AUDIT REPORT
PONTIAC NEIGHBORHOOD HOUSING SERVICES,
INCORPORATED
HOME INVESTMENT PARTNERSHIP PROGRAM
PONTIAC, MICHIGAN
2004-CH-1004
MAY 5, 2004
OFFICE OF AUDIT, REGION V
CHICAGO, ILLINOIS
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Issue Date
May 5, 2004
Audit Case Number
2004-CH-1004
TO: Jeanette Harris, Director of Community Planning and Development, 5FD
FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA
SUBJECT: Pontiac Neighborhood Housing Services, Incorporated
HOME Investment Partnership Program
Pontiac, Michigan
We completed an audit of Pontiac Neighborhood Housing Services, Incorporated’s HOME Investment
Partnership Program. The audit was conducted based on a request from HUD’s Detroit Field Office of
Community Planning and Development. The objective of our audit was to determine whether HUD’s
rules and regulations were properly followed for the Martin Luther King Residential Project, funded by
the City of Pontiac’s HOME Program. The audit resulted in two findings.
In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without a management decision, 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. Additional status reports are required at 90 days and 120 days after report issuance for
any recommendation without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of the audit.
Should you or your staff have any questions, please contact Thomas Towers, Assistant Regional
Inspector General for Audit, at (313) 226-6280 extension 8062 or me at (312) 353-7832.
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Management Memorandum
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2004-CH-1004 Page ii
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Executive Summary
We completed an audit of Pontiac Neighborhood Housing Services, Incorporated’s HOME Program.
The audit was conducted based on a request from HUD’s Detroit Field Office Director of Community
Planning and Development for an accounting of how the HOME Program funds were used. The
objective of our audit was to determine whether HUD’s rules and regulations were properly followed
for the Martin Luther King Residential Project funded by the City of Pontiac’s HOME Program.
We concluded that Housing Services, Incorporated did not follow HUD’s requirements and its
Development Agreement with the City of Pontiac regarding the use of HOME funds for the Residential
Project. Specifically, Housing Services, Incorporated:
v Used $871,057 in HOME funds and another $457,651 in Program income to pay for the
construction of nine homes that did not meet the City’s Building Code; and
v Did not return Program income directly generated from the use of HOME funds through the
City’s Residential Project.
Pontiac Neighborhood Housing Services, Incorporated did not
Homes Did Not Meet The follow HUD’s requirements and its Development Agreement
City’s Building Code After with the City of Pontiac to ensure homes assisted through the
Housing Assistance Residential Project met the City’s Building Code. Housing
Services, Incorporated used $871,057 of HOME funds to pay
for the construction of nine homes that did not meet the City’s
Building Code. Housing Services, Incorporated used an
additional $457,651 in Program income from the sale of homes
in the Residential Project to cover construction expenses of the
nine homes.
Pontiac Neighborhood Housing Services, Incorporated did not
Program Income Was Not return Program income directly generated from the use of
Returned To The City HOME funds through the City’s Martin Luther King Residential
Project. The City provided Housing Services, Incorporated
$1,373,803 in HOME funds to construct 14 homes through the
City’s Residential Project. Housing Services, Incorporated
received $977,554 in proceeds from the sale of the 14 homes.
Beginning with Fiscal Year 2002, HUD’s Detroit Field Office
began actions to recover $574,192 from the City of Pontiac
over a four-year period due to disallowed project costs. In July
2002, the Detroit Field Office reduced the disallowance to
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Executive Summary
$452,269, but failed to notify Headquarters of the lower grant
reduction amount.
We recommend that HUD’s Detroit Field Office Director of
Recommendations Community Planning and Development ensure the City of
Pontiac implements procedures and controls to correct the
weaknesses cited in this report.
