Issue Date
April 6, 2011
Audit Report Number
2011-AT-1005
TO: Mary Wilson, Director, Office of Community Planning and Development,
Knoxville, TN, 4JD
//signed//
FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA
SUBJECT: The Nashville, TN, Metropolitan Development and Housing Agency Generally
Complied With Neighborhood Stabilization Program 2 Requirements
HIGHLIGHTS
What We Audited and Why
We reviewed the Nashville Metropolitan Development and Housing Agency’s
(Agency) Neighborhood Stabilization Program 2 (NSP2). We selected the
Agency for review based upon its receipt of a nearly $30.5 million NSP2 grant
under the American Recovery and Reinvestment Act of 2009. The Agency was
the only NSP2 grant recipient in Tennessee.
Our objective was to evaluate the Agency’s use of NSP2 funding, including the
propriety of its activities, obligations, expenditures, and reports to the U.S.
Department of Housing and Urban Development (HUD).
What We Found
The Agency generally administered its NSP2 funds in accordance with HUD’s
requirements. It was executing its program in accordance with its approved
application, its planned activities and expenditures were eligible and supported,
and its reports to HUD were generally accurate and timely.
What We Recommend
Since the Agency generally complied with NSP2 requirements, we did not
recommend corrective action.
Auditee’s Response
We discussed the findings with Agency and HUD officials during the audit. We
provided the draft report to the Agency on March 24, 2011, and because it was a
no finding report, the Agency did not request an exit conference. The Agency did
not provide written comments because the report contained no recommendations.
It agreed with our conclusion in the report.
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TABLE OF CONTENTS
Background and Objective 4
Results of Audit
The Agency Generally Administered Its NSP2 Grant in Accordance With 6
Requirements
Scope and Methodology 8
Internal Controls 10
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BACKGROUND AND OBJECTIVE
The Neighborhood Stabilization Program 2 (NSP2) was established to stabilize neighborhoods,
the viability of which has been and continues to be damaged by the economic effects of
properties that have been foreclosed upon and abandoned. NSP2 was authorized by Title XII of
Division A of the American Recovery and Reinvestment Act of 2009 (Recovery Act) and
provides grants to States, local governments, nonprofits, and a consortium of public and/or
private nonprofit entities on a competitive basis. The U.S. Department of Housing and Urban
Development (HUD) awarded a combined total $1.93 billion in NSP2 grants to 56 grantees
nationwide. Under NSP2, grantees have 2 years from the date HUD signed their grant
agreements to expend 50 percent and 3 years to expend 100 percent of their initial NSP2
allocation. There is no separate deadline for the obligation of funds for the program. In addition,
the Recovery Act requires that not less than 25 percent of the funds be used to benefit individuals
or families whose incomes do not exceed 50 percent of area median income.
The Metropolitan Development and Housing Agency (Agency), formerly known as the Nashville
Housing Authority, was formed following a vote of approval by the City Council on October 31,
1938. Its primary objective is to provide safe and sanitary housing to low-income residents in
and around Nashville, TN. A seven-member board of commissioners appointed by the mayor of
Nashville governs the Agency. The Agency’s executive director is responsible for the daily
administration of the Agency. As of January 28, 2011, the Agency had seven open HUD
community planning and development grants (including the NSP2 grant) awarded directly to the
Agency and administered an additional 14 open community planning and development grants on
behalf of the Metro Government of Nashville-Davidson County, including a $4 million
Neighborhood Stabilization Program 1 grant.
The Agency, in a consortium established with The Housing Fund, Urban Housing Solutions, and
Woodbine Community Organization, was awarded Grant Number B-09-CN-TN-0024 for nearly
$30.5 million in new funding for NSP2 under the Recovery Act. This grant represents the only
NSP2 grant awarded in Tennessee.
The Agency’s program activities for its $30.5 million grant focus on the acquisition and
rehabilitation of abandoned or foreclosed-upon properties, new construction/redevelopment of
vacant properties, and financing.
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Activity Responsible entity NSP2 funds Projected
# of units
Establish financing mechanism The Housing Fund $3,000,000 100
Purchase and rehabilitate homes Metropolitan Development and $15,700,000 205
and residential properties that Housing Agency, Woodbine
have been abandoned or Community Organization,
foreclosed upon to sell, rent, or Urban Housing Solutions, and
redevelop such homes and The Housing Fund
properties
Redevelop demolished or vacant Metropolitan Development and $9,000,000* 140
properties as housing Housing Agency, Woodbine
Community Organization, and
Urban Housing Solutions
Administration All $2,770,000
Total $30,470,000 445
*$5 million in additional financing has been secured for this activity from Pinnacle Bank.
As of January 27, 2011, the Agency had expended $2.56 million of its award.
Our objective was to evaluate the Agency’s use of NSP2 funding, including the propriety of its
activities, obligations, expenditures, and reports to HUD.
