oversight

Fulton County, Georgia, Lacked Adequate Controls Over Its HOME Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-03-07.

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

                                                                       Issue Date
                                                                             March 7, 2008
                                                                       Audit Report Number
                                                                             2008-AT-1006




     TO:        Mary D. Presley, Acting Director, HUD Atlanta Office of Community Planning
                and Development, 4AD

                Henry S. Czauski, Acting Director, Departmental Enforcement Center, CV



     FROM:      James D. McKay, Regional Inspector General for Audit, 4AGA

     SUBJECT:   Fulton County, Georgia, Lacked Adequate Controls Over Its HOME Program

                                       HIGHLIGHTS

      What We Audited and Why


                We audited Fulton County’s (County) HOME Investment Partnerships (HOME)
                program as part of the U.S. Department of Housing and Urban Development’s
                (HUD) annual audit plan. Our audit objectives were to determine whether the
                County complied with HOME program requirements for review and approval of
                project activities, commitments, completion of project activities, eligibility and
                reasonableness of project costs, and matching funds.

      What We Found


                The County did not properly manage its HOME program and consistently failed
                to follow requirements. Our review identified more than $6.4 million in HOME
                funds that involve questioned costs, funds that are subject to recapture, and a
                missing match contribution. Specifically, the County did not (a) properly commit
                more than $2.57 million and is in danger of losing another $828,008 that is
                approaching the commitment deadline, (b) prepare or maintain proper
                documentation to support project approvals, (c) ensure the eligibility of more than
                $1.26 million, (d) ensure proper support of more than $1.55 million, (e)


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           effectively address project delays, (f) maintain records to support affordable
           housing compliance, (g) contribute more than $226,000 in HOME match funds,
           (h) maintain proper performance records, (i) conduct or document project
           monitoring, and (j) properly maintain and manage program staff. The violations
           occurred because County management and staff did not follow and enforce
           program requirements.

 What We Recommend


           We recommend that the Acting Director of the Departmental Enforcement Center,
           in coordination with the Acting Director of HUD’s Atlanta Office of Community
           Planning and Development, take appropriate administrative action against the
           County official responsible for the most significant reported violations. We also
           recommend that the Acting Director of HUD’s Atlanta Office of Community
           Planning and Development require the County to properly support or repay more
           that $4.28 million in questioned costs, recapture more than $2.16 million because
           of program violations, and determine whether the County has the capacity to
           continue administering the HOME program. If the County does not have the
           capacity to continue administering the program, the Acting Director should
           terminate the program and reallocate the County’s HOME funding to other
           properly performing participating jurisdictions. If the County is allowed to
           continue administering the program, we recommend that the Acting Director
           require it to establish and implement proper controls and procedures to ensure
           compliance with program requirements. The Acting Director should require the
           County to obtain periodic reviews of the program by its internal audit division to
           confirm compliance and provide copies of the reports to your office with actions
           taken to correct reported violations.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We provided our discussion draft audit report to the County on January 9, 2008.
           We held an exit conference on January 17, 2008. The County provided written
           comments on January 25, 2008. The County generally agreed with the finding
           but felt the finding focused on past problems and believed that they have taken
           steps to bring the program into compliance with requirements.

           The complete text of the County’s written response, along with our evaluation of
           that response, can be found in appendix B of this report. We did not include all
           attachments to the Auditee’s response due to the voluminous nature of the
           attachments, but the attachments are available upon request.
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                          TABLE OF CONTENTS


Background and Objectives                                                  4

Results of Audit
      Finding 1:    The County Lacked Adequate Controls Over Its HOME      5
                    Program


Scope and Methodology                                                      19

Internal Controls                                                          21

Appendixes
       A            Schedule of Questioned Costs and Funds to Be Put to
                    Better Use                                             22

        B           Auditee Comments and OIG’s Evaluation                  23

        C           Schedule of Funds Not Committed by the Required
                    Deadline                                               32

       D            Schedule of Project Review and Approval Deficiencies   33




                                           3
                       BACKGROUND AND OBJECTIVES


Fulton County, Georgia (County), is governed by an elected seven-member board of
commissioners who serve concurrent four-year terms. A board-appointed county manager
administers the County’s operations. The county manager appoints department heads and
supervises County employees. The County’s Department of Housing and Community
Development administers its HOME Investment Partnerships (HOME) program. From 1992
through 1999, the County received HOME funding as a member of the Georgia Urban County
Consortium.

Effective January 1, 2000, the U.S. Department of Housing and Urban Development (HUD)
approved the County as a participating jurisdiction, after which it began operation as the Fulton
County Consortium, which also provides HOME funding to the city of Roswell, Georgia. Since
becoming a participating jurisdiction, the County has received more than $10.5 million in
HOME and American Dream Downpayment Initiative funds. HOME funding is allocated to
eligible state and local governments to strengthen public-private partnerships and to supply
decent, safe, and sanitary affordable housing to very low-income families. Participating
jurisdictions may use HOME funds to carry out multiyear housing strategies through acquisition,
rehabilitation, new construction, and tenant-based rental assistance.

Past HUD reviews of the County’s HOME program expressed concerns about its capacity to
administer major program components. The reviews expressed specific concerns about the
commitment of program funds, accounting for program income, low production of affordable
housing units, and slow completion of projects.

Our audit objectives were to determine whether the County complied with HOME program
requirements for review and approval of project activities, commitments, completion of project
activities, eligibility and reasonableness of project costs, and matching funds.




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                                                4
                                   RESULTS OF AUDIT


Finding 1: The County Lacked Adequate Controls Over Its HOME
           Program
The County did not properly manage its HOME program and consistently failed to follow
program requirements. Our review identified more than $6.4 million in HOME funds that
involve questioned costs, funds that are subject to recapture, and a missing match contribution.
The violations occurred because County management and staff did not follow and enforce
program requirements.



Specifically, the County did not

       •   Follow commitment requirements involving more than $2.57 million and is in danger
           of losing another $828,008 that is approaching the commitment deadline,
       •   Prepare or maintain proper documentation and analysis to support project approvals,
       •   Ensure the eligibility of more than $1.26 million,
       •   Ensure proper support of more than $1.55 million,
       •   Effectively address project delays,
       •   Maintain adequate support for affordable housing compliance,
       •   Contribute more than $226,000 in HOME match funds,
       •   Maintain performance documentation,
       •   Conduct or document its monitoring of project activities, and
       •   Maintain adequate staff and ensure proper staff control over program records.

