oversight

Review of American Recovery and Reinvestment Act Formula Allocations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-25.

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

                                                                 Issue Date
                                                                          September 25, 2009
                                                                 Audit Report Number
                                                                              2009-FO-0006




TO:         Anthony P. Scardino, Acting Deputy Chief Financial Officer, F


FROM:       Thomas R. McEnanly, Director, Financial Audits Division, GAF


SUBJECT: Review of American Recovery and Reinvestment Act Formula Allocations


                                    HIGHLIGHTS

 What We Audited and Why

             We performed an audit of the U.S. Department of Housing and Urban
             Development’s (HUD) formula-based allocations related to five programs funded
             in the American Recovery and Reinvestment Act of 2009 (Recovery Act). We
             reviewed all five HUD programs that had funds which were allocated based on a
             statutory formula. The five programs are the (1) Public Housing Capital Fund, (2)
             Native American Housing Block Grant program, (3) Community Development
             Fund, (4) HOME Investment Partnerships Program, and (5) Homelessness
             Prevention Fund.

             We performed the audit as part of the Recovery Act mandate that “every taxpayer
             dollar spent on economic recovery be subject to unprecedented levels of
             transparency and accountability.” Our objective was to determine whether HUD
             complied with the Recovery Act in calculating and allocating the funds to HUD
             recipients.
What We Found


           HUD allocated the $7.96 Billion in formula-based grant funds in accordance with
           the requirements of the Recovery Act for each of the five programs and properly
           calculated the amounts to be distributed to HUD recipients.

What We Recommend


           There are no recommendations made in this report.

Auditee’s Response


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




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                           TABLE OF CONTENTS

Background and Objective                                                       4

Results of Audit
      Finding 1: Formula Based-Grant Funds Were Allocated in Accordance with   6
                 Recovery Act Requirements

Scope and Methodology                                                          10

Internal Controls                                                              11

Appendix
   A. Auditee Comments and OIG’s Evaluation                                    12




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                       BACKGROUND AND OBJECTIVE

Public Law 111-005, the American Recovery and Reinvestment Act of 2009 (Recovery Act),
was signed into law on February 17, 2009, and made supplemental appropriations for job
preservation and creation, infrastructure investment, energy efficiency and science, assistance to
the unemployed, and state and local fiscal stabilization for the fiscal year ending September 30,
2009. The Recovery Act’s purposes and principles are (1) to preserve and create jobs and
promote economic recovery; (2) to assist those most impacted by the recession; (3) to provide
investments needed to increase economic efficiency by spurring technological advances in
science and health; (4) to invest in transportation, environmental protection, and other
infrastructure that will provide long-term economic benefits; and (5) to stabilize state and local
government budgets in order to minimize and avoid reductions in essential services and
counterproductive state and local tax increases. The general principles concerning use of funds
are as follows: “The President and the heads of federal departments and agencies shall manage
and expend the funds made available in this Act so as to achieve the purposes specified in
subsection (a), including commencing expenditures and activities as quickly as possible
consistent with prudent management.”

The Recovery Act requires that the appropriations it provided to five of the U.S. Department of
Housing and Urban Development (HUD) programs be allocated using formulas. The formula
funded appropriations totaled $7.96 Billion and the five programs are the (1) Public Housing
Capital Fund, (2) Native American Housing Block Grant (NAHBG) program, (3) Community
Development Fund, (4) HOME Investment Partnerships Program (HOME), and (5)
Homelessness Prevention Fund (HPF). Below is a brief description of the programs and the
components used in the allocation formulas.

Public Housing Capital Fund
The Public Housing Capital Fund provides funds for the capital and management activities of
public housing agencies as authorized under Section 9 of the U.S. Housing Act of 1937. These
activities include the modernization and development of public housing. Funds from this
program cannot be used for operations or rental assistance. The formula has two main
components, modernization need and accrual need, which are computed based on data from the
Public and Indian Housing Information Center.

Native American Housing Block Grants
The NAHBG program funds new construction, acquisition, rehabilitation, and infrastructure
development activities. Funds can also be used to leverage private-sector financing for new
construction, renovation, and energy retrofit investments. The current assisted stock component
is based on data gathered from the tribes via formula response forms, while the need component
is calculated using data from the Decennial Census, updated for births and deaths, from the U.S.
Census Bureau. The NAHBG formula consists of two main components, current assisted stock
and need.




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Community Development Fund (also known as Community Development Block Grants
(CDBG))
The CDBG program provides funds to local governments for a wide range of activities intended
to create suitable living environments, provide decent affordable housing, and create economic
opportunities, primarily for people of low and moderate income. The funding formula for the
CDBG program is based on several measures of community need: poverty, population, housing
overcrowding, age of housing, and growth lag. The data behind these measures are obtained
from the U.S. Census Bureau.

