Issue Date
February 11, 2009
Audit Report Number
2009-DE-0001
TO: Edward Atencio, Acting Director, Denver Office of Community Planning and
Development, 8AD
//signed//
FROM: Ronald J. Hosking, Regional Inspector General for Audit, Region 8AGA
SUBJECT: The Adams County, Colorado, Did Not Comply with HOME Investment
Partnerships Program Regulations
HIGHLIGHTS
What We Audited and Why
We audited Adams County’s HOME Investment Partnerships Program (HOME)
for the following reasons:
• The U.S. Department of Housing and Urban Development (HUD) rated
Adams County’s HOME program as high risk,
• HUD had not performed a comprehensive monitoring review of Adams
County’s HOME program since 2004,
• HUD documentation indicated that Adams County had capacity issues, and
• Adams County received more than $1 million in HOME grants from HUD in
both fiscal years 2007 and 2008.
The objectives of the audit were to determine whether Adams County
appropriately spent and accounted for HOME funds and maintained supporting
documentation for its matching contributions reported to HUD.
1
What We Found
Adams County inappropriately spent or could not support more than $2.1 million
in HOME funds. Specifically, it (1) used $72,500 in HOME funds for ineligible
community housing development organization operating grants, (2) used $25,000
in HOME funds without entering into a contract with the subrecipient, (3)
provided $10,000 in HOME funds to a subrecipient before the cost was incurred,
and (4) spent nearly $2 million in HOME funds without documentation to support
that the funds benefited eligible HOME recipients.
Adams County also could not support two of the last three matching contributions
that it reported to HUD. These contributions totaled more than $1.8 million.
What We Recommend
We recommend that HUD ensure that Adams County reimburses its HOME trust
fund from nonfederal funds for any ineligible HOME expenditures, provides
supporting documentation showing that the funds benefited eligible HOME
recipients, reduces the amount of HOME matching contributions recorded on its
books which are not supported or eligible, implements an acceptable internal
control structure by preparing and implementing effective policies and
procedures, and receives technical assistance from HUD to ensure compliance.
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 the discussion draft of the audit report to Adams County on
February 4, 2009, and requested its comments by February 19, 2009. Adams
County chose not to provide written comments but provided its oral response on
February 10, 2009. It concurred with the findings and recommendations and
stated it will work with HUD to address the recommendations.
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TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding 1: Adams County Inappropriately Spent or Could Not Support More 5
Than $2.1 Million in HOME Funds
Finding 2: Adams County Could Not Support HOME Matching Contributions 9
That It Reported to HUD
Scope and Methodology 12
Internal Controls 13
Appendix
Schedule of Questioned Costs 14
3
BACKGROUND AND OBJECTIVES
The National Affordable Housing Act of 1990 created the U.S. Department of Housing and
Urban Development’s (HUD) HOME Investment Partnerships Program (HOME). Adams
County’s HOME program is administered by its Office of Community Development (Adams
County). Its offices are located in both Brighton and Westminster, Colorado. HUD has
allocated more than $3 million in HOME funds to Adams County over the past three grant years.
Grant year Grant amount
2006 $ 955,770
2007 $ 1,091,343
2008 $ 1,038,321
Total $ 3,085,434
The intent of Adams County’s HOME program includes providing decent affordable housing to
lower income households, expanding the capacity of nonprofit housing providers, strengthening
the ability of state and local governments to provide affordable housing, and leveraging private-
partner participation. Its mission is to support and build the capacity of citizen groups in Adams
County so that they may enhance the economic, social, environmental, and cultural well-being of
their communities. Adams County’s HOME program funds the following programs:
• Community housing development organizations (development organization). A development
organization is a private nonprofit, community-based service organization that has obtained
or intends to obtain staff with the capacity to develop affordable housing for the community
it serves.
• Tenant-based rental assistance (rental assistance). Rental assistance is a rental subsidy that
can be used to help individual households afford housing costs such as rent, utility costs,
security deposits, and utility deposits.
• Housing rehabilitation. Housing rehabilitation allows HOME funds to be used to assist
existing homeowners with the repair, rehabilitation, or reconstruction of owner-occupied
units.
• Home buyer program. This program helps home buyers purchase affordable homes by
providing downpayment and closing cost assistance.
• Large HOME projects. This program relates to multifamily projects in which HOME funds
are used to assist new construction, multifamily rehabilitation, and other low- to very low-
income initiatives throughout Adams County.
