oversight

HUD's Region 3 Program Centers Did Not Always Process Section 202 and Section 811 Capital Advances in Accordance with HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-12-09.

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

                                                                Issue Date
                                                                       December 9, 2008
                                                                Audit Report Number
                                                                       2009-PH-0001




TO:        Janet M. Golrick, Deputy Assistant Secretary for Multifamily Housing, HT


FROM:      John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
             3AGA

SUBJECT:   HUD’s Region 3 Program Centers Did Not Always Process Section 202
            and Section 811 Capital Advances in Accordance with HUD Requirements



                                  HIGHLIGHTS

 What We Audited and Why

           We audited the U.S. Department of Housing and Urban Development’s (HUD)
           processing of its Section 202 and Section 811 capital advances as part of our
           annual audit plan. Our audit objective was to determine whether HUD’s program
           centers under the jurisdiction of its Region 3 (program centers) processed Section
           202 and Section 811 capital advances in accordance with HUD requirements.

 What We Found


           Program centers did not always process Section 202 and Section 811 capital
           advances in accordance with applicable HUD requirements. Two of six program
           centers did not obtain required approval from HUD headquarters to extend the
           fund reservation period past 24 months for 21 of 58 open projects with capital
           advances valued at $46.3 million. HUD had not implemented controls to monitor
           compliance with this requirement, which is intended to ensure that extending the
           fund reservation period is consistent with the HUD Secretary’s goal of increasing
           affordable housing for low-income families. Additionally, of the 60 projects that
           received fund reservation letters during the audit period, 50 (83 percent) were not
           approved for construction within HUD’s 18-month guideline. Capital advance
           funding often did not cover housing development costs, and program centers did
           not consider canceling projects despite indications that they would be
           significantly delayed.

What We Recommend

           We recommend that the Deputy Assistant Secretary for Multifamily Housing
           direct responsible program centers to (1) justify and obtain approval from
           headquarters to extend the fund reservation period past 24 months for two projects
           with capital advances totaling $1.8 million that have not gone to initial closing or
           cancel them if appropriate, (2) justify and provide current status for 19 projects
           with capital advances of $44.5 million that went to initial closing although
           program centers had not obtained required HUD approvals of the fund reservation
           period past 24 months and ensure that the use of the funds is consistent with the
           HUD Secretary’s goal of increasing affordable housing for low-income families,
           and (3) establish and implement adequate controls for obtaining required
           headquarters approvals for extension of the fund reservation period past 24
           months and for reviewing projects and making recommendations to cancel
           projects when warranted. We also recommend that the Deputy Assistant
           Secretary for Multifamily Housing recommend that the Assistant Secretary for
           Housing - Federal Housing Commissioner reevaluate the effectiveness of HUD’s
           current method for calculating capital advances to ensure that it covers the
           development costs for Section 202 and Section 811 projects or consider providing
           notice in the Federal Register that additional capital advance funds will generally
           be needed to cover the costs of developing the housing.

           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 discussed the report with HUD during the audit and at an exit conference on
           November 13, 2008. HUD provided written comments to our draft report on
           November 28, 2008. HUD agreed with our recommendations. The complete text
           of HUD’s response can be found in appendix B of this report.




                                            2
                             TABLE OF CONTENTS

Background and Objectives                                                             4

Results of Audit
        Finding: Program Centers Did Not Always Process Section 202 and Section 811   6
        Capital Advances in Accordance with HUD Requirements

Scope and Methodology                                                                 11

Internal Controls                                                                     13

Followup on Prior Audits                                                              15

Appendixes
   A.   Schedule of Questioned Costs                                                  17
   B.   Auditee Comments                                                              18
   C.   Capital Advance Extensions Past 24 Months without HUD Approval
                                                                                      20
   D.   Projects with Inadequate Capital Advances
                                                                                      21




                                             3
                         BACKGROUND AND OBJECTIVES

The Section 202 Program of Supportive Housing for the Elderly and the Section 811 Program of
Supportive Housing for Persons with Disabilities provide federal capital advances and project
rental assistance under Section 202 of the Housing Act of 1959 (12 U.S.C. [United States Code]
1701q) (Section 202) and Section 811 of the National Affordable Housing Act (42 U.S.C. 8013)
(Section 811), respectively, for housing projects serving elderly households and persons with
disabilities. The administering office is the Assistant Secretary for Housing - Federal Housing
Commissioner, located at the U.S. Department of Housing and Urban Development (HUD),
Washington, DC. The applicable regulations for both programs are found in 24 CFR [Code of
Federal Regulations] Part 891.