The conditions bring into question the County’s capacity to properly administer program
activities, particularly those carried out by community housing development organizations and
developers of single-family/multifamily housing. The review confirmed and expanded issues
previously identified by HUD concerning activity eligibility and excessive delays in completing
affordable housing activities. The violations hampered the County’s ability to develop and sell
affordable housing units to HOME-eligible persons in a timely manner.

 Commitment Requirements Not
 Followed


               The County did not properly commit or is in danger of not committing in a timely
               manner more than $3.4 million in HOME funds that are or may be subject to
               recapture by HUD because it did not or may not meet the commitment deadline
               (detailed in appendix C). Also, it did not accurately report commitment
               information to HUD. Regulations at 24 CFR [Code of Federal Regulations]
               92.500(d) states that HUD will recapture or reduce HOME funds not committed
                                                5
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           within 24 months after the last day of the month in which HUD provides notice of
           its execution of the HOME agreement. The $3.4 million consists of

           •      $2.57 million, detailed in appendix C, for 10 of 17 activities examined for
                  which the County did not commit the funds by the 24-month commitment
                  deadline. The amount includes more than $1.24 million that was
                  committed after expiration of the 24-month commitment deadline and
                  more than $1.33 million that the County had not committed at the time of
                  our review.

           •      $828,008 in 2006 funding that is in danger of recapture because the
                  commitment deadline will expire on March 31, 2008, and the County had
                  not committed the funds. In July 2007 the County advertised notices of
                  fund availability for more than $2.2 million that included this amount.
                  The County only received two responses to the notices and an application
                  from each respondent. One respondent applied for more than $1.58
                  million to assist with a development estimated to cost more than $44.5
                  million. The County had not funded a project this large during the period
                  covered by the review. The other respondent applied for $240,000. As of
                  October 5, 2007, the County was reviewing but had not approved the
                  applications. We question the funds because the County has a history of
                  not committing funds within the required time frame and of not properly
                  reviewing and approving applications for assistance, as discussed below.

           The County entered incorrect commitment dates into HUD’s Integrated
           Disbursement and Information System for 16 of 17 sampled activities. We could
           not verify the actual commitment date for the remaining activity. The incorrect
           data included more than $2.7 million for eight activities, for which the County
           entered commitment dates that were earlier than the actual commitment dates, and
           $1.15 million for another eight activities, for which the County entered
           commitment dates that were later than the actual commitment dates. HUD
           officials told us that they did not verify commitments that the County entered into
           the system. The incorrect dates reduced the effectiveness of the report as a tool
           for HUD’s monitoring compliance with the program’s commitment requirements.

Projects Approved without Required
Documentation and Supporting Analysis


           The County, as detailed in appendix D, did not maintain the required
           documentation and analysis to support its approval of nine activities examined.
           Regulations at 24 CFR 92.504 provide that recipients are responsible for
           managing the day-to-day operations of their HOME program, ensuring that
           HOME funds are used in accordance with all program requirements and written
           agreements. The regulations also state that before disbursing any HOME funds to
           any entity, recipients must enter into a written agreement with that entity. Notice
           CPD (Community Planning and Development) 98-1 states that as part of the
                                            6
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         application process, recipients should have the applicant submit a statement of
         sources/uses of funds for the project and conduct a subsidy layering review.
         Regulations at 24 CFR 92.508 require recipients to establish and maintain
         sufficient records to enable HUD to determine compliance with requirements.

         Specifically, the County

         •      Approved a $1 million deferred loan for foster care housing without
                proper documentation of the review and approval process. We determined
                that the loan was not eligible for HOME funding.

         •      Approved five of nine projects without obtaining or documenting the
                required source and application of fund statements. The remaining four
                statements were not dated, and we could not determine whether they were
                the original submissions. The statements were needed to conduct the
                required subsidy layering reviews.

         •      Approved all nine projects without performing or documenting a subsidy
                layering review. The reviews were needed to ensure that HOME funds
                used for the projects were the least amount needed to complete them. The
                review is required for all projects assisted with other government funds
                and is suggested for those that are not.

         •      Approved eight of nine projects without obtaining or documenting that the
                developers had the total funds needed to complete them, including three
                projects for which the missing documentation contributed to excessive
                project delays as discussed in the delayed activity implementation section
                of the report.

         •      Approved three of nine projects without evidence of executed written
                agreements.

         •      Allowed changes in two projects that affected their eligibility for HOME
                funding. Project 1346 is not eligible because the County allowed the
                developer to terminate the initial multifamily development and replace it
                with a single-family development. Project 2162 is not properly supported
                because the County allowed the developer to change from construction of
                detached single-family homes to condominiums without reassessing the
                overall activity and the amount of HOME funds needed for the activity.

         •      Allowed a project that involved a conflict of interest. The project’s
                developer concurrently served on the board of a nonprofit organization
                that the County formed to approve and make decisions concerning its
                HOME activities. The individual, while on the board, represented himself
                before the board as the project’s developer.


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           The above conditions resulted in missed opportunities by County officials to
           detect and prevent improper project approvals and conditions that resulted in
           more than $1.26 million in improper charges and more than $1.55 million in costs
           that were not properly supported.

Inappropriate Program
Charges

           The County spent more than $1.26 million for costs that did not meet or were not
           supported as meeting program requirements. Thus, the County violated the
           certification made in its consolidated plan that it would not use HOME funds for
           prohibited activities. The costs consisted of

           •      $1 million in a deferred loan for project 660 to a community housing
                  development organization to develop foster care housing for children. The
                  project did not meet the program’s requirements for affordable rental
                  housing. Notice CPD 01-5 provides that rental housing for foster children
                  must meet the requirements for affordable rental housing and the HOME
                  program’s lease requirements. Residents of HOME-funded rental housing
                  must have a tenant-to-owner status that is, at least to some degree,
                  independent of state placement decisions. The community housing
                  development organization representative acknowledged that the project
                  was a foster care facility and that it would not require the occupants to
                  sign lease agreements. The representative’s description of the housing
                  was consistent with what we observed when we reviewed the project plans
                  and inspected the construction work. As previously discussed (details in
                  appendix D, note A) the County approved this project without conducting
                  or documenting a proper review and assessment of its eligibility.

