oversight

The City of Boston's Department of Neighborhood Development in Boston, Massachusetts, Did Not Administer Its HOME Program in Compliance with HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-19.

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

                                                                Issue Date
                                                                       August 19, 2009
                                                                Audit Report Number
                                                                       2009-BO-1011




TO:        Robert C. Paquin, Director, Office of Community Planning and Development,
           Boston Regional Office, 1AD


FROM:
           John A. Dvorak, Regional Inspector General for Audit, Boston Region, AGA


SUBJECT: The City of Boston’s Department of Neighborhood Development in Boston,
         Massachusetts, Did Not Administer Its HOME Program in Compliance with
         HUD Requirements



                                   HIGHLIGHTS

 What We Audited and Why

             We audited the HOME Investment Partnerships Program (HOME) administered
             by the City of Boston’s (City) Department of Neighborhood Development
             (Department) as part of our annual audit plan.

             Our objective was to determine whether the Department administered its HOME
             program in compliance with HUD requirements. Specifically, we wanted to
             determine whether the Department used community housing development
             organization (CHDO) qualification requirements in designating its CHDOs and
             spent CHDO operating expenses on eligible activities. In addition, we wanted to
             determine if the Department complied with U.S. Department of Housing and
             Urban Development (HUD) procurement policies and procedures. We also
             wanted to determine if the Department’s method of allocating salaries was
             adequate and supported.
What We Found


         The Department awarded CHDO set-aside funding totaling more than $4.7
         million to 18 organizations that did not meet all legal and organizational
         characteristics of CHDOs or did not have the required capacity to operate as
         CHDOs. Additionally, the Department provided more than $2.1 million in
         CHDO operating funds to the 18 ineligible organizations.

         The Department also did not ensure that proper, fair, and equitable procurement
         practices were followed for more than $5.1 million in HOME funding expended
         on construction and development work. Contractors were selected without
         solicitation of bids, bids were not formally (publicly) advertised, independent cost
         analyses were not performed before the bidding process, and supporting
         documentation related to the history of procurement actions was not maintained.

         In addition, the Department could not ensure that payroll costs of more than $1.7
         million charged to the HOME program for fiscal years 2007 and 2008 were
         accurate because it did not have a reliable system/method to record the actual time
         spent on its various programs. The Department did not maintain a cost allocation
         plan and used an allocation method based, for the most part, on estimates or past
         experience. As a result, some of its programs may have incurred a
         disproportionate share of staffing costs, while some local City programs were not
         charged.



What We Recommend


         We recommend that the Director of the Office of Community Planning and
         Development require the Department to cease spending set-aside and operating
         expense funding until it can be determined whether the organizations can achieve
         CHDO status in accordance with HUD regulations. The Department should be
         required to assist the organizations in achieving CHDO status as deemed
         necessary. We also recommend that the City: (1) deobligate unexpended set-aside
         funding of more than $3.9 million and provide funding to organizations that are
         eligible to receive the funding or reimburse funds to the HOME program, (2)
         reimburse approximately $800,000 expended from set-aside funds from
         nonfederal funds to the HOME program. (3) deobligate unexpended operating
         funds of approximately $1 million and reimburse these funds to the HOME
         program, and (4) reimburse expended operating funds of more than $1 million
         from nonfederal funds to the HOME program.

                                          2
           In addition, we recommend that the Director of the Office of Community
           Planning and Development require the Department to conduct an independent
           cost analysis for each of the procurements to ensure that more than $5.1 million in
           HOME program expenditures were reasonable and supported. For amounts not
           supported, the Department should reimburse the HOME program from nonfederal
           funds. Also, the Department must monitor and provide technical assistance to
           ensure that developers follow HUD procurement regulations, including ensuring
           that (1) independent cost analyses are performed before bids are received, (2) bids
           are formally (publicly) advertised, (3) bids are solicited from an adequate number
           of contractors and awards are made to the lowest responsive bidder, and (4)
           supporting documentation is maintained for each procurement.

           Finally, we recommend that the Director of the Office of Community Planning
           and Development require the Department to implement a cost allocation plan
           which adequately describes the process for personnel who work on multiple
           programs. The Department must also revise its job descriptions so that they are
           consistent with the allocation plan. We also recommend that the Department
           provide supporting documentation for payroll costs of more than $1.7 million
           charged to the HOME program in fiscal years 2007 and 2008 and submit
           documentation to the HUD Office of Community Planning and Development for
           approval. If proper supporting documentation is not provided, the Department
           should reimburse the HOME program from nonfederal funds.

           For each recommendation in the body of the report 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 Department officials with a draft audit report on July 14, 2009, and
           requested a response by July 28, 2009. We held an exit conference with
           Department officials on July 24, 2009, to discuss the draft report, and we received
           their written comments on July 28, 2009. The Department agreed with the facts,
           conclusions, and recommendations in Findings 3 and 5. However, the
           Department was not in total agreement with Findings 1, 2 and 4.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report.



                                            3
                           TABLE OF CONTENTS

Background and Objective                                                             5

Results of Audit
      Finding 1: The Department Did Not Ensure That Organizations Met CHDO           6
                 Requirements
      Finding 2: The Department Did Not Always Ensure That Project Developers        11
                 Followed Proper Procurement Procedures
      Finding 3: The Department’s Method for Allocation of Salaries Was Inadequate   16
      Finding 4: The Department Provided HOME Funds to Developers for Costs That     19
                 Were Ineligible or Unsupported
      Finding 5: The Department Did Not Submit Its Evaluation Reports in a Timely
                 Manner                                                              23

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. Required CHDO Documents and Certifications Not Received from Nonprofit         48
      Organizations
   D. Criteria                                                                       49




                                            4
                      BACKGROUND AND OBJECTIVES


The HOME Investment Partnerships Program (HOME) was created by Title II of the Cranston-
Gonzalez National Affordable Housing Act of 1990. Under the HOME program, the U.S.
Department of Housing and Urban Development (HUD) allocates funds to eligible state and local
governments for the purpose of (1) expanding the supply of decent, safe, and affordable housing
for very low-income and low-income Americans and (2) strengthening public-private
partnerships in the production and operation of such housing. The HOME program gives
participating jurisdictions discretion over which housing activities to pursue. These activities
may include acquisition, rehabilitation, new construction, and resident-based rental assistance.
In addition, participating jurisdictions may provide assistance in a number of eligible forms,
including loans, advances, equity investments, and interest subsidies. Up to 10 percent of the
HOME funds received by a participating jurisdiction may be used to administer the program.

The City of Boston, Massachusetts (City), through its Department of Neighborhood
Development (Department), receives HOME funds each year directly from HUD as a
participating jurisdiction under the program. The Department received HOME funding of more
than $23.8 million for fiscal years 2007 to 2009 to administer five main activities, including (1)
existing homeowner rehabilitation, (2) homeownership development, (3) home-buyer financial
assistance, (4) housing preservation/production, and (5) community housing development
organization (CHDO) assistance.

Under HOME program rules, at least 15 percent of the Department’s annual HOME allocation
must be set aside for eligible CHDO housing activities. Only nonprofit organizations that have
been certified as CHDOs by participating jurisdictions can receive funds from the minimum 15
percent set-aside funds. To be certified as a CHDO, an organization must meet certain
requirements described in the HOME regulations.

The HOME program establishes requirements for the organizational structure of CHDOs to ensure
that the governing body of the organization is controlled by the community it serves. These
requirements are designed to ensure that the CHDO is capable of making decisions and performing
actions that address the community’s needs without undue influence from external agendas.

Our audit objective was to determine whether the Department administered its HOME program in
compliance with HUD requirements and whether HOME funds were efficiently and effectively
used to expand the supply of decent, safe, and affordable housing for low- and very low-income
households. Specifically we wanted to determine (1) whether the City used CHDO qualification
requirements to designate its CHDOs and spent CHDO operating expenses on eligible activities,
(2) whether the Department complied with HUD procurement policies and procedures, (3)
whether the Department’s method of allocating salaries was adequate and supported, and (4) the
cause(s) for the Department’s failure to submit its consolidated annual performance evaluation
reports (evaluation reports) to HUD in a timely manner in recent years.



                                                 5
                                RESULTS OF AUDIT

Finding 1: The Department Did Not Ensure That Organizations Met
CHDO Requirements
The Department certified 18 nonprofit organizations as CHDOs that did not meet the terms or
requirements necessary for CHDO designation. This condition occurred because the Department
was not fully aware of the HUD requirements and regulations regarding the designation and
operation of CHDOs, including the use of CHDO operating funds and set-aside eligibility. As a
result, these unqualified organizations improperly received CHDO set-aside and operating funds
totaling $6.8 million, and the CHDO operating and set-aside funds were overstated in HUD’s
Integrated Disbursements Information System (IDIS).



 Unqualified Nonprofit
 Organizations Were Certified as
 CHDOs


              The Department certified 18 unqualified nonprofit organizations as CHDOs. These
              certifications were improper because the organizations did not meet all requirements
              for designation as CHDOs. Specifically, the Department did not ensure that
              nonprofit organizations provided all of necessary documents and certifications that
              would have ensured that the organizations met all legal and organizational
              characteristics of CHDOs or that they had the required capacity to operate as
              CHDOs. HOME requirements for CHDO certification must be satisfied for an
              organization to become a certified CHDO. If the requirements (found in Subpart A
              of 24 CFR Part 92.2, and the “CHDO checklist” in Notice: CPD-97-11) are not met,
              the organization is not properly designated as a CHDO, and no funding can be
              expended. The City should not have certified these organizations as CHDOs before
              it received all the required information.

