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
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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.
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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
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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.
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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.
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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
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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.
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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
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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)