Issue Date
November 23, 2009
Audit Report Number
2010-BO-1002
TO: Robert L. Paquin, Director, Office of Community Planning and Development,
Boston Regional Office, 1AD
FROM:
John A. Dvorak, Regional Inspector General for Audit, Boston Region, AGA
SUBJECT: The City of Holyoke, Massachusetts, Office of Community Development, Needs
to Improve Its Administration of HOME- and CDBG-Funded Housing
Programs
HIGHLIGHTS
What We Audited and Why
We audited the HOME Investment Partnerships Program (HOME) - and
Community Development Block Grant (CDBG)-funded housing programs
administered by the City of Holyoke’s Office of Community Development (City)
as part of our annual audit plan. The City was selected based upon our analysis of
risk factors relating to HOME grantees in Region 1.
Our objective was to determine whether the City properly administered its
HOME- and CDBG-funded housing programs in compliance with U.S.
Department of Housing and Urban Development (HUD) requirements.
Specifically, we wanted to determine whether the City awarded contracts for its
HOME Development program in accordance with HOME and federal
requirements. In addition, we wanted to determine whether the City adequately
monitored its CDBG-funded Rental Neighborhood Improvement program and the
subrecipient that administers this program.
What We Found
The City did not always award its HOME Development program contracts in
accordance with federal requirements. Specifically, it did not obtain or prepare
adequate cost estimates or conduct required cost analysis before it awarded $2.6
million in funds for three noncompetitive construction contracts. Construction
cost estimates developed during the audit showed that expenditures claimed by
the developer for the construction of the duplex units were an average of 14
percent higher than the construction cost estimates.1 Additionally, all HUD
assistance was not properly considered during the City’s evaluations of project
total development costs for duplexes developed as part of the HOME
Development program. Lastly, the HOME investments subject to recapture were
incorrectly calculated so that $344,178 would not be recaptured if the
homeowners did not reside in the HUD-funded duplexes for the entire 15-year
affordability period.
Additionally, 67 percent of the loans (26 of 39) processed under of the HUD-
funded Rental Neighborhood Improvement program2 went to properties that were
owned by either the subrecipient (Olde Holyoke Development Corporation) or a
second, related nonprofit, Contemporary Apartment Inc. (Contemporary
Apartments). The subrecipient also did not treat related and nonrelated loans
consistently regarding use of contracts, enforcement of timetables for completion,
accrual of interest on advances, or project record keeping. In addition, (1) related
party rehabilitation was not completed in a timely manner, (2) appropriate reviews
and approvals of the projects were not made for all loans before committing the
funds, (3) the subrecipient did not secure all program investments to related party
loans, and (4) not all project records were maintained in accordance with record-
keeping requirements.
Further, the City allowed the subrecipient to use program funds totaling $332,105
in the form of “grants.” These grants were used for demolition activities which
did not meet the Rental Neighborhood Improvement program’s objectives3 and
were not carried out in compliance with the CDBG program.
What We Recommend
We recommend that the Director of the Office of Community Planning and
Development require the City to establish appropriate internal controls over the
1
Totaling $288,000 for seven duplexes.
2
Since program inception in 1977.
3
The objective of Rental Neighborhood Improvement program is “to make grants/or loans to owners of multi-unit
rental properties to finance eligible improvements, repairs and rehabilitation of the rental properties.”
2
HOME procurement process, including the segregation of duties so that the
process is not entirely controlled by one person. We also recommend that the
City repay $288,000 in unreasonable construction costs paid under the HOME
Development program. Additionally, we recommend that HUD and the City
conduct an independent cost analysis for the 2008 procurements to ensure that
HOME and CDBG program expenditures of more than $1 million were
reasonable and supported. For the unreasonable amounts, the City should
reimburse the HOME/CDBG program from nonfederal funds.
Finally, we recommend that the Director of the Office of Community Planning
and Development review the revised subrecipient contract for the Rental
Neighborhood Improvement program to ensure that it contains appropriate
controls, particularly when related parties are involved. These increased controls
will ensure that HUD funds used for future related-party activities will be
properly spent with appropriate performance measures in place, resulting in more
than $1.7 million in funds put to better use for activities properly approved and
overseen by independent parties.
For each recommendation in the body of the report 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 provided City officials with a draft audit report on October 23, 2009, and
requested a response by November 3, 2009. We also provided and discussed
preliminary results during the course of the audit, including on July 1 and July 9,
August 5, and September 2, 2009. We held an exit conference with City officials
on October 27, 2009, to discuss the draft report, and we received their written
comments on November 2, 2009. The City agreed/disagreed with the facts,
conclusions, and recommendations, as noted.
The complete text of the auditee’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
Finding 1: The City Did Not Have Adequate Internal Controls over Its 7
Procurement Process for the HOME Development Program
Finding 2: The Subrecipient That Administers the City’s Rental Neighborhood 16
Improvement Program Was Not Adequately Monitored
Scope and Methodology 25
Internal Controls 27
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 28
B. Auditee Comments and OIG’s Evaluation 29
C. Review of Rental Neighborhood Improvement Loans – Loans Modified 41
D. Review of Rental Neighborhood Improvement Loans – Interest Forgone 42
E Rental Neighborhood Improvement Loans – Related and Unrelated Loans 43
F Criteria 44
4
BACKGROUND AND OBJECTIVE
Congress created the HOME Investment Partnerships Program (HOME) in Title II of the
Cranston-Gonzalez National Affordable Housing Act of 1990. Under the HOME program, the
U.S. Department of Housing and Urban Development (HUD) allocates funds to eligible state and
local governments for the purpose of (1) expanding the supply of decent, safe, and affordable
housing for very low-income and low-income Americans and (2) strengthening public-private
partnerships in the production and operation of such housing. The HOME program gives
participating jurisdictions discretion over which housing activities to pursue. These activities
may include acquisition, rehabilitation, new construction, and resident-based rental assistance.
In addition, participating jurisdictions may provide assistance in a number of eligible forms,
including loans, advances, equity investments, and interest subsidies. Up to 10 percent of the
HOME funds received by a participating jurisdiction may be used to administer the program.
Congress created the Community Development Block Grant (CDBG) in Title I of the Housing
and Community Development Act of 1974. This program is designed to develop viable urban
communities by providing decent housing, a suitable living environment, and expanding
economic opportunities, principally for persons of low and moderate income. Recipient
communities, such as cities, may undertake a wide range of activities directed toward
neighborhood revitalization; economic development; and community services, facilities, and
improvements. Cities develop their programs and set their funding priorities in conformance
with the statutory standards, program regulations, and other federal requirements. One of several
activities that can be carried out with CDBG funds is the rehabilitation of residential and
nonresidential structures. Community-based development organizations may carry out
neighborhood revitalization, community economic development, or energy conservation
activities. Each CDBG-eligible activity must meet one of three national objectives: benefit low-
and moderate-income persons, aid in the prevention or elimination of slums or blight, or meet
other community development needs having a particular urgency that the grantee is unable to
finance on its own.
The City of Holyoke, Massachusetts (City), through its Office of Community Development,
receives both HOME and CDBG funds. For the HOME program, the City is the lead city in a
consortium of three cities called the Holyoke-Chicopee-Westfield consortium. For CDBG, the
City receives its funds directly from HUD.
Year CDBG HOME4
2006 $1,130,743 $597,033
2007 $1,122,415 $593,635
2008 $1,085,209 $572,990
Each year, the City reports its planned activities and accomplishments to HUD through an annual
plan and a consolidated annual performance and evaluation report. These documents identify the
City’s priorities, the methodology that the City intends to use to accomplish its priorities, and the
4
The HOME funds in this table represent only the City’s share of the consortium’s funds.
5
City’s accomplishments. Its first five priorities addressed homeownership, rehabilitation of
owner-occupied housing, home-buyer assistance, creation of elderly housing, and rental housing
rehabilitation.
Our audit focused on the City’s housing programs, in particular, its homeownership program and
rental housing rehabilitation.
Our audit objective was to determine whether the City properly administered its HOME- and
CDBG-funded housing programs in compliance with HUD requirements. Specifically, we
wanted to determine whether the City awarded contracts for its HOME Development program in
accordance with federal procurement requirements (24 CFR (Code of Federal Regulations)
85.36). In addition, we wanted to determine whether the City adequately monitored its CDBG-
funded Rental Neighborhood Improvement program and the subrecipient that administers this
program
6
RESULTS OF AUDIT
Finding 1: The City Did Not Have Adequate Internal Controls over Its
Procurement Process for the HOME Development Program
The City did not award its HOME Development program contracts in accordance with HOME
program or federal procurement requirements.5 Specifically, it
• Improperly awarded $2.6 million for three noncompetitive contracts
• Allowed the developer to spend unreasonable amounts to construct duplexes.
• Did not properly consider all CDBG assistance during its subsidy-layering evaluations.
• Did not ensure that recapture provisions were correctly calculated.
These deficiencies occurred because the City did not adequately establish and implement
appropriate internal controls over its HOME procurement process. As a result, it awarded contracts
totaling $2.6 million that were not processed in a manner that provided full and open competition
consistent with federal procurement requirements. In addition, it expended $288,000 in
unreasonable costs and could not ensure that more than $1 million in costs for an ongoing project
were reasonable. It also provided more than $900,000 in subsidies that exceeded locally adopted
cost guidelines used to evaluate governmental assistance. Lastly, it did not ensure that $413,086
would be returned to the HOME program if the assisted homeowners sold the duplexes before the
expiration of the affordability period.