HOME Investment Partnerships Program (HOME) (also known as Tax Credit Assistance
Program (TCAP))
TCAP provides grants for capital investments in low-income housing tax credit projects. Funds
are provided to the housing credit agencies in each state by a formula-based allocation. The
housing credit agencies in each state will distribute these funds competitively according to their
qualified allocation plan.

Homelessness Prevention Fund (also known as Emergency Shelter Grants)
HPF provides financial assistance and services to prevent individuals and families from
becoming homeless and help those who are experiencing homelessness to be quickly rehoused
and stabilized. The program is intended to target individuals and families who would be
homeless but for this assistance. The funds provide for a variety of assistance, including short-
term or medium-term rental assistance, and housing relocation and stabilization services,
including mediation, credit counseling, security or utility deposits, utility payments, moving cost
assistance, and case management.

Our objective was to determine whether HUD complied with the Recovery Act in calculating
and allocating the funds to HUD recipients.




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                                RESULTS OF AUDIT

Finding 1: Formula-Based Grant Funds Were Allocated in Accordance
with Recovery Act Requirements

We verified that the funds were allocated in accordance with the requirements of the Recovery
Act for each of the five programs by performing recalculations of the formulas and using ratio
analysis based on the fiscal year 2008 formula allocations. HUD complied with the Recovery
Act in calculating and allocating the funds to HUD recipients. Below are the summary results of
our review for each of the programs.


 Public Housing Capital Fund


              Public Housing Capital Fund formula grant allocations were made in accordance
              with regulations at 24 CFR (Code of Federal Regulations) 905.10 as required by
              the Recovery Act. The Public Housing Capital Fund received $4 billion from the
              Recovery Act, which is available until September 30, 2011. Of this amount, $3
              billion is required to be distributed by the same formula used for amounts made
              available in fiscal year 2008 under the Public Housing Capital Fund program.
              The HUD Secretary was given the authority to exclude any public housing
              agencies that were designated as troubled or chose not to accept such funding
              from the allocation but did not exercise this power. Because the number of public
              housing agencies and the formula used to calculate the Recovery Act allocations
              were the same as those for the fiscal year 2008 calculations, we used a ratio of the
              total Recovery Act funds allocated to the total fiscal year 2008 funds allocated to
              calculate the expected Recovery Act allocations. No exceptions were noted
              during our review.


 Native American Housing Block
 Grants

              NAHBG allocations were made in accordance with regulations at 24 CFR Part
              1000. Subpart D provides the specific guidance for calculating the formula, and
              appendixes A and B provide additional details to allocate the funds in accordance
              with the Recovery Act requirements. No significant discrepancies were noted in
              our review. The NAHBG program received $510 million from the Recovery Act,
              which is available until September 30, 2011. Of this funding, $255 million is
              required to be distributed by the same funding formula used for the NAHBG
              program in fiscal year 2008.




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          The Office of Public and Indian Housing, Office of Native American Programs
          (ONAP), administers the NAHBG program and performed the allocation of the
          Recovery Act appropriations. The NAHBG formula consists of two main
          components, current assisted stock and need. We determined that the calculation
          of the current assisted stock component did not take the amount of available
          funding into consideration. Instead, it was based on the number of assisted
          housing units a tribe operates. The Recovery Act provided $255 million for
          allocation under the NAHBG formula; however, this amount was not enough to
          cover the current assisted stock component of the NAHBG formula, which was
          calculated at $300 million for fiscal year 2008. To ensure that each tribe would
          receive an allocation of Recovery Act funds and comply with the requirement of
          allocating the Recovery Act funds according to the fiscal year 2008 formula,
          ONAP allocated the Recovery Act funds based upon a proportion of the funds
          each tribe received in fiscal year 2008. We used ONAP’s methodology to
          recalculate the Recovery Act allocations for each tribe and compared them to
          ONAP’s calculations. No exceptions were noted in our review.

Community Development Fund

          Recovery Act funds for the CDBG program were allocated in accordance with
          Recovery Act requirements as outlined in 42 U.S.C. (United States Code) 5306 to
          grantees that received funding in fiscal year 2008. The CDBG program received
          $1 billion from the Recovery Act, which is available until September 30, 2010.
          Provisions of 42 U.S.C. 5306 require that after all required reservations and set-
          asides are made, 70 percent of available funds be distributed to entitlement areas
          (local government units) and 30 percent to nonentitlements (states).