The Section 202 and Section 811 programs help to increase the supply of affordable housing
with supportive services for elderly families (Section 202) and families with disabilities (Section
811). These programs provide a number of opportunities for very low-income elderly families
and families with disabilities to live independently in an environment that provides support
services such as cleaning, cooking, transportation, etc. Section 202 eligibility is open to very
low-income persons 62 years of age or older and their household members. Section 811
eligibility is open to very low-income persons 18 years of age or older with a physical or
developmental disability or chronic mental illness and their household members.

HUD provides Section 202 capital advances to eligible private, nonprofit sponsors to finance the
development of rental housing with supportive services for the elderly. The advance is interest
free and does not have to be repaid as long as the housing remains available for very low-income
elderly persons for at least 40 years. HUD provides Section 811 capital advances to eligible
nonprofit sponsors with a 501(c)(3) tax exemption from the Internal Revenue Service to finance
the development of rental housing with the availability of supportive services for persons with
disabilities. The advance is interest free and does not have to be repaid as long as the housing
remains available for very low-income persons with disabilities for at least 40 years. In Region
3, there are two multifamily hubs that are responsible for providing funding, staffing, and
technical support to six program centers that administer the programs and interact with the
project sponsors. The Philadelphia multifamily hub has four program centers that are located in
Philadelphia and Pittsburgh, Pennsylvania; Newark, New Jersey1; and Charleston, West Virginia.
The Baltimore multifamily hub has two program centers that are located in Baltimore, Maryland
and Richmond, Virginia.

During our review period, HUD granted $166.6 million2 in capital advance funding for the
Section 202 and Section 811 programs within Region 3. The following chart shows details.




1
  Organizationally the Newark, New Jersey, field office is part of HUD’s Region 2, but administratively the Newark
multifamily program office reports to the Philadelphia multifamily hub.
2
  $166.6 million consists of $134.4 million in Section 202 funding plus $32.2 million in Section 811 funding during
fiscal years 2006 and 2007.


                                                         4
           HUD’s Region 3 Section 202 and Section 811 capital advance funding
                             for fiscal years 2006 and 2007

                                   Fiscal year    Fiscal year
                Allocation area                                        Total
                                      2006           2007
                  New Jersey       $19,742,300    $29,780,900     $   49,523,200
                 Pennsylvania      $29,414,100    $19,694,400     $   49,108,500
                   Maryland        $13,597,500    $15,771,500     $   29,369,000
                   Virginia        $ 6,761,500    $10,908,700     $   17,670,200
                Washington, DC     $ 9,164,200    $ 2,357,400     $   11,521,600
                   Delaware        $ 5,944,200         $0         $    5,944,200
                 West Virginia          $0        $ 3,489,100     $    3,489,100
                     Totals        $84,623,800    $82,002,000     $166,625,800

The point of obligation for both the Section 202 and Section 811 funds is when the Assistant
Secretary for Housing - Federal Housing Commissioner signs the agreement letter awarding the
capital advance to the sponsor. The duration of the fund reservation for the capital advance is
18 months from the date of issuance with limited exceptions of up to 24 months as approved by
HUD on a case-by-case basis. The timeline below shows the key events that should occur
during the 18-month period.




Our audit objective was to determine whether HUD’s program centers under the jurisdiction of
its Region 3 processed Section 202 and Section 811 capital advances in accordance with HUD
requirements.




