oversight

The City of Camden, New Jersey, Did Not Always Administer Its Asset Control Area Program in Compliance with HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-01-30.

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

                                                                 Issue Date
                                                                       January 30, 2009
                                                                 Audit Report Number
                                                                       2009-PH-1004




TO:        Vance T. Morris, Director, Office of Single Family Asset Management, HUF



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


SUBJECT:   The City of Camden, New Jersey, Did Not Always Administer Its Asset Control
            Area Program in Compliance with HUD Requirements


                                  HIGHLIGHTS

 What We Audited and Why

           We audited the City of Camden’s (City) asset control area (ACA) program
           following a request from the U.S. Department of Housing and Urban
           Development’s (HUD) Office of Single Family Asset Management for a review
           of the City’s compliance with its ACA agreement with HUD. Our objective was
           to determine whether the City complied with specific requirements in the ACA
           agreement pertaining to the resale of properties it acquired from HUD.

 What We Found


           The City did not comply with the specific provisions in the ACA agreement
           pertaining to the resale of its acquired ACA properties. It did not (1) ensure that
           17 (or 25 percent) of 68 properties it acquired from HUD were rehabilitated and
           sold within the required timeframe, (2) ensure that all expenses included in net
           development costs for rehabilitated properties were eligible, and (3) verify
           homebuyers’ eligibility and maintain the appropriate related supporting
           documentation. As a result, the City was unable to support $441,500 in property
           discounts from HUD for the 17 outstanding properties. It also included more than
           $11,600 in ineligible expenses in the net property development costs for four
           properties, which increased their sales prices and, consequently, the related
           mortgages by more than $11,700.

What We Recommend


           We recommend that the Director, Office of Single Family Asset Management,
           direct the City to obtain and provide evidence that it has the necessary resources
           to complete the rehabilitation and sale of the 17 outstanding properties. If the
           City cannot provide evidence of its ability to rehabilitate the outstanding
           properties, it should pay HUD $441,500. In addition, we recommend that the
           City buy down the mortgages for the four properties which had more than
           $11,600 in ineligible expenses included as part of their net development costs,
           and that the City verify and document the eligibility of each homebuyer in the
           future. We further recommend that the Director, Office of Single Family Asset
           Management, not renew the ACA agreement with the City until it has
           demonstrated that it is in compliance with the requirements of the agreement.

           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 audit results with the City and HUD officials throughout the
           audit and at an exit conference on January 15, 2009. The City provided written
           comments to our draft report on January 20, 2009. The City generally agreed
           with our finding and recommendations.

           The complete text of the City’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: The City Did Not Comply with Specific ACA Agreement Provisions   5
Scope and Methodology                                                             11

Internal Controls                                                                 13

Appendixes
   A.   Schedule of Questioned Costs                                              15
   B.   Auditee Comments and OIG’s Evaluation                                     16
   C.   Analysis of Sale Prices, Net Development Costs and Ineligible Costs
                                                                                  19
   D.   Calculation of Mortgage Buy-Down Amounts and Adjusted Mortgages
                                                                                  20




                                             3
                       BACKGROUND AND OBJECTIVE

Section 204 of the National Housing Act (12 U.S.C. (United States Code) 1710) directs the U.S.
Department of Housing and Urban Development (HUD) to promote the revitalization of
neighborhoods through the creation of asset control areas (ACAs) in HUD-approved
communities. HUD sells HUD-owned properties to authorized entities located within the ACAs
at a discounted price. In turn, the authorized entities must ensure that the properties are
rehabilitated and sold to eligible homebuyers, officers, teachers, or qualified military personnel.

HUD entered into an ACA agreement with the City of Camden (City) on November 22, 2005.
Under the ACA agreement, the City acquired 68 properties from HUD at a cumulative discount
of more than $1.7 million. Discounts on the homes ranged from $25,000 to $35,500 for each
property. The City was required to manage the rehabilitation of the properties as necessary and
sell them to eligible low- and moderate-income buyers, officers, teachers, or qualified military
personnel at prices not to exceed the lesser of fair market value or 115 percent of eligible
expenses to rehabilitate the properties. About a month after the City executed its ACA
agreement with HUD, it entered into a third-party agreement with Fairview Village II, LLC
(Fairview II), dated December 27, 2005. The agreement stated that Fairview II would implement
the ACA agreement. On May 25, 2006, an amended City Council ordinance authorized the City
to convey the ACA properties to Fairview Village, LLC, or any entity owned by RPM
Development, LLC. In accordance with the agreement and the ordinance, the City transferred
ownership of 17 properties to Fairview II and 51 to Fairview III. The ACA agreement allows
for the City to enter into a contract of sale with other parties for an ACA property before
rehabilitation is complete if the contract of sale describes the specific repairs remaining to be
made for that property and the repairs are made before resale of the ACA property.

