Issue Date
May 17, 2010
Audit Report Number
2010-AT-1004
TO: Charles Franklin, Director, Community Planning and Development Division,
4CD
//signed//
FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA
SUBJECT: Mobile Housing Board, Mobile, AL, Used HOME Investment Partnerships
Program Funds for Ineligible and Unsupported Costs for Its HOPE VI
Redevelopment
HIGHLIGHTS
What We Audited and Why
We audited the Mobile Housing Board (Housing Board), which serves as both the
public housing agency and the administering agency for the City of Mobile, AL’s
(City) HOME Investment Partnerships Program (HOME) and Community
Development Block Grant (CDBG) program. We performed the audit based on a
request from the Assistant Secretary, Community Planning and Development.
The Assistant Secretary, along with the Director of the Office of Affordable
Housing, expressed substantial concerns regarding the eligibility of the HOME
and CDBG funds expended on the Housing Board’s HOPE VI project, as well as
the Housing Board’s administration of the HOME and CDBG programs related to
its public housing HOPE VI project, given the Housing Board’s dual role as
administrator of the programs and the public housing authority.
Our audit objective was to determine whether the City adequately monitored the
Housing Board and whether the Housing Board’s controls and procedures to
separate its public housing agency operations from its administration of HOME
and CDBG programs were effective in preventing and detecting ineligible and
unsupported costs in its HOPE VI redevelopment.
What We Found
The City did not perform annual monitoring of the Housing Board to ensure that
its HOME funds were used in accordance with all program requirements. This
condition occurred because the City did not maintain an adequate subrecipient
agreement with the Housing Board that provided current and sufficient detail as a
sound basis on which to effectively monitor the Housing Board's performance. In
addition, the City did not establish procedures for monitoring the Housing Board.
As a result, due to its lack of monitoring, the City failed to detect or prevent the
Housing Board’s use of more than $1.1 million for unsupported and ineligible
costs for the HOPE VI redevelopment.
Cost allocation plans were not developed by the Housing Board to properly
allocate or prorate its HOME program costs for phases III and IV. The Housing
Board arbitrarily charged more than $1 million to phases III and IV. This
condition occurred because the Housing Board expended the funds to meet
program expenditure deadlines without regard to HOME regulations. As a result,
the Housing Board disbursed $839,713 in unsupported costs on both phases.
The Housing Board used $339,657 of its HOME funds to pay for ineligible costs
in all four phases of its HOPE VI redevelopment project. This condition occurred
because (1) the Housing Board’s controls and procedures to separate its public
housing agency operations from its administration of CPD programs were
ineffective in preventing and detecting ineligible costs and (2) the City did not
monitor the Housing Board (see finding 1). As a result, $339,657 in HOME
funds was not used as intended under the HOME program.
What We Recommend
We recommend that the Director for Community Planning and Development
ensure that the City (1) establishes and maintains a subrecipient agreement with
the Housing Board pursuant to HUD requirements, (2) develops procedures to
monitor the Housing Board at least annually, and (3) reallocates the excessive
$1.9 million in HOME and CDBG funds to other eligible activities and program
recipients.
In addition, we recommend that the Director for Community Planning and
Development require the Housing Board to (1) support the $839,713 in HOME
funds it charged to phases III and IV with either a cost allocation or proration
plan, repaying any amount that cannot be supported; (2) lower the sales prices of
the HOME units in phase I to within HUD requirements and ensure that they are
occupied by qualified low-income persons in a timely manner or repay the
$156,004 in ineligible HOME funds; (3) recapture the $183,653 in HOME funds
2
used to pay for ineligible costs for phases II, III, and IV of the HOPE VI
redevelopment; and (4) establish controls and procedures to separate its public
housing agency operations from its administration of CPD programs so that
HOME funds will be used according to program requirements.