We presented our draft audit report to the City’s Acting
Director of Community Development, the President of the
Board for Pontiac Neighborhood Housing Services, and
HUD’s staff during the audit. We held an exit conference with
the City’s staff on January 21, 2004. The City provided written
comments to our draft audit report. We included paraphrased
excerpts of the comments with each finding (see Findings 1 and
2). The complete text of the City’s comments is contained in
Appendix B. HUD’s Director of the Detroit Field Office of
Community Planning and Development proposed a
management decision dated May 3, 2004 regarding the
Recommendations included in this report. Appropriate entries
to HUD’s Audit Resolution and Controlled Actions Tracking
System will be made based upon HUD’s management decision.
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Table Of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1. Homes Did Not Meet The City’s Building Code After Receiving
Housing Assistance 5
2. Program Income Was Not Returned To The City 13
Management Controls 17
Follow-Up On Prior Audits 19
Appendices
A. Schedule Of Ineligible Costs 21
B. Auditee Comments 23
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2004-CH-1004 Page vi
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Introduction
Title II of the Cranston-Gonzalez National Affordable Housing Act of 1990 established the HOME
Investment Partnership Program. The Program’s objectives include providing participating jurisdictions
with various forms of Federal housing assistance. Participating jurisdictions use their funds to
accomplish the following objectives: (1) expand the supply of decent, safe, sanitary, and affordable
housing for very low and low-income Americans; (2) make new construction, rehabilitation, substantial
rehabilitation, and acquisition of such housing feasible; and (3) promote the development of partnerships
among the Federal Government, States and units of general local government, private industry, and
nonprofit organizations to effectively use all available resources to provide more housing. Another
objective of the Program is to expand the capacity of nonprofit community housing development
organizations to develop and manage decent, safe, sanitary, and affordable housing.
The City of Pontiac, a participating jurisdiction, established its HOME Program in 1992 to increase the
supply of decent, safe, sanitary, and affordable housing for low-income residents. From Fiscal Years
1992 to 2003, the City of Pontiac was awarded $8,765,771 in HOME funds. HUD made grant
reductions of $143,500 per year for Fiscal Years 2002 and 2003. This represented partial payments to
the City’s HOME Program for disallowed HOME funds on the residential housing project known as the
Martin Luther King Homes Residential Project. HUD’s Detroit Field Office of Community Planning
and Development agreed to adjust the last year of this annual reduction (2005) based on our audit
results.
The City’s Community Development Department administers its HOME Program. Within the
Department, the Federal Programs Division handles the day-to-day operations of the HOME Program.
Mary Gray-Roberson was terminated effective August 1, 2003 as the Director of the City’s Office of
Community Development. Roger Minard is the current Acting Director of the Department. Patricia M.
Lake is the Block Grant Administrator of the Federal Programs Division. The Mayor of the City is
Willie W. Payne.
The City entered into a Development Agreement, effective June 30, 1999, with Pontiac Neighborhood
Housing Services, Incorporated for the construction, marketing, and sale of 14 new single-family homes
on Martin Luther King, Jr. Boulevard to qualified low-income households. The City agreed to pay
Housing Services, Incorporated $1,521,000 for the services it provided through the Martin Luther King
Homes Residential Project.
Housing Services, Incorporated was established on December 28, 1979 as a private nonprofit
organization. Their mission was to provide low-income housing in targeted neighborhoods. The City
certified Housing Services, Incorporated as a community housing development organization. However,
the City lacked documentation to show when this occurred. The City revoked Housing Services,
Incorporated’s status as a community housing development organization, effective February 19, 2002,
for the improper use of Program funds. Housing Services, Incorporated discontinued its operations in
July 2002.
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Introduction
The City maintains its Program records at the Pontiac Silverdome. The Pontiac Silverdome is located at
1200 Featherstone Road, Pontiac, Michigan.
The objective of our audit was to determine whether HUD’s
Audit Objectives rules and regulations were properly followed for the Martin
Luther King Residential Project funded by Housing Services,
Incorporated’s HOME Program.
We conducted the audit at HUD’s Detroit Field Office, City
Audit Scope And Hall, and the City’s Community Development Department. We
Methodology performed our on-site audit work from February 2003 to
September 2003.
