U. S. Department of Housing and Urban Development Office of Inspector General Region X Federal Office Building 909 First Avenue, Suite 126 Seattle, Washington 98104-1000 (206) 220-5360 Fax (206) 220-5162 Issue Date September 15, 2009 Audit Report Number 2009-SE-1802 MEMORANDUM FOR: Jack Peters, Director, Region X, Office of Community Planning and Development, 0AD FROM: Joan S. Hobbs Regional Inspector General for Audit, Region X, 0AGA SUBJECT: The State of Washington Did Not Always Allocate Its Neighborhood Stabilization Program Funds Based on Greatest Need INTRODUCTION We audited the State of Washington’s (State) Neighborhood Stabilization Program (Program). The audit was part of our fiscal year 2009 annual audit plan. We selected the State because it was responsible for the distribution of funds to the entitlement areas, as well as to nonentitlement areas, of the State. Our objective was to determine whether the State’s Program implementation was compliant with U.S. Department of Housing and Urban Development (HUD) requirements. Specifically, we wanted to determine whether The State’s selection of the subrecipients was based on greatest need, The subrecipients’ proposals contained only eligible activities, and The subrecipients had the capacity to administer the funds. 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. SCOPE AND METHODOLOGY To accomplish our objective, we reviewed Applicable laws; the Federal Register, dated October 6, 2008; HUD’s regulations at 24 CFR [Code of Federal Regulations] Parts 85 and 91; and other HUD guidance; Community Planning and Development Regional Office files for the State’s Program grant; and The State’s 2008 Action Plan Amendment for the Program, policies and procedures, subrecipients’ proposals, draft contracts with subrecipients, Community Development Block Grant monitoring files, and financial reports. We also interviewed the State’s employees and HUD’s staff. We performed our on-site audit work from June through July 2009 at the State’s office located in Olympia, Washington. The audit covered the period October 2008 through July 2009. This was a limited scope review. Therefore, our work was not performed in accordance with generally accepted government auditing standards. BACKGROUND The Program. Authorized under Title III of the Housing and Economic Recovery Act (Act), as amended, the Program provides grants to every state and certain local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes to stabilize neighborhoods and stem the decline in value of neighboring homes. HUD allocated more than $3.9 billion in Program funds to grantees. The State. HUD allocated nearly $28.2 million in Program funds to the State based upon the funding formula developed by HUD pursuant to the Act. On March 20, 2009, HUD entered into a grant agreement with the State’s Department of Community, Trade, and Economic Development for the full amount allocated. Effective July 26, 2009, this department changed its name to the Department of Commerce. Congress amended its Program and increased its funding as part of the American Reinvestment and Recovery Act of 2009 (Recovery Act). The State submitted an application, dated July 16, 2009 for additional Program funds under the Recovery Act. The application is under review by HUD. RESULTS OF REVIEW The State’s Program implementation was generally compliant with HUD requirements. However, the distribution was not entirely based on greatest need. This condition occurred because the State misinterpreted foreclosure need score data obtained from the Local Initiatives Support Corporation. As a result, some communities received excessive allocations, while others that had a greater need did not receive an allocation. 2 According to the Program’s statutory requirements, grantees must distribute funds to areas with the greatest need. The State determined which areas had the greatest need by using foreclosure need score data from two datasets created by the Local Initiatives Support Corporation. One dataset contained foreclosure “needs scores” for Community Development Block Grant jurisdictions (entitlement areas), and one dataset contained the “needs scores” at the ZIP Code level within each state (all communities including entitlement areas). These scores incorporated measures of subprime lending, foreclosures, delinquency, and vacancies to help state and local officials quickly assess the relative needs of different jurisdictions for Program funding within each state and allocate funds accordingly. The State used both datasets for its distribution; however, the databases were not comparable. The dataset methodology stated, “Users are advised NOT to compare foreclosure needs scores at the ZIP Code level with CDBG [Community Development Block Grant] Jurisdiction needs scores, as each set of scores is based on an independent ranking system.” As a result, some of the Community Development Block