                assure that the monies are used solely for authorized purposes. The City
                                has the primary responsibility for employing whatever form of
                                organization and management techniques necessary to assure proper and
                                efficient administration of its Federal awards.

                                Part 570.201 and 202, and Part 92.205, of Title 24, Code of Federal
                                Regulations identify homeowner rehabilitation assistance and homebuyer
                                down payment assistance as eligible activities. While the HUD
                                regulations do not restrict the amount of funding that a grantee can
                                provide to each program participant, the City may establish their own
                                assistance limits.

Review focused on two           Our review focused on two key HUD funded programs. These were the
key HUD funded                  City’s:
programs                        4. Housing Assistance and Neighborhood Development program
                                   (commonly referred to as the HAND program), and
                                5. Cheyenne Housing Opportunity Program (commonly referred to as
                                   the CHOP program).




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                                          2001-DE-1001


                             During the audit period, the City expended $2,118,254 under its Housing
                             Assistance and Neighborhood program assisting 133 families and
                             provided $671,399 under its Cheyenne Housing Opportunity Program
                             assisting 167 families.

                             For the HAND Program, the City Council authorized it in October 1990
HAND program
                             by City Council Resolution 3182. The City's resolution imposed the
provisions                   following program restrictions, amongst others, on the assistance
                             provided:
                             4. The recipient must be owner and resident of the unit being considered
                                for rehabilitation for at least six months.
                             5. The staff may exceed the maximum grant amount when completion
                                of essential work items is required to bring the house to minimum
                                standards (not to exceed $500 without the Mayor's approval)
                                [emphasis added].
                             6. The Mayor may approve any combination of grant or loan.
                             7. Priorities for grants and loans are generally assigned on a first come
                                first serve basis.

CHOP program                 For the CHOP Program, we could not identify specifically when or under
provisions                   what authority the City’s Office of Housing and Community
                             Development established the Program. Based on available documents,
                             the program provided down payment assistance of up to $5,000 for low to
                             moderate-income first time homebuyers. During the first years of the
                             program, assistance was provided up to $23,000. Contrary to the City
                             Council’s Resolution for the HAND Program requiring a homeowner to
                             live in the home for six months, the City’s brochure for the CHOP
                             program states that if major repairs over $1,000 are needed to the newly
                             purchased home, the City would fund repairs through the HAND
                             Program.

The Office of Community      The City’s Office of Housing and Community Development had the
Development was              overall responsibility for administering these two programs. This office
                             received, reviewed, approved applications, and recommended funding for
responsible for
                             grant and/or loan assistance under the two programs. In addition, the
administering these          Office staff determined specifically the assistance to be provided. Based
programs                     on requests from the Office, the Mayor signed an authorization letter
                             detailing the items funded and the total amount of assistance authorized.
                             Afterwards, the Office worked with the approved applicant in obtaining
                             the needed rehabilitation work or property acquisition assistance.

 Inadequate                  Our review disclosed significant deficiencies in the City’s administration
 implementation and          of the HAND and CHOP programs. These were in the following four
 administration of the two   main areas:
 programs                    4. Unapproved program disbursements;



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                                    2001-DE-1001


                      5. Deficient identification of assistance to be and/or actually provided;
                      6. Unrecorded and uncollected program loans; and
                      7. Conflict of interest violations.

                      These four areas are detailed below.

                      1.      Unapproved Program Disbursements

$952,080 expended     The City’s Office of Housing and Community Development authorized
without the Mayor’s   and disbursed funds totaling $952,080 in excess of the amount approved
authorization         by the City Mayor. For the Housing Assistance and Neighborhood
                      Development (HAND) program, 127 out of 133 families received
                      assistance in excess of the Mayor’s authorization. For the Cheyenne
                      Housing Opportunity Program (CHOP), 110 of the 167 families assisted
                      received assistance in excess of the Mayor’s authorization.

                      Under the HAND program, the Housing and Community Development
                      Office approved and expended $739,524 for the 73 assisted families, in
                      excess of the Mayor’s authorized amount. The excess assistance per
                      participant ranged from $25 to over $46,000.

                      4. For example, the Mayor designee authorized HAND rehabilitation
                         funds of $16,000 for the rehabilitation of the home owned by a
                         relative of the Mayor. According to the purchase orders in the files,
                         the Housing and Community Administrator expended about $30,836.
                         However, file notes by the staff identified the City actually expended
                         about $39,581.

                      We could not determine the exact amount expended because the staff
                      advised they did not place all purchase orders in the file nor did the staff
                      perform monthly reconciliation of funds expended. The staff also did not
                      maintain a ledger in each file of all expenses. Instead, they would total
                      the purchase orders of the funds expended after the work was
                      completed.

                      5. In another example, the Mayor authorized $24,000 of expenditures.
                         However, the file indicates that the Housing and Community
                         Development Administrator and staff approved and expended
                         $40,632 or $16,632 over the authorized amount. Again, these
                         additional expenses were for items not on the original request nor
                         authorized by the Mayor.

                      In addition, the City Office of Housing and Community Development
                      administrator and staff authorized and approved assistance to fifty-four
                      families without the knowledge or required approval of the Mayor. The
                      Office expended about $147,230 in HAND funds to assist these families.



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                                           2001-DE-1001




                              Of the $952,080 paid in excess of the amount authorized by the Mayor,
                              about $65,326 was paid as part of City’s CHOP assistance program.
                              The unauthorized payments, made from the HAND program, provided
                              funds for appliances and repairs for newly purchased homes. Again,
                              these additional expenses were for items not on the original request nor
                              authorized by the Mayor. Furthermore, the assistance was contrary to
                              the City Council’s established HAND program requirement. Specifically,
                              the program recipient is a homeowner that has lived in the home for at
                              least six months.

Persons on waiting list not   The City programs also required that assistance be provided on a "first
served in order of            come, first serve basis.” Our review noted that people on the waiting list
application dates             were not served first, nor were the deviations explained. We reviewed
                              the families receiving CHOP assistance and identified that they received
                              HAND rehabilitation assistance before those on the waiting list.

                              4. For example, one person received $4,829 in CHOP down payment
                                 assistance. The person then received $12,204 in HAND funds for
                                 rehabilitation of the newly purchased home. According to documents
                                 in their file, the home did not need repairs to meet the City’s minimum
                                 property standards, nor did the person submit an application for the
                                 rehabilitation assistance. We identified that at least three other
                                 families that also received CHOP and rehabilitation assistance
                                 without being on the waiting list.

                              Because the City expended more program monies then authorized, the
                              City reduced the amount of funds available to help other eligible program
                              applicants.