           •      $263,679 to purchase land for project 1346, a multifamily project, which
                  was terminated and replaced by a single-family development (details in
                  appendix D, note D) for which the County had not assigned a project
                  number. Regulations at 24 CFR 92.205(e) state that HOME-assisted
                  projects that are terminated before completion, either voluntarily or
                  otherwise, constitute an ineligible project. The County did not execute a
                  written agreement that required the new developer to comply with HOME
                  requirements. Regulations at 24 CFR 92.504(a) and (b) provide that
                  recipients are responsible for ensuring that HOME funds are used in
                  accordance with written agreements. Before disbursing any HOME funds
                  to any entity, the recipient must enter into a written agreement with that
                  entity to ensure compliance with program requirements. The $400,000
                  spent on the project included $136,321 ($400,000 – $263,679 = $136,321)
                  not allowed in the previous section because the funds were not committed
                  by the required deadline date.


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                                           8
Costs Not Properly Supported

           The County disbursed $1.55 million for projects that were not properly supported
           as allowable HOME costs. The amount included costs for several projects that
           were not adequately progressing toward construction completion and the sale of
           affordable housing units to program-eligible individuals. Regulations at 24 CFR
           92.508 require recipients to establish and maintain sufficient records to enable
           HUD to determine compliance with program requirements. The $1.55 million
           consists of

           •      $525,000 disbursed for project 462. At the time of our review, the
                  developer was more than 12 months past the required construction start
                  date and had not started to develop the vacant site. The County could not
                  support that the developer had the financial commitments needed to
                  complete the project. This condition, coupled with the delays discussed
                  below, brings into question whether the developer had the ability to
                  complete construction and provide affordable housing in a timely manner.

           •      $464,850 paid for project 2162 that was not supported as allowed because
                  the County permitted changes that may represent a prohibited terminated
                  activity. Regulations at 24 CFR 92.205(e) state that HOME-assisted
                  projects that are terminated before completion, either voluntarily or
                  otherwise, constitute an ineligible project. Although home construction
                  had not started, the developer changed the original plan to construct 14
                  detached single-family homes with plans to construct 29 condominiums
                  type units (details in appendix D, note C). County officials acknowledged
                  that they were aware of the change although the files contained no
                  documentation concerning the change. The cost incurred included
                  $220,000 in inadequately supported payments for predevelopment cost
                  ($30,000) and overruns ($190,000). The County could not locate and
                  provide executed written agreements for the payments. In addition, it
                  approved the project without certain required documentation and
                  assessments (details in appendix D, note C)

           •      $250,000 that the County disbursed for projects 788 ($130,000) and 661
                  ($120,000) but could not locate and provide executed agreements that
                  required the developers to comply with program requirements. Without
                  the agreements, we could not determine whether the developers were
                  required to abide by program requirements.

           •      $210,000 that the County disbursed in October 2005 for project 1313 for
                  inadequately supported cost overruns. The County did not maintain or
                  provide proper documentation to support calculation of the overrun and
                  adequately explain why it used HOME funds for the payment. The total
                  project cost, $509,680, includes $299,680 ($509,680 – 299,680 =
                  $210,000) questioned in the previous section as not having been
                  committed by the required deadline date.
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              •          $104,171 disbursed in December 2005 to purchase two modular homes
                         that were not supported as reasonable and necessary HOME
                         disbursements. The County could not produce records needed to support
                         how the purchases were related to its HOME program, where the homes
                         were located, and how they were being used. The sales contract attached
                         to the payment vouchers was signed by the seller but not by a County
                         representative. The payment vouchers contained no evidence of bids from
                         other prospective vendors and did not show where the homes were
                         delivered. Prior County staff made the purchases. The County’s current
                         staff could not find any further information about the modular homes.


 Delayed Activity Implementation


              The County did not take or adequately document actions to address excessive
              delays that may jeopardize the eventual completion and sale of affordable housing
              for three of nine projects examined. Regulations at 24 CFR 92.2 and the
              development agreements required the developers to start construction within 12
              months of their written agreements with the County. Regulations at 24 CFR
              92.504 provide that recipients are responsible for managing the day-to-day
              operations of their HOME program, ensuring that HOME funds are used in
              accordance with all program requirements and written agreements and taking
              appropriate action when performance problems arise. The developers either did
              not start construction within the required timeframe or did not continue with
              construction once started.

              The three single-family subdivisions were 12 to 67 months past the required
              construction start dates with no clearing activity at one site and no homes
              constructed at the other two sites. County files contained no evidence that the
              County performed the required annual monitoring reviews of the projects, and the
              files did not contain adequate explanations for the delays and actions to correct
              them. HUD’s 2005 and 2007 monitoring reviews also expressed concerns about
              the projects’ slow performance.

                                              Months             Number of
                                                past           homes required/
    Project     Home           Required      required              number
    number    investment       start date    start date          constructed                      Status
      462       $525,000     June 23, 2006       12                 38/0         Site not cleared. No infrastructure
                                                                                  and no homes built.
     1313         $509,680   Dec. 04, 2003      42                  32/0         Infrastructure underway but no
                                                                                  homes constructed
     2162         $464,850   Dec. 11, 2001      67                  14/0         Site cleared, infrastructure in
                                                                                  process, but no homes constructed
              $1,499,530                                            84/0




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            •       The County files for project 462 did not contain evidence that the
                    developer had or later obtained the financial commitments needed to
                    complete the project. In March 2007, the County initiated collection
                    action due to the delay but later terminated that action without
                    documenting why. We visited the site on June 13, 2007, and observed that
                    the site was still vacant with no construction in progress.




            •       The developer for project 1313 stated that the project was delayed by the
                    County’s slow permit process, turnover among County inspectors, and
                    new inspectors who rejected previously approved work but required work
                    the prior inspector did not require. The County did not enforce its
                    agreement that required full repayment of the HOME loan between
                    January 1, 2004, and December 31, 2007. The files showed that on July
                    18, 2006, the County initiated collection efforts but discontinued the
                    efforts without documenting the file to show why. County officials did
                    not provide a reason why they ceased collection efforts. We visited the
                    site on June 12, 2007, and noted that the infrastructure was in place but no
                    homes had been constructed.




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                                             11
                 The delays continued. For instance, the developer provided revised
                 financing documents showing that home construction was supposed to
                 have started in August 2007. However, the developer stated that he
                 planned to start construction in January 2008, another delay. In addition,
                 the developer stated that his infrastructure loan would come due in
                 January 2008 and that during that month he would apply for a loan to
                 construct homes on the site.