To accomplish our audit objectives, we interviewed: HUD’s
staff; the City’s former and current staff and officials; an
attorney for the City; Housing Services, Incorporated’s former
staff; Neighborhood Reinvestment Corporation’s staff;
accountants; bank representatives; and 13 of the 14 owners of
the homes constructed through the City’s Residential Project.
In addition, a HUD Construction Analyst inspected nine of the
14 homes that received assistance through Housing Services,
Incorporated’s HOME Program to determine whether the
homes met the City’s Building Code. Due to time constraints,
the HUD Construction Analyst was unable to inspect the
remaining five homes.
To determine whether HUD’s rules and regulations were
properly followed for the Residential Project, we reviewed the
City’s: Development Agreement with Housing Services,
Incorporated; HOME Program policies; HOME Program files
for the Residential Project; and participant files for the HOME
Program. We also reviewed Housing Services, Incorporated’s
Audited Financial Statements, Board meeting minutes, payment
requests and supporting documentation, cancelled checks, and
bank statements.
Furthermore, we reviewed: HUD’s files for Housing Services,
Incorporated’s HOME Program; Title II of the Cranston-
Gonzalez National Affordable Housing Act of 1990; Parts 58,
84, 85, 92, 200, and 3280 of Title 24 of the Code of Federal
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Introduction
Regulations; Office of Management and Budget Circulars A-87,
A-122, and A-133; and HUD’s Community Planning and
Development Notices 97-9 and 03-05.
The audit covered the period July 1, 1998 through December
31, 2002. This period was adjusted as necessary. We
conducted the audit in accordance with Generally Accepted
Government Auditing Standards.
We provided a copy of this report to the City’s Mayor and its
Acting Director of Community Development.
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Finding 1
Homes Did Not Meet The City’s Building Code
After Receiving Housing Assistance
Pontiac Neighborhood Housing Services, Incorporated did not follow HUD’s requirements and its
Development Agreement with the City of Pontiac to ensure homes assisted through the Martin Luther
King Residential Project met the City’s Building Code. Our inspection of nine of the 14 homes in the
Residential Project identified $871,057 of HOME funds used by Housing Services, Incorporated to
pay for construction that did not meet the City’s Building Code. Housing Services, Incorporated used
an additional $457,651 in HOME Program income generated from the sale of the homes to cover
construction expenses for the nine homes. The City lacked adequate procedures and controls to ensure
the homes met the City’s Building Code. As a result, Home funds were not used efficiently and
effectively.
Title II, Section 203, of the Cranston-Gonzalez National
Federal Requirements Affordable Housing Act of 1990 requires that housing units be
in decent condition when HOME funds are used to provide
housing to low and moderate-income residents.
24 CFR, Subpart F, Part 92.251(a) requires new housing
constructed with HOME funds to meet all applicable local
codes, ordinances, and zoning ordinances at the time of the
projects’ completion.
Article VII(D)(2) of the City of Pontiac’s Development
City’s Requirements Agreement, effective June 30, 1999, with Pontiac
Neighborhood Housing Services, Incorporated states the
Martin Luther King Residential Project must comply with 24
CFR Part 92.251 relating to applicable State and local property
standards. Article VII(D)(2) also provides for the City of
Pontiac to use the Building Officials and Code Administrators
National Property Maintenance Code as its standard code.
Article XIII of the Agreement states the date of completion is
the date the City issues a Certificate of Occupancy per each
completed home. Article XIX states the City must monitor the
performance of Pontiac Neighborhood Housing Services,
Incorporated in carrying out its responsibilities through Project
progress reports, periodic inspections by the City’s staff, on-
site monitoring, and financial documentation reviews.
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Finding 1
We selected nine of the 14 manufactured homes constructed
Sample Selection And with HOME funds through the City’s Martin Luther King
Inspection Reports Residential Project for inspection. We selected the homes to
determine whether they met the City’s Building Code upon
completion of the construction. The City entered into a contract
with Pontiac Neighborhood Housing Services, Incorporated,
effective June 30, 1999, for the construction, marketing, and
sale of the 14 new single-family homes on Martin Luther King,
Jr. Boulevard to qualified low-income households.