                              2.      Deficient Identification of Assistance to Be
                                      and/Or Actually Provided

Program guidelines limited    According to the City’s program guidelines, the repairs identified should
allowable repairs             be limited to that necessary to bring the home in compliance with the
                              City's minimum housing standards. The City published their minimum
                              rehabilitation standards in January of 1993. Our review identified that
                              these standards were still in effect during our audit period. The Office of
                              Housing and Community Development staff prepared an authorization
                              letter, for the Mayor’s approval. The authorization letter detailed the
                              items in need of repair and the amount of funding requested to rehabilitate
                              the home. Based on available documents, we could not determine the
                              need for repairs or the reasonableness of the funds requested. In
                              addition, the City records failed to identify that inspections were
                              performed to confirm completion of the actual repairs.




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                                         2001-DE-1001


                            4. For example, the Administrator requested that the Mayor approve
                               repairs totaling $24,000 that included replacement of kitchen cabinets
                               and new flooring. However, the inspection report does not identify
                               why these items fail to meet the City’s minimum property standards
                               nor does the report provide a cost estimate.

                            5. In another file, the Administrator authorized expenditures of $12,204
                               even though the inspection report failed to identify any needed
                               repairs. Moreover, the Administrator’s letter to a lender on the
                               property advised that the City would be performing repairs. The
                               City’s assistance was also for a new homebuyer, contrary to the
                               City’s HAND resolution requiring that the homeowner live in the
                               home for at least six months.

City records failed to      Under the City’s Housing Assistance and Neighborhood Development
identify what work was to   program, the Office of Housing Community Development made program
be performed and/or         disbursements based upon informal and inconsistent records. These
exactly provided.           records failed to support the unapproved funding or justify direct
                            purchases that were made by some program participants.

                            4. For example, the Program Administrator approved payments to
                               participants based on handwritten receipts and letters requesting
                               reimbursement. The City made payments of $3,500 and $3,450 to a
                               participant for contractor work. We found no authorization for the
                               work, details of the work to be performed or an inspection report of
                               the completed work. However, the Administrator approved both
                               payments. The supporting documents for these payments consisted
                               of a hand written receipt and the second based on a letter requesting
                               a refund.

                            5. In another example, the Administrator, who also participated in the
                               program, approved payments to her spouse. The file contained the
                               Administrator’s approval for the payment of $1,610 to a local vendor
                               for materials purchased by her spouse. Again, the file contained no
                               authorization for these work items, details of work to be performed,
                               or an inspection report of the completed work.

Participants made direct    The Program Administrator allowed program participants to purchase
purchases from vendors      materials and supplies directly from local vendors and obtain payment for
                            the charges by the City. The Program Administrator created a form,
                            authorizing participant to directly purchase material from local vendors.

                            4. For example, using this form the Administrator authorized herself and
                               her spouse to purchase up to $3,528 of material and supplies from a
                               local vendor. An Office of Housing and Community Development
                               staff member on behalf of the Administrator signed the authorization.




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                           4. In addition, the Program Administrator and spouse purchased about
                              $3,428 in material and supplies. The purchase includes a cordless
                              drill and power saw. Again, the files contained no authorization for
                              the work to be performed, detailed of actual rehabilitation work to be
                              performed or an inspection report of the completed work. The City
                              files did not contain any documentation to show that the tools were
                              returned after the Administrator’s rehabilitation work was completed
                              to the Office of Housing and Community Development for other
                              participant’s use.

                           Under the City’s program procedures, the City is unable to identify
                           exactly what rehabilitation work was to be performed and whether such
                           work was actually performed. In addition, the City could not substantiate
                           that the materials purchased directly from vendors by program
                           participants were properly used under the rehabilitation program.

                           3.      Unrecorded and Uncollected Program Loans
                           The City's programs required that assistance provided as a loan be
Assistance not secured     secured by a mortgage on the particular property. We identified that the
by liens on the assisted   City generally required the families to sign a promissory note and
property                   mortgage for the assistance, and the City generally perfected the
                           mortgage. However, the amount of the mortgage was limited to the
                           amount approved by the Mayor not the actual amount expended.

                           4. For example in one case, the Mayor approved $24,000 of assistance
                              and the Housing and Community Development staff perfected a
                              $24,000 lien on the property. However, the City provided over
                              $34,000 in assistance. The additional assistance was neither secured
                              by the property nor included in the promissory note or the mortgage.

                           4. The mortgage for the assistance to the Program Administrator, who
                              participated in both assistance programs, was not for the full amount
                              authorized by the Mayor or the actual amount expended. The Mayor
                              authorized $3,500 for CHOP assistance and $16,500 under the
                              HAND program. However, no lien was filed for the CHOP
                              assistance and only $8,282 was filed for the HAND program
                              assistance. Moreover, the City expended a total of $26,112 or
                              $17,830 unsecured by the mortgage.

                           In addition, the Administrator, without the knowledge or authorization of
                           the Mayor, approved modifications to her loan. The Administrator
                           modified her mortgage agreement to defer any payments for 2 years.

                           Based on the Mayor’s approval letters, we identified 38 participants,
$279,981 in loans not
                           under the HAND program, that needed to repay the loan portion of their
being collected
                           program assistance. According to the City’s Office of Housing and



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                           Community Development records, the Office did record and were
                           collecting on 11 of the 38 loans. The City's records did not identify the
                           remaining 27 loans totaling $279,981, nor had the staff taken action to
                           collect these funds due to the City.

                           4. Conflict Of Interest Violations
                           Our review identified three persons with a conflict of interest that
A conflict of interest
                           received financial assistance. Under the HUD Community Development
existed for three of the
                           Block Grant and HOME Programs, persons with a conflict of interest
assisted families
                           may not receive financial aide, without HUD’s prior authorization.

                           HUD approved an exemption for the Program Administrator’s conflict of
The Administrator failed
                           interest. However, the Administrator failed to exempt herself from
to exempt herself from
                           financial transactions related to her own assistance, as promised in the
certain financial
                           City’s exemption request to HUD.
transaction
                           4. For example, the Administrator generated fourteen of the twenty-
                              seven purchase orders for her house and of these, she authorized
                              nine of the fourteen totaling $2,597.97 or about 11.5 percent of the
                              total funds provided. In addition, the Administrator authorized her
                              spouse to directly purchase items for the repair of their home. These
                              items included a number of power tools.

                               The Administrator also approved payments to her spouse for work on
                               other participant’s homes. These payments were supported by hand
                               written receipts. Based on available evidence, we could neither
                               determine the need for the work items or the completion of the work
                               items.

                           5. The other two people assisted with a conflict of interest were a
                              relative of the Mayor and a member of the City Community
                              Development Committee. Both received funds in excess of the
                              authorized amounts. In addition, the member of the advisory City
                              Community Development Committee received assistance in excess
                              of the appraised value of the repaired home. We could not fully
                              review the repairs to the Committee member’s home because the
                              original files could not be located during our site work.

