oversight

The City of East Cleveland, Ohio, Did Not Adequately Manage Its HOME Investment Partnerships and Community Development Block Grant Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-05-11.

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

                                                                  Issue Date
                                                                           May 11, 2009
                                                                  Audit Report Number
                                                                           2009-CH-1008




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


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

SUBJECT: The City of East Cleveland, Ohio, Did Not Adequately Manage Its HOME
           Investment Partnerships and Community Development Block Grant Programs

                                   HIGHLIGHTS

 What We Audited and Why

            We audited the City of East Cleveland’s (City) use of HOME Investment
            Partnerships (HOME) and Community Development Block Grant (Block Grant)
            program funds. The audit was part of the activities in our fiscal year 2008 annual
            audit plan. We selected the City based upon our analysis of risk factors relating to
            HOME grantees in Region V’s jurisdiction and a request from the U.S. Department
            of Housing and Urban Development’s (HUD) Columbus Office of Community
            Planning and Development. Our audit objectives were to determine whether the
            City effectively administered its HOME and Block Grant programs; appropriately
            disbursed HOME funds for owner-occupied, single-family residential
            rehabilitation projects (rehabilitation projects), community housing development
            organization projects (organization projects), and grant assistance program
            financing activities (financing activities); appropriately drew down and disbursed
            Block Grant funds; and followed HUD’s requirements.

 What We Found

            The City did not effectively administer its HOME and Block Grant programs. It
            lacked documentation to support its use of nearly $444,000 in HOME funds for
            12 rehabilitation projects and four financing activities; inappropriately disbursed
           nearly $60,000 in HOME funds for a rehabilitation project that did not meet
           HUD’s property standards requirements and had unused prepurchased
           construction materials for three organization projects; and provided nearly
           $97,000 and committed more than $24,000 in HOME funds for an improper
           organization project.

           The City also failed to disburse Block Grant funds drawn down from its line of
           credit within a reasonable number of days and lacked documentation to support
           that it used Block Grant funds for appropriate expenses. As a result, HUD lost
           more than $4,000 in interest on the more than $183,000 in Block Grant funds that
           the City failed to disburse within a reasonable number of days, and the City was
           unable to support its use of nearly $5,000 in Block Grant funds for eligible costs.

What We Recommend


           We recommend that the Director of HUD’s Columbus Office of Community
           Planning and Development require the City to (1) provide documentation or
           reimburse its HOME and Block Grant programs nearly $449,000 from nonfederal
           funds for the unsupported payments, (2) reimburse its HOME and Block Grant
           programs more than $156,000 from nonfederal funds for the improper use of
           funds, (3) decommit more than $24,000 in HOME funds inappropriately
           committed for an organization project, (4) disburse or reimburse HUD for nearly
           $32,000 in Block Grant funds not disbursed, (5) reimburse HUD more than
           $4,000 from nonfederal funds for the interest HUD lost on the Block Grant funds
           that the City failed to disburse within a reasonable number of days of being drawn
           down from its line of credit, and (6) implement adequate procedures and controls
           to address the findings cited in this audit report.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response

           We provided our discussion draft audit report and supporting schedules to the City’s
           mayor and HUD’s staff during the audit. We held an exit conference with the mayor
           and City staff on February 23, 2009.

           We asked the City’s mayor to provide comments on our discussion draft audit
           report by April 1, 2009. The mayor provided written comments, dated April 1,
           2009. The mayor partially agreed with findings 1, 2, and 4 and disagreed with
           finding 3. The complete text of the written comments, except for property
           addresses for activities, a name of a Community Housing Network employee that



                                            2
the mayor included in his comments, and 15 exhibits that were not necessary to
understand the mayor’s comments, along with our evaluation of that response, can
be found in appendix B of this audit report. We provided the Director of HUD’s
Columbus Office of Community Planning and Development with a complete copy
of the City’s written comments plus the 15 exhibits of supporting documentation.




                                3
                            TABLE OF CONTENTS

Background and Objectives                                                             5

Results of Audit
      Finding 1: Controls over the City’s HOME-Funded Rehabilitation Projects
                 Were Inadequate                                                      7

      Finding 2: The City Lacked Adequate Controls over Its HOME-Funded
                 Organization Projects                                               11

      Finding 3: The City Needs to Improve Controls over Its HOME-Funded Financing
                 Activities                                                          15

      Finding 4: The City Lacked Adequate Controls over Its Disbursement of Block
                 Grant Funds                                                         17

Scope and Methodology                                                                21

Internal Controls                                                                    22

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                 24
   B. Auditee Comments and OIG’s Evaluation                                          25
   C. Federal and City Requirements                                                  42




                                             4
                      BACKGROUND AND OBJECTIVES

The HOME program. Authorized under Title II of the Cranston-Gonzales National Affordable
Housing Act, as amended, the HOME Investment Partnerships Program (HOME) is funded for the
purpose of increasing the supply of affordable standard rental housing; improving substandard
housing for existing homeowners; assisting new home buyers through acquisition, construction, and
rehabilitation of housing; and providing tenant-based rental assistance.

The Block Grant program. Authorized under Title 1 of the Housing and Community Development
Act of 1974, as amended, the Community Development Block Grant (Block Grant) program is
funded to assist in the development of viable urban communities by providing decent housing and a
suitable living environment and expanding economic opportunities, principally for persons of low
and moderate income. All Block Grant activities must meet one of the following national
objectives: benefit low- and moderate-income persons, aid in the prevention or elimination of slums
and blight, or meet certain community development needs having a particular urgency.

The City. Organized under the laws of the State of Ohio, the City of East Cleveland (City) is
governed by a mayor and a five-member council, elected to two-year terms. The City’s
Department of Community Development (Department) administers the City’s HOME and Block
Grant programs. The Department’s overall mission is to (1) use available resources to build a
stable and economically viable community, (2) work to eliminate blighted conditions in areas
suffering from a lack of investment, (3) direct available resources to benefit low- and moderate-
income citizens and neighborhoods serving low- and moderate-income citizens, (4) and work to
eliminate any conditions that pose a threat to public health and welfare, which the City does not
otherwise have the available resources to address. The City’s mayor took office on January 1,
2006. The former director of the City’s Department resigned on May 16, 2008. At that time, the
City’s mayor assumed oversight of the Department. The City had not hired a new director or
named an acting director as of February 18, 2009. The City’s HOME and Block Grant program
records are located at 13601 and 14340 Euclid Avenue, East Cleveland, Ohio.

The following table shows the amount of HOME and Block Grant funds the U.S. Department of
Housing and Urban Development (HUD) awarded the City for its program years 2004 through
2008.

                            Program         HOME       Block Grant
                              year           funds        funds
                              2004            $514,427   $1,339,000
                              2005             488,485    1,270,112
                              2006             282,738    1,144,036
                              2007             455,789    1,143,109
                              2008             442,118    1,104,770
                             Totals         $2,183,557   $6,001,027

The City awarded HOME funds to Community Housing Solutions as a nonprofit subrecipient to
provide housing rehabilitation assistance for owner-occupied, single-family residential


                                                5
rehabilitation projects (rehabilitation projects) and as a community housing development
organization (organization) to acquire, rehabilitate, and sell vacant single-family housing for
organization projects. The City provided HOME funds directly to home buyers to assist with
downpayments and closing costs for grant assistance program financing activities (financing
activities).