Improper Award of $2.6
Million for Three
Noncompetitive Contracts
In each of the past three years, the City had attempted to award its HOME
Development project through a competitive request for proposal. Each year, only
one company, Contemporary Apartments, Inc. (Contemporary Apartments),
responded with a proposal.6 Each year, the City awarded the contract to
Contemporary Apartments. However, the City did not obtain or prepare cost
estimates or conduct required cost analyses before it awarded the contracts. The
5
The HOME program is governed by 24 CFR Part 92. In 24 CFR 92.505, the program requires participating
jurisdictions to follow 24 CFR 85.36 for procurements made under the HOME program.
6
The City improperly qualified Contemporary Apartments as a community housing development organization
(CHDO). The City has a longstanding partnership with Contemporary Apartments and its related companies. The
City’s actions in improperly qualifying a CHDO were the subject of Office of Inspector General (OIG) Audit Report
2009 BO 1003, dated May 14, 2009.
7
nonprofit developer used the $2.6 million to build eight duplexes. The 2008 project,
Allyn-Dwight Homes, was in process7 as of October 2009 at a cost of $1,043,893.
Federal procurement regulations at 24 CFR 85.36(c) require competition. When a
city has attempted solicitation from a number of sources and competition is
determined inadequate, regulations allow a city to accept a sole source contract.
However, regulations at 24 CFR 85.36(d) and (f) also require a city to conduct cost
estimates and additional cost analyses to ensure that it obtains the best value for its
funds. Specifically, a city must perform a cost analysis that verifies the proposed
cost data and projections of the data and evaluates specific elements of costs and
profits. The City performed some limited analyses for the proposed projects, but
these analyses were not sufficient to ensure that the City received the best possible
prices.
In addition, in 2006 and again in 2007, the City improperly gave the developer these
funds to build duplexes on land that was not owned by the City or the developer.
The City was attempting to seize a parcel of land for nonpayment of taxes. City
rules require that parcels of land seized for nonpayment of taxes be offered to the
general public for bidding.
Unreasonable Amounts Spent
by Developer to Construct
Duplexes.
The City did not receive the best possible construction prices for the seven
duplexes built by the developer, Contemporary Apartments. Contemporary
Apartments used an affiliate, Olde Holyoke Development Corporation (Olde
Holyoke), to manage the construction of the duplexes. The duplexes, like the
two duplexes shown below, are attractive buildings that provide one unit of
homeownership and one unit of rental housing,8 but the costs paid by the City
exceeded independent estimates by an average of 14 percent.
7
The project, Allyn-Dwight Homes, consists of three duplexes built on three separate parcels of land. As of June
2009, one of the three duplexes had been constructed.
8
The same homeowners have occupied these homes since they moved in. The homeowners have maintained the
buildings, which provide stability for the neighborhood.
8
The Office of Inspector General (OIG) brought in a specialist with expertise in
estimating construction costs. This in-house specialist developed a construction
cost estimate for each duplex using the plans and specification provided by the
nonprofit developer. The expenditures to build the units exceeded our
construction cost estimates by 7 to 19 percent. As a result, the City overpaid its
developer $288,000 (14 percent).
76-78 80-82
43-45 137-139 108-110 112-114 109-111 Total/
Address North North average
Ely Center Walnut Walnut Beech
East East
Cost of
$228,612 $224,315 $292,197 $314,840 $314,893 $314,893 $349,356 $2,039,106
duplex
OIG
$212,593 $205,313 $254,894 $254,383 $264,024 $264,024 $294,942 $1,750,173
estimate
Difference $16,019 $19,002 $37,302 $60,457 $50,869 $50,869 $54,414 $288,933
Percentage 7% 8% 13% 19% 16% 16% 16% 14%
9
The City could have used this $288,933 to build another duplex that would have
provided another two units of needed, affordable housing. The City also has an
ongoing project, Allyn-Dwight Homes, with this same developer to build three
more duplexes at a cost of $1,043,893. Using the average overpayment of 14
percent, we project that $146,000 of the ongoing $1 million project may be
unreasonable.
Subsidy-Layering Evaluations
Did Not Include CDBG
HOME regulations at 24 CFR 92.250(b) require that the City conduct a subsidy-
layering review of HOME projects using guidelines that it has adopted for this
purpose. This review should ensure that the City will not invest more HOME
funds, in combination with other governmental assistance, than necessary to
provide affordable housing.
The City developed subsidy-layering guidelines, which were included in the
annual request for proposal for its HOME Development program. These
guidelines required the City to recognize all government funding in its
calculations, but the City did not include all HUD funding in its calculations for
subsidy layering. It did not recognize demolition expenditures as part of the total
development cost of these projects.
Original Demolition costs paid Revised
Property
developer’s cost by federal funds developer’s cost
76-78 North East Street $228,612 $72,454 $301,066
80-82 North East Street $224,315 $72,454 $296,769
45-47 Ely Street $292,197 $163,685 $455,882
137-139 Center Street $314,840 $0 $314,840
112-114 Walnut Street $313,566 $0 $313,566
108-110 Walnut Street $314,893 $0 $314,893
109-111 Beech Street $349,356 $0 $349,356
The developer used funds from the Rental Neighborhood Improvement program
to pay for these demolition expenses. Finding 2 discusses the Rental
Neighborhood Improvement program and explains how these expenses were not
appropriate under the program.
The City’s established local cost guidelines provide that HUD funds, in
combination with all other government assistance, shall not exceed the lesser of
(1) the difference between the amounts borrowed by the buyer as a first mortgage
and the lesser of the actual total development cost, (2) the total development cost
cap, or (3) 210 percent of the amount borrowed by the buyer as a first mortgage.
10
The City allowed the developer to exceed the local guidelines by $974,453 as
shown in the table below.
Sales Revised Over-
Revised Cap less 210% of
price to developer’s cost subsidy per
Property developer’s Cap 1st 1st
home- less 1st local
cost mortgage mortgage
owner mortgage guidelines
76-78 North East St. $79,900 $301,066 $270,000 $221,166 $190,100 $167,790 $133,276
80-82 North East St. $79,900 $296,769 $270,000 $216,869 $190,100 $167,790 $128,979
45-47 Ely St. $99,900 $455,882 $318,000 $355,982 $218,100 $209,790 $246,092
137-139 Center St. $99,900 $314,840 $318,000 $214,940 $218,100 $209,790 $105,050
112-114 Walnut St. $109,900 $313,566 $318,000 $203,666 $208,100 $230,790 $109,900
108-110 Walnut St. $109,900 $314,893 $318,000 $204,993 $208,100 $230,790 $109,900
109-111 Beech St. $109,900 $349,356 $318,000 $239,456 $208,100 $230,790 $141,256
Total $974,453
The City included the local guidelines in its request for proposals for new projects
funded by the homeownership program. Because the City allowed one developer
to exceed the local guidelines, this developer knew that the guidelines could be
exceeded. This knowledge gave that developer a competitive advantage.
Recapture Amounts Incorrectly
Calculated
To ensure that HUD-funded homes remain affordable, HOME regulations at 24
CFR 92.254 requires the City to add a contract provision to impose a resale or
recapture requirement on each HUD-funded home. The City chose to recapture
the HOME funds if the homeowner did not live in the HUD-funded duplex for the
affordability period.
HUD regulations also allow cities to submit different recapture methodologies to
HUD for approval.9 If HUD approves that recapture methodology, HUD allows
that city to use the approved methodology. The City submitted a modification to
the recapture methodology. This modification allowed the City to use a deferred
payment loan to recognize the recapture amount. HUD approved this
modification.
The City used the deferred payment loan to recognize the amount of the HOME
funds to be recaptured if the homeowner did not live in the HUD-funded duplex
for the entire affordability period. The amount of recapture should be the
9
24 CFR 92.254(5)(ii)(A)
11
difference between the fair market value of the duplex and the sales price to the
homeowner.10
However, the City allowed its developer to use a different recapture methodology.
The developer created a second mortgage using a fixed amount that was only a
portion of the difference between fair market value and the purchase price. This
second mortgage was held by the developer.
Property address Correct recapture Deferred Unrecognized
provision payment loan recapture amount
112-114 Walnut Street 102,693 25,000 77,693
108-110 Walnut Street 102,693 25,000 77,693
109-111 Beech Street 73,700 25,000 48,700
45-47 Ely Street 61,100 21,000 41,100
137-139 Center Street 72,000 21,000 51,000
76-78 North East Street 62,700 21,000 41,700
80-82 North East Street 96,200 21,000 75,200
Totals $571,086 $159,000 $413,086
The homeowners would receive the benefit of the City’s error in incorrectly
allowing the use of the developer’s deferred loan amount of $159,000 as the
recapture amount. The City recognized recapture amounts of $159,000 when the
recapture amount should have been $571,086. The difference of $413,086
represents HOME funds that would have been lost initially had homeowners
failed to reside in the HUD-funded homes for the entire affordability period. The
City mistakenly believed that the reduced amount of the deferred payment loans
had also been approved by HUD.
For these duplexes, the affordability period is 15 years. Federal regulations at 24
CFR 92.254 also allow the recapture amount to be proportionally reduced over
the life of the affordability period. The City also uses this feature of the
regulations. As a result, the unrecognized recapture amount of $413,086 should
be reduced as the homeowners reside in their HUD-funded house over time.