A HUD Construction Analyst inspected nine of the 14 homes
on June 17 and 18, 2003. Although the HUD Construction
Analyst was unable to inspect the remaining five homes due to
time constraints, he was able to inspect each type of home in
the Residential Project. The City declined our invitation to have
one of its staff members accompany us during the housing
inspections.
We provided our inspection results to HUD’s Detroit Field
Office Director of Community Planning and Development and
the City’s Acting Director of Community Development.
Pontiac Neighborhood Housing Services, Incorporated used
HOME Funds Were Used $871,057 of HOME funds from the City to pay for the
To Pay For Construction construction of nine homes that did not meet the City’s Building
Work That Did Not Meet Code. The nine homes were assisted through the City’s Martin
The City’s Building Code Luther King Residential Project. Housing Services,
Incorporated used an additional $457,651 in HOME Program
income generated from the sale of the homes in the Residential
Project to cover construction expenses for the nine homes that
did not meet the City’s Building Code. Based on accounting
records maintained by Housing Services, Incorporated, we
were able to determine how the Program income was spent, by
property, as noted in the following chart:
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Finding 1
Total Costs Difference
By Home Total (Paid Out
Per Reimburse Of
Lot Property Housing d By City Program
No. No. Services Of Pontiac Income)
1 196 $145,241 $117,051 $28,190
2 208 136,543 105,595 30,948
3 234 X 142,278 101,046 41,232
4 256 X 144,554 103,845 40,709
5 264 X 149,493 91,508 57,985
6 272 147,515 92,457 55,058
7 278 X 146,335 93,503 52,832
8 284 X 146,902 91,659 55,243
9 292 X 149,014 100,051 48,963
10 298 146,128 95,169 50,959
11 304 148,975 92,474 56,501
12 310 X 146,740 90,640 56,100
13 316 X 145,495 90,722 54,773
14 322 X 157,897 108,083 49,814
Totals: $2,053,110 $1,373,803 $679,307
Legend: X = inspected by HUD’s Construction Analyst
A total of $367,609 of the $679,307 in Program income was
not approved by the City to use for construction costs (see
Finding 2). In all, $977,554 in Program income was generated
through the sale of the 14 homes. The City, through two
change orders, permitted Housing Services, Incorporated to
use $320,470 to pay for additional construction costs. Housing
Services returned $289,475 to the City, leaving a balance due
of $367,609.
The City also provided $339,700 in deferred loans through its
Homebuyer Assistance Program to assist participants in
purchasing the nine homes. The City recorded forgivable loan
repayment agreements and property liens against all nine homes
for the homebuyer mortgage assistance provided.
The City established its Residential Project to provide the
construction of modular homes to low-income households in the
City. The Building and Safety Engineering Division’s Building
Official in the City’s Community Development Department was
responsible for the enforcement of the City’s Building Code.
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Finding 1
HUD’s Construction Analyst determined that the homes in the
HUD’s Inspector Martin Luther King Homes Residential Project did not meet the
Determined The Homes Did City’s Building Code when construction was completed.
Not Meet The City’s Furthermore, the City lacked adequate procedures and controls
Building Code to ensure violations cited by the City’s Building Official were
corrected. The housing construction work that was performed
incorrectly or was not provided related to such items as: 1) an
electric meter not secured to a house; 2) water penetration into
the house; 3) a cover for an electrical panel in a garage was not
attached; 4) weeps not provided in brick walls to allow water
to escape; 5) an uncovered hole around an outdoor water
faucet; 6) no cover plates for electrical fixtures; 7) porch railings
not anchored to concrete slabs; 8) no cross-bracing for floor
joists; 9) a lack of insulation around ducts and water pipes in
unheated areas of a garage; 10) incomplete landscaping; and
11) exterior electrical wiring was not outdoor wiring or in
conduit. The following pictures provide three examples of
construction work that was performed incorrectly or was not
provided.
The bulkhead above the electrical
panel in the garage for the house
at 278 Martin Luther King, Jr.
