Issue Date September 28, 2011 Audit Report Number 2011-AT-1018 TO: José R. Rivera, Director, Community Planning and Development, San Juan Field Office, 4ND //signed// FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA SUBJECT: The Municipality of San Juan, PR, Did Not Properly Manage Its HOME Investment Partnerships Program HIGHLIGHTS What We Audited and Why We audited the Municipality of San Juan’s HOME Investment Partnerships Program (HOME). We selected the Municipality for review as part of our strategic plan based on the large amount of HOME funds approved. The objectives of the audit were to determine whether the Municipality met HOME program objectives and its financial management system complied with U.S. Department of Housing and Urban Development (HUD) requirements. What We Found The Municipality disbursed more than $3.48 million for four activities that showed signs of slow progress without assurance that the activities would generate the intended benefits. In addition, it failed to ensure that more than $2.49 million of a community housing development organization’s proceeds was used for housing efforts. The Municipality also disbursed more than $766,000 for two activities that were not carried out and failed to reprogram more than $1.14 million in unexpended HOME funds for these terminated activities. As a result, HUD had no assurance that funds were used solely for eligible purposes and that HOME program objectives were met. The Municipality’s financial management system did not support the eligibility of more than $2.3 million in disbursements and allowed the use of more than $2.2 million for ineligible expenditures. In addition, it failed to disburse more than $2.8 million in HOME funds in a timely manner and did not account for $14,732 in HOME receipts. As a result, HUD lacked assurance that funds were adequately accounted for, safeguarded, and used for authorized purposes and in accordance with HUD requirements. The Municipality did not monitor the accuracy of commitments and other information reported in HUD’s Integrated Disbursement and Information System. It reported to HUD more than $8.7 million in HOME commitments without executing written agreements and failed to reprogram and put to better use more than $1.6 million in unexpended HOME funds associated with terminated activities or for which additional disbursements were no longer needed. In addition, it provided inaccurate information on the amount of program income generated, amount of funding awarded, and program accomplishments. As a result, HUD had no assurance that the Municipality met HOME objectives, commitments, and disbursement requirements. What We Recommend We recommend that the Director of the San Juan Office of Community Planning and Development determine the eligibility of more than $4.8 million disbursed from HOME funds on activities that showed signs of slow progress and for unsupported program costs. The Director should require the Municipality to reimburse the HOME program more than $3 million for ineligible project costs and activities that failed to meet program objectives. The Director should also require the Municipality to recapture or reprogram and put to better use more than $11.3 million in unexpended obligated funds, overstated commitments, and unexpended HOME funds maintained in its local bank account. We also recommend that the Director require the Municipality to develop and implement an internal control plan to ensure that (1) its HOME-funded activities meet the program objectives, (2) its HOME program has a financial management system that complies with HUD requirements, and (3) the program has controls and procedures which ensure that HOME requirements are followed and accurate information is reported to HUD. In addition, the Director should reassess the Municipality’s annual commitment compliance and recapture any amounts that have not been committed within HUD-established timeframes. 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. 2 Auditee’s Response We discussed the findings with HUD and the Municipality during the audit and at the exit conference on August 17, 2011. The Municipality provided its written comments to our draft report on August 19, 2011. In its response, the Municipality generally disagreed with the findings. The complete text of the Municipality’s response, along with our evaluation of that response, can be found in appendix B of this report. 3 TABLE OF CONTENTS Background and Objectives 5 Results of Audit Finding 1: The Municipality Did Not Meet HOME Program Objectives 6 Finding 2: The Municipality’s Financial Management System Did Not Comply 11 With HUD Requirements Finding 3: The Municipality Did Not Have Procedures and Controls Regarding 17 Information Entered Into HUD’s Information System Scope and Methodology 22 Internal Controls 24 Appendixes A. Schedule of Questioned Costs and Funds To Be Put to Better Use 26 B. Auditee Comments and OIG’s Evaluation 27 C. List of Unsupported Project Disbursements 73 D. List of Ineligible Project Disbursements 74 E. List of Commitments To Reprogram and Put to Better Use 75 F. List of Program Income and Recaptured Funds Reviewed 76 4 BACKGROUND AND OBJECTIVES The HOME Investment Partnerships Program (HOME) is authorized under Title II of the Cranston-Gonzalez National Affordable Housing Act as amended. The U.S. Department of Housing and Urban Development (HUD) allocates funds by formula to eligible State and local governments for the purpose of increasing the supply of decent, safe, sanitary, and affordable housing to low- and very low-income families. State and local governments that become participating jurisdictions may use HOME funds to carry out multiyear housing strategies through acquisition, rehabilitation, new housing construction, and tenant-based rental assistance. Participating jurisdictions are required to commit HOME funds within 24 months and expend them within 5 years after the last day of the month in which HUD notifies the