oversight

The City of Oakland Did Not Always Administer Its HOME Investment Partnerships Program in Accordance with Federal Requirements and Its Own Policies and Procedures

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-07-24.

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

                                                                   Issue Date
                                                                                July 24, 2009
                                                                   Audit Report Number
                                                                            2009-LA-1013




TO:         Maria Cremer, Acting Director, Region IX, Office of Community Planning and
            Development, 9AD



FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: The City of Oakland Did Not Always Administer Its HOME Investment
         Partnerships Program in Accordance with Federal Requirements and Its Own
         Policies and Procedures

                                     HIGHLIGHTS

 What We Audited and Why

      We reviewed the City of Oakland (City) to determine whether it administered its HOME
      Investment Partnerships Program (HOME) in accordance with federal requirements and
      its own policies and procedures. We selected the City for review due to its large annual
      U.S. Department of Housing and Urban Development (HUD) funding and because it had
      not been the subject of an Office of Inspector General (OIG) audit for several years.


 What We Found
      The City did not always administer its HOME program in accordance with federal
      requirements and its own policies and procedures. Specifically, it did not follow HUD
      and Office of Management and Budget requirements and its own policies for (1) initial
      cost estimates, (2) rehabilitation standards, (3) income determinations, and (4) Integrated
      Disbursement and Information System (IDIS) entries. As a result, the City did not fulfill
      all of its responsibilities as a HOME participating jurisdiction, $286,103 was not
      available for eligible projects and activities, and $118,213 in HOME expenditures was
      not supported.
What We Recommend

     We recommend that HUD require the City to repay HUD $286,103 from nonfederal
     funds or use nonfederal funds to bring the homeowners‟ properties up to all applicable
     rehabilitation standards. We also recommend that the City provide supporting
     documentation to show that owners were income eligible at the time the City provided
     assistance or repay $118,213 from nonfederal funds to HUD and to ensure that it updates
     all project information in IDIS. We also recommend that the City provide cost estimates
     for the two projects without cost estimates or repay $79,945 if the City does not satisfy
     all other questioned costs in this report with respect to the two projects, follow its own
     policies and procedures for initial staff cost estimates and rehabilitation standards, and
     establish adequate policies and procedures for income determinations and IDIS entries.

     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 report to the City on June 15, 2009, and it provided its
     written response on July 1, 2009. City officials disagreed with our findings and
     recommendations.

     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 Objective                                                           4

Results of Audit
        Finding 1: The City Did Not Always Comply with HOME Requirements and Its   5
                   Own Homeowner Rehabilitation Policies and Procedures

Scope and Methodology                                                              13

Internal Controls                                                                  14

Appendixes

   A.   Schedule of Questioned Costs                                               15
   B.   Auditee Comments and OIG‟s Evaluation                                      16
   C.   Summary of Project Issues                                                  29
   D.   Criteria
                                                                                   30




                                            3
                     BACKGROUND AND OBJECTIVES
HOME Investment Partnerships Program

The HOME Investment Partnerships Program (HOME) was created by Title II of the Cranston-
Gonzalez National Affordable Housing Act, as amended, and as regulated by 24 CFR [Code of
Federal Regulations] Part 92. HOME funds are awarded annually as formula grants to
participating jurisdictions. The purpose of HOME is to expand the supply of decent, safe, and
affordable housing for very low-income and low-income persons and to strengthen public-
private partnerships in the production and operation of such housing. HOME gives participating
jurisdictions discretion regarding which activities to pursue. Eligible activities include
acquisition, rehabilitation, new construction, and tenant-based rental assistance. HOME is the
largest federal block grant to state and local governments designed exclusively to create
affordable housing for low-income households.

City of Oakland

The City of Oakland (City), a HOME participating jurisdiction, was incorporated on May 25,
1854, by the State of California and is organized and exists under and pursuant to the provisions
of state law. As a participating jurisdiction, the City receives more than $4 million per year in
HOME funds. The City administers its HOME funds through its Community and Economic
Development Agency. The City uses its HOME funds for a variety of activities including
acquisition, rehabilitation, new construction, and tenant-based rental assistance.

