Issue Date
September 10, 2010
Audit Report Number
2010-KC-1007
TO: Cliff Taffet, Director, Office of Affordable Housing, DGH
//signed//
FROM: Ronald J. Hosking, Regional Inspector General for Audit, 7AGA
SUBJECT: The Missouri Housing Development Commission Did Not Always Obtain
Required Documents and Properly Report on the Tax Credit Assistance
Program Funded Under the Recovery Act
HIGHLIGHTS
What We Audited and Why
We audited the Missouri Housing Development Commission (Commission)
because it received and disbursed the largest amount of American Recovery and
Reinvestment Act of 2009 (Recovery Act) funds in Region VII. The Commission
received nearly $39 million in Tax Credit Assistance Program (TCAP) funds and
had disbursed more than $14 million of these funds as of May 3, 2010. Our
objectives were to determine whether the Commission obtained wage reports and
lobbying certifications required by Federal law and accurately reported job
creation to Recovery.gov.
What We Found
The Commission did not obtain and review all Davis-Bacon Act reports and
lobbying certifications from contractors working on TCAP-funded projects.
Therefore, it could not determine whether its contractors complied with Federal
wage rate requirements and lobbying prohibitions. Additionally, it did not
accurately report job creation data to Recovery.gov. As a result, the number of
jobs created for the fourth quarter of 2009 was overreported by 0.16 and was
underreported for first and second quarters of 2010 by 12.6 and 1.31, respectively.
What We Recommend
We recommend that the U. S. Department of Housing and Urban Development
(HUD) require the Commission to design and implement a system for identifying
contractors working during the month on TCAP-funded projects and tracking the
receipt of required documentation. Additionally, the Commission should obtain
and review the required lobbying certifications and Davis-Bacon Act files that are
missing.
Further, we recommend that HUD require the Commission to restate its fourth
quarter 2009 and first quarter 2010 job creation figures in its administrative files.
Also, the Commission should restate its second quarter jobs creation figures to
Recovery.gov during the continuous correction period and establish an adequate
system for reviewing the job creation reports to ensure proper reporting in future
quarters.
For each recommendation without a management decision, please respond and
provide status reports in accordance with HUD Handbook 2000.06, REV-3.
Please furnish us copies of any correspondence or directives issued because of the
audit.
Auditee’s Response
We provided the Commission with our draft report on August 19, 2010. We
received its written response on September 3, 2010. The Commission generally
agreed with our findings.
The complete text of the auditee’s response, along with our evaluation of that
response, can be found in appendix A of this report.
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TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding 1: The Commission Did Not Obtain All Wage Reports and Lobbying 5
Certifications Required by Federal Law
Finding 2: The Commission Inaccurately Reported Job Creation to 7
Recovery.gov
Scope and Methodology 10
Internal Controls 11
Appendixes
A. Auditee Comments and OIG’s Evaluation 12
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BACKGROUND AND OBJECTIVES
The Missouri Housing Development Commission (Commission) was established by the 75th
Missouri General Assembly in 1969 and is the housing finance agency for the State of Missouri.
The Commission operates under a board of commissioners including the governor, lieutenant
governor, attorney general, state treasurer, and six persons appointed by the governor with the
advice and consent of the Senate. The Commission has invested almost $4 billion to construct,
renovate, and preserve affordable housing.
The Commission functions as a bank, providing financing directly to developers of affordable
rental properties and funding for home loans to qualified, first-time buyers. It also administers
the Federal and Missouri Low Income Housing Tax Credit (LIHTC) programs and the Federal
HOME Investment Partnerships Program (HOME) funds as well as other programs related to its
housing finance activities.
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009 (Recovery Act) into law. The purpose of the Recovery Act was to jump-start the
Nation’s economy, with a primary focus on creating and saving jobs in the near term and
investing in infrastructure that will provide long-term economic benefits. The Recovery Act
appropriated $2.25 billion under the HOME program heading for a Tax Credit Assistance
Program (TCAP) grant to provide funds for capital investments in LIHTC projects. The U.S.
Department of Housing and Urban Development (HUD) awarded TCAP grants to the 52 State
housing credit agencies. On June 26, 2009, HUD awarded the Commission nearly $39 million in
TCAP funds.
