Issue Date June 9, 2009 Audit Report Number 2009-FW-1009 TO: Katie S. Worsham Director, Community Planning and Development Office, 6AD FROM: Gerald R. Kirkland Regional Inspector General for Audit, Fort Worth Region, 6AGA SUBJECT: Tarrant County Generally Administered Its Home Investment Partnerships Program Grants in Accordance with Requirements, Fort Worth, Texas HIGHLIGHTS What We Audited and Why We selected the Tarrant County Community Development Division (Tarrant County) HOME Investment Partnerships Program (HOME) and Neighborhood Stabilization Program (NSP) for review because the U. S. Department of Housing and Urban Development’s (HUD) management expressed concerns about Tarrant County’s HOME program. The objectives were to determine Tarrant County’s (1) compliance with HOME regulatory requirements, (2) eligibility of HOME activities and administrative costs, (3) oversight and performance of subrecipients and community housing development organizations (CHDO), and the NSP plan’s feasibility. What We Found Tarrant County generally administered its HOME grants in accordance with applicable program requirements. However, a Tarrant County CHDO, Development Corporation of Tarrant County (Corporation), lacked capacity. Also, Tarrant County did not monitor its CHDOs in 2008 and expended $2,041 in HOME funds on ineligible and unsupported costs. What We Recommend We recommend that the Director, Community Planning and Development, Fort Worth Office (1) deny awarding additional grants to the Corporation for single- family purchase and rehabilitation activities until it demonstrates capacity to properly administer the activities, (2) reiterate to Tarrant County its responsibilities regarding monitoring all of its subrecipients, and (3) require Tarrant County to reimburse its HOME program $2,041 from nonfederal funds for ineligible and unsupported HOME funds expended. 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 a draft on May 14, 2009, and held an exit conference on May 26, 2009. Tarrant County provided written comments on June 2, 2009. The complete text of the auditee’s response, along with our evaluation of that response, can be found in appendix B of this report. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding: Tarrant County Generally Administered Its HOME Grants in 5 Accordance with Requirements Scope and Methodology 8 Internal Controls 9 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 10 B. Auditee Comments and OIG’s Evaluation 11 3 BACKGROUND AND OBJECTIVES Designated by Tarrant County Commissioners Court, Tarrant County Community Development Division (Tarrant County) as lead agency is responsible for overseeing the HOME Investment Partnerships Program (HOME) grants. The mission of Tarrant County is to provide decent housing and a suitable living environment and expand economic opportunities for low- and moderate-income persons residing in the urban county. Tarrant County provides services to the unincorporated area of Tarrant County and 29 cities within the county. It does not provide services to the cities of Fort Worth, Arlington, or Grand Prairie, which receive separate funds allocations from HUD. For fiscal years 2007 and 2008, Tarrant County received more than $2.4 million in HOME funds. On March 20, 2009, pursuant to the Housing and Economic Recovery Act of 2008, the U. S. Department of Housing and Urban Development (HUD) awarded Tarrant County a Neighborhood Stabilization Program (NSP) grant totaling more than $3.2 million. At the time of our review, Tarrant County had only performed preaward activities on this grant. We performed only cursory work on the NSP grant. Our objectives were to determine Tarrant County’s (1) compliance with HOME regulatory requirements, (2) eligibility of HOME activities and administrative costs, (3) oversight and performance of subrecipients and community housing development organizations (CHDO), and (4) the NSP plan’s feasibility. 4 RESULTS OF AUDIT Finding: Tarrant County Generally Administered Its HOME Grants in Accordance with Requirements Tarrant County generally administered its HOME grants in accordance with applicable program requirements. However, a Tarrant County CHDO lacked capacity. Also, Tarrant County did not monitor its CHDOs in 2008 and expended $2,041 in HOME funds on ineligible costs. This condition occurred because Tarrant County did not adequately monitor the CHDO or ensure that it developed capacity. As a result, Tarrant County cannot ensure the effectiveness of its CHDO or the CHDO run single family purchase and rehabilitation program and $2,041 was not available for eligible activities. The Corporation Lacked Capacity Development Corporation of Tarrant County (Corporation), a Tarrant County CHDO, lacked capacity to administer its single-family HOME activities. It contracted services with an individual to perform all of the work in carrying out its activities of purchasing and rehabilitating housing for resale, including designing and implementing a single-family purchase and rehabilitation program for the Corporation. Further, the contract required the individual to oversee the single-family properties until their sale. The Corporation only participated in the signing of the sales contract. It only had one employee who worked part time. HUD required the Corporation to have capacity for carrying out activities assisted with HOME funds.1 Nothing in the individual’s contract required him to build capacity at the Corporation, and the Corporation did not have capacity. During the audit, the Corporation’s contractor accepted a position with Tarrant County. Thus, the Corporation lost the contractor’s expertise and its capacity to run its single-family purchase and rehabilitation activity. We recommend that Tarrant County not award any additional grants to the Corporation for single- family purchase and rehabilitation activities. Tarrant County Did Not Monitor CHDOs in 2008 Tarrant County did not conduct monitoring of its CHDOs during 2008. HUD regulations required Tarrant County to review the performance of CHDOs 1 CPD (Community Planning and Development) Notice 97-11. 