participating jurisdiction of HUD’s execution of the HOME agreement. Participating jurisdictions draw down HOME funds through HUD’s Integrated Disbursement and Information System. HUD’s information system is also used to monitor and track HOME commitments, program income, repayments, and recaptured funds, among other things. The Municipality of San Juan is the second largest participating jurisdiction in Puerto Rico, for which HUD has approved more than $11 million in HOME funds during the past 2 fiscal years. HUD’s information system reflected expenditures exceeding $6 million during the fiscal year ending June 30, 2010, for the following activities: Activity type Amount expended Construction and rehabilitation of housing $3,766,649 Community housing development organization (CHDO) 809,833 Home-buyer direct assistance 673,450 Planning and administration 614,736 First-time home buyer 154,400 Rehabilitation by owner 24,582 Total $6,043,650 The Municipality’s Department of Housing and Community Development is responsible for administering HOME funds. Its books and records are maintained at 1205 Ponce de León Avenue, San Juan, PR. We audited the Municipality’s HOME program as part of the HUD Office of Inspector General’s (OIG) strategic plan. The Municipality was selected for review based on the amount of HOME funding provided. The objectives of the audit were to determine whether the Municipality met HOME program objectives and its financial management system complied with HUD requirements. 5 RESULTS OF AUDIT Finding 1: The Municipality Did Not Meet HOME Program Objectives The Municipality disbursed more than $3.48 million for four activities that showed signs of slow progress without assurance that the activities would generate the intended benefits. In addition, it failed to ensure that more than $2.49 million of a community housing development organization’s (CHDO) proceeds were used for housing efforts. The Municipality also disbursed more than $766,000 for two activities that were not carried out and failed to reprogram more than $1.14 million in unexpended HOME funds for these terminated activities. This condition occurred because the Municipality did not implement adequate procedures and controls to monitor HOME-funded activities. As a result, HUD had no assurance that funds were used solely for eligible purposes and that HOME program objectives were met. Slow Progress Activities The Municipality disbursed more than $3.48 million for four activities that reflected slow progress without assurance that the projects were feasible. HUD regulations at 24 CFR (Code of Federal Regulations) 92.504(a) provide that the Municipality is responsible for managing the day-to-day operations of its HOME program, ensuring that HOME funds are used in accordance with all program requirements and written agreements, and taking appropriate action when performance problems arise. Gilberto Monroig housing project - The Municipality executed an agreement on March 13, 2006, for the acquisition and rehabilitation of an eight-unit housing project to be sold to low- and very low-income families. According to the agreement, the rehabilitation of the housing units should have ended on or before November 30, 2006. Although the rehabilitation work was completed in 2007, none of the units was occupied, and the developer had not been able to sell the completed units. The developer indicated that the housing project was located in a drug area that made it difficult to sell the units. Municipality officials informed us that the housing project had many housing quality standards violations and did not meet program requirements. More than 3 years had elapsed since the project’s acquisition and rehabilitation, and none of the units had been occupied by low- and very low-income families. Based on this condition, HUD had no assurance that the Gilberto Monroig housing project would fully meet HOME program objectives and provide the intended benefits. Therefore, more than $534,000 in disbursements was unsupported. 6 Vistas del Horizonte II housing project - The Municipality executed an agreement on August 30, 2004, for land acquisition and construction of a 15-unit housing project to be sold to low- and very low-income families. According to the agreement, the construction of the housing units should have ended on or before August 30, 2006. Although the rehabilitation work was completed in 2006, only 10 of the 15 housing units were occupied, and the developer had not been able to sell the remaining completed units. In addition, the developer sold five of the housing units to non-HOME program participants. More than 5 years had elapsed since the project’s construction, and only five of the units had been occupied by low- and very low-income families. Based on this condition, HUD had no assurance that the Vistas de Horizonte II housing project would fully meet HOME program objectives and provide the intended benefits. Therefore, more than $720,000 in disbursements was unsupported. Padre Colón housing project - The Municipality executed an agreement on August 10, 2007, for land acquisition and construction of a 13-unit housing project to be sold to low- and very low-income families. According to the agreement, the construction of the housing units should have ended on or before July 31, 2009. Although the rehabilitation work was completed in 2009, only 3 of the 13 housing units were occupied, and the developer had not been able to sell the remaining completed units. More than 2 years had elapsed since the project’s construction, and only three of the units had been occupied by low- and very low-income families. Based on this condition, HUD had no assurance that the Padre Colón housing project would fully meet HOME program objectives and provide the intended benefits. Therefore, more than $1.3 million in disbursements was unsupported. Los Portales II housing project - The Municipality executed an agreement on August 15, 2002, for land acquisition and construction of an 18-unit housing project to be sold to low- and very low-income families. According to the agreement, the construction of the housing units should have ended on or before August 15, 2004. Although the construction work was completed in 2005, only 14 of the 18 housing units were occupied by low- and very low-income families. The developer sold three of the housing units to non-HOME program participants and had not been able to sell one of the remaining completed units. More than 6 years had elapsed, and only 14 of the units had been occupied by low- and very low-income families. Based on this condition, HUD had no assurance that the Los Portales II housing project would fully meet HOME program objectives and provide the intended benefits. Therefore, more than $840,000 in disbursements was unsupported. 