oversight

Polk County, FL, Entered Incorrect Commitments Into HUD's Integrated Disbursement and Information System for Its HOME Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-01-30.

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

                                                                Issue Date
                                                                             July 30, 2010
                                                                Audit Report Number
                                                                         2010-AT-1008




TO:        Gary A. Causey, Director, HUD Jacksonville Office of Community Planning and
            Development, 4HD

           //signed//
FROM:       James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT:   Polk County, FL, Entered Incorrect Commitments Into HUD’s Integrated
            Disbursement and Information System for Its HOME Program


                                  HIGHLIGHTS

 What We Audited and Why


           We conducted an audit of HOME Investment Partnerships Program (HOME)
           commitments that Polk County (County), FL, entered into HUD’s Integrated
           Disbursement and Information System (information system). We included this
           issue as a separate review area after deciding to audit the County’s operations due
           to a confidential complaint that dealt with other issues, which we will address in a
           separate audit report. We conducted this audit because the County was one of
           several participating jurisdictions visited during our 2009 internal audit of HOME
           commitments. During the internal audit, we determined that the County entered
           incorrect commitments into HUD’s information system. Our objective was to
           determine the extent of the incorrect HOME commitments that the County
           entered into the information system and the impact of the incorrect entries,
           including those identified during the internal audit.
What We Found


         The audit identified more than $1.6 million in incorrect commitment entries that
         the County made to HUD’s information system. The incorrect entries masked a
         shortfall of more than $400,000 that is subject to recapture by HUD. The
         recapture, which resulted from a failure by County staff to implement adequate
         controls to monitor and ensure the accuracy of HOME commitments, will deprive
         County residents of services that the HOME program was intended to provide.
         The incorrect commitments also undermined the integrity of the information
         system and of reports HUD generated from the system to monitor the County’s
         compliance with the 24-month statutory commitment requirement.

         In addition, the County improperly executed agreements for its HOME-funded
         tenant-based rental assistance activities that obligated Section 8 funds to pay the
         costs, although the County used HOME funds to make the assistance payments.
         The Section 8 contracts did not legally support the commitment of HOME funds.
         This condition occurred because County management failed to ensure that the
         contracts were properly drafted to commit HOME funds for its tenant-based rental
         assistance program.


What We Recommend


         We recommend that the Director of HUD’s Jacksonville Office of Community
         Planning and Development recapture more than $400,000 in funds not committed
         by the County’s October 31, 2008, deadline compliance date. We also
         recommend that the Director require the County to implement controls to ensure
         that future HOME funds are committed by the required deadline, monitor
         commitments entered into HUD’s information system, and take appropriate action
         to promptly correct detected violations. In addition, we recommend that the
         Director require the County to prepare a proper legal contract template for its
         HOME-funded tenant-based rental assistance activities and use that contract
         template for all future HOME funds committed to those activities.

         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.




                                        2
Auditee’s Response


            We discussed the finding with County and HUD officials during the audit. On
            June 09, 2010, we provided a copy of the draft report to County officials for their
            comment and discussed the report with them at the exit conference on June 22,
            2010. The County provided its written comments to the draft report on June 25,
            2010. The County disagreed with several key issues discussed in the report.

            The complete text of the County’s response, along with our evaluation of that
            response, can be found in appendix B of this report.




                                           3
                            TABLE OF CONTENTS


Background and Objective                                                       5

Results of Audit                                                               6
      Finding 1: The County Entered Incorrect Commitments Into HUD’s
                 Information System and Executed Improper Agreements for Its
                 HOME-Funded Tenant-Based Rental Assistance Activities

Scope and Methodology                                                          11


Internal Controls                                                              13

Appendixes
   A. Schedule of Funds To Be Put to Better Use                                14
   B. Auditee Comments and OIG’s Evaluation                                    15




                                          4
                      BACKGROUND AND OBJECTIVE

The U.S. Department of Housing and Urban Development (HUD) allocates HOME Investment
Partnerships Program (HOME) funding to eligible local and State governments to strengthen
public-private partnerships and to supply decent, safe, and sanitary affordable housing to very
low-income families. Participating jurisdictions may use HOME funds to carry out multiyear
housing strategies through acquisition, rehabilitation, new construction, and tenant-based rental
assistance. For program years 2007 through 2009, HUD awarded Polk County (County), FL,
more than $3.2 million in HOME funding. The County is governed by a five-member board of
county commissioners (board). The board appoints the county manager, who is responsible for
carrying out the decisions, policies, and ordinances made by the board. The county manager
oversees all of the departments under the board, including the Human Services Department,
which encompasses the Housing and Neighborhood Development Division that administers the
HOME program.