The objectives of our review were to determine whether Adams County appropriately spent and
accounted for HOME funds and maintained supporting documentation for its matching
contributions reported to HUD.
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RESULTS OF AUDIT
Finding 1: Adams County Inappropriately Spent or Could Not Support
More Than $2.1 Million in HOME Funds
Adams County inappropriately spent or could not support more than $2.1 million in HOME
funds. This condition occurred because Adams County lacked the internal controls needed to
effectively manage the use of its HOME funds. As a result, the HOME funds inappropriately
spent by Adams County were not available to benefit low- and very low-income families. Also,
HUD and Adams County lacked assurance that HOME funds were used for eligible HOME
activities and that the intended program benefits were realized.
Adams County Inappropriately
Spent HOME Funds
Adams County inappropriately spent or could not support more than $2.1 million in
HOME funds. Specifically, it (1) used $72,500 in HOME funds for ineligible
development organization operating grants, (2) used $25,000 in HOME funds
without entering into a contract with the subrecipient, (3) provided $10,000 in
HOME funds to a subrecipient before the cost was incurred, and (4) spent nearly $2
million in HOME funds without documentation to support that the funds benefited
eligible HOME recipients.
Development Organization
Operating Grants Were
Ineligible
Adams County used $72,500 in HOME funds for ineligible development
organization operating grants. According to 24 CFR [Code of Federal Regulations]
92.300(e), if Adams County provides operating grants to a development
organization, it must enter into a written agreement with the development
organization, which states that the development organization is expected to receive
set-aside funds within 24 months of receiving the funds for operating expenses. The
agreement must also specify the terms and conditions upon which this expectation is
based. Also, in keeping with 24 CFR 92.208, Adams County may not use HOME
funds to pay operating expenses incurred by a development organization acting as a
subrecipient under the HOME program.
Adams County awarded operating grants to two separate development organizations
during our audit period. However, it did not enter into written agreements with the
development organizations to provide set-aside funds within 24 months of receiving
the operating expenses. Adams County provided HOME entitlement funds to each
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of the development organizations within 24 months; however, one of the
development organizations used the HOME funds for rental assistance, which does
not qualify as an eligible development organization activity. Therefore, the
development organization acted as a subrecipient. The second development
organization used its HOME funds for owner-occupied rehabilitation, which is an
eligible development organization activity; however, Adams County treated it as a
subrecipient activity.
HOME Funds Were Spent
without a Contract
Adams County used $25,000 in HOME funds without entering into a contract with
the subrecipient. According to 24 CFR 92.504(b), Adams County must enter into a
written agreement with an entity before disbursing any HOME funds to that entity.
Adams County disbursed $60,000 in HOME funds to a subrecipient when the
contract between Adams County and the subrecipient only included $35,000 in
HOME funds. Therefore, the $25,000 spent without a contract was an ineligible
HOME expenditure.
HOME Funds Were Drawn
Before Expenses Were Incurred
Adams County provided $10,000 in HOME funds to a subrecipient before the cost
was incurred. HOME regulations at 24 CFR 92.502(c)(2) state that HOME funds
must be spent for eligible costs within 15 days of disbursing those funds. Also, any
interest earned after the 15 days must be remitted promptly to HUD. Adams County
provided $10,000 to a subrecipient in December 2002; however, the first use of the
funds did not occur until June 2003. Also, the subrecipient spent less than half of
the $10,000 before January 1, 2007. Adams County had no records showing that it
tracked the interest earned on the $10,000 or that it remitted any interest earned to
HUD.
Supporting Documentation Was
Incomplete
Adams County spent nearly $2 million in HOME funds without documentation to
support that the funds benefited eligible HOME recipients. According to HOME
regulations at 24 CFR 92.504, Adams County is responsible for ensuring that
HOME funds are used in accordance with HOME requirements and written
agreements. Those requirements state the HOME funds must be used for families
that are eligible low-income families and the housing must remain affordable for a
specified period. The use of subrecipients or contractors does not relieve Adams
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County of this responsibility. Adams County must review the performance of each
contractor and subrecipient at least annually.
Adams County spent nearly $2 million in HOME funds on activities administered by
either a subrecipient or a development organization during our review period. We
reviewed all 18 HOME activities. For all 18 activities, Adams County was not able
to provide supporting documentation to show that the HOME funds spent benefited
eligible HOME recipients. Also, Adams County could not provide documentation
to support that it reviewed the performance of its subrecipients or development
organizations at least annually.