Our audit objectives were to determine whether the City effectively administered its HOME and
Block Grant programs; appropriately disbursed HOME funds for rehabilitation projects,
organization projects, and financing activities; appropriately drew down and disbursed Block
Grant funds; and followed HUD’s requirements.




                                                6
                                 RESULTS OF AUDIT

Finding 1: Controls over the City’s HOME-Funded Rehabilitation
                      Projects Were Inadequate
The City did not comply with HUD’s regulations and/or its requirements (see appendix C of this
audit report) in providing housing rehabilitation assistance for rehabilitation projects. It lacked
sufficient documentation to support that rehabilitation projects were eligible and housing
rehabilitation services were properly procured and provided assistance for an improper
rehabilitation project because it lacked adequate procedures and controls to ensure that it
appropriately followed HUD’s regulations and/or its requirements. As a result, it was unable to
support its use of nearly $334,000 in HOME funds for 12 rehabilitation projects and
inappropriately provided nearly $28,000 in HOME funds for a rehabilitation project that did not
meet HUD’s property standards requirements.



 The City Lacked
 Documentation to Support Its
 Use of Nearly $334,000 in
 HOME Funds for
 Rehabilitation Projects

               We statistically selected for review drawdowns for 14 of the City’s HOME-
               funded, owner-occupied, single-family residential rehabilitation projects
               (rehabilitation projects). The City drew down $388,735 in HOME funds for the
               14 rehabilitation projects from October 2002 through February 2008. Contrary to
               HUD’s regulations and/or the City’s requirements, the City lacked documentation
               for 12 of the 14 rehabilitation projects to support that it used $333,618 in HOME
               funds for appropriate rehabilitation projects. The files for the 12 rehabilitation
               projects were missing and/or had incomplete documentation as follows:

              ™ Seven were missing or had incomplete proof of hazard insurance,
              ™ Six were missing prerehabilitation appraisals for the after-rehabilitation value
                  of homes to show that the projects qualified as affordable housing,
              ™   Five were missing final inspection reports or certifications supporting that the
                  projects met HUD’s property standards requirements,
              ™   Four were missing sufficient income documentation to demonstrate that
                  households were income eligible,
              ™   Four were missing or had incomplete homeowner applications for assistance,
              ™   Three were missing sufficient documentation to support that households were
                  current on their mortgage payments,
              ™   One was missing a contract between the contractor and homeowner,




                                                 7
          ™ One was missing sufficient documentation to support that the households were
              current on their property taxes, and
          ™ One was missing written manufacturers’ and/or suppliers’ guarantees and
              warranties covering materials and/or equipment furnished under the housing
              rehabilitation contract’s standard terms and conditions (contract) between the
              contractors and homeowners.

           In addition, the City did not establish and select households from an applicant
           waiting list.

The City Lacked
Documentation to Support the
Procurement of Housing
Rehabilitation Services

           The City also lacked documentation to support that Community Housing
           Solutions awarded housing rehabilitation services for rehabilitation project
           number 1186 through full and open competition after it removed the original
           contractor from the rehabilitation project. The City used $24,302 in HOME funds
           to pay for the housing rehabilitation assistance. Further, it could not provide
           properly executed change orders for $7,017 in HOME funds used for housing
           rehabilitation assistance for three rehabilitation projects. The following table
           shows the amount of HOME funds used for housing rehabilitation assistance
           without sufficient change orders for the three rehabilitation projects.

                          Rehabilitation           Housing
                          project number      assistance amount
                               1072                 $3,700
                               1220                  2,517
                               1065                    800
                               Total                $7,017

The City Provided Nearly
$28,000 in HOME Funds for an
Improper Rehabilitation
Project

           The City used $27,699 in HOME funds from May 2003 through March 2004 for
           rehabilitation project number 990. In June 2003, a professional engineering firm
           reported that there was structural damage to the project’s basement walls. However,
           the City did not ensure that the damage to the basement walls was included in the
           housing rehabilitation work. Therefore, the rehabilitation project did not meet
           HUD’s property standards requirements after the housing rehabilitation assistance
           was completed in March 2004. In August 2005, the City approved Community


                                             8
           Housing Solutions to acquire the property from the homeowner and provide
           additional housing rehabilitation assistance under organization project number 838.
           As of November 2008, an additional $96,763 in HOME funds had been used to
           acquire and provide additional housing rehabilitation assistance for the property as
           an organization project (see finding 2 in this report).

The City’s Procedures and
Controls Had Weaknesses

           The weaknesses regarding the City’s lack of documentation to support that
           rehabilitation projects were appropriate, lack of documentation to support the
           procurement of housing rehabilitation services, and assistance for inappropriate
           rehabilitation projects occurred because the City lacked adequate procedures and
           controls to ensure that it appropriately followed HUD’s regulations and/or its
           requirements. The City did not ensure that it fully implemented HUD’s
           regulations and its requirements.

           The City did not adequately monitor Community Housing Solutions to ensure that
           HOME funds were used appropriately. The Department’s deputy director said
           that she did not know why the City lacked supporting documentation for the
           rehabilitation projects. However, the City maintained documentation for the
           rehabilitation projects in many different locations, and the documentation may be
           have been in other rehabilitation project files. Further, the City’s managers did
           not review the files for the rehabilitation projects to ensure that the City’s staff
           obtained sufficient documentation to support that rehabilitation projects were
           eligible for assistance. In addition, the City lacked written policies and
           procedures regarding the required documentation to be maintained in its files for
           the rehabilitation projects. The deputy director said that the City updating its
           written policies and procedures to ensure that it maintains the appropriate
           documentation for the rehabilitation projects.

           The Department’s deputy director issued an internal memorandum to the
           Department’s former director regarding her concern that the housing
           rehabilitation services for rehabilitation project number 1186 were not awarded
           through full and open competition. However, as of March 11, 2009, the deputy
           director had not been able to explain what changes had occurred as a result of the
           internal memorandum. The director of the City’s law department said that the
           change orders for rehabilitation project numbers 1072, 1220, and 1065 were not
           provided to the law department for review.

           The Department’s executive assistant said that the Department’s inspector who
           inspected rehabilitation project number 990 was not qualified for the position and
           was no longer employed by the City. The Department’s former director stated
           that HOME funds were used for the rehabilitation project since the City decided
           to purchase and provide additional housing rehabilitation assistance for the



                                             9
             property as an organization project to save the value of the investment in the
             property that had already been made.

Conclusion

             The City did not properly use its HOME funds when it failed to comply with
             HUD’s regulations and/or its requirements. As previously mentioned, the City
             was unable to support its use of nearly $334,000 in HOME funds for 12
             rehabilitation projects and provided nearly $28,000 in HOME funds for a
             rehabilitation project that did not meet HUD’s property standards requirements.

Recommendations

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

             1A.    Provide supporting documentation or reimburse its HOME program from
                    nonfederal funds, as appropriate, for the $333,618 in HOME funds used
                    for the 12 rehabilitation projects for which the City lacked sufficient
                    documentation to support compliance with HUD’s regulations and/or its
                    requirements.

             1B.    Reimburse its HOME program $27,699 from nonfederal funds for the
                    HOME funds used to assist the rehabilitation project cited in this finding
                    that did not meet HUD’s property standards requirements.