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 our review results with the Housing Board, the City and HUD
officials during the audit. We provided a copy of the draft report to Housing
Board officials on March 30, 2010, for their comments and discussed the report
with the officials at the exit conference on April 8, 2010. The Housing Board
provided written comments on April 21, 2010. It generally disagreed with our
findings.
The complete text of the Housing Board’s response, along with our evaluation of
that response, can be found in appendix B of this report. Attachments to the
Housing Board’s comments were not included in the report but are available for
review upon request.
3
TABLE OF CONTENTS
Background and Objective 5
Results of Audit
Finding 1: The City Did Not Adequately Monitor the Housing Board 6
Finding 2: The Housing Board Did Not Develop Cost Allocation Plans for 9
Phases III and IV
Finding 3: The Housing Board Used HOME Funds for Ineligible Costs 12
Scope and Methodology 16
Internal Controls 17
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 18
B. Auditee Comments and OIG’s Evaluation 19
4
BACKGROUND AND OBJECTIVE
The Mobile Housing Board (Housing Board) serves as the public housing authority for the City
of Mobile (City). The Housing Board was incorporated in 1937 and chartered under the laws of
the State of Alabama to provide and administer affordable housing programs and related
programs for the citizens of Mobile, AL. The Housing Board receives policy guidance and
operational approval from its five-member governing board of commissioners. The
commissioners are appointed to 5-year terms by the mayor of Mobile. The Housing Board
dismissed its long-time executive director on December 2, 2009, and hired Dwayne Vaughn as
interim executive director.
The majority of funding for the Housing Board is provided by the Federal Government through
the U.S. Department of Housing and Urban Development (HUD). The Housing Board provides
housing or housing assistance to more than 7,000 families through the traditional public housing
and Housing Choice Voucher programs. In addition to its role as the public housing authority,
the Housing Board works in collaboration with the City to administer its Community
Development Block Grant (CDBG) program and, operates as a subrecipient for the City’s
HOME Investment Partnerships Program (HOME).
The Housing Board received a $20 million fiscal year 2003 HOPE VI revitalization grant from
HUD’s Public and Indian Housing Division for redevelopment of the Albert Owens/Jesse
Thomas public housing developments. The HOPE VI redevelopment was financed with the $20
million in HOPE VI funds, which leveraged another $23.9 million in investment that included
HOME and CDBG funds.
The audit objective was to determine whether the City adequately monitored the Housing Board
and whether the Housing Board’s controls and procedures to separate its public housing agency
operations from its administration of HOME and CDBG programs were effective in preventing
and detecting ineligible and unsupported HOME and CDBG costs in its HOPE VI
redevelopment.
5
RESULTS OF AUDIT
Finding 1: The City Did Not Adequately Monitor the Housing Board
The City did not adequately monitor its subrecipient, the Housing Board This condition
occurred because the City did not maintain an adequate subrecipient agreement with the Housing
Board that provided current and sufficient detail as a sound basis on which to effectively monitor
the Housing Board’s performance. In addition, the City did not establish procedures for
monitoring the Housing Board. As a result, due to its lack of monitoring, the City failed to
detect or prevent the Housing Board’s use of more than $1.1 million for unsupported and
ineligible costs for the HOPE VI redevelopment (see findings 2 and 3).
Monitoring Reviews Not
Conducted as Required
The City did not comply with HUD requirements for managing its HOME
program. 24 CFR 92.504(a) requires the City to review the Housing Board, at
least annually, to ensure that HOME funds are used in accordance with all
program requirements. However, the City had not performed monitoring reviews
of the Housing Board within the past 10 years and did not have procedures for
monitoring the HOME program.
The City did not maintain an adequate subrecipient agreement with the Housing
Board. 24 CFR 92.504(b) requires that, before disbursing HOME funds to the
Housing Board, the City must enter into a written agreement. The subrecipient
agreement in place was executed on August 10, 1999, and had not been revised.