                                              5
                                RESULTS OF AUDIT

Finding: Program Centers Did Not Always Process Section 202 and
Section 811 Capital Advances in Accordance with HUD Requirements
Two of six program centers did not obtain required headquarters approval to extend the fund
reservation period past 24 months for 21 of 58 open projects with capital advances valued at
$46.3 million. This condition occurred because HUD had not implemented controls for
monitoring compliance with the requirement. As a result, $46.3 million associated with these
projects was unsupported because program centers failed to justify how extending the fund
reservation period was consistent with the HUD Secretary’s goal of increasing affordable
housing for low-income families. Additionally, of the 60 projects that received fund reservation
letters during the period October 2005 to September 2007, 50 projects (83 percent) had not been
approved for construction within HUD’s 18-month guideline. Projects experienced significant
delays because capital advance funding often did not cover housing development costs and
program centers did not consider canceling projects despite indications that the projects would be
delayed. These delays and languishing projects cause elderly families and families with
disabilities to wait longer than necessary for housing assistance and supportive services.


 Program Centers Did Not
 Obtain Headquarters Approval
 to Extend Fund Reservations

               We analyzed the open projects listed in HUD’s Development Application
               Processing (DAP) system for the Region 3 program centers and identified 58 open
               projects which had not been approved for initial closing within 24 months as
               required. In two of the six program centers, project staff failed to obtain the
               needed headquarters approvals for 21 projects with capital advances valued at
               $46.3 million as follows:

                      Eighteen projects for the Richmond, Virginia, program center valued at
                      $43.4 million and
                      Three projects for the Baltimore, Maryland, program center valued at $2.9
                      million.

               24 CFR 891.165 states that the duration of the fund reservation for the capital
               advance is 18 months from the date of issuance with limited exceptions of up to
               24 months as approved by HUD on a case-by-case basis. This process allows
               headquarters to ensure that there is good cause for approving delays and that
               extending the fund reservation period is consistent with the HUD Secretary’s goal
               of increasing affordable housing for low-income families. HUD Handbooks
               4571.4 and 4571.5 require the program centers to submit to headquarters a request


                                                6
           to either cancel the fund reservation or extend it when projects do not reach initial
           closing within 24 months of the initial fund reservation.

           Of the 21 projects without required headquarters approval, two projects valued at
           $1.8 million had not reached initial closing as of September 2008 and were
           experiencing major problems with zoning issues, site changes and obtaining local
           government approvals. For these two projects, the sponsors had signed the
           agreement letters accepting the awards and obligating the funds 34 and 47 months
           earlier. The other 19 projects took between 25 and 58 months to reach initial
           closing. Since the program centers did not submit requests to headquarters as
           required, headquarters did not review the projects and approve extending the fund
           reservation period beyond 24 months or consider the alternative of canceling the
           fund reservation and using the funds for another project. Details on the 21
           projects are shown in appendix C.

HUD Lacked Controls for
Monitoring Compliance with
the Requirement to Obtain
Approvals

           HUD had not implemented controls for monitoring compliance with the
           requirement to obtain approval to extend the fund reservation period beyond 24
           months. A project manager in the Richmond program center informed us that the
           center did not have approvals that specifically referenced extensions beyond the
           24-month period. The Director of the Baltimore hub informed us that, as a result
           of the audit, she had instructed staff to be more diligent in requesting extensions
           and to ensure that the program centers maintain approvals in the files. The
           Director also stated that the hub accepted headquarters approval of amendment
           funds as a tacit approval of its approval of an extension of the period for initial
           closing. However, headquarters’ approval of amendment funds is a separate and
           distinct approval from an extension of the fund reservation period and should not
           be used as an implied approval of an extension of the fund reservation period.
           Moreover, the majority of the projects had not received approval of amendment
           funds at the time an extension of the fund reservation period was needed. HUD
           needs to develop and implement controls over program centers regarding
           obtaining required approvals for extending the fund reservation period beyond 24
           months.

The Majority of Recently
Funded Projects Experienced
Significant Delays


           We reviewed all 60 projects that received fund reservation letters during the audit
           period, October 2005 to September 2007, and found that 50 projects (83 percent)



                                             7
                 had not been approved for construction within HUD’s 18-month guideline. Often
                 this condition occurred because capital advance funding did not cover housing
                 development costs and program centers did not consider canceling projects
                 despite indications that they would be significantly delayed. These issues are
                 further discussed below.