             1C.    Implement adequate procedures and controls to ensure that HOME funds
                    are used for eligible rehabilitation projects and the procurement of housing
                    rehabilitation services complies with HUD’s regulations and/or its
                    requirements. The procedures and controls should include but not be
                    limited to implementing adequate written policies and procedures to
                    ensure that supervisors (1) perform quality control reviews of files to
                    ensure that the rehabilitation projects are eligible for assistance and (2)
                    maintain sufficient supporting documentation in the City’s files.




                                              10
Finding 2: The City Lacked Adequate Controls over Its HOME-Funded
                        Organization Projects
The City did not comply with federal requirements and/or its set-aside agreement (agreement)
with Community Housing Solutions (see appendix C of this audit report) in providing assistance
for organization projects. It improperly disbursed HOME funds for unused prepurchased
construction materials for organization projects and provided assistance for an inappropriate
organization project because it lacked adequate procedures and controls to ensure that it
appropriately followed federal requirements and/or its agreement with Community Housing
Solutions. As a result, it inappropriately used nearly $32,000 in HOME funds for three
organization projects and provided nearly $97,000 and committed more than $24,000 in HOME
funds for an improper organization project.



 The City Inappropriately Used
 Nearly $32,000 in HOME
 Funds for Organization
 Projects

              We statistically selected for review drawdowns for the City’s HOME-funded
              organization operating costs and five of the City’s HOME-funded organization
              projects. The City drew down $125,831 in HOME funds for the organization
              operating costs and organization projects from May 2006 through January 2008.
              It inappropriately disbursed $31,997 of the HOME funds ($27,824 for
              prepurchased construction materials and $4,173 for administrative fees) to
              Community Housing Solutions for three organization projects. The City’s mayor
              stated that the prepurchased construction materials had not been used and were in
              storage as of April 1, 2009. Further, the City could not provide sufficient
              documentation to support the cost of the prepurchased construction materials.
              Therefore, it also could not support the administrative fees it paid to Community
              Housing Solutions for the materials. The following table shows the organization
              project number, voucher number, drawdown date, and amount of HOME funds
              that the City disbursed for the prepurchased construction materials and
              administrative fees.

                      Project    Voucher     Date of draw        HOME
                      number     number         down              funds
                        983      1309047    August 15, 2006       $2,995
                       1184      1309047    August 15, 2006       14,501
                       1196      1314828    August 30, 2006       14,501
                                      Total                      $31,997




                                              11
The City Provided Nearly
$97,000 in HOME Funds for an
Improper Organization Project

           The City inappropriately used $96,763 in HOME funds when it drew down and
           disbursed the funds to Community Housing Solutions to acquire and provide
           housing rehabilitation assistance for organization project number 838. As stated in
           finding 1 of this audit report, the City inappropriately used $27,699 in HOME funds
           from May 2003 through March 2004 for rehabilitation project number 990 when it
           did not ensure that the rehabilitation project met HUD’s property standards
           requirements after the housing rehabilitation assistance was completed in March
           2004. In August 2005, the City approved Community Housing Solutions to acquire
           the property from the homeowner and provide additional housing rehabilitation
           assistance under organization project number 838. However, the City’s agreement
           with Community Housing Solutions only allowed Community Housing Solutions to
           acquire, rehabilitate, and sell vacant single-family housing. As of November 2008,
           an additional $96,763 in HOME funds had been used to acquire and provide
           additional housing rehabilitation assistance for the property as an organization
           project. Further, the City had committed an additional $24,223 in HOME funds in
           HUD’s Integrated Disbursement and Information System (System) for the
           organization project as of February 2009.

The City’s Procedures and
Controls Had Weaknesses

           The weaknesses regarding the City’s lack of documentation to support the cost of
           the prepurchased construction materials and whether all of the materials were
           used for the organization projects and assistance for an inappropriate organization
           project occurred because the City lacked adequate procedures and controls to
           ensure that it appropriately followed federal requirements and/or its own
           agreement with Community Housing Solutions.

           The Department’s deputy director said that the City believed that the
           documentation to support the cost of the prepurchased construction materials was
           sufficient. The City did not adequately monitor Community Housing Solutions to
           ensure that HOME funds were used appropriately for prepurchased construction
           materials. Further, it lacked written policies and procedures regarding the
           documentation that Community Housing Solutions needed to provide to support
           the cost of the materials and whether all of the materials were used for
           organization projects.

           In addition, the City failed to ensure that Community Housing Solutions created a
           citizen advisory committee (committee) as required by its agreement with
           Community Housing Solutions.



                                           12
             Since the City did not ensure that rehabilitation project number 990 met HUD’s
             property standards requirements after the housing rehabilitation assistance was
             completed, it felt an obligation to the homeowner to acquire the property and
             provide additional housing rehabilitation assistance under organization project
             number 838. It could not explain why it used HOME funds for the organization
             project since the Department’s three former directors who approved the
             organization project and/or disbursements of HOME funds for the organization
             project resigned. The most recent former director resigned on May 16, 2008.

Conclusion

             The City did not properly use its HOME funds when it failed to comply with
             federal requirements and/or its agreement with Community Housing Solutions.
             As previously mentioned, the City inappropriately used nearly $32,000 in HOME
             funds for three organization projects and provided nearly $97,000 and committed
             more than $24,000 in HOME funds for an improper organization project.

Recommendations

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

             2A.    Reimburse its HOME program $31,997 from nonfederal funds for the
                    HOME funds disbursed for unused prepurchased construction materials
                    for the three organization projects.

             2B.    Reimburse its HOME program $96,763 from nonfederal funds for the
                    HOME funds used to acquire and provide housing rehabilitation assistance
                    for the organization project cited in this finding that was contrary to its
                    agreement with Community Housing Solutions.

             2C.    Close out and decommit the $24,223 in HOME funds inappropriately
                    committed in HUD’s System for the organization project cited in this
                    finding that was contrary to its agreement with Community Housing
                    Solutions.

             2D.    Implement adequate procedures and controls for maintaining sufficient
                    supporting documentation for prepurchased construction materials and
                    only allowing Community Housing Solutions to acquire, rehabilitate, and
                    sell vacant single-family housing to ensure that HOME funds are used for
                    appropriate organization projects. The procedures and controls should
                    include but not be limited to implementing adequate written policies and
                    procedures for obtaining sufficient documentation from community
                    housing development organizations to support the cost of the prepurchased



                                             13
      construction materials and whether all of the materials are used for
      organization projects.

2E.   Ensure that Community Housing Solutions creates a committee in
      accordance with the City’s agreement with Community Housing
      Solutions.




                               14
Finding 3: The City Needs To Improve Controls over Its HOME-
                     Funded Financing Activities
The City lacked documentation to support that it followed federal requirements and/or its
codified ordinances (see appendix C of this audit report) in providing downpayments and closing
costs for financing activities. The weaknesses occurred because the City lacked adequate
procedures and controls to ensure that it used HOME funds for appropriate financing activities
and maintained adequate documentation. As a result, HUD and the City lacked assurance that
$110,000 in HOME funds was used efficiently and effectively and in accordance with federal
requirements and/or the City’s codified ordinances.



