Issue Date September 28, 2009 Audit Report Number 2009-AT-0001 TO: Mercedes M. Márquez, Assistant Secretary for Community Planning and Development, D //signed// FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA SUBJECT: HUD Lacked Adequate Controls to Ensure the Timely Commitment and Expenditure of HOME funds HIGHLIGHTS What We Audited and Why We audited the U.S. Department of Housing and Urban Development’s (HUD) HOME Investment Partnerships Program (HOME) as part of our fiscal year 2009 annual audit plan. Our audit objectives were to assess the adequacy of HUD’s monitoring and implementation of requirements to recapture HOME funds not committed within two years and spent within five years, assess the adequacy of HUD’s monitoring and use of its Integrated Disbursement and Information System (information system), and assess whether it was appropriate for HUD to apply the cumulative technique for assessing deadline compliance and the first-in first-out method for committing and disbursing HOME funds to participating jurisdictions. What We Found HUD needs to improve efforts to require participating jurisdictions to cancel more than $62 million in HOME fund balances for open activities that were committed more than five years ago. The prolonged delay or failure to cancel the fund balances caused an overstatement of commitments in HUD’s information system which prevented the accurate identification of funds that were subject to recapture by HUD or the United States Treasury. In addition to the excessive fund balances, we question the eligibility of more than $11.6 million disbursed to participating jurisdictions for activities that were more than five years old, showed evidence of stalled performance, and may have warranted their classification as terminated activities. Participating jurisdictions made more than $20.9 million in incorrect commitment entries to the information system. The inaccuracies undermined the integrity of the information system and reports generated from the system. HUD did not routinely monitor the accuracy of commitments that participating jurisdictions entered into the information system, nor did it require participating jurisdictions to implement adequate internal controls over commitments they entered into the system. HUD missed the opportunity to identify and require correction of the types of deficiencies discussed in this report because it did not routinely monitor this area. The significant inaccuracies bring into question the reliability of commitments that other participating jurisdictions entered into the information system. HUD used a cumulative technique for assessing deadline compliance and a first- in first-out method for HOME commitments and expenditures that conflicted with statutory requirements that require the identification of HOME commitments and expenditures by the program funding year to which they relate. The statutes make no mention of the cumulative technique and the first-in first-out method as acceptable alternatives. The two HUD practices contributed to the more than $62 million in old activities remaining open as discussed above. HUD would have recaptured the funds due to the missed five-year disbursement requirement were it not for the cumulative technique. The first-in first-out method, as described by HUD, contributed to misclassification of funds in HUD’s financial system that are subject to recapture by HUD or by the United States Treasury pursuant to a separate statutory deadline that will be in place starting September 30, 2009. What We Recommend We recommend that HUD identify which of the old open activities have been completed or terminated, cancel those balances, recapture shortfalls generated by the cancellations, and require repayments for HOME expenditures on terminated activities. We further recommend that HUD implement procedures to ensure that field offices monitor the accuracy of future commitments that participating jurisdictions enter into HUD’s information system, and provide technical assistance to participating jurisdictions regarding what constitutes acceptable documentation for commitments. HUD should also require participating 2 jurisdictions to close out old HOME activities as appropriate, reallocate remaining balances for future HOME projects in a timely manner, and establish and implement adequate internal controls over commitments they enter into the information system. Furthermore, HUD should obtain a formal legal opinion from the Office of General Counsel and revise its regulations to ensure its procedures for assessing compliance with commitment and expenditure requirements are consistent with statutory requirements. 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 HUD on August 11, 2009, and held an exit conference on August 20, 2009. HUD provided written comments on September 15, 2009. HUD disagreed with findings 1 and 3 but agreed with finding 2. Also, HUD generally agreed with our recommendations. The complete text of HUD’s written response, along with our evaluation of that response, can be found in appendix B of this report. We excluded the attachment containing the Federal Register, dated May 28, 1997, which is available on the Government Printing Office website. 3 TABLE OF CONTENTS Background and Objectives 5 Results of Audit Finding 1: Fund Balances for Open Activities More Than Five Years Old Were 7 Not Closed Out in a Timely Manner and Could Trigger Recapture by the United States Treasury Finding 2: Inadequate HUD Monitoring of and Internal Controls over 15 Commitments Entered into the Information System Resulted in Questionable Data Reliability Finding 3: HUD’s Regulatory Requirements for Assessing Compliance with 20 Commitment and Expenditure Requirements Conflicted with Statutory Requirements Scope and Methodology 25 Internal Controls 27 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 29 B. Auditee Comments and OIG’s Evaluation 30 C. Schedule of Stalled or Potentially Terminated Activities 43 D. Other Matter for Consideration Involving Accounting for HOME Draws 46 4 BACKGROUND AND OBJECTIVES The HOME program is authorized under Title II of the Cranston-Gonzales National Affordable Housing Act as amended. HOME is funded for the purpose of increasing the supply of affordable rental housing; improving substandard housing for existing homeowners; assisting new home buyers through acquisition, construction, and rehabilitation of housing; and providing tenant-based rental assistance. 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. State and local governments that become participating jurisdictions may use HOME funds to carry out multiyear housing strategies through acquisition, rehabilitation, new construction, and tenant-based rental assistance. Participating jurisdictions are required to reserve a portion of their HOME funds for community housing development organizations. Private nonprofit community-based service organizations receive their certification and designation as community housing development organizations from participating jurisdictions based on criteria specified in HUD’s regulations. HUD makes formula allocations of HOME funds to participating jurisdictions on an annual basis. HUD makes the allocations without regard to the participating jurisdictions’ timely commitment and expenditure of prior year HOME allocations. HUD officials stated that the department does not have the statutory authority to deny annual formula allocations to participating jurisdictions that fail to timely commit and spend HOME funds. HUD has a system to monitor participating jurisdictions’ compliance with program deadlines for commitments, reservations to community housing development organizations, and expenditures. HUD provided information that showed since inception of the program in 1992 it has recaptured more than $41 million from participating jurisdictions for failure to meet those deadlines. HUD’s national production report as of December 31, 2008, shows that since inception of the HOME program, HUD has allocated HOME funds totaling more than $26.5 billion, of which more than $24.1 billion has been committed and more than $21.7 billion has been expended by participating jurisdictions. Title II of the Cranston-Gonzalez National Affordable Housing Act provides that a participating jurisdiction’s right to draw funds from its HOME Investment Trust Fund shall expire if the funds are not placed under binding commitment to affordable housing within 24 months after the last day of the month in which such funds are deposited into the participating jurisdiction’s HOME Investment Trust Fund. Regulations for the HOME program have similar language and require that HOME funds be committed by the participating jurisdictions within 24 months, and expended within five years. However, for purposes of determining the amount by which the HOME Investment Trust Fund will be reduced or recaptured, HUD considers the sum of commitments to community housing development organizations, commitments, or expenditures, as applicable, from the fiscal year allocation being examined and from subsequent allocations. This interpretation of the 24-month commitment requirement (referred to by HUD as the “cumulative” technique) is set forth in HUD’s regulations, but is not contained in the statute. HUD also used a first-in first-out method to commit and disburse funds to activities in its 5 information system. This means that funds are committed and disbursed from the “oldest” available funds first. In 1996, HUD established and implemented the