Program administration     These deficiencies in carrying out the City’s homeowner rehabilitation
deficiencies stem from     and first-time homebuyer assistance programs clearly point out that the
three basic causes         City had very limited assurance that the programs were implemented in
                           conformity with the program designs, and were effectively and efficiently
                           conducted. The City’s inadequate administration is attributed to three
                           main causes.




                                                11
                                          2001-DE-1001



First, the City failed to   First, the City failed to provide adequate oversight over the City’s Office
provide adequate            of Housing and Community Development. The City Attorney had the
oversight                   primary oversight function over the Office of Community Housing and
                            Development. However, the City Attorney considered her supervisory
                            role to consist primarily of ministerial tasks such as signing leave slips,
                            monitoring travel, and answering legal questions when asked. The sole
                            responsibility for implementing the two programs was left entirely to the
                            Office of Housing and Community Development Administrator.

                            Therefore, the City’s oversight of the Office of Housing and Community
                            Development was almost nonexistent. The City did not establish the most
                            basic management controls over the activities of the Office of Housing
                            and Community Development or its staff, such as:
                            4. Requiring monthly activity reports,
                            5. Requiring a reconciliation of funds expended to those reported to
                               HUD,
                            6. Limiting access and authorization to the City’s purchase order
                               system, and
                            7. Performing periodic reviews of the Office of Housing and
                               Community Development operations and program administration

Secondly, the Program       Second, the City relied on the Program Administrator to manage and
Administrator had full      operate the programs as intended. Based on this reliance, the City vested
control over the programs   all main functions and controls with the Administrator. The Administrator
and funds                   performed or controlled these main program functions:
                            4. Received, reviewed and processed applications for program
                               assistance;
                            5. Prepared and obtained assistance funding authorization from the
                               Mayor;
                            6. Authorized the amount and type of assistance to be provided;
                            7. Maintained all program operating and administrative files;
                            8. Determined what loans were to be granted, what mortgage
                               documents, amounts and liens would be established for the loans, and
                               controlled the nature and extent of collections for the loans;
                            9. Authorized, approved and forwarded purchase orders and related
                               documents to the City’s Accounting Department for payment; and
                            10. Controlled and maintained all records relating to the participation of
                                the Administrator in the two programs.

                            Simply, the Administrator controlled all functions of administering the
                            program and maintaining program operating and accounting records, and
                            files. The basic component of any management control structure would
                            be to separate these functions.



                                                 12
                                            2001-DE-1001




The staff did not             The Program Administrator and staff did not document the justification
document justifications for   for providing unapproved funding, not recording loans, modifying loan
decisions                     agreements, or other items noted above. The staff advised that over the
                              years the Office created practices for doing business. These practices
                              were neither approved by the Mayor nor developed into written policies.

                              The Office maintained no summary information or ledgers of assistance
                              provided nor did they perform reconciliations of the assistance provided.
                              The staff advised that the Administrator had discretionary authority to
                              operate the programs.

                              4. For example, the administrator authorized HAND assistance to four
                                 persons without the person being on the waiting list and one of the
                                 four did not complete an application for assistance. The
                                 Administrator also approved additional work requests six months to a
                                 year after the completion of the rehabilitation.

                              The staff advised that to their knowledge the City performed no review
                              of their operations in the last five years.

                              The only control in existence over the programs’ operations was the
                              disbursing of funds by the City Accounting Department. However, the
                              only check in place was to determine that the disbursement was
                              documented, authorized by the Program Administrator, and that budgeted
                              funds were available in the particular program accounts.

Thirdly, the City failed to   Thirdly, the Office of Housing and Community Development failed to
maintain detailed records     maintain detailed records and files relating to each individual participant
                              activity. Not all required documents and records were maintained while
                              some participant files could not be located. In addition, the files failed to
                              support what detailed rehabilitation work or assistance was needed, what
                              work or assistance was to be performed, and whether the authorized
                              activities were correctly and properly conducted.

                              Since the City provided $952,080 in unauthorized funding and failed to
At least 120 families not
                              collect on over $279,891 in loans, these limited funds could not be used to
served
                              assist other needy families. We estimate that the mismanagement
                              prevented the assisting of at least 120 families, or twice the number of
                              families on the current waiting list.

                              Due to the City’s lack of oversight, the City had no assurance that the
The City had no               HAND and CHOP programs operated in an effective and economical
assurance on the              manner, or that limited program resources were used according to City’s
operations of these           requirements.
programs




                                                   13
                                            2001-DE-1001


                              During our review, it became clear that the City provided no oversight of
 City provided no oversight   the Office of Housing and Community Development or the staff’s
                              activity. Based on HUD’s and our preliminary reviews, we briefed the
                              City Attorney, on our preliminary concerns. The City Attorney took
                              immediate actions related to the Office of Housing and Community
                              Development. First, the City advised all vendors that open purchase
                              orders for participants were canceled. Secondly, the City Attorney must
                              approve all expenditure of funds. In addition, the City limited assistance
                              under the HAND and CHOP program to emergency assistance.

                              The City also hired a new Administrator. The new Administrator’s first
                              task necessitated completion of the City Consolidated Plan to ensure
                              receipt of Community Development Block Grant funds for the next year.
                              In addition, the new Administrator has been reviewing the most recent
                              participant folders to obtain a better understanding of the problems. The
                              new Administrator plans to use this knowledge to develop new program
                              guidelines and internal management controls over the programs.

  Both State and HUD          As stated in the Introduction Section of this report, the Wyoming
  reviews found similar       Community Development Authority also performed a review of its HUD
  City Program                funded HOME grants to the City. Their report identified similar concerns
  administrative              on the lack of management and oversight by the City. In addition, they
  deficiencies                identified $49,988 of ineligible HOME expenditures.

                              The HUD Rocky Mountain Field Office of Community Planning and
                              Development conducted a compliance monitoring review of the City’s
                              HUD funded program and found additional problem areas in the
                              expending of HUD provided Community Development Block Grant
                              funds. HUD also found similar lack of management controls and
                              oversight by the City of Cheyenne.

                              The mismanagement of the City of Cheyenne’s Office of Housing and
                              Community Development resulted in both Wyoming Community
                              Development Authority and HUD restricting the City’s ability to draw
                              down funds for these programs.

Auditee’s Comments            The Auditee concurred with the finding. In addition, the Auditee provided
                              substantial documentation related to actual and proposed changes to the
                              programs refereed to in this report. We believe if these changes are fully
                              implemented the concerns raised in this report should be corrected. (see
                              Appendix A for a

                              The City also requested that we provide them with a listing of loans
                              identified during the audit, to expedite the servicing and collection of the
                              loans. We are providing the list under a separate cover.