7 The Municipality did not adequately manage these activities to ensure that they were carried out in a timely manner and that funds were used in accordance with all HOME requirements as provided at 24 CFR 92.504(a). As a result, HUD had no assurance that these activities provided the intended benefits and met HOME objectives. The Municipality also failed to ensure that more than $2.49 million of a CHDO’s proceeds was used for housing efforts. The grant agreement permitted the CHDO to retain the proceeds generated from the sale of units of a HOME-funded activity and be used in conformance with 24 CFR 92.300(a)(2) to develop new housing projects. According to a Municipality official, the CHDO disbanded around May 2010 without developing new housing activities or transferring any of the unused funds back to the Municipality. The April 2011 bank statement reflected that more than $2.49 million in proceeds remained unexpended. As a result, more than $2.49 million in proceeds was not put to better use to generate the intended benefits. Terminated Activities HUD’s regulations at 24 CFR 92.1 state that HOME funds are allocated to participating jurisdictions to strengthen public-private partnerships to expand the supply of decent, safe, sanitary, and affordable housing to very low-income and low-income families. Regulations at 24 CFR 92.205(e) also provide that a HOME-assisted activity that is terminated before completion, either voluntarily or otherwise, constitutes an ineligible project and any HOME funds invested must be repaid to the participating jurisdiction’s treasury account. Contrary to HUD’s regulations, the Municipality failed to ensure that two activities met HOME objectives, and it did not reimburse all of the funds to its treasury account. The Municipality disbursed more than $766,000 in HOME funds on two activities that were terminated in December 2009. According to the Municipality’s records, the two activities were for the acquisition of land and the construction of 96 dwelling units at two sites within San Juan. The following table shows the activity number, activity name, agreement date, funded and drawn amounts, and last draw date for the project developments that were terminated and for which the intended benefits were not provided. 8 Grant Activity Activity agreement Funded Drawn Last number name date amount1 amount draw date Comment Developer defaulted on loan and gave the Rivieras de Dec. 5, June 27, 1089 $1,286,757 $474,980 project land in Cupey I 2007 2008 payment in November 2010. Developer defaulted on loan and gave the Rivieras de Dec. 5, June 19, 1090 623,568 291,500 project land in Cupey II 2007 2008 payment in November 2010. Total $1,910,325 $766,480 The Municipality did not take the appropriate measures to cancel the activities in HUD’s information system. The information system reflected both as open activities. In addition, both activities were shown as having unexpended obligations of more than $1.14 million. Inadequate Monitoring Efforts The Municipality did not take appropriate monitoring measures to ensure the timely completion of activities and that funds were used in accordance with all program requirements as required by 24 CFR 92.504(a). The controls and procedures implemented by the Municipality were not adequate. For example, the HOME program manager informed us that the activities were monitored through site visits performed by its program inspector. However, the inspector stated that the site visits were to verify the construction work and ensure that units met housing quality standards and that no monitoring procedures had been provided to him. Management must revise and implement its controls and procedures to ensure the proper monitoring of HOME-funded activities. Conclusion The Municipality failed to ensure that activities met HOME objectives. This condition occurred because the Municipality did not implement adequate procedures and controls to ensure compliance with HUD requirements. As a result, HUD had no assurance that funds were used solely for their authorized purposes and that HOME-funded activities provided the intended benefits. The 1 Information obtained from HUD’s information system as of May 31, 2011 9 Municipality paid more than $4.2 million for projects that did not provide the intended benefits or reflected slow progress. In addition, it failed to reprogram and put to better use more than $3.6 million in CHDO proceeds and unexpended HOME obligations. Recommendations We recommend that the Director of the San Juan Office of Community Planning and Development 1A. Determine the eligibility of the $2,399,428 disbursed for four projects with signs of slow progress and reevaluate the feasibility of the activities.2 The Municipality must reimburse its HOME program from non-Federal funds for activities that HUD determines to have been terminated. 1B. Require the Municipality to recapture, reprogram, and put to better use $2,499,717 associated with the unused proceeds retained by the disbanded CHDO. 1C. Require the Municipality to reimburse its HOME program from non- Federal funds $766,480 for disbursements associated with terminated activities that did not meet HOME objectives. 