              To be certified as a CHDO, an organization must meet certain requirements,
              including (1) legal status; (2) organizational structure; and (3) experience,
              capacity, and financial accountability. The 18 organizations failed to meet at least
              one of these characteristics (see appendixes C and D). For example,

                  ƒ   All 18 organizations did not have proper by-laws or articles of
                      incorporation documents. These documents were missing a tenant
                      participation plan or a formal process for low-income community input.
                      Each project undertaken by the CHDO should allow potential program
                      beneficiaries to be involved and provide input on the entire project from
                      project concept and site selection to the property management phase.

                                               6
             ƒ   Fourteen organizations did not meet low-income accountability
                 requirements. Specifically, the by-laws were missing required terms with
                 regard to low-income board representation.

             ƒ   Ten organizations did not provide sufficient documentation to show a
                 history of serving the community within which housing to be assisted with
                 HOME funds was to be located.

             ƒ   Sixteen organizations did not provide documentation to show that they
                 conformed to the financial accountability standards of 24 CFR 84.21
                 “Standards for Financial Management Systems.”


HOME Set-Aside Funds Were
Provided to Unqualified
Organizations


          For fiscal years 2006 to 2008, the Department reserved more than $4.7 million in
          set-aside funding for 3 of the 18 organizations improperly designated as CHDOs.
          None of the remaining 15 organizations received set-aside funding during fiscal
          years 2006 to 2008. The set-aside funding was to be used for rehabilitation or
          construction of five separate projects. As of March 27, 2009, more than $4.1
          million of the reserved funds had been committed, of which $836,941 had been
          expended.

              CHDO         Fiscal year   Reserved     Committed    Expended    Unexpended
                                                                                  bal.
          Nuestra             2006       $1,213,749   $1,213,749      $   0       $1,213,749
          Communidad
          Dorchester Bay      2007         564,323       154,112      42,714         521,609

          Jamaica Plain       2007        1,189,189    1,189,189     435,336         753,853
          Jamaica Plain       2008          771,716      535,122           0         771,716
          Nuestra             2008        1,012,114    1,012,083     358,891         653,223
          Communidad
               Total                     $4,751,091   $4,104,255    $836,941      $3,914,150




                                           7
    CHDO Operating Funds Were
    Provided to Unqualified
    Organizations


                   From fiscal years 2004 to 2009, the City also provided more than $2.1 million1 in
                   CHDO operating funds to the 18 nonprofit organizations that were not entitled to
                   receive the funds because they were not qualified CHDOs. HUD regulations
                   (HUD Notice 97-11) state that, if an organization is acting only as a subrecipient
                   or as a contractor, the organization is not eligible to receive CHDO operating
                   funding. In effect, the organizations were operating in the capacity of
                   subrecipients or contractors because they did not meet the requirements for
                   CHDO designation.

                   In addition, 12 of the 18 organizations would not have been eligible to receive the
                   operating funding even if they met the requirements for CHDO designation. In
                   accordance with regulations at 24 CFR 92.300(a)(e), a CHDO can be provided
                   with operating funds if it is expected that it will be receiving CHDO project set-
                   aside funds within 24 months of receiving the operating funding. The
                   participating jurisdiction must enter into a written agreement with the CHDO
                   specifying the terms and conditions upon which this expectation is based. The 12
                   organizations that received CHDO operating funds did not receive CHDO set-
                   aside funding within 24 months of receiving the operating funding. Further, none
                   of the 12 organizations had received CHDO set-aside funding since fiscal year
                   2000. In addition, the grant agreements between the City and the organizations
                   did not stipulate that the organizations receiving operating expense funding were
                   expected to receive set-aside funding within 24 months of receiving the operating
                   expense funds. As of March 27, 2009, more than $1.3 million of the
                   authorized/reserved funds had been committed, of which more than $1.1 million
                   had been expended.


                   Fiscal year   Authorized       Reserved      Committed      Expended       Unexpended
                                                                                                  bal.
                      2004                          $375,750      $375,750      $375,750           $0
                      2005                           375,000       375,000       375,000            0
                      2006                           375,000       375,000       375,000            0
                      2007                           375,000       176,606        19,973        355,027
                      2008                          $322,875                                    322,875
                      2009         $344,900                                                     344,900
                      Totals       $344,900       $1,823,625     $1,302,356    $1,145,723      $1,022,802




1
    Total funds of $1,823,625 reserved from 2004 to 2008 plus $344,900 authorized for 2009 equals $2,168,525.

                                                          8
The Department’s Compliance
Manager Was Unfamiliar with
HUD Regulations


              The Department’s compliance manager is responsible for determining whether
              nonprofit organizations can be designated as CHDOs. The compliance manager
              had a general knowledge of the requirements regarding CHDOs; however, the
              manager was not familiar with specific program requirements, especially the 15%
              set-aside requirements for CHDO funding. The compliance manager stated that
              during the course of working two years for the Department, the manager had
              relied on the instruction and guidance from on-the-job training received from the
              manager’s predecessor.

              The Department also did not always ensure that funding was applied properly.
              For example in 2006, the Department had reserved CHDO set-aside funding of
              more than $1.2 million for an organization improperly designated as a CHDO, but
              the funding was not committed and disbursed. In lieu of using the set-aside
              funding as planned, the Department inadvertently used Community Development
              Block Grant funding for rehabilitation and construction of a CHDO project. The
              compliance manager was unsure how this error occurred but readily admitted that
              the Department was responsible.



 Conclusion


              The Department inappropriately reserved more than $4.7 million in CHDO set-
              aside funding and $2.1 million for operating funds when the organizations did not
              qualify for these funds. As a result, HOME set-aside spending did not meet the
              statutory 15 percent set-aside spending requirements. This condition occurred
              because the Department’s staff was not fully aware of the HUD requirements and
              regulations pertaining to CHDOs.


 Recommendations



              We recommend that the Director of the Office of Community Planning and
              Development in Boston direct the Department to

              1A. Improve its controls over the CHDO certification process to ensure that
                  organizations designated as CHDOs meet HUD requirements.

                                               9
1B. Ensure that its staff become more familiar with HUD regulations
    regarding the CHDO process.

1C. Cease spending set-aside and operating funding until it can
    be determined whether the 18 organizations can achieve CHDO status in
    accordance with HUD regulations.

1D. Assist the 18 organizations in achieving CHDO status as deemed
    necessary.

1E. Deobligate unexpended set-aside funding of $3,914,150 and provide funding
    to organizations that are eligible to receive the funding or reimburse funds to
    the HOME program.

1F. Reimburse $836,941 expended from set-aside funds from nonfederal funds to
    the HOME program.

1G. Deobligate unexpended operating funds of $1022,802 and reimburse funds to
    the HOME program.

1H. Reimburse $1,145,723 expended in operating funds from
    nonfederal funds to the HOME program.




                                 10
                                           RESULTS OF AUDIT

Finding 2: The Department Did Not Always Ensure That Project
Developers Followed Proper Procurement Procedures
The Department did not ensure that the project developers that were provided with HOME
funding followed proper procurement practices and procedures. Project developers (1) did not
perform independent cost analyses before soliciting bids, (2) selected contractors without
properly soliciting bids, (3) did not formally advertise bids as required, and (4) did not maintain a
detailed history of actions undertaken for each procurement. These deficiencies occurred
because the Department did not adequately monitor the developers’ procurement and contracting
procedures. As a result, it could not provide HUD with adequate assurance that the procurement
process used by developers was fair and equitable and that more than $5.1 million in HOME
funds provided to developers for construction/development work represented the most favorable
contract prices that could have been obtained.


    A Majority of Procurements
    Reviewed Had Deficiencies


                     We reviewed 10 of the Department’s procurements/contracts relating to
                     construction. For 9 of the 10, we identified at least one violation of HUD
                     regulations and/or the Department’s procurement policy as follows:

                                            Project                            IDIS           Costs         Deficiencies
                                                                             number
                       Humphrey Street2 – homeownership component             13569           $518,615          1,3,4
                          Humphrey Street – rental component                  13575             391,875         1,3,4
                                      Imani House                             13537             483,464           2
                                    Leila Doe House                           13568             789,749           2
                                       1460 House                             14224             384,750          1,4
                             Brookford, Dalin, Dean Homes                     13597             855,000          1,2
                                       Hope House                             14381             900,000           2
                                    270 Centre Street                         13891              95,000          1,3
                                    636 Dudley Street                         14475             760,000           4
                                          Totals                                            $5,178,4533




2
    The construction work on Humphrey St. included two components or projects: one rental and the other
    homeownership. The developer planned that the same contractor would work on both components. Homeownership
    units are located at 12-14 Humphrey St., Dorchester, and rental units are located at 38 Elder/69 Beldon Sts., Roxbury.
3
    Amounts represent funds drawn down in IDIS as of December 12, 2008.

                                                              11
           Deficiency Explanations:

           1.   Failure to perform independent cost analysis before soliciting bids
           2.   Contractors selected without solicitation of bids
           3.   Bids not formally advertised
           4.   Failure to maintain a detailed history of procurement action


Independent Cost Analysis Was
Not Performed



           For five procurement actions reviewed, there was lack of evidence that the
           Department conducted independent cost analyses for the procurements. An
           independent cost analysis prepared before receipt of bids or proposals ensures that
           the construction costs are reasonable. HUD regulations [24 CFR 82.36(f)(1)]
           require that a cost or price analysis be performed in connection with every
           procurement action before bids or proposals are received.

Contractors Were Selected
without Adequate Competition


           The developers contracted with four construction companies without using full and
           open competition. The construction work was performed at the following projects:
           (1) Brookford, Dalin, and Dean Homes (Brookford); (2) Hope House; (3) Imani
           House; and (4) Leila Doe House.

           Brookford
           The Department did not require the developer of the Brookford project to follow the
           standard three-bid process for the procurement because the developer (1) had
           already provided construction cost estimates and a budget and (2) had a contractor in
           place as part of its development team.