 The City Lacked
 Documentation to Support Its
 Use of $110,000 in HOME
 Funds for Financing Activities

              We statistically selected for review drawdowns for seven of the City’s HOME-
              funded financing activities. The City drew down $190,000 in HOME funds for
              the seven financing activities from March 2006 through December 2007. It
              lacked documentation for four of the seven financing activities to support that it
              followed federal requirements and/or its codified ordinances when it provided
              $110,000 in HOME funds to assist home buyers with downpayments and closing
              costs. The files for the four financing activities were missing documentation as
              follows:

              ™ Three were missing the contractor’s certificate of tax registration,
              ™ Two were missing the contractor’s building permit, and
              ™ One was missing environmental review documentation.


 Conclusion

              The weaknesses regarding the City’s lack of documentation to support that
              financing activities were appropriate occurred because the City lacked adequate
              procedures and controls to ensure that it appropriately followed federal
              requirements and/or its own requirements.

              The Department’s executive assistant said that the City maintained documentation
              for the financing activities in many different locations and was certain that the
              City would eventually be able to provide the documentation. However, it had not
              provided the documentation to support the financing activities as of March 11,
              2009. The City’s managers did not review the files for the financing activities to
              ensure that the City’s staff obtained sufficient documentation to support that
              financing activities were appropriate for assistance. Further, the City lacked


                                              15
          written policies and procedures regarding the required documentation to be
          maintained in its files for the financing activities. The deputy director said that
          the City was updating its written policies and procedures to ensure that it
          maintained the appropriate documentation for the financing activities.

          As a result, HUD and the City lacked assurance that the City used $110,000 in
          HOME funds to assist home buyers with downpayments and closing costs for
          appropriate financing activities.

Recommendations

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

          3A.     Provide supporting documentation or reimburse its HOME program from
                  nonfederal funds, as appropriate, for the $110,000 in HOME funds used
                  for the four activities for which the City lacked sufficient documentation
                  to support compliance with federal requirements and/or its codified
                  ordinances.

          3B.     Implement adequate procedures and controls for maintaining sufficient
                  supporting documentation to ensure that HOME funds are used for
                  appropriate activities. The procedures and controls should include but not
                  be limited to implementing adequate written policies and procedures to
                  ensure that supervisors (1) perform quality control reviews of the files to
                  ensure that the financing activities are appropriate for assistance and (2)
                  maintain sufficient supporting documentation in the files.




                                            16
Finding 4: The City Lacked Adequate Controls over Its Disbursement
                        of Block Grant Funds
The City did not always comply with federal requirements (see appendix C of this audit report)
in its disbursement of Block Grant funds that it drew down from its line of credit. It failed to
disburse Block Grant funds drawn down from its line of credit within a reasonable number of
days and lacked documentation to support that it used Block Grant funds for appropriate
expenses because it lacked procedures and controls to ensure that federal requirements were
appropriately followed. As a result, HUD lost more than $4,000 in interest on the more than
$183,000 in Block Grant funds that the City failed to disburse within a reasonable number of
days, and the City was unable to support its use of nearly $5,000 in Block Grant funds for
appropriate expenses.



 The City Did Not Disburse
 More Than $183,000 in Block
 Grant Funds in a Timely
 Manner

               We statistically selected for review 64 of the City’s drawdowns of Block Grant
               funds from its line of credit for the period January 2006 through February 2008.
               The drawdowns totaled more than $1.1 million in Block Grant funds.

               HUD’s regulations require that an entitlement community make drawdowns of
               Block Grant funds as close as possible to the time of making disbursements.
               HUD’s policy is that Block Grant funds drawn down from an entitlement
               community’s line of credit in advance must be disbursed within a reasonable
               number of days. The City disbursed 53 of the drawdowns totaling nearly
               $955,000 (83.8 percent) in Block Grant funds within five days. Therefore, the
               reasonable number of days for the City to disburse Block Grant funds was five
               days. However, the City failed to disburse the remaining 11 drawdowns totaling
               more than $183,000 (16.2 percent) in Block Grant funds within six days. As of
               October 3, 2008, it had not disbursed $31,670 drawn down on February 10, 2006.
               It did not disburse the remaining Block Grant funds for eligible program costs for
               7 to 88 days after it drew down the funds from its line of credit. Further, it did not
               return to HUD any of the Block Grant funds or interest earned on the funds after
               the fifth day. Therefore, HUD lost more than $4,000 in interest on the more than
               $183,000 in Block Grant funds that the City failed to disburse within five days.
               The following table shows the voucher number, drawdown date, disbursement
               date, amount of Block Grant funds, and amount of interest HUD lost for the
               drawdowns that were not disbursed within a reasonable number of days.




                                                17
            Voucher                                 Date of               Block            Lost
            number     Date of drawdown          disbursement           Grant funds      interest
            1238877    February 10, 2006         Not applicable             $31,670        $3,974
            1251522     March 16, 2006           June 12, 2006                    53             1
            1260096      April 7, 2006            May 1, 2006                39,419           107
            1273215      May 15, 2006            May 22, 2006                79,382             23
            1273215      May 15, 2006            May 30, 2006                    388             1
            1282319       June 7, 2006           June 28, 2006               22,554             53
            1288848      June 23, 2006            July 5, 2006                   431             0
            1289851      June 28, 2006            July 5, 2006                   515             0
            1371388     February 8, 2007       February 15, 2007               4,576             1
            1371372     February 8, 2007       February 28, 2007                 130             0
            1433150      July 30, 2007          August 31, 2007                4,300            16
            1445772    September 4, 2007        October 4, 2007                   41             0
                                   Totals                                  $183,459        $4,176

            We were conservative in our determination of the amount of interest HUD lost.
            We based our calculation on the 10-year United States Treasury rate using simple
            interest on the Block Grant funds from the sixth day after the funds were drawn
            down to the date on which the funds were used for appropriate program expenses.

The City Lacked
Documentation to Support Its
Use of Nearly $5,000 in Block
Grant Funds

            The City lacked sufficient documentation to support that it used an additional
            $4,941 in Block Grant funds from May 2006 through November 2007 for
            appropriate program costs. The unsupported disbursements were for salaries,
            youth and heating and air conditioning services, and transportation. The table
            below shows the following for the unsupported disbursements: cost category,
            dates Block Grant funds were disbursed, and amounts of Block Grant funds
            disbursed.

                                                                                        Block
                                                                                        Grant
                          Cost category                   Period of disbursements       funds
               Salaries                                May 2006 through November 2007   $3,946
               Youth services                                  February 2007               814
               Heating and air conditioning services            October 2006               118
               Transportation                                     June 2007                 63
                                                  Total                                 $4,941

            The City also lacked sufficient documentation to support $2,604 of the $31,670 it
            had drawn down but had not disbursed as of October 3, 2008.




                                              18
The City’s Procedures and
Controls Had Weaknesses

             The weaknesses regarding the City’s lack of timeliness in disbursing Block Grant
             funds, use of Block Grant funds for inappropriate expenses, and lack of
             documentation to support that it used Block Grant funds for proper expenses
             occurred because the City lacked adequate procedures and controls to ensure that
             it appropriately followed federal requirements.

             The director of the City’s Department of Finance said that he was aware that
             Block Grant funds drawn down from the City’s line of credit must be expended
             for appropriate expenses within three days. However, as the director, he had
             many responsibilities, including the resolution of urgent issues on a daily basis,
             and ensuring that Block Grant funds were disbursed within three days did not
             always take priority over his other responsibilities. Therefore, he did not always
             ensure that the City disbursed Block Grant funds in a timely manner.

