U. S. Department of Housing and Urban Development
New York/New Jersey Office
Jacob K. Javits Federal Building
26 Federal Plaza – Room 3430
New York, New York 10278-0068
MEMORANDUM NO:
2004-NY-1804
September 15, 2004
MEMORANDUM FOR: Joan K. Spilman, Director, Public Housing Division, 2CPH
FROM: Alexander C. Malloy, Regional Inspector General for Audit, 2AGA
SUBJECT: Micro Loan Program
Buffalo Municipal Housing Authority
Buffalo, New York
INTRODUCTION
We conducted a limited review of the Micro Loan Program that was sponsored by the Buffalo
Municipal Housing Authority (BMHA), but administered by the Temple Community
Development Corporation (TCDC). The review initiated from information obtained during our
review of complaints filed with the Office of Inspector General’s (OIG) Hotline. The results of
our evaluation of the complaints are reported in a separate memorandum. However, in addition
to determining whether the complaints have validity, we also evaluated BMHA’s monitoring of
TCDC’s administration of the program, as well as, TCDC’s compliance with the terms of its
contract with the BMHA to administer the Micro Loan Program. The results of this evaluation
are contained in this memorandum.
METHODOLOGY AND SCOPE
We performed our on-site work at the office of the BMHA, the TCDC, and the Buffalo Field
Office of the United States Department of Housing and Urban Development (HUD). Generally,
the review covered the period between January 1, 2001 and December 31, 2003; however, it was
extended as necessary. Our on-site review work was conducted between June and August 2004.
We interviewed: members of HUD’s staff; employees of the BMHA; representatives of the
TCDC; a BMHA contracted investigator; and a complainant. Also, we reviewed program records
maintained at HUD, the BMHA, and the TCDC.
Memorandum
BACKGROUND
The Micro Loan Program was part of a $500,000 1997 Economic Development and Supportive
Services grant that HUD awarded the BMHA under the Combined Notices of Funding
Availability for fiscal year 1997 for the Public and Indian Housing Economic Development and
Supportive Services Program, NY06EDS0020197. The BMHA entered into a subrecipient
agreement with the Buffalo Urban League to act as a micro loan administrator for $87,000 of
loan funds. The purpose of the program was to provide funds to public housing residents wishing
to start or expand their own small business operation. The Buffalo Urban League did not make
any loans during the term of its agreement. The BMHA then entered into an agreement with the
TCDC to administer the same $87,000 of loan funds.
RESULTS OF REVIEW
Our review disclosed deficiencies pertaining to the BMHA’s monitoring and TCDC’s
administration of the Micro Loan Program. Specifically, we found that the BMHA (1) did not
adequately monitor the contract performance of TCDC, (2) paid administration fees to TCDC
that were unreasonable, (3) overpaid TCDC for loan-servicing fees, and (4) did not ensure that
the TCDC had an adequate system in place to track the status and repayments of loans.
Additionally, we noted that TCDC did not meet the performance goals set forth in the contractual
agreements. According to the agreements, TCDC was to administer and maintain a minimum of
seventeen loans to residents of the BMHA. The original $87,000 was to be loaned no later than
October 1, 2001. By the end of the contracts in December 2002, TCDC was only administering
and maintaining nine loans totaling $39,100. Thus, $47,900 of program funds has not been
utilized for its intended purpose.
Also, we noted that the BMHA paid TCDC a total of $38,334 in administration fees and $19,050
in loan-servicing fees from its Capital Funds Program. The original contract called for a
maximum of $20,000 in administrative fees, which was amended to provide additional
administration fees of $8,334. The second contract provided for a maximum of $10,000 in
administrative fees. The BMHA paid the maximum in administrative fees even though the
TCDC did not meet its performance goals for any of the contracts. We believe that the $38,334
in administrative fees was excessive and unreasonable since TCDC failed to meet established
performance goals.
Pursuant to the terms of the contracts, the TCDC was to be paid a loan-servicing fee of 15
percent of each loan amount. The TCDC administered and maintained $39,100 in loans and
should have received $5,865 (15 percent of $39,100) in loan-servicing fees. However, BMHA
paid the TCDC $19,050 in loan-servicing fees, which was $13,185 in excess of fees that the
TCDC earned. Therefore, the amount of unearned loan service fees of $13,185 is considered an
ineligible cost to the Capital Funds Program.
In June 2003, the BMHA requested reimbursement of the unused Micro Loan Program funds
from the TCDC. By October 2003, the TCDC had returned the $47,900 in unused loan funds to
the BMHA. In May 2004, the BMHA requested the TCDC to provide the status of the loan
Page 2 2004-NY-1804
Memorandum
recipients. The TCDC responded with information on the nine recipients including the amount of
repayments made by them. The TCDC wrote a check to the BMHA on May 26, 2004 for
$5,541.27 that represented program income from the loan repayments. However, we could not
verify the accuracy of any of the program income because the TCDC did not maintain adequate
records on the loan recipients’ repayment activities.
The results of our review were discussed with officials of the BMHA during an exit conference
held on September 7, 2004. Although we requested written comments, officials of the BMHA
chose not to provide any for inclusion in this memorandum.
RECOMMENDATIONS
We recommend that the Director of Public Housing Division, Buffalo Field Office:
1A. Make a determination on the appropriate accounting and usage of the $47,900 in
unexpended grant funds since the Economic Development and Supportive Services
grant has been closed out.
1B. Determine whether the $38,334 in administrative fees was excessive since the TCDC
failed to meet established performance goals. If the amount is determined to be
excessive, the BMHA should require the TCDC to reimburse the excessive amount to
BMHA’s Capital Funds Program from non-Federal funds.
In addition, we recommend that the Director of Public Housing Division, Buffalo Field Office
instruct the Buffalo Municipal Housing Authority to:
1C. Reimburse the Capital Funds Program from non-Federal funds the $13,185 in unearned
service fees paid to the Temple Community Development Corporation.
1D. Implement adequate management controls and monitoring procedures over the TCDC,
to ensure that adequate records of loan repayment activities are created and maintained.
In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation in this memorandum, 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 issuance for any
recommendation without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of our review.
Should you or your staff have any questions, please contact Garry Clugston, Assistant Regional
Inspector General for Audit at (716) 551-5755, extension 5901.
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Memorandum
Schedule of Questioned Costs
Recommendation Ineligible Unsupported Funds Put to
Number Costs 1/ Costs 2/ Better Use 3/
1A ---0--- ---0--- $47,900
1B $13,185 ---0--- ---0---
1C ---0--- ---0--- ---0---
1D ---0--- $38,334 ---0---
Total $13,185 $38,334 $47,900
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.
2/ Unsupported costs are costs whose eligibility cannot be clearly determined during the
audit since such costs were not supported by adequate documentation. A legal opinion or
administrative determination may be needed on these costs.
3/ Funds put to better use are costs that will not be expended in the future if our
recommendations are implemented, for example, costs not incurred, de-obligation of
funds, withdrawal of interest, reductions in outlays, avoidance of unnecessary
expenditures, loans and guarantees not made, and other savings.
Page 4 2004-NY-1804
Micro Loan Program, Buffalo Municipal Housing Authority, Buffalo, New York
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-09-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)