          •      The County did not enforce the repayment terms specified in the now-
                 expired agreement, executed on December 11, 2000, with the developer of
                 project 2162. The agreement required the developer to repay the HOME
                 loan when 11 homes were sold or within five years, whichever came first.
                 The agreement expired in December 2005. On July 18, 2006, the County
                 declared the developer to be in default due to slow progress. The County
                 later dropped action on the default without explanation. The County had
                 not obtained payment of the defaulted loan and had not executed a new
                 agreement with the developer. We visited the site on June 12, 2007, and
                 noted that the infrastructure was in place but no homes had been
                 constructed.




          The completion of these projects may be in jeopardy due to the above-cited
          reasons and the recent downturn in the housing market. For instance, on August
          6, 2007, an Atlanta business journal reported that the Atlanta area housing market
          might be in a slump for another 18 months and that the sales of new and existing
          homes were down metrowide almost 26 percent from the same time a year earlier,
          coupled with a 9.8 month housing inventory supply. Another business source
          showed that foreclosures in Fulton County amounted to 1 out of 76 homes,
          compared to 1 out of 167 for the state of Georgia and 1 out of 225 for the United
          States.


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                                          12
Inadequate Support for Affordable
Housing Compliance


           We examined home sales in project 1876, the County’s only completed
           subdivision development, and determined that the County did not

           •      Document whether the 22 affordable housing units required by the written
                  agreement equaled the minimum number required by the program. The
                  County did not obtain and maintain budget and cost data needed to support
                  how it determined the number of affordable housing units. Regulations at
                  24 CFR 92.508 require recipients to establish and maintain sufficient
                  records to enable HUD to determine compliance with program
                  requirements.

           •      Ensure that the 21 units identified as affordable housing were only sold to
                  individuals who met the required income limits. Regulations at 24 CFR
                  92.508 require recipients to maintain records demonstrating that each
                  family is income eligible. We reviewed the files for 21 of the 22
                  affordable home sales and identified deficiencies in 11 or 52 percent of the
                  sales. The County did not verify the income and family composition for
                  the 11 homebuyers. County officials stated that their closing attorneys
                  maintained the supporting information. We contacted the closing
                  attorneys, who stated that they did not perform the verifications and that
                  the County did not request them to do so. We determined that two of the
                  eleven homebuyers had incomes that exceeded the program’s limit.

           Because of these conditions, the County could not support that project 1876 met
           the program’s affordable housing objective. Thus, the $384,300 spent on the
           activity is not supported as an eligible program cost. This condition is in addition
           to the cost’s not being allowable because the County did not commit funds to the
           activity by the required deadline. This amount is included in the $2.57 million
           discussed on page 6.

Missing HOME Match
Contribution

           The County’s general ledger and consolidated annual performance and evaluation
           report did not show receipt of an estimated $226,950 due as its HOME program
           match for program year 2001. Regulations at 24 CFR 92.218(a) provide HUD’s
           requirement for the match calculation and payment. A County official stated that
           HUD may have waived the match due to a weather disaster in the area. However,
           the County could not provide documentation of a waiver request approved by
           HUD. A HUD official stated that the County was eligible but did not apply for
           the waiver. Without documentation of a HUD waiver, the County is obligated to
           contribute the past-due match contribution.
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 Missing Performance
 Documentation

            The County could not locate and support the number of affordable housing units
            created through the use of its HOME funds. Regulations at 24 CFR 92.508
            require participating jurisdictions to establish and maintain sufficient records to
            enable HUD to determine compliance with program requirements. Without the
            performance information, we could not readily determine whether the County
            substantially met its affordable housing objective. The missing records may have
            impacted the County’s ability to report accurate information to HUD in its
            consolidated annual performance and evaluation report.

            For instance, on April 11, 2007, HUD wrote to the County concerning problems
            with information contained in its 2006 consolidated annual performance and
            evaluation report. Among other items, HUD noted that the report contained the
            same (a) major accomplishments included in its 2005 report, (b) match balances
            included in its 2005 and 2004 reports, and (c) on-site inspection data included in
            its 2005 and 2004 reports. HUD requested a corrected report. The County
            submitted a revised report, but HUD also determined it to be unacceptable.
            Regulations at 24 CFR 91.520(f) provide that if a satisfactory report is not
            submitted in a timely manner, HUD may suspend funding until a satisfactory
            report is submitted or may withdraw and reallocate funding if HUD determines
            that the jurisdiction will not submit a satisfactory report.

 Required Monitoring Not
 Documented or Performed

            The County did not perform or document the required annual monitoring for any
            of the nine projects selected for review. Regulations at 24 CFR 92.504(a) require
            recipients to conduct annual reviews of the performance of each contractor and
            subrecipient. Regulations at 24 CFR 92.508 require recipients to establish and
            maintain sufficient records to enable HUD to determine compliance with program
            requirements. At a minimum, recipients must maintain records documenting
            required inspections and monitoring and resolution of any findings or concerns.
            The County’s written procedures did not contain requirements for program
            monitoring.

            County officials stated that they had not established complete monitoring
            procedures but that they were working to do so. With proper monitoring, the
            County should have identified and taken action to correct many of the violations
            detected by the audit.




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                                             14
Impact of Staff Departures and
Missing Performance Documentation


              The County did not properly manage, supervise, and maintain the staff needed to
              properly administer the program. Regulations at 24 CFR 92.504 provide that the
              County is ultimately responsible for managing the day-to-day operations of its
              HOME program and taking appropriate action when performance problems arise.
              The review showed that the County did not

              •      Maintain sufficient staff to administer the program. According to County
                     officials, in June 2006, the County reorganized and restructured the office
                     that administered its HOME program and then initiated a reduction in
                     force for its HOME program office. According to County officials, before
                     the reduction, the County employed 16 individuals, including
                     management, to run the program. The reduction in force caused the
                     departure of key HOME staff and ultimately resulted in a staff shortage.
                     When we completed our site work in October 2007, County officials
                     stated that they needed more staff and had only seven individuals,
                     including management, to run the program. The HOME program director
                     was seeking permission to hire four additional staff but had not received a
                     response to the request.