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RESULTS OF AUDIT
The Agency Generally Administered Its NSP2 Grant in Accordance
With Requirements
The Agency generally administered its NSP2 funds in accordance with HUD’s requirements. It
was executing its program in accordance with its approved application, its planned activities and
expenditures were eligible and supported, and its reports to HUD were generally accurate and
timely.
The Agency Generally
Complied With Program
Requirements
The Agency selected properties that were eligible for NSP2 assistance and were
located in a targeted census tract. It obtained properties at a minimum 1 percent
discount, when required, and had environmental reviews completed and approved by
HUD before the obligation of program funds. The Agency expended program funds
for eligible activities and maintained adequate supporting documentation. It
consistently followed Federal procurement regulations and its own procurement
policies and procedures.
Our site visits to selected properties receiving NSP2 assistance confirmed that the
properties existed, and rehabilitation work completed appeared reasonable with
respect to the amount of expenditures incurred.
The NSP2 regulations require that recipients expend 50 percent of the initial
allocation of program funds within 24 months of executing the grant agreement and
100 percent within 36 months. If rehabilitation and construction at 36 current
properties progress as anticipated and the Agency continues to identify, acquire, and
rehabilitate/develop additional properties during the next 11 months, it should be well
positioned to meet the NSP2 expenditure deadlines.
The Agency’s Reports to
HUD Met Requirements
The Agency complied with reporting requirements. Its reports were generally timely
and accurate and included required information. The Agency’s reports were posted to
its official Web site as required.
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Although its reporting met requirements, the Agency lacked written procedures for
the reporting process. We discussed this weakness with Agency management during
our review and found that management was aware of the deficiency and had already
taken action to resolve it. The Agency was including written reporting procedures as
part of its comprehensive NSP2 manual.
Conclusion
The Agency generally administered its NSP2 grant funds in accordance with program
requirements. It was executing its program in accordance with its approved
application, its planned activities and expenditures were eligible and supported, and
its reports to HUD were generally accurate and timely.
Recommendations
This report does not contain recommendations, and no further action is needed with
respect to this report.
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SCOPE AND METHODOLOGY
We performed our audit from January through March 2011 at the Agency’s offices at 701 South
Sixth Street, Nashville, TN. The audit covered the period February 2010 to January 2011.
To accomplish our objectives, we reviewed
The NSP2 program notice, related HUD documents, and Agency program records dated
from February 2010 to January 2011.
The Code of Federal Regulations, HUD guidance, and other directives that govern NSP2.
The Agency’s approved NSP2 application, developer agreements with Woodbine
Community Organization and Urban Housing Solutions, and consortium member agreement
with The Housing Fund.
The County’s policies and procedures manuals, Line of Credit Control System draw
requests, two latest audits, and organizational charts.
We interviewed Agency employees and HUD’s Knoxville staff involved with oversight of the
Agency’s program.
We selected a nonstatistical sample of 13 properties purchased and/or being rehabilitated with NSP2
funds from a total universe of 36 properties. Our sample included ten acquisition/rehabilitation
projects, one rehabilitation only project, and two new construction projects. The total amount
expended for our sample size as of February 2, 2011, was just over $1.3 million. This amount
included nearly $1.19 million in property acquisition and over $151,000 in rehabilitation and
development expenditures.
For our sample activities, we evaluated whether the property was eligible for program assistance,
was located in a targeted census tract, was obtained at a minimum 1 percent discount if
applicable, and had an environmental review completed and approved by HUD before the
obligation of NSP2 funds. We determined whether procurement procedures were followed as
required and whether expenditures were eligible and adequately documented. We also conducted
site visits to each of the 13 properties to confirm their existence and determine whether
rehabilitation work as of the date of our visit was reasonable with respect to the amount of
expenditures incurred.
We reviewed the Agency’s quarterly performance reports (reports) submitted to HUD’s Disaster
Recovery Grant Reporting system for accuracy, timeliness, and completeness. We also confirmed
the Agency’s posting of its reports to its official Web site.
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All electronic data relied upon during the review were tested during the performance of the
various review steps. We found the electronic data to be reliable.
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 conclusions
based on our audit objective.
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INTERNAL CONTROLS
Internal control is a process adopted 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 over compliance with laws and regulations.
Controls over reliability of financial reporting.
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
We evaluated internal controls related to the audit objectives in accordance with
generally accepted government auditing standards. Our evaluation of internal
controls was not designed to provide assurance regarding the effectiveness of the
internal control structure as a whole. Accordingly, we do not express an opinion
on the effectiveness of the Authority’s internal controls.
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The Nashville, TN, Metropolitan Development and Housing Agency Generally Complied With Neighborhood Stabilization Program 2 Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-04-06.
Below is a raw (and likely hideous) rendition of the original report. (PDF)