Years of Outstanding
Expired
expiration liability as of
Unrecognize amount
Date of Years June 30,
d recapture (Difference/
Property sale to between 2009
amount or 15 years *
homeowner June 30, (Difference -
Difference years of
2009, and expired
expiration)
date of sale amount)
112-114 Walnut St. $77,693 July 9, 2008 0.97 $5,048 $72,645
108-110 Walnut St. $77,693 Nov. 25, 2008 0.59 $3,077 $74,616
10
24 CFR 92.254(5)(ii)(A)(5)
12
109-111 Beech St. $48,700 July 9, 2008 0.97 $3,164 $45,536
45-47 Ely St. $41,100 Aug. 29, 2007 1.84 $5,034 $36,066
137-139 Center St. $51,000 Dec. 28, 2006 2.51 $8,517 $42,483
76-78 North East St. $41,700 Nov. 14, 2003 5.63 $15,641 $26,059
80-82 North East St. $75,200 Oct. 29, 2003 5.67 $28,426 $46,774
Totals 413,086 n/a n/a $68,908 $344,178
If the homeowners discontinue their residency in their HUD-funded homes before
the affordability period expires, the City should repay the HOME program. As of
June 30, 2009, the contingent liability to the HOME program was $344,178. This
liability should be further reduced for each additional year that the homeowners
reside in their HUD-funded home. As of June 2009, the homeowners all
continued to reside in their HUD-funded homes. Annually, the City must report
to HUD about its recapture methodology. In the annual plans, the City described
the deferred payment loans. The annual plans did not identify that the amount of
the deferred payment loans was less than the difference between fair market value
of the duplexes and the sales price to the homeowners.
Allowing one developer to use a nonstandard recapture provision may be
considered an arbitrary action in the procurement process. Arbitrary actions in
the procurement process are considered to be restrictive of competition. Had the
modified approach been included in the request for proposal, other potential
bidders would have been aware of this “recapture option.” This action may have
affected the proposal process by discouraging additional proposals.
The City Had Begun Outreach
to Other Entities
City officials stated that they had begun to reach out to other nonprofit entities
and for-profit developers in the local area. As part of this outreach, the City was
making these entities aware of the City’s community development programs
including the homeownership program. Increasing the competition for
homeownership funds can help the City to address the issues identified.
Conclusion
The City needs to improve its award process and administration and oversight of
its HOME- and CDBG-funded housing programs. Therefore, it needs to revise its
procurement process for its HOME Development program to
• Encourage open competition,
13
• Ensure that it has proper analysis of costs,
• Recognize and address unreasonable expenditures,
• Include demolition costs in its subsidy-layering calculations,
• Correctly calculate the subsidy-layering amounts, and
• Properly recapture funds if families do not reside in the housing for the
entire affordability period.
Because it lacked sufficient controls in these areas, the City paid $288,933 in
unreasonable construction costs and could not ensure the reasonableness of an
ongoing $1 million project. With sufficiently detailed cost analyses, the City
could avoid this situation. It also provided $974,453 in excess subsidies and
could lose up to $344,178 if assisted homeowners leave the duplex units before
the expiration of the affordability period. Finally, its procurement practices
restricted free and open competition
Recommendations
We recommend that the Director of the Office of Community Planning and
Development in Boston
1A. Evaluate the City’s local cost guidelines to determine the
reasonableness and propriety of the guidelines for each of the subject
years, and direct the City to make any needed changes to its guidelines
for future HOME activity.
1B. Require the City to use sole source procurement procedures when only
one company responds in accordance with HOME requirements.
1C. Evaluate the improperly awarded $2.6 million in awards and work with
the City to determine what actions are needed to ensure future awards
are in accordance with HOME requirements.
1D. Work with the City to develop a repayment plan for the $288,933 in
unreasonable costs and have the City repay these funds. To the extent
allowed under law, funds should be repaid to the HOME program for
use in additional HOME projects.
1E. Work with the City to develop detailed cost analyses for the ongoing
2008 Allyn-Dwight Homes project and have the City reduce costs to
reasonable amounts based on these analyses. Using the 14 percent
average, we estimate the future cost savings to be $146,145.11
11
The Allyn-Dwight project is budgeted at $1,043,893. $1,043,893 x 14% = $146,145
14
1F. Direct the City to develop detailed cost analyses, if needed, for the
2009 City projects and evaluate the procurement for 2009 City projects
to ensure that the City procures projects at a reasonable price.
1G. Direct the City to establish a new protocol for routinely preparing
detailed cost analyses, if needed, for all future homeownership projects.
1H. Direct the City to repay to the HOME program the excess subsidy of
$974,453 based on the City’s guidelines. For the closed grants, the
funds should be repaid to HUD. For the open grants, the funds should
be repaid to the program.
1I. Evaluate the City’s 2008 and 2009 contracts and ensure that the City
used appropriate maximum subsidy guidelines, as provided in the local
guidelines and request for proposals, in its 2008 and 2009 contracts;
and require changes as needed.
1J. Direct the City to set up a contingency account representing the
unfunded balances of $344,178; and to adjust the contingency account
at least annually, as the affordability period expires.12 These unfunded
balances are due to the program if the eligible families dispose of or
lose the property before the affordability period expires.
1K. Direct the City to appropriately change its recapture methodology for
the three duplexes funded as the Allyn-Dwight project and any
homeownership properties developed in the future.
1L. Direct the City to change the annual plans to reflect the revised
recapture methodology to be used.
12
The affordability period is 15 years.
15
RESULTS OF AUDIT
Finding 2: The Subrecipient That Administers the City’s Rental
Neighborhood Improvement Program Was Not Adequately Monitored
The subrecipient’s13 administration of the HUD-funded Rental Neighborhood Improvement
Program was not adequately monitored by the City. Specifically, the City’s monitoring failed to
identify that the subrecipient
• Did not administer loans to related parties in the same manner as to nonrelated parties,
• Did not ensure that rehabilitation work funded by related-party loans was completed in a
timely manner,
• Did not ensure that appropriate reviews and approvals of the projects were obtained for
all loans before the commitment of funds,
• Did not secure all program investments for related-party loans,
• Did not ensure that all project records were maintained in accordance with HUD record-
keeping requirements, and
• Used $332,105 for demolition costs that were not eligible expenses of the program.
These deficiencies occurred, in part, because several provisions of the contract between the City
and the subrecipient were amended and revised over the years. These amendments and revisions
gradually diminished the City’s control of the program, and the responsibility for these controls
was assumed by the subrecipient. At the same time that the controls shifted from the City to the
subrecipient, participation in the program by nonrelated owners decreased, and participation by
entities/companies related to the subrecipient increased. A majority of the loans were made to
related parties, however, the program, as designed, did not include additional controls for
related-party loans. While we found deficiencies in both types of loans, there was a greater
frequency and dollar value to the deficiencies with the related party loans than with non related
loans. Ultimately, performance deficiencies for related-party loans went undetected for years and
were not appropriately addressed or corrected by the City. We estimate that program funds
(current and projected) of $1.8 million as of June 30, 2009, are at risk for noncompliance unless
the City increases its oversight of the subrecipient’s management of program loans.
Additionally, the City spent $332,105 on ineligible activities that did not meet the program
objectives and were not carried out in compliance with CDBG program requirements.
A Majority of the Loans Were
Made to Related Parties
Developed in 1977, the objective of the Rental Neighborhood Improvement
program was to make grants or loans to owners of multiunit rental properties to
13
The subrecipient is Olde Holyoke.
16
finance eligible improvements, repairs, and rehabilitation of the rental properties.
Since the program’s inception, the City has used a nonprofit subrecipient, Olde
Holyoke, to administer the program.
Olde Holyoke
• Obtains applications,
• Inspects the properties to identify necessary work required to meet
state code requirements,
• Reviews the loans,
• Evaluates the feasibility of the work,
• Reviews the credit history the applicant,
• Authorizes the loans,
• Examines completed work,
• Makes payments, and
• Administers the loan repayments.
Since the program began, the subrecipient has made 39 loans totaling more than
$4.7 million. Of the 39 loans, 26 (or 67 percent) have been made for properties
that were owned by either the subrecipient or its related nonprofit entity,
Contemporary Apartments.
A majority of the loans outstanding as of June 30, 2009, were for properties that
were owned by either the subrecipient or a second, related nonprofit. The total
loan amount of program loans outstanding as of June 30, 2009, was more than
$1.8 million. Outstanding loans to related parties represented 79 percent of the
amount due as of June 30, 2009.
Rental Neighborhood Improvement program
loans: amount outstanding as of June 30, 2009
$383,926
$1,471,666
Loans to Related Parties Loans to Unrelated parties
17
Although a majority of the program participants were related parties, the program,
as of June 30, 2009, did not include additional controls for these related-party
loans. Related-party activities were not carried out in compliance with CDBG
regulations and contained several deficiencies.
The Subrecipient Did Not Treat
All Loans in the Same Manner
Loans made to related and nonrelated parties were not treated consistently by the
subrecipient regarding
• Enforcement of contracts,
• Timetables for completion,
• Accrual of interest on advances,
• Board review and approvals, and
• Project record keeping.