HUD’s Office of Community Planning and Development in Jacksonville, FL, is responsible for
overseeing the County’s HOME program. HUD’s most recent monitoring report on the
County’s HOME program, dated October 20, 2008, did not include a review of the accuracy of
commitment entries that the County made to HUD’s Integrated Disbursement and Information
System (information system).

In 2009, we conducted an internal audit on the adequacy of HUD’s controls to ensure the timely
commitment and expenditure of HOME funds (audit report number 2009-AT-0001, issued
September 28, 2009). During the audit, we visited five Region IV participating jurisdictions that
HUD monitored in 2008 and examined support for commitments and/or commitment
adjustments that they entered into the information system. The County was one of the
participating jurisdictions that we visited. During the internal audit, we examined County
commitments that totaled more than $692,000, of which we questioned more than $691,000 or
more than 99.8 percent of the commitments examined. We did not determine the impact of the
questioned amounts at the County’s deadline compliance date, because that was not an objective
of the internal audit.

Our objective was to determine the extent of the incorrect HOME commitments that the County
entered into the information system and the impact of the incorrect entries, including those
identified during the internal audit.




                                              5
                                RESULTS OF AUDIT

Finding 1: The County Entered Incorrect Commitments Into HUD’s
           Information System and Executed Improper Agreements for
           Its HOME-Funded Tenant-Based Rental Assistance
           Activities

The County incorrectly entered more than $1.6 million in commitments into HUD’s information
system. The incorrect entries masked a shortfall of more than $400,000 that is subject to
recapture by HUD. The incorrect commitments occurred because County staff did not follow
and enforce HUD program requirements or implement adequate controls to monitor the accuracy
of HOME commitments. The recapture will deprive County residents of services the HOME
program was intended to provide. The incorrect commitment entries also undermined the
integrity of the information system and reports that HUD generated from the system to monitor
County compliance with commitment requirements and to compile national program statistics.
In addition, the County improperly executed agreements for its HOME-funded tenant-based
rental assistance activities that obligated Section 8 funds to pay the costs, although the County
used HOME funds to make the assistance payments. The Section 8 contracts did not legally
support the commitment of HOME funds. This condition occurred because County management
failed to ensure that the contracts were properly drafted to commit HOME funds for its tenant-
based rental assistance program.



 Incorrect Commitments Were
 Entered Into HUD’s Information
 System

       The County entered more than $1.6 million in incorrect commitments into the
       information system for the period November 1, 2007, through October 31, 2009. We
       reviewed all of the more than $3.2 million in HOME commitments that the County
       entered into the information system for this period. The commitments included more
       than $1.7 million for the County’s October 31, 2008, deadline compliance date and more
       than $1.5 million for its October 31, 2009, deadline compliance date. The incorrect
       entries masked a shortfall of more than $400,000 that is subject to recapture by HUD.

       Title II of the Cranston-Gonzalez National Affordable Housing Act, section 218(g), and
       42 U.S.C. (United States Code) 12748(g) provide that a participating jurisdiction’s right
       to draw funds from its HOME Investment Trust Fund shall expire if the funds are not
       placed under binding commitment to affordable housing within 24 months after the last
       day of the month in which such funds are deposited into the participating jurisdiction’s
       HOME Investment Trust Fund. Regulations at 24 CFR (Code of Federal Regulations)
       92.2(1) define commitment as an executed legally binding agreement to use a specific

                                              6
amount of HOME funds to produce affordable housing or provide tenant-based rental
assistance, an executed written agreement reserving a specific amount of funds to a
community housing development organization, or having met the requirements to commit
to a specific local activity. Regulations at 24 CFR 92.500(d) state that any funds in the
U.S. Treasury account that are not committed within 24 months after the last day of the
month in which HUD notifies the participating jurisdiction of HUD’s execution of the
HOME agreement are subject to reduction or recapture by HUD. HUD uses a cumulative
method to determine recapture amounts pursuant to the regulations at 24 CFR
92.500(d)(2).

The $1.6 million in incorrect commitments included

      More than $872,000 for 10 activities for which no written agreements existed
      when the County entered the commitments into the information system or before
      the respective deadline compliance dates of October 31, 2008, and October 31,
      2009.

