oversight

District of Columbia - HOME Funds Provided to Developer H.R. Crawford for Parkside Terrace Apartments

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-02-25.

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

                                                        U.S. Department of Housing and Urban Development
                                                                           Wanamaker Building, Suite 1005
                                                                                     100 Penn Square East
                                                                              Philadelphia, PA 19107-3380

                                                               Regional Inspector General for Audit


                                                                                  MEMORANDUM NO:
                                                                                  2010-PH-1802

February 25, 2010

MEMORANDUM FOR:                  Frances Bush, Director, Office of Community Planning and
                                   Development, Washington, DC, Field Office, 3GD
                                 //signed//
FROM:                            John P. Buck, Regional Inspector General for Audit, Philadelphia
                                   Region, 3AGA

SUBJECT:                         District of Columbia - HOME Funds Provided to Developer H.R.
                                  Crawford for Parkside Terrace Apartments


                                           INTRODUCTION

We completed a review of the District of Columbia’s (grantee) administration of HOME
Investment Partnerships Program (HOME) funds that it provided to CEMI-Parkside Associates,
LLP (Parkside Associates), a limited partnership managed by developer H.R. Crawford. The
funds were provided for the rehabilitation/construction of a high rise property known as Parkside
Terrace Apartments (Parkside Terrace). We previously reviewed the status of a U.S. Department
of Housing and Urban Development (HUD) upfront grant that was provided to H.R. Crawford
for the redevelopment of an apartment complex known as Ridgecrest Heights (Audit
Memorandum 2009-PH-0801, dated June 19, 2009). During that review, the HUD Office of
Affordable Housing indicated that the grantee was using HOME funds for activities involving
H.R. Crawford and recommended that we review the grantee’s HOME program. As a result, we
initiated a review of the grantee’s administration of its HOME program. This is the first of two
reports to be issued in relation to the grantee’s administration of its HOME program. The
objective addressed in this memorandum was to determine whether the grantee properly
accounted for HOME funds it provided for the rehabilitation/construction of Parkside Terrace.

                                  METHODOLOGY AND SCOPE

We reviewed HUD’s monitoring reports on the grantee and data on the grantee’s HOME funds
from HUD’s Integrated Disbursement and Information System. We obtained and reviewed
relevant information from the grantee’s Web site, analyzed its financial transactions, and
reviewed its files and other documentation pertaining to HOME fund drawdowns and other
activity for Parkside Terrace. We also performed Internet searches on Parkside Terrace and H.R.
Crawford and reviewed information gathered during our review of the upfront grant for
Ridgecrest Heights Apartments. In addition, we reviewed HUD regulations at 24 CFR (Code of
Federal Regulations) Part 92 and communicated by e-mail and/or interviews with responsible



        Visit the Office of Inspector General’s World Wide Web site at http://www.hud.gov/offices/oig/
grantee representatives as well as officials in HUD’s Office of Affordable Housing. This was a
limited scope review. Therefore, our work was not performed entirely in accordance with
generally accepted government auditing standards.

We mainly conducted the review from May through October 2009 at the grantee’s office located
at 1800 Martin Luther King Jr. Avenue, SE., Washington, DC. In addition, visits were made to
the grantee’s Office of Finance and Treasury located at 1275 K Street, NW., Suite 600,
Washington, DC, and its Shared Service Center located at 810 First Street, NE., 6th Floor,
Washington, DC.

                                                BACKGROUND

Parkside Associates is a limited partnership, consisting of Parkside Apartments Housing, Inc., a
District of Columbia corporation, as general partner and H.R. Crawford and Eleanora B.
Crawford as limited partners. Parkside Associates acquired Parkside Terrace in January 2003
with joint financing consisting of a $650,000 loan from Independence Federal Bank and a $1.25
million loan from the grantee, funded with Community Development Block Grant funds. In July
2003, the grantee loaned Parkside Associates approximately $1 million in HOME funds to
implement HUD-approved construction/repairs and improvements and to cover relocation costs
for Parkside Terrace. In September 2003, Hurricane Isabel severely impacted Parkside Terrace
and affected the rehabilitation planned for the property. On October 16, 2003, H.R. Crawford
wrote a letter to the HUD Secretary regarding the effects of Hurricane Isabel on Parkside
Terrace. The effects included irreparable damage to the roof and an elevator that was practically
destroyed and rendered unusable. H.R. Crawford requested that Parkside Terrace be closed
because the conditions and circumstances under which Parkside Associates agreed to complete
repairs and improvements for Parkside Terrace no longer existed since conditions had been
worsened by the hurricane. The grantee also held discussions with HUD concerning this
situation. The grantee expressed concern that closing Parkside Terrace would mean that no units
would be available to HOME income-eligible households, causing the project to violate the
HOME regulations and, therefore, causing the amount of HOME assistance provided to be
subject to recapture by HUD. HUD did not formally respond to H.R Crawford or the grantee.
However, the grantee decided that in the event of recapture, it would be at little risk because
Parkside Associates could be made to repay the HOME funds provided.

