oversight

The City of Cincinnati, Ohio Lacked Adequate Controls over Its System Reporting and Rental Rehabilitation Projects for Its HOME Investment Partnerships Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-06-11.

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

                                                                Issue Date
                                                                         June 11, 2008
                                                                Audit Report Number
                                                                         2008-CH-1010




TO:         Jorgelle Lawson, Director of Community Planning and Development, 5ED


FROM:       Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The City of Cincinnati, Ohio Lacked Adequate Controls over Its System
           Reporting and Rental Rehabilitation Projects for Its HOME Investment
           Partnerships Program

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the City of Cincinnati’s (City) HOME Investment Partnerships
             Program (Program). The audit was part of the activities in our fiscal year 2007
             annual audit plan. We selected the City based upon a request from the U.S.
             Department of Housing and Urban Development’s (HUD) Columbus Office of
             Community Planning and Development and our analysis of risk factors relating to
             Program grantees in Region V’s jurisdiction. Our audit objectives were to
             determine whether the City effectively administered its reporting of Program
             activity (activity) data in HUD’s Integrated Disbursement and Information
             System (System) and followed HUD’s and its requirements. This is the second of
             three audit reports on the City’s Program.

 What We Found

             The City did not effectively administer its reporting of activity data in HUD’s
             System and failed to follow HUD’s and its requirements. It did not comply with
             HUD’s requirements in its reporting of activity data into HUD’s System. As a
             result, it did not decommit more than $114,000 in Program funds accurately and
             in a timely manner, and obligated more than $816,000 and drew down and
           disbursed nearly $442,000 in Program funds for an activity without entering into a
           written agreement or contract with the owner or developer of the property or
           having a current specified plan for how the property would be used to provide
           affordable housing to low- and moderate-income individuals.

           The City did not comply with HUD’s regulations and its rental rehabilitation
           program manual (manual) in providing housing rehabilitation assistance for rental
           rehabilitation projects (projects). As a result, it provided more than $397,000 in
           Program funds to assist 11 units in three projects that did not qualify as affordable
           housing, was unable to support that it used more than $590,000 in Program funds
           for appropriate projects, and did not ensure that it sufficiently protected more than
           $561,000 in Program funds.

           We informed the director of the City’s Department of Community Development
           and Planning (Department) and the Director of HUD’s Columbus Office of
           Community Planning and Development of minor deficiencies through a
           memorandum, dated May 12, 2008.

What We Recommend

           We recommend that the Director of HUD’s Columbus Office of Community
           Planning and Development ensure that the Program funds the City decommitted
           as a result of our audit are committed and used for eligible activities. We also
           recommend that the Director require the City to decommit Program funds for
           completed activities, move forward on providing housing for an activity or
           reimburse its Program from nonfederal funds and decommit Program funds
           remaining for the activity, reimburse the appropriate parties from nonfederal
           funds for the overpayment of rents or reimburse its Program from nonfederal
           funds, provide support or reimburse its Program from nonfederal funds for the
           unsupported payments, ensure that projects’ owners obtain title insurance naming
           the City as coinsured for the projects or reimburse its Program from nonfederal
           funds, and implement adequate procedures and controls to address the findings
           cited in this audit report. These procedures and controls should help ensure that
           nearly $304,000 in Program funds is appropriately used over the next year.

           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 issued because of the audit.


Auditee’s Response

           We provided our discussion draft audit report and supporting schedules to the
           director of the City’s Department, the City’s mayor, and HUD’s staff during the
           audit. We held an exit conference with the City’s director on April 28, 2008.



                                             2
We asked the City’s director to provide comments on our discussion draft audit
report by May 20, 2008. The director provided written comments, dated May 16,
2008. The director generally agreed with finding 1, but only partially agreed with
finding 2. The complete text of the written comments, except for 11 pages that were
not necessary to understand the director’s comments, along with our evaluation of
that response, can be found in appendix B of this report. We provided the Director
of HUD’s Columbus Office of Community Planning and Development with a
complete copy of the City’s written comments plus the 11 pages of supporting
documentation.




                                 3
                            TABLE OF CONTENTS

Background and Objectives                                                       5

Results of Audit
      Finding 1: The City Needs to Improve Its Controls over System Reporting   6

      Finding 2: Controls over the City’s Program Projects Were Inadequate      11

Scope and Methodology                                                           15

Internal Controls                                                               17

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use            19
   B. Auditee Comments and OIG’s Evaluation                                     20
   C. HUD’s Requirements and the City’s Policies                                41




                                            4
                      BACKGROUND AND OBJECTIVES

The Program. Authorized under Title II of the Cranston-Gonzales National Affordable Housing
Act, as amended, the HOME Investment Partnerships Program (Program) is funded for the purpose
of increasing the supply of affordable standard rental housing; improving substandard housing for
existing homeowners; assisting new homebuyers through acquisition, construction, and
rehabilitation of housing; and providing tenant-based rental assistance. The American Dream
Downpayment Assistance Act established a separate funding formula for the American Dream
Downpayment Initiative (Initiative) under the Program to provide downpayment assistance, closing
costs, and rehabilitation assistance to eligible first-time homebuyers.
The City. Organized under the laws of the state of Ohio, the City of Cincinnati (City) is
governed by a mayor and a nine-member council, elected to two-year terms. The City’s
Department of Community Development and Planning (Department) administers the City’s
Program. The Department’s overall mission is to serve as an innovative, proactive partner in
supporting comprehensive economic and workforce development, quality housing development,
historic conservation, land use management, arts and cultural amenities, and social services for
all of the City’s citizens. The City’s Program records are located at 805 Central Avenue,
Cincinnati, Ohio.

The following table shows the amount of Program and Initiative funds the U.S. Department of
Housing and Urban Development (HUD) awarded the City for Program years 2003 through
2007.

                           Program         Program           Initiative
                             year            funds             funds
                             2003           $4,434,528          $228,566
                             2004            4,428,285           269,714
                             2005            4,219,448           153,797
                             2006            3,977,487             76,743
                             2007            3,942,313             76,743
                            Totals         $21,002,061          $805,563

The City used Program funds to provide housing rehabilitation assistance for rental rehabilitation
projects (projects).