Fairview II and Fairview III share a sole owner/principal, Edward Martoglio. Mr. Martoglio is
also an owner/principal of RPM Development, LLC (the developer), and RPM Contracting, LLC
(RPM Contracting). In September 2002, the City entered into a redevelopment agreement with
the developer to implement the Fairview neighborhood development plan. The developer is
responsible for the major affordable housing production activity in the Fairview neighborhood.
The City’s ACA properties are located in the Fairview neighborhood and are being rehabilitated
and sold by the developer. RPM Contracting is the general contractor for the ACA properties.
During the ACA application process, the City disclosed to HUD its intent to transfer its acquired
ACA properties to the developer for rehabilitation and resale. Although the ACA properties
were acquired by the City, the developer provided or paid the properties’ acquisition costs of
more than $1.4 million. As of November 15, 2008, the developer had rehabilitated 51 properties
and sold 50 of them. The New Jersey Housing and Mortgage Finance Agency (Agency)
provides the developer with funding and is the developer’s primary source of funds for
rehabilitating the ACA properties.

Our objective was to determine whether the City complied with specific requirements in the
ACA agreement pertaining to the resale of properties it acquired from HUD.




                                                 4
                                 RESULTS OF AUDIT

Finding: The City Did Not Comply with Specific ACA Agreement
Provisions
The City did not comply with specific provisions in the ACA agreement. It did not (1) ensure
that 17 properties discounted by HUD for $441,500 were rehabilitated and sold within the
required timeframe, (2) ensure that all expenses included in net development costs for
rehabilitated properties were eligible, and (3) verify homebuyers’ eligibility and maintain the
appropriate related supporting documentation. These deficiencies occurred because the City did
not explore or seek alternate sources of funding for the rehabilitation of its acquired properties
and did not effectively implement its quality control plan. As a result, it could not support
$441,500 in property discounts from HUD for the 17 outstanding properties. Furthermore these
properties were not available for low- and moderate-income homebuyers and did not contribute
to the ACA program’s intent of improving the housing stock and revitalizing the neighborhood.
The City also recorded more than $11,600 in ineligible net development costs, which increased
the sales prices and, consequently, the mortgages for four properties by more than $11,700. In
addition, since the City did not properly verify homebuyers’ eligibility, it could not ensure that
homebuyers met the requirements stipulated in the ACA agreement.



 Properties Acquired Were Not
 Rehabilitated within the
 Required Timeframe


               The City did not ensure that properties acquired under the agreement were
               rehabilitated and sold to homebuyers within the required timeframe. Section 5.4
               of the ACA agreement requires that the City convey by deed 100 percent of
               properties acquired to eligible buyers, officers, teachers, or qualified military
               personnel within 18 months after the transfer effective date. The City acquired 68
               properties from HUD. It then transferred the properties to a developer to be
               rehabilitated and sold to eligible homebuyers. The developer did not rehabilitate
               and sell all the properties within 18 months of being transferred. Of the 68
               properties, 38 (55 percent) were not conveyed by deed to homebuyers within 18
               months after HUD transferred the properties to the City. As of October 20, 2008,
               the developer had rehabilitated 51 properties and sold 50 of them. We inspected
               two of the remaining 17 properties that had not been rehabilitated to observe the
               general condition of the properties prior to renovation work. For verification
               purposes, we also inspected five of the 51 rehabilitated properties and noted that
               the renovation work had been completed.




                                                5
                  HUD provided a total discount of $441,500 related to the 17 properties that had
                  not been rehabilitated and sold. The developer indicated that it would incur
                  holding costs of $65,018 related to insurance, taxes, utilities, maintenance,
                  security, and other costs for the 17 properties over a one-year period. Because
                  the developer did not rehabilitate the 17 properties within the required timeframe,
                  the properties were not available for low- and moderate-income homebuyers and
                  did not contribute to the ACA program’s intent of improving the housing stock
                  and revitalizing the neighborhood. Furthermore, because of the additional
                  holding costs that may be incurred, the net development costs will increase, and
                  may increase home sale prices and mortgages. The City should be required to
                  demonstrate that the developer will be able to complete rehabilitation of the
                  remaining properties and provide a timeline for completion of the needed repairs.
                  If the developer is unable to rehabilitate and sell the remaining 17 properties, the
                  City should pay HUD the amount of the discount for each property, a total of
                  $441,500.

