U.S. Department of Housing and Urban Development Region 4, Office of Inspector General Office of Audit, Box 42 Richard B. Russell Federal Building 75 Spring Street, SW, Room 330 Atlanta, GA 30303-3388 (404) 331-3369 MEMORANDUM NO: 2010-AT-1801 November 20, 2009 MEMORANDUM FOR: Maria R. Ortiz, Director of Community Planning and Development, Miami Field Office, 4DD //signed// FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA SUBJECT: Miami-Dade County, Florida, Needs to Strengthen Controls over Its Neighborhood Stabilization Program INTRODUCTION Miami-Dade County (County), Florida, was awarded a $62.2 million Neighborhood Stabilization Program (NSP) grant under the Housing and Economic Recovery Act of 2008 (HERA). As part of our organization’s commitment to ensure the proper use of these funds, we performed a review of the County’s operations to evaluate its capacity to administer NSP funding. We provided a draft report to the County on October 28, 2009, and received written comments on November 4 and 6, 2009. We have included the comments and our evaluation of those comments in appendix A. Attachments to the County’s comments were not included in the report, but are available for review upon request. For each recommendation without a management decision, please respond and provide status reports in accordance with U.S. Department of Housing and Urban Development (HUD) Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit. METHODOLOGY AND SCOPE To accomplish our objective, we Reviewed and obtained an understanding of relevant HERA legislation, the Federal Register, and HUD regulations; Reviewed the County’s NSP substantial amendment to the 2008 action plan and the special conditions placed on the County by HUD; Reviewed relevant County policies and procedures; Interviewed HUD and County officials; and Reviewed County financial records. We limited our review to assessing the County’s capacity and risks in the following areas: basic internal controls, financial management, and cost allowability. The County planned to use NSP funds for six activities. We selected two activities for review because they had progressed further than the other four activities. The financing mechanism activity provides second mortgages to assist eligible households in purchasing foreclosed-upon homes. We reviewed County files for 7 of 80 home buyers to determine whether they were eligible to receive NSP funds. The purpose of the other activity is to purchase and rehabilitate foreclosed-upon single-family properties for sale to income-eligible households. We reviewed County files for three of eight properties to determine whether the properties were eligible to be purchased with NSP funds. As of September 2009, the County had obligated $1.13 million for the financing mechanism activity and $906,660 for the purchase and rehabilitation of single-family properties. We selected $260,000 in obligations for the financing mechanism activity and $306,806 in obligations for the purchase and rehabilitation of single-family properties to review because, as indicated above, these activities had progressed further than the other four NSP activities. As of August 2009, the County had expended $267,437 in NSP funds. We selected $131,529 in expenditures to review based on their large dollar amounts. We reviewed County records to determine whether NSP obligations and expenditures were allowable and adequate supporting documentation was maintained. The results of our review apply only to the items selected and cannot be projected to the universe or population. Our review generally covered the period July 2008 through June 2009, and we extended the period as needed to accomplish our objective. We conducted our review from July through October 2009 at the County Department of Housing and Community Development (HCD)1 located at 701 NW 1st Court, Miami, Florida. For this capacity report, our work was not conducted in accordance with generally accepted government auditing standards. Therefore, this report is significantly reduced in scope. 1 Beginning October 1, 2009, the County’s Office of Community and Economic Development was renamed the Department of Housing and Community Development. 2 BACKGROUND On July 30, 2008, the President signed HERA. On September 26, 2008, HUD provided $3.92 billion to states, territories, and local governments for the purpose of stabilizing communities by redeveloping abandoned and foreclosed-upon homes and residential properties. On March 6, 2009, HUD awarded the County a $62.2 million NSP grant under HERA. HCD is responsible for overall oversight and administration of the NSP grant. The table below shows the County departments responsible for administering the six NSP activities, along with the amount of NSP funds awarded and obligated as of September 30, 2009. # Activity description County department Funds Funds awarded obligated 1 Provide financing mechanisms (second HCD $ 9,790,000 $ 1,130,000 mortgages) to assist eligible households Homeownership section in purchasing foreclosed-upon homes 2 Purchase and rehabilitate foreclosed-upon General Services 10,025,000 906,660 single-family properties for sale to Administration eligible households 3 Purchase and rehabilitate foreclosed-upon General Services 21,571,480 0 multifamily properties for rental to Administration eligible households 4 Demolish blighted structures Department of Building 1,000,000 0 and Neighborhood Compliance2 5 Redevelop vacant land for a HOPE VI Public 8,600,000 0 project Housing Agency 6 Redevelop vacant land in the expanded HCD Housing 5,000,000 0 HOPE VI area Development and Loan Administration Subtotal $55,986,480 $ 2,036,660 Administration HCD 6,220,720 6,220,720 Total $62,207,200 $ 8,257,380 In July 2009, the County applied for an additional $162 million in NSP funds under the American Recovery and Reinvestment Act of 2009. The application is under review. RESULTS OF REVIEW Agreements Were Not Executed Between HCD and Other County Departments Under HERA, except as otherwise provided, NSP funds made available to state and local governments shall be treated as though such funds were Community Development Block Grant (CDBG) funds. Regulations at 24 CFR [Code of Federal Regulations] 570.501 state that a 2 Beginning October 1, 2009, the County Office of Neighborhood Compliance and the Building Department combined to create the Department of Building and Neighborhood Compliance. 