           Hope House
           According to a memorandum, dated October 3, 2007, prepared by a developer’s
           consultant, the development team for the Hope House project chose not to solicit
           bids because of the increasing construction prices and complexity of the
           construction work. The owner and the development team for the project justified
           their selection of a construction company to perform the work based on that
           company’s knowledge of construction and because the company’s management
           team was comprised of professional structural engineers. The Department’s
           Housing Policy (Section 3 on Bidding) dictates that a project must be competitively
           bid to achieve the lowest reasonable construction cost and to provide increased fair
           access to the economic opportunities created through the project.
                                              12
           Imani House
           The developer for the Imani House project solicited bids, selected a contractor, and
           executed a written agreement with the contractor in 2003. Later, the contractor
           could not manage its costs and discontinued its work on the project in 2006. The
           developer then selected another contractor (not among the previous bidders) to
           perform the work without solicitation of bids. In lieu of rebidding the construction
           work, the developer awarded the contract based on recommendations from the
           lenders.

           Leila Doe House
           The developer for the Leila Doe House received bids submitted by three
           construction companies in December 2005. Two of these companies eventually
           dropped out of the bidding process. Another (fourth) construction contractor
           submitted a bid in June 2006 and was awarded the contract without competition.
           Since the construction company that was awarded the contract was not among the
           previous bidders, this procurement should have been rebid. HUD regulations [24
           CFR 85.36(d)(4)(i)] dictate that: Procurement by noncompetitive proposals may be
           used only when the award of a contract is infeasible under small purchase
           procedures, sealed bids or competitive proposals and one of the following
           circumstances applies: (A) The item is available only from a single source; (B) The
           public exigency or emergency for the requirement will not permit a delay resulting
           from competitive solicitation; (C) The awarding agency authorizes noncompetitive
           proposals; or (D) After solicitation of a number of sources, competition is
           determined inadequate.

Bids Were Not Formally
Advertised


           There was no evidence that the bids for the 270 Centre Street project, the Humphrey
           Street project (homeownership component), and the Humphrey Street project (rental
           component) were formally advertised. Therefore, the awarding of these contracts
           was not conducted in accordance with free and open competition. Based on
           documentation provided by the Department, the bidding was by invitation only,
           meaning that only certain contractors were given an opportunity to bid. HUD
           regulations [24 CFR 85.36(d)(2)] dictates that procurement by sealed bids (formal
           advertising) is the preferred method for procuring construction and invitations for
           bids will be publicly advertised.




                                            13
Monitoring of the Developer’s
Procurement Activities Was
Inadequate


            Department staff did not demonstrate that they were fully aware of their
            responsibilities regarding the oversight and monitoring of developers’
            procurement activities. One staff member stated that the Department did not
            customarily make developers aware of procurement requirements. The
            developers would sometimes rely on contractors that they knew and trusted, based
            on past experience. A housing development officer representing the Department
            stated that the Department was unable to properly monitor procurement activities
            due to lack of sufficient staff.


The Department Lacked
Adequate Procurement History


            The Department maintained only minimal procurement documentation. For at least
            four of the procurement actions reviewed, we had to request documentation from the
            developer. The Department’s Housing Policy (Section 3 on Bidding) require that
            copies of each contractor bid be submitted to the Department for review and
            maintained in the project files. We found four procurement actions in which
            procurement documentation, specifically invitations to bid, and bid proposals were
            missing from the Department’s records. The projects included (1) Humphrey Street
            project (homeownership component), (2) Humphrey Street project (rental
            component), (3) 636 Dudley Street, and (4) 1460 House.


Procurement Policies Were Not
Consistent with Federal
Regulations

            The Department’s procurement policies and procedures are not always consistent
            with federal requirements. For example, the Department’s written procurement
            procedures did not adequately explain the methods of procurement, specifically
            (1) procurement by sealed bid, (2) procurement by competitive proposal, and (3)
            procurement by noncompetitive proposal as covered in HUD regulations.
            Participating jurisdictions are required to follow procurement regulations at 24
            CFR 85.36c(3). This condition occurred because the Department failed to update
            its own procurement regulations to ensure compliance with federal regulations.




                                            14
Conclusion



             The Department was required to promote full and open competition for all
             procurement actions to include preparation of cost or price analysis for each
             procurement before receiving bids or proposals. These deficiencies occurred because
             the Department did not adequately monitor the developer’s procurement and
             contracting process. As a result, there was a lack of assurance that the procurement
             process was fair and equitable and that the most favorable contract prices were
             obtained for more than $5.1 million in HOME funding spent for the
             construction/development work.


Recommendations



             We recommend that the Director of the Office of Community Planning and
             Development in Boston direct the Department to

             2A. Conduct an independent cost analysis for each of the procurements to ensure
                 that $5,178,453 is reasonable and supported. For any amounts not reasonable
                 and supported, the Department should reimburse the HOME program from
                 nonfederal funds.

             2B. Monitor the developer’s procurement process to ensure construction bids are
                 formally (publicly) advertised, bids are solicited from an adequate number of
                 contractors, and awards are made to the lowest responsive bidder.

             2C. Provide technical assistance to the developers, as needed.

             2D. Review and maintain supporting documentation for each procurement
                 including a history of the procurement.

             2E. Revise its written procurement regulations to ensure compliance with federal
                 regulations.




                                              15
                                RESULTS OF AUDIT

Finding 3: The Department’s Method for Allocation of Salaries Was
Inadequate
The Department did not use a reliable method to record the actual time employees spent on its
various programs. It used a cost (salary) allocation plan method based on estimates, instead of
requiring all employees to either record their actual hours worked by funding source/program or
to use the results of an acceptable time study. However, Department management believed that
its salary allocation method was appropriate and reasonable and was unaware that an
improvement was needed. As a result, it could not ensure that the hours charged by its staff to
HUD-funded programs were accurate and reasonable and that some of its various federal and
local programs did not incur a disproportionate share of the payroll costs. We question more
than $1.7 million as unsupported, which represents the Department’s payroll costs charged to the
HOME program for fiscal years 2007 and 2008.



 The Department Did Not
 Maintain an Adequate Cost
 Allocation Plan

              The payroll costs for all employees of the City were paid from the City’s general
              fund, and the individual City departments, including the Department, reimbursed
              the general fund on a monthly basis.

              However, the Department did not maintain an adequate cost allocation plan to
              ensure that Department programs were charged for their fair share of payroll
              costs. Department employees who worked on only one or two programs
              recorded their time for each activity/program. However, the Department
              employees who worked on more than two activities/programs did not keep track
              of the time spent working on each activity/program. Unless employees spent an
              unusual amount of time on a funding source during a specific week, they did not
              make the necessary adjustment on the time sheet. The time sheets used by the
              Department showed preprinted percentage allocations, which were based entirely
              on estimates from past allocation experience and which were not revised and
              updated on a regular basis to reflect actual experience. In addition, none of the
              job descriptions for Department employees included the applicable funding
              sources for each position or identified the program(s) applicable to each position.
              As a result, the job descriptions were not consistent with the cost allocation plan
              and need to be revised accordingly. The Department management believed that
              its cost (salary) allocation method was reasonable and appropriate and that no
              improvement was needed.



                                               16
Federal Funding Absorbed the
Majority of Payroll Costs


           The federal programs absorbed the majority of payroll costs. In addition to the HUD
           funding, the Department receives funding directly from the City through five
           sources: (1) Leading the Way program, (2) Neighborhood Development Fund
           program, (3) Home Preservation Fund program, 4) Inclusionary Development Fund
           program, 5) and the City operating budget. With the exception of funding received
           through the City’s operating budget, the Department did not use any of the estimated
           $9 million received annually to pay salaries of Department employees although they
           may have worked on the City programs. However, the share of payroll costs
           charged to the City’s operating budget was not supported, and a determination of
           whether these charges were accurate could not be made, just as the payroll costs
           charged to the HOME program could not be determined to be accurate.


  The Cost Allocation Plan
  Should Be Revised on a Regular
  Basis



           OMB regulations [2 CFR Appendix B to Part 225(h)(4)] dictate that, when
           employees work on multiple activities or cost objectives, a distribution of their
           salaries or wages will be supported by personnel activity reports or equivalent
           documentation. The Department’s cost allocation plan did not comply with
           these regulations. In similar situations, agencies or grantees perform a time study
           for a three- or four-month period, keeping daily records of the time spent on each
           program, and then use the data to compare to the existing allocation plan as a
           basis for revising and updating payroll allocations.

           We interviewed 11 Department employees whose salaries were charged to more
           than two programs to determine the basis for the time charged. Of these
           employees, seven stated that they did not know the basis for the allocation
           percentages reflected on their time sheets, and they also indicated that they never
           made changes or adjustments to their time sheets. These staff members signed
           their time sheets with preprinted allocation percentages already in place.




                                            17
Conclusion


             The Department did not use a reliable method to record the actual time employees
             spent on its various programs. It did not have an adequate cost (salary) allocation
             plan that clearly identified the actual hours worked by funding source/program for
             each employee. As a result, it could not ensure that the hours charged by its staff
             to HUD-funded programs were accurate and reasonable and that some of its
             various federal and local programs did not incur a disproportionate share of the
             payroll costs. The Department management believed that its salary allocation
             method was appropriate and reasonable and was unaware that an improvement
             was needed. We question more than $1.7 million as unsupported, which
             represents the Department’s payroll costs charged to the HOME program for
             fiscal years 2007 and 2008.


Recommendations



             We recommend that the Director of the Office of Community Planning and
             Development in Boston direct the Department to

             3A. Develop and implement a cost allocation plan for payroll costs, which
                 adequately describes the process for personnel who work on multiple
                 programs, and revise the related job descriptions for consistency with the
                 allocation plan.