1D. Require the Municipality to reprogram and put to better use $1,143,845 associated with unexpended funds for the terminated activities.3 1E. Require the Municipality to establish and implement adequate controls and procedures for its HOME program to ensure that HUD requirements and objectives are met. 2 Total disbursements of $3,483,086 were adjusted to consider $713,008 questioned in recommendation 2C and $370,650 in recommendation 2A. 3 The two terminated activities had obligations of $1,910,325, and disbursements totaling $766,480 as of May 31, 2011. The unexpended balance of $1,143,845 ($1,910,325 - $766,480) needs to be reprogrammed and put to better use. 10 Finding 2: The Municipality’s Financial Management System Did Not Comply With HUD Requirements The Municipality’s financial management system did not support the eligibility of more than $2.3 million in disbursements and allowed the use of more than $2.2 million for ineligible expenditures. In addition, it failed to disburse more than $2.8 million in HOME funds in a timely manner and did not account for $14,732 in HOME receipts. These deficiencies occurred because the Municipality disregarded HOME requirements and did not develop and implement controls and procedures to ensure compliance with HUD financial requirements. As a result, HUD lacked assurance that funds were adequately accounted for, safeguarded, and used for authorized purposes and in accordance with HUD requirements. Unsupported Program Disbursements Project costs - Regulations at 24 CFR 92.206 and 92.508(a) allow disbursements for reasonable and allowable costs associated with HOME-funded projects that are supported with records that enable HUD to determine that HOME requirements were met. The Municipality did not support the reasonableness and allowability of more than $2.3 million in HOME funds disbursed. For example, it paid more than $1.6 million for land acquisitions associated with six housing projects but did not provide documentation supporting the reasonableness of the land value and did not provide documentation supporting the allowability of more than $700,000 in project costs charged to the HOME program. Therefore, HUD lacked assurance of the reasonableness and allowability of more than $2.3 million in project costs charged to the HOME program. Appendix C contains a list of the unsupported project disbursements. Administrative costs - Regulations at 24 CFR 92.207 allow disbursements for reasonable administrative and planning expenditures associated with the HOME program. In addition, 24 CFR 92.508(a)(3)(ii) requires participating jurisdictions to maintain records demonstrating the source and application of funds, including supporting documentation in accordance with 24 CFR 85.20. The Municipality did not provide documentation supporting the reasonableness, allowability, and allocability of more than $39,000 charged to the HOME program, associated with administrative salaries. It did not track its employees’ time by program activity or implement a cost allocation plan to distribute payroll costs among HUD and other programs. The Municipality charged the full salary of three employees to the HOME program, although they performed additional functions not related to the program. The Municipality did not allocate payroll 11 costs based on the time spent by these employees on each of its programs. Therefore, HUD lacked assurance of the reasonableness, allowability, and allocability of more than $39,000 in administrative payroll costs disbursed between October 2009 and June 2010. The 2009 independent public accountant report included a similar deficiency; however, the deficiency continued to exist. Ineligible Program Disbursements The Municipality’s financial management system permitted the disbursement of more than $1.19 million in HOME funds for ineligible project costs. For example, the Municipality disbursed $854,930 in HOME funds for project costs incurred by developers before executing the grant agreements with the developers. This action was contrary to HOME regulations at 24 CFR 92.2 that require participating jurisdictions to execute a legally binding agreement with a contractor to use HOME funds to produce affordable housing. In addition, the Municipality disbursed $335,663 in HOME funds for duplicated or unrelated project costs. Appendix D contains a list of the ineligible project disbursements. The Municipality also allowed the use of program income to repay the HOME program $772,860 associated with ineligible program costs, including repayments for a CHDO’s terminated project that did not generate the intended benefits. In addition, it improperly disbursed $300,346 in HOME funds to pay for ineligible costs identified in a 2004 HUD monitoring report. HOME Funds Not Disbursed in a Timely Manner Regulations at 24 CFR 92.502(c)(3) require that HOME funds in the participating jurisdiction’s local bank account, including program income and recaptured funds, be disbursed before additional grant funds are requested. The Municipality consistently maintained a high cash balance in its local bank account. The Municipality’s April 2011 bank statement reflected a cash balance of more than $2.8 million, and the Municipality maintained a monthly average balance of more than $3.4 million during the 22-month period ending April 2011. 