Although these funds were appropriated under the HOME heading, TCAP funds are not subject
to any HOME requirements other than the environmental review and can only be used in LIHTC
projects, which are administered through the U.S. Department of the Treasury. HUD awarded
TCAP grants to facilitate development of projects that received or will receive LIHTC awards
between October 1, 2006, and September 30, 2009. Since a major purpose of these funds is to
immediately create new jobs or save jobs at risk of being lost due to the current economic crisis,
the Recovery Act establishes deadlines for the commitment and expenditure of grant funds and
requires State housing credit agencies to give priority to projects that will be completed by
February 16, 2012.
As of May 26, 2010, the Commission had awarded all of its TCAP funds to 24 LIHTC projects
and disbursed more than $17 million of these funds. The 24 LIHTC projects consist of 12 family
and 12 elderly projects, which will create or rehabilitate 1,474 housing units. According to
Recovery.gov, the TCAP funds had created 31.11 jobs as of May 31, 2010.
Our objectives were to determine whether the Commission obtained wage reports and lobbying
certifications required by Federal law and accurately reported job creation to Recovery.gov.
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RESULTS OF AUDIT
Finding 1: The Commission Did Not Obtain All Wage Reports and
Lobbying Certifications Required by Federal Law
The Commission did not obtain all wage reports and lobbying certifications required by Federal
law. This deficiency occurred because the Commission did not have an adequate system in place
to identify which contractors worked on TCAP-funded projects each month. As a result, it could
not determine whether its contractors complied with Federal wage rate requirements and
lobbying prohibitions.
The Commission Did Not Meet
Federal Law Requirements
The Commission did not obtain all Davis-Bacon Act wage reports and lobbying
certifications required by Federal law. Specifically, for the three projects reviewed,
the Commission did not obtain Davis-Bacon Act files for 5 contractors and lobbying
certifications for 5 contractors.
Section 1606 of the Recovery Act states that the Davis-Bacon Act prevailing wage
requirement applies to Recovery Act-appropriated construction projects.
Requirements at 40 U.S.C. (United States Code) Section 3145 and 29 CFR (Code of
Federal Regulations) Part 3 state that contractors and subcontractors on covered
projects must pay all laborers and mechanics weekly and submit weekly certified
payroll records to the contracting or administering agency.
Further, in accordance with 24 CFR Part 87, TCAP funds may not be used for
lobbying activities. To comply with this requirement, all TCAP contractors and
subcontractors that receive more than $100,000 in TCAP funds must submit a
certification for contracts, grants, loans, and cooperative agreements.
The Commission Relied on the
Contractors To Supply All
Required Documentation
The Commission did not have an adequate system in place to identify which
contractors worked on TCAP-funded projects each month. It relied on the general
contractors of each project to supply all required documentation for the
contractors. While the Commission did obtain a list of contractors working on the
projects, the list used for Davis-Bacon monitoring did not indicate which
contractors worked each month. Therefore, the Commission could not determine
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what documentation was required and what documentation was missing on a
monthly basis.
The Commission Could Not
Determine Compliance
As a result of the conditions described above, the Commission could not
determine whether its contractors complied with Federal wage rate requirements
and lobbying prohibitions. It needed to review these documents to ensure that the
contractors paid the proper wage rates and were not lobbying.
Recommendations
We recommend that the Director of Office of Affordable Housing require the
Commission to
1A. Design and implement an adequate system for identifying contractors
working on TCAP-funded projects during the month and tracking the receipt
of required documentation.
1B. Obtain and review the required lobbying and Davis-Bacon Act reports that
are missing.
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Finding 2: The Commission Inaccurately Reported Job Creation to
Recovery.gov
The Commission did not accurately calculate jobs or report them to Recovery.gov. This
deficiency occurred because the Commission did not establish an adequate system for reviewing
the job creation reports supplied by the contractors and was unaware of changes to the job
calculation methodology. As a result, the public did not have access to accurate information on
the number of jobs created with the Commission’s TCAP funds.
Job Creation Calculations Did
Not Follow HUD and OMB
Guidance
The Commission did not accurately calculate or report jobs to Recovery.gov. It
incorrectly reported for the fourth quarter of 2009, the first quarter of 2010, and the
second quarter of 2010.
Jobs reported to Corrected Difference
Recovery.gov calculation
Quarter 4 2009 4.82 4.66 .16
Quarter 1 2010 31.11 43.71 (12.6)
Quarter 2 2010 80.22 81.53 (1.31)
The Commission used an outdated job calculator to calculate the number of jobs
created in the fourth quarter of 2009. According to Office of Management and
Budget (OMB) Memorandum 10-08, the job calculation methodology had been
updated as of December 18, 2009. The new job calculation methodology was
simplified from prior guidance and included dividing the total number of hours
worked and funded by the Recovery Act within the reporting quarter by quarterly
hours in a full-time schedule. The result of the calculation is the full-time-equivalent
jobs reported to Recovery.gov.