The 1999 agreement did not describe, in current and sufficient detail, the use of
the HOME funds, including the tasks to be performed, a schedule for completing
the tasks, a budget, and the period of the agreement as required by 24 CFR
92.504(c)(2)(i). The agreement did not address the use of program income and
did not specify the particular records that must be maintained and the information
or reports that must be submitted to assist the City in meeting its requirements as
required by 24 CFR 92.504(c)(2)(ii) and (vii). Without a proper subrecipient
agreement, the City lacked a sound basis upon which to effectively develop
procedures to monitor the Housing Board’s performance.
Consequently, the Mobile City Council allocated more than $1.9 million in
excessive HOME and CDBG funds for the HOPE VI redevelopment project. On
May 13, 2008, the City allocated $5.3 million to the Housing Board’s HOPE VI
redevelopment project without proper documentation to support the funds needed.
According to the former executive director, the funds were allocated based on the
HOPE VI matching requirements. However, the Housing Board’s HOPE VI
6
status report, dated January 12, 2010, documented that only $3.308 million in
HOME and CDBG funds was needed and the Housing Board confirmed that the
HOME and CDBG funding amounts in that status report were still accurate as of
March 23, 2010. Therefore, the City reallocated more than $1.9 million in
excessive HOME and CDBG funds to the Housing Board for its HOPE VI
redevelopment. These funds were not available for use to benefit HUD’s
intended recipients, and the City should reallocate these funds to other eligible
activities.
Also, due to its lack of monitoring, the City failed to detect or prevent the use of
HOME funds for unsupported and ineligible costs for the HOPE VI
redevelopment project. The Housing Board used $839,713 for unsupported costs
(see finding 2) and $339,657 for ineligible costs (see finding 3) that should be
repaid.
The City’s chief of staff acknowledged that the City did not monitor the Housing
Board and that the subrecipient agreement was inadequate. As of January 27,
2010, the City had begun efforts to develop audit procedures and assigned an
internal auditor the responsibility for monitoring the Housing Board. Before that
designation, the City did not have an internal audit function in place for
monitoring the Housing Board. The City’s chief of staff stated that the
subrecipient agreement would be revised and maintained to reflect current HOME
activities in sufficient detail to provide a sound basis for effective monitoring.
Conclusion
Overall, the City did not comply with HUD requirements for managing the
Housing Board’s HOME program. It did not establish an adequate subrecipient
agreement or have montitoring procedures in place. It allocated more than $1.9
million in excessive HOME and CDBG funds to the Housing Board for its HOPE
VI redevelopment. In addition, due to its lack of monitoring, the City failed to
detect or prevent the use of HOME funds for unsupported and ineligible costs for
the HOPE VI redevelopment project. The Housing Board used $839,713 for
unsupported costs (see finding 2) and $339,657 for ineligible costs (see finding 3)
that should be repaid.
Recommendations
We recommend that the Director, Office of Community Planning and
Development,
1A. Require the City to establish and maintain a subrecipient agreement with
the Housing Board, as provided by HUD requirements that includes
7
current and sufficient detail to provide a sound basis on which to
effectively monitor the Housing Board’s performance.
1B. Require the City to develop procedures for monitoring the Housing Board,
at least annually, to ensure that HOME funds are used in accordance with
all program requirements.
1C. Require the City to reallocate the $1,991,149 in excess HOME and CDBG
funds it reallocated to the Housing Board in support of its HOPE VI
redevelopment project to other eligible activities and program recipients.
8
Finding 2: The Housing Board Did Not Develop Cost Allocation Plans
for Phases III and IV
The Housing Board did not develop cost allocation plans to properly allocate or prorate its
HOME program costs for phases III and IV. It arbitrarily charged more than $1 million to
phases III and IV. This condition occurred because the Housing Board expended the funds to
meet program expenditure deadlines without regard to HOME regulations. As a result, it
disbursed $839,713 in unsupported costs on both phases.