information system to accumulate and provide data to monitor, among other requirements, compliance with HOME requirements for committing and expending funds. HUD also uses the information system to generate reports used within and outside HUD, including the public, participating jurisdictions, and the Congress. The information system is the disbursement and reporting system for the HOME and other HUD community development programs. The information system is a real-time mainframe-based computer application that is undergoing reengineering to a Web-based system. Requirements of the National Defense Authorization Act of 1991 (Public Law 101-510, dated November 5, 1990) state that on September 30 of the fifth fiscal year after the period of availability for obligation of a fixed appropriation account ends, the account shall be closed and any remaining balance (whether obligated or unobligated) in the account shall be canceled and thereafter shall not be available for obligation or expenditure for any purpose. The HOME fiscal year 2002 appropriation was the first time HOME funds had an identified three-year period of availability subject to Public Law 101-510 and its five-year expenditure deadline. Prior to fiscal year 2002, HOME funds were appropriated for an indefinite period and were available until expended. Fiscal year 2002 HOME funds that are not spent by September 30, 2009 (five years after the period of availability ended on September 30, 2004), will be subject to recapture by the United States Treasury. Unexpended HOME funds for grant years 1992 through 2001 are not subject to Public Law 101-510. The objectives of the audit were to (1) assess the adequacy of HUD’s monitoring and implementation of requirements to recapture HOME funds not committed within two years and spent within five years, (2) assess the adequacy of HUD’s monitoring and use of its information system, and (3) assess whether it was appropriate for HUD to use the cumulative technique for assessing deadline compliance and the first-in first-out method to commit and disburse HOME funds to participating jurisdictions. 6 RESULTS OF AUDIT Finding 1: Fund Balances for Open Activities More Than Five Years Old Were Not Closed Out in a Timely Manner and Could Trigger Recapture by the United States Treasury HUD needs to improve efforts to require participating jurisdictions to deobligate more than $62 million in HOME fund balances in a timely manner for open activities that were more than five years old. We also question the eligibility of more than $11.6 million disbursed to participating jurisdictions for open activities that were more than five years old and showed evidence of stalled performance that may have warranted their classification as terminated activities. The balances associated with the old activities restricted participating jurisdictions from committing and spending the funds on other eligible HOME activities in a timely manner or for reimbursing the program for ineligible costs. The delay or failure to deobligate amounts when due caused an overstatement of commitments in HUD’s information system and contributed to masking or understating shortfalls that were subject to recapture by HUD. These situations occurred because HUD had not adequately enforced efforts to require participating jurisdictions to close out old fund balances in a timely manner and to support whether inactive or slow-moving activities were, in effect, terminated activities. The balances indicated excessive delays by participating jurisdictions in the completion of projects and/or closeout of funded activities. The portion of the fund balances that are associated with old open subgranted activities would make it more difficult for participating jurisdictions and HUD to avoid losing HOME funds subject to recapture by the United States Treasury under provisions of Public Law 101-510 (see finding 3). The $62 million for open activities and the $11.6 million in questioned costs consisted of: $7 million for 77 open activities with no fund draws since the activities were funded; $20.4 million for 436 open activities with no fund draws since 2006, plus more than $3.9 million in questioned costs; and $34.6 million for 243 open activities with fund draws from 2007 to April 2009, plus more than $7.7 million in questioned costs, but the activities were not completed despite having been funded beyond HUD’s five-year regulatory disbursement requirement. HUD officials acknowledged the problem with closing out open activities and commented that they had efforts underway to address the matter. They said that the headquarters Office of Community Planning and Development had emphasized to field offices the importance of closing out open activities. They further stated that they provided field offices with reports that 7 identified the open activities. Moreover, the closeout of such activities is an element of field office staff’s performance standards. HUD Had Made Progress in Closing Open Activities We started the audit in November 2008 and initially assessed activities shown in HUD’s open activities report as of December 31, 2008. We only assessed open activities that were five years old or older because that period parallels HUD’s regulatory requirement that participating jurisdictions spend HOME funds within five years of the date of their HOME agreements. The December report identified more than $83.1 million in open activities funded between 1992 and 2003. During the audit, we contacted 11 field offices concerning 18 of the open activities with fund balances that totaled more than $19 million. We made the contacts to obtain information and support to explain what action the offices had taken to require participating jurisdictions to close out the activities and to deobligate the fund balances. Based on the responses, we determined that HUD closed some of the old activities shown in the December report during the course of our audit. Therefore, we updated our assessment using HUD’s open activities report as of April 30, 2009. The April report showed more than $62 million in open activities compared to the $83.1 million shown in the December 31, 2008, report. The difference indicates that HUD made considerable progress in closing out old open activities after we started the audit in November 2008. There Were Five-Year-Old Activities with No Funds Disbursed to Participating Jurisdictions HUD’s open activities report as of April 30, 2009, showed more than $7 million for 77 open activities that were more than five years old, for which the participating jurisdictions had not drawn down any funds under their letter of credit. HUD regulations provide that a project, which has been committed in the information system for 12 months without an initial disbursement of funds, may be canceled. The activities were funded between 1993 and 2003 and were at least four years past the 12-month date that should have triggered a system cancellation but did not do so. 8 Number of Funds Funding year activities drawn Fund balance 1993 to 1999 8 $ 0 $ 1,342,451 2000 3 0 308,470 2001 9 0 193,355 2002 17 0 2,175,006 2003 40 0 3,066,706 Total 77 0 $7,085,988 Based on HUD’s December 2008 open activities report, we requested information from five field offices for six activities that totaled more than $3.8 million. Two field offices provided various explanations about two activities funded for $1.2 million, but they did not explain why they had not required the participating jurisdictions to cancel the activities and deobligate the funds. The activities were still open in HUD’s information system. One field office (New Orleans) did not respond to our request for an activity funded for $555,560, but we determined that the participating jurisdiction later drew more than $480,000 against the activity. Two field offices responded with information showing that the participating jurisdictions had since deobligated fund balances and/or closed three activities funded for more than $2 million. Our assessment and follow-up showed that HUD had made progress in closing out activities that had no fund draws but that more timely action is needed to require participating jurisdictions to close out all such activities and deobligate the fund balances. There Were Five-Year-Old Activities with No Fund Draws Since 2006 HUD’s open activities report as of April 30, 2009, showed more than $20.4 million for 436 open activities that were more than five years old, for which the participating jurisdictions had not drawn down any funds under their letter of credit since 2006. The activities were funded between 1992 and 2003. HUD regulations state that a HOME-assisted project that is terminated before completion, either voluntarily or otherwise, constitutes an ineligible project. The absence of fund draws within the last two years raised questions as to whether the activities had been completed with residual fund balances or whether they represented terminated activities. In either instance, the fund balances should have been deobligated. If the activities were terminated, the amounts drawn represented ineligible HOME expenditures. 