    The City Did Not Ensure That
    All Net Development Costs
    Were Eligible


                  The City did not review the developer’s net property development costs to ensure
                  that all costs were eligible. At the beginning of our review in April 2008, the City
                  was compiling appropriate documentation on net development costs for its
                  rehabilitated ACA properties based on feedback it had received from HUD. HUD
                  determined from a monitoring review in April 2007 that the City’s documentation
                  of net development costs did not reflect a final account of the costs including
                  canceled checks, paid receipts, and invoices. As of the beginning of our review,
                  the City had rehabilitated 37 properties. At that time, it only had complete
                  records of net development costs for one of its rehabilitated ACA properties. We
                  reviewed the available supporting documentation for that property and three
                  others out of five for which the City had provided support as of July 31, 2008. In
                  all four cases reviewed, we found ineligible costs as defined by exhibit 8 of the
                  ACA agreement.1 The costs should not have been included in the calculation of
                  net development costs. In one case with net development costs totaling $68,602,
                  we identified $2,522 in ineligible costs including payments for office supplies,
                  general overhead, and other miscellaneous items. The documentation provided
                  indicated that the costs were not related to the ACA property. We noted similar
                  ineligible costs totaling $9,125 for the other three properties reviewed, resulting in
                  a total of $11,647 in ineligible costs for the four properties. The breakdown for
                  the four properties is as follows:



1
 Exhibit 8 of the ACA agreement defines the eligible expenses that can be included in calculating net development
cost. Costs not listed as eligible are ineligible. Ineligible costs include, but are not limited to, general overhead,
developer fees, sales bonuses, and maintenance and management costs related to other properties.


                                                           6
                  Property address      Net development costs                        Ineligible costs
                  2820 N. Congress Road        $68,602                                  $2,522
                  2776 N. Congress Road        $82,685                                  $4,785
                  2957 Hartford Road           $71,858                                  $1,530
                  3173 Tuckahoe Road           $65,256                                  $2,810

                  The accuracy of the calculation of net development costs is important because the
                  resale price of the City’s ACA properties cannot exceed the lesser of the fair market
                  value or 115 percent of net development costs to rehabilitate the properties. In all
                  four cases reviewed, the properties’ sale prices were based on the net development
                  costs, which were lower than their appraised values. The sale prices and the
                  appraised values for the four properties were as follows:

                  Property address                        Sale price                 Appraised value
                  2820 N. Congress Road                    $78,000                     $86,000
                  2776 N. Congress Road                    $95,000                     $96,500
                  2957 Hartford Road                       $82,000                     $90,000
                  3173 Tuckahoe Road                       $75,000                     $76,000

                  Because the net development costs for these four properties included ineligible costs
                  of $11,647, the sale prices of the properties increased and also caused the mortgage
                  amounts for the homebuyers to increase. For example, net development costs for the
                  property at 2820 N. Congress Road totaled $68,602 and the property was sold for
                  $78,000. The percentage of the sale price over net development costs was 113.70
                  percent.2 The maximum allowed according to the ACA agreement is 115 percent of
                  net development costs. Based on our review, $2,522 in ineligible expenses were
                  included in the net development costs for this property. If the ineligible costs are
                  eliminated, the sale price is reduced to $75,992.3 The difference between the initial
                  sale price and the adjusted sale price is $2,008.4 We reviewed the settlement
                  statement for the homebuyer and it indicates that the homebuyer obtained a
                  mortgage of $77,900. The City should buy down the mortgage by $2,008.5 For the
                  four properties reviewed, the mortgages increased by $11,733 (see appendixes C and
                  D). The City should buy down the existing mortgages for those homes.