3 public agency designated by the grantee to undertake CDBG-funded activities is subject to the same requirements as a subrecipient. Regulations at 24 CFR 570.503 require that no CDBG funds are disbursed to the subrecipient until an agreement is executed between the grantee and the subrecipient. The regulation also requires the agreement to include certain provisions. The County had not executed agreements between HCD and the other County departments responsible for administering the NSP grant. In October 2009, HCD executed an agreement with the General Services Administration to administer two NSP activities but had not executed agreements with the other two County departments. County officials informed us that they were developing the agreements with the other County departments. In addition, the executed agreement between HCD and the General Services Administration did not include two of the seven minimum provisions required by 24 CFR 570.503. The executed agreement did not (1) contain a schedule for completing the work and (2) list all federal regulations that needed to be followed. Existing Policies and Procedures Did Not Address NSP Requirements NSP requirements at section 2301 of HERA, applicable Federal Register notices, and 24 CFR 85 and 570 were not addressed in the policies and procedures for County departments responsible for administering the NSP grant. County officials stated that the implementation order approved by the Board of County Commissioners constituted a written NSP policy and they were developing an NSP procedures manual. The manual would be a compilation of existing procedures. We reviewed the implementation order and the procedures of two HCD sections and one County department. These policies and procedures did not provide detailed guidance for complying with the following NSP requirements: (1) eligibility of an activity, (2) monitoring, (3) national objective, (4) supporting documentation to be maintained for expenditures and drawdowns, (5) accounting for and reporting of program income, and (6) reporting to the HUD Disaster Recovery Grant Reporting system. The County Did Not Maintain Adequate Supporting Documentation for an NSP Activity Section 2301(c)(3)(A) of HERA states that NSP funds may be used to establish financing mechanisms for purchase of foreclosed-upon homes and residential properties. We reviewed County files for seven home buyers under the financing mechanism activity. The County did not maintain adequate supporting documentation showing that one home buyer purchased a foreclosed-upon property. A County official acknowledged that staff failed to obtain the documentation. NSP Expenditures Were Improperly Classified Regulations at 24 CFR 85.20(b) state that the grantee’s financial management system must maintain accurate, current, and complete disclosure of the financial results of financially assisted activities. Salary expenditures totaling $17,104 were improperly classified to the wrong NSP 4 index code in the County’s financial management system. The salary expenditures were classified to the home-buyer counseling index code instead of the second mortgage index code. A County official explained that the salaries had been inadvertently classified to the wrong index code. Conclusion The County needs to strengthen its controls to fulfill NSP requirements under HERA. It needs to (1) revise the executed agreement, (2) execute agreements between HCD and the other County departments that administer the NSP grant, (3) maintain and enforce policies and procedures that comply with NSP requirements, (4) maintain adequate supporting documentation for NSP activities, and (5) properly classify NSP expenditures. RECOMMENDATIONS We recommend that the Director of the Office of Community Planning and Development require the County to 1A. Revise the executed agreement between HCD and the General Services Administration to include all provisions as required by 24 CFR 570.503. 1B. Develop and execute agreements between HCD and the other County departments responsible for administering the NSP grant to comply with 24 CFR 570.503. 1C. Maintain and enforce policies and procedures that comply with NSP requirements. 1D. Provide documentation supporting that the property purchased by the home buyer was a foreclosure to comply with NSP requirements. 1E. Reclassify the $17,104 from the home-buyer counseling index code to the second mortgage index code. 5 Appendix A AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Comment 1 Comment 1 Comment 2 Comment 3 6 7 Comment 2 Comment 3 8 OIG Evaluation of Auditee Comments Comment 1 The County stated that it has begun implementing several corrective measures to address our findings and recommendations. We believe that the corrective measures when implemented and enforced would improve County administration of the NSP. Comment 2 The County agreed that it did not maintain adequate supporting documentation that a property purchased for the NSP program was a foreclosed property. The County removed the expenditure from its NSP records and provided documentation that it transferred the $60,000 expenditure to its local Surtax funds. Accordingly, we removed the issue of the $60,000 from the final report. However, the County needs to ensure that adequate supporting documentation is maintained for future properties purchased for NSP activities. Comment 3 The County stated that it had reclassified the $17,104 in salary expenditures from the home buyer counseling index code to the correct second mortgage index code. The County provided documentation to support this transaction. We reviewed the documentation but were unable to determine whether the $17,104 was reclassified. The County indicated that $35,716.85 was reclassified but failed to provide adequate documentation to support that this amount included the $17,104 in salary expenditures. 9
Miami-Dade County, Florida, Needs to Strengthen Controls over ItsNeighborhood Stabilization Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-11-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)