                                                    14
                               2001-DE-1001


Recommendations   We recommended that the Rocky Mountain Field Office of Community
                  Planning and Development require the City to:

                  1A. Identify the unapproved funding provided to participants and attempt
                      recovery or at a minimum increase the lien on the property to the
                      actual amount expended.
                  1B. Record all loans in the City’s accounting records and start collecting
                      amounts owed.
                  1C. Establish new programs guidelines and obtain City Council approval
                      for the guidelines.
                  1D. Establish adequate management controls and oversight of the Office
                      of Housing and Community Development. This would also include
                      the proper separation of management and record keeping duties and
                      functions within the Office of Housing and Community
                      Development.

                  We also recommend that that the HUD Rocky Mountain Field Office of
                  Community Planning and Development:

                  1A. Resolve all findings and concerns noted in HUD’s monitoring review
                      of the City’s Office of Housing and Community Development
                      program activities.
                  1B. Evaluate the City’s Office of Housing and Community Development
                      newly developed policies and program procedures for compliance
                      with HUD’s regulations and sound business practices.
                  1C. Maintain the restriction on drawing down HUD funds until, the City
                       can demonstrate program activities comply with HUD regulations
                       and implantation of sound business practices.




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            2001-DE-1001




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                  16
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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 objectives. 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.


Management controls            We determined the following management controls were relevant to our
assessed                       audit objectives. Specifically, controls that ensure:
                               •   Funding for rehabilitation and first time down payment assistance
                                   complied with City of Cheyenne and HUD’s requirements,
                               •   Recording and collecting on loans, and
                               •   Decisions are adequately documented and appropriately approved.

Assessment procedures          We used the following audit procedures to evaluate the management
                               controls:
                               •   Review the City program requirements,
                               •   Review of participants file folder and related disbursement records,
                               •   Interviews with appropriate City personnel, and
                               •   Evaluation of established policies and procedures for implementing
                                   the City’s programs.

Significant weaknesses         A significant weakness exists if management controls do not give
                               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 believe the following
                               items are significant weaknesses:
                               •   The City’s lack of adequate records to support program activities and
                                   decisions,
                               •   The City’s lack of oversight of the programs activities and staff, and
                               •   The City’s assignment of all major program oversight and activities in
                                   the Administrator.




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                  18
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Follow Up on Prior Audits
The Rocky Mountain Office of Community Planning and Development performed a monitoring review of
the City of Cheyenne’s Community Development Block Grant activities. They issued a report to the City
on September 6, 2000. The report identified similar items identified in our report. Before the issuance of
the report, the Rocky Mountain Field Office of Community Planning and Development restricted the
City’s access to HUD funds. Specifically, HUD required that the City submit invoices for HUD’s review
and approval before allowing the draw down of funds.

The Wyoming Community Development Authority performed a monitoring review of the City of
Cheyenne’s HOME grant. The Wyoming Community Development Authority monitoring report, dated
July 17, 2000 again identified a number of issues similar to our report. The Wyoming Community
Development Authority advised the City of Cheyenne's that their review identified a number of concerns
were the City’s program failed to comply with its HOME grant agreement. Specifically, the City’s
program was not administered consistent with the City's program Policies and Procedures and did not
comply with Federal Regulations. The Wyoming Community Development Authority advised the City that
will be required at a minimum to reimburse the HOME program a total of $49,890.64. Also, based upon
the substantial number of findings, no HOME funds will be available to the City of Cheyenne until such
time as the City of Cheyenne can provide cohesive and complete documentation that it has resolved the
problems identified in their report.

This is the Office of Inspector General’s first audit of the City of Cheyenne.




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                  20
             2001-DE-1001




Appendix A




                   21
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City of Cheyenne Attachment:

INTRODUCTION . . .
The   Cheyenne Housing and Community Development (H&CD) Office’s two programs, (HAND
[Housing Assistance and Neighborhood Development] and CHOP [Cheyenne Homeownership
Opportunities Program]), were audited through the Office of Inspector General. These programs have
been evaluated and revised by the current H&CD Office Director.

        In the case of CHOP, a community task force was formed to evaluate the program; create
standards, policies, and procedures; streamline the program; create a checks-and-balances for
accountability; and present the program to the Cheyenne City Council members for approval. The
Cheyenne City Council approved the program on November 27, 2000. (Attachment A)

         The HAND Program has been evaluated and revised by current H&CD Office staff.
(Attachment B) It is a goal of the H&CD Office Director to form a community task force, within the
first quarter of 2001, to evaluate the program; create standards, policies and procedures; streamline the
program where necessary; create a checks-and-balances for accountability; and to present the program
to the Cheyenne City Council.

        In addition, programs are now administered as individual entities and do not cross over into
other programs. The following is what has been put in place since June 2000:

                 HAND (Housing Assistance and Neighborhood Development)

Established in February 1989 and revised in October 1990.      This program has been approved by the
Cheyenne City Council. HAND is utilized for emergency housing rehabilitation to homeowners needing
immediate assistance with furnace, roof, plumbing, etc. The turn-around time for assistance is
approximately two weeks. There is no longer a waiting list for this assistance.

                ü       Guidelines are in place that specify program purpose, eligibility, standards,
                        property value, funding, and conflict of interest.
                ü       Standards are in place that describe the minimum qualifications for assistance.
                ü       Policies are in place that address and explain the application cycle, income
                        eligibility, amount of assistance provided, interest rate, and recapture
                        techniques.
                ü       Procedures provide a step-by-step overview of the administration of each file:
                        applicant’s completion of the HAND Application Packet to a closing letter
                        being sent to the homeowner.
                ü       Application Packet consists of external and internal documents:




                                                     22
                                             2001-DE-1001


                       q       External: Notice to Applicant; Application; Memo of Understanding;
                               Guidelines, Policies and Procedures; What to Expect; Financial Privacy
                               Notice; Authority to Release Information pertaining to credit, mortgage,
                               employment, deposits and public assistance; Smoke Detector
                               Questionnaire; and Lead-Based Paint Brochure. Internal: Information
                               Request (which is completed by the client); File Set-Up and Closing
                               check lists; Lead-Based Paint Notification; Initial Inspection Form, to
                               include photos and cost estimates on work; Mayor Authorization
                               Letter; Bid Letter; Bid Award Letter; Contractor/Owner Contract; Bid
                               Denial; Site Specific Checklist; Completion Statement; and Final
                               Inspection Form, to include photos.

               ü       A master spreadsheet has been established that indicates dollars expended from
                       program funds.

               ü       Individual spreadsheets are established and placed in the files, per location, that
                       indicates work being done, lowest bid and dollars expended.

               ü       Logs are placed in the individual files indicating dollars expended.

         The Cheyenne Housing and Community Development Office does have a current waiting list for
its HOME Program, which provides greater housing rehabilitation assistance. The HOME Program
funds are not to exceed $25,000 per property. Because of a suspension of funds placed on this
program by the Wyoming Community Development Authority (WCDA), due to their May 2000
Monitoring Report, and the fact that the waiting list consists of 18 homeowners, the H&CD Office
Director is going to evaluate the list on a one-on-one basis and determine if assistance could be
provided through the HAND Program. The H&CD Office has not received a definite date by WCDA
on when the suspension will be released. By moving assistance from HOME to HAND, homeowners
would receive housing rehabilitation; but, would be limited by the HAND program and would not be
eligible for assistance for five years.

