oversight

The City of Atlanta, GA, Needs To Improve Certain Aspects of Its NSP To Meet the Program's 18-Month Obligation Deadline

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-12-14.

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

                                                         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




                                                        MEMORANDUM NO:
                                                        2010-AT-1802
December 14, 2009

MEMORANDUM FOR:             Mary D. Presley, Director, Office of Community Planning and
                             Development, 4AD

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

SUBJECT:      The City of Atlanta, GA, Needs To Improve Certain Aspects of Its NSP
               To Meet the Program’s 18-Month Obligation Deadline


                                    INTRODUCTION

The City of Atlanta (City) received a $12.3 million Neighborhood Stabilization Program (NSP)
grant from the U.S. Department of Housing and Urban Development (HUD) that was authorized
under Division B, Title III of the Housing and Economic Recovery Act of 2008 (HERA). We
selected the City for review due to the amount of its NSP funding and because of performance
concerns identified during our previous audit of the City’s HOME Investment Partnerships
Program (HOME). Our objective was to determine whether the City had the capacity to
effectively and efficiently administer its NSP.

We provided a draft report to the City on November 16, 2009, and the City provided written
comments on December 1, 2009, which are included in appendix A. The city agreed to correct
the conditions raised by the review.

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.


                             METHODOLOGY AND SCOPE

To accomplish our objective, we

       Reviewed applicable statutes, regulations, and relevant HUD program requirements;

       Reviewed the City’s NSP and other relevant procedures;
       Reviewed HUD and City files, including files related to past HUD monitoring reviews of
       the City;

       Interviewed HUD and City officials regarding the City’s operations;

       Reviewed the City’s NSP substantial amendment to its consolidated plan and its NSP
       grant agreement with HUD;

       Reviewed the first five of eight implementation agreements with developers for
       compliance with NSP and procurement requirements. We also reviewed the total
       $141,480 in activity obligations that the City had entered into HUD’s Disaster Recovery
       Grant Reporting System (HUD’s reporting system) for accuracy of reporting. 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 December 1, 2008 (the date of the City’s substantial
amendment to HUD for the NSP), through October 29, 2009. We also considered related
performance issues in the City’s HOME program which dated back to April 1, 2006. We
conducted the review from July 1 through October 29, 2009, at the offices of the City’s Bureau of
Housing and the HUD Office of Community Planning and Development in Atlanta, Georgia.

For this report, our work was not conducted in accordance with generally accepted government
auditing standards; however, this fact had no effect on the significance of the conditions
identified in this report. We designed the review to be proactive and focus on prevention; thus,
the scope was significantly reduced to the items and conditions discussed in this report.


                                        BACKGROUND

HERA appropriated $3.92 billion in NSP funds for emergency assistance for redevelopment of
abandoned and foreclosed-upon homes and residential properties. On March 5, 2009, HUD
entered into a $12.3 million grant agreement with the City to carry out NSP activities funded by
its direct allocation from HUD. HUD’s Federal Register/Vol.73, No. 194, provides that, unless
otherwise stated, NSP grants are to be considered Community Development Block Grant funds.
The City also applied for NSP funding through the Georgia Department of Community Affairs
and was awarded $3.9 million on March 27, 2009. Our review covered the $12.3 million in NSP
funding that the City received directly from HUD. On February 17, 2009, the President signed
the American Recovery and Reinvestment Act of 2009 (ARRA). ARRA provides an additional
$2 billion in NSP funding (referred to as NSP2) that will be made available on a competitive
basis. On July 16, 2009, the City submitted an application to HUD for $57.9 million in NSP2
funding. HUD will not make funding decisions on NSP2 applications before December 2009.

The City’s policy-making and legislative authority are vested in the city council, consisting of 15
members and an elected city council president, who serves as a presiding officer. The mayor is
responsible for overseeing the day-to-day operations of the City and appointing and directing the
heads of the various departments.


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On September 28, 2009, we issued an audit report on the City’s HOME program that addressed a
problem with the program’s commitment requirement. The NSP funds have an 18-month
obligation deadline that is similar to the HOME program’s 24-month commitment deadline.




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                                   RESULTS OF REVIEW

Expedited Actions Needed To Meet Program’s 18-Month Obligation Deadline

The City has developed the organizational structure needed to administer its NSP and has hired a
sufficient number of qualified staff to implement the program. However, the City needs to
expedite actions to meet the program’s 18-month obligation deadline due to

       Delays in executing implementation contracts and obligating NSP funds,

       Past performance problems that still require attention,

       Procurement inconsistencies, and

       Lack of procedures for some components of its NSP.