             In addition, the Department’s deputy director said that the Department’s staff did
             not have sufficient access to the City’s accounting system to determine whether
             the Block Grant funds were disbursed in a timely manner. The Department was
             attempting to obtain sufficient access to the City’s accounting system.

             The deputy director said that the reason for the unsupported salaries was that
             employees did not consistently clock in and out using their time cards and that the
             former director of the Department did not always sign off on the employees’
             handwritten adjustments to the time cards. The City believed that the other
             unsupported Block Grant program costs were appropriate since the expenses were
             part of its contracts with organizations. The City did not realize that it needed
             supporting documentation for the program expenses.

Conclusion

             The City did not properly use its Block Grant funds when it failed to comply with
             federal requirements. As previously mentioned, HUD lost more than $4,000 in
             interest on the more than $183,000 in Block Grant funds that the City failed to
             disburse within five days and the City was unable to support its use of nearly
             $5,000 in Block Grant funds for appropriate expenses.

Recommendations

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




                                              19
4A.   Disburse the $31,670 in Block Grant funds cited in this finding for
      appropriate expenses or reimburse HUD $31,670 for the Block Grant
      funds it has not disbursed. If the City disburses the funds, it will need to
      provide sufficient supporting documentation for $2,604 of the $31,670 in
      Block Grant funds.

4B.   Reimburse HUD $4,176 from nonfederal funds for the interest HUD lost
      on the Block Grant funds that the City failed to disburse within a
      reasonable number of days of being drawn down from its line of credit.

4C.   Provide sufficient supporting documentation or reimburse its Block Grant
      program from nonfederal funds, as appropriate, for the $4,941 in Block
      Grant funds used for unsupported costs cited in this finding.

4D.   Implement adequate procedures and controls for disbursing drawdowns of
      Block Grant funds within a reasonable number of days and maintaining
      sufficient supporting documentation to ensure that it appropriately
      disburses Block Grant funds for appropriate program expenses. The
      procedures and controls should include but not be limited to implementing
      adequate written policies and procedures to ensure that Block Grant funds
      are disbursed within five days of being drawn down and that the City
      obtains sufficient documentation for its Block Grant program expenses.




                               20
                          SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

           •   Applicable laws; HUD’s regulations at 24 CFR [Code of Federal Regulations] Parts
               85, 91, 92, and 570; HUD’s Office of Community Planning and Development
               notices; HUD’s “Building HOME: A Program Primer”; HUD’s HOMEfires;
               Office of Management and Budget Circulars A-87 and A-122; and HUD’s HOME
               and Block Grant agreements with the City.

           •   The City’s accounting records; annual audited financial statements; data from
               HUD’s System; HOME and Block Grant program, rehabilitation, and
               organization project and financing activity files; computerized databases; policies;
               procedures; codified ordinances; council meeting minutes; consolidated
               community development plan; annual action plans; and consolidated annual
               performance and evaluation reports.

We also interviewed the City’s employees, Community Housing Solutions’ employees, and
HUD staff.

Findings 1, 2, 3, and 4

Using data mining software, we statistically selected 95 of the City’s 713 drawdowns of HOME
and Block Grant funds in HUD’s System for the period January 1, 2006, through February 29,
2008. The 95 draw downs (15 for 14 HOME-funded rehabilitation projects, nine for HOME-
funded organization operating costs and five organization projects, seven for seven HOME-
funded financing activities, and 64 for Block Grant costs) were selected to determine whether the
City effectively administered its HOME and Block Grant programs and appropriately drew down
and disbursed HOME and Block Grant funds.

We performed our on-site audit work from April through October 2008 at the City’s offices
located at 13601 and 14340 Euclid Avenue, East Cleveland, Ohio. The audit covered the period
Jaunary 2006 through February 2008 and was expanded as determined necessary.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                21
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls

              We determined that the following internal controls were relevant to our audit
              objectives:

              •       Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

              •       Validity and reliability of data - Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

              •       Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              •       Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                               22
Significant Weakness

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

        •   The City lacked adequate procedures and controls to ensure that it complied with
            federal and/or its requirements in regard to providing HOME funds for eligible
            rehabilitation and organization projects and financing activities and drawing down
            and disbursing Block Grant funds for appropriate expenses (see findings 1, 2, 3,
            and 4).




                                             23
                                    APPENDIXES

Appendix A

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

          Recommendation                                             Funds to be put
              number           Ineligible 1/        Unsupported 2/   to better use 3/
                 1A                                      $333,618
                 1B                  $27,699
                 2A                   31,997
                 2B                   96,763
                 2C                                                          $24,223
                 3A                                       110,000
                 4A                                                           31,670
                 4B                    4,176
                 4C                                         4,941
                Totals              $160,635             $448,559            $55,893


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

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of 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 these instances, if the City implements our
     recommendations, it will cease using HOME funds for an improper project and use Block
     Grant funds for appropriate expenses.




                                               24
Appendix B

         AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation    Auditee Comments




Comments 1
 and 2

Comment 3


Comment 4




                          25
Ref to OIG Evaluation   Auditee Comments




Comments 1, 2,
 and 5

Comment 4




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 4



Comment 6




Comment 3


Comment 7




Comment 7




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 8


Comment 9




Comment 4




Comment 10




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 10




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 10




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 10




                         31
Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12



Comment 4




                         32
Ref to OIG Evaluation   Auditee Comments




Comment 12




Comment 13




                         33
Ref to OIG Evaluation   Auditee Comments




Comments 14,
 15, 16, 17, and
 18




Comments 14,
 15, and 16
Comment 17


Comments 16
 and 18




                         34
Ref to OIG Evaluation   Auditee Comments




Comment 19




Comment 6




                         35
Ref to OIG Evaluation   Auditee Comments




Comment 20

Comment 21




                         36
Ref to OIG Evaluation   Auditee Comments




Comment 22
Comment 23

Comment 23

Comment 22




Comment 23
Comment 23




                         37
                           OIG’s Evaluation of Auditee Comments

Comment 1   HUD’s regulations at 24 CFR 92.504(a) state that a 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 HOME program
            requirements and written agreements.

            HUD’s regulations at 24 CFR 92.551(c) state that corrective or remedial actions
            for a participating jurisdiction’s performance deficiency or a failure to meet a
            provision of 24 CFR Part 92 will be designed to prevent its continuation; mitigate,
            to the extent possible, its adverse effects or consequences; and prevent its
            recurrence. Section 92.551(c)(1) states that HUD may instruct the participating
            jurisdiction to submit and comply with proposals for action to correct, mitigate,
            and prevent a performance deficiency to include reimbursing its HOME
            investment trust fund local account in any amount not used in accordance with the
            requirements of 24 CFR Part 92.

Comment 2   We only recommended that the Director of HUD’s Columbus Office of
            Community Planning and Development require the City to reimburse its HOME
            program from nonfederal funds when it did not use HOME funds in accordance
            with HUD’s and/or its requirements. When the City lacked documentation to
            support its use of HOME funds, we recommended that the Director of HUD’s
            Columbus Office of Community Planning and Development require the City to
            provide supporting documentation or reimburse its HOME program from
            nonfederal funds, as appropriate.