9 Total fund Distribution by funding year balances for activities Year of funded more last fund than five draw years ago 1992-1999 2000 2001 2002 2003 1997-1999 $1,638,780 $1,637,441 $1,340 - - - 2000 219,375 157,157 62,218 - - - 2001 1,107,345 177,441 252,918 $676,986 - - 2002 1,356,460 189,428 532,128 160,474 $474,431 - 2003 1,171,893 2,126 15,489 297,071 500,364 $356,842 2004 4,884,233 232,914 23,250 270,673 635,678 3,721,719 2005 2,804,476 391,099 29,753 19,815 624,328 1,739,480 2006 7,309,430 2,223,189 49,080 853,574 2,193,768 1,989,817 Total $20,491,992 $5,010,795 $966,176 $2,278,592 $4,428,570 $7,807,859 The fund balances associated with these activities should be deobligated in HUD’s information system unless the participating jurisdictions can specifically support that the activities have not been terminated (voluntarily or involuntarily) and are progressing in a timely manner toward producing affordable housing for eligible recipients. Based on data included in HUD’s information system, we question more than $3.9 million that participating jurisdictions drew down for 76 activities (see appendix C) included in the above table. In each case, the activities were more than five years old (some dating back to the 1990s), but the participating jurisdictions had drawn down less than 50 percent of the funded amounts coupled with no fund draws in the last two years. These conditions were not indicative of activities making reasonable progress toward producing affordable housing but were, instead, indicative of stalled or possibly terminated activities. HUD will need to determine whether the activities had been terminated and whether the funds drawn for them were eligible under the HOME program. As discussed below, even if the above activities are now progressing toward completion, amounts associated with subgranted activities may prevent participating jurisdictions from meeting the eight-year expenditure deadline under Public Law 101-510, applicable to activities funded with appropriations from fiscal year 2002 and later. Based on HUD’s December 2008 open activities report, we requested information from eight field offices on 12 activities with fund balances of more than $15.1 million. Three field offices provided no clear explanations for why they had not required participating jurisdictions to cancel and deobligate HOME funds for six activities with fund balances of more than $7.4 million. One field office (Los Angeles) did not respond to our request for an activity with a fund balance of more than $1.2 million. Five field offices responded with information showing 10 that the participating jurisdictions had since drawn, deobligated, or canceled five activities, which reduced their $6.3 million fund balance to about $1.5 million. The follow-up indicated that HUD had made progress in closing out the old activities in this category. However, more timely action is needed to require participating jurisdictions to close out and deobligate funds for such activities and, when applicable, reimburse the program for expenditures made for terminated activities. There Were Five-Year-Old Activities with Fund Draws from 2007 to April 2009 HUD’s open activities report as of April 30, 2009, showed more than $34.6 million in fund balances for 243 activities that were funded between 1994 and 2003 but which had fund draws from 2007 to April 2009 that should be evaluated to determine why the activities had not been completed. The amount included more than $13 million in fund balances for 32 activities for which the participating jurisdictions had drawn only $7.7 million or 50 percent or less of the HOME funds committed to them. The fund balance included more than $1.2 million for a 1996 Florida new construction activity (number 310), for which the participating jurisdiction had only drawn about 19 percent of the allocated funds, and a $1.2 million fund balance for a 1994 Puerto Rico new construction activity (number 15), for which the participating jurisdiction had only drawn about 45 percent of the allocated funds. HUD regulations state that HOME-assisted projects that are terminated before completion, either voluntarily or otherwise, constitute an ineligible project. Total fund Distribution by funding year balances for activities Year of funded more last fund than five draw years ago 1992-1999 2000 2001 2002 2003 2007 $4,541,513 $1,616,152 $20,367 $53,560 $776,556 $2,074,878 2008 21,210,265 541,384 429,898 1,970,363 4,315,435 13,953,185 2009 8,871,729 1,836,813 70,665 1,381,245 2,956,083 2,626,923 Total $34,623,507 $3,994,349 $520,929 $3,405,168 $8,048,075 $18,654,986 HUD should ensure that participating jurisdictions close and deobligate fund balances for completed activities and disallow any expenditure for activities that are effectively terminated. This requirement includes but is not limited to a failure to produce affordable housing occupied by HOME-eligible recipients in a reasonable period. 11 For instance, we question more than $7.7 million in disbursements to participating jurisdictions for 32 activities (see appendix C), which appear to have been stalled or possibly terminated. In each case, the activities were more than five years old (some dating back to the 1990s), but the participating jurisdictions had drawn down less than 50 percent of the funded amounts. These conditions were not indicative of activities making reasonable progress toward producing affordable housing but were, instead, indicative of stalled or possibly terminated activities. HUD will need to determine whether the activities had been terminated and were eligible under the HOME program. Inadequate Action to Close Old Open Activities Increased the Potential for Recapture by the U.S. Treasury The existence of subgranted fund balances for the above old open activities would make it more difficult for participating jurisdictions and HUD to avoid losing HOME funds to recapture by the United States Treasury under the statutory requirements of Public Law 101-510. For instance, HUD’s expiring funds report showed more than $12 million in open subgranted activities in Region IV that are included in the $62 million discussed above. HUD’s guidance provides the following concerning this law’s application to the HOME program. It states that: HOME funds appropriated in fiscal year 2002 will not be available for participating jurisdictions to expend after September 30, 2009. HOME funds remaining in a participating jurisdiction’s fiscal year 2002 grant after this date will be recaptured by the United States Treasury. Unexpended HOME funds in grants from 1992 through 2001 are not subject to these rules. However, beginning with the fiscal year 2002 appropriation, each annual HOME grant is subject to the expenditure rule. So, for example, fiscal year 2003 HOME funds will no longer be available to participating jurisdictions after September 30, 2010. In order for a participating jurisdiction to be able to draw down all 2002 funds, all prior-year funding must first have been drawn down for those recipients and fund types having fiscal year 2002 funds committed to them. As a result, HUD’s guidance states that participating jurisdictions may not even be aware that some of their pre-2002 HOME commitments are “parked” with specific recipients or within certain fund types, thus effectively blocking off their access to the fiscal year 2002 HOME funds. The capability of 2001 and earlier year HOME funds (particularly funds associated with subgranted activities) to block participating jurisdictions’ ability 12 to draw 2002 and later year funds (subject to statutory recapture) underscores the urgency for HUD to close out and cancel fund balances for old open activities. Conclusion HUD had made progress in closing out open activities, but it needs further improvements to ensure that field offices require participating jurisdictions to close out old open activities expeditiously to avoid losing HOME funds to recapture by the United States Treasury pursuant to Public Law 101-510 that becomes effective for the HOME program on September 30, 2009. Fund balances that should have been closed out contributed to understating and/or masking what would otherwise have been commitment shortfalls in HUD’s deadline compliance status report that were subject to recapture by HUD for redistribution to participating jurisdictions. Also, fund disbursements associated with open activities that were or should have been terminated represented ineligible HOME expenditures. These situations occurred because HUD had not adequately enforced efforts to require participating jurisdictions to close out old fund balances in a timely manner and to support whether inactive or slow-moving activities were, in effect, terminated activities. Recommendations We recommend that the Assistant Secretary for Community Planning and Development: 1A. Ensure that field offices require participating jurisdictions to close out in a timely manner $62,201,487 in activities reflected in its open activities report that are more than five years old and cancel the fund balances. 1B. Require participating jurisdictions to reimburse HUD from nonfederal sources any portion of the $11,634,558 for activities listed in appendix C that HUD determines had been terminated, voluntarily or involuntarily. When making this determination, HUD should consider the participating jurisdictions’ lack of timely physical completion and/or production of affordable housing occupied by HOME income-eligible individuals. 1C. Recapture any shortfalls generated by the closure and deobligation of fund balances associated with the open activities. 1D. Establish and implement controls to ensure that field offices require participating jurisdictions to close out future HOME activities within a 13 timeframe that will permit reallocation and use of the funds for eligible activities in time to avoid losing them to recapture by the United States Treasury under provisions of Public Law 101-510. 