Grant jurisdictions did not receive funds although they had a greater need than some of the smaller communities that were funded. During our review, we noted that after its initial allocation, the State had $1.3 million available for distribution because two of the subrecipients declined to participate in the program after initially notifying the State that they intended to participate. The State planned to hold these funds in reserve to be distributed at a later date to subrecipients that were timely in expending their funding and could obligate the funding before HUD’s September 18, 2010, deadline. We recommended that these funds be offered to three communities that had not previously received funding and three existing subrecipients that were underfunded based on their foreclosure need score ranking. The State agreed with our audit recommendations and has already taken corrective action (see appendix A for details). RECOMMENDATION We recommend that the Seattle Office of Community Planning and Development ensure that the State 1A. Awards the $1.3 million in Program funds to subrecipients that were not funded or were underfunded so that these funds will be used for communities that had a greater need than some of the communities that received funding. 1B. Ensure it fully understands external data before using it to make future allocations of funds. AUDITEE’S RESPONSE We provided a discussion draft memorandum report to the auditee on August 25, 2009, and held an exit conference with its staff on September 8, 2009. The State chose not to provide any written comments. It agreed with our findings and recommendations. 3 Appendix A SCHEDULE OF FUNDS TO BE PUT TO BETTER USE Recommendation Funds to be put number to better use 1/ 1A $1,335,314 1/ Recommendations that funds be put to better use are estimates of amounts that could be used more efficiently if an Office of Inspector General (OIG) recommendation is implemented. These amounts include reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by implementing recommended improvements, avoidance of unnecessary expenditures noted in preaward reviews, and any other savings that are specifically identified. The amount in this report represents funds that would have been distributed to the existing subrecipients if our recommendation had not been implemented. The State has already implemented our recommendation. 4 Appendix A-1 SCHEDULE OF FUNDS TO BE PUT TO BETTER USE BY SUBRECIPIENT Final State Audit determined Funds to be put Subecipient County distribution distribution to better use Aberdeen Grays Harbor $756,938 $756,938 Bellingham* Whatcom * 343,666 $343,666 Centralia ** Lewis 391,315 ** Clark County Clark 1,577,664 1,577,664 Everett Snohomish 546,899 546,899 Federal Way King 651,688 651,688 Hoquiam Grays Harbor 448,918 448,918 Kelso Cowlitz 430,326 514,472 84,146 Kennewick Benton * 402,364 402,364 Kent King 475,264 475,264 King County King 2,285,126 2,465,051 179,925 Kitsap County Kitsap 671,745 862,836 191,091 Lacey Thurston 356,065 356,065 Lakewood Pierce 626,793 626,793 Moses Lake Grant 329,666 329,666 Pasco Franklin 402,141 402,141 Pierce County Pierce 4,692,761 4,692,761 Richland Benton * 134,121 134,121 Seattle King 458,126 458,126 Sedro-Woolley *** Skagit *** *** Shelton ** Mason 943,998 ** Snohomish County Snohomish 2,313,822 2,313,822 Spokane Spokane 1,085,281 1,085,281 Spokane County Spokane 689,625 689,625 5 Final State Audit determined Funds to be put Subecipient County distribution distribution to better use Sunnyside Yakima 622,508 622,508 Tacoma Pierce 3,083,548 3,083,548 Toppenish Yakima 252,351 252,351 Vancouver Clark 802,767 802,767 Walla Walla Walla Walla 306,974 306,974 Wapato Yakima 257,900 257,900 Yakima Yakima 650,614 650,614 Yelm Thurston 640,505 640,505 State reserves ** 1,335,313 State administrative funds 1,407,965 1,407,965 Totals $28,159,293 $28,159,293 $1,335,313 * These Community Development Block Grant jurisdictions did not initially receive funds although they had a greater need than some of the smaller communities that were funded. ** Two subrecipients decided not to participate after the final distribution was made. The State was holding these funds in reserve to be distributed at a later date to subrecipients that were obligating the funds in a timely manner. However, as a result of our audit, the State will redistribute these funds to communities that had previously not received funding or that had initially been underfunded. *** Sedro Woolley decided not to participate after HUD approved the Washington State Action Plan Amendment, dated December 2008. The State distributed the Sedro Woolley funds to the smaller communities and published a January 29, 2009 Final NSP Distribution List on its Web site. 6
The State of Washington Did Not Always Allocate Its Neighborhood Stabilization Program Funds Based on Greatest Need
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)