    Inadequate Capital Advances
    Contributed to Project Delays

                 Although the Federal Register notice states that capital advance funds will cover
                 the costs of developing the housing, projects experienced significant delays
                 because capital advance funding did not cover housing development costs. Of the
                 60 projects that received fund reservation letters during the audit period, 50 (83
                 percent) had not been approved for construction within HUD’s 18-month
                 guideline. For 30 of 41 projects3 reviewed (73 percent) capital advance funding
                 provided failed to cover the housing development costs by an average of 28
                 percent. The sponsors of these 30 projects had to seek secondary funding to cover
                 construction costs. Secondary sources included Community Development Block
                 Grant and HOME Investment Partnerships Program funds, state and local funds,
                 and donations. Program centers attributed 41 percent of the project delays to not
                 receiving adequate capital advance funding to cover development costs. Details
                 on the 30 projects are shown in appendix D.

                 HUD completed a study in April 2005 (Construction Cost Indices HUD Section
                 202 and 811 Supportive Housing Programs) in which it examined how the
                 development cost limits used to calculate capital advance amounts compared with
                 indicators of local construction costs. Based on this study, HUD decided to
                 change its method for calculating capital advances, which resulted in an increase
                 in capital advance construction costs awarded. HUD also decided to provide
                 additional amendment funds, up to the maximum capital advance amount allowed
                 based on HUD’s formula, to move projects along if shortages were experienced.
                 However, program managers told us that capital advances, including additional
                 amendment funds if available, continued to be insufficient to cover the
                 construction costs despite headquarters’ efforts to solve this problem. This is
                 because headquarters has taken the position that it would rather leverage local
                 third party funding to increase the number of available housing units under these
                 programs than fully fund a smaller number of them. As a result, sponsors were
                 forced to either seek additional funding from other sources or redesign projects
                 and possibly cut costs, which ultimately added delays to processing projects
                 before construction could begin.



3
 Forty-one projects equals fifty projects that were awarded capital advance funding but did not receive the entire
capital advance funds needed to cover housing development costs, minus nine projects for which funding cannot be
determined until a firm commitment application is received and approved.


                                                        8
             Since one of the major contributing factors for delays continued to be HUD’s
             reluctance to fully fund development costs, HUD should again reevaluate its
             method for calculating capital advances and ensure that it covers the development
             costs for Section 202 and Section 811 projects. Otherwise, HUD should consider
             providing notice in the Federal Register that additional funds will often be needed
             to cover the costs of developing the housing.

 Program Centers Did Not
 Consider Problem Indicators

             Twenty-four of the fifty projects (48 percent) experienced delays, and although
             there were indications of problems during the 18-month timeframe between award
             of the capital advance and the start of construction, the program centers did not
             consider the alternative of canceling the fund reservation and recapturing the
             funds. Although program centers are required to review all information, material,
             and forms needed to monitor the progress of each fund reservation in accordance
             with the processing time schedules, they did not consider canceling projects
             despite indications that the projects could be significantly delayed. For example,

                    Sponsors are required by HUD Notice 96-102 to assemble a development
                    team which can “expeditiously” meet program and technical requirements.
                    However, program centers allowed five projects to extend to initial closing
                    although the sponsor’s development team was experiencing technical
                    difficulties in providing agreed-upon supportive services.

                    Sponsors of Section 811 projects are required by HUD Notice 96-102 and
                    HUD Handbook 4571.4 to possess control of an approvable site one year
                    after being awarded the fund reservation. If the sponsor does not have
                    control within a year, the fund reservation will be cancelled and recaptured
                    as required by Section 811 of the National Affordable Housing Act of
                    1990. However, 10 projects experienced site control issues/delays, and
                    nine other projects experienced zoning issues/delays, and no requests to
                    cancel projects were submitted.