Effective June 2007, the City executed an agreement with HUD and the U.S. Department of
Justice to settle all outstanding issues regarding the City’s improper use of Program funds for the
Huntington Meadows apartment project. The settlement agreement requires the City to
reimburse its Program $3.95 million. The final payment under the agreement is due by January
31, 2009.

Our audit objectives were to determine whether the City effectively administered its reporting of
activity data in HUD’s Integrated Disbursement and Information System (System) and followed
HUD’s and its requirements. This is the second of three audit reports on the City’s Program.



                                                 5
                             RESULTS OF AUDIT

Finding 1: The City Needs to Improve Its Controls over Reporting in
                           HUD’s System
The City did not comply with HUD’s requirements, as cited in Appendix C of this report, in its
reporting of Program activity (activity) data in HUD’s System. It inappropriately drew down,
decommitted, obligated, and disbursed Program funds because it lacked adequate procedures and
controls to ensure that HUD’s requirements were followed. As a result, it did not decommit
more than $114,000 in Program funds accurately and in a timely manner, and obligated more
than $816,000 and drew down and disbursed nearly $442,000 in Program funds for an activity
without entering into a written agreement or contract with the owner or developer of the property
or having a current specified plan for how the property would be used to provide affordable
housing to low- and moderate-income individuals. In addition, the City could not provide
documentation to show whether activities with remaining balances of Program funds were active
or that the City had recently reviewed the status of the activities.



 The City Lacked Controls over
 Its System Reporting

              As of March 22, 2007, the City had 54 activities in HUD’s System in which at
              least 120 days had elapsed since it had made a draw of Program funds. The 54
              activities had remaining balances of Program funds totaling nearly $2.4 million.
              The time elapsed since the City’s last draws for the activities ranged from 149
              through 3,048 days; for 25 activities, the time elapsed was more than one year.

              Over a three month period, the number of activities in HUD’s System in which at
              least 120 days had elapsed since the City had made a draw of Program funds
              increased by 62 (88 less 54, then divided by 54) percent. As of June 29, 2007, the
              City had 88 activities in HUD’s System in which at least 120 days had elapsed
              since it had made a draw of Program funds. The 88 activities had remaining
              balances of Program funds totaling nearly $1.9 million. The time elapsed since
              the City’s last draws for the activities ranged from 189 through 3,147 days; for 26
              activities, the elapsed time was more than one year.

              From the 88 activities, we selected 39 activities for review. We selected the nine
              activities in which the City had not made draws of Program funds for more than
              30 months. We then statistically selected an additional 30 activities for review
              from the remaining 79 (88 minus 9) activities.

              As a result of our audit, the City did the following regarding the 39 activities:




                                                6
™ Drew down $157,515 in Program funds from July 25, 2007, through January
   10, 2008, for 18 activities,
™ Decommitted $34,410 in Program funds on December 4, 2007, for two
   activities it cancelled, and
™ Decommitted $11,379 in Program funds from August 1, 2007, through
   December 24, 2007, for eight activities it closed out.

As of January 10, 2008, the City had not made draws of Program funds for more
than 120 days for 21 of the remaining 29 active activities (39 activities reviewed
minus the two activities cancelled minus the eight activities closed out). The 21
activities had remaining balances of Program funds totaling $753,062. The time
elapsed since the City’s last draws for the 21 activities ranged from 155 through
3,342 days; for 15 activities, the time elapsed was more than one year.

The City’s files for 10 of the 21 activities showed that the activities had been
completed. As of May 15, 2008, it closed out five of the 10 activities. The City
drew down $730 in Program funds from February 1 through May 15, 2008, and
decommitted $250 in Program funds on January 29, 2008, for the five activities.
Therefore, the City should have closed out the remaining five activities and
decommitted the outstanding $68,453 in Program funds.

The City set up activity number 1279 in HUD’s System on July 3, 2001, when it
obligated $815,000 in Program funds for the activity. It obligated an additional
$1,093 for the activity as of March 22, 2007. The City’s council passed ordinance
number 0114-2001 on April 25, 2001, approving the development of 25 new
single-family homes for sale to moderate-income first-time homebuyers for the
activity. However, the City did not enter into a written agreement or contract with
South Cumminsville Community United for Better Housing, Incorporated (South
Cumminsville), the nonprofit owner of the property, or Working in
Neighborhoods, the nonprofit developer of the property. In March 2003, the City
discovered two 55-gallon drums, containing unknown contents, while installing a
public storm sewer for the property. In July 2003, the City requested that the U.S.
Environmental Protection Agency (U.S. Agency) perform a critical action
removal of any and all drums at the property. As of October 2004, 3,350 55-
gallon drums containing petroleum, foundry sand, and solvent had been removed
from the property. In May 2005, the State of Ohio’s Environmental Protection
Agency (State Agency) conducted water and soil tests and determined that
anomalies, such as lead and arsenic above voluntary action plan minimums,
existed at the property. The City had not drawn down any Program funds for the
activity since December 2006. As of April 2008, the City had drawn down and
disbursed $441,899 in Program funds for the activity and did not have a specified
plan for how the property would be used to provide affordable housing to low-
and moderate-income individuals. In addition, the City had not requested a final
environmental determination by the State Agency to determine whether housing
can be built on the property.




                                  7
             The City could not provide documentation as of March 2008 to show whether the
             remaining 10 activities with remaining balances of Program funds totaling
             $310,040 were active or that it had recently reviewed the status of the activities.

             Since September 2006, HUD’s Columbus Office of Community Planning and
             Development had provided the City a monthly activity report, which provided
             information regarding open activities. The monthly activity reports showed the
             amount of Program funds obligated, date of last drawdown, amount of Program
             funds drawn, and percentage of completion for each open activity. HUD’s
             Columbus Office of Community Planning and Development requested that the
             City review the monthly activity reports and update, cancel, or close out activities
             that were not current.