HUD conducted a monitoring visit of the grantee during the weeks of June 13 and June 20, 2005.
HUD selected and reviewed activity for Parkside Terrace during the monitoring visit and found
that the project might not be occupied by eligible families for the affordability1 period required
under the HOME program. The project file did not contain documentation to support the
eligibility of the project for HOME assistance or compliance with HOME affordability
requirements. HUD regulations at 24 CFR 92.252 provide that HOME-assisted units in a rental
housing project be occupied only by households that are eligible as low-income families and
meet the affordability requirements. HUD also noted that the grantee did not have procedures
for ensuring compliance with HOME requirements for rental housing. In its monitoring report,

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  The HOME program imposes an affordability period on projects assisted with HOME funds to ensure that HOME
investments yield affordable housing over the long term. For rental projects, the length of the affordability period is
based on the amount of HOME funds invested in the property as well as the nature of the activity funded.


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dated December 19, 2006, HUD asked the grantee to provide documentation to verify the
eligibility of Parkside Terrace for HOME assistance and its compliance with HOME
affordability requirements or repay the approximately $1 million in HOME funds provided for
the project. HUD also asked the grantee to develop written procedures to maintain records and
manage and track the progress of projects to ensure that HOME funds were used in accordance
with all program requirements.

The grantee concurred with HUD’s findings. Between February 2007 and March 2009, it
communicated with HUD regarding the documentation needed to show that Parkside Terrace
was eligible for the HOME funds it received. In March 2009, HUD sent the grantee a letter
indicating that the grantee had failed to provide appropriate documentation to support the use of
HOME funds for Parkside Terrace. HUD stated that this was a serious deficiency in the
grantee’s HOME program and requested that the grantee repay the HOME funds expended on
Parkside Terrace to the United States Treasury (Treasury) within 15 days of the date of the letter.

                                    RESULTS OF REVIEW

The grantee properly accounted for ineligible HOME funds it provided for the
rehabilitation/construction of Parkside Terrace. However, it needs to formalize its procedures for
monitoring HOME-funded project activities to ensure that HOME funds are used in accordance
with all program requirements.

The Grantee Repaid Improperly Used HOME Funds as Required

In accordance with HUD instructions, the grantee repaid approximately $1 million in ineligible
HOME funds it provided for Parkside Terrace. In a letter, dated March 13, 2009, HUD
instructed the grantee to repay the ineligible HOME funds to the Treasury within 15 days. On
March 27, 2009, the grantee wired the funds to HUD’s accounting center in Fort Worth, TX. On
April 16, 2009, HUD returned the funds to the grantee’s bank account. Based on an e-mail from
HUD program staff to the grantee, dated June 29, 2009, the funds were returned because only
about half of the funds were to be returned to the Treasury through HUD’s accounting center.
The remaining funds were to remain in the grantee’s local HOME account. HUD instructed the
grantee to wire $573,884 to the Treasury and keep the remaining $521,115 in its HOME account.
On August 14, 2009, the grantee wired the portion of the funds to be repaid to the Treasury to
HUD’s accounting center. Although the grantee initially attempted to repay the HOME
assistance from its own funds, it recovered the funds from Parkside Terrace on April 29, 2009.

The Grantee Must Formalize Its Procedures for Monitoring HOME Projects

As stated above, in a monitoring report to the grantee, dated December 19, 2006, HUD asked the
grantee to develop written procedures to maintain records and manage and track the progress of
projects to ensure that HOME funds were used in accordance with all program requirements. In
its response to HUD in February 2007, the grantee indicated that it had prepared draft procedures
for monitoring HOME projects and that the procedures would be implemented once approved by
management. The grantee included a copy of the draft procedures with its response to HUD. In
a response to the grantee in June 2008, HUD requested that it provide the approval date of the



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monitoring procedures and a final copy of the document during HUD’s next monitoring review.
HUD performed its next monitoring review of the grantee during the weeks of July 29 and
August 4, 2008. The related monitoring report to the grantee, dated September 30, 2008, did not
address the issue of the approval for the draft monitoring procedures; however, HUD noted
concerns with the adequacy of the grantee’s procedures to ensure compliance with HOME
program requirements.

During the review we found that the grantee’s monitoring procedures had been neither dated nor
approved by management. Approvals from the grantee’s director, chief of staff, and compliance
officer for its Office of Program Monitoring and its Development Finance Division were
missing. Grantee staff stated that the manager who developed the procedures was no longer with
the agency and that arrangements would be made for the procedures to be routed for the
appropriate approvals. The grantee’s draft procedures must be reviewed for adequacy and
approved by the appropriate responsible officials to establish a formalized process for monitoring
HOME projects to ensure compliance with HOME program requirements.

Conclusion

The grantee appropriately repaid approximately $1 million in ineligible HOME funds it provided
for Parkside Terrace. However, it must implement formalized procedures for monitoring HOME
projects as directed by HUD and in accordance with its response to HUD’s instruction.

                                    RECOMMENDATION

We recommend that the Director, Office of Community Planning and Development,
Washington, DC, field office, require the grantee to

       1A.     Formalize and implement adequate procedures to ensure that its HOME funds are
               used in accordance with program requirements.

                                   AUDITEE COMMENTS

We provided a discussion draft audit memorandum to the grantee on January 20, 2010, and
discussed it with the grantee at an exit conference on February 1, 2010. The grantee provided
written comments to the draft audit memorandum on February 2, 2010. The grantee agreed with
the content of the audit memorandum. The complete text of the grantee’s response can be found
in appendix A of this report.

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.




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                APPENDIXES

Appendix A

             AUDITEE COMMENTS




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