    The City Did Not Verify
    Homebuyers’ Eligibility


                  The City did not verify homebuyers’ eligibility, as determined by the developer,
                  and maintain the appropriate related supporting documentation. The ACA
                  agreement defines eligible buyers as individuals with income at or below 115
                  percent of local area median income adjusted by family size, as defined by HUD

2
  $78,000 (sale price)/$68,602 (net development costs) =113.70 percent
3
  [$68,602 (net development costs) - $2,522 (ineligible costs)] x115percent = $75,992 (adjusted sale price)
4
  $78,000 (sale price) - $75,992 (adjusted sale price) = $2,008 (buy down)
5
  $77,900 (mortgage) - $2,008 (buy-down) = $75,892 (adjusted mortgage amount)


                                                         7
           for the fiscal year in which the acquired ACA property is sold. Section 5.2E of
           the ACA agreement requires the City to maintain sufficient documentation to
           support income eligibility for homebuyers. Our review of five randomly selected
           homebuyers indicated that the developer’s staff documented that the homebuyers
           were eligible without sufficient documentation. For example, in one case, the
           developer’s staff and the homebuyer signed an income certification indicating that
           the information presented on the certification was true and accurate. The
           homebuyer and a household member reported income from employment and
           Social Security totaling $57,518. However, there was no documentation in the
           file to support the source of income related to employment or Social Security
           earnings. Examples of adequate documentation would include a pay stub and/or
           third-party employment verification, as well as a statement of Social Security
           earnings or verification from the Social Security Administration. We found no
           evidence to indicate that the City verified the eligibility of the homebuyers as
           determined by the developer. As a result, we had no assurance that the
           homebuyers met the eligibility requirements stipulated in the ACA agreement.

The City Did Not Explore
Alternate Funding Sources and
Did Not Effectively Implement
Its Quality Control Plan


           The deficiencies identified above occurred because the City did not explore
           alternate sources of funding and did not effectively implement its quality control
           plan. City staff stated that the 17 outstanding ACA properties had not been
           rehabilitated because the developer ran out of funds. The Agency was the major
           source of the developer’s funds. According to City staff, the developer would
           need to wait until 2009 to apply for more funds from the Agency. We found no
           evidence to indicate that the City had explored or sought alternate sources of
           funding to rehabilitate the 17 outstanding properties. Although the City
           transferred its ACA properties to the developer, the City was ultimately
           responsible for ensuring that the ACA properties were rehabilitated and sold
           within the required timeframes in accordance with the ACA agreement. The City
           needs to develop a process for exploring or seeking alternate sources of funding
           when existing funds for property repairs are exhausted to help prevent or reduce
           instances in which rehabilitation work cannot be performed on its ACA properties
           due to funding shortages.

           The City also did not effectively implement its quality control plan. The City’s
           quality control plan was accepted by HUD and incorporated into the ACA
           agreement under exhibit 5. The quality control plan states that one of the goals of
           the City’s monitoring system (pertaining to its ACA program) includes assurance
           that development costs are correctly calculated. Section 2.2 in exhibit 5 states
           that the City will review documents submitted by the developer for accuracy and
           completeness. City staff stated that they reviewed the documentation submitted


                                            8
             by the developer but did not document their reviews. Therefore, we found no
             evidence of reviews or steps/procedures taken by the City to ensure that net
             development costs or expenses submitted by the developer were eligible and
             accurately calculated in accordance with the ACA agreement. Also, contrary to
             its quality control plan, which states that one of the goals of the City’s monitoring
             system (pertaining to its ACA program) includes verifying buyer eligibility, and
             section 5.2E of the ACA agreement, which states that the City will maintain
             sufficient documentation to support income eligibility for homebuyers, the City
             did not verify homebuyers’ eligibility, as determined by the developer, and
             maintain the appropriate related supporting documentation as discussed above.
             The City needs to effectively implement its quality control plan to ensure that it
             complies with the requirements of the ACA agreement.


Conclusion



             The City did not comply with the specific provisions of the ACA agreement. It
             did not (1) ensure that properties acquired under the agreement were sold to
             eligible homebuyers within the required timeframes, (2) ensure that $11,647 in
             property net development costs for the properties were eligible, and (3) verify
             homebuyers’ eligibility and maintain the appropriate related supporting
             documentation. The deficiencies identified occurred because the City did not
             explore or seek alternate sources of funding for the rehabilitation of its ACA
             properties and did not effectively implement its quality control plan. As a result,
             it was unable to support $441,500 in property discounts from HUD for 17
             unrepaired properties and must buy down the mortgages for four properties which
             had $11,647 in ineligible expenses included as part of their net development costs.
             In addition, since the City did not properly verify homebuyers’ eligibility, it could
             not ensure that homebuyers met the requirements stipulated in the ACA
             agreement. The City should be required to demonstrate that it has the ability to
             rehabilitate and sell the 17 outstanding properties and provide a timeline for
             completion of the needed repairs. It should also effectively implement its quality
             control plan to ensure that it complies with the requirements of the ACA
             agreement.

