oversight

The City of Meriden, CT, Had Sufficient Capacity To Effectively Administer Its Neighborhood Stabilization Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-01-20.

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

                                             U.S. Department of Housing and Urban Development
                                             Office of Inspector General for Audit, Region I
                                             Thomas P. O’Neill, Jr. Federal Building
                                             10 Causeway Street, Room 370
                                             Boston, Massachusetts 02222-1092

                                             Phone (617) 994-8380 Fax (617) 565-6878
                                             Internet http://www.hud.gov/offices/oig/




                                                                               MEMORANDUM NO:
                                                                                 2010-BO-1804
January 27, 2010

MEMORANDUM FOR: Gary Reisine, Director Community Planning and Development, 1ED


FROM:         John A. Dvorak, Regional Inspector General for Audit, Boston Region, 1AGA


SUBJECT:      The City of Meriden, CT, Had Sufficient Capacity To Effectively Administer Its
              Neighborhood Stabilization Program


                                      INTRODUCTION

In accordance with our goal to review and ensure the proper administration of Neighborhood
Stabilization Program (NSP) funds provided under the Housing and Economic Recovery Act of
2008 (HERA), we conducted a capacity review of the City of Meriden’s (City) operations. The
City has responsibility for administering the State’s NSP. Our objective was to determine
whether the City had the necessary capacity to effectively administer the State’s NSP funds
provided through HERA.

We provided a draft report to the City on January 14, 2010, and the City provided written
comments on January 26, 2010, 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 U.S. Department of Housing and Urban Development (HUD)
Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued
because of the review. If you or your staff has any questions, please contact Michael Motulski,
Assistant Regional Inspector General for Audit, at 617-994-8380.

                              METHODOLOGY AND SCOPE

Our review of the City’s operations was limited to gaining an understanding of internal controls
over the administration of NSP funds and some limited testing of selected controls. To meet our
objective, we reviewed NSP criteria, documentation, and funding agreements. We interviewed City
management and staff and reviewed City documentation such as policies and procedures,
organizational charts, and salary allocations. Our review of this documentation was limited to our
stated objective and should not be considered a detailed analysis of City’s overall internal controls
or operations.

We reviewed the applicable files for each of the properties acquired with NSP funds and performed
a site visit to each property. We also obtained information from the local HUD Office of
Community Planning and Development to assist us. We performed our audit fieldwork from
October through December 2009 at City and local HUD office. For this report, we did not conduct
our work 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, we significantly reduced the scope to the items and
conditions discussed in this report.

                                         BACKGROUND

HERA (Public Law 110-289), signed into law on July 30, 2008, provides $3.9 billion in
Community Development Block Grants to States and localities to buy foreclosed-upon homes
standing empty, rehabilitate foreclosed-upon properties, and stabilize the housing market. The
program is known as the Neighborhood Stabilization Program (also known as NSP1).
Connecticut’s share of the Federal program is more than $25 million and is administered by the
State of Connecticut, Department of Economic and Community Development (Department). The
Department allocated more than $1.7 million to the City under this program. Over the past 2 years,
the City has received approximately $900,000 in HUD funding per year and received nearly triple
that amount in fiscal year 2010, with the addition of NSP funding. However, it is not expected to
receive any additional NSP funding because did not apply for funding under the American
Recovery and Reinvestment Act of 2009. Under NSP, entities are required to obligate funds in an
expedited manner. They are required to obligate all funding within 18 months.

The City plans to use its NSP funds to acquire, rehabilitate, and resell an estimated 15 single-
family homes (one-to-four unit homes) that have been foreclosed upon in targeted areas in
Meriden, CT. It also plans to demolish an estimated five vacant, blighted properties targeted for
demolition due to their detrimental impact on the neighborhood. The City works with two
nonprofit partners to implement its NSP: Mutual Housing Association of South Central
Connecticut, d/b/a NeighborWorks New Horizons, and Corporation for Independent Living.

                                     RESULTS OF REVIEW

We found no evidence indicating that the City lacked the capacity to administer its NSP funding
effectively. The City had written policies and procedures, a staffing plan including adequate
segregation of duties, and a plan for using NSP funds. Specially, the City’s management, financial,
and procurement controls were generally adequate to ensure that (1) proper NSP expenditures
would occur within the timeframes for using these funds and (2) properties acquired were eligible,
acquired at a discount, within the City’s targeted area, and properly procured. We reviewed the
following areas in making our determination of the City’s ability to administer its NSP funds:




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Capacity: The City will oversee all NSP activities. It had assigned personnel to work directly
with its NSP partners and to provide oversight of the NSP project development, implementation,
and monitoring.

Accountability and reporting: The City had incorporated the necessary accounting procedures
within its systems to provide adequate assurances that controls were in place to carry out NSP-
related activities. The NSP accounting transactions reviewed were adequately supported,
eligible, and consistent with the activities outlined in the City’s NSP local action plan. In
addition, there were no material findings, concerns, or internal control weaknesses noted in the
City’s audited financial statements, relating to HUD-funded programs.

Contract and procurement: The City’s contract and procurement systems were adequate.
While the City relies on the procurement and contracting performed by its partners for the
program, it had prequalified all home improvement contractors that the partners must use and
approves all rehabilitation contracts.

Data and computer systems: The City had no major control weaknesses relating to NSP. It
uses a quarterly reporting system designed by the Department to report on the progress and
funding of the program. In turn, the Department uses the information in the quarterly report to
report progress to HUD through the Disaster Recovery Grant Reporting System. We verified
that the information submitted by the City was substantially accurate.

The City Will Not Complete All Planned Activities

Despite the City’s capacity to administer its NSP funds, the City will not be able to meet its
planned goal of completing the acquisition and rehabilitation of 15 single-family properties. As
of the date of this report, the City had acquired seven properties for rehabilitation and one
property for demolition. One of the seven properties acquired for rehabilitation was under a
rehabilitation contract. The remaining properties were in the bid design phase. The City had not
sold or demolished any properties. However, the work completed was notable as shown in the
example of the progress of the work underway at 78 Franklin Street.




Figure 1 – New exterior siding                              Figure 2 – New heating
                                                            equipment




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The City will not be able to complete the 15 projects in its action plan, even with the additional
funding leveraged from other sources, because the total rehabilitation costs are much higher than
expected. Realistic acquisition and rehabilitation costs will exceed $300,000 per property. The
original estimate was closer to $125,000.

According to the contract agreement between the City and Department, failure to meet any of the
agreed-upon performance standards may result in the recapture of funds by the Department. The
City should discuss the expected results with the Department and obtain an approved amendment
to its local action plan.

                                   RECOMMENDATIONS

We recommend that the HUD Hartford, CT, Director of Community Planning and Development
require the City to

1A.    Obtain an approved amendment to its NSP local action plan from the Department to
       reduce the number properties acquired, rehabilitated, and resold.




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Appendix A

             AUDITEE COMMENTS




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