14 Finding 2: Inadequate HUD Monitoring of and Internal Controls over Commitments Entered into the Information System Resulted in Questionable Data Reliability HUD did not routinely monitor the accuracy of commitments that participating jurisdictions entered into the information system. HUD also did not require participating jurisdictions to institute basic internal controls over their commitment entries. The audit identified more than $20.9 million in incorrect commitment entries made by seven participating jurisdictions. HUD missed the opportunity to identify and require correction of the types of inaccuracies found during the audit because it did not routinely monitor this area. The inaccuracies undermined the integrity of system data and of reports generated from the information system. For example, the incorrect entries impacted the deadline compliance status report, which HUD uses to determine recapture amounts for participating jurisdictions that miss their 24-month statutory commitment deadline. The significant inaccuracies by such a small number of participating jurisdictions reviewed bring into question the reliability of commitments other participating jurisdictions entered into the information system. Field Offices Were Not Required to Monitor and Enforce Requirements for Commitment Data Entries HUD’s procedures for conducting risk assessments do not include criteria for field offices to assign risk factors for commitments entered into the information system. Further, HUD had not developed an appropriate checklist for monitoring the accuracy and support for commitments that participating jurisdictions entered into the information system. We examined HUD’s 2008 monitoring of 12 participating jurisdictions by four Region IV field offices (Jacksonville and Miami, Florida; Atlanta, Georgia; and Columbia, South Carolina). The four field offices did not monitor whether the participating jurisdictions only made properly supported commitment entries and adjustments to the information system. Two of the field offices examined written agreements (three for Jacksonville and three for Miami) for proper content but not for accuracy of input to the information system. Thus, HUD missed the opportunity to identify and require correction of the types of inaccuracies found during the audit. We visited five Region IV participating jurisdictions that HUD monitored in 2008 and examined support for commitments and/or commitment adjustments entered into the information system. We focused on entries made during the month of the participating jurisdictions’ commitment deadlines and three months before the 15 deadlines. We examined commitments totaling more than $6.9 million and identified more than $2.3 million (33 percent of $6.9 million) in questionable commitments that the participating jurisdictions entered into the information system. Types of commitment violations and errors Past Other Commitments Total deadline Exceeded inadequately Participating and activities questionable or no agreement supported jurisdiction examined entries agreement amount entries Polk County, FL $ 692,499/ 8 $ 691,320 $ 354,482 $ 158,122 $ 178,716 * Richland County, SC 503,989/ 15 295,210 252,240 3,650 39,320 * Tampa, FL 2,170,837/ 5 1,213,265 1,213,265 ** Macon, GA 608,372/ 11 106,295 3,528 102,767*** Miami-Dade County, FL 3,000,000/ 3 - - - - Total $6,975,697/ 42 $ 2,306,090 $ 606,722 $ 165,300 $1,534,068 *Entries made before the agreements were executed but executed before the commitment deadline date. ** No execution date shown on the agreement. *** Amount not reconcilable to the written agreement. HUD headquarters Office of Community Planning and Development staff stated that their limited staff and added responsibilities associated with the economic recovery effort would limit their ability to monitor the accuracy of commitments participating jurisdictions entered into the information system. HUD Did Not Require Adequate Internal Controls over Commitment Data Entries HUD did not require participating jurisdictions to establish and implement adequate internal controls over commitments and related adjustments that they entered into the information system. This deficiency was significant considering that HUD, as discussed above, did not monitor participating jurisdictions to determine the accuracy of commitment entries entered into the information system. HUD regulations define commitment to mean that the participating jurisdiction has executed a legally binding agreement with a state recipient, a subrecipient, or a contractor to use a specific amount of HOME funds to produce affordable housing or provide tenant-based rental assistance; has executed a written agreement reserving a specific amount of funds to a community housing development organization; or has met the requirement to commit funds to a specific local project. The information system reference manual provides that HOME funds are “committed” to an activity and recorded in the information 16 system when there is a written, legally binding agreement and the activity is set up and funded in the information system. We identified instances in which participating jurisdictions committed (funded) funds in the system when they had no legally binding agreements, the agreements were not dated, or the agreement amount did not match the commitment amount. Upon learning of our visit, one of the participating jurisdictions adjusted the prior entries made to the information system to reduce inflated commitments to the amounts supported by its executed written agreements. In addition, we noted similar conditions in OIG external audits in which participating jurisdictions entered commitments into the information system that were not supported by written agreements. For example, the following OIG audits at participating jurisdictions identified more than $18.6 million in commitments that participating jurisdictions recorded in the information system without being supported by properly executed written agreements: Inadequately Audit report Participating supported number Report issue date Jurisdiction commitments 2009-LA-1004 Nov. 26, 2008 California $15,000,000 2008-AT-1006 Mar. 7, 2008 Fulton County, GA 2,700,000 2008-AT-1009 June 9, 2008 Augusta, GA 983,000 Total $18,683,000 The problem with participating jurisdictions incorrectly entering commitments into the information system was significant and was not isolated. The incorrect and unsupported commitment entries underscore the need for HUD to require participating jurisdictions to establish, implement, and enforce internal controls over data entries and adjustments. This problem is significant considering that HUD recaptures commitments that are not made by the program’s 24-month statutory deadline based on commitment shortfalls identified in its deadline compliance status report. The report is generated from cumulative commitments that participating jurisdictions have entered into the information system over the life of their respective HOME programs. HUD’s inadequate monitoring of and poor internal controls over commitments entered into the information system compromised the accuracy and reliability of commitments that participating jurisdictions entered into the system. 17 HUD Provided Incorrect Information or Accepted Inadequately Supported Commitment Entries HUD provides instructions to participating jurisdictions on what constitutes unacceptable and acceptable documentation for commitments. Unacceptable commitment documentation includes approved budgets, signed letters of intent, award letters, and council minutes. Acceptable commitment documentation includes a written agreement or contract between the participating jurisdiction and a state recipient, subrecipient, program recipient, or contractor signed by both parties, dated on or before the deadline date, committing a specific amount of HOME funds to a specific HOME project. Further, signatures of all parties signing the agreement or contract must be dated to show the execution date. We identified two instances in which HUD field office staff caused or did not require participating jurisdictions to change incorrect commitment entries in the information system. In one case, two different HUD staff members told a participating jurisdiction that it was acceptable to enter commitments into the information system based on the participating jurisdiction’s in-house committee approval of projects for funding versus the executed written agreements. Our sample included five instances, which totaled more than $131,000, in which the agreements were executed 49 to 85 days after the committee’s approval and were dated after the participating jurisdiction’s commitment deadline. In the other case, a HUD field office official stated that it was considered acceptable to allow commitments supported by written agreements in which the parties that signed the agreements did not provide the dates on which they executed the agreement. These instances indicate a need for HUD to better ensure that its staff understand and enforce HUD’s documentation requirements for commitments when conducting monitoring reviews and when providing technical assistance to participating jurisdictions. Conclusion This audit and past OIG audits at participating jurisdictions identified more than $20.9 million in incorrect commitment entries, for seven participating jurisdictions, that overstated cumulative commitments in HUD’s information system. Such overstatements could mask amounts that would otherwise be identified as shortfalls or understate shortfall amounts subject to recapture that should be reflected in the deadline compliance status reports. The significant inaccuracies by the seven participating jurisdictions bring into question the reliability of commitments that participating jurisdictions entered into the 18 information system. We attribute these conditions to HUD not requiring its staff to monitor the accuracy of commitments entered into the information system and not requiring participating jurisdictions to establish adequate internal controls over their commitment entries. Recommendations We recommend that the Assistant Secretary for Community Planning and Development 2A. Establish and implement procedures to monitor the accuracy of commitments that participating jurisdictions enter into the information system. These procedures should include expanding HUD’s risk rating system to include risk factors for this review area and development of an appropriate monitoring checklist to ensure consistency and thoroughness of coverage among field offices. 