             3B. Provide supporting documentation for $1,786,395 in payroll costs and submit
                documentation to the HUD Office of Community Planning and Development
                for approval to ensure that federal programs were charged their fair share of
                the costs. If proper supporting documentation is not provided, the Department
                should reimburse the HOME program from nonfederal funds.




                                             18
                                RESULTS OF AUDIT

Finding 4: The Department Provided HOME Funds to Developers for
Costs That Were Ineligible or Unsupported
The Department awarded more than $2.2 million in HOME funds in two loans for development
of housing projects. Of the total awarded, more than $1.2 million was designated for costs that
were ineligible or unsupported expenses of the HOME program. This condition occurred
because the Department did not properly follow up with the developer at the time the loans were
issued to ensure that the costs to be charged to the loan were adequately supported. The
Department needs to reimburse $644,268 in ineligible costs (35 Creighton St. Project), and
provide support for the $11,752 in unsupported costs (35 Creighton St. Project), and provide
support for the $651,295 in unsupported costs (270 Centre St. project).




 Predevelopment Funds Were
 Provided to Developers for 35
 Creighton St. and 270 Centre St.
 Projects

              The Department issued two loans directly to developers using HOME funds to
              pay for nonspecific predevelopment and preconstruction costs in both affordable
              housing and mixed use developments. The loans were issued to Church Square
              SRO LLC for the 35 Creighton St. project and CWL Housing LLC for the 270
              Centre St. project.

              35 Creighton Street
              The initial part of this loan was a $500,000 predevelopment loan, issued in
              October 2007 to Church Square Community Partners LLC, which was
              collateralized as a lien on the project development. This loan was later
              incorporated into a 30-year non-interest-bearing and non amortizing loan of
              $885,366 in April 2009.

              Project documentation showed that the property being acquired for the
              development was purchased for more than $1.6 million. The initial loan of
              $500,000 was collateralized as a lien on the project. However, the deed for the
              project recorded at the Suffolk County Registry of Deeds showed that the
              acquisition of land (consisting of three parcels) occurred almost two years earlier
              in December 2005.

              A revised mortgage and security agreement that accompanied the loan revision
              indicated that the developer received $885,366 in HOME funds to pay off the


                                               19
initial $500,000 loan and $385,366 for other project costs. The other project costs
were described as construction, overhead, and hard and soft costs. Therefore, the
$500,000 provided in the revised loan represented a refinance of the original
$500,000 loan. As noted, the original loan was for the acquisition of land and
buildings; however, there is no record of the ownership of the land and buildings
being transferred.

Project files show that $100,000 in HOME funds has been charged to the project
as developer overhead costs. The developer, in turn, loaned the $100,000 to the
Center Street Retail project. In effect, the City permitted these funds to be passed
through to a project for a group of retail stores, which is not an eligible use of
HOME funds.

When the loan was revised in April 2009, the previous mortgage was voided, and
all available funds (except for 5 percent) became immediately available for
requisition by the developer. The remaining 5 percent, or $44,268, was retained
and as stated in the agreement, “shall be available for requisition by the Borrower
for payment of hard and soft costs related to the Project upon substantial
completion of the Project.” The revised loan identified the $44,268 in the
renovation costs; in effect the loan hold back was refinanced. Since the project is
not yet complete, the $44,268 should not have been paid out. The $44,268 is not
an eligible expense, and it should not have been refinanced.

The revised loan also noted estimated soft costs of $11,752, but did not provide
further support for these items as eligible predevelopment costs.

270 Centre Street
The initial promissory note for this project was signed in June 2006 and was later
incorporated into a revised loan amount for more than $1.3 million in December
2008. The amended loan, under Section 41 [Special Provisions] contained
provisions for an amount of $651,295 (in HOME funds) for “requisition by the
borrower for the preparation of the site and to help address existing conditions on
the property.”

The loan documents for this project showed that development funding was
provided from the following sources:

   1.   Massachusetts state low-income housing credits
   2.   Federal (HUD) HOME funds
   3.   Federal (HUD) Community Development Block Grant funds
   4.   Other public and private sources

The project documentation did not specify the amount of funding from each
source, nor did it provide further information and clarification of “other public
and private sources.” The “site preparation and existing property conditions”
noted in the amended loan documents referred to project site work that should

                                 20
             have been applied or allocated to all of the available funding sources for the
             project. Since there was no evidence that these costs were allocated among all of
             the funding sources for the project, we consider the $651,295 provided in HOME
             funds to be unsupported, as the HOME funds were the only source of funding
             charged for these costs.

Conclusion




             The Department awarded more than $2.2 million in HOME funds in two loans for
             predevelopment costs for housing projects. Of the total awarded, more than $1.2
             million was designated for costs that were ineligible or unsupported for the
             HOME program. This condition occurred because the Department did not
             properly follow up with the developer to ensure that the costs charged to the loan
             proceeds were adequately supported under the HOME program. In addition,
             these two projects are mixed-finance, mixed-use developments that lacked proper
             plans to allocate costs between their financing sources. Mixed-use development
             projects need proper allocation plans for project costs to distinguish between the
             use of HOME and other funding sources to ensure compliance with the
             regulations that govern each funding source. The Department needs to reimburse
             $644,268 in ineligible costs (35 Creighton St. Project), provide support for the
             $11,752 in unsupported costs (35 Creighton St. Project), and provide support for
             the $651,295 in unsupported costs (270 Centre St. project).


Recommendations


             We recommend that the Director of the Office of Community Planning and
             Development in Boston direct the Department to

             4A. Reimburse the $544,268 in ineligible costs to the HOME program for the 35
                 Creighton St. project (loan refinance and loan hold-back cost).

             4B. Reimburse the $100,000 in ineligible costs to the HOME program for the 35
                 Creighton St. project (developer overhead cost).

             4C. Provide support for the $11,752 in unsupported costs for the 35 Creighton St.
                 project (soft costs) and if support cannot be provided, require the Department
                 to reimburse the HOME program for the questioned amount.

             4D. Provide support for the $651,295 in unsupported costs for the 270 Centre St.
                 project (soft costs), and if support cannot be provided, require the
                 Department to reimburse the HOME program for the questioned amount.


                                             21
4E. Develop procedures for the use of HOME funds in predevelopment loans that
    comply with HUD requirements and that ensure that HOME funds are
    properly allocated and expended for eligible purposes, and that costs are
    adequately supported.




                              22
                                       RESULTS OF AUDIT

Finding 5: The Department Did Not Submit Its Evaluation Reports in a
Timely Manner
The Department did not submit its evaluation reports4 to HUD in a timely manner. This
condition occurred because the Department had reduced its staff in the past few years and
because it allowed its program beneficiaries an excessive amount of time to submit data required
for the report. As a result of not meeting the evaluation report submission deadlines, the
Department is at risk of having its community planning and development funds (including
HOME) either suspended or withdrawn by HUD until submission is accomplished.



    Report Submissions Had Been
    Provided Late for the Past
    Three Years


                   The Department had been late in submitting its evaluation reports for the past
                   three years. For example, the 2007 report was submitted five months late. The
                   2007 report was due no later than 90 days after the Department’s fiscal year end
                   (June 30) or on September 30, 2008. However, the 2007 evaluation report was
                   not submitted until March 9, 2009, and the 2005 and 2006 reports were not
                   submitted until November 11, 2006, and November 30, 2007, respectively.


    Data Collection and
    Verification Process Was
    Inadequate


                   To prepare the evaluation report, the Department must collect, verify, and enter a
                   large volume of data into IDIS. Projects cannot be closed until the amounts
                   originally budgeted and expended for each are reconciled and the beneficiary
                   (vendor) information is entered into IDIS for each activity. One of the primary
                   sources of beneficiary information is human service vendors. The Department
                   allowed these vendors 90 days to submit financial and beneficiary data.
                   Department staff must verify the information and then forward the information to
                   the compliance division for entry into IDIS.




4
    These reports are known as the consolidated annual performance evaluation reports (CAPER).

                                                        23
             The Department attributed its delay in submitting its evaluation reports to the
             departure of key staff who had not been replaced. These departures included
             staff from the Department’s policy development and research division who were
             responsible for generating data from the Department’s own tracking system and
             reconciling it with IDIS, as well as staff who assisted in compiling the evaluation
             reports and preparing the written narratives.

             HUD requires (24 CFR 91.520) that evaluation reports be submitted to HUD
             within 90 days after the close of the jurisdiction’s program year, and if a
             satisfactory report is not submitted in a timely manner, HUD may suspend or
             withdraw funding in a jurisdiction that does not submit a satisfactory report.



Conclusion


             The Department had been late in submitting its evaluation report for the last three
             years. This condition occurred in part because the Department allowed program
             beneficiaries 90 days to submit data for the report and did not replace key staff
             who entered this information into IDIS. If the Department continues to submit its
             evaluation reports late, it is at risk of having its community planning and
             development funds (including HOME) either suspended or withdrawn by HUD.


Recommendations



             We recommend that the Director of the Office of Community Planning and
             Development in Boston direct the Department to

             5A. Consider assigning additional staff to its policy development and research
                 division to lessen the workload.

             5B. Consider changing the time requirements for data collection for IDIS
                 submissions and submit its evaluation reports on time.




                                              24
                        SCOPE AND METHODOLOGY

We performed an audit of the HOME program administered by the City’s Department. Our
fieldwork was completed at the Department’s offices located at 26 Court Street, Boston,
Massachusetts, from December 2008 to May 2009. Our audit generally covered the period July
2006 to December 2008 and was extended when necessary to meet our objective.