Boulevard prevented the panel
cover from fitting properly. An
uncovered electrical panel can be
very dangerous to children in the
home.
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Finding 1
A section of brick was omitted to
allow the placement of a hose bib
for an outside water faucet at 278
Martin Luther King Jr., Boulevard.
The large hole was not sealed.
Uninsulated pipes were running
through an unheated garage for an
above bathroom at 316 Martin
Luther King Jr., Boulevard. The
piping must have an insulated
sleeve or the garage must be heated
to prevent water lines from
breaking.
In his inspection report, HUD’s Construction Analyst stated he
could not provide an overall cost estimate for the work that was
improperly performed or not provided. He said contractors
would be needed to provide estimates—mainly due to the
uncertainty of the extent of some of the problems. For
example, the brick facing on the Stonecreek style homes lacked
weep holes to permit moisture to escape. However, to
determine the extent of any damage, part of the brick would
have to be removed.
Other observations by HUD’s Analyst included: 1) bedroom
floors over garages were not insulated; 2) vinyl siding was
encased in concrete; 3) concrete forms were not removed after
the concrete cured; and 4) poured foundation walls on the first
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Finding 1
level of all Stonecreek homes. These walls could have been
framed out of wood studs and properly finished with vinyl siding
or brick. Instead, the concrete walls are cold and not insulated.
The City re-inspected the homes in April 2002 and issued
notices of violation to the housing contractors. The contractors
never replied to the City’s notices. Therefore, the City filed a
complaint with the State against the contractors’ licenses and
decided to have a new contractor complete the repairs. The
City obtained and accepted a proposal from a contractor on
September 12, 2002 to complete repairs for the 14 homes for
$94,090. The contractor stopped making the repairs when
eight of the 14 homeowners would not allow access to their
homes due to a joint lawsuit against the City for code violations
and deplorable conditions. The City paid the contractor
$55,275 for the repairs the contractor was able to complete.
The City’s Building Official issued temporary Certificates of
Occupancy for nine homes subject to special conditions. The
special conditions in the temporary Certificates of Occupancy
for the nine homes were either not detailed or did not contain
violations identified by HUD’s Construction Analyst. For
example, the temporary Certificate of Completion for 278
Martin Luther King, Jr. Boulevard was subject to the special
conditions of landscaping and minor repairs.
The City of Pontiac lacked adequate procedures and controls
The City of Pontiac Did Not to ensure HOME Program income from the sale of the 14
Have Adequate Procedures homes was returned by Housing Services, Incorporated (see
For Ensuring Program Finding 2). As a result, HUD lacked assurance that the homes
Income Was Returned met the City’s Building Code. Prior to any sales of the homes,
Housing Services submitted payment requests to the City along
with supporting documentation as each phase of construction
passed inspection, such as electrical and plumbing. However,
once these funds were exhausted, Housing Services used
Program income after each closing to pay for continued
construction expenses without first obtaining inspection and
approval from the City. As a result, the City lost control over
the Program income and could not ensure that HOME funds
were appropriately used.
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Finding 1
Subsequent to a monitoring review by HUD’s Detroit Field
Reduction Of HOME Office of Community Planning and Development in 2002, the
Program Allocation City of Pontiac’s HOME Grant was reduced by $574,192 over
Resulting From HUD a four-year period to cover costs that exceeded the maximum
Review per unit subsidy allowed (24 CFR Part 92.250(a)). The
amount included $330,346 that exceeded maximum
development costs and $121,923 due to an ineligible over-
income homebuyer. However, the amount also erroneously
included another $121,923 as a reduction. The actual
reduction should have been $452,269 over four years. HUD’s
Detroit Field Office recognized this mistake, but was waiting for
the conclusion of our audit before making any adjustments to
the reduction that the City previously agreed to.
HUD already reduced the City’s HOME Program funds by
$287,000 for Fiscal Years 2002 and 2003 ($143,500 each
year), and is reducing the 2004 funding by another $143,500.