             Program offices need to establish and implement adequate procedures for
             reviewing projects and recommending that projects be canceled when there are
             indications that the projects will be significantly delayed.

GAO Identified Problems with
Project Processing


             The U.S. Government Accountability Office (GAO) issued two reports addressing
             delays in the delivery of housing assistance to needy families through HUD’s
             Section 202 program. GAO determined that delays were attributable to problems


                                              9
           with HUD’s methods for calculating capital advances, a lack of training provided
           to program center staff, outdated program handbooks, and limitations related to
           HUD’s automated project monitoring system. We followed up on the GAO
           recommendations and found that HUD had not adequately implemented them.
           Additional details on the reports and our followup on the recommendations can be
           found in the Followup on Prior Audits section of this report.

Recommendations


           We recommend that the Deputy Assistant Secretary for Multifamily Housing
           direct responsible program centers to

           1A.    Justify and obtain approval from headquarters to extend the fund
                  reservation period past 24 months for two projects with capital advances
                  totaling $1,827,600 that have not gone to initial closing or cancel them, if
                  appropriate.

           1B.    Justify and provide current status for 19 projects with capital advances of
                  $44,460,290 that went to initial closing although program centers had not
                  obtained required HUD approvals of the fund reservation period past 24
                  months and ensure that the use of the funds is consistent with the HUD
                  Secretary’s goal of increasing affordable housing for low-income families.

           1C.    Establish and implement adequate controls for obtaining required
                  headquarters approvals for extension of the fund reservation period past 24
                  months and for reviewing projects and making recommendations to cancel
                  projects when warranted.

           We recommend that the Deputy Assistant Secretary for Multifamily Housing

           1D.    Implement GAO’s recommendations and provide a response to GAO to
                  close out the recommendations or provide GAO a status update and the
                  reasons why a recommendation has not yet been implemented.

           1E.    Recommend that the Assistant Secretary for Housing - Federal Housing
                  Commissioner reevaluate the effectiveness of HUD’s method for
                  calculating capital advances to ensure that it covers the development costs
                  for Section 202 and Section 811 projects or consider providing notice in
                  the Federal Register that additional funds will generally be needed to
                  cover the costs of developing the housing.




                                           10
                          SCOPE AND METHODOLOGY

We performed our audit at the HUD Philadelphia, Pennsylvania, and Baltimore, Maryland,
multifamily hub offices from September 2007 through August 2008. We performed our review
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. We included tests of internal controls that we considered necessary. We also
used computer-processed data only in conjunction with other supporting documents to reach our
conclusions, and we determined that the data were reliable for our purposes. We traced hard-
copy records back to data contained in HUD’s computer databases, and nothing came to our
attention to suggest that the computer-processed data were materially inaccurate or misleading.

The audit covered transactions representative of operations during the period October 2005
through September 2007. We expanded the scope of the audit as necessary.

To answer the audit objective to determine whether HUD program centers under the jurisdiction
of its Region 3 field offices processed Section 202 and Section 811 capital advances in
accordance with HUD requirements, we

       Interviewed key functional managers from the Philadelphia, Pennsylvania, and
       Baltimore, Maryland, multifamily hubs responsible for the program centers located in
       Philadelphia and Pittsburgh, Pennsylvania; Newark, New Jersey; Charleston, West
       Virginia; Baltimore, Maryland; Richmond, Virginia; and the District of Columbia.

       Reviewed 24 CFR Part 891, HUD Notice 96-102, HUD Handbooks 4571.2, 4571.3,
       4571.4 and 4571.5, the fiscal years 2006 to 2008 SuperNOFAs (notice of funds
       availability), and other applicable HUD regulations.

       Obtained and reviewed the following GAO audit reports: GAO-03-512, Elderly
       Housing: Project Funding and Other Factors Delay Assistance to Needy Households
       (May 2003), and GAO-05-174, Elderly Housing: Federal Housing Programs That Offer
       Assistance for the Elderly (February 2005).

       Contacted and interviewed the GAO audit manager and auditor in charge regarding the
       GAO reports.

       Analyzed HUD’s Section 202 and Section 811 asset development process.