To accomplish our audit objective, we

   •   Reviewed applicable Code of Federal Regulations sources, Office of Management and
       Budget (OMB) circulars, HUD handbooks/guidebooks, and HUD notices pertaining to the
       HOME program.
   •   Reviewed media articles related to the Department, its staff, and its use of HOME
       funding via Lexis-Nexis and the Department’s Web site.
   •   Reviewed the Department’s policies and procedures and held discussions with Department
       officials to gain an understanding of the Department’s accounting controls, procurement
       practices, and monitoring policies.
   •   Reviewed independent public auditors’ reports as well as HUD monitoring reviews and
       risk assessments.
   •   Evaluated the internal controls and conducted sufficient tests to determine whether
       controls were functioning as intended.
   •   Evaluated computer systems to determine whether automated information could be
       readily downloaded, sorted, manipulated, and displayed. Verified that the Department
       was entering information into IDIS.
   •   Reviewed the latest evaluation report and identified activities that were slow to reach
       completion and/or did not meet goals and identified what corrective actions the
       Department took to complete activities. In addition, we compared accomplishments
       reported for various housing programs in the evaluation report to the data entered by the
       Department into IDIS.
   •   Evaluated the Department’s administrative activities to ensure that administrative and
       planning costs did not exceed HUD funding limits and performed a cursory review of
       administrative costs for eligibility and reasonableness.
   •   Evaluated the Department’s procurement practices through a review of procurements
       under the HOME loan program. We selected a nonrepresentative sample of six
       procurements based on the largest amounts of funds expended per contract/project with
       funding commitments of $200,000 or greater and commitment dates between July 1,
       2006, and November 30, 2008. The six procurements totaling $2,771,578 were selected
       from a universe of 189 activities totaling $7,135,684. In addition, we reviewed the
       Department’s written procurement policies and procedures for compliance with HUD’s
       regulations and state laws.
   •   Reviewed the Department’s organizational chart and job descriptions to determine
       responsibilities of staff and whether job descriptions were consistent with federal
       programs. Also, we reviewed for any indications of overlap in job duties/responsibilities.


                                               25
   •   Selected a nonrepresentative sample of 12 employees totaling $56,074 based on largest
       salaries from a universe of 17 employee time sheets totaling $79,140 for employees
       working on not more than two programs, with one of those programs being the HOME
       program. Our objective was to determine whether employees working on one or two
       activities/programs properly reported their time on timesheets and whether the allocations
       were in agreement with the Department’s monthly personnel allocation spreadsheets.
   •   Using the December 2008 personnel allocation Excel worksheet (entitled “Payroll”); we
       isolated the employees working on more than two programs, with one of those programs
       being the HOME program. We sorted by division and employee earnings and excluded
       from review any employees making in excess of $6,000 per pay period. We identified a
       total of 43 employees that represented the universe. The total dollar amount for the
       universe consisted of $208,881 in employee earnings and represented four divisions,
       including Accounting/Finance, Homebuyers Services, Neighborhood Housing
       Development, and Homeowner Services. We identified a sample of 11employees for
       review, consisting of employee earnings totaling $44,342. Our selection included a fair
       representation of employees from each of the Department’s four divisions. We used
       nonrepresentative sampling due to the large universe and selected employees in
       nonmanagement or nonsupervisory positions based on probability and/or our past
       experience, which has shown that there is a greater risk that employees in these less
       responsible types of positions are not as well versed on what their job duties entail.
       Therefore, to attain our sample, we selected the three employees with the lowest salaries
       from each of the Department’s divisions. If there were three or fewer employees in a
       division, we selected all of the employees in that division. If there was more than one
       employee with an identical salary in the same division, we included all of those
       employees in our sample. Our objective was to determine whether funding sources,
       including allocation percentages reported on employee time sheets, were, for the most
       part, consistent with employee job duties and whether the staff’s actual job duties were
       correct as reported on the written job descriptions.
   •   Reviewed all 18 CHDOs to determine whether the organizations were appropriately
       certified by the Department and met all requirements for designation as CHDOs.
   •   Determined and evaluated the reasons for the Department’s failure to submit its
       evaluation reports to HUD in a timely manner.
   •   Evaluated the Department’s progress in its use of HOME funds to develop/rehabilitate
       housing through its loan program.

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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               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 objective:

           •   Controls for ensuring that organizations qualify as CHDOs (Finding 1).
           •   Controls for ensuring that CHDO operating expense funding is used in accordance
               with HUD regulations (Finding 1).
           •   Controls over procurement and contracting (Finding 2)
           •   Controls for implementing an effective system for allocation of salaries (Finding 3).
           •   Controls to ensure adequacy of reporting requirements (Finding 5).


       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.


 Significant Weaknesses


       Based on our review, we believe that the following items are significant weaknesses:

           •   The Department’s failure to ensure its staff was knowledgeable of HUD’s CHDO
               policies and procedures resulted in 18 organizations being improperly designated as
               CHDOs.

                                                27
•   The Department did not adequately monitor the use of CHDO operating funds.
•   The Department did not adequately monitor its procurement and contracting
    process.
•   The Department failed to implement an effective system for allocation of salaries.
•   The Department did not design a system to ensure that it had the necessary data to
    submit its evaluation reports to HUD in a timely manner.




                                    28
                                        APPENDIXES

Appendix A

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

The audit identified questioned costs totaling $15,191,869 as follows:


           Recommendation             Ineligible 1/     Unsupported       Funds to be put
                  number                                         2/        to better use 3/
                  1E                                                          $3,914,150
                  1F                     $836,941
                  1G                                                          $1,022,802
                  1H                   $1,145,723
                  2A                                      $5,178,543
                  3B                                      $1,786,395
                  4A                     $544,268
                  4B                     $100,000
                  4C                                         $11,752
                  4D                                        $651,295
                 Total                 $2,626,932         $7,627,985          $4,936,952

1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local policies or
regulations.

2/ Unsupported costs are 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.

3/ Recommendations that funds be put to better use are estimates of amounts that could be used
more efficiently if an Office of Inspector General (OIG) recommendation is implemented. 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 case, the
set-aside funding of $3,914,150 will be put to good use by organizations that meet the CHDO
requirements; otherwise, funding can be used for eligible HOME activities. The unexpended
operating funding of $1,022,802 can also be used for eligible HOME activities.



                                                  29
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                                  30
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1



Comment 2




Comment 3




                                  31
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 4



Comment 5




Comment 6



Comment 7




Comment 8




                                  32
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 9


Comment 10




                                  33
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 11




                                  34
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 12




Comment 13




                                  35
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 13




                                  36
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 13




                                  37
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 13




                                  38
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 13




Comment 13




                                  39
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                                  40
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                                  41
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation         Auditee Comments


Comment 1   The Department is required under 24 CFR Part 92.300 (b) to make reasonable
            efforts to identify CHDOs "that are capable, or can reasonably be expected to
            become capable," of carrying out elements of the Department’s approved
            Consolidated Plan. The use of the one-page CHDO checklist from the CHDO
            Survivor Kit would not be considered a reasonable effort because the Survivor Kit
            does not adequately describe all the applicable requirements identified in the laws
            and regulations governing the administration of the HOME program. It states in
            the Kit that this guide provides general information on the HOME program and
            CHDOs; and this guide is not an introduction to CHDOs, the qualification criteria
            and process, or HOME program rules. Readers are then referred to various HUD
            websites for further information.

            HUD regulations in the HOME Final Rule, 24 CFR 92.2 Community housing
            development organization, (of April 1, 2009), and HUD Notice CPD-97-11,
            provide official guidance and requirements relative to determining an
            organizations’ qualifications for CHDO status. By contrast to the Kit’s CHDO
            checklist, HUD Notice CPD-97-11 includes a recommended 3-page CHDO
            Checklist that provides greater detail and allows for a more comprehensive review
            of organizations’ qualifications for CHDO status. 24 CFR 92.2 and HUD Notice
            CPD-97-11 thoroughly describe the CHDO eligibility criteria and the supporting
            documentation that must be submitted by organizations that are applying as
            CHDOs. The Department should certify the 18 nonprofit organizations as
            CHDOs using 24 CFR 92.2 and HUD Notice CPD-97-11 to ensure that the
            nonprofit organizations effectively meet the terms or requirements necessary for
            CHDO designation.

Comment 2   As noted in Comment 1, the CHDO Survivor Kit is not an effective means of
            ensuring that nonprofit organizations meet the qualifications to be designated as a
            CHDO. The CHDO Checklist referred to in HUD Notice CPD-97-11 is a more
            effective means to use in determining an organization’ qualifications for CHDO
            designation. In addition, the CHDO requirements in 24 CFR 92.2 are designed to
            ensure that CHDOs are capable of making decisions and performing actions that
            address the community’s needs without undue influence from external agendas.
            If the Department’s staff are to be adequately trained to ensure that organizations
            qualify for the CHDO designation, the staff needs training on using the
            requirements of 24 CFR 92.2 and HUD Notice CPD-97-11 which thoroughly


                                            42
            describe the CHDO eligibility criteria and the supporting documentation that must
            be submitted by organizations that are applying as CHDOs.

Comment 3   The documentation must be provided to the HUD Director of the Office of
            Community Planning and Development in Boston to verify that the organizations
            met all the requirements for the CHDO designation before resuming program
            expenditures.

Comment 4   It is not clear from the Department’s response whether they accurately interpreted
            Recommendation 1D. The recommendation in requiring the Department to assist
            organizations in achieving CHDO status, if feasible, was addressing the 18
            unqualified organizations previously certified as CHDOs. The intent of the
            recommendation was clarified with the Department’s compliance manager on
            July 31, 2009. The compliance manager stated that the Department intends to
            assist the 18 unqualified organizations to ensure that these organizations meet the
            terms or requirements necessary for CHDO designation.