This would leave a balance of $55,263 due from the City for
2005 ($452,269 plus $33,494 identified in Finding 2, less
$430,500 reduced from the Program through Fiscal Year
2004). Since HUD was planning on reducing the Program’s
funding by $143,500 in 2005, a total of $88,237 would need to
be put back into the Program.
Auditee Comments [Excerpts paraphrased from the City of Pontiac’s comments on
our draft finding follow. Appendix B, pages 25 to 29, contains
the complete text of the City’s comments for this finding.]
The City disagreed with some statements made in the finding
regarding responsibility for: 1) issuing the Certificates of
Occupancy; 2) ensuring that the construction work was
provided in accordance with the Development Agreement; and
3) ensuring that the homes met the City’s Building Code when
construction was completed. However, the City indicated that
it would work closely with HUD to finish the homes and issue
final Certificates of Occupancy. The City also identified various
procedural changes to its HOME Program to show that it has
already taken corrective actions to assure assisted homes meet
the City’s Building Code and HUD’s regulations.
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Finding 1
OIG Evaluation Of The City of Pontiac is in general agreement with our
Auditee Comments Recommendations. The City stated that it plans to finish the
homes and issue final Certificates of Occupancy. The City also
identified various procedural changes to its HOME Grant
Program that appear to address the control weaknesses found
during our audit. We revised the finding to clarify the City’s
responsibilities.
Recommendations We recommend that HUD’s Detroit Field Office Director of
Community Planning and Development ensure the City of
Pontiac:
1A. Completes the construction work for the nine homes
cited in this finding so that final Certificates of
Occupancy can be issued. If the City is unable to
comply, it should reimburse its HOME Program
$842,945 ($871,057 plus $457,651, less HUD’s
adjusted four-year Program reduction of $485,763)
from non-Federal funds.
1B. Implements procedures and controls to assure assisted
homes meet the City’s Building Code as required by
HUD’s and the City’s requirements.
1C. Implements procedures and controls to monitor
developers of projects funded under the City’s HOME
Program to ensure the developers follow the Program’s
requirements.
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Finding 2
Program Income Was Not Returned To The City
Pontiac Neighborhood Housing Services, Incorporated did not return income directly generated from
the use of HOME Program funds through the City of Pontiac’s Martin Luther King Residential Project
despite the requirement in their Development Agreement with the City. The City provided Housing
Services, Incorporated $1,373,803 in HOME funds to construct 14 homes through the City’s
Residential Project. Housing Services, Incorporated received $977,554 in proceeds from the sale of
the 14 homes. The City lacked procedures and controls to ensure Housing Services, Incorporated
remitted $367,609 of the Program income back to the City. As a result, fewer funds were available for
the City’s HOME Program.
Article XV of the City of Pontiac’s Development Agreement,
City’s Development effective June 30, 1999, with Pontiac Neighborhood Housing
Agreement Services, Incorporated states all repayments, proceeds from the
sale of the homes, program income, interest, unspent
construction contingency dollars, and other returns on the
investment of HOME funds in the Martin Luther King
Residential Project will be returned to the City.
Pontiac Neighborhood Housing Services, Incorporated was a
Background community housing development organization. The City’s
Martin Luther King Homes Residential Project was fully funded
with HOME Program funds. The City initially provided
Housing Services, Incorporated $1,373,803 in HOME funds to
construct 14 homes through the City’s Residential Project.
Housing Services, Incorporated received $977,554 in proceeds
from the sale of the 14 homes. The following table shows the
proceeds Housing Services, Incorporated received from the
sale of each of the 14 homes.