Four Phases of the HOPE VI
Program
The Housing Board’s HOPE VI redevelopment program included four phases:
phase I included 9 single-family homeownership units, phase II included an 88-
unit senior rental high rise, phase III included 87 family rental units, and phase IV
included 48 family rental units.
HUD’s Community Planning and Development Notice 98-2 states that HOME
funds may be invested in mixed-income projects to assist only the HOME portion
of the units in the project. It is necessary to distinguish between HOME-assisted
and other units. When the units are comparable, the actual costs can be
determined by prorating total development costs. When units are not comparable,
the participating jurisdiction must allocate the HOME costs on a unit-by-unit
basis, charging only actual costs to the HOME program.
Six of the nine units for phase I received HOME funding, and three units were
privately financed. Since the six units were HOME specific, allocation of the
costs was not required. Phase II did not include HOME units and was not eligible
for HOME funds. However, phases III and IV received mixed funding from
several HUD programs and private financing, which required allocation of the
HOME costs.
Phase III Development Costs
Phase III of the redevelopment plan consisted of a community building and 47
family buildings containing 87 subsidized units, to include 14 1-bedroom units,
53 2-bedroom units, and 20 3-bedroom units. The Housing Board estimated that
it would cost more than $18.7 million to develop phase III. It planned to use
mixed funding from the HOME and HOPE VI programs, along with capital funds
and various tax credits, to finance the development.
9
The Housing Board committed HOME funds of $990,525 for phase III. As of
December 31, 2009, it had drawn $842,973 in HOME funds but only charged
$835,641 to phase III. The remaining $7,332 was used to pay for costs associated
with phases I and II. A portion of the $835,641 was used to pay $130,872 in
ineligible expenses for demolition fees. The ineligible costs are discussed in
finding 3. The remaining $704,769 was unsupported because the Housing Board
did not have a cost allocation plan to support the distribution of the costs among
the various funding sources.
In addition, the Housing Board committed and expended $22,735 in HOME funds
to acquire a parcel of land used for phase III. The Housing Board purchased the
parcel of land expecting to receive an earlier HOPE VI grant. However, it did not
receive the grant. At the time the land was purchased with HOME funds, there
was not reasonable expectation that construction would begin within 12 months,
as required by 24 CFR 92.2(2) (i). Because the Housing Board subsequently
applied for and was awarded the HOPE VI redevelopment grant, and the land was
necessary for that HOPE VI project, purchase of the land was an allowable cost.
However, the cost was unsupported since a cost allocation plan was not in place
to distribute the costs among the various funding sources.
Phase IV Development Costs
Phase IV of the redevelopment plan consisted of 24 twin buildings containing 48
family units, to include 14 2-bedroom units and 34 3-bedroom units. The
Housing Board estimated that it would cost more than $10.3 million to develop
phase IV and planned to finance it using mixed funds from the HOME and HOPE
VI programs, along with capital and CDBG funds, to finance the development.
The Housing Board committed more than $1.2 million in HOME funds to phase
IV. As of December 31, 2009, it had expended more than $7.3 million, charging
$160,709 to the HOME program. A portion of the $160,709 was used to pay
$48,500 in ineligible expenses for architectural fees. The ineligible costs are
discussed in finding 3. The Housing Board did not have a cost allocation plan to
support the remaining $112,209 in costs expended. Therefore, $112,209 was not
a supported cost for phase IV.
Cost Allocation Plan Not
Prepared
The Housing Board provided a document between the City and the Housing
Board, dated June 16, 2009, signed by the Housing Board’s former executive
director. The Housing Board identified this document as an allocation plan. The
document pertained only to phase IV, and its purpose was for the Housing Board
10
to acknowledge to the City that 11 of the 48 units built in phase IV would be set
aside as HOME units. The document did not identify the units to be set aside, the
bedroom size, or the square footage. These elements are necessary to establish
unit comparability. There was no evidence that the Housing Board used this
document to allocate the program costs.