Comment 3   Aiding in the prevention or elimination of slums and blight is one of the national
            objectives for the Block Grant program. It is not a factor in determining the
            eligibility of activities and/or costs under the HOME program.

Comment 4   HUD’s Columbus Office of Community Planning and Development’s monitoring
            reviews are generally much narrower in scope than our audits due to the limited
            time and resources it has to oversee hundreds of grantees receiving funding
            through the community planning and development programs. Further, the City
            entered into grant agreements with HUD stating that its HOME and Block Grant
            funds must comply with HUD’s regulations at 24 CFR Parts 92 and 570,
            respectively. Therefore, regardless of whether HUD’s Columbus Office of
            Community Planning and Development develops findings and/or concerns
            through its monitoring reviews, the City is responsible for ensuring that HOME
            and Block Grant funds are used in accordance with applicable requirements.

Comment 5   Contrary to HUD’s regulations and/or the City’s requirements, the City lacked
            documentation for 12 of the 14 rehabilitation projects to support that it used
            $333,618 in HOME funds for appropriate rehabilitation projects.




                                             38
Comment 6     We removed from the report that the City could not provide a lead-based paint
              disclosure form for the seven activities.

Comment 7     The City did not provide documentation to support that it selects households on a
              first-come first-serve basis or from an applicant waiting list.

Comment 8     HUD’s regulations at 24 CFR 92.251(a)(1) state that housing rehabilitated with
              HOME funds must meet all applicable local codes, rehabilitation standards, and
              ordinances at the time of project completion. Rehabilitation project number 990
              did not meet HUD’s property standards requirements after the housing
              rehabilitation assistance was completed in March 2004.

Comment 9     We revised the report to state that the Department’s former director stated that
              HOME funds were used for the rehabilitation project since the City decided to
              purchase and provide additional housing rehabilitation assistance for the property
              as an organization project to save the value of the investment in the property that
              had already been made.

Comment 10 The City’s updated policies and procedures should improve its procedures and
           controls over its rehabilitation projects if fully implemented.

Comment 11 We revised the report to state the City inappropriately disbursed $31,997 of the
           HOME funds ($27,824 for prepurchased construction materials and $4,173 for
           administrative fees) to Community Housing Solutions for three organization
           projects. The City’s mayor stated that the prepurchased construction materials
           had not been used and were in storage as of April 1, 2009.

              We also revised recommendation 2A to reflect these revisions.

Comment 12 The City inappropriately used $96,763 in HOME funds when it drew down and
           disbursed the funds to Community Housing Solutions to acquire and provide
           housing rehabilitation assistance for organization project number 838. As stated
           in finding 1 of this audit report, the City inappropriately used $27,699 in HOME
           funds from May 2003 through March 2004 for rehabilitation project number 990
           when it did not ensure that the rehabilitation project met HUD’s property
           standards requirements after the housing rehabilitation assistance was completed
           in March 2004. In August 2005, the City approved Community Housing
           Solutions to acquire the property from the homeowner and provide additional
           housing rehabilitation assistance under organization project number 838.
           However, the City’s agreement with Community Housing Solutions only allowed
           Community Housing Solutions to acquire, rehabilitate, and sell vacant single-
           family housing. As of November 2008, an additional $96,763 in HOME funds
           was used to acquire and provide additional housing rehabilitation assistance for
           the property as an organization project. Further, the City had committed an
           additional $24,223 in HOME funds in HUD’s System for the organization project
           as of February 2009.



                                               39
Comment 13 The City did not provide any policies and procedures regarding the prevention of
           future disbursements of HOME funds for prepurchased construction materials.

Comment 14 The scope of work on the contractor’s building permits for financing activity
           number 1178 was only for a garage, while the HOME funds were used to assist
           the home buyer with a downpayment and closing costs for a newly constructed
           home.

Comment 15 Section 1301.10.102.0 of the City’s codified ordinances states that a contractor’s
           building permit shall become invalid if the work authorized by the permit is not
           started within six months after the issuance of the permit. The contractor’s
           building permit for financing activity number 1237 was dated October 13, 2005.
           The home buyer’s application and the new construction sales agreement between
           the seller and the home buyer were dated December 22, 2006, and February 23,
           2007, respectively. The City’s file for financing activity number 1237 did not
           contain documentation to support when the construction started.

Comment 16 We revised the report to state that the City lacked documentation for four of the
           seven financing activities to support that it followed federal requirements and/or
           its codified ordinances when it provided $110,000 in HOME funds to assist home
           buyers with downpayments and closing costs. The files for four financing
           activities were missing the following documentation:

              ™ Three were missing the contractor’s certificate of tax registration,
              ™ Two were missing the contractor’s building permit, and
              ™ One was missing environmental review documentation.

              We also revised recommendation 3A to reflect these revisions.

Comment 17 Section 191.0706.01 of the City’s codified ordinances states that no person, firm,
           partnership, or corporation shall perform any construction work in the City unless
           it possess an uncancelled certificate of tax registration issued by the City’s Tax
           Department. The contractor’s certificate for tax registration expired on October
           24, 2006. The City’s files for financing activity numbers 1178, 1232, 1237, and
           1254 did not contain documentation to support that the construction started before
           October 24, 2006.

Comment 18 Financing activity number 1237 was not one of the financing activities included in
           the audit report as missing environmental review documentation. The City’s files
           for financing activity 1232 were missing environmental review documentation.

Comment 19 The City’s updated policies and procedures should improve its procedures and
           controls over its financing activities if fully implemented.

Comment 20 The City only provided a copy of the check. It did not provide a copy of the
           cancelled check.



                                              40
Comment 21 HUD lost $3,974 in interest on the $31,670 in Block Grant funds that the City
           failed to disburse. On May 8, 2009, we provided the City schedules showing the
           calculations for the more than $4,000 in interest HUD lost on the more than
           $183,000 in Block Grant funds that the City failed to disburse within five days.

Comment 22 The $3,946 in salaries was not sufficiently supported due to the City’s punch
           detail reports for employees not containing when the employees began and/or
           ended each workday of a pay period. The employees wrote in their total hours for
           the pay period on and signed their punch detail reports. However, the employees
           did not include the missing beginning and/or ending times on their punch detail
           reports. In addition, the City’s managers did not sign the employees’ amended
           punch detail reports.

Comment 23 We revised the report to state that the City lacked sufficient documentation to
           support that it used an additional $4,941 in Block Grant funds from May 2006
           through November 2007 for appropriate program expenses. The unsupported
           disbursements were for salaries, youth and heating and air conditioning services,
           and transportation.

              We removed from the table unsupported disbursements for public safety services
              and engineering services totaling $206 and $74, respectively.

              We also revised recommendation 4C to reflect these revisions.




                                             41
Appendix C

                  FEDERAL AND CITY REQUIREMENTS

Finding 1
HUD’s regulations at 24 CFR 85.36(b)(9) require grantees and subgrantees to maintain records
sufficient to detail the significant history of a procurement, such as the rationale for the method
of procurement and the basis for the contract price. Section 85.36(c)(1) states that all
procurement transactions will be conducted in a manner providing full and open competition.
Section 85.36(d)(1) states that when procurement by small purchases is used, price or rate
quotations will be obtained from an adequate number of qualified sources.