Adams County Lacked Internal
Controls
Adams County lacked the internal controls needed to effectively manage the use
of its HOME funds. Specifically, it (1) lacked detailed written policies and
procedures regarding the administration of HOME funds awarded to subrecipients
and/or development organizations, (2) assigned nearly all of the roles and
responsibilities related to the administration of HOME funds awarded to
subrecipients and/or development organizations to its program manager, and (3)
did not ensure that the program was consistently administered by knowledgeable
and capable management staff. During a 30-month period, the program manager
position was vacant for 10 months. For the remaining 20 months, Adams County
had three separate program managers, and the position became vacant during our
audit.
Intended Program Benefits
Might Not Be Realized
Because Adams County lacked the internal controls needed to effectively manage
the use of its HOME funds, the HOME funds it inappropriately spent were not
available to benefit low- and very low-income families. Also, HUD and Adams
County lacked assurance that HOME funds were used for eligible HOME
activities and that the intended program benefits were realized.
Conclusion
The HOME funds inappropriately spent by Adams County were not available to
benefit low- and very low-income families. This condition occurred because
Adams County lacked the internal controls needed to effectively manage the use
of its HOME funds. Consequently, it needs to reimburse its HOME trust fund for
any ineligible HOME activities and provide supporting documentation to HUD
showing that the HOME funds benefited eligible HOME recipients. In addition, it
7
should prepare and implement effective written policies and procedures to ensure
that it administers its HOME program in compliance with HOME regulations.
Recommendations
We recommend that the Acting Director of the HUD Denver Office of Community
Planning and Development
1A. Ensure that Adams County reimburses its HOME trust fund from nonfederal
funds for the $107,500 in ineligible HOME expenditures.
1B. Ensure that Adams County recaptures any interest earned on the $10,000 in
HOME funds provided before costs were incurred and deposits those funds
into its HOME trust fund.
1C. Require Adams County to provide supporting documentation for the
$1,996,459 in unsupported HOME funds, showing that the funds benefited
eligible HOME recipients.
1D. Ensure that Adams County reimburses its HOME trust fund from nonfederal
funds for any portion of the $1,996,459 which it cannot support as being
eligible.
1E. Ensure that Adams County management and staff fully implement an
acceptable internal control structure by preparing and implementing effective
written policies and procedures for the administration of the HOME program
in compliance with HOME regulations.
1F. Provide technical assistance to Adams County to ensure that its management
and staff comply with HOME regulations.
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Finding 2: Adams County Could Not Support HOME Matching
Contributions That It Reported to HUD
Adams County could not support more than $1.8 million in HOME matching contributions that it
reported to HUD. This condition occurred because Adams County did not have written policies
and procedures to ensure that it obtained adequate documentation for its HOME matching
contributions. As a result, it could be depriving its low- and very low-income families of needed
benefits.
HOME Matching Contributions
Were Unsupported
Adams County could not support more than $1.8 million in HOME matching
contributions that it reported to HUD. According to 24 CFR 92.218, Adams County
is required to make contributions to housing that qualifies as affordable housing
under the HOME program. These contributions must equal not less than 25 percent
of the HOME funds drawn by Adams County during each fiscal year. For a
matching contribution to be eligible under HOME regulations, at least 50 percent of
the housing must meet HOME’s affordable housing requirements. Section 92.508
requires Adams County to maintain records demonstrating compliance with the
matching requirements. Adams County could not provide supporting
documentation for two of the last three matching contributions that it reported to
HUD. The two unsupported matching contributions totaled more than $1.8 million.
Adams County reported the first of the two unsupported matching contributions as a
$1.15 million land donation. The land was sold by a private owner to Adams
County’s subrecipient to develop a mixed-use community, which included low-
income rental units. A hand-written note on the matching report stated that the value
of the land was $2.25 million and the land was sold for $1.1 million, for a donation
of $1.15 million. However, Adams County did not have an appraisal of the land to
support that the value of the land was $2.25 million or to show what portion of the
donated land was used in developing the low-income housing. In addition, Adams
County could not provide a legal document showing the purchase price of the land
as $1.1 million. Without the appraisal or legal purchase document, Adams County
could not support that at least 50 percent of the housing developed on the land met
HOME’s affordable housing requirements.
Adams County reported the second of the two unsupported matching contributions
as $721,000 in waived fees. It provided documentation showing that the City of
Brighton preliminarily approved the waiver of approximately $721,000 in
development fees related to the construction of low-income housing developed by
Adams County’s subrecipient in the Brighton. However, Adams County could not
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provide documentation to support that the City of Brighton had waived the
development fees.