The Housing Board did not develop an allocation plan because it expended the
funds to meet program expenditure deadlines without regard to HOME
regulations. According to the former executive director, if a HOME program
expenditure deadline was near, the Housing Board would use HOME funds to
make a payment even if the costs were not for the HOME program, thus charging
the HOME program incorrectly.
The Housing Board was preparing a cost allocation plan. It sought HUD’s
assistance to ensure that the allocation plan would meet HOME requirements and
costs to the HOME program would be accurately stated and supported.
Since the Housing Board failed to develop a cost allocation plan to distribute the
costs among the various funding sources, it made $839,713 in unsupported
charges to the HOME program. This process not only resulted in unsupported
costs being charged to the HOME program, it will also result in additional staff
time needed to revisit and adjust the expenditures once a proper cost allocation
plan is developed.
Recommendations
We recommend that the Director, Office of Community Planning and
Development,
2A. Require the Housing Board to prepare a cost allocation or proration plan to
support the $839,713 charged to its HOME program for phases III and IV
or repay the U.S. treasury account the amount that cannot be supported
from its nonfederal funds.
2B. Require the Housing Board to adjust HOME program costs based on the
cost allocation plan developed.
2C. Require the Housing Board to adopt procedures that ensure a cost
allocation plan is developed for its projects before it commits HOME
funds.
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Finding 3: The Housing Board Used HOME Funds for Ineligible Costs
The Housing Board used $339,657 of its HOME funds to pay for ineligible costs in all four
phases of its HOPE VI redevelopment project. This condition occurred because (1) the Housing
Board’s controls and procedures to separate its public housing agency operations from its
administration of CPD programs were ineffective in preventing and detecting ineligible costs and
(2) the City did not monitor the Housing Board (see finding 1). As a result, $339,657 in HOME
funds was not used as intended under the HOME program.
$156,004 in Ineligible HOME
Funds for Phase I
The Housing Board committed HOME funds of $312,586 for phase I and
disbursed $156,004 to build six single-family houses. However, the houses were
not eligible for HOME funds because the sales prices were above the $200,160
statutory median sales price limitations for Mobile, AL. The houses were
certified for occupancy and offered for sale. The Housing Board must get
qualified occupants into the houses.
The Housing Board agreed that the houses were priced above the statutory limits
established in 24 CFR 92.254(a). It said it was unaware of and overlooked the
requirements limiting the sales prices. Because none of the houses had been sold,
the Housing Board had the opportunity to reduce the sales prices. The Housing
Board agreed and had begun lowering the sales prices for its existing sales
contracts. Two of the houses were under contract with sales prices of $223,900
and $229,000. The Housing Board lowered the sales prices for each house to
$200,160 to comply with HUD’s sales price limitation. The Housing Board said
it would reduce the sales prices for the remaining HOME-funded houses
according to requirements.
To make phase I eligible for HOME funds, in addition to reducing the sales price,
the Housing Board must also comply with 24 CFR 92.216 and 92.217 that
requires that it get low-income occupants into the units, either owner-occupants
that purchase the houses or tenants that rent from the Housing Board. Also, the
Housing Board must impose the affordability requirements provided in 24 CFR
92.252 for rental housing or 24 CFR 92.254 for homeownership units. The
houses have stood vacant for long periods of time. As of February 28, 2010, none
of the six HOME-funded houses were occupied even though the houses were
ready and available for occupants from 170 to 255 days. Despite the low demand
for homeownership units, the Housing Board preferred to continue its efforts to
sell the houses versus renting them. However, if the houses are not sold soon, the
Housing Board understood that either it would have to rent the houses to qualified
low-income tenants or repay the HOME funds.
12
Repaid funds must be deposited into the City’s HOME treasury account and used
for additional HOME projects in accordance with HOME program requirements.
However, the City had no HOME treasury account and the funds should be repaid
to the U.S. treasury account.