CHOP (CHEYENNE HOMEOWNERSHIP OPPORTUNITIES PROGRAM)

Although not formally established until November 2000, this program has been operating for several
years with a brochure and WCDA’s HOME Program application as the guiding instruments. This
program is utilized to assist first-time homebuyers purchase a home within the City limits. Funding is
provided to assist with down payment and closing costs. The H&CD Office Director established a
community task force in October 2000 to evaluate prior program implementation and create a program
that would be approved by the Cheyenne City Council. This program was approved by the Cheyenne
City Council on November 27, 2000.

               ü       Guidelines are in place that specify program purpose, eligibility, standards,



                                                    23
                                            2001-DE-1001


                      property value, funding, and conflict of interest.        (This is an internal
                      document.)

               ü      Standards are in place that describe the minimum qualifications for assistance.

               ü      Policies are in place that address and explain the disbursement of funding cycle,
                      requirements for property location, HUD and City standards, Lead-Based
                      Paint, home inspections, home repairs, the income eligibility, pre-qualified by a
                      lender, H&CD Office Loan Committee, release of funds, amount of assistance
                      provided, and recapture techniques.

               ü      Procedures provide a step-by-step overview of the administration of each file:
                      applicant’s pre-qualification with a lender to a closing letter being sent to the
                      homeowner.

               ü      Application Packet consists of:

                      q       CHOP Application form, Gender/Ethnicity form, Authority to Release
                              Information, Lead-Based Paint information, a Lender Checklist,
                              Uniform Residential Loan Application, Request for Verification of
                              Employment, H&CD Office Checklist, Lead-Based Paint Notification
                              Receipt, Applicant Pre-Qualification Letter, Site Specific Checklist,
                              Home Inspection Reports (initial and final), Mortgage, and Promissory
                              Note.

               ü      A master spreadsheet will be established that indicates dollars expended from
                      program funds.

               ü      Individual spreadsheets will be established and placed in the files, per location,
                      that indicates dollars expended for down payment/closing costs.

               ü      Logs are placed in the individual files indicating dollars expended.

         Since June 2000, the Cheyenne Housing and Community Development Office Director has
viewed CHOP as a HOME Program that does not utilize CDBG funds. This program has not been
active since June 2000, due to a suspension of funds placed on this program by the Wyoming
Community Development Authority (WCDA). The suspension was placed because of WCDA’s May
2000 Monitoring Report findings. The H&CD Office receives approximately three calls daily on the
availability of CHOP funds. Due to the need in the community, the H&CD Office Director will rethink
solely using HOME Program funds and consider utilizing CDBG funds ($110,000) that have been
rescinded for allocation for the purpose of CHOP.

CONCURRENCE OR NONCONCURRENCE . . .


                                                   24
                                                  2001-DE-1001




The City of Cheyenne concurs with the factual aspect of the Audit Report.

ANY FACTS NOT PREVIOUSLY KNOWN . . .

The City of Cheyenne’s Housing and Community Development Office has developed a working
relationship with the Office of Inspector General (OIG) and will continue to nourish that relationship.
The H&CD Office is developing a database on prior files discrepancies and will share all information
with the Office of Inspector General.

         The H&CD Office would request that the OIG provide it with the listing of loans that was
identified during the audit process.

Corrective Actions . . .

Four findings were acknowledged in the Audit Report for the City of Cheyenne to address and describe
corrective actions being taken:

       ·       Excessive and/or unauthorized program disbursements;

       ·       Deficient identification of assistance to be and/or actually provided;

       ·       Unrecorded and uncollected program loans; and

       ·       Conflict of interest violations.

·      Excessive and/or Unauthorized Program Disbursement:

HAND . . .

To    eliminate this discrepancy with the HAND Program, the City of Cheyenne’s Housing and
Community Development (H&CD) Office has implemented a partnership, expanded information for the
Mayor’s Authorization Letter, set parameters with contractors, eliminated contractors and suppliers
prior administration’s agreement, established recapture procedures, database indicating program dollars
expended, created an internal checks and balances, and created procedures that must justify issuance of
counter checks.

·      The H&CD Office utilizes a private housing inspection company, CWN Inspections, LLC., to
       provide an initial home inspection that details deficiencies addressing safe, decent and sanitary
       conditions, and Cheyenne’s “Minimum Housing Rehabilitation Standards.” CWN is providing
       the H&CD Office with a detailed inspection report, which includes cost estimates for repairs,
       cost estimates on relocation if needed, and photos of the property.



                                                        25
                                         2001-DE-1001




·   The Mayor is provided an Authorization Letter for his signature. This letter provides
    information on the homeowner’s eligibility, scope of work, recapture method (grant or loan),
    recommendation, and comments when necessary. Additionally, an initial inspection with cost
    estimates is attached. This letter serves two-fold: Authorization to proceed, and authorization to
    expend designated dollars on the specified property.

·   Contractors are given a date and time to view the work for bidding. H&CD Office staff and
    CWN Inspections are present to assure that all contractors receive the same Scope of Work
    and to answer any questions. The lowest bid is selected, unless the homeowner wishes to pay
    the difference between bids. Once a contractor is selected, expenditures will not exceed the bid
    unless a Change Order is implemented. Change Order is viewed as an exception, not the rule,
    and will be scrutinized. No Change Order work may proceed until H&CD Office has
    discussions with the homeowner, a Modification of Mortgage is executed by the homeowner,
    and a Mayor Authorization Letter is signed to proceed.

·   Contractors and suppliers (i.e. Sutherlands, Mead Lumber, Capital Lumber and The Building
    Center) have been contacted and told that homeowners participating in H&CD Office programs
    are not authorized to purchase materials for reimbursement. The forms used by the prior
    administration that allowed this process have been destroyed.

·   Homeowners are required to sign a Mortgage and Promissory Note, prior to any work being
    implemented, on the total cost of the housing assistance. As stated, if a Change Order is
    approved, a Modification of Mortgage is executed. Depending on the homeowner’s income
    eligibility for assistance, a deferred mortgage that depreciates $1,000 annually or a 5% interest
    rate installment loan is initiated for recapture of dollars expended. The determination of
    deferred mortgage or loan is based on HUD Section 8 Income Table: Deferred mortgages will
    be provided to households that qualify below the low income, 50% median for the Cheyenne
    area. Loans will be provided to households that qualify above the low income, 50% median,
    and are equal to or below the moderate income (80% median) for the Cheyenne area.
·
·   A database has been created indicating funds expended, applicant name, income, and property
    location. This will provide an accurate account of program funds at any given time. In addition,
    a log is placed in each file indicating contractor, work done, and dollars expended.

