U. US Department of Housing and Urban Development
Office of Ins Inspector General for Audit, Region I
Thomas P. O’Neill, Jr. Federal Building
10 Causeway Street, Room 370
Boston, Massachusetts 02222-1092
Phone (617 7 ) 994-8380 Fax (617) 565-6878
Internet http://www.hud.gov/offices/oig/
Issue Date
September 23, 2009
Audit Memorandum Number
2009 BO 1802
MEMORANDUM FOR: Robert C. Paquin, Director, Office of Community Planning and
Development, Boston Regional Office, 1AD
FROM: John A. Dvorak, Regional Inspector General for Audit, 1AGA
SUBJECT: The City of Boston’s Department of Neighborhood Development, Boston,
Massachusetts, Can Develop the Capacity to Administer Its Housing and
Economic Recovery Act and American Recovery and Reinvestment Act
Programs
INTRODUCTION
We performed an audit of the City of Boston’s (City) Department of Neighborhood
Development (Department). The audit was part of the activities in our fiscal year 2009 annual
audit plan. We selected the City based upon the results of our previous audit of the City’s
HOME Investment Partnerships Program (HOME) and the significance of the Neighborhood
Stabilization Program (NSP) funds awarded. Our objective was to determine whether the City
had the capacity to effectively and efficiently administer its NSP under the provisions of the
Housing and Economic Recovery Act of 2008 (HERA) and the American Recovery and
Reinvestment Act of 2009 (Recovery Act).
The Authority agreed with our report and will work with the HUD’s Office of Community
Planning and Development to implement the required corrective action for the recommendation
in this report (See Appendix). For the recommendation a management decision is required.
Please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3.
Please also furnish us copies of any correspondence or directives issued because of the review.
If you or your staff has any questions, please contact Kevin Smullen, Assistant Regional
Inspector General for Audit, at 617-994-8380.
METHODOLOGY AND SCOPE
Our review concentrated on gaining an understanding of how the Department will administer its
NSP funds. To meet our objective, we reviewed U.S. Department of Housing and Urban
Development (HUD) regulations at 24 CFR (Code of Federal Regulations) Parts 85, 91, and 570;
Office of Inspector General (OIG) audit reports; and monitoring reports of the HUD Office of
Community Planning and Development. We also reviewed Recovery Act documentation and
program guidance and funding agreements. We interviewed the Department’s management and
staff and reviewed the Department’s documentation such as policies and procedures, organizational
charts, and job descriptions to obtain an understanding of the grantee’s internal controls. Our review
of this documentation was limited to our stated objective and should not be considered a detailed
analysis of the grantee’s internal controls or operations.
In addition, we reviewed procurement policies and procedures of the Department applicable to
administering NSP and the Department’s 2009 substantial amendments to the NSP action plan
and annual financial reports.
We performed our audit field work from the end of June to August 2009 at the City’s offices
located at 26 Court Street, Boston, Massachusetts. The audit covered the period April 2008
through June 2009 and was expanded as necessary. Our review of the City’s administration of
NSP was not conducted in accordance with generally accepted government auditing standards.
However, the fact that we did not fully comply with the audit standards did not have a material
effect on our audit results. Under the Recovery Act, inspectors general are expected to be
proactive and focus on prevention, and thus the scope of this audit was significantly reduced.
BACKGROUND
NSP was authorized under Title III of the Housing and Economic Recovery Act of 2008
(HERA), as amended. HERA, which became Public Law 110-289 on July 30, 2008, provided
$3.92 billion in emergency assistance funding nationwide for the rehabilitation of abandoned and
foreclosed homes. The City received more than $4.2 million in NSP funds, via a formula grant,
under HERA.
Congress amended NSP and increased its funding as part of the Recovery Act. The City
submitted an application to HUD on July 15, 2009, which totaled nearly $20 million in
additional NSP funds under the Recovery Act. This competitive grant application is under
review by HUD.
NSP provided grants to every state and certain local communities. These grantees are required
to spend the grant funds on eligible activities within 18 months of receipt. Grantees are also
required to target the use of NSP funds under the following guidelines:
- For families at or below 120 percent of area median income,
- Directing 25 percent of the funds for the purchase and rehabilitation of properties to
house families whose incomes did not exceed 50 percent of area median income,
2
- For the purchase of foreclosed or abandoned homes that can be rehabilitated, resold,
or redeveloped to stabilize neighborhoods that are declining in value.
In 2008, the Department issued a report on real estate trends showing that real estate-owned
(REO) sales through foreclosure deeds increased by 73 percent in 2008 compared to 2007. The
2008 foreclosure auction saw 95 percent of the properties either go back to the lender or become
REO properties, resulting in a growing inventory in the City. In 2008, 83 percent of these
foreclosed properties were located in five high-foreclosure neighborhoods: Dorchester, East
Boston, Hyde Park, Mattapan, and Roxbury. REO sales in these five neighborhoods ranged
from 21 percent in Hyde Park to 51 percent in Mattapan. The sale of these properties has had a
significant impact on median house prices in these neighborhoods, which the Department has
targeted to receive NSP assistance.