              •      Properly manage and supervise staff concerning record keeping.
                     Regulations at 24 CFR 92.508 require recipients to establish and maintain
                     sufficient records to enable HUD to determine compliance with program
                     requirements. In response to our inquiries, the County’s remaining and
                     new staff often responded that they did not know where to find requested
                     records or they were not involved in the transactions and, therefore, could
                     not answer our questions. The County had a responsibility to maintain
                     records in such a way that staff departures would not result in lost
                     information and files that did not contain complete information.

              •      Properly manage and supervise its current staff on issues concerning
                     excessive activity delays, program monitoring, documentation of program
                     accomplishments, and documentation of compliance with affordable
                     housing requirements.

              These conditions hampered our ability to obtain information and records needed
              to explain many of the previously discussed violations.

 Conclusion

              The County did not properly manage its staff and demonstrate the capacity needed
              to administer its HOME program. The violations, although involving several
              program components, were specifically prevalent for activities that involved
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          single-family and multifamily housing by contract developers and community
          housing development organizations. The County consistently failed to follow
          requirements related to commitments, project approvals, activity eligibility and
          support, timely activity implementation, affordable housing requirements,
          program match, performance documentation, project monitoring, and staff
          management. As a result, the review identified more than $6.4 million in HOME
          funds that involve questioned costs, funds that are subject to recapture, and a
          missing match contribution. The violations occurred because County
          management and staff did not adequately follow and enforce program
          requirements.

Recommendations


          We recommend that the Acting Director of the Departmental Enforcement Center,
          in coordination with the Acting Director of HUD’s Atlanta Office of Community
          Planning and Development

          1A.     Take appropriate administrative action against the official responsible for
                  the County’s most significant noncompliance with HOME program
                  regulations and related HUD requirements.

          We also recommend that the Acting Director of HUD’s Atlanta Office of
          Community Planning and Development

          1B.     Determine whether the violations justify declaring the County to have
                  inadequate capacity to continue administering its HOME program, and if
                  so, HUD should terminate the program and distribute funds in the
                  County’s United States Treasury trust fund account to other performing
                  participating jurisdictions.

          1C.     Require the County to reimburse its United States Treasury trust fund
                  account from nonfederal funds the $1,241,196 that it committed and spent
                  after expiration of the commitment deadline. The amount includes
                  $136,321 for project 1346, which is also not allowed because the project
                  was terminated, and $384,300 for project 1876, which is also not allowed
                  because the project did not fully meet the program’s affordable housing
                  requirement (appendix C, notes C and D).

          1D.     Recapture $1,331,641 on deposit in the County’s United States Treasury
                  trust fund account, which it had not committed and spent although the
                  commitment deadline had expired.

          1E.     Recapture any portion of the $828,008 on deposit in the County’s United
                  States Treasury trust fund account that it does not commit by the March
                  31, 2008, commitment deadline.


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           1F.      Require the County to reimburse its United States Treasury trust fund
                    account from nonfederal funds the $1,000,000 spent for the foster care
                    facility.

           1G.      Require the County to reimburse its United States Treasury trust fund
                    account from nonfederal funds the $263,679 spent for terminated project
                    1346. The County disbursed $400,000 in HOME funds for this activity.
                    The remaining $136,321 is included in recommendation 1C, which
                    addresses funds not committed by the deadline date.

           1H.      Require the County to reimburse from nonfederal funds any portion of the
                    $1,554,021 in questioned costs that it cannot support as having been
                    incurred for costs that meet program requirements.

           1I.      Determine whether the County is required to provide the missing match
                    contribution for fiscal year 2001 and if so, require it to make the payment
                    to its local HOME program account. We estimated the contribution to be
                    $226,950. Your office should require the County to repay the 2001
                    HOME grant if its determined that the match was required but the County
                    does not make the contribution.

           We also recommend that if the program is allowed to continue, the Acting
           Director, HUD Atlanta Office of Community Planning and Development

           1J.      Identify and take appropriate action to recover all HOME funds invested
                    in activities the County cannot complete in a timely manner to provide
                    affordable housing.

           1K.      Require the County to develop and implement procedures and controls to
                    ensure proper documentation of its review and approval of activities
                    before disbursing future HOME funds for ownership and rental housing
                    carried out by community housing development organizations and other
                    developers.

           1L.      Require the County to develop and implement procedures and controls to
                    ensure that future program funds are committed by the required deadline
                    dates.

           1M.      Require the County to develop and implement procedures and controls to
                    ensure accurate entries into HUD’s Integrated Disbursement and
                    Information System.

           1N.      Require the County to develop and implement controls and procedures to
                    ensure proper monitoring of its HOME program.



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                                             17
           1O.   Require the County to develop and implement procedures and controls to
                 ensure compliance with requirements for determining the number of
                 affordable housing units developers would be required to produce.

           1P.   Require the County to develop and implement procedures and controls to
                 ensure that affordable housing units are only sold or rented to individuals
                 who meet the program’s income limits.

           1Q.   Require the County to develop and implement procedures and controls to
                 ensure proper maintenance of performance information and to accurately
                 report performance data in its consolidated annual performance and
                 evaluation reports to HUD.

           1R.   Require the County to hire a sufficient number of staff to effectively
                 administer its HOME program.

           1S.   Require the County to obtain periodic reviews by its internal audit
                 department to assess the effectiveness of the procedures and controls
                 implemented and actions required by recommendations 1J, 1K, 1L, 1M,
                 1N, 1O, 1P, 1Q, and 1R and to provide HUD with copies of the reports
                 and actions taken to correct any violations identified by the reviews.




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                                          18
                        SCOPE AND METHODOLOGY

We performed the review from August 2006 to October 2007 at locations in Fulton County,
Georgia including the HUD office of Community Planning and Development, the Fulton county
government office, and the offices of HOME program recipients.

We did not review and assess general and application controls over computer-processed data for
the County’s general ledger and HUD’s Integrated Disbursement and Information System. We
conducted other tests and procedures to assure the integrity of computer processed data that was
relevant to the audit objectives. The tests included, but were not limited to, comparison of
computer processed data to supporting commitment letters, written agreements, contracts, loan
agreements, invoices and other supporting documentation. We also inspected selected
development sites and interviewed developers, lenders and program participants. The tests
disclosed no data concerns about the County’s general ledger, but they showed the County
entered incorrect commitment information into HUD’s Integrated Information and Disbursement
System. The incorrect data entries did not impact our report because we obtained correct
information for the activities reviewed.