The City Lacked Adequate
Procedures and Controls

             The weaknesses regarding the City’s failure to update HUD’s System accurately
             and in a timely manner occurred because the City lacked adequate procedures and
             controls to ensure that it appropriately followed HUD’s requirements. The City
             did not ensure that it fully implemented HUD’s requirements.

             The City did not periodically review the status of all activities to identify those
             that needed to be cancelled or closed. The housing division manager for the
             City’s Department stated that the supervising accountant had been updating and
             closing the activities identified during the audit and that the City was becoming
             more proactive in closing completed activities. The housing division manager
             also stated that the City’s staff needed additional training regarding reporting
             activity data in HUD’s System.

             The supervising accountant for the City’s Department stated that the City’s
             accounting system contained information that had not been updated in HUD’s
             System and, therefore, contained the most current information. The City was
             more concerned with the accuracy of its accounting system than with what it
             reported in HUD’s System.

             The City’s Department could not explain why it had not entered into a written
             agreement or contract with the owner or developer of the property or obtained a
             final environmental determination from the State Agency for activity number
             1279.

Conclusion

             The City did not comply with HUD’s requirements in its reporting of activity data
             in HUD’s System. As previously mentioned, the City did not decommit more



                                               8
          than $114,000 ($34,410 decommitted for two activities it cancelled, $11,379
          decommitted for eight activities it closed out, $250 decommitted for five activities
          it closed out, and $68,453 which it should have closed out and decommitted for
          five activities) in Program funds accurately and in a timely manner, and obligated
          more than $816,000 and disbursed nearly $442,000 in Program funds for activity
          number 1279 without entering into a written agreement or contract with the owner
          or developer of the property or having a specified plan for how the property
          would be used to provide affordable housing to low- and moderate-income
          individuals. In addition, the City could not provide documentation to show
          whether activities with remaining balances of Program funds were active or that
          the City had recently reviewed the status of the activities. Further, HUD and the
          City lacked assurance that Program funds were used efficiently and effectively.

          By not implementing adequate procedures and controls to ensure timely reporting
          in HUD’s System, the City underreported its true accomplishments and negatively
          affected its Program performance. HUD uses the information reported in its
          System to determine whether the City is meeting its goals and objectives.

          The City also placed an unnecessary burden on Program participants by imposing
          low- and moderate-income household, rental limit, and principal residence
          restrictions for an extended period beyond HUD’s established affordability
          period. The affordability period does not begin until the final drawdown of
          Program funds has been made and all of the completion information has been
          entered into HUD’s System. The City extended the affordability period by not
          entering completion information into HUD’s System in a timely manner.

Recommendations

          We recommend that the Director of HUD’s Columbus Office of Community
          Planning and Development

          1A.     Ensure that the $46,039 in Program funds the City decommitted for the 10
                  activities ($34,410 for two activities it cancelled, $11,379 for eight
                  activities it closed out, and $250 for five activities it closed out) as a result
                  of our audit is committed and used for eligible activities.

          We recommend that the Director of HUD’s Columbus Office of Community
          Planning and Development require the City to

          1B.     Close out and decommit the $68,453 in Program funds for the remaining
                  five activities that the City’s files showed were completed.

          1C.     Obtain a final environmental determination from the State Agency. If the
                  State Agency determines that housing can be built on the property, the
                  City should enter into a written agreement or contract with South



                                             9
      Cumminsville for activity number 1279 that contains a specified plan for
      how the property will be used to provide affordable housing to eligible
      low- and moderate-income individuals. If the State Agency determines
      that housing cannot be built on the property or if the City is unable to enter
      into a written agreement or contract with South Cumminsville, the City
      should reimburse its Program from nonfederal funds for the $441,899 in
      Program funds it used for the activity and cancel and decommit the
      $374,194 ($816,093 obligated for the activity less $441,899 used for the
      activity) in Program funds remaining for the activity.

1D.   Review the status of the remaining 10 activities cited in this finding to
      determine whether the activities need to be cancelled or closed out and
      Program funds need to be decommitted in HUD’s System.

1E.   Implement adequate procedures and controls to ensure that it enters
      activity data into HUD’s System accurately and in a timely manner.




                                10
Finding 2: Controls over the City’s Program Projects Were Inadequate
The City did not comply with HUD’s regulations and its rental rehabilitation program manual
(manual), as cited in Appendix C of this report, in providing housing rehabilitation assistance for
projects. It provided assistance for projects with improper units, lacked documentation to
support that units were eligible, and failed to ensure that it sufficiently protected Program funds
because it lacked adequate procedures and controls to ensure that HUD’s regulations and its
manual were appropriately followed. As a result, it provided more than $397,000 in Program
funds to assist 11 units in three projects that did not qualify as affordable housing, was unable to
support its use of more than $590,000 in Program funds, and did not ensure that it sufficiently
protected more than $561,000 in Program funds used for housing rehabilitation assistance.
Based on our sample, we estimate that over the next year, the City will use nearly $304,000 in
Program funds for improper projects.


 The City Provided More Than
 $397,000 in Program Funds for
 Units That Did Not Qualify as
 Affordable Housing

               We selected for review all seven projects the City completed from January 1,
               2005, through June 30, 2007. The seven projects contained 54 units. The City
               provided $397,262 in Program funds to assist 11 (20 percent) units that did not
               qualify as affordable housing. The 11 units were in three of the projects. The
               City failed to ensure that the projects’ owners set initial rents for the units at or
               below HUD’s established rent limits. The initial rents ranged from $8 to $117 per
               month more than HUD’s established rent limits. The City could not provide
               sufficient documentation as to how long rents for the units exceeded HUD’s
               requirements.

 The City Lacked
 Documentation to Support Its
 Use of More Than $590,000 in
 Program Funds

               The City lacked documentation for 22 (40 percent) of the 54 units selected for
               review to support that it used $590,458 in Program funds for appropriate projects.
               It could not provide sufficient income documentation for the households in the 22
               units to demonstrate that households were income eligible and initial rents for
               three of the units to show that the units qualified as affordable housing.