12 This condition occurred because the Municipality did not use program income and recaptured funds and withdrew additional funds from HUD without disbursing the funds in its local bank account. For example, the Municipality received more than $705,0004 associated with program income and recaptured funds that were not used before making additional drawdowns from HUD. A Municipality official informed us that the program income and recaptured funds received during prior years were not used and remained unexpended in the local bank account to avoid missing HUD commitment and expenditure deadlines. Therefore, the Municipality disregarded HOME requirements. The Municipality withdrew from its treasury account more than $6 million in HOME funds between July 1, 2009, and October 31, 2010. HUD regulations at 24 CFR 92.502(c)(2) state that HOME funds drawn down from a participating jurisdiction’s treasury account must be expended for eligible costs within 15 days. Any unexpended drawdowns must be returned to the treasury account. Contrary to HUD’s regulations, the Municipality failed to disburse drawdowns totaling more than $1 million in HOME funds within 15 days. Further, it did not return $66,000 in unexpended drawdowns to HUD. The following table shows the voucher and activity number, date of drawdown, and the HOME funds for the drawdowns that were not disbursed within 15 days. 4 The Municipality received these proceeds between February 2010 and March 2011. 13 Date of Days elapsed Voucher Activity drawdown Date of between deposit and number number Amount deposit disbursement disbursement dates 5129751/2 1331 $293,902 July 01, 2010 July 22, 2010 21 5129751/3 1348 85,000 July 01, 2010 July 22, 2010 21 5129751/6 1350 84,000 July 01, 2010 July 22, 2010 21 5129751/5 1351 78,000 July 01, 2010 July 22, 2010 21 5129751/1 1257 70,470 July 01, 2010 July 22, 2010 21 5129751/4 1349 50,000 July 01, 2010 July 22, 2010 21 5129751/7 1280 1,177 July 01, 2010 July 22, 2010 21 5124312/3 1331 197,841 June 22, 2010 Feb. 10, 2011 233 5124312/2 1257 48,600 June 22, 2010 Feb. 10, 2011 233 5124315/1 1091 32,280 June 22, 2010 Feb. 10, 2011 233 5124312/5 1342 26,000 June 22, 2010 Feb. 10, 2011 233 5124312/4 1170 13,964 June 22, 2010 Feb. 10, 2011 233 5124312/6 1280 1,470 June 22, 2010 Feb. 10, 2011 233 5124312/1 843 150 June 22, 2010 Feb. 10, 2011 233 5129741/5 1343 66,000 July 01, 2010 Not disbursed* 298* Total $1,048,854 * As of April 25, 2011, funds remained unexpended and were not returned to HUD. The Municipality lacked procedures and controls regarding its financial management system to ensure compliance with HUD requirements. As a result, it failed to disburse funds in a timely manner and put to better use for eligible efforts more than $2.8 million in HOME funds that remained unexpended in the local bank account. Inadequate Accounting Records Regulations at 24 CFR 85.20(b) require participating jurisdictions to maintain financial records that are accurate, current, and complete and that adequately identify the source and application of funds provided for assisted activities. The Municipality’s accounting records were not accurate, current, and complete. They did not reflect complete financial information on HOME program activities and did not permit the adequate tracing of program expenditures and receipts. For example, the accounting records did not include more than $1 million in accounts receivable and $76,964 in program income. They also contained instances of transactions recorded with the incorrect amount or account. The expenditures shown in the Municipality’s accounting records for the fiscal year ending June 30, 2010, did not agree with amounts reflected in HUD’s information system. 14 HUD’s information Activity type Trial balance system Difference Rehabilitation by owner $9,850 $24,582 $(14,732) Planning and administration $675,427 $614,736 $60,691 Construction and rehabilitation of housing $3,996,504 $3,766,649 $229,855 CHDO Home-buyer direct assistance $2,135,646 $1,637,683 $497,963 First-time home buyer The Municipality could not explain the discrepancies and could not account for $14,732 drawn from HUD for one of the HOME activity types. A Municipality official informed us that information in HUD’s information system was not reconciled with the accounting records. A similar deficiency was identified in the 2009 independent public accountant report; however, the deficiency continued to exist. Lack of Controls and Procedures The lack of program controls and procedures also contributed to the deficiencies in the Municipality’s financial management system. For example, the Municipality did not maintain written procedures for accounting for HOME funds and establishing responsibilities among its personnel. In addition, it did not maintain a proper system that permitted the tracking of HOME-assisted activities that could result in the payment of program income or recaptured funds. Further, the Municipality did not provide adequate segregation of duties by permitting officials that authorized or recorded transactions to collect HOME funds associated with program income, repayments, and recaptured funds. Therefore, the Municipality’s internal controls were not sufficient and adequate to provide HUD assurance that HOME funds were adequately accounted for, safeguarded, and used for authorized purposes and in accordance with HUD requirements. Management must establish and implement adequate controls and procedures to permit the proper accountability for all HOME funds to ensure that they are used solely for authorized purposes. Conclusion The Municipality maintained a financial management system that permitted program charges for ineligible and unsupported costs, allowed its HOME local bank account to maintain a high cash balance, did not reflect the full history of all financial transactions, and did not properly identify the source and application of HOME funds. This condition occurred because the Municipality disregarded HOME requirements and did not develop and implement effective controls and 15 procedures to ensure compliance with the financial requirements of HUD programs. As a result, HUD lacked assurance that funds were only used for eligible purposes. The Municipality must improve its internal controls to safeguard, use, and properly account for HOME program funds. Recommendations We recommend that the Director of the San Juan Office of Community Planning and Development 2A. Require the Municipality to submit supporting documentation showing the reasonableness and allowability of $2,355,889 charged to the HOME program for project costs or reimburse the program from non-Federal funds. 