Comment 5   We disagree with the Department’s comments addressing Recommendation 1E,
            and the response indicates that the Department incorrectly views the issues being
            addressed as not being serious violations of the laws and regulation governing the
            administration of the HOME program. The first step in the corrective action for
            this recommendation is for the Department to deobligate the unexpended CHDO
            set-aside funding of $3,914,150 because the obligations are not legally supported
            since the basis of this support are ineligible organizations. The Department did
            not have a definite commitment that created a legal liability. The organizations
            identified in the finding did not qualify as CHDOs at the time funds were
            obligated and there is no certainty that any of the current organizations will
            achieve proper CHDO status. If some of the organizations become eligible
            CHDO organizations at some later point in time, they could then seek funding at
            that time. Therefore, we repeat the intent of the recommendation that the
            Department must first deobligate unexpended CHDO set-aside funding of
            $3,914,150, and when its identifies eligible CHDO organizations it then can
            provide funding to organizations that are eligible to receive the funding, as
            appropriate. The documentation showing the deobligation of the $3,914,150 must
            be provided to the HUD Director of the Office of Community Planning and
            Development in Boston for verification.

Comment 6   We disagree with the Department’s comments in addressing Recommendations
            1F, 1G and 1H, and the response indicates that the Department incorrectly views
            the issues being addressed as not being serious violations of the laws and
            regulations governing the administration of the HOME program. The Department
            must repay the $836,941 it expended and deobligate the unexpended $1,022,802
            in CHDO set-aside funding because the expenditures and obligations were not
            legally supported at the time of the expenditure or obligation since the basis of
            this support are ineligible organizations. The Department did not have a definite
            commitment that created a legal liability. The Department’s efforts to determine

                                            43
            whether or not these organizations can meet the requirements for a CHDO
            designation are secondary to the reimbursement or deobligation of its illegal
            expenditure or obligation of set-aside funds. The audit work described in Finding
            1 shows that the organizations identified were not eligible to receive funding as
            CHDOs, therefore the repayment and deobligation must occur immediately.
            Also, the Department’s efforts to re-determine whether the nonprofit
            organizations can meet or has met the requirement for a CHDO designation must
            be reviewed by the HUD Director of the Office of Community Planning and
            Development in Boston to verify and confirm the determination. The Department
            must provide sufficient information to show that the designation was proper and
            meets the requirements of 24 CFR 92.2 and HUD Notice CPD-97-11 for CHDO
            eligibility, and that the appropriate supporting documentation was submitted by
            organizations that applied for the CHDO designation.

Comment 7   The report did not conclude that the Department failed to conform to the financial
            accountability standards of 24 CFR 84.21 “Standards for Financial Management
            Systems” because there was no evidence of a notarized statement by the president
            or chief financial officer of the organization, or a certification from a Certified
            Public Accountant. Appendix D of the report identifies the criteria for
            conforming to financial accountability standards. In following the criteria cited in
            Appendix D, the Department should provide the audit summary to the HUD
            Director of the Office of Community Planning and Development in Boston to make
            a determination of whether they can accept the A-133 Audit report with a
            management letter from the CPA firm as fully meeting the requirement for
            certification under OMB Circular A-110.

Comment 8   During the audit, the Department did not have any evidence to support the
            determination that the organizations certified as CHDOs had a history of serving
            the community. The Department readily acknowledged that there was no
            tangible evidence of a history of CHDOs serving the community in their files.
            The Department’s comment that they would subsequently submit documentation
            to HUD for review supports the conclusion that that they did not have evidence in
            their files. HUD requirements for this history are clearly identified in the laws
            and regulations governing the administration of the HOME program. The
            Department was required to show in its certification of the nonprofit organization
            that the organizations designated as CHDOs had a history of serving the
            community within which housing to be assisted with HOME funds is to be
            located. As such, HUD requires that the CHDO must be able to show one year of
            serving the community prior to the date the participating jurisdiction provides
            HOME funds to the organization, as evidenced by a statement that documents at
            least one year of experience serving the community In the statement, the
            organization must detail its history of serving the community by describing
            activities which it provided such as, developing new housing, rehabilitating
            existing stock and managing housing stock, or delivering non-housing services
            that have had lasting benefits for the community, such as counseling, food relief,
            or childcare facilities. The statement must be signed by the president or other

                                             44
              official of the organization. During the audit, the CHDO files did not have the
              required evidence and the Department could not provide documented evidence
              that they accomplished any of the above tasks.

Comment 9     In Recommendation 2E, the report advised the Department to revise its written
              procurement regulations to ensure compliance with the applicable federal
              requirements and regulations at 24 CFR 85.36. In its response, the Department
              stated that it has drafted policies and procedures for bidding, but it did not
              specifically state that its procurement regulations were in compliance with the
              applicable federal requirements and regulations. The Department needs to revise
              its response and stipulate that its revised procurement regulations will comply
              with the applicable federal requirements and regulations found at 24 CFR 85.36.
              The revised procurement regulation must be provided to the HUD Director of the
              Office of Community Planning and Development in Boston to verify that it included
              the requirements of 24 CFR 85.36.

Comment 10 The Department’s noncompliance with the requirements of 24 CFR 85.36 is a
           valid discrepancy and cannot be removed as a reportable condition. Also, there
           were no private developers included in this review, only nonprofit organizations.
           Regulations at 24 CFR 92.505 “Applicability of Uniform Administrative
           Requirements” on governmental entities provide that procurement requirements
           of 24 CFR 85.36 apply to a participating jurisdiction receiving HOME funds,
           including subgrantees. Therefore, the Department’s comments that these
           developers were not required to comply with the procurement requirements are
           incorrect. In addition, the general information on the referenced website cannot
           be construed as governing guidance and instructions relative to HUD funded
           programs.

              Grantees are required to understand and follow the applicable regulations and
              laws that govern the administration of the HOME program. The reliance on a
              website, which provides only informational guidance, is a failure on the part of
              the Department to fulfill its responsibilities of ensuring that the HOME funds are
              used in accordance with all program requirements. HUD regulations at 24 CFR
              92.504(a) provide that the participating jurisdiction (the Department) is
              responsible for (1) managing the day-to-day operations of its HOME program, (2)
              ensuring that HOME funds are used in accordance with all program requirements
              and written agreements, and (3) taking appropriate action when performance
              problems arise. The use of state recipients, subrecipients, or contractors does not
              relieve the participating jurisdiction (the Department) of this responsibility.
              Regulations at 24 CFR 92.505 “Applicability of Uniform Administrative
              Requirements” on governmental entities provide that procurement requirements
              of 24 CFR 85.36 apply to a participating jurisdiction and subrecipient receiving
              HOME funds (i.e., Governmental entities. The requirements of OMB Circular No.
              A-87 and the following requirements of 24 CFR part 85 apply to the participating
              jurisdiction, State recipients, and any governmental subrecipient receiving HOME
              funds: §§ 85.6, 85.12, 85.20, 85.22, 85.26, 85.32-85.34, 85.36, 85.44, 85.51, and
              85.52.)

                                              45
              In addition, the Department’s position that developers are not required to follow
              HUD procurement requirements is not consistent with the actions taken by some
              developers, nor was it consistent with the Department’s own procurement policy.
              For example, some developers procured contracts without soliciting bids, and
              others followed HUD policy and procured contracts using full and open
              competition. Even though the Department’s procurement policy was not always
              consistent with HUD’s policy, some of the Department’s rules and regulations are
              consistent with HUD’s written procurement policy. For example, the
              Department’s blanket statement that developers are not required to comply with
              procurement requirements cited in 24 CFR 85.36 is not consistent with the
              Department’s written Housing Policy on Bidding quoted as follows: “Projects
              must be competitively bid in order to achieve the lowest reasonable construction
              cost and to provide increased fair access to the economic opportunities created
              through the project. Developers must solicit and receive at least three bids, at
              least two of which are from general contractors that have not previously
              contracted with the developer.” As noted, the Department was not adhering to its
              own regulations.

Comment 11 The results of the audit show that the Department’s staff were not fully aware of
           their responsibilities for oversight and monitoring of the developer’s procurement
           activities. Also, the Department is confusing the process of issuing requests for
           proposals of the city-owned land/projects to potential developers who want to
           develop the properties with HUD’s requirements that general construction
           contracts be procured properly by using full and open competition. Note that the
           developers identified in the audit were not general contractors, they were non-
           profit entities. Therefore, the developers had to hire contractors to perform the
           rehabilitation or construction work on the projects.

Comment 12 Payroll charges to the HOME program for FYs 2007 and 2008 are $1,786,395,
           which is a correction to the total of $1,828,375 cited in the draft report. In the
           draft report, we inadvertently included indirect costs in the total payroll charges.
           Therefore, we deducted indirect costs of $42,130 and $39,858 for fiscal years
           2007 and 2008, respectively, and have corrected the total shown in the report,
           accordingly. The Department must submit all the documentation to support the
           payroll allocation of $1,786,395 to HUD’s Director of the Office of Community
           Planning and Development in Boston and HUD will make a determination of
           whether it can accept the $1,786,395 allocation of payroll costs as valid program
           expenditures.

Comment 13 The documentation included as part of the Department’s response did not correct
           the discrepancies identified in the report. We determined that whether the loan
           for Creighton Street was termed pre-development or pre-construction, the funds
           provided were not for eligible expenses under the HOME Program. The $500,000
           loan awarded to Church Square Community Partners LLC, on Oct. 12, 2007, was
           for the purpose of acquisition. The loan was for carrying costs on three parcels of

                                               46
property acquired on December 8, 2005, from the Archdiocese of Boston for
$6,025,000. This $500,000 loan to Church Square Community Partners LLC was
subsequently paid off by a different LLC (Church Square SRO LLC) in April
2009.