Additionally, the Commission underreported jobs created for the first quarter of
2010 by 12.6. It continued to use the outdated job calculator, and it used the wrong
percentage of TCAP funds to calculate the number of jobs. According to OMB
Memorandum 10-08, if not all jobs were funded by the Recovery Act, an adjustment
is made to the jobs number to match the appropriate percentage of Recovery Act
funding. The Commission used the wrong percentage of TCAP funds for three
projects during the first quarter of 2010. Further, a project’s job creation report was
submitted using a 28-hour full-time work week, although the project’s contractors
worked a 40-hour full-time work week.
The Commission underreported jobs created during the second quarter of 2010 by
1.31. It used the wrong percentage of TCAP funds for one project. In addition, the
job calculators for five of the projects did not accurately calculate and report jobs
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created. The job calculators did not show any jobs created for some of the
contractors with hours worked in the quarter and did not accurately calculate the
number of jobs for the quarter.
The Commission Relied on the
Contractor’s Report of Jobs
Created and Was Unaware of
Changes to Calculation Method
The Commission did not establish an adequate system for reviewing the reports
supplied by its contractors. It relied on the contractors’ reports of jobs created and
did not have a system in place to review the reports for accuracy and consistency,
resulting in several undetected errors. The Commission compiled the total number
of jobs reported by each general contractor without reviewing the various line items
on the report. If it had, it would have been able to catch the errors, such as the 28-
hour work week and the various blank lines where the totals had not carried forward
from one line to the next.
In addition, although OMB had updated the job calculation methodology, effective
December 2009, the Commission did not become aware of the changes until April
2010 when it received an e-mail from HUD containing updated job count guidance.
The Commission stated that it checked for updates to TCAP guidance but was not
aware of all available sources of information.
Recovery Act Goals Were Not
Achieved
As a result of the conditions described above, the public did not have access to
accurate information on the number of jobs created with the Commission’s TCAP
funds. One of the overriding goals of the Recovery Act—fostering unprecedented
levels of accountability and transparency in government spending—was not
achieved. It was expected that the transparency requirements of the Recovery
Act, specifically the requirement to publish both spending and recipient
performance reports including jobs created, would create accountability among
grantees.
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Recommendations
We recommend that the Director of Office of Affordable Housing require the
Commission to
2A. Maintain within its administrative records comprehensive information on
corrections to job creation figures for the fourth quarter of 2009 and the
first quarter of 2010.
2B. Restate the job creation figures for the second quarter of 2010 to
FederalReporting.gov.
2C. Establish and implement an adequate system for reviewing the job
creation reports received from contractors.
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SCOPE AND METHODOLOGY
To accomplish our objectives, we reviewed the selected project’s written agreements, the Federal
law requirements and supporting documentation, the Commission’s policies and procedures, the
results of prior certified public accountant reviews, the reporting to Recovery.gov, and pertinent
laws and regulations. We also interviewed Commission and HUD staff.
On June 26, 2009, HUD awarded the Commission nearly $39 million in TCAP funds. Based on
the spreadsheet obtained from the Commission as of May 26, 2010, it had awarded all of its
TCAP funds to 24 LIHTC projects and disbursed more than $17 million of these funds. To
compile our Federal reporting review sample of three projects, we selected (1) the project that
had drawn down all of its TCAP funds, (2) the project that had not drawn down any TCAP
funds, and (3) the project that was awarded and drew down the largest amount of TCAP funds.
We reviewed these projects’ files for evidence of Federal reporting requirements including
lobbying and Davis-Bacon Act documentation.
We also reviewed all of the projects to verify job creation figures that the Commission reported
to Recovery.gov. To accomplish this task, we obtained and reviewed the job calculators for each
of the projects for the fourth quarter of 2009 and the first and second quarters of 2010. We
determined that the Commission used an outdated job calculator for the fourth quarter of 2009
and the first quarter of 2010; therefore, we reran the job creation figures on an updated
calculator. We also reran the job creation figures for the second quarter of 2010 because the
calculators supplied by the contractors inaccurately calculated and reported jobs created.
Also, during our review of job creation, we recalculated the percentage of TCAP funds used in
the job creation calculation. Our review of the calculators and calculations determined that the
Commission used the wrong percentage of TCAP funds and the incorrect number of full-time
hours in a work week for several TCAP projects.