The review generally covered the period January 1, 1999 through December 31, 2006. We
adjusted the period when necessary. To accomplish our objectives, we

   •   Reviewed HUD’s monitoring reports and files for the County’s HOME program;

   •   Researched HUD handbooks, the Code of Federal Regulations, and other requirements
       and directives that govern the County’s HOME program;

   •   Reviewed the County’s procedures and controls used to administer its HOME program
       activities;

   •   Interviewed officials of the Atlanta HUD Office of Community Planning and
       Development, the County, and activity developers;

   •   Obtained and reviewed HUD’s Integrated Disbursement and Information System reports
       from the County and HUD;

   •   Reviewed the County’s consolidated annual performance and evaluation reports for its
       HOME program;

   •   Obtained and reviewed the County’s general ledger and financial statements for its
       HOME program budget, expenditures, and revenues;

   •   Reviewed the County’s independent public accountant audit report for evidence of issues
       that may adversely affect the County’s ability to implement its HOME program activities;
       and
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   •   Conducted tests to determine the County’s compliance with HOME program
       requirements. During the audit period, the County disbursed $11,672,063 (excluding
       administrative cost and disbursement of match funds, which we did not review) for
       community housing development organizations, single/multifamily development, housing
       rehabilitation, rental assistance, down payment assistance, program income expense, and
       professional services of which we examined $6,033,668 or 51 percent. We selected the
       tested items, considering factors such as past HUD monitoring concerns, activities that
       were complete, activities that were substantially behind schedule for completion,
       transaction amount, and transaction type. The results of the audit only apply to the tested
       activities and cannot be projected to the universe or total population.

We performed the review in accordance with generally accepted government auditing standards.




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                                               20
                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls


              We determined the following internal controls were relevant to our audit objectives:

              •       Policies and procedures that management has implemented to reasonably
                      ensure that resource uses are consistent with laws and regulations.

              •       Policies and procedures that management has implemented to reasonably
                      ensure that resources are safeguarded against waste, loss, and misuse.

              We assessed the above controls.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.

 Significant Weaknesses



              Based on our review, we believe the following item is a significant weakness:

              •       The County lacked adequate controls and procedures to ensure compliance
                      with HUD requirements (see finding 1).




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                                                21
                                   APPENDIXES

Appendix A
              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE


       Recommendation                                               Funds to be put
           number            Ineligible 1/    Unsupported 2/        to better use 3/
             1C               $1,241,196
             1D                                                          $1,331,641
             1E                                                             828,008
             1F                 1,000,000
             1G                   263,679
             1H                                    $1,554,021
             1I                  _______              226,950               _______

             Total            $2,504,875           $1,780,971            $2,159,649

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
     polices or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. This includes reductions in outlays, deobligation of funds, withdrawal of
     interest subsidy costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     which are specifically identified. In this instance, if our recommendations are
     implemented, HUD will (a) recapture the $1,331,641 not committed by the required
     deadline, and (b) require the County to properly commit the $828,008 by the commitment
     deadline or recapture the funds.



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                                             22
Appendix B
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




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                         23
Comment 1




Comment 2




Comment 1




Comment 3




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                     24
Comment 4




Comment 5




Comment 6




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                    25
Comment 7




Comment 8


Comment 9




Comment 10




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                     26
Comment 11




Comment 12




Comment 1




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                    27
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                    28
                          OIG Evaluation of Auditee Comments

The County generally agreed with our recommendations, except as indicated below.

Comment 1         The County commented that many of the reported violations occurred prior to
                  its June 1, 2006 reorganization and that since that time most of the projects
                  have been brought into compliance or are within range of HOME
                  compliance. We acknowledge that since the reorganization and in its
                  response the County has demonstrated efforts to address problems with its
                  HOME program. However, the actions initiated or planned will require time
                  to implement or complete before HUD can determine if they resolved the
                  reported conditions.

Comment 2         The County believed it was, in part, following the guidance from HUD CPD
                  regarding proper commitment of HOME funds and included Attachment A in
                  its response to support that claim.

                  The attachment is an excerpt from HUD’s April 25-29, 2005, compliance
                  review of the County’s HOME program. HUD communicated the review
                  results to the County on June 8, 2005. The compliance review contained a
                  comment that commitments made through the Corporation met the technical
                  requirements for commitments, but pointed out that the Corporation did not
                  carry out activities itself and does not select sites and development plans for
                  affordable housing on the sites. HUD continued to review the matter, and on
                  October 11, 2005, HUD advised the county manager that commitments made
                  through the Corporation did not meet the criteria for a commitment of HOME
                  funds. The HUD letter referred the County to the definition of commitments
                  set forth in the regulations at 24 CFR 92.2 and emphasized that all HOME
                  program funds must be committed within a two-year period.

Comment 3         The County anticipates that it will commit the $828,008 by the March 31,
                  2008, deadline. We did not revise the report because the County’s response
                  shows compliance is dependent on future action that will require verification
                  by HUD to meet the commitment deadline.

Comment 4         The County agreed that the scope of project 2162 changed and stated that it
                  was working to bring the project into compliance. Based on the exit
                  conference and the County’s response, we revised the report to show the cost
                  as not properly supported versus ineligible. The County will have an
                  opportunity to provide future information to HUD for assessment and final
                  determination of whether the costs are supported and represent an allowed
                  use of program funds. For instance, the developer signed the written
                  agreement provided with the County’s response but County representatives
                  did not sign it.

Comment 5         The County stated that its legal staff is working to produce a fully amended
                  written agreement to bring project 1346 into HOME compliance. The

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              County’s response and supporting documents provided no new information.
              As cited in the report, the project represents a terminated activity that is not
              eligible for HOME assistance coupled with a conflict of interest between the
              eventual developer and a Corporation used by the County to make decisions
              concerning its HOME program.

Comment 6     The County commented that it purchased the two modular homes based on a
              decision by its Community Housing Development Corporation board. The
              County stated that it attempted to solicit three bids for the purchase but only
              one company responded. The County’s response and attachments contained
              no record of the board action and its attempt to obtain bids for the purchases.
              The response included a sales agreement for one of the two purchases. A
              County official did not sign the agreement and it did not show the delivery
              date and location. We did not revise the report because the County’s
              response did not resolve the lack of proper support for the transactions.