Our overall audit objective was to determine whether the City administered its HOME program
in accordance with U.S. Department of Housing and Urban Development (HUD) requirements
and its own policies and procedures. Specifically, we reviewed the City‟s American Dream
Downpayment Initiative, rehabilitation, acquisition, and new construction projects to determine
if the City complied with HUD requirements and its own policies and procedures.




                                                4
                                RESULTS OF AUDIT

Finding 1: The City Did Not Always Comply with HOME Requirements
           and Its Own Homeowner Rehabilitation Policies and
           Procedures
The City did not always comply with HOME requirements and its own homeowner rehabilitation
policies and procedures for (1) initial cost estimates, (2) rehabilitation standards, (3) income
determinations, and (4) Integrated Disbursement and Information System (IDIS) entries. This
condition occurred because the City did not have adequate policies and procedures in place to
ensure compliance with HUD, Office of Management and Budget (OMB), and its own
requirements. As a result, it did not fulfill all of its responsibilities as a HOME participating
jurisdiction, $286,103 was not available for eligible projects and activities, and $118,213 in
HOME expenditures was not supported.



 The City Did Not Always
 Conduct Cost Estimates in
 Accordance with Its Written
 Policies


       The City did not always conduct cost estimates in accordance with its written policies and
       procedures. This condition occurred because the City did not have adequate controls in
       place to ensure that it followed its written policies and procedures for cost estimates. The
       City‟s policy requires its rehabilitation advisors to create a scope of work and perform an
       initial cost estimate before permitting the HOME-assisted owner to seek bids from
       contractors. The rehabilitation advisor prepares the scope of work to determine the
       required work to be completed on the property. After the scope of work, the
       rehabilitation advisor is required to prepare a cost estimate for the rehabilitation. Based
       on this estimate, the advisor can determine whether the project is financially feasible
       before approval.

       The City did not follow its policies and procedures for cost estimates in 13 of 19 cases.
       In eleven of the cases, the City did not have sufficient evidence to show that its cost
       estimates were conducted before receiving the contractors‟ bids. In the remaining two
       cases, we did not find evidence that a cost estimate had been conducted. We requested
       that the City provide cost estimates for active projects with contractor bids pending. It
       was unable to provide us with a cost estimate for an active project. Further, one of the
       rehabilitation advisors indicated that he did not perform a cost estimate before contractor
       bidding.

       As part of The City‟s internal policies and procedures, the cost estimate is a necessary
       step in managing the day-to-day operations of its HOME program. The City is an


                                                5
            administrator of HOME funds and is required to ensure that program costs are both
            reasonable and necessary. The cost estimate is an essential part of this process since it
            helps to ensure the financial feasibility of the project and that the bids the owner receives
            are reasonable, necessary, and free of contractor collusion or excessive markup. Since
            the City did not have full assurance that the bids accepted by the owners were reasonable,
            HOME funds may have been used for ineligible purposes, and $79,9451 in HOME funds
            used for the two projects without cost estimates were not supported (see appendix C).

     The City Did Not Always
     Ensure That Projects Complied
     with Rehabilitation Standards


            The City did not always ensure that homeowner rehabilitation projects met rehabilitation
            standards at project completion. Federal Regulations at 24 Code of Federal Regulations
            92.251(a)(1) requires housing that is rehabilitated with HOME funds to meet all
            rehabilitation standards at the time of project completion. The participating jurisdiction
            must also have written standards for rehabilitation that ensure that HOME-assisted
            housing is decent, safe, and sanitary. The City‟s Residential Lending and Rehabilitation
            Services Operations Manual categorizes work items as mandatory (category A) or code
            deficient, incipient violations (category B), and improvements preferred by the owner
            (category C). Its standards state that category A items are those that threaten the health
            and safety of residents (e.g., basic structural, mechanical, electrical, and plumbing
            systems). Further, the City‟s standards specify that if insufficient dollars are available for
            category A improvements, the project should be considered infeasible and not be
            approved.