Written Policies and
Procedures Were Inadequate
Adams County did not have adequate written policies and procedures to ensure
that it obtained adequate documentation for its HOME matching contributions. It
provided a 12-page policies and procedures manual for its administration of
HOME projects carried out by its subrecipients. The manual included a brief
explanation of the 25 percent matching contribution requirement with a list of
eligible types of matching contributions. However, the manual did not address (1)
who was responsible for ensuring that the matching contribution requirement was
met, (2) the types of documentation needed to support the matching contributions
reported to HUD, or (3) how Adams County would monitor the matching
contributions to ensure that at least 50 percent of the housing met HOME’s
affordable housing requirements.
Low-Income Families Might
Not Receive Needed Benefits
Based on the lack of documentation, Adams County did not know whether its
balance for matching contributions was accurate, so it could be in noncompliance
with HUD regulations. If any portion of the matching contributions that Adams
County reported to HUD is ineligible and Adams County does not remove those
contributions from its books, it would deprive its low- and very low-income
families by not providing the required amount of HOME matching contributions.
Adams County needs to provide supporting documentation for the more than $1.8
million in unsupported HOME matching contributions that it reported to HUD to
ensure that all of its matching contributions are eligible HOME matching
contributions. In addition, it should prepare and implement policies and
procedures to ensure that its matching contributions comply with HOME
regulations.
Recommendations
We recommend that the Acting Director of the HUD Denver Office of Community
Planning and Development
2A. Require Adams County to provide supporting documentation for the
$1,871,000 in unsupported HOME matching contributions.
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2B. Ensure that Adams County reduces the amount of HOME matching
contributions recorded on its books for any portion of the $1,871,000 which
it cannot support or that HUD determines is ineligible.
2C. Ensure that Adams County management prepares and implements effective
written policies and procedures to ensure that its matching contributions
comply with HOME regulations and that Adams County maintains the
required supporting documentation.
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SCOPE AND METHODOLOGY
Our review covered the period March 1, 2006, to September 30, 2008. We expanded the period as
needed to evaluate historical and current information pertinent to our review. Our review was
limited to HOME program activities.
To achieve our objectives, we reviewed HUD and Adams County criteria and contracts, met with
HUD and Adams County staff, and reviewed HUD and Adams County records.
We used Adams County HOME activity reports obtained from HUD’s Integrated Disbursement
and Information System to determine that Adams County spent funds on 18 HOME activities
administered by subrecipients during our review period. We reviewed 100 percent of the HOME
activity funds provided to and administered by subrecipients.
For the 18 HOME activities administered by subrecipients, we reviewed each project file for
pertinent documentation such as contract applications, contract agreements, contract approval,
HOME fund drawdowns, HOME project monitoring performed by Adams County, and project
closeout.
We performed our audit work on site at Adams County’s Westminster office located at 12200
Pecos Street, Westminster, Colorado, and at Adams County’s Brighton office located at 450
South 4th Avenue, Brighton, Colorado, from October to December 2008. We briefed Adams
County management on the results of the review on November 6, November 10, and December
11, 2008. We also briefed HUD’s Denver Office of Community Planning and Development
management on October 27 and December 2, 2008.
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.
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INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:
• Program operations,
• Relevance and reliability of information,
• Compliance with applicable laws and regulations, and
• Safeguarding of assets and resources.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objectives:
• Controls over the administration of HOME funds disbursed to subrecipients.
• Controls over identifying, recording, and documenting HOME matching
contributions.
We assessed the relevant controls identified above.
A significant weakness exists if management controls do not provide reasonable
assurance that the process for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
Significant Weaknesses
Based on our review, we believe that the following items are significant weaknesses:
• Adams County did not have adequate controls to ensure that the administration
of its HOME funds disbursed to subrecipients complied with HOME regulations
(see finding 1).
• Adams County did not have adequate controls to ensure that its matching
contributions reported to HUD complied with HOME regulations (see finding
2).
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APPENDIX
SCHEDULE OF QUESTIONED COSTS
Recommendation
Number Ineligible 1/ Unsupported 2/
1A $107,500
1C $1,996,459
2A $1,871,000
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
14
The Adams County, Colorado, Office of Community and Development Did Not Comply with HOME Investment Partnerships Program Regulations
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-02-11.
Below is a raw (and likely hideous) rendition of the original report. (PDF)