Because the houses were priced above statutory sales price limits and were not
occupied by qualified persons, the activity was ineligible. Therefore, the
$156,004 will have to be repaid unless the Housing Board (1) lowers the sales
prices according to requirements, (2) gets eligible low-income occupants into the
houses, and (3) imposes the HOME affordability requirements.
$4,281 in Ineligible HOME
Funds for Phase II
The Housing Board used $4,281 of its HOME funds to pay ineligible costs for
phase II, an 88-unit senior center with no HOME designated units. It erroneously
charged the $4,281 to its phase III development, but the vouchers and receipts
showed that the costs were for groundbreaking ceremonies for phase II. The
Housing Board acknowledged that it had charged $4,281 to phase III by mistake
and agreed that the $4,281 was an ineligible HOME cost. The $4,281 in HOME
funds should be repaid.
$130,872 in Ineligible HOME
Funds for Phase III
The Housing Board used $130,872 of its HOME funds for ineligible costs for
phase III. The HOME funds were used for the demolition of public housing, a
prohibited HOME cost. The Housing Board paid the demolition costs for public
housing because it was unaware that HOME regulations made a distinction
between costs for demolition and demolition of public housing.
While 24 CFR 92.205(a) (1) states that HOME funds may be used for demolition
costs, they cannot be used for the demolition of public housing. 24 CFR
92.214(a)(4) provides that HOME funds may not be used to pay for costs for
which public housing receives funding under Section 9 of the Housing Act of
1937 (Act), and funds were provided under the Act for the demolition of public
housing. Thus, demolition of public housing was not an eligible HOME cost.
The $130,872 in HOME funds should be repaid.
13
$48,500 in Ineligible HOME
Funds for Phase IV
The Housing Board used $48,500 of its HOME funds for ineligible costs for
architectural/engineering drawings that were no longer part of phase IV or the
approved HOPE VI redevelopment. It paid for architectural/engineering drawings
for 150 homeownership units that were intended to have been constructed within
phase IV. However, the Housing Board revised its HOPE VI redevelopment by
terminating its plan to construct the 150 homeownership units and decided to
construct 48 public housing rental units instead. The Housing Board planned to
use the drawings to construct 52 homeownership single-family houses when the
housing market becomes more stable. However, these units would be constructed
outside the approved HOPE VI redevelopment. 24 CFR 92.503(b)(2) provides
that HOME funds invested in a project that is terminated before completion,
either voluntarily or otherwise, must be repaid. As a result, the $48,500 in HOME
funds was not available to benefit the HOME program’s intended recipients. The
$48,500 in HOME funds should be repaid.
Conclusion
The Housing Board used HOME funds of $339,657 for ineligible costs to support
its HOPE VI redevelopment project. It used HOME funds of
$156,004 to pay ineligible phase I costs. However, the Housing Board can
correct this condition and avoid repayment of the funds if it (1) lowers the
sales prices (2) gets eligible low-income occupants into the houses as either
buyers or tenants, and (3) impose the HOME affordability requirements.
$183,653 to pay for ineligible costs for phases II, III, and IV of the HOPE
VI redevelopment that should be repaid.
Overall, the Housing Board incurred the ineligible costs because its controls and
procedures to separate its public housing agency operations from its
administration of community planning and development grant programs were
ineffective in preventing and detecting ineligible costs. Also, the City did not
monitor the Housing Board (see finding 1). As a result, HOME funds of
$339,656 were not used as intended under the HOME program.
Recommendations
We recommend that the Director, Office of Community Planning and
Development,
14
3A. Ensure that the Housing Board (1) lowers the sales prices of the HOME
units in phase I to within HUD requirements and (2) places qualified low-
income occupants into the homes within a reasonable amount of time,
whether those occupants are home buyers or tenants. Otherwise, HUD
should ensure that the Housing Board repays the U.S. treasury account all
of the $156,004 in ineligible HOME funds expended for phase I from
nonfederal funds.