            One project funded with HOME funds (#2079) was not a full rehabilitation since all
            mandatory items (category A) were not completed. Contrary to HUD requirements and
            its own policy, mandatory items were deleted from the scope of work for the project
            because the amount of the repairs exceeded the City‟s maximum loan amount of $40,000.
            The City approved the owner for the program in anticipation that the loan amount for its
            program would increase from $40,000 to $75,000 so that all required work would be
            completed on the property. Although the City increased the amount of the loan program,
            it attached an interest rate to the loan program. The owner did not want to pay interest on
            the loan and opted to reduce the scope of work. Of the nine items deleted from the scope
            of work, the City categorized seven of these items as mandatory (category A) items. For
            example, mandatory items such as electrical work and fungus removal were deleted from
            the scope of work. Since all required rehabilitation work was not completed, the project
            was not brought up to applicable standards at project completion and was not eligible for
            HOME funds.

            With the assistance of the Office of Inspector General (OIG) staff inspector/appraiser
            (inspector), we conducted inspections of seven HOME-assisted single-family
            rehabilitation projects. Five of the seven single-family rehabilitation projects inspected
1
    Costs not included in appendix A to prevent duplication of questioned costs.


                                                                  6
included work that was incomplete or not brought up to applicable standards. This
condition occurred because the City did not have adequate policies and procedures in
place to ensure that properties were brought up to all applicable standards and that all
work paid for with HOME funds was completed. The City also did not follow the
requirements of OMB Circular A-87, which requires that all costs of federal awards must
be both reasonable and necessary. The five instances are described below.

       The contractor improperly installed ceramic tile flooring in the kitchen, bathroom,
       and hallway of project #1946. The OIG inspector noted cracks in the tile at various
       locations throughout the kitchen, bathroom, and hallway. The inspector determined
       that the installation of the tile was not to an acceptable standard. The inspector noted
       the following: (1) tile not aligned correctly; (2) poor grouting and missing grout at
       edge between kitchen and laundry room area; (3) poor installation at edge between
       kitchen and laundry room area; and (4) various locations missing or not enough tile
       thin-set cement causing tiles to have severe multiple cracks throughout the kitchen,
       hallway, and bathroom. According to the owner, the contractor also did not remove
       the old vinyl flooring before tile installation although the scope of work specified
       removal of the old flooring and installation of underlayment.

       The project‟s kitchen sink wall was also to be repaired and textured to match the
       existing wall. The wall was not properly prepared or painted, and portions of the
       original wallpaper remained on the wall. The owner also indicated that the
       contractor removed the water softener system to facilitate the entry to the crawl
       space (for foundation work that was completed on the property) but that the
       contractor did not reconnect the system. Further, the owner stated that the contractor
       had removed the rain gutters and down spouts but did not replace them.

       The City‟s rehabilitation manager agreed that the tile work was of poor quality and
       stated that the contractor was a relatively inexperienced general contractor.
       However, the owner indicated that she selected the contractor from the City‟s
       preapproved contractor list. Although the City permits the owner to choose the
       contractor, its preapproved contract list is provided to owners to assist them in
       obtaining bids. This inexperienced contractor would not have been included on the
       City‟s preapproved contractor list if the list had been limited to experienced
       professional contractors. The inexperienced contractor has since been removed from
       the City‟s preapproved list.




                                          7
Project #1946: Tile flooring cracks in kitchen and hallway due to improper installation

            Project #2106 required installation of new windows throughout the home, including
            caulking of all windows and trim to inhibit air infiltration. The owner indicated that
            she did not see the contractor caulk the first floor windows. Further, the OIG
            inspector found no indication of caulking of the first floor windows as required by
            the contract. The project also included a bedroom that had a severe 2 foot by 6 foot
            hole in the ceiling and a smaller opening at the entry ceiling with wall damage at
            other locations throughout the room including cracked plaster. According to the
            scope of work, the windows were replaced in this room, requiring inspection.
            However, the bedroom was not rehabilitated.

            The downstairs heating system also did not meet standards. The scope of work
            required a Carrier brand or equal furnace, yet a Comfortmaker furnace was installed.
            In the inspector‟s opinion, the Comfortmaker furnace is not equal to the Carrier
            furnace specified in the scope of work. The inspector also determined that the
            heating system was likely not producing heat due to the main duct not being
            properly secured. The first floor thermostat installed by the contractor was also
            inoperative. The owner also expressed dissatisfaction with the kitchen cabinet work.
            The inspector noted that the sink backsplash between the countertop and sheetrock
            was not sealed, resulting in an exposed seam. The inspector also noted missing trim
            pieces for the cabinets. A professional contractor should have installed these trim
            pieces to ensure a quality finish.