        Activity                             Agreement executed after
                      Commitment date                                   Amount
        number                               the commitment deadline
       October 31, 2008, deadline
         1143       October 21, 2008         May 28, 2009                 $99,225
         1135       September 12, 2008       January 20, 2009              92,655
         1134       September 11, 2008       January 20, 2009              89,513
         1141       September 30, 2008       May 26, 2009                  88,807
         1136       September 12, 2008       February 11, 2009             87,833
         1138       September 29, 2008       December 4, 2008              84,330
         1131       October 17, 2008         No contracts                  16,124
         1044       October 17, 2008         Various (tenant based)        52,484
         1044       October 17, 2008         No contracts                   1,169
                                  Subtotal                               $612,140
       October 31, 2009, deadline
         1176       August 25, 2009          Various (tenant based)       $85,388
         1176       August 25, 2009          No contracts                 106,576
         1177       August 25, 2009          Various (tenant based)        68,737
                                  Subtotal                               $260,701

                                    Total                                $872,841

      We reassessed the County’s commitment compliance by adjusting the October 31,
      2008, and October 31, 2009, balances shown in the deadline compliance status
      reports to exclude the incorrect entries discussed above. The incorrect entries
      masked a shortfall that totaled more than $400,000 at the County’s October 31,
      2008, deadline date. The County did not provide allowable substitute
      commitments to offset the shortfall identified by the audit. The improper
      commitments for the County’s October 31, 2009, deadline compliance date did not
      generate a shortfall because the sum of the incorrect entries reduced the excess
      commitment amount to $174,771 but did not generate a shortfall.


                                             7
                                                                      October 31,         October 31,
        Description                                                      2008                2009
                                                                       deadline            deadline
        Excess commitments                                               211,365*            435,472*
        Less incorrect commitments identified by audit                   (612,141)           (260,701)
        Adjusted balance (shortfall – subject to recapture by           $(400,776)           $174,771
        HUD)
       *These were the differences between required and actual commitments shown in HUD’s deadline
        compliance status reports.

       More than $748,000 for 10 activities, for which written agreements did not exist
       at the time the County made the commitment entries into the information system
       but the agreements were executed before the County’s October 31, 2008, or
       October 31, 2009, deadline compliance dates. Thus, the amounts did not
       contribute to or generate shortfalls that would require a recapture by HUD.
       However, the incorrect entries undermined the integrity of the information system
       and reports that HUD generated from the system, such as the deadline compliance
       status report used to monitor County compliance with commitment requirements
       and compile national program statistics.

          Activity                             Executed agreement        Compliance
                      Commitment date                                                         Amount
          number                                        date            deadline date
           1133       September 11, 2008     September 25, 2008        October 31, 2008        $91,950
           1137       September 19, 2008     October 7, 2008           October 31, 2008         90,995
           1092       November 5, 2007       November 19, 2007         October 31, 2008         89,585
           1091       November 5, 2007       February 6, 2008          October 31, 2008         89,580
           1096       November 28, 2007      December 11, 2007         October 31, 2008         89,360
           1125       June 3, 2008           June 6, 2008              October 31, 2008         88,934
           1130       August 30, 2008        September 25, 2008        October 31, 2008         87,995
           1094       November 28, 2007      April 1, 2008             October 31, 2008         86,600
           1043       September 8, 2008      October 31, 2008          October 31, 2008          1,179
           1176       August 25, 2009        Various (tenant based)    October 31, 2009         32,437
                                     Total                                                    $748,615


The regulations at 24 CFR 92.504 provide that the participating jurisdiction is responsible
for managing the day-to-day operations of its HOME program, ensuring that HOME
funds are used in accordance with all program requirements, and taking appropriate
action when performance problems arise. The County did not adequately implement this
requirement. Specifically, the County had not established written policies and procedures
to monitor the accuracy of commitments its staff entered into HUD’s information system.
As a result, it missed the opportunity to detect and correct the problems before they
elevated to the point of subjecting program funds to recapture by HUD.




                                             8
   Improper Contracts Were Executed
   for Tenant-Based Rental Assistance


        The County used improper contracts for its HOME-funded tenant-based rental assistance
        program. The contracts showed that the subsidy amounts were funded by the County’s
        Section 8 Housing Choice Voucher program rather than the HOME program. For the
        period October 1, 2007, through October 31, 2009, the County committed more than
        $406,000 in HOME funds for tenant-based rental assistance activities in which the
        written agreements showed that the subsidy would be paid with Section 8 funds.

                       Activity
                                     Funding source according to
                       number                                           Amount
                                                 contract
                        1044      Section 8 – tenant-based assistance   $142,068
                        1176      Section 8 – tenant-based assistance    159,505
                        1177      Section 8 – tenant-based assistance    104,676
                        Total                                           $406,249

        We reviewed the County’s Section 8 housing assistance payment register and, on a test
        basis, compared the information to the HOME program general ledger for tenant-based
        rental assistance. For each test transaction, the records showed that the County used
        HOME funds to pay the tenant subsidies, although the contracts showed that they were
        for Section 8. Thus, we allowed the contracts as support for HOME commitments in our
        assessment of whether the County committed the required level of funds by its October
        31, 2008, and October 31, 2009, deadline compliance dates.