Recommendations


             We recommend that the Director, Office of Single Family Asset Management,
             direct the City to

             1A.    Obtain and provide evidence that the developer has the necessary funds to
                    complete the rehabilitation and sale of the remaining 17 properties. If the
                    developer cannot provide evidence of financial ability to rehabilitate the




                                               9
       outstanding properties, the City should pay HUD $441,500 for the
       discount it received on the properties.

1B.    Obtain and provide the developer’s timeframes for completing
       rehabilitation on outstanding properties.

1C.    Develop a process for exploring or seeking alternate sources of funding to
       help prevent or reduce instances in which rehabilitation work cannot be
       performed on its ACA properties due to fund shortages.

1D.    Buy down the mortgages for the four properties for which we identified
       $11,647 in ineligible costs. Based upon our recalculation, the buy-down
       amount is a total of $11,733 for the four properties (see appendix D for a
       list of the four properties).

1E.    Obtain documentation on net development costs for all of its rehabilitated
       ACA properties from the developer and review the costs for eligibility and
       accuracy in accordance with the ACA agreement. The City should
       document its review of each ACA property and should buy down the
       mortgages if it is determined that there were ineligible costs that increased
       the mortgage amounts to the homebuyers.

1F.    Verify and document the eligibility of each homebuyer. If the City is
       unable to provide satisfactory documentation to support the eligibility of
       any homebuyers, the City should pay HUD the amount of the sales
       discounts associated with the homes.

We also recommend that the Director, Office of Single Family Asset Management

1G.    Not renew the ACA agreement with the City until it has demonstrated that
       it is in compliance with the requirements of the agreement.




                                10
                        SCOPE AND METHODOLOGY

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 finding and
conclusions based on our audit objective.

We performed the audit at the City from April through October 2008. The City’s office is
located at City Hall – Suite 432, Camden, New Jersey. Our audit covered the period
November 1, 2005, through March 31, 2008. However, we extended the period as necessary to
achieve our objective. During the audit, we assessed the reliability of computer-processed data
relevant to our audit by comparing the data to hard-copy information. We found the computer-
processed data sufficiently reliable to meet our audit objective.

We discussed operations with staff from the City and key officials from HUD’s Philadelphia
Real Estate Owned Division office and its headquarters Single Family Asset Management
Division.

To determine whether the City complied with the ACA agreement, we obtained and reviewed the
following:

       The ACA agreement and documents related to the City’s ACA application.
       Correspondence prepared by HUD, the City, the developer, and other related parties.
       Information obtained from public records using data retrieval tools including LexisNexis.
       HUD reviews of the City including e-mails and memorandums.
       Documentation on the ACA properties acquired by the City including but not limited to
       supporting documentation for net development costs, homebuyer eligibility, and property
       sales.
       Audited financial statements for the City for the period ending June 30, 2007.
       Financial data on the ACA properties submitted to the City by the developer of its ACA
       properties.
       Construction loan agreements between the developer of the City’s ACA properties and
       the Agency.
       Organizational chart for the City’s Division of Housing Services.
       Ghenene & Associates’ Agreed-Upon Review Procedures Report on the City’s ACA
       program, dated June 15, 2007.

We also performed the following:

We reviewed acquisition, sale, and other relevant information pertaining to the City’s 68
acquired ACA properties to determine whether the properties were rehabilitated and sold within
the timeframe specified by the ACA agreement.




                                               11
We reviewed files for four of the City’s 68 acquired ACA properties to determine whether the
net development costs for the properties were based on supported eligible expenses. Our review
was limited because during our audit timeframe, the City was compiling appropriate
documentation on net development costs for its rehabilitated properties. As of the beginning of
our review in April 2008, the City only had complete records of net development costs for one of
its rehabilitated ACA properties. The City later provided supporting documentation for two
additional properties. We randomly selected another two properties for review from the City’s
listing of acquired properties. As of July 31, 2008, the City had support for net development
costs available for 5 of its 68 ACA properties. We reviewed the supporting documentation for
net development costs for four of the five properties. We also reviewed the settlement
statements for the four properties to determine the mortgage amounts. The City’s developer
included $11,647 in ineligible expenses in the net development costs for the four properties. As
a result, the related sale prices and, consequently, the mortgages increased by approximately
$11,700 (see appendixes C and D).