                                              8
Project #2106: Room not rehabilitated despite ceiling and wall damage

         Project #2116 required installation of new carpet. An inspection of the carpet
         showed ripples in several places. It is standard practice for the contractor to
         return to the home and restretch the carpeting after it has settled. However, the
         contractor did not return to restretch the carpeting. Further, the master bedroom
         door was not cut at the bottom to prevent dragging after installation of the new
         carpeting. The contractor also failed to install a new motion sensor light in the
         rear door area of the property. The owner‟s son also informed OIG that the
         electrical doorbell was removed during rehabilitation but was not reinstalled after
         project completion.

         In another project (#2107), the contractor painted but did not prime the interior
         walls and ceiling of the hallway and bedrooms as required by the scope of work.
         Due to the contractor‟s failure to prime the walls and ceiling, the paint was
         peeling and/or fading in several locations in the hallway and bedrooms of the
         home. Since the walls and ceiling were not primed, the inspector determined that
         the contractor‟s painting work was not completed up to standard.




                                          9
Project #2107: Paint chipping and fading due to lack of primer

              The scope of work for project #2077 required installations of bathroom
              accessories including three chrome towel bars, chrome toothbrush holder and
              tumbler, and shower and toilet grab bars. Physical inspection of the property
              showed that these items were not installed according to the contract, yet the
              contractor charged $675 for these items. The contractor‟s $675 charge for
              accessories was ineligible since the costs were not a reasonable or necessary use
              of HOME funds.

      We attribute the five instances above to the City‟s lack of adequate monitoring of projects
      during construction and at project completion. Our file reviews indicated that the
      rehabilitation advisors conducted inspections for each progress payment and at project
      completion. All of the project files included payment request forms indicating that the
      rehabilitation advisor inspected the work for which the contractor claimed payment and
      that the contractor‟s work was satisfactorily completed. However, in these five cases, the
      City‟s inspections were not sufficient to address instances in which the contractors did
      not meet rehabilitation standards or complete all items in the contracts.

      The City is responsible for effective and efficient administration of the HOME program
      and is required to ensure that HOME funds are only used for reasonable and necessary
      costs. If the City had conducted sufficient progress payment and final inspections, it
      would have ensured that HOME funds were only used for reasonable and necessary costs
      in accordance with OMB Circular A-87. However, its inspections were inadequate, and
      HOME funds were used for costs that were unreasonable and unnecessary and for
      projects that were not brought up to applicable standards at project completion. As a
      result, $286,103 was not available for eligible HOME projects and activities.




                                               10
The City Did Not Always
Determine Income as Required
by HUD

     The City did not always conduct income determinations and redeterminations in
     accordance with HUD requirements. HUD requires that the participating jurisdiction
     determine income eligibility for each program participant. In addition, HUD requires the
     participating jurisdiction to redetermine income if more than six months elapse between
     the initial income determination and the date on which HOME assistance is provided to
     the participant. The City did not examine or reexamine income for three of nineteen
     participants although more than six months had elapsed since the initial income
     determination. These issues occurred because the City did not have adequate policies and
     procedures in place to ensure that it always conducted income determinations and
     redeterminations in accordance with HUD requirements. Since income determination
     requirements were not followed, HOME program participants who did not qualify for the
     HOME program may have received assistance. As a result, the City‟s use of $118,213 in
     HOME funds provided to the three participants was not supported.

The City Did Not Always Enter
Timely Information into IDIS

     The City did not always enter timely information into IDIS. HUD uses IDIS data as one
     of its primary monitoring and tracking tools for the HOME program. HOME grantees
     are required to submit project data to HUD through IDIS. HUD requires grantees to
     update data on a timely basis so that it can properly monitor financial information and
     track program performance. We determined that the City did not always update project
     data in IDIS. Specifically, it did not enter project completion information into IDIS
     within 120 days of project closeout for seven of nineteen single-family rehabilitation
     projects reviewed. Of these seven projects, six were not closed in IDIS for more than a
     year after completion, and one project remained open in IDIS for more than three years
     after project completion. We attribute the City‟s untimely project completion entries to
     its lack of adequate policies and procedures for closing out single-family rehabilitation
     projects in IDIS. As a result, HUD did not have relevant and reliable project information
     and was unable to properly monitor the City‟s performance through IDIS. In its
     response, the City provided an updated IDIS report showing that, as a result of our audit,
     it has entered all data for the projects questioned. The City also stated that it is instituting
     procedures to ensure timely drawdown of funds and prompt reporting. However, we
     have not reviewed these procedures.