2B. Require the Municipality to submit supporting documentation showing the allocability of $39,338 and any additional payroll costs charged to the HOME program between July 1, 2009, and June 30, 2011, associated with the three employees performing other functions not related to the program, or reimburse the program from non-Federal funds. 2C. Require the Municipality to reimburse the HOME program from non- Federal funds $2,263,799 paid for ineligible costs. 2D. Require the Municipality to put to better use $2,854,395 associated with unexpended funds maintained in its local bank account. 2E. Require the Municipality to submit all supporting documentation showing the eligibility and propriety of $14,732 drawn from its treasury account or reimburse the HOME program from non-Federal funds. 2F. Require the Municipality to update its accounting records and ensure that receipts and expenditures are properly accounted for, are reconciled with HUD’s information system, and comply with HUD requirements. 2G. Require the Municipality to develop and implement a financial management system in accordance with HUD requirements, including that HOME funds can be traced to a level which ensures that such funds have not been used in violation of the restrictions and prohibitions of applicable statutes and that funds are disbursed in a timely manner. 2H. Increase monitoring of the Municipality’s performance in the administration of its HOME program. 16 Finding 3: The Municipality Did Not Have Procedures and Controls Regarding Information Entered Into HUD’s Information System The Municipality did not monitor the accuracy of commitments and other information reported in HUD’s information system. It reported to HUD more than $8.7 million in HOME commitments without executing written agreements and failed to reprogram and put to better use more than $1.6 million in unexpended HOME funds associated with terminated activities or for which additional disbursements were no longer needed. In addition, it provided inaccurate information on the amount of program income generated, the amount of funding awarded, and program accomplishments. These deficiencies occurred because the Municipality lacked procedures and internal controls regarding the reporting of information in HUD’s information system. As a result, HUD had no assurance that the Municipality met HOME program objectives, commitments, and disbursement requirements. Commitments Without Agreements Participant jurisdictions are required by 24 CFR 92.500(d) and 92.502 to commit HOME funds within 24 months of their allocation and report commitment information in HUD’s information system. HUD’s regulations at 24 CFR 92.2 define “commitment” as an executed, legally binding agreement with a State recipient, a subrecipient, or a contractor to use a specific amount of HOME funds to produce affordable housing or provide tenant-based rental assistance or an executed written agreement reserving a specific amount of funds to a CHDO or having met the requirements to commit to a specific local project, which also requires that a written, legally binding agreement be executed with the project or property owner. HUD also requires that the signatures of all parties be dated to show the execution date. HUD’s information system reflected that the Municipality committed more than $10.7 million in HOME funds between July 1, 2009, and October 31, 2010. We examined commitments totaling more than $9.3 million that the Municipality entered into HUD’s information system. The Municipality reported in HUD’s information system that it had committed more than $8.7 million in HOME funds, although it did not have executed agreements with the recipients. The actual commitments occurred between 10 and 97 days after the funding date, and in one of the activities, no agreement had been executed as of December 15, 2010. Therefore, the funds were improperly reported as committed and not in accordance with HUD requirements. 17 Reported Days elapsed commitment amount Initial funding date between Activity in HUD’s in HUD’s Actual reporting and number information system information system agreement date agreement dates 1364 $2,696,072 June 30, 2010 No agreement * 1332 1,673,070 Sept. 04, 2009 Dec. 10, 2009 97 1331 3,212,070 Sept. 01, 2009 Nov. 12, 2009 72 1352 1,160,000 June 21, 2010 July 01, 2010 10 Total $8,741,212 * No grant agreement had been executed as of December 15, 2010. We also found nine instances in which the Municipality reported in HUD’s information system the commitment of more than $1.2 million in HOME funds between 7 and 121 days after the grant agreement was executed. The Municipality also did not implement adequate controls by not requiring that the signatures of all parties be dated to show the execution date as required by HUD. As a result, HUD had no assurance that the Municipality met HOME commitment requirements. Unexpended Commitments Not Reprogrammed The Municipality did not reprogram and put to better use more than $1.6 million in unexpended obligations associated with nine activities that were terminated or for which the construction work was completed or additional disbursements were no longer needed or expected. For example, HUD’s information system reflected unexpended obligations of more than $1.02 million for the projects Barriada Figueroa and Plaza Garden, activities that were terminated after HUD disallowed them in a 2004 monitoring review. As a result, obligations in HUD’s information system were overstated, and more than $1.6 million in HOME funds was not available for other eligible efforts. The Municipality should reprogram these funds and put them to better use. Appendix E contains a list of the activities with unreprogrammed commitments. Program Income and Other Receipts Not Properly Reported HUD regulations at 24 CFR 92.503 provide that program income, recaptured funds, and repayments received be deposited into the participant jurisdictions’ HOME account to carry out eligible