        In 2009, HUD arranged for a consultant to assess the County’s HOME program. The
        report, issued in June 2009, cited the County for using Section 8 agreements for HOME-
        funded tenant-based rental assistance. The report recommended that the County revise
        the agreement to reflect HOME funding. We discussed this matter with County officials,
        and they stated that they had not drafted a contract to correct this problem.

Conclusion

        The incorrect entries masked a commitment shortfall of more than $400,000 that is
        subject to recapture by HUD. The recapture could have been avoided if the County had
        properly met its responsibility to ensure compliance with requirements, which include but
        are not limited to monitoring the accuracy of commitments entered into the information
        system. The recapture will deprive County residents of HOME program assistance. The
        incorrect entries also compromised the integrity of commitments in the information
        system, which HUD uses to monitor compliance with commitment requirements and
        compile national program statistics. The improper agreements that the County executed
        for HOME tenant-based rental assistance obligated Section 8 funds for contracts that
        were supposed to be and, based on our tests, were funded by the HOME program.

                                                9
    The above conditions occurred because County staff did not adequately follow and
    enforce HUD program requirements for HOME commitments and did not ensure that
    contracts were properly drafted to commit HOME funds to its tenant-based rental
    assistance activity.


Recommendations

    We recommend that the Director of HUD’s Jacksonville Office of Community Planning
    and Development

    1A.    Recapture $400,776 in HOME funds, which the County did not commit by its
           October 31, 2008, deadline compliance date.

    We further recommend that the Director of HUD’s Jacksonville Office of Community
    Planning and Development require the County to

    1B.    Reduce the commitments in the information system for any of the questioned
           commitments not supported by written agreements.

    1C.    Train its staff regarding HUD’s documentation and entry requirements for
           commitments entered into HUD’s information system.

    1D.    Develop and implement monitoring procedures to ensure the accuracy of
           commitments entered into HUD’s information system and take appropriate action
           to promptly correct detected violations.

    1E.    Prepare a proper legal HOME contract template for tenant-based rental assistance
           and use the HOME contract template for all future HOME funds committed to
           that type of activity.




                                         10
                        SCOPE AND METHODOLOGY


We performed the audit from March through June 2010 at the County’s Housing and
Neighborhood Development office located in Bartow, FL, and the HUD Office of Community
Planning and Development in Jacksonville, FL.

We did not review and assess general and application controls for computer-processed data that
the County entered into HUD’s information system for commitments. We conducted other tests
and procedures to ensure the integrity of computer-processed commitments that were relevant to
the audit objective. Specifically, we examined written agreements to determine the accuracy of
commitments that the County entered into the information system. The review disclosed that the
County entered incorrect commitments into the information system. We obtained correct
information from written agreements for the activities reviewed and determined that incorrect
entries compromised the reliability and integrity of HUD’s information system.

The review generally covered the period November 1, 2007, through October 31, 2009. We
adjusted the review period when necessary. To accomplish our objective, we

        Reviewed and obtained an understanding of relevant HOME regulations, program
        guidance, and criteria;

        Obtained and reviewed reports on County commitments from HUD’s information
        system;

        Reviewed HUD’s monitoring reports for the County’s HOME program;

        Reviewed the County’s consolidated annual performance and evaluation reports for its
        HOME program;

        Reviewed the County’s procedures and controls used to administer its HOME program
        activities relative to commitments;

        Interviewed HUD and County officials regarding the County’s HOME operations; and

        Reviewed the accuracy of commitments that the County entered into the information
        system for the period November 1, 2007, through October 31, 2009. During this period,
        the County committed more than $3.2 million in HOME funds. We examined all (100
        percent) of the commitments.




                                            11
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 finding and
conclusions based on our audit objective.




                                             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
              objectives:

                   Policies and procedures that management has implemented to reasonably
                   ensure that resource uses are consistent with laws and regulations.

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

              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 that the following is a significant weakness:

                   The County did not adequately enforce HOME requirements to ensure the
                   accuracy of commitments its staff entered into the information system
                   (finding 1).




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                                   APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                           Recommendation         Funds to be put
                                   number         to better use 1/
                                1A                 $     400,776

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. In this instance, if our recommendation is implemented,
     HUD will recapture $400,776 in funds not committed by the 24-month statutory
     commitment deadline.