Comment 7     The County commented that it received conflicting information from the
              offices at HUD concerning project 462. We recognize the County’s position
              and the need to coordinate actions with the HUD offices. The EEO issues are
              unrelated to the performance issues that caused us to question the project’s
              progress. The County should continue to coordinate these issues with HUD
              officials. However, we noted that the Office of Fair Housing Equal
              Opportunity told the County to delay its foreclosure proceedings in
              September 2007, over five months after the foreclosure sale was to be
              conducted. Thus, the later conflict occurred because the County did not
              pursue and complete the foreclosure in a timely manner.

Comment 8     The County stated that attachment H of its response contained income
              verifications completed by the closing attorney for project 1876. We
              examined the attachment and determined that the documents contained
              income information but there was no evidence to show and support that the
              closing attorney or anyone else verified the income amounts. Therefore, as
              cited in the report, the County did not document and support that it only sold
              affordable housing to individuals who met the required income limit.

Comment 9     The County commented that attachment I of its response contained an
              amended agreement for project 1313 that its legal staff was reviewing for
              execution by January 31, 2008. The agreement, yet to be executed, was only
              one of several conditions that caused us to question the project’s cost and
              progress. The County provided no new information that warranted revision
              to the report.

Comment 10    The County stated that attachment J of its response supports that project 1876
              had the minimum number of affordable housing units required by HOME
              regulations. The attachment is an email from HUD Atlanta Office of
              Community Planning and Development with its calculated estimate of the
              minimum number of affordable housing units. However, as cited in the

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              report, the County did not obtain and maintain the documentation needed to
              calculate the minimum number of affordable housing units and it did not
              calculate or document its calculation. Therefore, we did not revise the report.

Comment 11    The County provided its HOME Match Schedule for calendar years 2000
              through 2007 as attachment K to its response. The document dated
              December 20, 2007, was completed after we completed our site work and
              drafted the report. Thus, we did not audit the accuracy of the reported
              information for items such as drawdown and bookmatch. The County will
              have an opportunity to provide additional support to HUD to resolve the
              match issue.

Comment 12    The County incorrectly claimed that it attached to its response documentation
              to show that it had established written monitoring procedures for all HOME
              programs. The referenced attachment was copies of several monitoring
              reviews conducted in December 2007, after we completed our site work,
              instead of written monitoring procedures. The County provided no evidence
              of monitoring procedures for and monitoring of the nine single-family and
              multifamily project developers discussed in the finding. Therefore, we did
              not revise the report.




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                                          31
Appendix C
                      SCHEDULE OF FUNDS NOT
                COMMITTED BY THE REQUIRED DEADLINE
                                                                       Days
                                                       Actual         past 24-
 Project        Program           Required          commitment         month
 number           year        commitment date           date          deadline         Amount           Notes
                                    Funds committed after 24-month deadline
  1313           1999          Mar. 31, 2001       Oct. 09, 2002        557           $ 299,680           A
  1346           1996           July 31, 1998      Feb. 15, 1999        199           $ 136,321          A, C
  1876           1997           Jan. 31, 1999      Sept. 12, 2001       955           $ 384,300          A, D
  2146           1999          Mar. 31, 2001       Aug. 07, 2003        852           $ 237,639           A
   458           2000          Mar. 31, 2002       Aug. 07, 2003        494           $ 74,975            A
   703           2001          Mar. 31, 2003       Nov. 24, 2004        603           $ 98,281            A
   801           2002          Mar. 31, 2004       May 07, 2005         402           $    10,000         A
  Subtotal                                                                            $ 1,241,196
        Funds still not committed as of September 27, 2007 – the 24-month commitment period has expired
   522           2002           Mar. 31, 2004                             1275        $ 374,172          A, B
   569           2003           Feb. 28, 2005                             941         $ 478,734          A, B
   656           2004           Apr. 30, 2006                             484         $ 478,735          A, B
  Subtotal                                                                            $ 1,331,641
  Total                                                                               $ 2,572,837
  Notes
    A         The costs associated with these projects are not allowed because the County did not commit the
              funds by the 24-month commitment deadline. Regulations at 24 CFR 92.500(d) state that HUD will
              recapture or reduce HOME funds in the HOME trust fund by the amount of any funds in the U.S.
              Treasury account that are not committed within 24 months after the last day of the month in which
              HUD notifies the participating jurisdiction of HUD’s execution of the HOME agreement.
              Regulations at 24 CFR 92.2 define commitment as an executed legally binding agreement to use a
              specific amount of HOME funds to produce affordable housing or provide tenant-based rental
              assistance, an executed written agreement reserving a specific amount of funds to a community
              housing development organization, or having met the requirements to commit to a specific local
              activity.
    B         The County had not drawn down these funds at the time of our review. The amounts were for 2002,
              2003, and 2004 activities the County inappropriately reported as committed through a nonprofit
              organization it established to identify would-be developers. The commitments were not valid
              because the organization did not carry out the activities but instead looked for other organizations
              that would. On October 11, 2005, HUD’s Atlanta Office of Community Planning and Development
              notified the County that commitments made through that organization were not valid. The 24-
              month commitment period for the above funds expired between April 2004 and May 2006. The
              County still had not committed the funds when we completed our site work in October 2007.
    C         The costs incurred for this project are also not allowed because the project had been terminated.
              Regulations at 24 CFR 92.205(e) state that HOME-assisted activities that are terminated before
              completion, either voluntarily or otherwise, constitute an ineligible activity.
   D          The costs for this completed project are also not allowed because the County did not (a) document
              that it required the developer to provide the correct number of affordable housing units and (b)
              maintain documentation to support that it only sold affordable housing units to individuals who met
              the program’s affordable housing income limits.

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Appendix D
                       SCHEDULE OF PROJECT REVIEW
                        AND APPROVAL DEFICIENCIES

                                          Missing          Missing       Missing    No evidence of
                                         source and     or incomplete    subsidy        executed
                        Missing        application of      funding       layering        written
 Project number *     application     fund statement    commitments       review       agreement            Notes
       660                                   X                 X            X                                A
       462                                   **                X            X                                B
       1313                                  X                 X            X                                B
       2162                                  **                X            X                               B, C
       1346                                  X                 X            X                                D
  Not numbered              X                X                 X            X              X                D, E
       757                                   **                X            X
       788                                   **                X            X              X                 F
       661                                   X***                           X              X                 F
   *       Project identifications reported in HUD’s Integrated Disbursement Information System.
   **      We could not determine whether these undated documents were original submissions
   ***     The developer stated that it had no funding aside from HOME funds.