activities. These receipts must be reported in HUD’s information system and used before additional HOME withdrawals are made. 18 Contrary to HUD requirements, the Municipality did not report the proceeds of $705,287 in program income and recaptured funds in HUD’s information system.5 In addition, it had not reassigned or transferred $467,723 in HOME repayments in HUD’s information system.6 Consequently, HUD had no assurance of the accuracy of the amount that the Municipality received from such receipts and its compliance with HUD requirements. Program income and recaptured funds - The Municipality failed to report in HUD’s information system program income and recaptured funds totaling $705,287 that were received between February 2010 and March 2011. The Municipality records also showed that receipts totaling $726,471 were not reported in a timely manner in HUD’s information system. These HOME proceeds were reported to HUD between 54 and 282 days after they were received. Appendix F contains a list of the program income and recaptured funds reviewed. Repayments - The Municipality failed to reassign or transfer $467,723 in HOME repayments associated with three terminated activities in HUD’s information system. Although the Municipality returned the repayments to its treasury account, it had not reassigned the funds in HUD’s information system. For example, the Municipality received on May 12, 2009, $167,377 in repayments associated with activity number 360 and returned the funds to HUD on August 12, 2009. As of April 25, 2011, the appropriate entries in HUD’s information system had not been made to reassign the funds and use them for other eligible efforts. The Municipality did not take the appropriate measures to ensure that repayments were properly recorded in HUD’s information system. As a result, $467,723 was not available to be put to better use for HOME-eligible efforts. Other Inaccurate Reporting HUD’s information system contained additional inaccurate information concerning the Municipality’s HOME activities. This information included incorrect funding amounts and other inaccurate information on HOME program accomplishments. Incorrect funding amount - In three activities, the awarded amount of HOME funds shown in HUD’s information system was incorrect. These activities included two in which the funding amount was overstated (activities 1352 and 5 Program income and recaptured funds may result from the resale and recapture requirements imposed by HUD and the Municipality to the participants to ensure affordability during predetermined periods, depending on the assistance amount provided. 6 Repayments may result from termination of activities before their completion, either voluntarily or otherwise. 19 1332) and one in which the funding amount was understated (activity number 1257). Funded amount Activity according to HUD’s Agreement number information system amount Difference 1352 $1,160,000 $1,098,100 $61,900 1332 $1,673,070 $1,673,000 $70 1257 $1,322,772 $1,403,976 $(81,204) Inaccurate reporting of accomplishments - The Municipality improperly reported to HUD in its 2010 consolidated annual performance and evaluation report inaccurate information associated with its HOME program accomplishments. For example, the Municipality reported that its HOME-funded activities did not generate program income during the reporting period, although it received more than $700,000. It also reported that all of the 15 units of the Vistas del Horizonte II housing project were occupied by eligible participants, although 5 were vacant and an additional 5 were sold to ineligible participants. As a result, HUD had no assurance of the accuracy of the reported HOME program accomplishments. Conclusion Because the Municipality lacked adequate controls, it did not ensure the accuracy of commitments and other information entered into HUD’s information system. There was no assurance that the Municipality met HUD commitment and disbursement requirements and that program objectives were met. The inaccurate data compromised the integrity of HUD’s information system and the degree of reliability HUD could place on the data for monitoring commitments and compiling national statistics on the HOME program. Management must develop and implement internal controls to ensure the accuracy of its reported accomplishments and that it complies with HUD requirements. Recommendations We recommend that the Director of the San Juan Office of Community Planning and Development 3A. Require the Municipality to deobligate in HUD’s information system the $2,696,072 associated with an activity reported as committed but for which no agreement was executed. 20 3B. Require the Municipality to deobligate, reprogram, and put to better use $1,608,619 in commitments for activities that were terminated or for which assistance was no longer needed. 3C. Require the Municipality to reprogram and put to better use $467,723 in repayments. 3D. Require the Municipality to deobligate, reprogram, and put to better use $61,970 associated with two activities in which the funding amount was overstated. 3E. Require the Municipality to review all grant agreements for each activity entered into HUD’s information system and correct any inaccurate information, including funding date and amount and activity status. 3F. Reassess the Municipality’s annual commitment compliance and recapture any amounts that have not been committed within HUD-established timeframes. 3G. Require the Municipality to establish and implement adequate controls and procedures to ensure the timely and accurate reporting in HUD’s information system of commitment and activity information and receipts associated with program income, recaptured funds, and repayments. 