                                           14
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         15
Comment 2




Comment 3



Comment 4




Comment 5




            16
Comment 6




Comment 7




Comment 8




            17
Comment 9



Comment 10


Comment 10




Comment 10




             18
                          OIG Evaluation of Auditee Comments

Comment 1   The County commented that a 2008 HUD monitoring report and a 2006 Annual
            Community Assessment stated that the County was in compliance with the
            HOME program’s 24-month commitment requirement. We determined that HUD
            based its conclusion on commitments shown in reports it pulled from the
            information system but that HUD did not test the accuracy of commitment entries
            the County made to the system. The County was required to make accurate
            entries to the information system so that HUD would have reliable information
            from which to draw conclusions concerning the County’s compliance with
            program requirements. We determined that the County entered more than $1.6
            million in inaccurate commitments to the information system for the two-year
            period November 1, 2007 through October 31, 2009. The inaccurate entries lead
            HUD to reach an inaccurate conclusion concerning the County’s compliance with
            the program’s 24-month commitment requirement.

Comment 2   We commend the positive actions cited in the County response to ensure the
            accuracy and proper support for future commitment entries made by its staff to
            the information system.

Comment 3   The County stated that at no time were its residents deprived of intended HOME
            program services; all HOME funds were used for eligible HOME activities; and
            funds were expended in accordance with HOME program requirements. The
            report states that the recaptured funds will deprive County residents of services
            the HOME program was intended to provide. During this audit we did not review
            HOME expenditures and we drew no conclusions concerning whether the County
            properly spent its HOME funds.

Comment 4   The County commented that if we decide that HOME program funds will be
            recaptured that its staff be allowed to travel to Jacksonville and meet with us to
            discuss the future adverse effect this will have on residents of Polk County. As
            explained during the exit conference, once the report is issued the County will
            work directly with HUD’s program staff versus our office to resolve the
            recommendations. However, we also explained that our office will coordinate
            with the HUD staff to ensure that the recommendations, including the one related
            to recapture, are properly resolved.

Comment 5   The County’s response incorrectly indicated that our report stated that it used
            Section 8 funds to provide subsidies for its HOME funded tenant based rental
            assistance program. The report commented that for each test transaction, the
            records showed that the County used HOME funds to pay the tenant subsidies,
            although the contracts showed that they were for Section 8. Thus, we allowed the
            contracts as support for HOME commitments in our assessment of whether the
            County committed the required level of funds by its October 31, 2008, and
            October 31, 2009, deadline compliance dates.


                                          19
Comment 6    The County commented that its housing staff followed the Community Planning
             and Development Training Manual to develop its HOME funded tenant-based
             rental assistance program. The County also commented that its housing staff
             decided to model the rental assistance program after the Section 8 program and to
             use the Section 8 contract for both programs. We recognize that the County had
             the right to model its tenant based rental assistance program after its Section 8
             program. However, the problem was that the County used the exact Section 8
             contract language, including references to Section 8 regulations, versus modifying
             the contract to eliminate references to Section 8 and to replace them with
             references applicable to its HOME funded tenant based rental assistance program.

Comment 7    The County commented that tenant-based rental assistance funds were committed
             for a two-year period, even though the client signed a one-year contract, in order
             to secure the funds for the two-year housing commitment in the information
             system. The County also commented that the incorrect entries did not undermine
             the integrity of the information system or compliance with commitment
             requirements.

             We disagree with the County’s position. HUD requirements only permit the entry
             of commitments supported by written agreements which in this case were twelve
             month agreements. As a result, the commitments exceeded the amounts
             supported by the one year contracts that should have been the basis for the
             commitment entries. The incorrect entries undermined the integrity of the
             information system and the accuracy of reports HUD pulls from the system to
             monitor the County’s compliance with the program’s 24-month commitment
             deadline. For instance, the inaccurate entries contributed to the condition
             discussed in comment 1 above where HUD reached an inaccurate conclusion
             about the County’s compliance with the program’s 24-month commitment
             requirement.

Comment 8    In response to recommendation 1A the County responded that housing for each
             client for activities 1044, 1176, and 1177 in the information system are supported
             by written agreements attached to the response. The documentation provided by
             the County does not support the questioned commitments. Therefore, we did not
             revise the report.

Comment 9    In response to recommendation 1B the County commented that tenant-based
             rental assistance funding was not used inappropriately and therefore does not need
             to be recaptured. The County provided no documentation to support the accuracy
             of the commitments we questioned for its tenant based rental assistance program.
             Therefore, we did not revise the report or our recommendation.

Comment 10 The County‘s response indicated actions that were responsive to our
           recommendations but which will require consultation with HUD staff to ensure
           compliance with requirements.


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