·   One person is no longer responsible for requisitions, purchase orders, approvals, and record
    keeping for programs administered by the Housing and Community Development Office. The
    program designates who assists the customer (homeowner), file documentation, implementation
    of the program, and initiation of payment requisition requests. The HAND Program is
    coordinated through the H&CD Office’s Office Manager position. The H&CD Office Director
    and the City Attorney must approve all correspondence and purchase orders. The current
    H&CD Office Director has met with the Purchasing Director and City Treasurer to encourage
    open communication between the departments and the H&CD Office and to encourage these


                                                 26
                                          2001-DE-1001


       departments to question any area that is not explained properly. These procedures (one person
       no longer being solely responsible, approval by the City Attorney, H&CD Office Director and
       Mayor, and open communication between departments) create an internal checks and balances,
       and was not in existence with the prior administrator.

·      All disbursements must be processed through procedures established by the City of Cheyenne.
       Counter checks are not created, unless written notice is provided to the H&CD Office by the
       City Attorney or Mayor.

CHOP . . .

To   eliminate this discrepancy with CHOP, the City of Cheyenne’s Housing and Community
Development Office established a “First-Time Homebuyer” task force, implemented a partnership with
community lenders, communicated with realtors and lenders, created a H&CD Office Loan Committee,
expanded information for the Mayor’s Authorization Letter, created database indicating dollars
expended, created internal checks and balances, and established consistent recapture procedures.

·      A “First-Time Homebuyer” task force was formed consisting of the President of the Cheyenne
       Board of Realtors, a representative from Fannie Mae, a Cheyenne City Council member, a
       lender, a representative from the H&CD Office Advisory Council and a prior recipient of
       CHOP funds. The task force was charged with evaluating prior management of the CHOP and
       establishing a program that would be approved by the Cheyenne City Council.

·      A partnership is now in place with Cheyenne lenders to assure there is sharing of
       documentation, instead of duplication of documentation. Lenders are required to provide
       documentation to the H&CD Office on

               ü      pre-qualification of applicant
               ü      the ability of applicant to provide $750 personal funds toward purchase of
                      home
               ü      information to applicant on the requirement to complete Homebuyer Education
                      Course
               ü      Fannie Mae Residential Application Form: Verification of Employment or
                      Alternative Documentation (last 2 years W2 forms), and Deposit Verification or
                      Alternative Documentation (last 2 months bank statements)
               ü      property appraisal
               ü      confirmation that home to be purchased meets WCDA afford ability
                      requirement
               ü      confirmation that home to be purchased is not in flood plain
               ü      title commitment or owner encumbrance report
               ü      homeowner’s insurance declaration page
               ü      good faith estimate



                                                 27
                                        2001-DE-1001


           ü       sales agreement

    The lender schedules closing and notifies the H&CD Office of date, time and location; and
    ensures that the following actions are completed:

           ü       H&CD Office is added to the title commitment
           ü       Signed, notarized mortgage is sent to the H&CD Office
           ü       Signed promissory note is sent to the H&CD Office
           ü       HUD 1 form is provided to the H&CD Office
           ü       Proof of homeowner’s insurance is provided to the H&CD Office
           ü       Proof of Homebuyer Education Course completion

    The Cheyenne Housing and Community Development Office has refined its file checklist for
    CHOP to encompass application through original mortgage and promissory note off-site
    storage, and to include an optional form on demographics and the H&CD Office Loan
    Committee review, which was not incorporated in program files in the past.

·   The Housing and Community Development Office Director presented the new CHOP, as
    developed by the task force and approved by City Council, to Cheyenne realtors and lenders
    on December 14, 2000. The director stressed the partnership between the H&CD Office and
    community lenders, that applications would not be accepted by realtors, and that assistance
    payment would only be made payable to the closing agent (lender or title company).

·   The H&CD Office Loan Committee, which consists of a City Council designee, a
    representative from the Mayor’s Office, two representatives from the H&CD Office Advisory
    Council, and a representative from the City Attorney’s Office, has been approved by the
    Cheyenne City Council. The H&CD Office Director will sit as a non-voting, ex-officio. This
    Loan Committee was formed to meet weekly, as needed, to review and approve or reject
    CHOP applications. A letter of approval or rejection is required from the Loan Committee for
    the H&CD Office to proceed with an applicant.

·   The Mayor will be provided an Authorization Letter for his signature. This letter will provide
    information on the applicant’s eligibility, Loan Committee recommendation, and recapture
    method. This letter will serve two-fold: Authorization to proceed, and authorization to expend
    funds.

·   A database will be created indicating funds expended, applicant name, income, and property
    location. This will provide an accurate account of program funds at any given time.

·   One person is no longer responsible for requisitions, purchase orders, approvals, and record
    keeping for programs administered by the Housing and Community Development Office. The
    program designates who assists the customer (homeowner), file documentation, implementation
    of the program, and initiation of payment requisition requests. The CHOP will be coordinated


                                               28
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       through the H&CD Office’s Housing Planner position. The H&CD Office Director and the
       City Attorney must approve all correspondence and purchase orders. The current H&CD
       Office Director has met with the Purchasing Director and City Treasurer to encourage open
       communication between the departments and the H&CD Office and to encourage these
       departments to question any area that is not explained properly. These procedures (one person
       no longer being solely responsible, approval by the City Attorney, H&CD Office Director and
       Mayor, and open communication between departments) create an internal checks and balances,
       which was not in existence with the prior administrator.

·      All disbursements must be processed through procedures established by the City of Cheyenne.
       No checks will be made payable to a realtor. Counter checks are not created, unless written
       notice is provided to the H&CD Office by the City Attorney or Mayor.

    4. Deficient Identification of Assistance to be and/or Actually Provided:

To eliminate this discrepancy, the City of Cheyenne’s Housing and Community Development Office
has implemented the adherence to Resolution 3182, utilizing an outside housing inspector, inspection of
completed work, purchasing procedures are adhered to, Change Order requests are scrutinized,
database indicating expended funds, file logs are utilized, and vendors are not reimbursed for materials
purchased by program participants.

·      City Council Resolution 3182, as adopted in October 1990, is adhered to. Homeowners must
       reside in the home for a minimum of six months, no dollars are expended without a Mayor’s
       Authorization Letter, “remodeling and/or renovation” of residence is not conducted, and
       financial assistance may not exceed $8,500 unless a “critical” situation is deemed by the Mayor
       and written approval by the Mayor is provided to the H&CD Office.
·
·      The H&CD Office utilizes a private housing inspection company, CWN Inspections, LLC., to
       provide an initial home inspection that details deficiencies addressing safe, decent and sanitary
       conditions, and Cheyenne’s “Minimum Housing Rehabilitation Standards.” CWN is providing
       the H&CD Office with a detailed inspection report, which includes cost estimates for repairs,
       cost estimates on relocation if needed, and photos of the property.