Specifically, loans made to nonrelated parties had to follow contracts, meet
timetables for completion, and accrue interest on advances. Related-party loans
were not required to meet these same standards. For loans to related parties,
interest did not begin until project completion, which for some situations, was up
to eight years. This treatment provided a disincentive for the related parties to
complete the projects. If the related-party loans had been treated in the same
manner as loans to nonrelated parties, the program would have earned an
additional $22,52214 in interest. This interest could have been used to further the
Rental Neighborhood Improvement program.
Additionally, the files for loans to nonrelated parties contained rental regulatory
agreements and work write-ups, and the loans were presented for approval by the
board of directors. The files for related-party loans’ records did not contain rental
regulatory agreements, work write-ups, and permits for all work. At the time of
our review, there were 10 outstanding loans for related parties and five
outstanding loans for nonrelated parties. Of the 10 related-party loans, approvals
for four of the loans were not recorded in the board minutes of the subreceipient.
Additionally, the 10 loans to related parties were not recorded in the property
records of the Hampden County Registry of Deed.
18
Related-Party Rehabilitation
Work Was Not Completed in a
Timely Manner
In general, the renovations funded by the loans to related parties took at least 30
months from the first advance to completion, with some renovations taking as
long as three to eight years. Since loans for open projects (ongoing renovations)
do not accrue interest, there was a disincentive to complete the renovations.
Renovations funded by loans to nonrelated parties were generally completed
within 18 months. For these loans, the loan agreements between the subrecipient
and the nonrelated parties contained specific time completion requirements for
renovations and contract provisions that prohibited work from lapsing for more
than 15 days. The subrecipient strictly enforced these time completion
requirements for loans to nonrelated parties.
Appropriate Reviews and
Approvals of the Projects Were
Not Made for All Loans
As noted, we determined that four of the ten outstanding loans made to related
parties did not contain evidence of review and approval by the board of directors.
Project summaries and board approvals were generally evidenced in the board
minutes. The subrecipient could not provide evidence showing that these loans were
reviewed by the board. Review and approval by the board is a requirement under
the subrecipient agreement.
For one of the four loans, project activity R154, the subrecipient increased the
funding four times, from an initial award of $35,000 in August 2006 to a total award
of $150,000 as of August 2008. The gradual increase in the total amount of the loan
over a two-year period rendered this loan agreement as essentially an open line of
interest-free credit. This activity was still not finished as of June 30, 2009 (see
appendix E).
The Subrecipient Failed to
Secure All Related-Party Loans
When we began our review on December 1, 2008, none of the 10 related-party
loans had been properly secured. To secure the loans, the lender (in this case the
subrecipient acting for the City) records the loans in the property records of the
local Registry of Deeds (Hampden County). This action safeguards the City if the
loan recipient fails to repay the loan. After we notified the City of this
discrepancy, the subrecipient took action to record these 10 related-party loans
19
between December 31, 2008, and June 9, 2009, thereby securing more than $1.5
million in related-party loans, however, two related-party mortgages had not been
recorded as of May 20, 2009.
Project Records Were Not
Maintained as Required
Project files for the related-party loans did not contain evidence of compliance with
HUD record-keeping requirements at 24 CFR 570.506. The files did not include
application submissions, evidence of federal procurement compliance, work write-
ups, Davis Bacon compliance documentation, or permits for all work (see appendix
E).
The Subrecipient Used $332,105
for Demolition
The subrecipient used $332,105 in Rental Neighborhood Improvement program
funds to demolish existing buildings at three different parcels of land, which are
not eligible activities under the program. The program objective is to finance for
eligible improvements, repairs, and rehabilitation of rental properties. Demolition
is neither repair nor rehabilitation of a rental property. In addition, the demolition
activities were not carried out in compliance with the CDBG program rules
governing
• Public participation15 - The demolition activities were not specified in the
annual action plans to HUD;
• Accurate and transparent reporting16- The demolition activities were not
reported in the consolidated annual performance and evaluation reports to
HUD;
• Environmental reviews16- One demolition activity did not have an
environmental review, while another demolition activity’s environmental
review was based on misinformation regarding the source of funding;
• Displacement and relocation of tenants17 - City records indicated that
demolition activity R145 displaced 24 people, but the City/subrecipient
relocated only one person; and
15
24 CFR 91.220
16
24 CFR 570.200(4)
17
24 CFR 570.606
20
• Conflicts of interest18 - Contemporary Apartments, a related party of the
subrecipient, financially benefited from demolition activity R151. A fire
damaged a building owned by Contemporary Apartments. This related
party received $303,000 in insurance proceeds. After the fire, the City
allowed Olde Holyoke to use program funds totaling $163,685 to
demolish the building. The City also allowed Olde Holyoke (as
administrator for the program) to purchase the property for $16,300 from
its related party, Contemporary Apartments. Our review of the records
indicated that Contemporary Apartments was allowed to retain $199,000
in net insurance proceeds. Since Contemporary Apartments is a related
party of Olde Holyoke, this transaction may have constituted a conflict of
interest.
Two of these demolition activities were related to homeownership activities as
discussed in finding 1. The associated costs were also not reported under the
homeownership program or considered when ensuring that the City did not
oversubsidize the properties (subsidy layering).
Program Controls Shifted from
the City to the Subrecipient
The inadequate oversight in administering the Rental Neighborhood Improvement
program occurred, in part, because of a shift in program controls from the City to
the subrecipient. The subrecipient had administered the program since 1977.
During that period, several contract provisions were amended and revised. These
amendments and revisions had the effect of diminishing the City’s control of the
program.19 These controls were assumed by the subrecipient.
During the initial years of the program, the City’s building commissioner was
responsible for making the initial determination of code deficiencies and
noncompliance for project activities (buildings) that would enable the projects to
be included in the program. As of June 30, 2009, the program agreement between
the subrecipient and the City provided that the building must be in need of
rehabilitation to comply with applicable codes of the Commonwealth of
Massachusetts. Also, as part of the agreement, the subrecipient was required to
review the list of code violations and determine whether there was sufficient
justification for the project activity (building) to be included in the program.
18
24 CFR 570.611
19
24 CFR §570.501 - Responsibility for grant administration. (b) The recipient is responsible for ensuring that
CDBG funds are used in accordance with all program requirements. The use of designated public agencies,
subrecipient, or contractors does not relieve the recipient of this responsibility. The recipient is also responsible for
determining the adequacy of performance under subrecipient agreements and procurement contracts, and for taking
appropriate action when performance problems arise, such as the actions described in §570.910.
21
Since a majority of the loans by the subrecipient were made to related properties,
the program did not have adequate controls to ensure that all items of
noncompliance were appropriately addressed. Buildings, funded by project
activities R147 and R154, underwent rehabilitation without the subrecipient
obtaining the necessary permits. The funds were used for items such as roofs,
moderate unit rehabilitation, and plumbing. Permits are required by local and
state building codes to ensure that work is done properly and in compliance with
state code requirements. Use of building permits provides independent inspection
of rehabilitation work to ensure the safety of residents.
During the initial period of the program, the City solicitor required a certification
that project investors had a marketable interest in the subject property. As of June
30, 2009, the agreement between the subrecipient and the City provided for the
subrecipient’s attorney to make such a certification. Since a majority of the loans
were made for properties that were owned by either the subrecipient or its related
nonprofit entity, the program did not have sufficient independent controls to
ensure that an appropriate marketable interest was held.
During the initial period of the program, certain loan origination functions were
assigned to local cooperating banks. As of June 30, 2009, these loan origination
functions had become the responsibility of the subrecipient. Since a majority of
the loans were made for properties that were owned by either the subrecipient or
its related nonprofit entity, the program did not have sufficient independent
controls to ensure the veracity and accuracy of the loan origination information.
During the initial period of the program, the City monitored Davis-Bacon
compliance activity. The Davis-Bacon Act of 1931 is a federal law which
established the requirement for paying prevailing wages on public works projects.
All federal government construction contracts and most contracts for federally
assisted construction over $2,000 must include provisions for paying workers the
locally prevailing wages and benefits paid on similar projects. As of June 2009,
the subrecipient was responsible for monitoring Davis-Bacon compliance activity.
We determined that the subrecipient did not maintain complete supporting
documentation to demonstrate compliance with Davis-Bacon requirements. This
documentation would include evidence that wages and certified payrolls were
reviewed and interviews were held to ensure that proper wages were paid.
During the initial period of the program, a five-member financial review board
consisting of local bank officers independently reviewed the projects. As of June
30, 2009, the subrecipient’s board of directors acted as the financial review board
for the projects included in the program. As noted, four of the ten related-party
loans were not reviewed by this board.
22
There Was a Risk of
Noncompliance Due to
Deficiencies and Lack of
Controls
As of June 30, 2009, the total of the loans outstanding and the cash balance
available was more than $2.6 million.20 Based on the deficiencies noted in this
finding, we estimate that at least 67 percent of the total program funds of $2.6
million (current and projected use) totaling more than $1.7 million, are at risk for
noncompliance. The estimate of 67 percent represents the percentage of the total
program loans made to related parties since program inception. As of June 30,
2009, this percentage had remained consistent throughout the program for 32
years. The deficiencies noted in this finding were concentrated, almost
exclusively, on the related-party loans issued by the subrecipient under the
program. Until the City takes corrective action to address the deficiencies cited in
this finding, the deficiencies will continue to exist, and the program funds will be
at risk.