2B. Ensure that its field office staff are aware of and enforce the documentation requirements for entering commitments into the information system and that they provide accurate technical assistance and advice to participating jurisdictions regarding this matter. 2C. Require participating jurisdictions to establish and implement internal controls over commitments that they enter into the information system to help reduce the potential for incorrect and improper entry of commitments into the information system. 2D. Add an electronic certification to the funding activity screen of the information system so that participating jurisdictions will be required to certify that the commitment data entries (activity funding) and/or adjustments comply with requirements for commitments and are supported by required documentation. 19 Finding 3: HUD’s Regulatory Requirements for Assessing Compliance with Commitment and Expenditure Requirements Conflicted with Statutory Requirements HUD used a cumulative technique to track compliance with HOME commitment and expenditure deadlines and a first-in first-out method to account for commitments and disbursements which we believe conflicted with requirements in the Cranston-Gonzalez National Affordable Housing Act and Public Law 101-510. Both laws require the identification of HOME commitments and/or expenditures by program year. The cumulative technique for tracking deadline compliance and the first-in first-out method to account for commitments and expenditures contributed to more than $62 million in old open activities discussed in finding 1. The first-in first-out method also contributed to the incorrect classification and reporting of HOME expenditures. HUD would have recaptured the $62 million for missing the five-year disbursement requirement were it not for the cumulative and first-in first-out practices. The cumulative technique and the first-in first-out method enabled participating jurisdictions to offset older year commitment and expenditure requirements with commitments and expenditures that actually pertained to more recent years’ activities. As a result, HUD allowed the participating jurisdictions more time to complete activities than the five-year expenditure requirement contained in HUD’s regulations and additional expenditure deadlines in Public Law 101-510 that will become effective on September 30, 2009. HUD’s Cumulative Technique Conflicted with Statutory Requirements HUD has used the cumulative technique since at least 1996 when it implemented the information system. Statutory expenditure deadlines link compliance with specific dates associated with HUD’s funding of a participating jurisdiction’s HOME Investment Trust Fund or to specific HOME year appropriations. We believe that HUD’s cumulative technique conflicts with relevant statutory requirements. Specifically, Title II of the Cranston-Gonzalez National Affordable Housing Act, provides that a participating jurisdiction’s right to draw funds from its HOME Investment Trust Fund shall expire if the funds are not placed under binding commitment to affordable housing within 24 months after the last day of the month in which such funds are deposited into the participating jurisdiction’s HOME Investment Trust Fund. HUD shall reduce the line of credit in the participating jurisdiction’s HOME 20 Investment Trust Fund by the expiring amount and reallocate the funds. Public Law 101-510, dated November 5, 1990 states that on September 30 of the fifth fiscal year after the period of availability for obligation of a fixed appropriation account ends, the account shall be closed and any remaining balance (whether obligated or unobligated) in the account shall be canceled and thereafter shall not be available for obligation or expenditure for any purpose. This went into effect for the HOME program starting with the fiscal year 2002 appropriation when Congress started HOME funding fixed term (three years) appropriations. HUD has implemented and continues to use the cumulative technique to track deadline compliance for commitments and expenditures through its deadline compliance status report. We question the regulatory basis for the cumulative technique because our legal assessment indicates a conflict with the statutory requirement for tracking compliance with the 24-month commitment requirement. A representative for HUD’s Office of General Counsel stated that the cumulative technique was consistent with the National Affordable Housing Act requirements, but the Office of General Counsel did not issue a formal legal opinion to address the matter. We requested a legal opinion on whether the cumulative technique was consistent with both Title II of the Cranston-Gonzalez National Affordable Housing Act and Public Law 101-510 when it becomes effective for the HOME program. We also requested an opinion regarding the impact Public Law 101-510 will have on HUD’s cumulative technique for recapturing commitments in the HOME program. The Office of General Counsel did not provide a written response to our initial and follow-up requests for the opinion. HUD said it implemented the cumulative technique for assessing compliance with commitment and expenditure requirements because the Office of General Counsel reviewed and approved the regulations. A 1997 notice to participating jurisdictions stated that HUD considers later year commitments because it would be unfair to a participating jurisdiction, for which, because of cancellation of a 1995-funded project, its fiscal year 1995 funds remained uncommitted and subject to recapture when the participating jurisdiction had already committed later years’ funds. The cumulative technique allowed participating jurisdictions to exceed the statutory 24-month commitment deadline and possibly understate HOME funds that may have been subject to recapture. The technique overstated participating jurisdictions’ commitments, compared to what the statute requires, as of the deadline dates. The overstatements caused a corresponding understatement of commitment shortfalls that could be subject to recapture based on HUD’s deadline compliance status report. 21 Classification and Reporting of Expenditures HUD’s first-in first-out method resulted in incorrect classification and reporting of HOME expenditures and their related unliquidated obligations. HUD’s guidance to participating jurisdictions provides an explanation of the first-in first- out method. It states that HUD’s information system uses the method for both committing funds to activities and for recording disbursements made to participating jurisdictions. Under this method, funds are first committed and disbursed from the “oldest” available funds. When a commitment or disbursement request is entered in the information system, the system searches for the “oldest” funds first by grant program, then by source year of funds, recipient of funds, and type of funds. In this way, HOME funds are committed and disbursed to the participating jurisdictions from the oldest grant year to the newest grant year by recipient and fund type. Expenditures and the related unliquidated obligations. The first-in first- out method, as described in HUD guidance, prevents the direct association that should exist between fixed-year appropriations, expenditures, and unliquidated obligations (difference between obligated amounts and expenditures). The technique distorts reporting of expenditures against fixed appropriations and could make it erroneously appear that HUD was in compliance with Public Law 101-510’s eight-year recapture deadline and thus mask funds that should be recaptured by the United States Treasury. The technique, as described by HUD, could also result in incorrect reporting by HUD to outside parties of HOME program expenditures and unliquidated obligations for fixed appropriations included in its reports to the Congress, the United States Treasury, and the public. The first-in first-out method also allowed participating jurisdictions to delay activity completion and avoid or delay recapture under the HUD regulatory requirement to disburse HOME funds within five years. For instance, the $62 million in old open activities (five years old or older) discussed in finding 1 were a result of HUD’s first-in first-out technique. If not for that technique, HUD would have been required to recapture the funds based on its regulatory requirement to recapture HOME funds that participating jurisdictions did not disburse within five years of their HOME agreements. HUD