Conclusion

     The City did not always comply with HUD, OMB, and its own requirements for HOME-
     funded single-family rehabilitation projects. It needs to establish adequate policies and



                                               11
   procedures so that it can manage the day-to-day operations of its HOME program in
   accordance with requirements. The City‟s policies and procedures were inadequate for it
   to fulfill all of its responsibilities as a HOME participating jurisdiction. As a result, its
   management of HOME-funded single-family rehabilitation projects was not adequate,
   $286,103 was not available for eligible projects and activities, and $118,213 in HOME
   expenditures was not supported.

Recommendations


   We recommend that the Director of the San Francisco Office of Community Planning
   and Development require the City to

      1A. Ensure that it follows its policies and procedures to ensure that it always
          conducts cost estimates before contractor bidding.

      1B. Provide cost estimates for the two projects without cost estimates and repay
          $79,945 if the City does not satisfy all other questioned costs in this report with
          respect to the two projects in recommendation 1F to HUD from nonfederal funds
          (see appendix C).

      1C. Repay $285,428 to HUD from nonfederal funds or use nonfederal funds to bring
          the homeowners‟ properties up to all applicable rehabilitation standards (see
          appendix C).

      1D. Repay the owner $675 from nonfederal funds or use nonfederal funds to install
          the missing bathroom accessories for project #2077 (see appendix C).

      1E. Ensure that the City follows its policies and procedures to ensure that
          homeowner rehabilitation projects are brought up to applicable rehabilitation
          standards and codes at the time of completion and that all work items have been
          completed by the contractor.

      1F. Provide documentation to support borrowers‟ income eligibility at the time the
          City provided the HOME assistance or repay $118,213 from nonfederal funds
          (see appendix C).

      1G. Establish and implement policies and procedures to ensure that it always follows
          HOME requirements for income determinations when more than six months
          elapses between the initial income determination and the date on which HOME
          assistance is provided to the participant.

      1H. Establish and implement policies and procedures to ensure that it reviews IDIS
          data for accuracy and that it updates IDIS information for each project in a
          timely manner in accordance with HUD requirements.




                                            12
                         SCOPE AND METHODOLOGY

We performed on-site work at the City‟s offices in Oakland, California, from November 2008
through April 2009. Our review covered a total of 29 HOME-assisted rehabilitation, acquisition,
and new construction projects. The City used more than $4.7 million in HOME funds for these
projects. We initially selected 11 single-family rehabilitation, seven American Dream
Downpayment Initiative, and three multifamily new construction projects for survey review.
Based on the results of our survey, we reviewed an additional eight single-family rehabilitation
projects. In total, we reviewed 19 single-family rehabilitation projects that were assisted with
more than $800,000 in HOME funds. Our review generally included active HOME-assisted
projects during the period July 1, 2006, through June 30, 2008. This period was adjusted as
necessary. Our objective was to determine whether the City administered its HOME program in
accordance with HUD requirements and its own policies and procedures.

To accomplish our objective, we

       Reviewed project files and other records for the City‟s acquisition, rehabilitation, and
       new construction projects;

       Conducted site visits of selected projects;

       With the assistance of the OIG inspector, conducted inspections of selected single-family
       projects;

       Reviewed pertinent records maintained by the City;

       Interviewed the City‟s management and staff; and

       Reviewed HUD files and interviewed appropriate San Francisco Office of Community
       Planning and Development officials.

We did not review and assess general and application controls over the City's information
system. We conducted other tests and procedures to ensure the integrity of computer-processed
data that were relevant to the audit objectives. The tests included but were not limited to
comparison of computer-processed data to written agreements, contracts, and other supporting
documentation. We did not place reliance on the City's information system and used other
supporting documentation for the activities reviewed.

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.