New Loan Protocols Were
Being Developed
In response to initial results communicated to the City during the audit, the City
began to develop new protocols for loans to related parties. These protocols
involve additional layers of review by City employees who are independent of the
subrecipient’s organization. The City intended to add these protocols to the next
agreement for the program. The agreement in place as of June 2009 will expire
December 31, 2009. Properly implemented, the independent layers of review can
help the City to address the issues identified and help to ensure that future
program-funded activities are conducted in compliance with HUD regulations and
completed in a timely manner without performance deficiencies.
Conclusion
The City allowed controls over the Rental Neighborhood Improvement program
to shift from the City to the subrecipient. These changes in the control
environment of the program led directly to the performance deficiencies noted for
loans to related parties. These deficiencies went undetected for years and,
therefore, were not appropriately addressed or corrected by the City. As a result
20
The total amount of Rental Neighborhood Improvement program loans outstanding was more than $1.8 million,
and the total cash balance available for the program, as shown in the subrecipient’s (Olde Holyoke) bank accounts,
was $778, 049 totaling more than $2.6 million.
23
of the deficiencies that occurred and the lack of proper internal controls that
caused them, we estimate that as of June 30, 2009, program funds (current and
projected) of more than $1.7 million are at risk for noncompliance. In addition,
the program lost more than $22,000 in forfeited interest and incurred $332,105 for
demolition activities that were not eligible program expenses.
Recommendations
We recommend that the Director of the Office of Community Planning and
Development in Boston
2A. Review the proposed changes to the Rental Neighborhood Improvement
program (RNIP) agreement to ensure that the agreement contains
appropriate independent controls for oversight and monitoring of program
activities by the City, and require the City to make any changes needed.
This action will ensure funds are spent appropriately and result in
$1,764,54021 in initial RNIP funds being put to better use.
2B. Direct the City to repay $22,522 in forgone interest to the RNIP fund.
2C. Determine necessary action to ensure that the City’s program objective
accurately reflects CDBG authorized activities, and to ensure demolition is
not funded using RNIP funding.
2D. Require the City to repay to the program the $332,105 improperly used for
demolition activities that are not eligible under RNIP from other funds.
21
$1,764,540 represents the outstanding balance of $2,633,642 multiplied by 67%, the percentage of loans to related
parties. We used the percentage of loans to related parties because our review found a greater frequency of
occurrence and a larger dollar impact for the problems with loans to related parties.
24
SCOPE AND METHODOLOGY
We performed an audit of the housing activities funded under the CDBG and HOME programs
as administered by the City. Specifically, we examined the City’s HOME Development and
Rental Neighborhood Improvement programs. Our fieldwork was completed at the City’s Office
of Community Development located at City Hall Annex, 20 Korean Veterans Plaza, Holyoke,
Massachusetts, and the offices of Olde Holyoke, 70 Lyman Street, Holyoke, Massachusetts, from
March to August 2009. Olde Holyoke is colocated with its related nonprofit, Contemporary
Apartments. Our audit generally covered the period July 2006 to June 2009 and was extended
when necessary to meet our objective. This extension included a review of the Rental
Neighborhood Improvement program for the 10-year period from 1999 to 2009 and a HOME
Development project, J. Albert Homes II, completed in 2003.
To accomplish our audit objective, we
• Reviewed applicable CFR sources, Office of Management and Budget circulars, HUD
handbooks/guidebooks, and HUD notices pertaining to the HOME and CDBG programs.
• Reviewed the City’s draft policies and procedures and held discussions with City officials to
gain an understanding of the City’s accounting controls, procurement practices, and
monitoring policies.
• Reviewed independent public audit reports as well as HUD monitoring reviews.
• Evaluated the internal controls and conducted sufficient tests to determine whether
controls were functioning as intended.
• Reviewed the annual action plans and consolidated annual performance and evaluation
reports submitted to HUD to identify activities, programs, and procedures that were
inaccurately described in the plans and reports.
• Evaluated the City’s HOME procurement practices through a review of procurements
under the HOME Development program. The population is one new project per year,
totaling three projects in our three-year audit period. These three projects funded eight
duplexes. As of June 2009, five duplexes were complete, and three duplexes were being
built. We opted to use a 100 percent selection because the universe is small and the
impact of each unit is large. We also decided to add J. Albert Homes II, a 2002 project,
because of its inherent relationship with the demolition activities funded under the Rental
Neighborhood Improvement program. J. Albert Homes II consisted of two completed
duplexes.
• Evaluated loans and grants funded by the Rental Neighborhood Improvement program.
Based on our initial testing, we decided to review 100 percent of the activities. This
change meant that we reviewed three additional loans not previously selected. These
three loans were made to nonrelated projects.
• Obtained and reviewed project files maintained by Olde Holyoke, including applications,
cost support files, invoices and contracts, general ledgers for July 1999 to June 2009,
funding activity notification letters, Olde Holyoke board minutes for the period January
25
2000 to February 2009, and Contemporary Apartments board minutes for the period
January 2000 to February 2009.
• Reviewed applicable land records from Hampden County Registry of Deeds.
• Tested disbursements for each activity by (1) reviewing lists of disbursements that made
up the loan amount; (2) reviewing land records; (3) reviewing Olde Holyoke Rental
Neighborhood Renewal program project files to determine work performed; (4)
reviewing Olde Holyoke Rental Neighborhood Improvement program files to determine
whether files met federal requirement for record keeping, Davis-Bacon compliance,
procurement, and permits; (5) reviewing City building department records to gain
information for comparison purposes; (6) reviewing borrower funding notification letters
from Olde Holyoke to the City for accuracy; (7) reviewing whether disbursements were
supported by invoices, contracts, and proposals; and (8) identifying the existence of rental
rehabilitation loan agreements and whether the agreements contained time completion
provisions. We also reviewed the three grants.
• Examined the various initial Rental Neighborhood Improvement program agreements,
amendments, and scopes of services as executed between the City and Olde Holyoke
from the initial contract in 1977 to the present contract in 2009.
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.
26
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 objective:
• Internal controls with regard to the HOME Development program procurement
process
• City oversight and management of the Rental Neighborhood Improvement program
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 items are significant weaknesses:
• Internal controls with regard to the HOME Development program procurement
process
• City monitoring and management of the Rental Neighborhood Improvement
program.
27
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
The audit identified questioned costs totaling $3,872,876 as follows:
Recommendation Ineligible 1/ Unreasonable Funds to be put to
number or unnecessary 2/ better use 3/
1C
1D $288,933
1E 146,145
1H $974,453
1J $344,178
2A $1,764,540
2B $22,522
2D $332,105
Totals $1,306,558 $288,933 $2,277,385
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/ Unnecessary/unreasonable costs are those that are not generally recognized as ordinary,
prudent, relevant, and/or necessary within established practices. Unreasonable costs exceed the
costs that would be incurred by a prudent person in conducting a competitive business. A legal
opinion or administrative determination may be needed on these costs.
3/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an 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, and any
other savings that are specifically identified. In this case, (1) the potentially unreasonable costs
of $146,145 for the ongoing duplex homeownership activity will be better spent for reasonable
costs, (2) the $344,178 in unsecured/unrecognized HOME investments subject to recapture
contingency will be appropriately funded, (3) $1,764,540 will be expended in accordance with
CDBG regulations, and appropriate project performance will be achieved. Lastly, interest of
$22,522 due to the program will be used to further the program objectives.
28
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
29
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 2
Comment 3
Comment 4
Comment 5
Comment 6
Comment 7
30
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 8
Comment 9
Comment 10
Comment 11
31
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 12
Comment 13
Comment 14
32
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 14
Comment 15
Comment 16
33
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
34
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
OIG Evaluation of Auditee Comments
Comment 1 The completive proposal RFP referred by the City did not contain cost estimates.
The City did not complete or have the required estimates. Regulations at 24 CFR
85.36(d) and (f) require grantees, such as the City, to complete cost estimates to
ensure that it obtains the best value for its funds. What the City refers to as
"estimates" are standard and the City’s Local Cost Guidelines that are required
under the HOME program (24 CFR 92.250(b)). These guidelines provide
standards related to total development cost caps and maximum subsidies for all
activities funded under the HOME Development program. Program activities
include new construction and rehabilitation of single and multi-family units to be
purchased and owned by low-income families. The total development cost caps
are not the necessary cost estimates required for the activity of new construction
of modular duplex housing units.
The analyses performed by the City for the proposed projects were limited, and
they were not sufficient to ensure that the City received the best possible prices.
Also, based on what was found a detailed description of the steps taken in the
City’s analysis would show that the cost analyses were insufficient. Specifically,
the City must perform a cost analysis that verifies the proposed cost data and
projections of the data and that evaluates specific elements of costs and profits.
The analyses performed by the City did not include any of this type of
information. Lastly the audit report did not cite a requirement that cost estimates
and analyses be performed by a "third party” and we agree that these estimates
may be done my completed by City officials as long as they are done sufficiently.
Comment 2 The $2.6 million in noncompetitive contracts was not awarded in accordance with
federal requirements, and therefore was not properly awarded. Specifically, the
City did not follow the Regulations at 24 CFR 85.36(d) and (f), and as such the
award of these funds were improper. Further, we noted in Comment 1 why the
award was improper, or specifically the required cost estimates and cost analyses
were not properly prepared as required by the Regulations at 24 CFR 85.36(d) and
(f) thus making this an improper award.