officials stated that they planned to continue using, with some possible modification, the first-in first-out method for commitments and expenditures 22 under both laws. They further commented that they used the first-in first-out method for all community development programs and not just the HOME program. Conclusion We believe that HUD’s cumulative technique for assessing deadline compliance and its first-in first-out method to account for expenditures conflicted with statutory requirements for commitments and expenditures. The statutes make no mention of HUD’s cumulative technique and first-in first-out method as acceptable alternatives and the two practices did not ensure compliance with statutory requirements for the commitment and disbursement of HOME funds. The cumulative technique and the first-in first-out method contributed to more than $62 million in old open activities discussed in finding 1. The first-in first-out method also caused the misclassification of funds otherwise subject to recapture by HUD for not meeting the regulatory expenditure requirements and could mask funds that will be subject to recapture by the United States Treasury, beginning October 1, 2009. This condition occurred because the practices gave participating jurisdictions credit for recent-year commitments and expenditures to offset older year commitment and expenditure requirements. Recommendations We recommend that the Assistant Secretary for Community Planning and Development 3A. Obtain a formal legal opinion from the Office of General Counsel on whether HUD’s cumulative technique for assessing compliance with commitment deadlines is consistent with and is an allowable alternative to the 24-month commitment requirement stipulated at Title II of the Cranston-Gonzalez National Affordable Housing Act. 3B. Obtain a formal legal opinion from the Office of General Counsel on whether HUD’s first-in first-out method for assessing compliance with HOME expenditure requirements is consistent with and is an allowable alternative to the eight-year recapture deadline pursuant to Public Law 101-510. 3C. Revise the regulations to ensure the procedures for assessing compliance with commitment and expenditure requirements are consistent with statutory requirements and discontinue use of the cumulative technique for 23 assessing deadline compliance and the first- in first-out method to account for the commitment and expenditure of HOME funds. 24 SCOPE AND METHODOLOGY We performed the review from November 2008 to May 2009 at HUD headquarters in Washington, DC, and at HUD field offices and participating jurisdictions in Atlanta and Macon, Georgia; Columbia, South Carolina; and Jacksonville, Miami, Tampa, and Polk County, Florida. The review generally covered the period January 1, 1992, through April 30, 2009. We adjusted the period when necessary We did not review and assess general and application controls over computer-processed data for HUD’s information system. We conducted other tests and procedures to ensure the integrity of computer-processed data that were relevant to the audit objectives. The tests included but were not limited to comparison of computer-processed data to supporting commitment documents such as written agreements, contracts, loan agreements, and other supporting documentation. We also conducted on-site reviews at selected HUD field offices and participating jurisdictions to review records and interview HUD staff and program participants. The tests disclosed that participating jurisdictions entered incorrect commitments into the information system. The incorrect entries did not impact our report because we obtained correct information from source documentation for the activities reviewed and determined that incorrect entries by participating jurisdictions had compromised the reliability and integrity of HUD’s information system (see finding 2). To accomplish our objectives, we Interviewed officials of the Office of Community Planning and Development, Office of Affordable Housing Programs, and Office of General Counsel at HUD headquarters. Requested but did not receive a legal opinion from the HUD Office of General Counsel concerning HUD’s first-in first-out technique for assessing commitments and the impact of Public Law 101-510 on the technique. Researched HUD handbooks, the Code of Federal Regulations, legislative history of the commitment requirement, Federal Registers, and other requirements and directives that govern the HOME program. Reviewed HUD’s procedures and controls used to administer the HOME program. Interviewed officials and staff of the HUD Offices of Community Planning and Development in Atlanta, Georgia; Columbia, South Carolina; and Jacksonville and Miami, Florida. Reviewed HUD’s monitoring reports and files for the HOME program during on-site visits at selected HUD field offices and reviewed prior OIG external audit reports that 25 dealt with HOME commitments. Obtained and reviewed HUD information system reports from HUD headquarters and field offices. Interviewed officials and staff and reviewed activity records and files of selected participating jurisdictions in Macon, Georgia; Richland County, South Carolina; and Miami, Tampa, and Polk County, Florida. Contacted nine HUD field offices by telephone and e-mail and obtained information related to activities open for prolonged periods. The field offices contacted were Puerto Rico; Milwaukee, Wisconsin; Detroit, Michigan; Newark, New Jersey; Houston, Texas; Greensboro, North Carolina; Chicago, Illinois; Miami, Florida; and New York, New York. Conducted tests to determine HUD field offices’ compliance with HOME program commitment requirements. HUD’s open activities report, provided by the headquarters Office of Community Planning and Development, showed more than $83 million1 in fund balances for open activities at December 31, 2008, that were more than five years old, of which we tested more than $19 million to determine what action HUD had taken to address closing out the activities. The amount tested included all activities (18 activities at 15 participating jurisdictions) that had fund balances equal to or greater than $500,000. The results of the audit only apply to the tested activities and cannot be projected to the universe or total population. Conducted tests to determine participating jurisdictions’ compliance with the HOME program commitment requirements. We visited 5 of 28 participating jurisdictions monitored by HUD Region IV field offices in 2008. During the site visits we reviewed 42 HOME activities with commitments that totaled more than $6.9 million. We selected the activities considering factors such as large commitments close to the deadline date, significant dollar amounts in HUD’s open activities report, funds five years old or older not spent, and participating jurisdictions monitored by HUD in fiscal year 2008. The results of the audit only apply to the tested activities and cannot be projected to the universe or total population. We conducted the audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 1 This amount excludes the City of New Orleans’ participating jurisdiction that was covered by a HUD waiver, program income, and administration including community housing development organization operating funds. 26 INTERNAL CONTROLS Internal control is an integral component of an organization’s management that provides reasonable assurance that the following controls are achieved: Program operations, Relevance and reliability of information, Compliance with applicable laws and regulations, and Safeguarding of assets and resources. Internal controls relate to management’s plans, methods, and procedures used to meet its mission, goals, and objectives. They include the processes and procedures for planning, organizing, directing, and controlling program operations as well as the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined that 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. Relevance and reliability of data - Policies, procedures, and practices that management has implemented to provide reasonable assurance that operational and financial information used for decision making and reporting externally is relevant, reliable, and fairly disclosed in reports. Compliance with laws and regulations - Policies and procedures that management has implemented to provide reasonable assurance that program implementation is in accordance with laws, regulations, and provisions of contracts or grant agreements. 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. 27 Significant Weaknesses Based on our review, we believe that the following items are significant weaknesses: Fund balances for open activities more than five years old were not closed out in a timely manner and could trigger recapture by the United States Treasury (see finding 1). Inadequate HUD monitoring of and internal controls over commitments entered into the information system resulted in questionable data reliability (see finding 2). HUD’s regulatory requirement for assessing compliance with commitment and expenditure requirements conflicted with statutory requirements (see finding 3). 28 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Unsupported 1/ Funds to be put to number better use 2/ 1A $62,201,487 1B $11,634,558 1/ 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 the 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. 