           The following comments identify adverse consequences of the County’s inadequate review and
 Notes     approval of the above activities.

   A       Project 660 - In addition to the missing documentation, the County’s review should have but did not
           determine that this foster care facility was not eligible for HOME assistance. The activity file
           contained an e-mail from a former County official that raised questions about the activity’s being the
           largest ever funded, coupled with missing documentation and no record of who authorized and
           approved it. The only evidence of County approval was the loan agreement, dated December 22,
           2005, and the commitment letter, dated December 28, 2005. The County’s prior HOME program
           director signed both documents. The files did not contain evidence that the County

                        •    Obtained a request from the developer for a specific fund amount, nor did the file
                             document an adequate explanation of how the County decided to provide the
                             community housing development organization a $1 million forgivable loan.

                        •    Followed its internal procedures that required it to advertise the funds for
                             competitive application by other qualified community housing development
                             organizations.

                        •    Approved the developer as a community housing development organization before
                             disbursing the funds.

           We met with current and prior County staff, and they could not explain the questionable approval and
           deficient documentation.
   B       The County’s failure to require adequate funding commitments before it approved these projects
           contributed to their delayed completion. At the time of our review, no homes had been constructed at
           any of the three sites.




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  C    Project 2162 - In addition to the missing documentation, the project is not supported as allowed
       because the County permitted undocumented changes that may constitute a terminated activity.
       Regulations at 24 CFR 92.205(e) state that HOME-assisted activities that are terminated before
       completion, either voluntarily or otherwise, constitute an ineligible activity. A representative of the
       sponsoring organization stated that in 2002, the County-recommended lender required the
       organization to change the activity from constructing 14 detached single-family homes to the
       development of 29 condominium units. At the time of our review, the developer had not constructed
       any homes on the developed site. The representative said that the County was aware of the change.
       The County’s current staff acknowledged the change, but its files contained no documentation
       concerning the change. As a result, the $464,850 spent for the activity was not supported as an
       allowed HOME cost.

       The activity cost ($464,850) includes $220,000 paid after the date of the original written agreement
       that was not properly supported and was not covered by amendments to the original agreement or
       new agreements with the developer. The amount consists of $30,000 paid in September 2003 for
       predevelopment costs and a total of $190,000 paid in August and December 2005 for cost overruns.
       The files did not show why the County paid the predevelopment costs, and the overruns were not
       supported by records needed to support the calculation and otherwise justify the payments. The file
       contained revised activity budgets, but it was not clear whether they were prepared by an engineer
       and represented reasonable cost estimates. The revised budget included $40,000 for contingencies
       that are not an allowed cost (Office of Management and Budget Circular A-87, attachment B,
       paragraph 9).

  D    The County allowed this unnumbered project to replace terminated project 1346, but it did not
       properly review and approve the unnumbered project and did not execute an agreement requiring the
       developer to abide by HOME requirements. Regulations at 24 CFR 92.205(e) state that HOME-
       assisted activities that are terminated before completion, either voluntarily or otherwise, constitute an
       ineligible activity. Regulations at 24 CFR 92.504(a) and (b) provide that recipients are responsible
       for ensuring that HOME funds are used in accordance with written agreements. Before disbursing
       any HOME funds to any entity, the recipient must enter into a written agreement with that entity to
       ensure compliance with program requirements.

       The County did not recognize and determine that the costs incurred for project 1346 were not allowed
       under the HOME program. The County’s prior HOME program director signed an assumption
       agreement, dated January 26, 2006, which transferred part of the ownership interest in project 1346 to
       a new developer of the unnumbered project. The agreement converted the activity from 120
       multifamily rental units to 60 single-family homeownership units. The wording in the assumption
       agreement specifically deleted reference to provisions of the original agreement that required the
       prior developer to comply with HOME requirements. The County’s current staff stated that they
       requested but the new developer refused to execute a new agreement or modify the assumption
       agreement to comply with program requirements. Thus, the developer is not required to set aside
       homes for persons who meet the program’s affordable income requirement and the program’s
       affordability period. The development is nearly complete, and most of the homes have been sold.

       Thus, none of the $400,000 incurred for project 1346, used for land acquisition, is allowable under
       the HOME program. The amount includes $136,321 that is also not allowed because the funds were
       not committed to project 1346 by the required commitment deadline.




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                                                    34
  E    The County allowed this unnumbered activity although it was aware that the developer had a conflict
       of interest with a County organization used in the administration of its HOME program. Regulations
       at 24 CFR 92.356(b) provide that no elected official or appointed official of the participating
       jurisdiction, who exercise or have exercised any functions or responsibilities with respect to activities
       assisted with HOME funds or who are in a position to participate in a decision-making process or
       gain inside information with regard to these activities, may obtain a financial interest or benefit from
       a HOME-assisted activity or have an interest in any contract, subcontract, or agreement with respect
       thereto, or the proceeds thereunder, either for themselves or those with whom they have family or
       business ties, during their tenure or for one year thereafter.

       The developer was a former member of a nonprofit board the County formed to review and approve
       activities and to make decisions concerning the operations of its HOME program. We could not
       determine when the individual became a board member because the County did not maintain all of
       the board minutes needed to make that determination. However, as early as October 2004, while
       serving as a board member, the individual represented himself before the board as the project’s
       developer. The individual was not voted off the board until January 24, 2006. The agreement that
       outlined his affiliation as the developer was executed two days later, January 26, 2006. Thus, for
       more than 14 months County officials knew that the developer/board member had a conflict of
       interest in the new activity and would derive financial gain from it. The County continued to allow
       the new activity although County officials stated that the prior board member/developer refused to
       execute an agreement that would obligate him to follow HOME program requirements.

  F    The County could not locate and provide the executed written agreements for these projects. Without
       the agreements, we could not determine whether the County required the developers to comply with
       HOME requirements, including but not limited to requirements to produce and sell or rent affordable
       housing to qualified individuals and to maintain the housing availability for that purpose for the
       required timeframe. Regulations at 24 CFR 92.504(a) and (b) provide that recipients are responsible
       for managing the day-to-day operations of their HOME program and ensuring that HOME funds are
       used in accordance with written agreements. Before disbursing any HOME funds to any entity, the
       recipient must enter into a written agreement with that entity to ensure compliance with program
       requirements.




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