Our audit period generally covered May 2009 through April 2010. We expanded the period as
necessary to address issues identified during our review. We performed audit work from May
through August 2010 at the Commission’s office at 3435 Broadway, Kansas City, MO.
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
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
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INTERNAL CONTROLS
Internal control is a process adapted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
Effectiveness and efficiency of operations,
Reliability of financial reporting, and
Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objectives:
Controls to ensure compliance with HUD and Recovery Act requirements.
Controls over the reporting of TCAP grant information to Recovery.gov.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does
not allow management or employees, in the normal course of performing their
assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
impairments to effectiveness or efficiency of operations, (2) misstatements in
financial or performance information, or (3) violations of laws and regulations on a
timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
The Commission did not have an adequate system in place to identify which
contractors worked on TCAP-funded projects each month (finding1).
The Commission did not have an adequate system in place to review the job
creation reports supplied by the contractors (finding 2).
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APPENDIXES
Appendix A
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
September 3, 2010
Mr. Ronald J. Hosking
Regional Inspector General for Audit
U.S. Department of Housing and Urban Development
Office of Inspector General
Region VII Office of Audit
Gateway Tower II – 5th Floor
400 State Avenue
Kansas City, KS 66101‐2406
Re: Discussion Draft of HUD OIG Audit of
Missouri Housing Development Commission’s
Tax Credit Assistance Program
Dear Mr. Hosking:
Thank you for giving to the Missouri Housing Development Commission (the
“Commission”) the opportunity to respond to the draft audit report prepared by the
Office of the Inspector General (the “OIG”) of the U.S. Department of Housing and
Urban Development (“HUD”) with respect to the audit recently performed on the
Commission’s Tax Credit Assistance Program (“TCAP”).
Among its other functions, the Commission administers the Federal and the
Missouri Low Income Housing Tax Credit (LIHTC) programs for the State of Missouri.
The American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) included
an appropriation in the amount of $2.25 billion for TCAP funds to be awarded by
HUD to the 52 State housing credit agencies, including the Commission, to be used
for capital investments in LIHTC projects. The Commission awarded its allocation of
TCAP funds to 24 LIHTC developments, consisting of 12 family and 12 elderly
projects, which involve the creation or rehabilitation of 1,474 housing units in the
State of Missouri.
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Ref to OIG Evaluation Auditee Comments
A major purpose of the Recovery Act was to jump‐start the Nation’s
economy, with a primary focus on creating and saving jobs in the near term while
also investing in infrastructure that will provide long‐term economic benefits. Thus,
the purpose of the OIG audit was to review the Commission’s oversight of the TCAP
funds awarded to the 24 LIHTC projects mentioned above, to confirm that workers
on the projects received Davis‐Bacon prevailing wages, that TCAP funds were not
being used for lobbying activities, and that accurate reports of job creation were
provided to Recovery.gov.
To confirm that these requirements were being satisfied, the Commission
assigned various responsibilities to its staff members, including the following:
1. The Commission assigned to one of its employees the responsibility
to review the weekly certified payrolls of the contractors and subcontractors
on all projects to confirm that each of the workers was being paid the
prevailing wage rate required by the Davis‐Bacon Act.
2. In addition, the Commission designed a form titled “Master
Comment 1 Subcontract List” that required the contractor to provide the full name of
each subcontractor used on the project; to specify whether the
subcontractor qualified as a Section 3, WBE, MBE, or DBE subcontractor; to
list the date of the subcontract as well as the date on which the subcontract
work began or was scheduled to begin; to identify all subcontracts exceeding
$100,000 in amount so that the Commission could obtain anti‐lobbying
certifications from each such subcontractor; and to note those months
during which each subcontractor provided labor or materials to the project.
3. The Commission required the contractor on each project to update
the Master Subcontract List on a monthly basis, to allow the Commission to
(1) track the dates on which each subcontractor was providing labor or
materials to the project so that the Commission could confirm that it was
receiving Davis‐Bacon certified payrolls from all such subcontractors during
the month in question, and (2) obtain lobbying certification forms from all
subcontractors working on the project at any time whose subcontracts
exceeded $100,000.
4. In addition, the Commission electronically forwarded the HUD job
calculator to the contractors on a quarterly basis and required each of them
to provide the total number of hours worked during that quarter. The
Commission also required the owners of each project to certify the accuracy
and completeness of the information provided by the contractors. After
receipt of this information from the contractors/owners, the Commission
entered into the job calculator the TCAP percentage applicable to the project
in question, and reported the result to Recovery.gov.