HUD’s regulations at 24 CFR 92.203(a)(2) state that a participating jurisdiction must determine
households’ annual income by examining source documentation evidencing households’ annual
income. Section 92.203(d)(1) states that a participating jurisdiction must calculate a household’s
annual income by projecting the prevailing rate of the household’s income at the time the
participating jurisdiction determines the household to be income eligible. Annual income shall
include income from all household members. Section 92.203(d)(2) states that a participating
jurisdiction must reexamine a household’s annual income at the time HOME assistance is
provided if more than six months has elapsed since the participating jurisdiction determined that
the household qualified as income eligible.

HUD’s regulations at 24 CFR 92.251(a)(1) state that housing rehabilitated with HOME funds
must meet all applicable local codes, rehabilitation standards, and ordinances at the time of
project completion.

HUD’s regulations at 24 CFR 92.254(a)(2)(iii) state that if a participating jurisdiction intends to
use HOME funds for projects, the participating jurisdiction may use the single-family mortgage
limits under section 203(b) of the National Housing Act, or it may determine 95 percent of the
median area purchase price for single-family housing in the jurisdiction. Section 92.254(b)
states that for rehabilitation not involving acquisition, a project qualifies as affordable housing
only if the estimated value of the property after rehabilitation does not exceed 95 percent of the
median purchase price for the area as described in 24 CFR 92.254(a)(2)(iii) and the housing is
the principal residence of an owner whose household qualifies as a low-income household at the
time HOME funds are committed to the project.

HUD’s regulations at 24 CFR 92.504(a) state that a 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 HOME program requirements and written agreements, and taking
appropriate action when performance problems arise. The use of subrecipients or contractors
does not relieve the participating jurisdiction of this responsibility. Section 92.504(b) states that
a participating jurisdiction must enter into a written agreement with a subrecipient before
disbursing any HOME funds to that subrecipient. Section 92.504(c)(2)(x) states that if the
subrecipient provides HOME funds to homeowners, the subrecipient must enter a written


                                                 42
agreement with the homeowners which meets the requirements of 24 CFR 92.504. Section
92.504(c)(5) states that when a participating jurisdiction provides assistance to a homeowner, the
participating jurisdiction must enter into a written agreement with the homeowner that conforms
to the requirements in 24 CFR 92.254(b) and specify the amount and form of HOME assistance,
rehabilitation work to be undertaken, date for completion, and property standards to be met.

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

•   Each household is income eligible in accordance with 24 CFR 92.203.
•   Each project meets the property standards at 24 CFR 92.251.
•   Each project’s estimated value after rehabilitation does not exceed 95 percent of the median
    purchase price for the area in accordance with 24 CFR 92.254(a)(2).
•   Each homeownership project meets the affordability requirements of 24 CFR 92.254.

Section 1 of City ordinance number 96-00, passed on June 20, 2000, states that the City’s council
approved and adopted the City’s housing rehabilitation program guidelines (guidelines) and
authorized and directed the City’s mayor and director of the Department to take such steps and
execute such instruments as shall be necessary to implement the City’s housing rehabilitation
program in accordance with the guidelines.

Section 2, paragraph A, of the City’s guidelines states that for projects, a maximum of $30,000 in
HOME funds per housing unit is available to provide households zero percent deferred,
unforgivable 10-year loans to correct code deficiencies. The after-rehabilitation value of the
property is not to exceed 95 percent of the median purchase price. If the household sells or
transfers the property or any legal and equitable interest in the property within the 10 years, the
household must reimburse the City for the full loan amount. Section 2, paragraph B, states that a
household’s income is reported on the household’s income tax filing for the most recent
available year. In addition, the household shall provide copies of its most recent Internal
Revenue Service W-2 and 1099 forms if applicable. Households must have lived in their homes
and owned the properties for a minimum of three years before the date of their applications. In
addition, households must be current with their mortgage payments and property taxes to be
considered eligible for housing rehabilitation assistance. Further, households must provide proof
of hazard insurance on their homes. Section 2, paragraph C, states that households will be
ranked according to specific criteria. First priority for waiting list placement will be given to
elderly households and households with small children. In the event of a similar ranking, the
date and time the application was submitted will be used to determine the order in which
assistance is provided.

Section 5 of the contracts between the contractors and the homeowners states that all changes in
the contract (material, labor, etc.) shall be approved by the homeowner, City, and contractor on a
change order document. Changes can only be made through a change order. Section 19 states
that a request for payment must be initiated by the contractor upon completion of all work or part
of the work. The contractor or homeowner must arrange for a City inspection of the work. At or


                                                43
before the time of the City’s inspection, the contractor and homeowner must sign an owner
satisfaction statement covering the work which has been completed. Payment for each work
item listed on the owner satisfaction statement, at the agreed-upon price for each item as
contained in exhibit A of the contract and any duly approved change orders, will be mailed
directly to the contractor, normally within 30 days after submission of the owner satisfaction
statement signed by all parties; satisfactory inspection of the work by the City; and receipt of all
required permits, lien waivers, municipal inspection reports, and any other documents reasonably
requested by the City. Section 20 states that the contractor’s invoice requesting final payment
must include all written manufacturers’ and suppliers’ guarantees and warranties covering
materials and equipment furnished under the contract.

Finding 2
HUD’s regulations at 24 CFR 85.20(b)(2) require grantees to maintain records that adequately
identify the source and application of funds provided for financially assisted activities.

HUD’s regulations at 24 CFR 85.22(b) state that allowable costs for state, local, or Indian tribal
governments will be determined in accordance with cost principles contained in Office of
Management and Budget Circular A-87.

HUD’s regulations at 24 CFR 92.502(c)(2) state that HOME funds drawn down from a
participating jurisdiction’s HOME trust fund treasury account must be expended for eligible
costs within 15 days.

HUD’s regulations at 24 CFR 92.504(a) state that a 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 HOME program requirements and written agreements, and taking
appropriate action when performance problems arise. The use of subrecipients or contractors
does not relieve the participating jurisdiction of this responsibility. Section 92.504(b) states that
a participating jurisdiction must enter into a written agreement with an entity before disbursing
any HOME funds to that entity.

HUD’s regulations at 24 CFR 92.505(a) state that the requirements of Office of Management and
Budget Circular A-87 and sections 85.20 and 85.22 of 24 CFR Part 85 are applicable to a
participating jurisdiction that is a government entity.

HUD’s regulations at 24 CFR 92.508(a) state that a participating jurisdiction must establish and
maintain sufficient records to enable HUD to determine whether the participating jurisdiction has
met the requirements of 24 CFR Part 92. The participating jurisdiction must maintain records
demonstrating compliance with the applicable uniform administrative requirements in24 CFR
92.505.

Attachment A, section C.1, of Office of Management and Budget Circular A-87, revised May 10,
2004, requires all costs to be necessary, reasonable, and adequately documented.




                                                 44
The City’s agreement with Community Housing Solutions, dated June 16, 2005, states that
Community Housing Solutions proposes to continue implementation of and the City agrees to
provide Community Housing Solutions financial assistance to support a housing program in the
City involving the acquisition, rehabilitation, and sale of vacant single-family housing to be
occupied by low- to moderate-income households.

Article I, section 1.01, of the City’s agreement with Community Housing Solutions states that
Community Housing Solutions shall use the HOME funds in accordance with HUD’s HOME
guidelines and requirements.