Comment 3 In the response to this recommendation, the City failed to provide any
documentation for us to evaluate or in support of its statements that the cost of
home construction in the area or the unit cost of constructing these duplex homes
in Holyoke was below the average for the Springfield-Holyoke-Chicopee
35
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
metropolitan area. Based on what we found, the City needs to repay the
unreasonable costs because it did not put forth sufficient effort to ensure that the
costs were reasonable. With regard to the quality of the estimate, the cost
estimates developed by the independent appraiser were based on the Marshall and
Swift universal standards and included the maximum allowed for energy
adjustments. This adjustment addresses items such as extra insulation, thermal
pane windows, and heavier doors, etc. According to the Marshall and Swift
standards, this energy adjustment is calculated based on a determination of the
local climate being mild, moderate, or extreme. The appraiser was very diligent
and used the extreme designation, which is the highest adjustment factor allowed.
Using this designation, the appraiser estimated the energy adjustment to range
from $1.36 extra per sq. foot for the Albert II project to $1.83 extra per sq. foot
for the Dwight Homes project.
The City failed to provide any documentation to support its statements that the
cost of home construction in the area or the unit cost of constructing these duplex
homes in Holyoke. The appraisal shows that the cost paid were not reasonable,
and thus, if the City had made this effort to ensure that the cost were reasonable,
the City would have produced more housing.
Comment 4 In the response to this recommendation, the City failed to provide any
documentation for us to evaluate or in support of its statements that the cost of
analyses were done. The City did not complete or have the required estimates.
Based on what documentation we found during the audit, City needs to repay the
unreasonable costs because it did not put forth sufficient effort to ensure that the
costs were reasonable. Also see comments 1 and 3.
Comment 5 The procurement facts warranted the completion of a cost analyses because there
was no competition. Also, a detailed cost analyses would not be not required
where adequate competition exists (i.e. where there is more than one respondent).
However, as noted in the finding there was only one respondent, and therefore,
the detailed cost analyses were required. The City did not complete or have the
required estimates.
Comment 6 To ensure compliance with HUD requirements in the City’s administration of its
HOME program, the City needs to establish new protocols for routinely preparing
detailed cost analyses when needed for future homeownership projects. It is the
City’s responsibility to ensure the costs paid are reasonable, and thus, the City
needs to have policies and procedures in place to ensure that the costs are
reasonable.
36
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Comment 7 Our review found that regulatory maximum subsidy limits were breached, in at
least one instance. Using the HUD guidelines, we determined that one project, 45
Ely Street, was over-subsidized by $62,250. The City’s established local cost
guidelines provide that HUD funds, in combination with all other government
assistance, shall not exceed the lesser of (1) the difference between the amounts
borrowed by the buyer as a first mortgage and the lesser of the actual total
development cost, (2) the total development cost cap, or (3) 210 percent of the
amount borrowed by the buyer as a first mortgage. The City allowed the
developer to exceed the local guidelines by $974,453, a significant amount that
represents the amount of subsidies in excess of the local guidelines. This
occurred because the City did not include all HUD funding in its calculations for
subsidy layering, and it did not recognize demolition expenditures as part of the
total development cost of the projects.
Comment 8 As noted in the finding, the City included the local guidelines in its RFPs for new
projects funded by the homeownership program. Because the City allowed one
developer to exceed the local guidelines by almost $1 million (see Comment 7),
this developer understood that the guidelines could be exceeded, and this
knowledge gave that developer an unfair competitive advantage. HUD needs to
ensure that the City used appropriate maximum subsidy guidelines in its 2008 and
2009 contracts and require changes as needed
Comment 9 The City's practice of identifying an optional amount that was less then "the
difference between fair market value and the affordable sales price" and offering
this option to only one developer does not conform to the applicable regulations,
nor was this practice approved by HUD. The regulations provide that the HOME
investment that is subject to recapture is based on the amount of HOME
assistance that enabled the homebuyer to buy the dwelling unit. This includes any
HOME assistance that reduced the purchase price from fair market value to an
affordable price. The City should submit to HUD for review and approval the
optional recapture methodology it used. If approved, this optional (modified)
recapture option should be offered to all participants of the HOME program and
included in the RFPs to ensure competition is fair.
Allowing one developer to use an optional and nonstandard recapture provision
may be considered an arbitrary action in the procurement process. Arbitrary
actions in the procurement process are considered to be restrictive of competition.
Had the optional (modified) provision been included in the request for proposal,
other potential bidders would have been aware of this recapture option. The
actions by the City may have affected the proposal process by discouraging
additional proposals.
37
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
HUD regulations allowed the City to recoup a portion of the HOME assistance.
However, this may only be accomplished using recapture options that are
acceptable to (approved by) HUD as provided in the HOME regulations at 24
CFR 92.254. In the instances cited in the finding, the recapture option used was
not one of the four options accepted by HUD and included in the regulations.
Comment 10 The City is not using recapture options that are acceptable to (approved by) HUD
as provided in the HOME regulations at 24 CFR 92.254. The City allowed its
developer to use a different recapture methodology than the one approved by
HUD. The City must use the correct recapture amount which should be
proportionally reduced over the life of the affordability period. The incorrect
unrecognized recapture amount subjects the HOME program to a potential loss of
$344,178 as of June 30, 2009. (Also see Comment 9).
Comment 11 The wording in the Consolidated Plan has been changed, as noted. However, as
noted in Comment 9 and 10, the City cannot use this modified recapture option
without HUD approval, and it cannot use this option exclusively with OHDC.
This practice of limiting this option to only one developer does not foster fair
competition. The City must offer this modified recapture, once approved by HUD,
to all potential respondents of the City’s HOME development program RFPs.
Comment 12 The City has been working to increase timely project completion, make related
party loans more transparent, and insure file completeness. However, we reiterate
that demolition expenses do not represent eligible RNIP program costs as further
explained in Comments 15 and 16.
Comment 13 The City is willing to implement this recommendation. However, since the
1970’s the contractor (OHDC) has not assumed RNIP program duties for little or
no cost. As part of its review of the revised RNIP agreement, HUD should ensure
that the agreement contains appropriate compensation to the contractor(s) as
explained further in Comment 14.
Comment 14 The City's description of the RNIP policy on charging interest is not contained in
any records or other documents provided during the audit, and it was never
provided in any discussion with the auditors during the assignment. The City’s
description is also not consistent with information provided by the OHDC staff
during the audit regarding interest accruals prior to project completion.
According to City officials and as recorded in the financial records provided by
OHDC, upon project completion, OHDC receives a developer fee totaling 10% of
the final loan amounts. The 10% developer fee “compensation provision” was
38
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
also not provided in writing or in any contracts, or records provided during the
audit. This developer fee was applied to both unrelated and related party loans.
We note that payment of 10% developer fees for related party loans was contrary
to information provided by City officials about such developer fees.
Also, as noted in the OHDC board minutes dated August 11, 2000, an RNIP loan
provided to an OHDC related entity (Contemporary Apartments) totaling
$145,000 was forgiven for reasons that were sufficiently documented. However,
in retaining the proceeds of the loan, OHDC (through Contemporary Apartments)
effectively received additional compensation that could be used for administrative
matters, such as monitoring existing loans, in addition to the developer fees that
were paid.
During the period 1999 to 2009, there were 10 loans for related parties and five
loans for nonrelated parties; our audit reviewed all 15 loans. The loans made to
nonrelated parties were required to adhere to contracts, meet timetables for
completion, and accrue interest on advances. For loans to related parties, interest
did not begin until project completion, which for some situations, was up to eight
years. If the related-party loans had been treated in the same manner as loans to
nonrelated parties, the program would have earned an additional $22,522 in
interest.
We calculated the interest forgone using the same methodology that the
subrecipient (OHDC) used for its nonrelated loans. Each time funds are drawn
down from the loan, interest is accrued on the expenditures to date, multiplied by
3% annual interest for the days elapsed since the last advance. For these
nonrelated loans, the calculation occurred over the life of the loan from first
advance to the first payment. For those related loans that had not made a first
payment, we used a default date of June 30, 2009. We then subtotaled all of the
interest foregone. The amount calculated as foregone interest should be returned
to the RNIP program.
Comment 15 Demolition expenses are allowable costs but only when carried out in compliance
with specific CDBG program rules regardless of whether or not the City’s RNIP
agreement contained provisions for demolition that were included in the
governing contracts.
In addition, the finding notes that the City spent $332,105 on ineligible activities
that did not meet the RNIP program objectives, and were not carried out in
compliance with CDBG program requirements. "The RNIP program objective
was to finance eligible improvements, repairs, and rehabilitation of rental
39
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
properties. Demolition is neither repair nor rehabilitation of a rental property. In
addition, the demolition activities were not carried out in compliance with the
CDBG program rules governing: 1) public participation, 2) accurate and
transparent reporting, 3) environmental reviews, 4) displacement and relocation of
tenants, and 5) conflicts of interest.
Comment 16 Demolition expenses are allowable costs under the CDBG program, but only
when carried out in compliance with specific CDBG program rules. In the
instances cited in the finding, the demolition activities were not carried out in
compliance with the CDBG program rules governing: 1) public participation, 2)
accurate and transparent reporting, 3) environmental reviews, 4) displacement and
relocation of tenants, and 5) conflicts of interest as explained in Comment 15.