HERA, section 2301(c)(1), provides that recipients shall obligate program funds not later than 18
months after receipt of such amounts to purchase and redevelop abandoned and foreclosed-upon
homes and residential properties. HUD approved the City’s NSP grant on March 5, 2009. The
program’s 18-month obligation deadline is in September 2010, about 10 months from the time we
completed our review in October 2009. During the 7 elapsed months, the City had obligated only
$203,271 of its $12.3 million in NSP funds and had not completed the execution of program
implementation contracts with developers. The obligated amount includes $141,480 for the City’s
acquisition, rehabilitation, and disposition activity and $61,791 for administration.

City officials stated that their progress rate had been impacted by their simultaneous efforts to
implement and meet the tight NSP deadline, making application for NSP2 funds, making application
for and implementing NSP activities funded through the State of Georgia, and dealing with our audit
and a recently completed audit of their HOME program (report issued on September 28, 2009). We
recognize the complexities and time-consuming efforts these circumstances placed on the City’s
resources in its efforts to meet these demands. The City will need to implement effective measures to
expedite the rate of program progress to obligate all of its NSP funds within the 10 months that
remain before the statutory obligation deadline. We are concerned about the City’s delayed execution
of implementation contracts and obligating NSP funds, past performance problems, procurement
inconsistencies, and lack of procedures.

Delays in Executing Implementation Contracts and Obligating NSP Funds

After more than 7 months of operations, the City had not executed all of its planned implementation
contracts with developers, and it had obligated only $141,480 of the more than $11 million that HUD
approved for NSP activities (excluding program administration). The City had only recently
executed the contracts provided for our review (between late August and October 2009).
Specifically, the City




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Experienced delays in executing implementation contracts for its $8.9 million acquisition,
rehabilitation, and disposition activity - The City’s requests for proposals required prospective
contractors to respond by March 2, 2009. However, more than 5 months elapsed before the
City executed the first of 10 planned developer contracts (now reduced to eight) on August
28, 2009, followed by seven additional contracts executed between September 16 and October
22, 2009. As of October 23, 2009, the City had obligated only $141,480 for the activity. The
implementation contracts did not constitute obligations because they called for the developers
to identify properties for acquisition and separately contract for the rehabilitation work. The
developers now have about 10 months from October 2009 to obligate the NSP funds before
the program’s statutory obligation deadline. The City expedited the contract execution
process after we discussed our concerns.

The $8.9 million activity includes $800,000 that was not covered by an implementation
contract at the time of our review because the City terminated contract negotiations with two
developers and planned to amend contracts with existing developers to include that amount.
The City terminated the negotiations with one developer because an investor purchased the
property that the developer planned to acquire. City officials stated that they expected the
program would continue to be affected by investors that are competing with them for the
purchase of foreclosed-upon properties. In the other case, the City terminated contract
negotiations because the bank did not want to allow the property to go into foreclosure.

The delayed contract executions also caused the City to miss its internal program target dates
for assessing contractor performance. Section VI (E) of the City’s Neighborhood
Stabilization Program Manual for Developers and Subrecipients, provides that all NSP
subrecipients and for-profit contractors have until December 31, 2009, to obligate their NSP
funds to specific addresses and to complete their projects from the date of the award. Any
project not showing significant progress by October 15, 2009, would be subject to recapture,
reprogrammed, and reallocated to another NSP project or program. The City disagreed with
our assessment that the program was behind schedule. In response to our concern, the City
revised the procedure to show September 5, 2010, as the deadline for developers to obligate
their funds. The revised date is also the 18-month statutory deadline for obligating program
funds.

Lacked implementation contracts for more than $1 million for its financing and
redevelopment activities - The City’s substantial amendment included more than $1.6 million
for a financing activity and a redevelopment activity. It had not executed implementation
contracts for more than $1 million for the two activities. The City had implementation
contracts with several developers that included more than $600,000 for the financing activity,
but it was in the process of amending those contracts to remove the financing amounts. The
execution of implementation contracts was subject to further delay because the City was in the
process of reallocating funds between the financing and redevelopment activities. The
reallocations required an amendment to the City’s consolidated plan, submission for public
comment, and city council approval. City officials stated that they were working to complete
these actions.




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       Lacked an implementation contract for its $375,000 land banking activity - The City had not
       executed an implementation contract for its land banking activity, and it had not established
       NSP procedures for the activity.

       Lacked progress in implementing its $159,474 demolition activity - The City had not
       obligated any funds for demolition. Its substantial amendment provides that it will work with
       the land banking contractor and other developers to demolish properties

Past Performance Problems

The City had recent problems in meeting the HOME program’s 24-month commitment requirement
that will require attention to prevent repetition of the same type of problems in complying with the
NSP 18-month obligation deadline. During this review, we requested and the City drafted procedures
for entering NSP obligations into HUD’s reporting system and monitoring the accuracy of those
obligations. The procedures provide for adequate input and monitoring of the obligation entries, but
additional time is needed for it to demonstrate effective implementation and enforcement of the
procedures. We reviewed the $141,480 that the City obligated for an NSP activity. It made the
obligations pursuant to the procedure it provided, and the obligations were properly supported.