3B. Ensure that the Housing Board repays, from nonfederal funds, HOME
funds of $183,653 used to pay for ineligible costs for phases II, III, and IV
of the HOPE VI redevelopment. Repaid funds must be deposited into the
U.S. treasury account for additional HOME projects.
3C. Require the Housing Board to establish controls and procedures to
separate its public housing agency operations from its administration of
CPD programs to provide reasonable assurance that HOME funds are used
according to HOME program requirements.
15
SCOPE AND METHODOLOGY
To accomplish our objectives, we
Researched HUD handbooks, the Code of Federal Regulations, and other requirements
and directives that govern the City’s HOME program;
Interviewed officials of the Birmingham HUD Offices of Community Planning and
Development and Public and Indian Housing, headquarters Office of Affordable
Housing, the Housing Board, and the City;
Reviewed HUD’s monitoring reports and files for the Housing Board’s HOME program;
Reviewed the Housing Board’s procedures and controls used to administer its CPD
program activities; and
Reviewed all costs charged to the HOME program that were related to the HOPE VI
program and the supporting documentation.
The HOPE VI redevelopment was financed with $20 million in HOPE VI funds, which
leveraged additional funds, including HOME and CDBG funds of $5.3 million. We tailored
our audit to focus on the $5.3 million in HOME and CDBG funds used in the HOPE VI program.
We did not review and assess general and application controls over the Housing Board’s
information system. We conducted other tests and procedures to ensure the integrity of
computer-processed data that were relevant to the audit objective. The tests included comparison
of computer-processed data to written agreements, contracts, and other supporting
documentation. We did not place reliance on the Housing Board’s information and used other
supporting documentation for the activities reviewed.
The review generally covered the period January 1, 2007, through August 31, 2009. We
performed the review from September 2009 to January 2010 at the offices of the Housing Board
located in Mobile, AL. We adjusted the review period when necessary.
We assigned a value to the potential savings to the HOME program if HUD implements our
recommendations. If HUD implements recommendation 1C requiring the City to reallocate the
$1.9 million of excessive HOME and CBDG funds, those funds will not be used for
inappropriate expenses, and the funds will be applied to eligible activities.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
16
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 control was relevant to our audit
objective:
Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that its resources are used
in accordance with laws and regulations.
We assessed the relevant control identified above.
A significant weakness exists if internal controls do not provide reasonable
assurance that the processes for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
Significant Weaknesses
Based on our review, we believe that the following item is a significant weakness:
The Housing Board’s controls and procedures to separate its public
housing agency operations from its administration of community planning
and development grant programs were not effective in preventing and
detecting unsupported and ineligible costs in its HOPE VI redevelopment
(see findings 2 and 3).
17
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported Funds to be put
number 2/ to better use 3/
1C $1,991,149
2A $839,713
3A $156,004
3B $183,653
Total $339,657 $839,713 $1,991,149
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.
3/ 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.
Implementation of our recommendation to require the City to reallocate the excessive
HOME and CBDG funds will result in costs not being incurred for inappropriate
expenses, and the funds will be applied to eligible activities.
18
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
19
20
Comment 1
Comment 2
21
Comment 3
Comment 3
22
23
Comment 3
Comment 2
24
Comment 3
Comment 4
25
Comment 4
26
Comment 5
Comment 6
27
Comment 7
28
29
30
31
Comment 8
32
33
OIG Evaluation of Auditee Comments
Comment 1 The OIG develops findings, instead of management improvement suggestions, to
put deficiencies in the proper perspective, in this case by describing the
relationship of the deficiencies to the Housing Board’s administration of its
HOME and CDBG programs.
Comment 2 The City’s chief of staff acknowledged that it did not monitor the Housing Board
as required and recently assigned an internal auditor to monitor the Hosing Board.
Before the designation, the City did not have a function in place to monitor the
Housing Board.