·      The City of Cheyenne Purchasing Procedures are followed for bid processing and contractor
       selection.

·      A Mayor’s Authorization Letter is signed, and a Mortgage is placed on the property prior to
       any work being conducted.

·      The initial home inspection is adhered to, unless a Change Order is authorized. Work not listed
       on the initial inspection will not be conducted. The exception would be a Change Order, which
       will be scrutinized and must have a revised Mayor’s Authorization Letter and Modification of
       Mortgage prior to work beginning.


                                                    29
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·       Repairs are inspected as work is completed, photos taken, inspections conducted, and
        approval sign off by the homeowner, prior to any payments being made to the contractor(s).

·       No payments are made to program participants. Payments are made solely to selected
        contractor(s) for bid specifications and contractual agreements.

·       All work conducted must receive a final inspection by CWN Inspections, LLC., and/or City
        Building inspectors, and a sign-off statement of satisfactory work by the homeowner, prior to
        payment to contractor(s).

·       A database has been created indicating funds expended, applicant name, income, and property
        location. This will provide an accurate account of program funds at any given time. In addition,
        a log is placed in each file indicating contractor, work done, and dollars expended.

·       All local vendors/suppliers (i.e. Sutherland, Mead Lumber, Capital Lumber and The Building
        Center) have been contacted and told that homeowners participating in the H&CD Office
        programs are not authorized to purchase materials for reimbursement. The forms used by the
        prior administration that allowed this process have been destroyed.

·       H&CD Office staff is reviewing prior files on an individual bases and listing file discrepancies
        and developing a ledger on dollars expended. A database is created listing major discrepancies
        for staff to address.

4. Unrecorded and uncollected program loans:

To eliminate this discrepancy, the City of Cheyenne’s Housing and Community Development Office is
reviewing all prior files, mortgage and loan discrepancies are being addressed, negotiations with a local
lender for loan servicing, authorization for loan modifications, and requests a listing of loans from the
Office of Inspector General.

·       The Housing and Community Development Office staff is reviewing prior files.

·       Prior files with mortgage discrepancies to dollars expended are addressed. Initial appointments
        are scheduled with homeowners to review files and confirm that work was performed, and
        discuss the implementation of a Modified Mortgage to incorporate all funds expended on the
        property. A second appointment is scheduled to have homeowner(s) sign the Modified
        Mortgage.

·       Promissory Notes that indicate that a loan was established, but not executed, are addressed.
        Homeowners are contacted via telephone and mail requesting payments be brought up to date.
        The file is placed on the H&CD Office Trakker system, which is a loan amortization software.



                                                    30
                                             2001-DE-1001




·       Within the second quarter of 2001, the H&CD Office Director will negotiate with a local lender
        to provide loan servicing for all loans.

·       No loan modifications are conducted without prior discussion and approval by either the City
        Attorney or Mayor.

·       The Housing and Community Development Office requests a copy of the Office of Inspector
        General’s loan listing to expedite the discovery of the 27 loans not identified by the H&CD
        Office.

4.      Conflict of interest violations:

This area addresses four issues: Conflict of Interest, Adequate Oversight of the H&CD Office, All
Main Functions and Controls with the Administrator, and Failure of Proper File Maintenance.

·       The Housing and Community Development Office is adhering to conflict of interest as described
        in the “Citizens Participation Plan:” no employees, relatives or H&CD Office Advisory Council
        members are eligible for assistance unless a written waiver is provided by HUD. If HUD
        provides a waiver for assistance, the waiver stipulations will be stringently adhered to.

        The City of Cheyenne submits its response to the HUD Monitoring Report dated May 1-5,
        2000, as information demonstrating the City’s in-depth research pertaining to the conflict of
        interest files mentioned.

        “Frank Puente, consultant to the city through his role on the CDBG citizen’s advisory
        committee, received HAND assistance.”

        The facts do not support this finding, because:

        •       Mr. Puente had no involvement with the Advisory Committee until well after he
                applied for and received financial assistance.1

                1. On July 30, 1996, Mr. Puente applied for HAND and HOME assistance.



        1
         At the time that the HUD audit was performed, Mr. Puente’s file was not available for
inspection by HUD personnel. On September 21, 2000, Mr. Puente met with representatives of the
Housing office and he presented the official office file. He indicated that he had the file, because Ms.
Mendez had given it to him. The Housing Office sent copies of the original file to HUD on October 19,
2000.



                                                    31
                                    2001-DE-1001


       2. On November 11, 1997, the Mayor signed authorization for CDBG loan for
       $38,593.25 and a rehabilitation deferred Grant for $14,500.

       3. June 23, 1997, Mr. Puente signed executed “Certificate of Allocation of Hand
       or Home Grant loan - memorandum of understanding”; Mortgage and
       Promissory Note.

       4. April 14, 1998, Mr. Puente was appointed to the Housing and Community
       Development Advisory Council.

       5. May 21, 1998, Mr. Puente’s case file was formally closed by the Housing
       office.

       6. Mr. Puente did not attend any advisory committee meetings until several
       weeks after his case file was closed.

       7. Given these facts, it is clear that Mr. Puente did not sit in any decision making
       capacity, nor in any other manner exercise any influence over the decision to
       grant him CDBG assistance.

•      Mr. Puente was not a “consultant” to the Housing office.

The term “Consultant” does not appear to be defined in CDBG regulations. However,
when a word is not defined, its generally accepted definitions are applicable. As defined
by The American Heritage Dictionary, Second College Edition “Consultant” means, “a
person who gives expert or professional advice.” The Report does not mention any
expertise possessed by Mr. Puente which would qualify him as a consultant. Thus, it is
difficult to understand how a lay person, who had received CDBG financial assistance,
could be accurately characterized as some one who renders expert or professional
advice.

“Joe Pando, brother to the mayor, received HAND assistance.”

It is necessary to clarify some of the details relating to Joe Pando’s loan:

Mr. Joe Pando has been visually impaired since 1984. He and his wife live on a fixed
income, from disability payments, social security and her income. He and Mayor Leo
Pando are siblings.

Some of the improvements to their home, including a lawn sprinkler system, were made
“because of both clients disabilities (one is legally blind and the other has artificial knee
caps), upon the advice of Will Sanchez, former director of the Housing and Community
Development Office, who was also visually impaired.


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                                             2001-DE-1001




       Prior to asking for approval of assistance to Joe and Pauline Pando, Will Sanchez, who
       was employed at the Housing and Community Development Office for over 25 years,
       contacted Ed Antencio, who was the City’s HUD representative, to inquire whether there
       would be any problem in assisting Joe Pando, because of his relationship to the Mayor.
       Mr. Atencio informed Sanchez that there would be no conflict of interest situation if the
       Mayor was in no manner involved with the Pando loan.