                                                13
                              INTERNAL CONTROLS

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

       Effectiveness and efficiency of operations,
       Reliability of financial reporting,
       Compliance with applicable laws and regulations, and
       Safeguarding of 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:

              Administration of the HOME program in compliance with HUD and other federal
              regulations and the City‟s internal policies and procedures.

              Maintaining complete and accurate records.

              Safeguarding HOME program resources.

       We assessed the relevant controls identified above.

       A significant weakness exists if internal 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:

              The City did not have adequate controls in place for (1) initial cost estimates, (2)
              rehabilitation standards, (3) income determinations, and (4) IDIS entries.




                                                14
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

         Recommendation                Ineligible 1/            Unsupported 2/
             number
                 1C                       $285,428
                 1D                            675
                 1F                                                    $118,213

                Total                     $286,103                     $118,213

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.




                                             15
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         16
Comment 1




Comment 1




Comment 2




            17
Comment 3




            18
Comment 4




Comment 5




            19
Comment 6




Comment 7


Comment 8


Comment 9

Comment 10




             20
Comment 11


Comment 12




Comment 13




Comment 14




Comment 15




             21
Comment 16




Comment 17




Comment 18




Comment 19


Comment 20




             22
Comment 21




Comment 22




Comment 23




             23
Comment 24




             24
Comment 25




Comment 26




             25
                         OIG Evaluation of Auditee Comments

Comment 1   As stated in its response, cost estimates were not prepared for projects #2010 and
            #2076. This is contrary to the City‟s own policies and procedures. The City
            revised the project number in IDIS from #2011 to #2010. Any references to
            #2011 in the City's comments pertain to IDIS project #2010.

Comment 2   The City provided cost estimates for projects #2104 and #2107. However, the
            cost estimates were not dated and we could not determine whether the cost
            estimates were made before bids were received. Oakland‟s policy does not
            include an exception to the performance of cost estimates. Its policy requires that
            all single-family rehabilitation projects include cost estimates. Since two cost
            estimates were provided with the response to the report, we revised the report and
            the questioned costs in Recommendation 1B and appendixes A and C.

Comment 3   OIG concluded that the work performed on the projects was not up to applicable
            standard and codes at the time of completion. OIG was aware of the time period
            between project completion and OIG inspection. When making its final
            conclusions, OIG took the time period into consideration. The issues in the report
            are not related to maintenance nor are they based solely on statements made by
            the owners or owners‟ representatives. The owners‟ and owners‟ representatives‟
            statements in the report were consistent with OIG‟s inspections.

Comment 4   The City‟s internal policy and HOME requirements state that all projects must be
            brought up to applicable standards and codes at project completion. Project
            #2079 was not brought up to applicable standards and codes. As a result, the City
            used HOME funds for an ineligible project.

Comment 5   The kitchen sink wall was included in the contract for project #1946. Section 6b
            of the contract requires painting of all rooms affected by the construction. The
            contract included work in the kitchen.

Comment 6   The rehabilitation manager‟s statement about the contractor was revised from not
            experienced to relatively inexperienced. This is consistent with the auditor-in-
            charge‟s notes and the OIG inspector‟s report. A sufficiently experienced
            contractor would have performed the tile installation correctly or used a sub-
            contractor to ensure quality workmanship.

Comment 7   The project was not brought up to applicable standards at project completion. If
            the project is not brought up to standards at project completion, the entire project
            cost is ineligible.

Comment 8   The OIG inspector determined that the flooring was not installed correctly at
            project completion. For example, the inspector noted that the contractor did not
            use enough thin-set cement during installation of the tile.




                                             26
Comment 9     The project was not brought up to applicable standards at project completion.
              This is a violation of HOME requirements. The court order does not exempt
              Oakland from HOME requirements.

Comment 10 OIG does not agree with the City‟s request to withdraw the recommendation to
           repay funds. Since the project was not brought up to applicable standards at
           project completion, it was not an eligible use of HOME funds.

Comment 11 The contract required caulking of all windows. The OIG inspector determined
           that the windows were not caulked. The owner‟s statement that she did not see
           the windows caulked further supports OIG‟s conclusion.

Comment 12 The City inspector‟s notes indicate a hole in the room identified in the report.
           OIG‟s visual inspection of the hole in the ceiling also indicated that it had been
           there for a long period of time. The owner‟s statement that the hole was there
           before the rehabilitation work began further supports OIG‟s conclusion.