40
Appendix C
RENTAL NEIGHBORHOOD
IMPROVEMENT LOANS WERE MODIFIED AND FUNDS
WERE OUTSTANDING (FOR SAMPLE)
AS OF JUNE 30, 2009
RNIP* Initial funding Date of last Amount outstanding
Setup date Funds committed
no. amount modification as of June 30, 2009
R128 Mar. 3, 1993 $50,000 May 18, 2005 $ 144,000 $21,958
R138 May 1, 1999 $70,000 Aug. 1, 2000 $ 70,000 $36,752
R139 Oct. 8, 1999 $90,000 Oct. 1, 2001 $ 103,800 $-
Dec. 12,
R140 $ 105,000 n/a $ 105,000 $73,163
1999
R141 July 1, 2000 $52,000 Nov. 13, 2007 $ 86,000 $80,507
R142 Jan. 10, 2001 $40,000 n/a $ 40,000 $26,962
Feb. 28,
R143 $ 115,000 Dec. 11, 2001 $ 115,000 $-
2001
Aug. 21,
R144 $ 260,000 Jan. 31, 2002 $ 341,000 $262,903
2002
R147 Apr. 1, 2003 $ 165,000 Nov. 14, 2008 $ 300,000 $272,800
May 10,
R150 $40,000 Apr. 30. 2007 $ 40,000 $22,420
2006
Aug. 28,
R152 $45,000 n/a $ 45,000 $34,765
2006
Aug. 28,
R153 $80,000 n/a $ 80,000 $54,334
2006
Aug. 28,
R154 $35,000 Aug. 24, 2008 $ 150,000 $144,150
2006
R155 Oct. 1, 2008 $50,000 n/a $ 50,000 $37,883
R156 Jan. 1, 2009 $60,000 n/a $ 60,000 $47,860
Totals $1,257,000 $ 1,729,800 $1,116,457
* RNIP = Rental Neighborhood Improvement program
41
Appendix D
FOR RENTAL NEIGHBORHOOD
IMPROVEMENT LOANS, UNFINISHED WORK LED TO
INTEREST FORGONE
Date of first
payment or
Is work Number of First Elapsed Interest
RNIP No. Last advance default date
complete? amendments advance days forgone
of June 30,
2009
R128 No Mar. 31, 2009 3 n/a n/a n/a n/a
June 30, Oct. 31,
R138 Yes Aug. 15, 2000 0 489 n/a
1999 2000
Dec. 17, Jan. 31,
R139 Yes n/a 1 776 n/a
1999 2002
Mar. 31,
R140 Yes Feb. 12, 2002 0 Dec. 2, 2002 246 n/a
2002
June 30,
R141 Yes Jan. 29, 2008 2 July 1, 2000 2921 $9,682
2008
Jan. 19, Aug. 31,
R142 Yes June 26, 2001 0 224 n/a
2001 2001
Apr. 30, Apr. 30,
R143 Yes Apr. 18, 2002 1 365 n/a
2001 2002
Mar. 18, Oct. 31,
R144 Yes Sept. 1, 2003 1 592 n/a
2002 2003
Apr. 30, Oct. 31, Not
R147 Yes Feb. 12, 2009 3 1280
2003 2006 determined
Apr. 27, June 30,
R150 No June 29, 2006 1 1160 $763
2006 2009
Sept. 14, June 30,
R152 No May 21, 2009 0 1020 $1,796
2006 2009
Sept. 28, June 30,
R153 No Sept. 6, 2007 0 1006 $3,937
2006 2009
June 30,
R154 No Sept. 17, 2008 5 Feb. 8, 2007 873 $5,399
2009
Oct. 31, June 30,
R155 No June 30, 2009 0 242 $945
2008 2009
Jan. 29, June 30,
R156 No Apr. 30, 2009 0 152 n/a
2009 2009
Total 7 $22,522
42
Appendix E
FOR RENTAL NEIGHBORHOOD IMPROVEMENT LOANS,
RELATED AND UNRELATED LOANS RECEIVED
INCONSISTENT TREATMENT
RNIP Amount Is Work Is it a Is there a Is there Are all Cost Are all Are there RentalAre there Work Is there
Documentation of Are there
No Outstanding
at Complete? building
6/30/09 Related Mortgage Board Supported? costs Rehab
ilitation
/ Write Ups? Compliance with Federal permits?
party Loan? Approval Eligible? Regulatory ProcurementRegulations
?
Agreements?
R128 $21,958 No Yes No Yes No No No Yes No n/a
R138 $36,752 Yes No Yes Yes Yes Yes Yes Yes No Yes
R139 $- Yes Yes No Yes Yes No No Yes No Yes
R140 $73,163 Yes No Yes Yes Yes Yes Yes Yes No Yes
R141 $80,507 Yes Yes Yes Yes Yes Yes No No No Yes
R142 $26,962 Yes Yes Yes No Yes Yes No No No No
R143 $- Yes No Yes Yes Yes Yes Yes Yes No Yes
R144 $262,903 Yes No Yes Yes Yes Yes Yes Yes No Yes
R147 $272,800 Yes Yes Yes Yes Yes Yes No No No No
R150 $22,420 No Yes Yes No Yes Yes No No No Yes
R152 $34,765 No Yes No Yes Yes Yes No No No Yes
R153 $54,334 No Yes No Yes Yes Yes No No No Yes
R154 $144,150 No Yes Yes No Yes Yes No No No No
R155 $37,883 No Yes Yes No Yes Yes No No No Yes
R156 $47,860 No No Yes No Yes Yes Yes Yes No Yes
$1,116,457 7
43
Appendix F
CRITERIA
Finding 1
24 CFR 85.36 - Procurement (d) Methods of procurement to be followed.
(4) Procurement by noncompetitive proposals is procurement through solicitation of a
proposal from only one source, or after solicitation of a number of sources, competition is
determined inadequate.
(i) Procurement by noncompetitive proposals may be used only when the award
of a contract is infeasible under small purchase procedures, sealed bids or
competitive proposals and one of the following circumstances applies:
(A) The item is available only from a single source;
(B) The public exigency or emergency for the requirement will not permit
a delay resulting from competitive solicitation.
(C) The awarding agency authorizes noncompetitive proposals; or
(D) After solicitation of a number of sources, competition is determined
inadequate.
(ii) Cost analysis, i.e., verifying the proposed cost data, the projections of the data,
and the evaluation of the specific elements of costs and profit, is required.
24 CFR 85.36 - Procurement (f) Contract cost and price.
(1) Grantees and subgrantees must perform a cost or price analysis in connection with
every procurement action including contract modifications. The method and degree of
analysis is dependent on the facts surrounding the particular procurement situation, but as
a starting point, grantees must make independent estimates before receiving bids or
proposals. A cost analysis must be performed when the offerer is required to submit the
elements of his estimated cost, e.g., under professional, consulting, and architectural
engineering services contracts. A cost analysis will be necessary when adequate price
competition is lacking, and for sole source procurements, including contract
modifications or change orders, unless price reasonableness can be established on the
basis of a catalog or market price of a commercial product sold in substantial quantities to
the general public or based on prices set by law or regulation. A price analysis will be
used in all other instances to determine the reasonableness of the proposed contract price.
§ 92.250 Maximum per-unit subsidy amount and subsidy layering.
(b) Subsidy layering. Before committing funds to a project, the participating jurisdiction must
evaluate the project in accordance with guidelines that it has adopted for this purpose and will
not invest any more HOME funds, in combination with other governmental assistance, than is
necessary to provide affordable housing.
44
HUD Notice: CPD 98-1 - Layering Guidance for HOME Participating Jurisdictions When
Combining HOME Funds with Other Governmental Subsidies.
III. DEFINITIONS
Governmental Assistance - Governmental assistance includes any loan, grant, (including
Community Development Block Grant), guarantee, insurance, payment, rebate, subsidy,
credit, tax benefit, or any other form of direct or indirect assistance from the Federal,
State or local government for use in, or in connection with, a specific housing project.
IV. USE OF THE GUIDELINES
Based on the certification contained in the annual submission of the consolidated plan
and the subsidy layering provisions of §92.250(b) of the HOME final rule, a PJ
[participating jurisdiction] must use the guidelines it has adopted to document that when
HOME funds are used in combination with other governmental assistance, no more
subsidy is invested than is necessary. The project file should contain the required
evaluation. For example, if a project is using HOME funds in combination with local tax
increment financing, the PJ would use the guidelines, evaluate the project, and document
the evaluation.
V. PROJECT EVALUATION
Before a PJ invests HOME funds in a project, it must assess if other governmental
assistance has been, or is expected to be, made available to that project.
City’s Local Guidelines:
1. Total Development Cost Limits Definition: Total Development Cost is defined as the
sum of all allowable project costs necessary for the development of the housing.
3. Maximum Public Subsidy - Homeowner units Local CDBG/HOME funds, in
combination with all other government assistance, shall not exceed the lesser of: a. The
difference between the amount borrowed by the buyer as a first mortgage and the lesser
of the actual Total Development Cost or the Total Development Cost cap, or b. 210% of
the amount borrowed by the buyer as a first mortgage.