       Made site visits to the Philadelphia, Pennsylvania, and Baltimore, Maryland, multifamily
       hubs.

       Surveyed key functional managers from program centers to determine reasons for delays,
       staffing levels, and streamlining processing procedures.


                                              11
Interviewed key functional managers at HUD headquarters’ Budget and Field Resources
department.

Queried HUD’s Weekly Multifamily Project Status and Control Report (DAP 2088) and
HUD’s Line of Credit Control System.

Analyzed the projects listed on DAP reports for the Philadelphia multifamily hub, dated
February 19, 2008, and for the Baltimore multifamily hub, dated January 31, 2008, as
well as updated reports for the hubs, dated September 30, 2008, and October 8, 2008,
respectively.




                                       12
                             INTERNAL CONTROLS

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

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

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


              We determined the following internal controls were relevant to our audit objectives:

                      Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

                      Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resources use is
                      consistent with laws and regulations.

              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 the following items are significant weaknesses:

                      HUD lacked controls to ensure that program centers complied with the
                      requirement to obtain headquarters’ approval to extend the duration of the


                                               13
fund reservation beyond 24 months.

Program centers did not consider problem indicators and recommending
canceling projects before they reached the end of the fund reservation
period for the capital advance despite indications that the projects would
be delayed.




                         14
                   FOLLOWUP ON PRIOR AUDITS


Elderly Housing: Project
Funding and Other Factors
Delay Assistance to Needy
Households, GAO-03-512


           In this report, GAO addressed the issue of delays in providing assistance through
           the Section 202 program. GAO reported that more than 70 percent of the Section
           202 projects funded between 1998 and 2000 were delayed. That is, they took
           longer than 18 months to proceed from the date of the funding award to the date
           of initial closing. To reduce processing delays, GAO recommended that HUD (1)
           evaluate the effectiveness of its current methods for calculating capital advances,
           (2) make any necessary changes to the methods based on the evaluation so that
           the advances adequately cover project development costs, (3) provide regular
           training to ensure that all field office staff are knowledgeable of and held
           accountable for following current processing procedures, (4) update its handbook
           to reflect current processing procedures, and (5) improve the accuracy and
           completeness of information entered into the DAP system and expand the
           system’s capabilities to track key project processing stages.


Elderly Housing: Federal
Housing Programs That Offer
Assistance for the Elderly,
GAO-05-174


           In this report, GAO reported on the status of HUD’s efforts to improve its
           administration of its Section 202 program in response to the recommendations
           made in its 2003 report. GAO reported that HUD commissioned a study to
           examine the calculation of capital advances, but although the results of the study
           were received in the fall of 2004, HUD had not determined whether to make any
           changes in its methods for calculating capital advances. In addition, HUD had not
           implemented the recommendations relating to training the field office staff and
           updating the Section 202 handbooks. Further, HUD identified needed
           enhancements to its automated DAP system, but it had not implemented the
           improvements as recommended. Although HUD had not fully implemented the
           recommendations, GAO found that the number of delayed Section 202 properties
           had declined.

           We followed up on HUD’s implementation of GAO’s recommendations. GAO
           concluded that HUD had taken sufficient action to close two of the five




                                           15
recommendations; however, three of five recommendations remained open. The
open recommendations were

       Making necessary changes to the methods for calculating capital advances
       so that the advances adequately cover project development costs (GAO
       recommendation 2),

       Provide regular training to ensure that all field office staff are
       knowledgeable of and held accountable for following current processing
       procedures (GAO recommendation 3), and

       Update its handbook to reflect current processing procedures (GAO
       recommendation 4).

HUD headquarters agreed that corrective actions to address GAO’s
recommendations had not been implemented. Specifically, personnel agreed that

       Instead of using the “means” approach recommended in the April 2005
       Construction Cost Indices HUD Section 202 and 811 Supportive Housing
       Program Study, HUD decided to change its calculating methods to
       incorporate the 221D3 mortgage limits. Also, if sponsors experience
       funding shortages, additional amendment funding is available to move
       projects along. This change was adopted and effective in fiscal year 2006
       but was not communicated to GAO for recommendation closure.