               In addition, the City could not provide an executed lease between the projects’
               owners and the initial households for 11 units in four projects. Further, the leases
               for nine units in one project contained language prohibited by HUD’s regulations.


                                                 11
            Section 13 of the leases stated that the project’s owner shall not be liable for any
            loss of the households’ property or accidental damage to persons or property in or
            about the premises whether caused by the negligence of the project’s owner,
            employees of the project’s owner, contractors, agents, or by any other cause. The
            households agreed not to make such a claim against the project’s owner for any
            such loss or damage. In section 31, the households agreed to waive their right to
            trial by jury.

The City Did Not Ensure That
It Sufficiently Protected More
Than $561,000 in Program
Funds

            The City provided $561,227 in Program funds to four projects without requiring
            the projects’ owners to obtain title insurance for the properties naming the City as
            coinsured for the amount of Program funds the City loaned to the projects’
            owners. As a result, the City might not be protected against loss or damage due to
            defects in the title, liens, or any other matters affecting the title. The following
            table shows the project numbers, number of units assisted, and the amount of
            Program funds the City loaned to the projects’ owners for which the City did not
            ensure that the projects’ owners obtained title insurance naming the City as
            coinsured.

                              Project     Number       Loan
                              number      of units    amount
                                1885         11      $431,239
                                1881          5        61,988
                                2072          3        42,000
                                2046          2        26,000
                               Totals        21      $561,227

The City Lacked Adequate
Procedures and Controls

            The weaknesses regarding the City’s providing housing rehabilitation assistance
            for units that did not qualify as affordable housing and without requiring the
            projects’ owners to obtain title insurance naming the City as coinsured and
            lacking documentation to support that projects were appropriate occurred because
            the City lacked adequate procedures and controls to ensure that it appropriately
            followed HUD’s regulations and its manual. The City did not ensure that if fully
            implemented HUD’s regulations and its manual.

            The City did not determine whether the projects’ owners set initial rents for the
            units at or below HUD’s established rent limits and unit leases complied with


                                             12
             HUD’s regulations or consistently required the projects’ owners to provide
             household income documentation. The housing division manager for the City’s
             Department stated that the City’s Department ensured that households in the
             projects’ units paid appropriate rents by including a rent calculation sheet in the
             written agreement between each owner and the City. However, the City’s
             Department did not require the projects’ owners to return the rent calculation
             sheets or determine whether the projects’ owners set initial rents for the units at or
             below HUD’s established rent limits.

             The housing division manager stated that the City relied on the Program projects’
             owners to perform household income certifications. It did not require income
             verifications at the time of the projects’ applications because it did not realize it
             was a requirement. Instead, the Department believed that the household profiles
             provided by the projects’ owners, without supporting documentation, were
             sufficient. The housing division manager also stated that the City would add
             reviewing unit leases for compliance with HUD’s regulations to its procedures
             and controls.

Conclusion

             The City did not properly use its Program funds when it failed to comply with
             HUD’s requirements. As previously mentioned, the City provided more than
             $397,000 in Program funds to assist 11 units in three projects that did not qualify as
             affordable housing and was unable to support its use of nearly $590,000 in Program
             funds for the 22 units without sufficient documentation supporting eligibility. In
             addition, the City did not ensure that it sufficiently protected more than $561,000 in
             Program funds for four projects.

             If the City implements adequate procedures and controls over Program funds to
             ensure compliance with HUD’s regulations, we estimate that it will not use
             $303,597 in Program funds over the next year for improper units and/or projects
             which it does not sufficiently protect. Our methodology for this estimate is
             explained in the Scope and Methodology section of this audit report.

Recommendations

             We recommend that the Director of HUD’s Columbus Office of Community
             Planning and Development require the City to

             2A.    Determine the total amount the rents for the 11 units that exceeded HUD’s
                    established rent limits and reimburse the appropriate parties from
                    nonfederal funds for the overpayment of rent. If the City does not
                    reimburse the appropriate parties, it should reimburse its Program




                                               13
      $397,262 from nonfederal funds for the 11 units that did not qualify as
      affordable housing.

2B.   Provide supporting documentation or reimburse its Program from
      nonfederal funds for the $590,458 in Program funds used for the 22 units
      cited in this finding for which the City lacked sufficient income
      documentation to demonstrate that households were income eligible
      and/or units qualified as affordable housing.

2C.   Ensure that the four projects’ owners obtain title insurance naming the
      City as coinsured for the amount of Program funds the City loaned to the
      projects’ owners or reimburse its Program $561,227 from nonfederal
      funds as applicable.

2D.   Implement adequate procedures and controls to ensure that housing
      rehabilitation assistance is only provided to appropriate projects and
      sufficiently protected to prevent $303,597 in Program funds from being
      used over the next 12 months contrary to HUD’s regulations and the
      City’s manual.

2E.   Implement adequate procedures and controls to ensure that project owners
      execute proper leases with households.




                               14
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

            •   Applicable laws; HUD’s regulations at 24 CFR [Code of Federal Regulations] Parts
                5, 85, 92, and 983; HUD’s Office of Community Planning and Development Notice
                01-13; Office of Management and Budget Circulars A-87 and A-122; HUD’s
                “Building HOME: A Program Primer”; HUD’s HOMEfires; HUD’s Community
                Planning and Development System Manual; and Ohio Revised Code.

            •   The City’s accounting records; annual audited financial statements for 2005 and
                2006; most recent internal audit report, dated October 2004; data from HUD’s
                System; Program, project, and activity files; computerized databases; by-laws;
                policies; procedures; organizational chart; consolidated annual plans; and
                consolidated annual performance and evaluation reports.

            •   HUD’s files for the City.

We also interviewed the City’s employees and HUD staff.