          We verified that the funds remaining after reservations made under provisions of
          the Recovery Act and for insular areas were split 70/30 between entitlements and
          nonentitlements. No exceptions were noted. In addition to using the CDBG
          formula to calculate the Recovery Act allocations for a sample of localities and
          comparing them to the actual Recovery Act allocations, we used a proportion of
          the total Recovery Act funds to total fiscal year 2008 funds allocated to the
          entitlements to verify 100 percent of the CDBG Recovery Act entitlement
          allocations. No exceptions were noted in the review of entitlement allocations.
          To verify the allocations to nonentitlements, we used a proportion of the total
          Recovery Act funds to the total fiscal year 2008 funds allocated to calculate the
          expected Recovery Act allocations. The expected allocations were then compared
          to the actual Recovery Act allocations. No exceptions were noted in the review of
          the nonentitlement allocations.




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Tax Credit Assistance Program

           Funds for HOME/TCAP were allocated to the states based on the percentage of
           HOME funds each state received in fiscal year 2008. The “state” includes the state
           and all participating local governments within the state. The Recovery Act provided
           $2.25 billion for TCAP, which is available until September 30, 2011. The funds are
           to be distributed to state housing credit agencies, as defined by section 42(h) of the
           Internal Revenue Code which regulates low-income housing tax credits. TCAP
           funds are required to be allocated to each state based on the percentage of HOME
           funds apportioned to the state and the participating jurisdictions therein for fiscal
           year 2008.

           We calculated the percentage of HOME funds each state received in fiscal year
           2008 and used the results to calculate the allocation of Recovery Act funds for
           each state. The results of our calculations were then compared to the amounts
           HUD allocated to each state. No exceptions were noted in our review.


Homelessness Prevention Fund


           HPF received $1.5 billion from the Recovery Act, which is available until
           September 30, 2011. HPF Recovery Act funds were allocated to eligible grantees
           pursuant to the requirements of the McKinney-Vento Homeless Assistance Act in
           accordance with Recovery Act requirements. The McKinney-Vento Homeless
           Assistance Act requires appropriations for HPF to be allocated on a needs basis.
           The Office of Community Planning and Development uses the CDBG formula,
           which uses several measures of need obtained from the U.S. Census Bureau to
           allocate the appropriations among grantees eligible for the HPF program. Typically
           the HPF program receives a much smaller appropriation than CDBG. Therefore, 42
           U.S.C. 11373(b) requires that if any grantee would receive a grant of less than .05
           percent of the amounts appropriated for the HPF program, that grant shall be
           reallocated to the state. However, the Recovery Act gave the HUD Secretary the
           authority to set a minimum grant amount, which was set at $500,000 for the
           Recovery Act funds. Therefore, any Recovery Act grants under $500,000 will be
           reallocated to the state in which the grantee resides.

           For entitlement localities, we calculated the ratio of total Recovery Act funds to the
           total fiscal year 2008 CDBG funds allocated (to the localities that received Recovery
           Act funds). This ratio was then multiplied by the fiscal year 2008 allocations to
           determine the expected Recovery Act allocations. For states, we used the ratio of
           total Recovery Act funds to the total fiscal year 2008 CDBG funds to calculate
           preliminary Recovery Act allocations. Amounts under $500,000 were added to the
           preliminary allocation for the appropriate state to determine the expected Recovery
           Act allocation. There were no discrepancies between our expected and the actual



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             Recovery Act allocations for either the entitlement localities or the states. We also
             verified that each insular area received the same proportion of the total funds set
             aside for it from the Recovery Act appropriations as from the fiscal year 2008
             appropriations. No exceptions were noted in our review.


Conclusion


             We verified that HUD allocated its formula-based grant funds in accordance with
             the requirements of the Recovery Act for each of the five programs by performing
             recalculations of the formulas and using ratio analysis based on the fiscal year
             2008 formula allocations. HUD complied with the Recovery Act in calculating
             and allocating the funds to HUD recipients.

Recommendations



             Based on the results of the review, we made no recommendations.




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                        SCOPE AND METHODOLOGY

Our audit of the Recovery Act formula allocations generally covered the period February 17
through August 14, 2009, Our audit was performed in Washington, D.C. at HUD Headquarters.

We reviewed formula allocations made by HUD under the five different programs based on the
Recovery Act, enacted on February 17, 2009. We reviewed program database files for each
formula, interviewed responsible HUD officials, and obtained supporting documents from HUD
program staff. We also reviewed applicable laws, regulations, and other requirements relating to
the Recovery Act and our objective.

During our review, we verified data factors and supporting documentation used in the formula
calculations, and we recalculated the formulas for the five programs that had funds allocated
based on a formula. We also interviewed responsible HUD officials regarding their procedures
for the calculation of the formulas.

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




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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:

                      Computational accuracy of allocation methodology.
                      Compliance with laws and regulations (Recovery Act).

              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 did not identify any significant weaknesses in HUD’s
              allocation of its Recovery Act formula based grant allocations.




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                        APPENDIXES

Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation      Auditee Comments




Comment 1




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                       OIG Evaluation of Auditee Comments

Comment 1   HUD’s management did not make any comments on our report.




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