Issue Date
August 17, 2009
Audit Report Number
2009-LA-1015
TO: Maria Cremer, Acting Director, Community and Planning Development
Division, 9AD
FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA
SUBJECT: Washoe County HOME Consortium, Reno, Nevada, Neighborhood Stabilization
Program
HIGHLIGHTS
What We Audited and Why
We performed a limited review of the Washoe County HOME Consortium (Consortium)
because it received an allocation of more than $4.6 million in Neighborhood Stabilization
Program (NSP) funding as a subgrantee of the State of Nevada. Our objective was to
determine whether the Washoe County HOME Consortium (Consortium) had sufficient
capacity and had established adequate methodologies to implement the NSP requirements
in accordance with U.S. Department of Housing and Urban Development (HUD) rules
and regulations.
What We Found
The Consortium, with the City of Reno (City) as the lead agency, subcontracted with the
Reno Housing Authority (Authority) to manage the majority of the funds received. All
entities generally had sufficient capacity and adequate methodologies in place to
implement the NSP requirements in accordance with HUD rules and regulations.
We provided the Consortium a discussion draft report on August 11, 2009, and held an
exit conference with appropriate officials on August 13, 2009.
We provided the auditee the final report on August 17, 2009.
TABLE OF CONTENTS
Background and Objective 3
Results of Audit
The Consortium Generally Had Sufficient Capacity and Adequate Methodologies to 4
Implement NSP Requirements
Scope and Methodology 7
Internal Controls 8
2
BACKGROUND AND OBJECTIVE
The Neighborhood Stabilization Program (NSP) was established for the purpose of stabilizing
communities that have suffered from foreclosures and abandonment. The stabilization is to be
achieved through the purchase and redevelopment of foreclosed and abandoned homes and
residential properties. The NSP funds provide grants to all states and selected local
governments. Grantees were selected on the basis of statutory objectives and a greatest need
formula developed by the U.S. Department of Housing and Urban Development (HUD).
The State of Nevada was allocated more than $24 million in NSP funds for distribution
throughout the state. The Washoe County HOME Consortium (Consortium), as a state
subrecipient, received a distribution of more than $4.6 million. The Consortium is comprised of
the City of Reno, the City of Sparks, and Washoe County and has designated the City of Reno
(City) as its lead agency. Additionally, the Consortium has collaborated with the Reno Housing
Authority (Authority), as a subcontractor, to manage $4.2 million to operate the
acquisition/resale and acquisition/rental portions of the Consortium‟s NSP activities. The City
will administer the remainder of the funds for downpayment assistance program activities.
The Consortium makes loans available from various funding sources for predevelopment,
development, construction, acquisition, preservation, and substantial rehabilitation of affordable,
permanent, or transitional housing units. Its primary goal is to assist lower income families and
individuals, including homeless and special needs groups, to obtain affordable housing. The
Consortium also allocates funds to housing assistance programs, including downpayment
assistance to first-time home buyers, monthly rental assistance, rental and utility deposit
assistance, and homeowner rehabilitation assistance.
The Authority, since its founding in 1943, has been appointed as the public housing authority for
the City of Sparks and Washoe County. It currently owns and manages 764 units of public
housing (475 for families) in seven different locations in Reno and Sparks under the public
housing programs. In February of 2009, HUD awarded the Authority the title “Large Public
Housing Authority of the Year” for 2008 in Nevada and Northern California, and it has
consistently excelled as a “high performer.”
The Authority applied for an additional $21 million in NSP-2 funding under the American
Recovery and Reinvestment Act of 2009. Based on the positive results found during our review
of the NSP-1funding, we believe that it will be able to manage any additional funds, if awarded,
in accordance with HUD, federal, state, and local requirements of the program.
Our objective was to determine whether the Consortium had sufficient capacity and adequate
methodology to implement the NSP requirements in accordance with HUD rules and regulations.
3
RESULTS OF AUDIT
The Consortium Generally Had Sufficient Capacity and Adequate
Methodologies to Implement NSP Requirements
Based on a limited review, the Consortium generally had sufficient capacity and adequate
methodologies in place to implement the NSP requirements in accordance with HUD rules and
regulations. Specifically, (1) it had structured its policies and procedures to conform to NSP
requirements; (2) the homeownership, rental, and downpayment assistance activities were
underway; and (3) it had established adequate monitoring to track progress.
Policies and Procedures
Conformed to NSP
Requirements Contracts
The Authority‟s experience in providing homeownerhip and rental assistance to low-income
households is a key factor in NSP. At the onset of the program, the Authority established
policies and procedures to implement the acquisition/resale and acquisition/rental activities
using applicable NSP requirements.
