oversight

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)

                                                             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.




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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




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                     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



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          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.




                                           8
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.




                               11
                        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.




                                               12
                              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.




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