Procurement Inconsistencies

The City did not consistently follow the method it selected for awarding implementation contracts to
developers. Specifically, it did not consistently apply the scoring criteria it developed to assess
leveraged funds and fund commitments. In addition, it executed some implementation contracts that
should have contained leveraged funds but did not. Specifically, the City

       Provided inconsistent ranking scores - We reviewed the City’s ranking sheets for five
       executed implementation contracts and noted unexplained or unsupported inconsistencies
       among evaluators’ scores for leveraged funds and status of funding commitments. The City’s
       contractor selection process provided that contractors that scored in the top 20 percent or were
       recommended by at least two members of the evaluation team would have their proposals
       submitted to the funding recommendation team. The rating inconsistencies could affect a
       contractor’s overall score and whether its proposal was forwarded to the funding
       recommendation team. This condition was significant, considering that the City received and
       evaluated 68 contract proposals.

       We identified scoring inconsistencies for leveraging among evaluators for four of the five
       contracts examined. The City’s rating sheet provided up to seven points for leveraged funds
       based on the ratio of leveraged funds to NSP funding. Thus, the score among the evaluators
       should have been identical and based on the same mathematical calculation. However, we
       noted a one-to four-point spread among the evaluators’ score for the four contractors. Each
       evaluator provided the same score for the fifth contractor, and we reviewed and agreed with
       the score.




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       We also noted scoring inconsistencies for funding commitments in four of the five contracts
       examined. The City’s rating sheet provided up to five points for funding commitments. In
       four cases, at least one evaluator provided a score of zero, indicating no funding commitment;
       whereas, the other evaluators provided scores that ranged from two to five points.

       Executed contracts without leveraged funds - The proposal submitted by one of the five
       contractors examined included $160,000 for leveraged funds, but the City did not include
       leveraged funds in the executed contract. HUD does not require leveraged funds, but the
       City’s request for proposal required prospective contractors to provide leveraged funds, and
       the City evaluated the contractor’s proposal, giving consideration to the proposed leveraged
       amount. The City’s omission of leveraged funds from the contract was not consistent with its
       contractor evaluation and selection criteria. In addition, we noticed that the City executed
       another implementation contract on October 22, 2009, that omitted leveraging, although the
       contractor had proposed to provide more than $1 million in leveraged funds.

Lack of Procedures

The City had not established procedures for its NSP land banking activity. City officials stated that
they planned to use a local land banking authority and follow procedures similar to those they already
had in place for other City programs that also use the land banking authority. During the review, we
requested but the City had not developed procedures for (1) entering obligations into HUD’s
reporting system and monitoring the accuracy of those obligations, (2) demolition, and (3) tracking
program income in HUD’s reporting system. In response to our requests, the City drafted procedures
for these areas. The draft procedures appeared to be adequate if implemented as provided.

Conclusion

The City needs to implement its NSP at a faster pace to obligate more than $10 million in activity
funding (excluding program administrative cost) before the program’s September 2010 statutory
obligation deadline. The City has developed the organizational structure needed to administer its
NSP and has hired a sufficient number of qualified staff to implement the program. The City will
need to take effective actions to overcome the above conditions to meet the obligation deadline.


                                     RECOMMENDATIONS

We recommend that the Director of the Office of Community Planning and Development require
the City to

1A.    Expedite the implementation of the remaining $10,942,994 approved for NSP activities
       (excluding program administration) to prevent further delays that may prevent its ability
       to obligate the funds by the program’s 18-month statutory deadline.

1B.    Expedite execution of implementation contracts with developers or subrecipients for its
       financing, redevelopment, and land banking activities.




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1C.   Review and verify the accuracy of evaluator scores for leveraged funds and fund
      commitments for all prospective contractors and determine whether action is needed to
      revise the selection of contractors for funding.

1D.   Amend contracts executed with developers to include leveraged funds if the contractor(s)
      competed for funding based on the City’s leveraging requirement, proposed to provide
      leveraged funds, and the City evaluated the contractor(s) proposal against other
      contractors, giving consideration to proposed leveraged amounts.

1E.   Develop and implement procedures for land banking.

1F.   Implement the procedures for (1) entering obligations into HUD’s reporting system and
      monitoring the accuracy of those obligations, (2) demolition, and (3) tracking program
      income in HUD’s reporting system.




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Appendix A
             AUDITEE COMMENTS


               Auditee Comments




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Comment 4




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