Finding 1

We selected 39 of the City’s 88 activities in HUD’s System in which at least 120 days had
elapsed since it had made a draw of Program funds as of June 29, 2007. We selected the nine
activities in which the City had not made draws of Program funds for more than 30 months. We
then statistically selected an additional 30 activities for review using data mining software from
the remaining 79 (88 minus 9) activities. Our statistical sampling criteria used a 90 percent
confidence level, 50 percent error rate, and precision of plus or minus 10 percent. The 39
activities were selected to determine whether the City followed HUD’s requirements in its
reporting of activity data in HUD’s System.

Finding 2

We selected all 54 units in the seven projects the City completed from January 1, 2005, through
June 30, 2007. The 54 units were selected to determine whether the City effectively
administered its Program and provided assistance for eligible projects. The City assisted 11 units
that did not qualify as affordable housing and 21 units without requiring the projects’ owners to
obtain title insurance for the properties naming the City as co-insured for the amount of Program
funds the City loaned to the projects’ owners. Five of the units were deficient in regards to both
the afforable housing and title insurance requirements. Therefore, our sampling results
determined that the City inappropriately provided rental rehabilitation assistance to and/or did
not adequately protect its use of Program funds for 27 (50 percent) of the 54 units. The City
provided $1,561,382 in Program funds for the 54 units for an average of $28,914 per unit. The
City completed approximately 21 (54 units divided by 30 months times 12 months) units per
year.


                                                15
We estimated that the City will annually use at least $303,597 (21 units times $28,914 times 50
percent) in Program funds for improper units and/or projects which it will not adequately protect.
This estimate is presented solely to demonstrate the annual amount of Program funds that could
be put to better use on eligible projects and/or by sufficiently protecting the City’s interest if it
implements our recommendations. While the benefits would recur indefinitely, we were
conservative in our approach and only included the initial year in our estimate.

We performed our on-site audit work from August 2007 through March 2008 at the City’s office
located at 805 Central Avenue, Cincinnati, Ohio. The audit covered the period January 2005
through June 2007 and was expanded as determined necessary.

We performed our audit in accordance with generally accepted government auditing standards.




                                                 16
                             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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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:

              •       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 the relevant controls identified above.

              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.




                                               17
Significant Weakness

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

           •   The City lacked adequate procedures and controls to ensure compliance with
               HUD’s regulations and its manual regarding its reporting of activity data in
               HUD’s System, use of Program funds for appropriate projects, and adequately
               protecting its interest (see findings 1 and 2).




                                           18
                                     APPENDIXES

Appendix A

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

          Recommendation                                               Funds to be put to
              number             Ineligible 1/        Unsupported 2/     better use 3/
                 1A                                                              $46,039
                 1B                                                               68,453
                 1C                  $441,899                                    374,194
                 2A                   397,262
                 2B                                        $590,458
                 2C                   561,227
                 2D                                                             303,597
                Totals             $1,400,388              $590,458            $792,283


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 reduction 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
     that are specifically identified. In these instances, if the City implements our
     recommendations, it will cease using Program funds for improper projects and will
     properly protect its Program assets. Once the City successfully improves its procedures
     and controls, this will be a recurring benefit. Our estimate reflects only the initial year of
     this benefit.




                                                 19
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 2
Comment 3




Comment 4




Comment 5




Comment 6




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 7


Comment 7




Comment 7



Comment 7




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 7



Comment 7


Comment 7



Comment 7



Comment 7


Comment 7


Comment 7




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 8




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 9


Comment 10



Comment 10




Comment 11




Comment 11




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 11




Comment 11




Comments 10,
 12, and 13




                         27
Ref to OIG Evaluation   Auditee Comments




Comments 10,
 12, and 13

Comments 10,
 12, and 14




Comment 15




Comment 16




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 16




Comment 17




Comment 18




Comment 19




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 20




Comment 21




Comment 22



Comment 22




Comment 22




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 22




Comment 22




Comment 22




Comment 22




Comment 22




Comment 22




Comment 23




                         31
Ref to OIG Evaluation   Auditee Comments




Comment 16




Comment 22




Comment 24




Comment 22




                         32
Ref to OIG Evaluation   Auditee Comments




Comment 22




Comment 25




Comment 26




                         33
Ref to OIG Evaluation   Auditee Comments




Comment 27




Comments 26
 and 28

Comments 26
 and 28




Comment 29




                         34
Ref to OIG Evaluation   Auditee Comments




Comment 29




                         35
                        OIG’s Evaluation of Auditee Comments

Comment 1   The City did not provide documentation to support the action it has taken for each
            activity. However, we obtained Program reports from HUD’s System as of May
            22 and May 27, 2008. The Program reports showed that the City closed out
            activity numbers 1106, 1885, 1951, 2046, and 2118 from January 14 through May
            15, 2008. The Program reports also showed that the City drew down $730 in
            Program funds for activity numbers 2046 and 2118 from February 1 through May
            15, 2008, and decommitted $250 in Program funds for activity number 1885 on
            January 29, 2008.

            We revised the report to state that as of May 15, 2008, it closed out five of the 10
            activities. The City drew down $730 in Program funds from February 1 through
            May 15, 2008, and decommitted $250 in Program funds on January 29, 2008, for
            the five activities. Therefore, the City should have closed out the remaining five
            activities and decommitted the outstanding $68,453 in Program funds.

            We also amended recommendations 1A and 1B to reflect these revisions.

Comment 2   We used the term final environmental determination to paraphrase the process
            required by the State Agency. The City is required to conduct another
            environmental assessment of the property for activity number 1279 and submit a
            letter of no further action to the State Agency. The State Agency reviews the
            letter of no further action and makes a determination as to whether the property is
            safe for its intended use. If the property is safe, the State Agency issues a
            covenant not to sue or liability release for the property.

Comment 3   The City did not provide documentation to support that an environmental
            assessment was completed for the property and the property is safe for
            multifamily or senior housing.

Comment 4   Activity number 1279 is not a community housing development organization
            activity. The City did not enter into a written agreement or contract with South
            Cumminsville or Working in Neighborhoods for the activity. The City was
            required to execute a written legally binding agreement with South Cumminsville
            prior to setting up the activity in HUD’s System. Without an executed written
            legally binding agreement, the City may not be able to require South
            Cumminsville to provide affordable housing to eligible low- and moderate-
            income individuals on the property.