       Handbooks were outdated but were in the process of being revised.
       Although we were initially informed that revised handbooks should be
       ready in draft form in April 2008, they had not been revised and ready in
       draft form as of September 2008.




                                16
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                           Recommendation
                               number             Unsupported 1/
                                  1A              $ 1,827,600
                                  1B              $44,460,290
                                 Total            $46,287,890


1/   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.




                                             17
Appendix B

             AUDITEE COMMENTS




                    18
19
Appendix C

        CAPITAL ADVANCE EXTENSIONS PAST 24 MONTHS
                  WITHOUT HUD APPROVAL

                                                                       Capital       Funds         Number of
        Program                   Project                              advance    reservation       months to
Count     type  Program center    number      Project name             amount      letter date     initial close
                                          Birmingham Green                             Nov. 21,
  1       811   Baltimore, MD    000HD054 Adult Care               $ 1,368,200             2002         44
                                                                                        Nov. 5,
  2       811   Baltimore, MD    052HD066 O’Conor Homes            $    999,500            2004         36
                                                                                        Nov. 5,
  3       811   Baltimore, MD    052HD065 Five Rivers Homes        $    528,600            2004         26
                                                                                       Nov. 21,
  4       202   Richmond, VA     000EE057 Birmingham Green         $ 6,320,600             2002         44
                                                                                        Jan. 26,
  5       202   Richmond, VA     051EE110 A Porter’s Haven         $ 5,824,400             2006         25
                                                                                        Nov. 5,
  6       202   Richmond, VA     051EE103 Parker View              $ 5,463,600             2004         34
                                                                                       Oct. 31,
  7       202   Richmond, VA     051EE083 Garber Manor Phase I     $ 4,816,490             2001         53
                                                                                       Nov. 26,
  8       202   Richmond, VA     051EE089 Garber Manor Phase III $ 2,626,500               2002         40
                                                                                      Sept. 30,
 9        202   Richmond, VA     051EE070 Checed Creek             $ 2,530,300             1999         44
 10       202   Richmond, VA     051EE101 Walter Gum Manor         $ 2,178,500    Dec. 4, 2003          45
 11       202   Richmond, VA     051EE102 Parker Run               $ 1,882,500    Dec. 4, 2003          27
                                                                                      Sept. 28,
 12       811   Richmond, VA     051HD109 Coppermine Place         $ 1,865,800             2001         47
 13       202   Richmond, VA     051EE100 Peele Manor              $ 1,730,000    Dec. 4, 2003          26
                                          Epworth Manor Phase                           Nov. 5,
 14       202   Richmond, VA     051EE104 II                       $ 1,624,400             2004       46
                                                                                        Jan. 26,   Open – 34
 15       202   Richmond, VA     051EE111 Tartan Village II        $ 1,515,900             2006     months
                                                                                       Nov. 30,
 16       811   Richmond, VA     051HD074 The Sanderling           $ 1,411,400             1998         58
                                          James River
 17       811   Richmond, VA     051HD121 Apartments               $ 1,261,900 Dec. 5, 2003             39
                                                                                    Jan. 26,
 18       811   Richmond, VA     051HD134 Accessible Space, Inc.   $ 1,213,200         2006             32
                                          Maynor Street Group                     Nov. 15,
 19       811   Richmond, VA     051HD126 Home                     $ 468,800           2004             33
                                          Carlton Avenue Group
 20       811   Richmond, VA     051HD123 Home                     $   345,600 Dec. 5, 2003   34
                                                                                  Nov. 15, Open – 47
 21       811   Richmond, VA     051HD128 Gabriel’s Place           $ 311,700          2004 months
                                          Total                    $46,287,890