In this case, the Church Square Community Partners, LLC acquired land and
building, and held the property allowing developers sufficient time to obtain
funding for rehabilitation and new construction of the projects. When the
$500,000 loan was paid off (refinanced) in April 2009, there was no subsequent
record of the ownership of the land being transferred. In addition, the $500,000
investment of HOME funds has been used in a mixed use development to
reimburse project costs associated with the property without establishing an
adequate method to ensure that this investment was only used for eligible
purposes under the HOME program. All the recommendations (recommendation
4A to 4D) remain valid.

Documentation obtained for $100,000 in developer’s overhead shows this amount
to be ineligible. This $100,000 in developer’s overhead was used in a loan to
finance work in the Centre Street Retail Development. Funding for
retail/commercial stores does not represent an eligible use of HOME funds. The
$11,752 in soft costs remains unsupported. Based upon our review of the
documents submitted by the Department in response to the draft report, we have
re-categorized the $100,000 from unsupported costs to ineligible costs in
Recommendation 4B.

The Department stated that projects costs of $691,295 were incurred for site
preparation related to the 270 Centre Street project. The Department has not yet
provided sufficient documentation to support the $651,295 in costs.

The Department must reimburse the $644,268 in ineligible costs, submit all the
documentation showing support for the $11,752 and the $651,295 in project costs
or show it reimbursed these amounts. Also, the Department must provide a copy
of the procedures it developed for predevelopment loans to HUD’s Director of the
Office of Community Planning and Development in Boston for approval.




                                47
       Appendix C

           REQUIRED CHDO DOCUMENTS AND CERTIFICATIONS
           NOT RECEIVED FROM NONPROFIT ORGANIZATIONS




Organization    IA    IB    IC    ID    II A   II B   II C   III A   III B   III C   III D   IV A   IV B(1)   IV B(2)
Jamaica Plain   Yes   Yes   Yes   Yes    No     No     No     No      No      N/A     No      No      No        No
CDC
Lena Park       Yes   Yes   No    Yes   No     No     No      No      No     N/A      No     No       No        No
CDC
Urban Edge      Yes   Yes   Yes   Yes   Yes    Yes    Yes    Yes      No     N/A      No     No       No        No
Corporation
Viet Aid        Yes   Yes   Yes   Yes   No     Yes    Yes     No      No     N/A      No     No       No        No
Allston         Yes   Yes   Yes   Yes   Yes    Yes    Yes     No      No     N/A      No     No       No        No
Brighton CDC
Casa            Yes   Yes   Yes   Yes   No     Yes    Yes     No      No     N/A      No     No       No        No
Esperanza
Codman          Yes   Yes   Yes   Yes   No     Yes    No      No      No     N/A      No     No       No        No
Square EDC
Dorchester      Yes   Yes   Yes   Yes   No     Yes    Yes     No      No     N/A      No     No       No        No
Bay EDC
Fenway CDC      Yes   Yes   Yes   Yes   No     Yes    Yes    Yes      No     N/A      No     No       No        No
Grove Hall      Yes   Yes   Yes   Yes   No     Yes    Yes    No       No     N/A      No     No       No        No
Mattapan        Yes   Yes   Yes   Yes   No     Yes    No     No       No     N/A      No     No       No        No
Madison Park    Yes   Yes   Yes   Yes   No     Yes    Yes    No       No     N/A      No     No       No        No
Nuestra         Yes   Yes   Yes   Yes   No     Yes    No     No       No     N/A      No     No       No        No
Comunidad
Neighborhood    Yes   Yes   Yes   Yes   No     Yes    No     Yes      No     N/A      No     No       No        No
Affordable
South Boston    Yes   Yes   Yes   Yes   No     No     No      No      No     N/A      No     No       No        No
CDC
Southwest       Yes   Yes   Yes   Yes   No     Yes    No     Yes      No     N/A      No     No       No        No
Boston CDC
Dudley, Inc.    No    No    No    No    No     No     No      No      No     N/A      No     No       No        No
Asian CDC       No    No    No    No    No     No     No      No      No     N/A      No     No       No        No

       NOTE: A “yes” or “no” indicates whether specific item was found in City’s records.
       NOTE: N/A represents “not applicable.”
       NOTE: See appendix D, Criteria, under finding 1 for a detailed description of IA through
       IVB(2) above.




                                                        48
Appendix D

                                         CRITERIA

Finding 1

CHDO Checklist
The information contained in this checklist refers to the definition of CHDOs in subpart A, 24
CFR 92.2, of the HOME Rule. The checklist is a tool for participating jurisdictions concerning
the documents they must receive from a nonprofit before it may be certified or recertified as a
CHDO.

I. Legal Status
A. The nonprofit organization is organized under State or local laws, as evidenced by a (1)
Charter or (2) Articles of Incorporation.
B. No part of its net earnings inure to the benefit of any member, founder, contributor, or
individual, as evidenced by a (1) Charter or (2) Articles of Incorporation.
C. Has a tax exemption ruling from the Internal Revenue Service (IRS) under Section 501(c)(3)
or (4) of the Internal Revenue Code of 1986, as evidenced by a 501(c)(3) or (4) Certificate from
the IRS or Is classified as a subordinate of a central organization non-profit under section 905 of
the Internal Revenue code, as evidenced by a group exemption letter from the IRS that includes
the CHDO.
D. Has among its purposes the provision of decent housing that is affordable to low- and
moderate-income people, as evidenced by a statement in the organization’s: (1) Charter,
(2)Articles of Incorporation, (3) By-laws, or (4) Resolutions.

II. Capacity
A. Conforms to the financial accountability standards of 24 CFR 84.21, “Standards for
Financial Management Systems,” as evidenced by: (1) a notarized statement by the president or
chief financial officer of the organization; or (2) a certification from a Certified Public
Accountant; or (3) a HUD approved audit summary.
B. Has a demonstrated capacity for carrying out activities assisted with HOME funds, as
evidenced by: (1) resumes and/or statements that describe the experience of key staff members
who have successfully completed projects similar to those to be assisted with HOME funds, or
(2) contract(s) with consultant firms or individuals who have housing experience similar to
projects to be assisted with HOME funds, to train appropriate key staff of the organization
C. Has a history of serving the community within which housing to be assisted with HOME
funds is to be located, as evidenced by: (1) a statement that documents at least one year of
experience in serving the community; or (2) for newly created organizations formed by local
churches, service or community organizations, a statement that documents that its parent
organization has at least one year of experience in serving the community.
The CHDO or its parent organization must be able to show one year of serving the community
prior to the date the participating jurisdiction provides HOME funds to the organization. In the
statement, the organization must describe its history (or its parent organization’s history) of
serving the community by describing activities which it provided (or its parent organization

                                                49
provided), such as, developing new housing, rehabilitating existing stock and managing housing
stock, or delivering non-housing services that have had lasting benefits for the community, such
as counseling, food relief, or childcare facilities. The statement must be signed by the president
or other official of the organization.

III. Organizational Structure
A. Maintains at least one-third of its governing board’s membership for residents of low-
income neighborhoods, other low-income community residents, or elected representatives
of low-income neighborhood organizations as evidenced by the organization’s: (1) By-Laws; (2)
Charter; or (3) Articles of Incorporation.
Under the HOME program, for urban areas, the term “community” is defined as one or several
neighborhoods, a city, county, or metropolitan area. For rural areas, “community” is defined as
one or several neighborhoods, a town, village, county, or multi-county area (but not the
whole state).
B. Provides a formal process for low-income, program beneficiaries to advise the organization
in all of its decisions regarding the design, siting, development, and management of affordable
housing projects, as evidenced by: (1) By-Laws; (2) Resolutions; or (3) a written statement of
operating procedures approved by the governing body.
C. A CHDO may be chartered by a State or local government, but the following restrictions
apply: (1) the State or local government may not appoint more than one-third of the
membership of the organization’s governing body; (2) the board members appointed by the State
or local government may not, in turn, appoint the remaining two-thirds of the board members;
and (3) no more than one-third of the governing of the governing board members are public
officials (including any employees of the PJ), as evidenced by the organization’s: (1) By-Laws;
(2) Charter; or (3) Articles of Incorporation.
D. If the CHDO is sponsored or created by a for-profit entity, the for-profit entity may not
appoint more than one-third of the membership of the CHDO’s governing body, and the board
members appointed by the for-profit entity may not, in turn, appoint the remaining two-thirds of
the board members, as evidenced by the CHDO’s: (1) By-Laws; (2) Charter; or (3) Articles of
Incorporation.

IV. Relationship with For-Profit Entities
A. The CHDO is not controlled, nor receives directions from individuals, or entities seeking
profit from the organization, as evidenced by: (1) By-Laws; or (2) a Memorandum of
Understanding.
B. A Community Housing Development Organization may be sponsored or created by a for-
profit entity, however: (1) the for-profit entity’s primary purpose does not include the
development or management of housing, as evidenced in the for-profit organization’s By-Laws,
and (2) the CHDO is free to contract for goods and services from vendor(s) of its own choosing,
as evidenced in the CHDO’s: (1) By-laws; (2) Charter; or (3) Articles of Incorporation.

Set-aside for CHDOs
Regulations at 24 CFR 92.300(a)(e) state that “within 24 months of HUD notifying the
participating jurisdiction of the execution of the HOME contract, the participating jurisdiction
must reserve not less that 15% of the HOME allocation for investment only in housing to be
developed, sponsored, or owned by the CHDOs. The funds are reserved when a participating
jurisdiction enters into a written agreement with the CHDO. HUD Notice CPD-91-11 states that
                                                50
if a CHDO is acting only as a subrecipient or contractor, the CHDO is not eligible to receive any
of the 5 percent available to participating jurisdictions for the payment of CHDO operating
expenses. The CHDO can be provided with CHDO operating expense funds if it is expected that
it will be receiving CHDO project set-aside funds within 24 months of receiving the operating
expense funds. The participating jurisdiction must enter into a written agreement with the
CHDO specifying the terms and conditions upon which this expectation is based.”