Comment 5   As of April 2008, the City had drawn down and disbursed $441,899 in Program
            funds for activity number 1279. The City’s file for the activity contained
            vouchers totaling $430,065 in Program funds. The vouchers included $296,094
            (69 percent) for architectural and urban design fees and construction
            improvements and $133,971 (31 percent) for lead contractor and geology fees and
            testing services.



                                             36
Comment 6     The City needs to obtain a final environmental determination from the State
              Agency. If the State Agency determines that housing can be built on the property,
              the City should enter into a written agreement or contract with South
              Cumminsville for activity number 1279 that contains a specified plan for how the
              property will be used to provide affordable housing to eligible low- and moderate-
              income individuals. If the State Agency determines that housing cannot be built
              on the property or if the City is unable to enter into a written agreement or
              contract with South Cumminsville, the City should reimburse its Program from
              nonfederal funds for the $441,899 in Program funds it used for the activity and
              cancel and decommit the $374,194 in Program funds remaining for the activity.

Comment 7     The City did not provide documentation to support that it reviewed the status of
              the remaining 10 activities.

Comment 8     The City’s updated policies and procedures should improve its procedures and
              controls over its System reporting if fully implemented.

Comment 9     We added to the report that HUD’s regulations at 24 CFR [Code of Federal
              Regulations] 92.252(b)(2) state that if a Program-assisted unit receives federal or
              state project-based rental subsidy and the very low-income household pays as a
              contribution toward rent not more than 30 percent of the household’s adjusted
              income, then the maximum rent is the rent allowable under the federal or state
              project-based rental subsidy program.

Comment 10 We revised the report to state that the City provided $397,262 in Program funds to
           assist 11 (20 percent) units that did not qualify as affordable housing. The 11
           units were in three of the projects. We also amended recommendations 2A and
           2D to reflect this revision.

Comment 11 Rents set by the Cincinnati Metropolitan Housing Authority do not take
           precedence over Program rent limits established in HUD’s regulations at 24 CFR
           [Code of Federal Regulations] 92.252.

Comment 12 The City’s project files for the units; household numbers 33, 38, 42, 44, and 48;
           contained documentation supporting that the households had no income and paid
           initial minimum rents of $25. The households contributed more than 30 percent
           of their adjusted income toward rent. Therefore, the rents allowable under federal
           or state project-based rental subsidy programs are not the maximum rents.

Comment 13 The City could not provide sufficient documentation for household number 39 to
           support that the household did not contribute more than 30 percent of its adjusted
           income toward rent.

Comment 14 The City’s project file for the unit, household 52, contained documentation
           supporting that the household had a monthly income of $31 and paid an initial
           minimum rent of $25. The household contributed more than 30 percent of its



                                               37
              adjusted income toward rent. Therefore, the rent allowable under a federal or
              state project-based rental subsidy program is not the maximum rent.

Comment 15 HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.508(a) state that
           a participating jurisdiction must establish and maintain sufficient records to
           enable HUD to determine whether the participating jurisdiction has met the
           requirements of 24 CFR [Code of Federal Regulations] Part 92. The participating
           jurisdiction must maintain records demonstrating that each household is income
           eligible in accordance with 24 CFR [Code of Federal Regulations] 92.203.

              HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.203(a)(1)(i) state
              that for households that are tenants in Program-assisted housing and not receiving
              Program tenant-based rental assistance, a participating jurisdiction must initially
              determine the households’ annual income by examining the source documents,
              such as wage statements, interest statements, and unemployment compensation
              statements, evidencing the households’ annual income.

              HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.504(a) state that
              a participating jurisdiction is responsible for managing the day-to-day operations
              of its Program, ensuring that Program funds are used in accordance with all
              Program requirements and written agreements.

Comment 16 We revised the report to state that the City lacked documentation for 22 (40
           percent) of the 54 units selected for review to support that it used $590,458 in
           Program funds for appropriate projects. The City could not provide sufficient
           income documentation for the households in the 22 units to demonstrate that
           households were income eligible and initial rents for three of the units to show
           that the units qualified as affordable housing. We also amended recommendation
           2B to reflect this revision.

Comment 17 The City’s project file for the unit, household number 12, contained a schedule
           showing that the household’s monthly gross income was zero. The City’s project
           file did not contain and the City did not provide documentation to support that the
           project owner certified the household’s income in September 2005, the projected
           annual income was $4,008, and the project owner obtained documentation from
           the local public housing authority confirming the household’s income eligibility.

Comment 18 The City’s project file for the unit, household number 16, contained a schedule
           showing that the household’s monthly gross income was zero. The City’s project
           file did not contain and the City did not provide documentation to support that the
           project owner certified the household’s income in September 2005, the projected
           annual income was $540, and the project owner obtained documentation from the
           local public housing authority confirming the household’s income eligibility.

Comment 19 The City’s project file for the unit, household number 17, contained a schedule
           showing that the household’s monthly gross income was zero. The City’s project



                                              38
              file did not contain and the City did not provide documentation to support that the
              project owner certified the household’s income in October 2005, the projected
              annual income was $13,300, and the project owner obtained documentation from
              the local public housing authority confirming the household’s income eligibility.

Comment 20 The City’s project file for the unit, household number 18, contained a rental
           rehabilitation program occupancy affidavit, signed March 1, 2006, showing that
           the household earned $1,600 every two weeks, which would be an annual income
           of $41,600. The file also contained an earnings statement showing that the
           household earned $1,608 for the period May 7 through May 20, 2006. The City’s
           project file did not contain and the City did not provide documentation to support
           that the project owner certified the household’s income in October 2005, the
           projected annual income was $6,661, and the project owner obtained
           documentation from the local public housing authority confirming the
           household’s eligibility. The City’s project file also did not contain a lease. The
           housing division manager for the City’s Department said the unit was not one of
           the Program-assisted units. Therefore, this unit was never included in the report.