2/ Recommendations that funds be put to better use are estimates of amounts that could be used more efficiently if an OIG recommendation is implemented. These amounts include reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by implementing recommended improvements, avoidance of unnecessary expenditures noted in preaward reviews, and any other savings that are specifically identified. In this instance, if HUD reviews and cancels the funds in a timely manner, it can reallocate the funds for eligible activities and possibly avoid recapture by the United States Treasury of 2002 and later year funds that participating jurisdictions may be blocked from drawing due to open fund balances for old open subgranted activities. 29 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Comment 2 Comment 1 30 Comment 3 31 Comment 4 32 Comment 4 Comment 5 Comment 6 33 Comment 7 Comment 8 34 35 Comment 9 36 37 Comment 10 Comment 11 Comment 12 38 OIG Evaluation of Auditee Comments Comment 1 HUD commented that the report inaccurately characterized first-in first-out as the method by which deadline compliance is determined and that the auditors' confusion on this point led to erroneous conclusions in finding 1. We were aware that HUD used a cumulative method to determine deadline compliance. We revised the report to clarify reference to first-in first-out as the method HUD employed to commit and draw funds within its information system versus the method HUD used to determine deadline compliance. The report does not mention the first-in first-out or cumulative methods in finding 1 Comment 2 HUD stated that the first-in first-out method is a standard accounting rule used in HUD’s information system to ensure that the oldest grant money available are used first. HUD also commented that the first-in first-out method of drawing the oldest money first is necessary because participating jurisdictions cannot specify in the information system the grant year(s) from which funds are to be committed and drawn. We contend the method, based on HUD’s description, distorts the association of expenditure in HUD’s financial records against the specific appropriations they relate to and caused inaccurate reporting to users within and outside the department, e.g. Congress. The first-in first-out method for committing funds in the information system complicates the process for participating jurisdictions to reconcile their general ledger to what the information system shows. The regulations at 24 CFR 85.20 provide that grantees and subgrantees must maintain records which adequately identify the source and application of funds provided for financially-assisted activities. These records must contain information pertaining to grant or subgrant awards and authorizations, obligations, unobligated balances, assets, liabilities, outlays or expenditures, and income. The information system, as commented on by HUD, prevents participating jurisdictions from specifying in the system the grant year(s) [sources of funds] from which funds are to be committed and drawn [uses of funds]. We discuss the accounting implication of this practice in appendix D of the report. Comment 3 HUD disagreed with the implications of a statement in the background section of the report that HUD makes formula allocations of HOME funds to participating jurisdictions on an annual basis without regards to the participating jurisdictions timely commitment and expenditure of prior year funds for eligible activities. HUD commented that the statement implies that it has the authority to deny funding to participating jurisdictions that fail to timely commit, reserve, or expend HOME funds but that it declines to exercise that authority for poor performers. HUD commented that it has no statutory authority to deny the formula funding to 39 participating jurisdictions for failure to comply with the cited requirements. HUD also commented that the statement ignores CPD’s established system for tracking deadline compliance and the deobligation of funds when deadlines are not met. We revised the background section of the report to recognize HUD’s comment that it had no statutory authority to deny the funding and to recognize HUD’s enforcement of the compliance deadlines by deobligating funds allocated to noncompliant participating jurisdictions. Contrary to HUD’s claim, finding 2 recognized HUD’s tracking of compliance with commitment and expenditure deadlines. Comment 4 HUD did not agree with finding 1. HUD stated that it was not true that “the balances associated with the old activities restricted participating jurisdictions from committing and spending the funds on other eligible HOME activities in a timely manner or for reimbursing the program for ineligible costs.” HUD further stated that participating jurisdictions can commit and expend funds on any eligible HOME activities in the information system based on fund availability without regard to other activities funded in the system. We basically agree, however, we maintain that “fund availability” is the operative phrase and that funds are not available to be committed if they are tied up in old activities that are not making reasonable progress toward completion. Comment 5 HUD commented that there is no HOME regulatory provision that requires that funds be committed to a specific HOME activity and be disbursed within five years. HUD further commented that the OIG’s sample failed to take into account that activity funding and drawdowns may occur from multiple grant years over a several year period of time. As cited in finding 1, we choose to assess open activities that were five years old or older because that period paralleled HUD’s regulatory requirement that participating jurisdictions spend HOME funds within five years of the date of their HOME agreements. We used the five year period to identify the type of open activities we wanted to assess during the audit. Contrary to HUD’s position, the sample did take into account that activity funding and drawdowns may occur from multiple grant years over a several year period of time. Comment 6 HUD took exception to the report comment that “HUD made considerable progress in closing out old open activities after we started the audit in November 2008.” HUD commented that the “considerable progress” was not the result of the OIG audit, but rather of HOME participating jurisdictions use of tools developed on CPD’s initiative to improve program management functions begun years prior to the OIG audit and which CPD had continued to take steps to improve each year. 40 The report did not state or imply that the progress HUD made in closing out open activities during the course of the audit was due to the audit. We simply recognized that HUD made progress in closing out open activities while the audit was in progress Comment 7 HUD disagreed with the report comment that the fund balances for the old open activities would make it more difficult for participating jurisdictions and HUD to avoid losing HOME funds subject to recapture by the United States Treasury under provisions of Public Law 101-510 (see finding 3). HUD also disagreed with the report comment that even if the above activities are now progressing toward completion, their old age may prevent participating jurisdictions from meeting the eight-year expenditure deadline under Public Law 101-510, applicable to activities funded with appropriations from fiscal year 2002 and later. We considered HUD’s position and found no support for their contention that the report comments were inaccurate. However, we did revise the report to clarify that funds tied up in subgrants for 2001 and earlier program years are the fund types most likely to bloc participating jurisdictions access to 2002 and later year funds that are subject to recapture under Public Law 101-510. Comment 8 HUD disagreed with the finding 1 but its comments reflected positive action to implement each recommendation (1A, 1B, 1C, and 1D) to resolve the issues discussed in the finding. Comment 9 HUD agreed with finding 2 and agreed to implement the recommendations (2A, 2B, 2C, and 2D). Comment 10 HUD did not agree with finding 3 and took exception to statements in the finding. HUD commented that we declared in absolute terms that the HOME regulations that permit HUD to determine compliance with HOME deadlines violate the statute. HUD commented that we made the declaration despite the fact that (1) we interviewed program counsel who informed us that the interpretation of the statute promulgated in the regulations was a reasonable interpretation of the statute; and (2) the OIG position would starkly reject and substitute its own judgment for the judgment of HUD’s Office of General Counsel, and the OIG reviewers at the time the rule was issued (1997) who would not have permitted the regulations to be cleared and published if they determined that they were inconsistent with the statute. Notwithstanding any prior review of the regulations by the Office of General Counsel and the OIG, we contend the issues raised by the audit and addressed in the recommendations warrant separate legal opinions from the Office of General Counsel. We agree with HUD’s comment that during our interviews with Office 41 of General Counsel staff we were told that the regulations were a reasonable interpretation of the statute. However, the issues in this case warrant separate legal opinions which we requested but, as stated in the finding, the Office of General Counsel did not provide. We believe the formal opinions are needed to support whether HUD’s method for assessing commitment and expenditure deadline compliance is consistent with provisions of the statutes. In response to HUD’s comment, we revised the report to clarify the presentation concerning the cumulative technique for assessing deadline compliance and the first-in first-out method HUD used to account for commitments and expenditures Comment 11 HUD disagreed with finding 3 but its comments indicated plans to implement recommendations 3A and 3B. We clarified the recommendation to address HUD’s previous comment on a lack of clarity in the report concerning the cumulative technique for assessing deadline compliance and HUD first-in first-out method. Comment 12 HUD commented that based on the responses to recommendations 3A and 3B a response to recommendation 3C would not be required. The recommendation, despite HUD comment, is subject to legal opinions yet to be obtained. 