5 annually2 and document and maintain evidence of these reviews.3 Tarrant County conducted a monitoring review of the Corporation the day before we performed a site review in 2009. Further, Tarrant County did not monitor its other CHDO. According to Tarrant County’s HOME coordinator, it was not necessary to monitor this CHDO because the project was in the construction phase and there were no files to monitor. However, HUD regulations4 state that Tarrant County was responsible for managing the day-to-day operations of its HOME program, ensuring that HOME funds were used in accordance with all program requirements and written agreements, and taking appropriate action when performance problems arose. Additionally, the performance of each contractor and subrecipient must be reviewed at least annually. Tarrant County’s HOME coordinator stated that he would schedule a monitoring visit soon. HUD should reiterate to Tarrant County its responsibilities regarding monitoring all of its subrecipients. Tarrant County Paid Ineligible and Unsupported Expenses Tarrant County used $2,041 in HOME funds for questionable costs, $1,947 for ineligible expenses, and $94 for unsupported costs. These expenses included payments for training that did not occur, payment for a license that was not renewed, an incorrect invoice used to allocate a payment, payment for closing costs that exceeded the amount on the HUD-1 settlement statement, late fees, unsupported parking fees, and a cancelled check. The Corporation has reimbursed the HOME grant $425 for the amounts that exceeded the HUD-1 and offset $468 ineligible expenses and $94 unsupported expenses. Also, Tarrant County corrected the $24 that was misallocated to the HOME grant. Further, Tarrant County reimbursed $1,030 to its HOME grant. Tarrant County Only Recently Approved Its NSP Grant HUD approved Tarrant County’s NSP agreement on March 20, 2009, and Tarrant County’s Commissioner’s Court approved it on March 31, 2009. Thus, only minimal activities had occurred at the time of our review. Tarrant County posted its plan on the Internet but had not awarded any contracts and had only charged $416 to the grant. Based on our cursory review, Tarrant County’s plan appeared feasible. Given that we only found minimal problems with the HOME program 2 24 CFR (Code of Federal Regulations) 92.504. 3 24 CFR 92.508 6 iii. 4 24 CFR 92.504. 6 and that HUD’s Office of Community Planning and Development closely monitors Tarrant County, no additional work was performed on NSP. Recommendations We recommend that the Director of the Fort Worth Office of Community Planning and Development instruct Tarrant County to 1A. Deny awarding additional grants to the Corporation for single-family purchase and rehabilitation activities until it demonstrates that it has the capacity to properly administer the activities. 1B. Reiterate to Tarrant County its responsibilities regarding monitoring all subrecipients. 1C. Reimburse its HOME program $1,947 from nonfederal funds for ineligible HOME funds expended. Tarrant County reimbursed $1,054 of this amount and the Corporation reimbursed $425 to the HOME grant. 1D. Support or reimburse its HOME program $94 from nonfederal funds for unsupported HOME funds expended. 7 SCOPE AND METHODOLOGY To accomplish the objectives, we Reviewed Tarrant County Commissioner Court minutes. Interviewed HUD and Tarrant County employees, a CHDO contractor, and HOME recipients to gain an understanding of Tarrant County’s HOME program. Tested one payment draw for each of the following areas for a total of $1,356,076 out of a total in $3,271,768 HOME grant funds: Tarrant County administration, CHDO operating, CHDO purchase and rehabilitation of single-family housing, HOME rehabilitation, and HOME down payment assistance. Performed a cursory review of the NSP agreement. Conducted on-site visits of HOME rehabilitations5 and houses purchased by the Corporation. We conducted the survey at Tarrant County’s office located at 1509-B South University, Fort Worth, Texas, and the Corporation’s office in Fort Worth, Texas. 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. 5 This includes the only on-going preaward HOME rehabilitation and one of 13 completed HOME rehabilitations. 8 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: Policies and procedures regarding its HOME program, Policies and procedures regarding the monitoring of CHDOs, and Policies and procedures regarding payment for goods and services. 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 item is a significant weakness. Controls over the monitoring, including determining capacity, of CHDOs were ineffective. 9 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Ineligible 1/ Unsupported 2/ number 1C $1,947 1D $94 Totals $1,947 $94 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. 10 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 11 Comment 2 12 Comment 2 13 OIG Evaluation of Auditee Comments Comment 1 While Tarrant County's response stated it will continue to work with the Corporation and the Corporation will take action to find a new president, Tarrant County needs to ensure that the CHDOs it uses have capacity and meet HUD requirements. Comment 2 We commend Tarrant County for addressing all the findings during the audit. We adjusted the findings as appropriate to reflect actions taken. 14
Tarrant County Generally Administered Its Home Investment Partnerships Program Grants in Accordance with Requirements, Fort Worth, Texas
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-06-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)