We randomly selected and reviewed the files pertaining to five properties from the City’s listing
of acquired ACA properties to determine whether the homebuyers met the eligibility
requirements stipulated by the ACA agreement.

We inspected 2 of the City’s 17 properties that had not been rehabilitated to observe the general
condition of the properties prior to repair work. The properties were selected by staff of the
City’s developer. For verification purposes, we also randomly selected and inspected 5 of the
City’s 51 rehabilitated properties from its listing of acquired properties.




                                                12
                              INTERNAL CONTROLS

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

       Program operations,
       Relevance and reliability of information,
       Compliance with applicable laws and regulations, and
       Safeguarding of assets and resources.

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



 Relevant Internal Controls


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

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

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

                  Safeguarding resources – Policies and procedures that management has
                  implemented to reasonably ensure that resources are safeguarded against waste,
                  loss, and misuse.

                  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.

              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.




                                               13
Significant Weaknesses


           Based on our review, we believe that the following item is a significant weakness:

               The City did not implement controls to ensure that properties acquired under
               the ACA agreement were sold to eligible homebuyers within the required
               timeframes, that all net property development costs were eligible, and that all
               homebuyers were eligible.




                                            14
                                    APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


                 Recommendation           Ineligible 1/     Unsupported 2/
                     number
                       1A                                      $441,500
                       1D                   $11,733


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




Comment 1




                                  16
Comment 2




Comment 3




            17
                         OIG Evaluation of Auditee Comments

Comment 1   We are encouraged by the City’s plans to identify and pursue a funding source for
            the rehabilitation of its outstanding ACA properties. The City should provide
            HUD support or evidence for the three properties that have recently been placed
            under construction. If the City provides satisfactory supporting documents, the
            unsupported costs reported in recommendation 1A will be reduced.

Comment 2   The City is on the right track with its plan to review and certify financial
            transactions in accordance with exhibit 8 of its ACA agreement, and should seek
            HUD guidance for clarification of issues or requirements when needed.

Comment 3   This is the final report on our audit. Upon receiving correspondence from HUD
            pertaining to the audit and the related findings, the City should work with HUD to
            resolve the audit recommendations.




                                            18
Appendix C

  ANALYSIS OF SALE PRICES, NET DEVELOPMENT COSTS
               AND INELIGIBLE COSTS




                                                       Percentage
                                                      of sale price
                                              Net       over net             OIG Audit
   Property    Appraised Sale             development development Ineligible adjusted
   address       value   price               costs        costs     costs    sale price*
    2820 N.
Congress Road   $86,000 $78,000              $68,602        113.70%        $2,522      $75,992
    2776 N.
Congress Road   $96,500 $95,000              $82,685        114.89%        $4,785      $89,585
 2957 Hartford
     Road       $90,000 $82,000              $71,858        114.11%        $1,530      $80,877
3173 Tuckahoe
     Road       $76,000 $75,000              $65,256        114.93%        $2,810      $71,813


* OIG adjusted sale price = (net development costs – ineligible costs) x 115 percent

Note: According to the ACA agreement rehabilitated properties may be sold at the lesser of fair
market value (appraised value) or 115 percent of eligible rehabilitation expenses (net
development costs). The OIG Audit adjusted sale price is the maximum allowable sale price for
each respective property.




                                               19
Appendix D

CALCULATION OF MORTGAGE BUY-DOWN AMOUNTS AND
             ADJUSTED MORTGAGES




                                                Difference         Homebuyer
                                               between sale         mortgage        OIG Audit
                                OIG Audit     price and OIG         amount at        adjusted
      Property         Sale      adjusted     Audit adjusted         property       mortgage
      address          price    sale price      sale price*      settlement date    amount**
       2820 N.
   Congress Road     $78,000      $75,992           $2,008           $77,900          $75,892
       2776 N.
   Congress Road     $95,000      $89,585           $5,415           $90,250          $84,835
    2957 Hartford
        Road         $82,000      $80,877           $1,123           $65,600          $64,477
   3173 Tuckahoe
        Road         $75,000      $71,813           $3,187           $71,350          $68,163


* The difference between the sale price and the OIG Audit adjusted sale price (from appendix C
above) represents the mortgage buy-down amount for each respective property based on the
ineligible costs identified in appendix C above. The total amount for the four properties is
$11,733.

** The OIG Audit adjusted mortgage amount is the homebuyer mortgage amount at the property
settlement date less the difference between the sale price and the OIG Audit adjusted sale price.




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