42 Appendix C SCHEDULE OF STALLED OR POTENTIALLY TERMINATED ACTIVITIES Participating Grantee Activity Funded Drawn Percentage Field office jurisdiction number number Funding date amount amount drawn Activities with no draw made since 2006 Anchorage Anchorage 13226 548 July 20, 2001 $ 767,789 $ 353,882 46.1 Atlanta Atlanta 37842 1202 Oct. 25, 2002 495,000 235,611 47.6 Atlanta Macon 13634 1838 May 14, 2002 5,000 1,891 37.8 Birmingham Birmingham 33048 5769 Oct. 21, 2003 82,000 6,260 7.6 Boston Providence 6562 1821 Oct. 9, 2003 94,410 23,958 25.4 Boston Maine 459 5899 Mar. 13, 2003 7,500 3,375 45 Boston Maine 459 5901 Mar. 17, 2003 7,500 3,375 45 Buffalo Binghamton 5712 155 Jan. 31, 1997 94,750 15,000 15.8 Buffalo Buffalo 16473 4326 Nov. 6, 2002 49,000 17,568 35.9 Buffalo Buffalo 16473 3864 Nov. 14, 2001 35,000 13,078 37.4 Puerto Rico Puerto Rico 782 6290 Aug. 28, 2003 1,790,000 82,008 4.6 Puerto Rico Puerto Rico 782 6295 Aug. 28, 2003 1,625,940 518,031 31.9 Puerto Rico San Juan 47787 242 Apr. 15, 1999 874,000 379,641 43.4 Puerto Rico San Juan 47787 20 July 1, 1996 622,300 92,709 14.9 Puerto Rico Carolina 17357 375 May 22, 2003 375,000 11,000 2.9 Puerto Rico Ponce 45016 664 Aug. 28, 2002 228,000 72,246 31.7 Puerto Rico Ponce 45016 397 Apr. 6, 1995 140,000 45,040 32.2 Puerto Rico Puerto Rico 782 5986 Apr. 16, 2003 73,847 28,500 38.6 Puerto Rico Carolina 17357 292 June 12, 2000 30,000 6,750 22.5 Puerto Rico Bayamon 13328 1191 Nov. 18, 2003 15,000 1,668 11.1 Puerto Rico Bayamon 13328 1163 Aug. 21, 2003 14,423 5,769 40 Detroit Detroit 52258 4287 May 6, 2002 60,000 20,659 34.4 Detroit Detroit 52258 4282 May 6, 2002 60,000 21,140 35.2 Detroit Detroit 52258 4283 May 6, 2002 60,000 21,580 36 Detroit Detroit 52258 4281 May 3, 2002 60,000 29,435 49.1 Detroit Detroit 52258 4284 May 6, 2002 60,000 29,437 49.1 Detroit Westland 52768 96 Dec. 4, 1997 4,341 72 1.7 Fort Worth Fort Worth 56984 3721 Oct. 29, 2002 175,000 26,000 14.9 Fort Worth Longview 53992 771 June 19, 2001 63,328 16,033 25.3 Fort Worth Longview 53992 766 June 19, 2001 58,503 8,017 13.7 Fort Worth Longview 53992 773 June 19, 2001 57,448 16,033 27.9 Greensboro Surry County Consortium 53193 83 July 10, 2002 33,717 11,589 34.4 Houston Houston 54859 6400 June 24, 2003 7,696 3,500 45.5 Jackson Hattiesburg 19788 696 Jan. 17, 2001 16,425 2,675 16.3 43 Participating Grantee Activity Funded Drawn Percentage Field office jurisdiction number number Funding date amount amount drawn Jacksonville Daytona Beach 47668 425 June 7, 2000 1,345 5 0.4 Jacksonville Daytona Beach 47668 928 Dec. 11, 2003 1,000 57 5.7 Knoxville Memphis 51459 1439 Apr. 24, 1997 2,969 700 23.6 Los Angeles Orange County 28594 1471 Aug. 28, 2003 1,492,012 196,535 13.2 Los Angeles Ontario 32759 391 Apr. 28, 2003 49,469 14,006 28.3 Los Angeles Oxnard 44217 664 Mar. 14, 2001 19,575 8,778 44.8 Miami Miami 15130 1572 Dec. 18, 2003 1,200,000 8,430 0.7 Miami Miami-Dade County 14790 3181 Aug. 6, 2002 395,605 115,088 29.1 Miami Pompano Beach 9061 196 Feb. 14, 2002 289,603 65,450 22.6 Miami Palm Beach County 41123 1369 Aug. 29, 2002 20,000 5,000 25 Miami Fort Lauderdale 8585 1051 May 1, 2003 5,366 2,031 37.8 Miami Fort Lauderdale 8585 1086 Oct. 21, 2003 1,600 578 36.1 New Orleans Lafayette 27081 536 Oct. 25, 2000 266,089 115,704 43.5 New York Nassau County 28526 1985 Mar. 26, 2002 1,500,000 600,000 40 New York Nassau County 28526 2278 Aug. 11, 2003 250,000 50,000 20 New York Nassau County 28526 1992 Mar. 27, 2002 100,000 49,381 49.4 New York Rockland County 37706 1061 Oct. 17, 2003 75,000 27,859 37.1 New York Dutchess County Consortium 15708 653 Apr. 8, 2003 14,942 492 3.3 New York Dutchess County Consortium 15708 664 Apr. 16, 2003 10,212 492 4.8 Union County Newark Consortium 22287 1406 Aug. 20, 2001 347,800 150,000 43.1 Newark East Orange 9877 609 Aug. 8, 2001 32,550 7,875 24.2 Newark East Orange 9877 509 Sept. 22, 2000 1,250 250 20 Oklahoma City Tulsa 49912 1072 May 27, 1998 77,215 29,215 37.8 Oklahoma City Tulsa 49912 1073 May 27, 1998 54,900 8,900 16.2 Oklahoma City Tulsa 49912 301 Mar. 24, 1997 10,350 4,250 41.1 Philadelphia Philadelphia 41752 6429 Mar. 1, 2001 70,384 24,488 34.8 Philadelphia Philadelphia 41752 6432 Mar. 1, 2001 65,384 24,369 37.3 Philadelphia Philadelphia 41752 6430 Mar. 1, 2001 60,384 21,505 35.6 Philadelphia Philadelphia 41752 6427 Mar. 1, 2001 56,384 23,389 41.5 Philadelphia Philadelphia 41752 6428 Mar. 1, 2001 56,384 23,416 41.5 Philadelphia Philadelphia 41752 6431 Mar. 1, 2001 55,384 24,075 43.5 Philadelphia Harrisburg 22916 1676 Oct. 3, 2002 30,625 15,129 49.4 Philadelphia Pennsylvania 765 23761 Oct. 17, 2003 30,000 5,000 16.7 Philadelphia Pennsylvania 765 23760 Oct. 17, 2003 25,000 5,000 20 Pittsburgh Pittsburgh 3876 3284 Feb. 10, 2003 219,500 46,500 21.2 Richmond Newport News 58548 740 Apr. 30, 2002 50,000 824 1.6 Richmond Newport News 58548 726 Apr. 1, 2002 50,000 13,500 27 Richmond Newport News 58548 744 Apr. 30, 2002 49,899 1,410 2.8 Richmond Newport News 58548 644 July 9, 2001 25,000 460 1.8 San Francisco Phoenix 10659 1889 June 21, 2002 445,210 92,218 20.7 San Francisco Phoenix 10659 1721 Aug. 23, 2001 783 300 38.3 Seattle Washington 969 2257 Sept. 20, 2000 22,500 129 0.6 Subtotal $15,674,589 $3,906,317 44 Participating Grantee Activity Funded Drawn Percentage Field office jurisdiction number number Funding date amount amount drawn Activities with draws made from 2007 through 2009 Baltimore Baltimore 57885 220 Feb. 4, 1997 39,840 3,453 8.7 Puerto Rico Guaynabo 29121 15 Apr. 19, 1994 2,260,641 1,020,391 45.1 Chicago Evanston 17816 431 June 26, 2002 200,000 58,600 29.3 Denver Pueblo Consortium 41803 2313 Dec. 30, 2003 240,000 93,366 38.9 Fort Worth Tyler 56882 680 Sept. 24, 2003 133,000 26,418 19.9 Hartford Bridgeport 1547 1096 June 25, 2003 450,000 103,947 23.1 Hartford Bridgeport 1547 983 June 6, 2002 288,500 56,937 19.7 Hartford Bridgeport 1547 857 Mar. 28, 2001 185,000 4,888 2.6 Hartford Bridgeport 1547 984 June 6, 2002 182,507 49,818 27.3 Hartford Bridgeport 1547 1073 Aug. 28, 2002 158,077 14,100 8.9 Hartford Bridgeport 1547 716 July 1, 1999 114,512 46,460 40.6 Houston Port Arthur 55743 318 July 18, 2000 124,488 17,599 14.1 Houston Houston 54859 6716 Dec. 30, 2003 31,025 6,035 19.5 Jacksonville St. Petersburg 42500 310 Nov. 20, 1996 1,560,600 302,734 19.4 Jacksonville Jacksonville-Duval 17952 2486 Dec. 19, 2002 260,020 76,842 29.6 Jacksonville Florida 238 3012 Feb. 11, 2002 160,000 20,855 13 Jacksonville Florida 238 3368 June 27, 2003 36,819 0* 0 Jacksonville Florida 238 3366 June 26, 2003 21,779 844 3.9 Los Angeles Orange County 28594 1310 Jan. 3, 2002 624,009 142,640 22.9 Los Angeles Los Angeles County 21114 927 Sept. 30, 1998 333,120 141,176 42.4 Miami Fort Lauderdale 8585 1127 Dec. 31, 2003 15,328 6,325 41.3 New Orleans Jefferson Parish Consortium 25908 1873 June 26, 2003 152,000 23,712 15.6 New Orleans Jefferson Parish Consortium 25908 1727 July 30, 2002 17,152 1,098 6.4 New York New York City 5049 1502 Nov. 18, 2003 8,896,224 4,003,301 45 Newark Jersey City 12121 846 May 14, 2002 800,000 390,268 48.8 Philadelphia Luzerne County 35309 2973 Jan. 23, 2003 194,614 40,395 20.8 Pittsburgh Pittsburgh 3876 2902 Feb. 11, 2002 220,250 91,657 41.6 San Francisco Santa Clara 37315 408 Sept. 5, 2003 427,514 209,692 49 San Francisco Phoenix 10659 1912 Aug. 8, 2002 194,000 3,262 1.7 San Francisco Phoenix 10659 2119 Mar. 3, 2003 177,000 1,492 0.8 San Francisco Phoenix 10659 1844 May 3, 2002 130,000 2,273 1.7 Washington District Of Columbia 204 295 Nov. 2, 2001 2,500,000 767,664 30.7 Subtotal $21,128,019 $7,728,241 Grand totals $36,802,608 $11,634,558 *The fund drawn amount was less than $1. 45 Appendix D OTHER MATTER FOR CONSIDERATION INVOLVING ACCOUNTING FOR HOME DRAWS The first-in first-out technique for HOME expenditures may affect the accuracy of HUD’s accounting for HOME program activity based on requirements in Office of Management and Budget Circular A-127, Financial Management Systems, and other related standards for federal agency financial management systems and reporting requirements. These requirements include but are not limited to compliance with the U.S. Government Standard General Ledger. HUD officials stated that they used the technique for all community planning and development programs. Thus, the technique could impact HUD’s financial statement for all community planning and development programs. However, this review was not an audit of HUD’s financial statements, and the determination of the impact of the technique on HUD financial statements was beyond the scope of this audit. HUD should consider this issue for review as it addresses the issues presented in this report. 46
HUD Lacked Adequate Controls to Ensure the Timely Commitment and Expenditure of HOME funds
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)