Comment 13 The City did not provide any documentation indicating that “Comfortmaker” and
           “Carrier” brand furnances are equal. The OIG inspector‟s opinion is that the
           “Comfortmaker” is not equal to the “Carrier” furnance.

Comment 14 OIG concluded that the trim and finish pieces were not installed. The inoperable
           furnace is not a maintenance issue. It is based on improper installation of the
           furnace ducting system.

Comment 15 OIG does not agree with the City‟s request to withdraw the recommendation for
           the repayment of funds. Since the project was not brought up to applicable
           standards at project completion, it was not an eligible use of HOME funds.

Comment 16 The OIG inspector determined that the door should have been cut at the bottom
           due to the installation of the new carpeting. The contractor should have returned
           to restretch the carpeting. Although doorbell installation was not part of the
           contract, the contractor disconnected the doorbell to complete electrical work on
           the property. The contractor was responsible for reconnecting the doorbell at
           project completion. The project was not brought up to applicable standards at
           project completion. If the project is not brought up to standard at project
           completion, the entire project cost is ineligible.

Comment 17 OIG does not agree with the City‟s request to withdraw the recommendation to
           repay funds. Since the project was not brought up to applicable standards at
           project completion, it was not an eligible use of HOME funds.

Comment 18 OIG determined that the walls were painted but not primed. OIG obtained a piece
           of the peeling paint and visually confirmed that primer was not used. The OIG
           inspector determined that the peeling paint was from the contractor‟s failure to
           prime the walls, not due to ventilation issues.



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Comment 19 The project was not brought up to applicable standards at project completion. If
           the project is not brought up to standards at project completion, the entire project
           cost is ineligible.

Comment 20 OIG does not agree with the City‟s request to withdraw the recommendation to
           repay funds. Since the project was not brought up to applicable standards at
           project completion, it was not an eligible use of HOME funds.

Comment 21 The accessories were not installed. As a result, the costs were an ineligible use of
           HOME funds. OIG does not agree with the City‟s request to withdraw the
           recommendation to repay funds. The City cannot use HOME program funds for
           items that were not provided.

Comment 22 The issues cited in the report should have been identified at project completion.
           OIG determined that the work was not completed or not completed up to an
           acceptable standard at project completion.

Comment 23 OIG reviewed the income documentation provided for projects #2010, #1832, and
           #2076. However, the City did not provide evidence that income was determined
           as required by HUD regulations.

Comment 24 OIG reviewed the income documentation provided for project #2078. OIG
           determined that the City determined income as required by HUD regulations.
           OIG revised the report, recommendation 1F and appendixes A and C.

Comment 25 OIG disagrees with the City‟s interpretation of the IDIS requirements. HUD uses
           IDIS as a real-time tracking system and up-to-date information should be input
           into the system on a regular basis.

Comment 26 OIG reviewed the IDIS report provided by the City. Based on the updated IDIS
           documentation, we revised the report and eliminated recommendation 1I from the
           report.




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Appendix C

                      SUMMARY OF PROJECT ISSUES

         Project information                         Issues
                  Amount of             Rehabilitation Inadequate              Late
       IDIS       HOME        Cost      standards       income                 IDIS
       project # funds        estimates not met         determinations         entries
            1832      $38,268                                  x
                                                        2
             1946      $52,785        x             x
             2008      $40,000        x                                             x
                                          1
             2010      $40,000        x                              x
             2075      $11,517        x
                                          1
             2076      $39,945        x                              x              x
                                                        2,3
             2077      $52,185        x             x
             2078      $48,875        x                                             x
                                                     4
             2079      $39,819        x             x
             2104      $32,525        x
             2105      $73,160        x                                             x
                                                        2
             2106      $71,275        x             x
                                                        2
             2107      $74,549        x             x                               x
             2110      $74,894        x                                             x
                                                        2
            2116       $47,000                      x                               x
       Total cases                   15             6                3              7
       Total questioned costs     $79,945 5     $286,103         $118,213          n/a



1
  Two cases with no evidence that a cost estimate was conducted (we could not determine
whether the cost estimates for the remaining cases were made before bids were received).
2
  Project inspected by OIG staff and inspector/appraiser.
3
  Only $675 in questioned costs, since bathroom accessories were not installed but the property
was determined to have been brought up to applicable standards.
4
  Code required items deleted from scope of work.
5
  Questioned costs limited to project #2010 and #2076 (see Recommendation 1B). Costs are
already questioned as “Inadequate Income Determinations” and not included in appendix A to
prevent duplication of questioned costs.