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Finding 2
Proceeds
Property Address From Sale
196 Martin Luther King, Jr. Boulevard $78,532
208 Martin Luther King, Jr. Boulevard 71,538
234 Martin Luther King, Jr. Boulevard 70,515
256 Martin Luther King, Jr. Boulevard 71,538
264 Martin Luther King, Jr. Boulevard 65,803
272 Martin Luther King, Jr. Boulevard 60,682
278 Martin Luther King, Jr. Boulevard 74,138
284 Martin Luther King, Jr. Boulevard 65,803
292 Martin Luther King, Jr. Boulevard 65,803
298 Martin Luther King, Jr. Boulevard 71,538
304 Martin Luther King, Jr. Boulevard 65,803
310 Martin Luther King, Jr. Boulevard 65,803
316 Martin Luther King, Jr. Boulevard 71,538
322 Martin Luther King, Jr. Boulevard 78,520
Total $977,554
In accordance with 24 CFR Part 92.503 and HUD’s CPD
Notice 97-9, the City required Housing Services, Incorporated
to return all HOME Program income from the Residential
Project to the City. However, the City amended its
Development Agreement effective March 23, 2000 and
September 22, 2000 to allow Housing Services, Incorporated
to retain $320,470 in Program income to offset construction
costs. Therefore, the City provided Housing Services,
Incorporated a total of $1,694,273 in HOME funds for the
Residential Project ($1,373,803 plus $320,470). Housing
Services, Incorporated returned $289,475 of the sale proceeds
to the City in December of 2001, and discontinued its
operations in July 2002. Contrary to the City’s Development
Agreement, Housing Services, Incorporated did not remit the
remaining $367,609 of Program income to the City.
In July 2002, HUD’s Office of Grant Programs and the City
The City Agreed To agreed to reduce future HOME funding to the City by
Reductions In HOME $574,000 over a four-year period (Fiscal Year 2002 through
Funding 2005). This was based on the Detroit Field Office of
Community Planning and Development’s monitoring findings.
HUD’s Detroit Field Office staff realized that the actual
reduction should have been $452,269, but failed to notify HUD
Headquarters in time to adjust the programmed reduction in
Grant funds. HUD’s Detroit Field Office decided to wait for
our audit results before making any final adjustments. The
reduction in funding was due to the use of HOME funds for
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Finding 2
ineligible activities through the City’s Residential Project known
as Martin Luther King Homes. The ineligible activities included
excessive development costs resulting from Housing Services,
Incorporated use of Program income for construction costs and
providing housing to one ineligible participant.
HUD did not include $33,494 in HOME Program income that
HUD Did Not Include Housing Services failed to remit to the City as part of its
$33,494 In Program Income Agreement with the City. This is noted in the following chart:
That Housing Services Failed
To Remit HUD’s Audit’s
Description of HOME Costs Figures Figures
Costs Reimbursed By City $1,373,803 $1,373,803
Engineering Services 8,880 8,880
Total Costs Paid By City $1,382,683 $1,382,683
Program Income 944,060 977,554
Total Generated By Program $2,326,743 $2,360,237
Maximum Development Costs 1,706,922 1,706,922
Amount of Cost Overruns $619,821 $653,315
Program Income Returned -289,475 -289,475
Program Income Due the City
$330,346 $363,840
Ineligible/Over Income Buyer
121,923 121,923
Reduction in HOME Grant
$452,269 $485,763
Difference from Audit
Additional Reduction to HOME -452,269
$33,494
The maximum development costs for the Project was based on
$121,923 as the maximum allowable unit development cost for
a three bedroom housing unit multiplied by the 14 homes.
The City lacked adequate procedures and controls to ensure
The City Lacked Adequate Housing Services, Incorporated returned Program income from
Procedures And Controls the sale of the 14 homes. The City allowed sales proceeds to
be paid directly to Housing Services, Incorporated without any
recourse for obtaining the Program income. As a result, fewer
funds were available for the City’s HOME Program.
During Fiscal Year 2002, the City initiated action to require all
Program income generated by community housing and
development organizations to be returned to the City before
these funds can be spent on eligible HOME activities.
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Finding 2
Auditee Comments [Excerpts paraphrased from the City of Pontiac’s comments on
our draft finding follow. Appendix B, pages 29 to 31, contains
the complete text of the City’s comments for this finding.]