Comment 3 The subrecipient agreement between the City and the Housing Board was more
than 10 years old. The agreement did not contain detailed information about the
current HOME activities, tasks, timeliness, or budgets. The subrecipient
agreement is more than a document to be executed and archived; rather, the
subrecipient agreement is a key management tool for the City to monitor the
Housing Board's proper use of HOME funds. HUD regulations 24 CFR 92.504
require that the City must enter into a written agreement with its subrecipient that
assists the City in meeting its requirements under the HOME program. The
agreement in place, while fulfilling the basic requirement that an agreement be
established, was insufficient as a monitoring tool for the City, and did not provide
the City with a sound basis to effectively develop procedures to monitor the
Housing Board’s performance.
The Housing Board requested that we include a clarification in the
recommendation that the City can issue a new resolution with respect to
additional homeownership activities in order to remedy the finding. However, the
recommendation is written to allow the City to make the decision to fund a
HOME activity the Housing Board desires or other eligible activities preferred by
the City.
Comment 4 During the audit, we requested cost allocation plans from the Housing Board
several times and the Housing Board did not provide the plans. The Housing
Board informed us that it was trying to develop them. The Housing Board
provided draft allocation plans at the exit conference. Thus we did not verify the
draft allocation plans. The Housing Board should provide the draft allocation
plans to HUD for review.
The Housing Board stated that no particular form of allocation is required by
HUD and it also does not require a specific form or formal cost allocation plan.
Although HUD does not prescribe or provide an example for the form of an
allocation plan this does not preclude the Housing Board from preparing one.
Regardless of the format, an allocation plan is needed from the beginning of the
project to properly administer the HUD funds from the different funding sources.
34
Comment 5 The allocation plan submitted to HUD did not show any cost adjustments. HUD’s
Office of Affordable Housing reviewed and rejected the plans submitted by the
Housing Board. HUD rejected the plans because the proration method of
allocation is prohibited in a project that will contain public housing units.
Because HOME funds can never be used in a unit that receives capital funds and
HOME-funded units can only be used in a public housing unit that receives
HOPE VI funds, the cost allocation must identify, in detail, the actual costs paid
for with Capital and HOPE VI funds. Since the Housing Board’s allocation plans
were based on a prorated method, it will have to go back and reallocate the funds
based on actual costs.
Comment 6 We did not review the internal procedures. The enhanced procedures will be
considered by HUD during the management decision process.
Comment 7 The $130,872 of HOME funds used for demolition of public housing was a
prohibited cost based on the HOME requirements in 24 CFR 92.214(a)(4) that do
not allow HOME funds to be used for any costs that would otherwise be funded
under Section 9 of the Housing Act. That Act authorizes public housing funds for
demolition of public housing units; therefore, HOME funds may not be used to
pay for the demolition of public housing units. The $48,500 was ineligible
because HOME funds cannot be invested in a project that is terminated before
completion, either voluntarily or otherwise. The Housing Board’s comments on
HUD’s Office of General Counsel written opinion are not relevant to the finding
because the determination that the costs were ineligible was not based on
overlapping of HOME funds with public housing units, which is permissible
based on the Office of General Counsel opinion.
The Housing Board has reduced the sales price of the homeownership units to
comply with HOME sales price limitations. The Housing Board acknowledged
that the $4,281 was ineligible. The Housing Board’s comments indicated its
willingness to make the necessary improvements.
Comment 8 The Housing Board's comments indicate its agreement and willingness to
implement recommendation 3C, that HUD require the Housing Board to establish
controls and procedures to separate its public housing agency operations from its
administration of CDBG programs to provide reasonable assurance that HOME
funds are used according to HOME program requirements.
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Mobile Housing Board, Mobile, AL, Used HOME Investment Partnerships Program Funds for Ineligible and Unsupported Costs for Its HOPE VI Redevelopment
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-05-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)