Homeownership
The Authority had established criteria for homeownership. Minimum qualifications for
households interested in the NSP homeownership program include
Applicant must be a first-time home buyer.
Income must fall between 60 and 120 percent of area median income.
Applicant must be eligible to qualify for a standard fixed-rate 15-30 year mortgage
to purchase a home.
Downpayment from personal funds must be at least 3.5 percent of purchase price.
Applicant must have a stable or increasing income history for the past 24 months.
Applicant must have a FICO credit score of either 650 or higher or acceptable
nontraditional credit, with an overall debt-to-income ratio after purchase no higher
than 38 percent.
Applicant must successfully complete eight-hour HUD-certified homeowners‟
training.
Rental
Under the rental activity, the Authority ensured that rental homes were affordable to low-
income families. It used HOME Investment Partnerships Program (HOME) standards in
setting fair market rents in which tenants are only required to pay 30 percent of their
4
adjusted net income less utility allowance. The Authority also ensured tenant eligibility by
using the same procedures used for the Section 8 and public pousing programs. Because of
the added workload for income verification, the Authority hired a temporary part-time
person to assist. The position may be converted to full time as the workload increases.
Homeownership, Rental,
and Downpayment
Assistance Activities Were
Underway
Five Homes Purchased for Homeownership and Rental Activities
Five foreclosed homes had been purchased at a discounted price based on the fair market
value. An additional six homes were in the negotiation stage. The Authority partnered
with the National Community Stabilization Trust for the purchase of homes. The trust
was established to facilitate the transfer of foreclosed and abandoned properties from
financial institutions nationwide to local housing organizations to promote productive
property reuse and neighborhood stability.
One of the five homes purchased was pending resale to a first-time home buyer, and the
four other properties were to be rented to low-income households.
City„s Downpayment Assistance Program Activity Underway
The Redevelopment Agency of the City will implement the NSP downpayment
assistance activity. The City had begun structuring the process to implement this new
program. It will use HOME program guidelines at 24 CFR (Code of Federal
Regulations) Part 92. The City had established the terms of assistance to first-time home
buyers and decided that the program would provide downpayment and closing cost
assistance of up to 20 percent of the home‟s appraised value or $20,000, whichever is less
and based upon client need. The program will be able to assist 25-30 first-time home
buyers.
The City plans to advertise the program beginning in August 2009 and begin processing
applications from first-time home buyers to determine eligibility. One additional staff
member will be hired to help with the added workload of income and employment
verification.
Adequate Monitoring Was
Established
A housing subcommittee was established to monitor the progress of the implementation of the
NSP activities. It meets on a regular basis and as necessary.
5
Conclusion
Based on our limited review, the Consortium generally had sufficient capacity and
adequate methodologies in place to implement the NSP requirements in accordance with
HUD rules and regulations. As of June 30, 2009, there had been three drawdowns
totaling $811,319.
The Authority applied for an additional $21 million in NSP-2 funding under the
American Recovery and Reinvestment Act of 2009. Based on the positive results found
during our review of the NSP-1, we believe that it will be able to manage these additional
funds, if awarded, in accordance with HUD, federal, state, and local requirements of the
program.
6
SCOPE AND METHODOLOGY
The period covered by the audit was July 1, 2006, through June 30, 2008. Our review was
performed at the City and Authority offices, both located in Reno, Nevada. We performed our
audit work from May 11 through July 24, 2009.
To perform our audit, we
o Reviewed applicable laws, regulations, and guidance issued by HUD.
o Reviewed pertinent financial records maintained on administration and
procurement by the City and the Authority.
o Interviewed staff of the City and the Authority regarding the implementation of
NSP.
o Reviewed HUD monitoring reports and interviewed HUD officials in the San
Francisco office.
o Physically inspected the foreclosed properties acquired for resale and rental by the
Authority.
Specifically, our review included the City‟s and Authority's financial records and accounting
systems, policies, and procedures. We reviewed procurement and disbursement transactions
from 2006 through 2008 and tested a total of 19, 17 from the Authority and two from the City,
for compliance with HUD, federal, state, and local requirements.
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 stated
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our objective.
7
INTERNAL CONTROLS
Internal control is an integral component of an organization‟s management that provides
reasonable assurance that the following objectives 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 objective:
Administering the program‟s operations in compliance with applicable laws and
regulations,
Maintaining complete and accurate records, and
Safeguarding the program‟s resources.
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
We did not find any weaknesses in the internal controls.
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Washoe County HOME Consortium, Reno, Nevada, Neighborhood Stabilization
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)