The City disagreed with the statement that future HOME
Program funds were already reduced by $452,269 for the four-
year period of Fiscal Years 2002 through 2005. The actual
Grant reduction for the four-year period was $574,192. The
City did not dispute the $33,494 in additional Program income
owed to the HOME Program, but stated that repaying this
amount from the City’s General Fund would create an
economic hardship. Since the City had taken a greater per year
Grant reduction from HUD for its HOME Program in error, it
requested that the $33,494 be included in the calculation of the
Grant reduction agreement with HUD.
OIG Evaluation Of The City generally concurred with our draft audit report and
Auditee Comments Recommendations for this finding. Based on the City’s
statement, we revised the finding regarding the Grant reduction
agreement.
Recommendations We recommend that HUD’s Detroit Field Office Director of
Community Planning and Development ensure the City of
Pontiac:
2A. Reimburses the additional HOME Program income of
$33,494 by including this amount in the Grant reduction
agreement with HUD.
2B. Implements adequate procedures and controls to
ensure developers return Program income to the City in
accordance with executed written agreements.
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Management Controls
Management controls include the plan of organization, methods, and procedures adopted by
management to ensure that its goals are met. Management controls include the processes for planning,
organizing, directing, and controlling program operations. They include the systems for measuring,
reporting, and monitoring program performance.
We determined that the following management controls were
Relevant Management relevant to our audit objectives:
Controls
• Program Operations - Policies and procedures that
management has implemented to reasonably ensure that a
program meets its objectives.
• Validity and Reliability of Data - Policies and procedures
that management has implemented to reasonably ensure that
valid and reliable data are obtained, maintained, and fairly
disclosed in reports.
• Compliance with Laws and Regulations - Policies and
procedures that management has implemented to
reasonably ensure that resource use is consistent with laws
and regulations.
• Safeguarding Resources - Policies and procedures that
management has implemented to reasonably ensure that
resources are safeguarded against waste, loss, and misuse.
We assessed all of the relevant controls identified above during
our audit of Pontiac Neighborhood Housing Services,
Incorporated’s HOME Investment Partnership Program.
It is a significant weakness if management controls do not
provide reasonable assurance that the process for planning,
organizing, directing, and controlling program operations will
meet an organization's objectives.
Based on our review, we believe the items on the following
Significant Weaknesses page are significant weaknesses:
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Management Controls
• Program Operations
The City of Pontiac failed to ensure Pontiac Neighborhood
Housing Services, Incorporated: 1) followed HUD’s
requirements and its Development Agreement with the City to
ensure homes assisted through the Martin Luther King
Residential Project met the City’s Building Code; and 2)
returned Program income directly generated from the use of
HOME funds through the City’s Residential Project (see
Findings 1 and 2).
• Compliance with Laws and Regulations
The City did not ensure Housing Services, Incorporated
followed Title II, Section 203, of the Cranston-Gonzalez
National Affordable Housing Act of 1990 and HUD’s
regulations regarding homes assisted through the Residential
Project and the return of Program income generated from the
use of HOME funds (see Findings 1 and 2).
• Safeguarding Resources
The City did not ensure Housing Services, Incorporated:
effectively used $871,057 of HOME funds to pay for the
construction of nine homes that did not meet the City’s Building
Code; and returned $33,494 of Program income directly
generated from the use of HOME funds through the City’s
Residential Project. Housing Services, Incorporated also used
$457,651 in Program income generated from the sale of the
homes to pay for additional construction costs for these nine
homes, without full approval from the City (see Findings 1 and
2).
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Follow-Up On Prior Audits
This is the first audit of Pontiac Neighborhood Housing Services, Inc’s HOME Program by HUD’s
Office of Inspector General. The latest Independent Auditors’ Report for Housing Services,
Incorporated covered the period ending June 30, 2001. The report contained no findings.
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Appendix A
Schedule Of Ineligible Costs
Recommendation
Number Ineligible Costs 1/
1A $842,945
2A 33,494
Total $876,439
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law, contract, or Federal, State, or local
policies or regulations.
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Appendix B
Auditee Comments
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Pontiac Neighborhood Housing Services, Incorporated's HOME Investment Partnership Program, Pontiac, Michigan
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-05-05.
Below is a raw (and likely hideous) rendition of the original report. (PDF)