       The Mayor was never informed that Joe Pando’s application was approved. The
       authorization for HOME assistance was executed on June 12, 1996, by Mark Rinne, DDS,
       president of the Cheyenne City Council.

       Also, this situation does not involve a conflict of interest under Wyoming Law. Wyo. Stat.
       §16-6-118 provides that it is improper for a public officer to vote on a matter in which he
       is personally interested. Clearly, the Mayor did not even know about the loan, let alone
       vote on it.

         The City of Cheyenne requested that HUD reconsider Frank Puente, and Joe Pando conflict of
interest issues, which total $32,912.72. However, the City does acknowledge the conflict of interest
with Dawn Mendez’s files and feels obligated to reimburse the CDBG line of credit for $9,394.79 spent
on her residence at 1508 Sundance Lane from general revenues.

·      The Housing and Community Development Office no longer operates in a vacuum, thus
       eliminating inadequate oversight of the H&CD Office.

       ü       The Housing and Community Development Office Director participates in the weekly
               Mayor Staff Meeting, which is held Thursday mornings, and brief, detailed reports
               pertaining to weekly activities are presented.

       ü       Monthly activity reports are being implemented and will be submitted to the City
               Attorney the first of each month, beginning February 2001.

       ü       The Housing and Community Development Office Director is utilizing HUD’s IDIS
               system to report program activities in greater detail.

       ü       Expenditure logs are placed in each file.

       ü       A database now exists that indicates overall program funds and expenditures per
               activity.

       ü       Federal Cash Transactions Report was submitted to HUD in a timely fashion for
               October 1, 2000, through December 31, 2000.




                                                    33
                                        2001-DE-1001


    ü      One person is no longer solely responsible for requisitions, purchase orders and
           approval. Separation of programs is designated per staff program responsibility, with
           approval by the City Attorney and the H&CD Office Director.

    ü      The newly elected Mayor has indicated “spot,” periodic reviews of all City departments
           will be implemented, which includes the Housing and Community Development Office,
           by an independent auditor.

·   The Housing and Community Development Office Director has distributed programs,
    workloads, responsibilities and accountability; therefore, eliminating all main functions and
    controls with the Director.

    ü      Staff assigned to a program receives, reviews and processes applications. The H&CD
           Office Director serves as a consultant for the staff member.

    ü      Staff assigned to a program prepares the Mayor’s Authorization Letter for applicant
           funding. The letter is reviewed by the H&CD Office Director and City Attorney, prior
           to submission to the Mayor.

    ü      Authorization of amount and type of assistance is ultimately the Mayor’s decision. Staff
           assigned to a program prepares documentation (i.e. applicant status, scope of work,
           inspection report, bids, etc.) that provides the Mayor with data for an informed
           decision.

    ü      Staff assigned to a program maintain all program and administrative files for individual
           applicants. A master program file (i.e. HAND Program) that indicates IDIS draw
           downs is maintain by the H&CD Office Director.

    ü      The Cheyenne City Council, through the adoption of the CHOP, has established a
           H&CD Office Loan Committee that will review all potential loan requests. The H&CD
           Office has established an operating policy that applicants with incomes below the 50%
           median income established by HUD Section 8 will be provided deferred loans that
           depreciate $1,000 annually. Applicants with incomes between the 50% and 80%
           income, as established by HUD, will receive a 5% loan. The H&CD Office Director
           will be establishing a relationship with a local lender to service all loans.

    ü      One person is no longer responsible for requisitions, purchase orders, approvals, and
           record keeping for programs administered by the Housing and Community
           Development Office. The program designates who assists the customer (homeowner),
           file documentation, implementation of the program, and initiation of payment requisition
           requests. The HAND Program is coordinated through the H&CD Office’s Office
           Manager position. The CHOP is coordinated through the H&CD Office’s Housing
           Planner position. The H&CD Office Director and the City Attorney must approve all


                                               34
                                       2001-DE-1001


          correspondence and purchase orders. The current H&CD Office Director has met with
          the Purchasing Director and City Treasurer to encourage open communication between
          the departments and the H&CD Office and to encourage these departments to question
          any area that is not explained properly. These procedures (one person no longer being
          solely responsible, approval by the City Attorney, H&CD Office Director and Mayor,
          and open communication between departments) create an internal checks and balances,
          which was not in existence with the prior administrator.

    ü     The H&CD Office Director serves as a consultant to staff assigned to a program;
          therefore, the Director no longer controls or maintains records, or has a direct, day-by-
          day participation with the two programs.

    ü     The H&CD Office no longer exceeds funds authorized by the Mayor’s Authorization
          Letter, unless a Change Order is implemented. A Change Order is scrutinized for
          justification. Documentation is placed in the file, a Modified Mayor’s Authorization
          Letter describing the Change Order request is signed, and a Modified Mortgage is
          executed prior to the Change Order work being done.

    ü     The HAND Program is utilized for emergency housing rehabilitation, with a turn-around
          time of two weeks. Because of the existing HOME Program housing rehabilitation
          waiting list and the believe that these households may be serviced under the authorized
          funding amount ($8,500), the H&CD Office Director is considering evaluating these
          files for HAND assistance. Files transferred to the HAND Program will adhere to
          standards, policies and procedures of the program.

·   The Housing and Community Development Office has evaluated and refined proper file
    maintenance to reflect file accuracy and expenditure accountability.
·
    ü     Through the “First-Time Homebuyer” task force revision of the CHOP and staff’s initial
          revision of the HAND Program, a comprehensive file checklist has been developed and
          implemented.
    ü     H&CD Office staff is reviewing prior files on an individual bases and listing file
          discrepancies and developing a ledger on dollars expended. A database is created
          listing major discrepancies for staff to address.
    ü     A database has been created indicating funds expended, applicant name, income, and
          property location. This will provide an accurate account of program funds at any given
          time. In addition, a log is placed in each file indicating contractor, work done, and
          dollars expended.
    ü     The newly elected Mayor has indicated “spot,” periodic reviews of all City departments
          will be implemented, which includes the Housing and Community Development Office,
          by an independent auditor.




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            2001-DE-1001




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                  36
                                     2001-DE-1001




Appendix B
  Report Distribution
  Jack Spiker, Mayor, City of Cheyenne, Wyoming
  Secretary’s Representative, 8AS
  Director, HUD Rocky Mountain Field Office of Community Planning and Development, 8ADM
  Deputy Secretary, SD, Room 10100
  Chief of Staff, S, Room 10000
  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)
  Department of Veteran Affairs, Office of Inspector General (52A), 810 Vermont Avenues, NW,
          Washington, DC 20410
  Steve Redburn, Chief Housing Branch, Office of Management and Budget, 725 17th Street, NW,
          Room 9226, New Executive Office Building, Washington, DC 20503
  Inspector General, G, Room 8256




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