Comment 21 The City’s project file for the unit, household number 19, contained a schedule
           showing that the household’s monthly gross income was zero. The City’s project
           file did not contain and the City did not provide documentation to support that the
           project owner certified the household’s income in October 2005, the projected
           annual income was $480, and the project owner obtained documentation from the
           local public housing authority confirming the household’s income eligibility.

Comment 22 The City’s project file for the units, household numbers 21, 22, 23, 24, 26, 27, 28,
           29, 30, 53, 55, and 56, did not contain source documents, such as wage
           statements, interest statements, and unemployment compensation statements, to
           support the households’ incomes.

Comment 23 The City’s project file for the unit, household number 39, failed to contain and the
           City did not provide documentation to support that the project owner certified the
           household’s income in December 2005, an employment verification was
           completed, and the projected annual income was $9,856.

Comment 24 The City’s project file for the unit, household number 54, contained a
           rehabilitation tenant profile, signed December 1, 2006, showing that the
           household moved into the unit on September 1, 2006. The City provided the
           owner’s lease with the household, which stated that the household moved into the
           unit on May 1, 2005. These dates conflict with each other. Further, the City
           referred to household income documentation for 2008. Whether the move-in date
           was May 1, 2005, or September 1, 2006, the income documentation would not
           support the household’s income at the time the household moved into the unit.

Comment 25 HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.251(a)(1) state
           that housing rehabilitated with Program funds must meet all applicable ordinances



                                              39
              at the time of project completion. Section 2 of City ordinance number 0106-2002,
              effective April 3, 2002, states that the City’s council authorized the city manager,
              or the city manager’s designee to make loans and grants in accordance with the its
              2002 rental rehabilitation program guidelines and to do all things necessary to
              carry out the its rental rehabilitation program. Section IV of the City’s manual,
              dated October 2003, states that before the closing of a rental rehabilitation
              assistance loan, the project owner must submit title insurance for the property
              naming the City as coinsured for the loan amount.

              HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.504(a) state that
              a participating jurisdiction is responsible for managing the day-to-day operations
              of its Program, ensuring that Program funds are used in accordance with all
              Program requirements and written agreements. Section 15 of the City’s written
              agreements with the projects’ owners state that the owners shall provide evidence
              of a title in the form of title insurance to the City from a title insurance company
              acceptable to the City.

Comment 26 We revised the report to state that the City provided $561,227 in Program funds to
           four projects without requiring the projects’ owners to obtain title insurance for
           the properties naming the City as coinsured for the amount of Program funds the
           City loaned to the projects’ owners. We removed project number 1890 from and
           added project numbers 1881 and 2072 to the table showing the project numbers,
           number of units assisted, and the amount of Program funds the City loaned to the
           projects’ owners for which the City did not ensure that the projects’ owners
           obtained title insurance naming the City as coinsured. We also amended
           recommendations 2C and 2D to reflect these revisions.

Comment 27 The City provided Program funds to project numbers 1881 and 2072 without
           requiring the projects’ owners to obtain title insurance for the properties naming
           the City as coinsured for the amount of Program funds the City loaned to the
           projects’ owners.

Comment 28 We removed from the report that the City provided $103,998 in Program funds to
           two projects without documentation to support that it required the projects’
           owners to obtain title insurance naming the City as coinsured for the amount of
           Program funds the City loaned to the projects’ owners. We also removed the
           recommendation for the City to provide supporting documentation or reimburse
           its Program from nonfederal funds used for the two projects which the City lacked
           sufficient documentation to demonstrate that it required the projects’ owners to
           obtain title insurance naming the City as coinsured for the amount of Program
           funds the City loaned to the projects’ owners to reflect this revision.

Comment 29 The City’s updated policies and procedures should improve its procedures and
           controls over its projects if fully implemented.




                                               40
Appendix C

       HUD’S REQUIREMENTS AND THE CITY’S POLICIES

Finding 1
HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.2(1) define a commitment as a
participating jurisdiction executing a legally binding agreement with a state recipient,
subrecipient, or contractor to use a specific amount of Program funds to produce affordable
housing or provide tenant-based rehabilitation assistance; executing a written agreement
reserving a specific amount of funds to a community housing development organization; or
meeting the requirements of 24 CFR [Code of Federal Regulations] 92.2(2) regarding specific
local activities. Section 92.2(2) states that if an activity consists of rehabilitation or new
construction, a participating jurisdiction and activity owner must execute a written legally
binding agreement under which Program funds are to be provided to the owner for an
identifiable activity under which construction can reasonably be expected to start within 12
months of the agreement date.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.251(a)(1) state that housing
rehabilitated with Program funds must meet all applicable ordinances at the time of project
completion.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.252(e) state that Program-
assisted rental activities must meet affordability requirements regarding low- and moderate-
income households and rental limits for not less than an applicable period of 5, 10, 15, or 20
years, beginning after activity completion.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.254(a)(4) state that Program-
assisted homebuyer activities must meet affordability requirements regarding principal residence
of a household for not less than an applicable period of 5, 10, or 15 years, beginning after
activity completion.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.502(a) state that HUD’s System
disburses Program funds that are allocated or reallocated in the City’s HOME investment trust
fund treasury account (treasury account). Section 92.502(b)(1) states that after a participating
jurisdiction commits Program funds to a specific local activity, a participating jurisdiction may
set up specific investments in HUD’s System. A participating jurisdiction is required to set up in
HUD’s System acquisition, new construction, housing rehabilitation, and tenant-based rental
assistance activities. A participating jurisdiction is required to enter complete activity setup
information at the time of activity setup. Section 92.502(b)(2) states an activity, which has been
committed in HUD’s System for 12 months without an initial disbursement of funds, may be
cancelled by HUD’s System. Section 92.502(c) states that after a participating jurisdiction enters
complete activity setup information into HUD’s System, a participating jurisdiction may draw
down Program funds for an activity from its treasury account. Section 92.502(d)(1) states that
complete project completion information must be entered into HUD’s System or otherwise


                                                41
provided within 120 days of the final project drawdown. If satisfactory activity completion
information is not provided, HUD may suspend further activity setups or take other corrective
actions.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.504(a) state that a participating
jurisdiction is responsible for managing the day-to-day operations of its Program, ensuring that
Program funds are used in accordance with all Program requirements and written agreements.