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Ref to OIG Evaluation Auditee Comments
Having reviewed the OIG’s draft audit report, the Commission intends to
implement the recommendations made therein, to further confirm the accuracy and
completeness of the project information received by the Commission and provided
to FederalReporting.gov.
Specifically, the OIG’s Audit Finding 1 states that “The Commission did not
obtain all wage reports and lobbying certifications required by Federal law.” The
associated Recommendations are that the Commission “design and implement an
adequate system for identifying contractors working on TCAP‐funded projects during
the month and tracking the receipt of required documentation,” and that the
Commission “obtain and review the required lobbying and Davis‐Bacon Act reports
that are missing.”
Comment 2 In response to these Recommendations, the Commission is in the process of
obtaining and reviewing any missing Davis‐Bacon Act certified payrolls and lobbying
certifications. In addition, the Commission has designed and is implementing
additional safeguards to confirm the receipt of all required documentation.
Specifically, the Commission will require all contractors to complete the
Comment 2 “Master Subcontract List” form on a weekly basis and provide it to the Commission,
along with all associated Davis‐Bacon certified payrolls, with the Master Subcontract
List and the payrolls to be accompanied by a certification from both the contractor
and the owner to the effect that the list is an accurate and complete statement of all
subcontractors who have provided labor and materials to the project for the week in
question and that all associated Davis‐Bacon certified payrolls have been provided to
the Commission. Upon receipt of this information, the Commission’s employees will
continue to confirm that (1) each worker listed on the certified payrolls has been
paid the appropriate prevailing wage, and (2) that the Commission has received
lobbying certifications from each subcontractor on the “Master Subcontract List”
whose subcontract amount exceeds $100,000.
The OIG’s Audit Finding 2 states that “the Commission did not accurately
calculate jobs or report them to Recovery.gov,” while the associated
Recommendations suggest that the Commission (a) “Maintain within its
administrative records comprehensive information on corrections to job creation
figures for the fourth quarter of 2009 and the first quarter of 2010”; (b) “Restate the
job creation figures for the second quarter of 2010 to FederalReporting.gov”; and (c)
“Establish and implement an adequate system for reviewing the job creation reports
received from contractors.”
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Ref to OIG Evaluation Auditee Comments
Comment 2 The Commission has satisfied Recommendations (a) and (b) above, and is in
the process of implementing Recommendation (c) above. Specifically, the
Commission will now provide the HUD job calculator to the contractors on a weekly
basis and require them to include in the calculator the total number of hours worked
by all subcontractors on the project for the week in question, with this information
to be certified by the contractor and the owner. When this information has been
received, an MHDC employee will include in the job calculator the applicable TCAP
percentage for the project in question. The information received from the
contractor as to the hours worked will be verified by a second MHDC employee, who
will confirm that the hours worked on the project corresponds to the number of
hours shown on the subcontractors’ certified payrolls provided for the week in
question. This second MHDC employee also will confirm that the proper TCAP
percentage amount has been included in the HUD job calculator.
In this way, the Commission believes that it will be able to provide complete
and accurate information to the American people with respect to the number of jobs
created by the TCAP funds appropriated under the Recovery Act, as well as to
confirm that the workers received appropriate Davis‐Bacon prevailing wage
payments and that the TCAP funds provided were not used inappropriately for
lobbying activities.
Once again, the Missouri Housing Development Commission wants to extend
its sincere appreciation to the U.S. Department of Housing and Urban Development,
as well as its Office of the Inspector General, for its oversight of the Commission’s
administration of the TCAP funds to ensure their proper disbursement in support of
our Nation’s recovery from the current economic crisis.
Very truly yours,
Margaret D. Lineberry
Executive Director
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OIG Evaluation of Auditee Comments
Comment 1 As noted in the report, this subcontractor list was not being used for Davis-Bacon
monitoring and review.
Comment 2 The Commission has taken positive steps to implement the recommendations,
including second reviews of job calculators and weekly reporting for Davis-Bacon
and lobbying. With the implementation of these recommendations, the
Commission will have better oversight of the TCAP.
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The Missouri Housing Development Commission Did Not Always Obtain Required Documents and Properly Report on the Tax Credit Assistance Program Funded Under the Recovery Act
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-09-10.
Below is a raw (and likely hideous) rendition of the original report. (PDF)