The Department administers NSP for the City. The Department’s overall mission is to work
with diverse neighborhood partners to leverage financing and other funding for quality housing,
distinct commercial properties, small business development opportunities, and community-based
programs.
Follow-up on Prior Audits. In August 2009, we issued an audit report (OIG Audit Report
number 2009-BO-1011) on the City’s HOME program; the period covered in the audit was from
September 30, 2007, through September 26, 2008. Our report noted that the Department (1)
awarded community housing development organization (CHDO) set-aside funding to
organizations that did not meet all legal and organizational characteristics of CHDOs; (2) did not
follow proper, fair, and equitable procurement practices; and (3) did not maintain a properly
supported cost allocation plan for payroll, causing some programs to incur staffing costs
disproportionately to others. The City had not completely resolved the findings in this report or
implemented corrective action to correct these deficiencies at the time of this audit.
RESULTS OF REVIEW
The Department should be able to meet federal requirements for administering the NSP funds
under HERA and the Recovery Act. Specifically, the Department can develop sufficient
capacity to administer its NSP and ensure that NSP funds are properly administered. Also its
financial controls and internal controls are generally adequate to ensure that (1) proper NSP
expenditures will occur within the timeframes for using these funds, (2) NSP eligibility and
program outcome goals will be met, and (3) NSP transparency requirements will be complied
with. However, the Department must revise its cost allocation procedures for allocating costs to
federal programs and ensure that it follows proper, fair, and equitable procurement practices as
identified in our audit report (2009-BO-1011) on the City’s administration of its HOME
program. If these discrepancies are corrected, HUD can generally be assured that the City will
accurately account for its use of NSP funding under HERA and the Recovery Act and use that
funding for only eligible program activities.
The following areas were reviewed in making our determination of the City’s ability to
administer the NSP funds.
3
Capacity: The City should be able to develop sufficient capacity to effectively and efficiently
administer its NSP. This assessment is based on the Department’s ability to comply with federal
requirements for administering the NSP funds and its completing the corrective action to resolve
the discrepancies identified in our report on its administration of its HOME program.
Financial controls: The Department has reconciled its budget with HUD’s Disaster Recovery
Grant Reporting System and its internal accounting system. It has sufficient capability to
effectively monitor, control, and report the financial transactions related to NSP with the
exception of the allocation of payroll costs to its federal programs.
Timeliness: The Department carefully considered its administrative capacity and is capable of
expending its NSP within the statutory deadlines of NSP if needed.
Internal controls: As of June 30, 2009, the Department had made no modifications to the
policies and procedures that were in place and that we reviewed during our recent audit of the
HOME program. During the HOME program audit, we determined that the general internal
controls in place applied to all federal funding received (Community Development Block Grant
(CDBG), HOME, etc.). We determined these controls to be adequate with the exception of the
deficiency noted on the allocation of payroll costs to various programs and following proper
procurement practices. In response to the audit finding on this deficiency, the Department
agreed to take corrective action, which is in process. However, we consider the internal controls
in place to be adequate with the exception of the controls for cost allocations and following
proper procurement practices. As noted, NSP is an extension of existing CDBG programs, and
there is no immediate need for modifications or changes except for the controls and procedures
cited above.
Eligibility and output/outcomes: As a result of documentation reviewed and interviews with
Department personnel, we determined that the Department can satisfactorily ensure that NSP
eligibility and program outcome goals will be met.
Procurement – transparency: Since the Department will not use NSP funds to complete
mixed-use, multiphase developments having multiple funding sources (as was noted in our audit
report on the Department’s HOME program), we determined that the Department will
satisfactorily comply with NSP transparency requirements.
CONCLUSION
In general, our review determined that the Department should have the capacity and capability to
effectively and efficiently administer its NSP after it addresses the deficiencies identified in our
report on the City’s administration of the HOME program. Once corrective action is completed,
the Department should be able to maintain adequate internal control procedures and policies
governing financial reporting, timeliness, procurement, staffing, program eligibility
(output/outcomes), and transparency for administering the NSP funds according to federal
requirements governing the administration of funds provided under HERA and the Recovery
Act.
4
RECOMMENDATION
We recommend that the Director of HUD’s Office of Community Planning and Development
1A. Ensure that the corrective action is completed by the City regarding the deficiencies
identified in the Department’s administration of the HOME program in report No.
2009-BO-1001. If corrective action is not completed, HUD will need to conduct
additional monitoring of the City’s administration of the NSP funds to ensure
compliance with federal requirements.
5
APPENDIX
AUDITEE COMMENTS
6
The City of Boston's Department of Neighborhood Development, Boston, Massachusetts, Can Develop the Capacity to Administer Its Housing and Economic Recovery Act and American Recovery and Reinvestment Act Programs
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)