Section VI.A of HUD’s Community Planning and Development Notice 01-13 states that
approved budgets, letters of intent, award letters, and council minutes are not acceptable forms of
commitment documentation. Section VI.B states that a written agreement or contract between a
participating jurisdiction and a state recipient, subrecipient, or contractor is an acceptable form of
commitment documentation.

Chapter 9, section 1.4, of HUD’s Community Planning and Development System Manual states
that Program funds are committed to an activity in HUD’s System when there is a written legally
binding agreement and the activity is set up and funded in HUD’s System.

HUD’s HOMEfires, volume 6, number 1, dated August 2005, states that a participating
jurisdiction must report activity completion and beneficiary data for initial occupants in a timely
manner by entering the data into HUD’s System on a regular basis and periodically reviews the
status of all activities to identify those that need to be cancelled. Failure to maintain timely
information in HUD’s System is a violation of 24 [Code of Federal Regulations] 92.504(a).
When a participating jurisdiction fails to enter information into HUD’s System in a timely
manner, Program results are underreported to Congress and the Office of Management and
Budget. The underreporting of Program results may negatively impact future Program funding.

Section 4 of City ordinance number 0114-2001, effective April 25, 2001, states that the proper
City officers are authorized to use and expend nearly $2.5 million in accordance with the project
descriptions and budgets for the five projects in exhibit A. Exhibit A, section 5, includes
$815,000 in Program funds for activity number 1279 as one of the five projects and lists
Working in Neighborhoods as the applicant. Section 5 also states that if the City’s contract for
funding assistance is not executed within six months of the effective date of the authorizing
ordinance, the City’s commitment and authorization to provide funds for the activity shall expire
unless in extenuating circumstances, an extension is approved in writing and in advance by the
director of the Department of Neighborhood Services. Project designs, floor plans,
specifications, site plans, and construction drawings will be referenced in the contract and must
be approved by the Department of Neighborhood Services before any funds are disbursed.

Finding 2
HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.203(a)(1)(i) state that for
households that are tenants in Program-assisted housing and not receiving Program tenant-based
rental assistance, a participating jurisdiction must initially determine the households’ annual
income by examining the source documents, such as wage statements, interest statements, and
unemployment compensation statements, evidencing the households’ annual income.


                                                 42
HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.251(a)(1) state that housing
rehabilitated with Program funds must meet all applicable ordinances at the time of project
completion.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.252 state that Program-assisted
units in a rental housing project must be occupied only by households that are eligible as low-
income households and must meet the requirements of 24 CFR [Code of Federal Regulations]
92.252 to qualify as affordable housing. Section 92.252(a) states that the maximum Program
rent limits are the lesser of the fair market rent for existing housing for comparable units in the
area established by HUD under 24 CFR [Code of Federal Regulations] 888.111 or a rent that
does not exceed 30 percent of the adjusted income of a household, the annual income of which
equals 65 percent of the median income for the area, as determined by HUD, with adjustments
for number of bedrooms in the unit. Section 92.252(b)(2) states that if a Program-assisted unit
receives federal or state project-based rental subsidy and the very low-income household pays as
a contribution toward rent not more than 30 percent of the household’s adjusted income, then the
maximum rent is the rent allowable under the federal or state project-based rental subsidy
program. Section 92.252(h) states that a participating jurisdiction must initially determine each
household’s annual income in accordance with 24 CFR [Code of Federal Regulations]
92.203(a)(1)(i).

HUD’s Regulations at 24 CFR [Code of Federal Regulations] 92.253(b)(3) state that a lease for a
Program-assisted rental housing unit may not contain provisions excusing the owner from
responsibility for any action or failure to act, whether intentional or negligent. Section
92.253(b)(6) states that the lease may not contain provisions for the agreement by the household
to waive any right to a trial by jury.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.504(a) state that a participating
jurisdiction is responsible for managing the day-to-day operations of its Program, ensuring that
Program funds are used in accordance with all Program requirements and written agreements.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.504(c)(3)(vi) state that a
participating jurisdiction’s written agreements with for-profit or nonprofit housing owners must
specify the particular records that must be maintained and the information or reports that must be
submitted to assist the participating jurisdiction in meeting its record-keeping and reporting
requirements.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 92.508(a) state that a participating
jurisdiction must establish and maintain sufficient records to enable HUD to determine whether
the participating jurisdiction has met the requirements of 24 CFR [Code of Federal Regulations]
Part 92. The participating jurisdiction must maintain records demonstrating the following:

   ™   Each household is income eligible in accordance with 24 CFR [Code of Federal
       Regulations] 92.203.
   ™   Each rental housing project meets the affordability and income targeting requirements of
       24 CFR [Code of Federal Regulations] 92.252 for the required period. Records must be
       maintained for each household assisted.



                                                43
   ™   Each lease for a Program-assisted rental housing unit complies with the household and
       participant protections of 24 CFR [Code of Federal Regulations] 92.253. Records must
       be maintained for each household.

Section 2 of City ordinance number 0106-2002, effective April 3, 2002, states that the City’s
council authorizes the city manager, or the city manager’s designee to make loans and grants in
accordance with the its 2002 rental rehabilitation program guidelines and to do all things
necessary to carry out the its rental rehabilitation program.

Section IV of the City’s manual, dated October 2003, states that before the closing of a rental
rehabilitation assistance loan, the project owner must submit title insurance for the property
naming the City as coinsured for the loan amount.

Section 15 of the City’s written agreements with the projects’ owners states that the owners shall
provide evidence of a title in the form of title insurance to the City from a title insurance
company acceptable to the City.




                                                44