Article I, section 1.08, of the City’s agreement with Community Housing Solutions states that
Community Housing Solutions shall create a committee, which shall be responsible for
providing guidance and recommendations to Community Housing Solutions’ staff regarding the
acquisition of properties under the agreement, inspect properties acquired under the agreement at
any time before the transfer of the property to a qualified home buyer and advise Community
Housing Solutions’ staff regarding the scope and quality of the rehabilitation work, provide
recommendations to and assist Community Housing Solutions’ staff regarding the marketing of
properties acquired under the agreement, and assist in other areas regarding the implementation
of the agreement as Community Housing Solutions’ staff and the committee deem appropriate.

Finding 3
HUD’s regulations at 24 CFR 58.35(b) state that HUD has determined that activities to assist
homebuyers in the purchase of existing dwelling units or dwelling units under construction,
including closing costs and downpayment assistance, are categorically excluded activities that
would not alter any conditions that would require a review or compliance determination
regarding environmental impact. However, the recipient remains responsible for carrying out
any applicable requirements in 24 CFR 58.6.

HUD’s regulations at 24 CFR 58.6 state that the responsible entity remains responsible for
addressing the requirements of its environmental review record and meeting the requirements, as
applicable, regardless of whether the activity is exempt or categorically excluded.

HUD’s regulations at 24 CFR 85.20(b)(2) require grantees to maintain records that adequately
identify the source and application of funds provided for financially assisted activities.

HUD’s regulations at 24 CFR 85.22(b) state that allowable costs for state, local, or Indian tribal
governments will be determined in accordance with cost principles contained in Office of
Management and Budget Circular A-87.

HUD’s regulations at 24 CFR 92.251(a)(2) state that housing acquired with HOME funds must
meet all applicable state and local housing quality standards and code requirements.
HUD’s regulations at 24 CFR 92.352(b)(1) state that no funds may be committed to an activity
or project before the completion of the environmental review and related certification, except as
authorized by 24 CFR Part 58.




                                                45
HUD’s regulations at 24 CFR 92.504(a) state that a 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 HOME program requirements and written agreements, and taking
appropriate action when performance problems arise.

HUD’s regulations at 24 CFR 92.505(a) state that the requirements of Office of Management and
Budget Circular A-87 and sections 85.20 and 85.22 of 24 CFR Part 85 are applicable to a
participating jurisdiction that is a government entity.

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

•   Compliance with the environmental review requirements of 24 CFR Part 58 and 24 CFR
    92.352.
•   Compliance with the written agreements required by 24 CFR 92.504.
•   Compliance with the applicable uniform administrative requirements required by 24 CFR
    92.505.

Attachment A, section C.1, of Office of Management and Budget Circular A-87, revised May 10,
2004, requires that all costs be necessary, reasonable, and adequately documented.

Section 191.0706.01 of the City’s codified ordinances states that no person, firm, partnership, or
corporation shall perform any construction work in the City unless it possess an uncancelled
certificate of tax registration issued by the City’s Tax Department.

Section 1301.10.102.0 of the City’s codified ordinances states that no person, firm, or
corporation shall erect, construct, enlarge, alter, repair, relocate, or demolish a building or other
structure or cause the same to be done without first applying with the City’s chief enforcement
official and obtaining a building permit.

Section 1337.06 of the City’s codified ordinances states that no person, firm, or corporation
acting in the capacity of an escrow agent in any real estate transaction involving the sale of real
estate situated in the City shall transfer title or disburse any funds unless and until a close-out
certificate or conditional close-out certificate has been deposited in escrow.

Finding 4
HUD’s regulations at 24 CFR 85.20(b)(1) state that accurate, current, and complete disclosure of
the financial results of financially assisted activities must be made in accordance with the
financial reporting requirements of the grant. Section 85.20(b)(2) requires grantees to maintain
records that adequately identify the source and application of funds provided for financially
assisted activities. These records must contain information pertaining to grant or subgrant
awards and authorizations, obligation, unobligated balances, assets, liabilities, outlays or
expenditures, and income. Section 85.20(b)(6) states that accounting records must be supported


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by such source documentation as cancelled checks, paid bills, payrolls, time and attendance
records, and contract and subgrant award documents. Section 85.20(b)(7) states that when
advances are made to a grantee through a line of credit or electronic transfer of funds, the grantee
must make drawdowns as close as possible to the time of making disbursements.

HUD’s regulations at 24 CFR 85.21(c) state that grantees shall be paid in advance, provided the
grantees maintain or demonstrate the willingness and ability to maintain procedures to minimize
the time elapsing between the transfer and disbursement of the funds.

HUD’s regulations at 24 CFR 85.22(b) state that allowable costs for state, local, or Indian tribal
governments will be determined in accordance with cost principles contained in Office of
Management and Budget Circular A-87.

HUD’s regulations at 24 CFR 85.41(c)(3) state that when considered necessary and feasible by
the federal agency, grantees may be required to report the amount of cash advances in excess of
three days’ needs in the hands of their subgrantees or contractors and to provide short narrative
explanations of actions taken by the grantee to reduce the excess balance.

HUD’s regulations at 24 CFR 570.500(a)(2)(iii) state that interest earned on the investment of
amounts reimbursed to a recipient’s Block Grant program account before the use of the
reimbursed funds for eligible purposes must be remitted to HUD for transmittal to the U.S.
Treasury.

HUD’s regulations at 24 CFR 570.502(a) state that recipients that are governmental entities shall
comply with Office of Management and Budget Circular A-87. Section 570.502(a)(4) states that
recipients that are governmental entities shall comply with 24 CFR 85.20, except for section
85.20(a). Section 570.502(a)(15) states that recipients that are governmental entities shall
comply with 24 CFR 85.41, except for sections 85.41(a), (b), and (e). Section 570.502(a)(16)
states that recipients that are governmental entities shall comply with 24 CFR 85.42, except that
the retention period shall be four years.

HUD’s regulations at 24 CFR 570.506 state that recipients shall establish and maintain sufficient
records to enable HUD to determine whether the recipients have met the requirements of 24 CFR
Part 570. Section 570.506(a) states that recipients need to maintain records providing a full
description of each activity assisted with Block Grant funds; the amount of Block Grant funds
budgeted, obligated, and expended for the activities; and the provisions under which the
activities are eligible. Section 570.506(h) states that recipients need to maintain financial records
in accordance with the applicable requirements in section 570.502. Recipients shall maintain
evidence to support how Block Grant funds are expended. The documentation must include
invoices, schedules containing comparisons of budgeted amounts and actual expenditures,
construction progress schedules signed by appropriate parties, and/or other documentation
appropriate to the nature of the activity, as applicable.

Attachment A, section C.1, of Office of Management and Budget Circular A-87, revised May 10,
2004, requires all costs to be necessary, reasonable, and adequately documented.




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Attachment B, section 11.h(4), of Office of Management and Budget Circular A-87 states 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. Section
11.h(5) states that personnel activity reports or equivalent documentation must meet the
following standards: (1) reflect an after-the-fact distribution of the actual activity of each
employee, (2) account for the total activity for which each employee is compensated, (3) be
prepared at least monthly and coincide with one or more pay periods, and (4) be signed by the
employee.




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