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Appendix D

      PROJECTS WITH INADEQUATE CAPITAL ADVANCES

                                                                                    Additional
                                                                          HUD          funds          Total
                                                                         capital    needed to        capital
        Program               Project                                   advance      complete       advance
Count     type Program center number               Project name         amount        project        needed
                                              Paschall Senior
  1       202   Philadelphia, PA 034EE145     Housing               $ 6,924,900     $2,600,600 $     9,525,500
                                              Reba Brown Sr.
  2       202   Philadelphia, PA 034EE141     Residence             $10,210,600     $2,206,000 $ 12,416,600
  3       202   Philadelphia, PA 034EE142     Booth Manor II        $ 5,519,700     $1,659,700 $ 7,179,400
                                              Mantua Presbyterian
  4       202   Philadelphia, PA 034EE144     Apartments            $ 8,897,200     $1,628,800 $ 10,526,000
                                              Odenton Senior
  5       202   Baltimore, MD      052EE056   Housing II            $ 5,557,300     $1,489,472 $     7,046,772
                                              The Groves at the
  6       811   Pittsburgh, PA     033HD095   Woodlands             $ 1,248,800     $1,378,200 $     2,627,000
                                              Dauphin County VOA
  7       811   Philadelphia, PA 034HD087     Living Center         $ 1,424,200     $1,212,942 $     2,637,142
  8       811   Newark, NJ       031HD145     West Bergen ILP       $ 1,443,800     $1,100,000 $     2,543,800
  9       811   Philadelphia, PA 034HD088     Baldwin Village       $ 1,551,400     $1,045,309 $     2,596,709
                                              Leonia Retirement
 10       202   Newark, NJ         031EE069   Housing II            $ 3,774,600     $1,030,000 $     4,804,600
                                              Black Diamond Hope
 11       811   Philadelphia, PA   032HD033   House                 $     459,600   $   958,891 $    1,418,491
 12       202   Philadelphia, PA   032EE016   Luther Village II     $   4,313,800   $   610,027 $    4,923,827
 13       202   Philadelphia, PA   034EE151   Haven Peniel          $   7,443,500   $   574,000 $    8,017,500
 14       811   Baltimore, MD      052HD071   Lakeview Properties   $   1,058,500   $   470,919 $    1,529,419
 15       202   Richmond, VA       051EE110   A Porter’s Haven      $   5,824,400   $   465,400 $    6,289,800
                                              JSDD Supportive
 16       811   Newark, NJ         031HD146   Living                $ 507,000       $   439,910 $      946,910
 17       811   Pittsburgh, PA     033HD101   Rosewood Apartments   $ 561,900       $   410,687 $      972,587
 18       811   Washington, DC     000HD065   Waterside Homes       $ 1,518,200     $   381,831 $    1,900,031
 19       811   Newark, NJ         035HD063   Allies Homes          $ 880,300       $   337,512 $    1,217,812
 20       811   Washington, DC     000HD066   GUIDE Nashville       $ 916,900       $   321,381 $    1,238,281
                                              SCARC Residential
 21       811   Newark, NJ         031HD151   Expansion             $ 1,014,000     $ 311,782 $      1,325,782
 22       811   Baltimore, MD      052HD069   Vesta Severn          $ 748,200       $ 279,261 $      1,027,461
                                              Lutheran Village at
 23       202   Pittsburgh, PA     033EE126   Chippewa              $ 3,824,000     $ 255,300 $      4,079,300
                                              Deer Haven Drive
 24       811   Richmond, VA       051HD135   Group Home            $ 376,700 $ 232,000 $         608,700
 25       811   Baltimore, MD      052HD068   Kirkland Homes        $ 789,600 $ 231,739 $ 1,021,339
 26       811   Newark, NJ         031HD147   Alternatives Homes    $ 889,300 $ 207,799 $ 1,097,099
 27       811   Baltimore, MD      052HD070   Hughes Homes          $ 689,200 $ 156,459 $         845,659
 28       811   Baltimore, MD      052HD067   Ohana Homes           $ 706,700 $ 139,591 $         846,291
 29       811   Charleston, WV     045HD041   Mulberry Manor        $ 526,200 $ 102,631 $         628,831
 30       811   Pittsburgh, PA     033HD100   Liberty Place         $ 749,300 $ 29,566 $          778,866
                                              Totals                $80,349,800 $22,267,709 $102,617,509



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