45
24 CFR 92.254, Qualification as Affordable Housing: Homeownership, 5. Resale and recapture.
To ensure affordability, the participating jurisdiction must impose either resale or recapture
requirements, at its option. The participating jurisdiction must establish the resale or recapture
requirements that comply with the standards of this section and set forth the requirements in its
consolidated plan. HUD must determine that they are appropriate.
ii. Recapture. Recapture provisions must ensure that the participating jurisdiction
recoups all or a portion of the HOME assistance to the homebuyers, if the housing does
not continue to be the principal residence of the family for the duration of the period of
affordability. The participating jurisdiction may structure its recapture provisions based
on its program design and market conditions. The period of affordability is based upon
the total amount of HOME funds subject to recapture described in paragraph
(a)(5)(ii)(A)(5) of this section.
A. The following options for recapture requirements are acceptable to HUD. The
participating jurisdiction may adopt, modify or develop its own recapture
requirements for HUD approval. In establishing its recapture requirements,
the participating jurisdiction is subject to the limitation that when the
recapture requirement is triggered by a sale (voluntary or involuntary) of the
housing unit, and there are no net proceeds or the net proceeds are insufficient
to repay the HOME investment due, the participating jurisdiction can only
recapture the net proceeds, if any. The net proceeds are the sales price minus
superior loan repayment (other than HOME funds) and any closing costs.
1. Recapture entire amount. The participating jurisdiction may recapture
the entire amount of the HOME investment from the homeowner.
2. Reduction during affordability period. The participating jurisdiction
may reduce the HOME investment amount to be recaptured on a prorata
basis for the time the homeowner has owned and occupied the housing
measured against the required affordability period.
3. Shared net proceeds. If the net proceeds are not sufficient to recapture
the full HOME investment (or a reduced amount as provided for in
paragraph (a)(5)(ii)(A)(2) of this section) plus enable the homeowner to
recover the amount of the homeowner’s downpayment and any capital
improvement investment made by the owner since purchase, the
participating jurisdiction may share the net proceeds. The net proceeds are
the sales price minus loan repayment (other than HOME funds) and
closing costs.
4. Owner investment returned first. The participating jurisdiction may
permit the homebuyer to recover the homebuyer’s entire investment
(downpayment and capital improvements made by the owner since
purchase) before recapturing the HOME investment.
46
5. Amount subject to recapture. The HOME investment that is subject to
recapture is based on the amount of HOME assistance that enabled the
homebuyer to buy the dwelling unit. This includes any HOME assistance
that reduced the purchase price from fair market value to an affordable
price, but excludes the amount between the cost of producing the unit and
the market value of the property (i.e., the development subsidy). The
recaptured funds must be used to carry out HOME-eligible activities in
accordance with the requirements of this part. If the HOME assistance is
only used for the development subsidy and therefore not subject to
recapture, the resale option must be used.
6. Special considerations for single-family properties with more than one
unit. If the HOME funds are only used to assist a low-income homebuyer
to acquire one unit in single-family housing containing more than one unit
and the assisted unit will be the principal residence of the homebuyer, the
affordability requirements of this section apply only to the assisted unit. If
HOME funds are also used to assist the low-income homebuyer to acquire
one or more of the rental units in the single-family housing, the
affordability requirements of § 92.252 apply to assisted rental units, except
that the participating jurisdiction may impose resale or recapture
restrictions on all assisted units (owner-occupied and rental units) in the
single family housing. If resale restrictions are used, the affordability
requirements on all assisted units continue for the period of affordability.
If recapture restrictions are used, the affordability requirements on the
assisted rental units may be terminated, at the discretion of the
participating jurisdiction, upon recapture of the HOME investment. (If
HOME funds are used to assist only the rental units in such a property
then the requirements of § 92.252 would apply and the owner-occupied
unit would not be subject to the income targeting or affordability
provisions of § 92.254.)
47
24 CFR 85.36 - Procurement (c) Competition.
(1) All procurement transactions will be conducted in a manner providing full and open
competition consistent with the standards of §85.36. Some of the situations considered to
be restrictive of competition include but are not limited to:
(i) Placing unreasonable requirements on firms in order for them to qualify to
do business,
(ii) Requiring unnecessary experience and excessive bonding,
(iii) Noncompetitive pricing practices between firms or between affiliated
companies,
(iv) Noncompetitive awards to consultants that are on retainer contracts,
(v) Organizational conflicts of interest,
(vi) Specifying only a brand name product instead of allowing an equal
product to be offered and describing the performance of other relevant
requirements of the procurement, and
(vii) Any arbitrary action in the procurement process.
Finding 2
24 CFR 570.501 - Responsibility for grant administration. (b) The recipient is responsible for
ensuring that CDBG funds are used in accordance with all program requirements. The use of
designated public agencies, subrecipient, or contractors does not relieve the recipient of this
responsibility. The recipient is also responsible for determining the adequacy of performance
under subrecipient agreements and procurement contracts, and for taking appropriate action
when performance problems arise, such as the actions described in §570.910.
24 CFR 570.611 - Conflict of interest.
(a) Applicability. (1) In the procurement of supplies, equipment, construction, and services by
recipients and by subrecipients, the conflict of interest provisions in 24 CFR 85.36 and 24 CFR
84.42, respectively, shall apply.
(2) In all cases not governed by 24 CFR 85.36 and 84.42, the provisions of this section
shall apply. Such cases include the acquisition and disposition of real property and the
provision of assistance by the recipient or by its subrecipient to individuals, businesses,
and other private entities under eligible activities that authorize such assistance (e.g.,
rehabilitation, preservation, and other improvements of private properties or facilities
pursuant to §570.202.
(b) Conflicts prohibited. The general rule is that no persons described in paragraph (c) of this
section who exercise or have exercised any functions or responsibilities with respect to CDBG
activities assisted under this part, or who are in a position to participate in a decision-making
process or gain inside information with regard to such activities, may obtain a financial interest
or benefit from a CDBG-assisted activity, or have a financial interest in any contract,
subcontract, or agreement with respect to a CDBG-assisted activity, or with respect to the
48
proceeds of the CDBG-assisted activity, either for themselves or those with whom they have
business or immediate family ties, during their tenure or for one year thereafter.
(c) Persons covered. The conflict of interest provisions of paragraph (b) of this section apply to
any person who is an employee, agent, consultant, officer, or elected official or appointed official
of the recipient, or of any designated public agencies, or of subrecipient that are receiving funds
under this part.
24 CFR 570.606 - Displacement, relocation, acquisition, and replacement of housing.
(a) General policy for minimizing displacement. Consistent with the other goals and objectives
of this part, grantees (or States or state recipients, as applicable) shall assure that they have taken
all reasonable steps to minimize the displacement of persons (families, individuals, businesses,
nonprofit organizations, and farms) as a result of activities assisted under this part. (b)
Relocation assistance for displaced persons at URA [Uniform Relocation Assistance and Real
Property Acquisition Policies Act of 1970] levels. (1) A displaced person shall be provided with
relocation assistance at the levels described in, and in accordance with the requirements of 49
CFR part 24, which contains the government-wide regulations implementing the Uniform
Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) (42 U.S.C.
[United States Code] 4601–4655).
24 CFR 570.200 - General policies.
(a) Determination of eligibility. An activity may be assisted in whole or in part with CDBG
funds only if all of the following requirements are met: (4) Compliance with environmental
review procedures. The environmental review procedures set forth at 24 CFR part 58 must be
completed for each activity (or project as defined in 24 CFR part 58), as applicable.
24 CFR 570.302 - Submission requirements.
In order to receive its annual CDBG entitlement grant, a grantee must submit a consolidated plan
in accordance with 24 CFR part 91. That part includes requirements for the content of the
consolidated plan, for the process of developing the consolidated plan, including citizen
participation provisions, for the submission date, for HUD approval, and for the amendment
process.
24 CFR 91.220 - Action plan.
The action plan must include the following: (c) Activities to be undertaken. A description of the
activities the jurisdiction will undertake during the next year to address priority needs in terms of
local objectives that were identified in § 91.215. This description of activities shall estimate the
number and type of families that will benefit from the proposed activities, the specific local
objectives and priority needs (identified in accordance with § 91.215) that will be addressed by
the activities using formula grant funds and program income the jurisdiction expects to receive
during the program year, proposed accomplishments, and a target date for completion of the
activity.
49
Performance reporting meets three basic purposes: 1) it provides HUD with necessary
information for the Department to meet its statutory requirement to assess each grantee’s ability
to carry out relevant CPD programs in compliance with all applicable rules and regulations; 2) it
provides information necessary for HUD’s Annual Report to Congress, also statutory mandated;
and 3) it provides grantees an opportunity to describe to citizens their successes in revitalizing
deteriorated neighborhoods and meeting objectives stipulated in their Consolidated Plan.
24 CFR 92.250 - Maximum per-unit subsidy amount and subsidy layering.
(b) Subsidy layering. Before committing funds to a project, the participating jurisdiction must
evaluate the project in accordance with guidelines that it has adopted for this purpose and will
not invest any more HOME funds, in combination with other governmental assistance, than is
necessary to provide affordable housing.
City’s Local Guidelines:
3. Maximum Public Subsidy - Homeowner units Local CDBG/HOME funds, in combination
with all other government assistance, shall not exceed the lesser of: a. The difference between
the amount borrowed by the buyer as a first mortgage and the lesser of the actual Total
Development Cost or the Total Development Cost cap, or b. 210% of the amount borrowed by
the buyer as a first mortgage.
50
The City of Holyoke, Massachusetts, Office of Community Development, Needs to improve Its Administration of HOME- nd CDBG-Funded Housing Programs
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-11-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)