Finding 2

24 CFR 92.504(a)
(a) the participating jurisdiction is responsible for managing the day-to-day operations of its
HOME program, ensuring that HOME funds are used in accordance with all program
requirements and written agreements and taking appropriate action when performance problems
arise. The use of state recipients, subrecipients, or contractors does not relieve the participating
jurisdiction of this responsibility. The performance of each contractor and subrecipient must be
reviewed at least annually.

92.505 Applicability of Uniform Administrative Requirements.
(a) Governmental entities. The requirements of OMB Circular No. A–87 and the following
requirements of 24 CFR part 85 apply to the participating jurisdiction, State recipients, and any
governmental subrecipient receiving HOME funds: §§ 85.6, 85.12, 85.20, 85.22, 85.26, 85.32
through 85.34, 85.36, 85.44, 85.51, and 85.52.

Sec. 85.36: Procurement.
   (a) States. When procuring property and services under a grant, a State will follow the same
policies and procedures it uses for procurements from its non-Federal funds. The State will
ensure that every purchase order or other contract includes any clauses required by Federal
statutes and executive orders and their implementing regulations. Other grantees and
subgrantees will follow paragraphs (b) through (i) in this section.
   (b) Procurement standards. (1) Grantees and subgrantees will use their own procurement
procedures which reflect applicable State and local laws and regulations, provided that the
procurements conform to applicable Federal law and the standards identified in this section.
   (9) Grantees and subgrantees will maintain records sufficient to detail the significant history of
a procurement. These records will include, but are not necessarily limited to the following:
rationale for the method of procurement, selection of contract type, contractor selection
or rejection, and the basis for the contract price.
   (c) Competition. (1) All procurement transactions will be conducted in a manner providing
full and open competition consistent with the standards of Sec. 85.36.
   24 CFR 85.36(c)(3) Grantees will have written selection procedures for procurement
transactions. These procedures will ensure that all solicitations:
   (i) Incorporate a clear and accurate description of the technical requirements for the material,
product, or service to be procured. (d) Methods of procurement to be followed. (1) Procurement
by small purchase procedures. Small purchase procedures are those relatively simple and
informal procurement methods for securing services, supplies, or other property that do not cost
more than the simplified acquisition



                                                 51
threshold fixed at 41 U.S.C. [United States Code] 403(11) (currently set at $100,000). If small
purchase procedures are used, price or rate quotations shall be obtained from an adequate
number of qualified sources.
   (2) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a firm-
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid,
conforming with all the material terms and conditions of the invitation for bids, is the
lowest in price. The sealed bid method is the preferred method for procuring construction, if the
conditions in Sec. 85.36(d)(2)(i) apply.
   (i) In order for sealed bidding to be feasible, the following conditions should be present:
   (A) A complete, adequate, and realistic specification or purchase description is available;
   (B) Two or more responsible bidders are willing and able to compete effectively and for the
business; and
   (C) The procurement lends itself to a firm fixed price contract and the selection of the
successful bidder can be made principally on the basis of price.
   (ii) If sealed bids are used, the following requirements apply:
   (A) The invitation for bids will be publicly advertised and bids shall be solicited from an
adequate number of known suppliers, providing them sufficient time prior to the date set for
opening the bids;
   (B) The invitation for bids, which will include any specifications and pertinent attachments,
shall define the items or services in order for the bidder to properly respond;
   (C) All bids will be publicly opened at the time and place prescribed in the invitation for bids;
   (D) A firm fixed-price contract award will be made in writing to the lowest responsive and
responsible bidder. Where specified in bidding documents, factors such as discounts,
transportation cost, and life cycle costs shall be considered in determining which bid is lowest.
Payment discounts will only be used to determine the low bid when prior experience indicates
that such discounts are usually taken advantage of; and
   (E) Any or all bids may be rejected if there is a sound documented reason.
   24 CFR 85.36(d)(3), Procurement by competitive proposals. The technique of competitive
proposals is normally conducted with more than one source submitting an offer, and either a
fixed-price or cost-reimbursement type contract is awarded. It is generally used when conditions
are not appropriate for the use of sealed bids. If this method is used, the following requirements
apply:
   (i) Requests for proposals will be publicized and identify all evaluation factors and relative
importance. Any response to publicized requests for proposals shall be honored to the maximum
extent practical;
   (ii) Proposals will be solicited from an adequate number of qualified sources;
   (iii) Grantees and subgrantees will have a method for conducting technical evaluations of the
proposals received and for selecting awardees;
   (iv) Awards will be made to the responsible firm whose proposal is most advantageous to the
program, with price and other factors considered; and
   (v) Grantees and subgrantees may use competitive proposal procedures for qualifications-
based procurement of architectural/engineering (A/E) professional services whereby
competitors’ qualifications are evaluated and the most qualified competitor is selected, subject to
negotiation of fair and reasonable compensation. The method, where price is not used as a
selection factor, can only be used in procurement of A/E professional services. It cannot be used



                                                52
to purchase other types of services though A/E firms are a potential source to perform the
proposed effort.
   (4) Procurement by noncompetitive proposals is procurement through solicitation of a
proposal from only one source, or after solicitation of a number of sources, competition is
determined inadequate.
   (i) Procurement by noncompetitive proposals may be used only when the award of a contract
is infeasible under small purchase procedures, sealed bids or competitive proposals and one of
the following circumstances applies:
   (A) The item is available only from a single source;
   (B) The public exigency or emergency for the requirement will not permit a delay resulting
from competitive solicitation;
   (C) The awarding City authorizes noncompetitive proposals; or
   (D) After solicitation of a number of sources, competition is determined inadequate.
   (f) Contract cost and price. (1) Grantees and subgrantees must perform a cost or price analysis
in connection with every procurement action including contract modifications. The method and
degree of analysis is dependent on the facts surrounding the particular procurement situation, but
as a starting point, grantees must make independent estimates before receiving bids or proposals.

Department of Neighborhood Development Housing Policy (DND) - Section 3 on Bidding

Projects must be competitively bid in order to achieve the lowest reasonable construction cost
and to provide increased fair access to the economic opportunities created through the project.
Developers must solicit and receive at least three bids, at least two of which are from general
contractors that have not previously contracted with the developer. Bids shall be solicited after
the project has received DND Final Design Approval, i.e. plans and specifications are 95%
complete, and following DND approval of the bid package. Developers are not required to select
the contractor with the lowest bid, but must demonstrate there is sufficient justification if a
contractor with a higher cost is selected. Developers that are general contractors are not required
to bid the general construction contract but must competitively bid all sub-trades. Copies of each
contractor bid and/or sub-trade bids must be submitted to DND for review and maintained in the
project files.

Finding 3

2 CFR Appendix B to Part 225(h)(4)(5)(6)
4) Where employees work on multiple activities or cost objectives, a distribution of their salaries
or wages will be supported by personnel activity reports or equivalent documentation which
meets the standards in subsection 8.h.(5) of this appendix unless a statistical sampling
system (see subsection 8.h.(6) of this appendix) or other substitute system has been approved by
the cognizant Federal agency. Such documentary support will be required where employees
work on: (a) more than one Federal award, (b) a Federal award and a non-Federal award, (c) an
indirect cost activity and a direct cost activity, (d) two or more indirect activities which are
allocated using different allocation bases, or (e) an unallowable activity and a direct or indirect
cost activity. (5) Personnel activity reports or equivalent documentation must meet
the following standards: (a) they must reflect an after-the-fact distribution of the actual
activity of each employee, (b) they must account for the total activity for which each employee

                                                53
is compensated, (c) they must be prepared at least monthly and must coincide with one or more
pay periods, and (d) they must be signed by the employee. (e) Budget estimates or other
distribution percentages determined before the services are performed do not qualify as support
for charges to Federal awards but may be used for interim accounting purposes,
provided that: (i) the governmental unit's system for establishing the estimates produces
reasonable approximations of the activity actually performed; (ii) at least quarterly, comparisons
of actual costs to budgeted distributions based on the monthly activity reports are made. Costs
charged to Federal awards to reflect adjustments made as a result of the activity actually
performed may be recorded annually if the quarterly comparisons show the differences between
budgeted and actual costs are less than ten percent; and (iii) the budget estimates or other
distribution percentages are revised at least quarterly, if necessary, to reflect changed
circumstances. (6) Substitute systems for allocating salaries and wages to Federal
awards may be used in place of activity reports. These systems are subject to approval if required
by the cognizant agency. Such systems may include, but are not limited to, random moment
sampling, case counts, or other quantifiable measures of employee effort.

Finding 5

24 CFR 91.520, Performance Reports.

(a) General. Each jurisdiction that has an approved consolidated plan shall annually review and
report, in a form prescribed by HUD, on the progress made in carrying out its strategic plan and
its action plan. The performance report must include a description of the resources made
available, the investment of available resources, the geographic distribution and location of
investments, the families and persons assisted (including the racial and ethnic status of persons
assisted), actions taken to affirmatively further fair housing, and other actions indicated in the
strategic plan and the action plan. This performance report shall be submitted to HUD within 90
days after the close of the jurisdiction’s program year. (f) Evaluation by HUD. HUD shall
review the performance report and determine whether it is satisfactory. If a satisfactory report is
not submitted in a timely manner, HUD may suspend funding until a satisfactory report is
submitted, or may withdraw and reallocate funding if HUD determines, after notice and
opportunity for a hearing, that the jurisdiction will not submit a satisfactory report.




                                                54