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Appendix D

                                         CRITERIA
Regulations at 24 CFR 92.504 state: “Participating jurisdiction responsibilities; written
agreements; on-site inspection. (a) Responsibilities. The 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 program requirements and written agreements, and taking
appropriate action when performance problems arise.”

Regulations at 24 CFR 92.505 state: “Applicability of uniform administrative requirements.
(a) Governmental entities. The requirements of OMB Circular No. A–87…apply to the
participating jurisdiction, State recipients, and any governmental subrecipient receiving HOME
funds…”

Office of Management and Budget Circular A-87, Cost Principles for State, Local, and
Indian Tribal Governments, Attachment A, General Principles for Determining Costs,
states:

A. Purpose and Scope: “2. Policy guides. a. The application of these principles is based on
the fundamental premises that: (1) Governmental units are responsible for the efficient and
effective administration of Federal awards through the application of sound management
practices.”

C. Basic Guidelines: “1. Factors affecting allowability of costs. To be allowable under Federal
awards, costs must meet the following general criteria: a. Be necessary and reasonable for
proper and efficient performance and administration of Federal awards.”

C. Basic Guidelines: “2. Reasonable costs. A cost is reasonable if, in its nature and amount, it
does not exceed that which would be incurred by a prudent person under the circumstances
prevailing at the time the decision was made to incur the cost. The question of reasonableness is
particularly important when governmental units or components are predominately federally-
funded.”

Regulations at 24 CFR 92.251(a)(1) state: “Housing that is constructed or rehabilitated with
HOME funds must meet all applicable codes, rehabilitation standards, ordinances, and zoning
ordinances at the time of project completion, except as provided in paragraph (b) of this section.
The participating jurisdiction must have written standards for rehabilitation that ensure that
HOME-assisted housing is decent, safe, and sanitary.”

City of Oakland Residential Lending and Rehabilitation Services Operations Manual
states:

“Category A: Mandatory work items. Code violations that threaten health and safety of
residents (e.g. basic structural, mechanical, electrical, and plumbing systems) and those items



                                                30
that constitute other program specific requirements. If there are insufficient dollars available for
Category A improvements, the project should be considered infeasible and should not be
approved.” (p.15)

“The Rehabilitation Advisor must complete an independent cost estimate for work to be
completed on the property. This „Staff estimate‟ must accompany the Work Write Up.” (p.31)

 “Rehabilitation Programs Process Timetable: Staff Estimate” (after work write-up and before
bids are received). (p.33)

“Inspection and Scope of Work...Within 20 days of the inspection visit, the rehabilitation advisor
completes a work write up and cost estimate.” (p.41)

Regulations at 24 CFR 92.203(a) state: “(a) The HOME program has income targeting
requirements for the HOME program and for HOME projects. Therefore, the participating
jurisdiction must determine each family is income eligible by determining the family's annual
income.”

Regulations at 24 CFR 92.203(d)(2) state: “The participating jurisdiction is not required to re-
examine the family‟s income at the time the HOME assistance is provided, unless more than six
months has elapsed since the participating jurisdiction determined that the family qualified as
income eligible.”

Regulations at 24 CFR 92.502 state: “Project completion. (1) Complete project completion
information must be entered into the disbursement and information system, or otherwise
provided, within 120 days of the final project drawdown. If satisfactory project completion
information is not provided, HUD may suspend further project set-ups or take other corrective
actions.”

HOME Fires, Vol. 2, No. 5, April 2000, states: “...HUD requires reliable IDIS information for
many purposes, including reporting to Congress, monitoring financial information, tracking
program performance, and identifying grantee and program needs. In essence, IDIS data drives
the Department‟s programmatic decision-making process; decisions that directly affect each
HOME PJ...Ensuring data quality in IDIS, or in any data collection effort for that matter, is
necessary for accurate analysis and evaluation...”




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