21 SCOPE AND METHODOLOGY The objectives of the audit were to determine whether the Municipality met HOME program objectives and its financial management system complied with HUD requirements. The financial requirements included (1) reporting accurate and supported information in HUD’s information system, (2) disbursing HOME funds within established timeframes, and (3) disbursing HOME funds for eligible and supported costs. To accomplish our objectives, we Reviewed applicable HUD laws, regulations, and other HUD program requirements; Reviewed the Municipality’s controls and procedures as they related to our objectives; Interviewed HUD and Municipality officials; Reviewed monitoring and independent public accountant reports; Reviewed the Municipality’s files and records, including activity files and accounting records; Traced information reported in HUD’s information system to the Municipality’s records, including accounting records and executed agreements; and Performed site inspections of the activities. HUD’s information system reflected that the Municipality had 69 open HOME-funded activities as of October 31, 2010. We selected and reviewed 11 activities for which the last draw was more than a year earlier and had unexpended commitments with withdrawals totaling more than $5.21 million. We reviewed the 11 activities to determine the status of activities for which HOME funds were disbursed but which reflected slow progress. We reviewed the status of one additional activity with withdrawals totaling more than $3.8 million because the amount was significant. The Municipality withdrew more than $7.9 million in HOME funds between July 1, 2009, and October 31, 2010. We selected and reviewed 14 withdrawals greater than $100,000. We reviewed 10 additional withdrawals based on the activity or purpose of the payment. A total of 24 withdrawals totaling more than $3.5 million (44 percent) were reviewed to determine whether the Municipality expended grant funds in accordance with HUD eligibility requirements. We also reviewed 11 payments the Municipality made totaling $1.9 million, based on the nature of the payment or the vendor name. We reviewed the expenditures to determine whether the payments were supported and made for eligible efforts. 22 The Municipality’s records reflected that it expended more than $675,000 for planning and administrative costs between July 1, 2009, and June 30, 2010. We reviewed disbursements totaling more than $246,000, based on the purpose and amount of the payment. We reviewed the expenditures and the related supporting documents to determine whether the payments met HOME requirements, including allowability and allocability of the costs. HUD’s information system reflected that the Municipality drew down more than $7.9 million in HOME funds between July 1, 2009, and October 31, 2010. We selected and reviewed withdrawals greater than $100,000, which resulted in 10 withdrawals totaling more than $1.7 million.7 We reviewed 13 additional withdrawals totaling more than $557,000, based on deficiencies noted over the timeliness of the funds disbursed. A total of 23 withdrawals were reviewed to determine whether HOME funds were disbursed within HUD-established timeframes. The Municipality deposited into its local bank account more than $1.43 million associated with program income and recaptured funds between July 1, 2009, and April 30, 2011. We reviewed all 37 receipts associated with these proceeds. We reviewed 24 additional receipts totaling more than $772,000, pertaining to repayments the Municipality received before July 1, 2009. A total of 61 receipts were reviewed to determine whether the Municipality administered these proceeds in accordance with HOME requirements. HUD’s information system reflected that the Municipality committed more than $10.7 million in HOME funds between July 1, 2009, and October 31, 2010. We selected for review the top 15 activities with the largest commitment amounts totaling more than $9.3 million (87 percent). We reviewed these activities to determine whether the commitments reported to HUD were accurate and supported. To achieve our audit objectives, we relied in part on computer-processed data contained in the Municipality’s database and HUD’s information system. Although we did not perform a detailed assessment of the reliability of the data, we performed a minimal level of testing and found the data adequate for our purposes. The results of the audit apply only to the items selected and cannot be projected to the universe or population. The audit generally covered the period July 1, 2009, through October 31, 2010, and we extended the period as needed to accomplish our objectives. We conducted our fieldwork from December 2010 through June 2011 at the Municipality’s offices in San Juan, PR. 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. 7 We excluded from the review four withdrawals related to program income. 23 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: Program operations - Policies and procedures that the audited entity has implemented to provide reasonable assurance that a program meets its objectives, while considering cost effectiveness and efficiency. Compliance with applicable laws and regulations and provisions of contracts or grant agreements - Policies and procedures that the audited entity has implemented to provide reasonable assurance that program implementation is in accordance with laws, regulations, and provisions of contracts or grant agreements. Safeguarding of assets and resources - Policies and procedures that management has implemented to reasonably ensure that resources are safeguarded against waste, loss, and misuse. Relevance and reliability of information - Policies, procedures, and practices that officials of the audited entity have implemented to provide themselves with reasonable assurance that operational and financial information they use for decision making and reporting externally is relevant and reliable and fairly disclosed in reports. We assessed the relevant controls identified above. 24 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 Municipality failed to ensure that HOME activities met program objectives (see finding 1). The Municipality did not develop and implement a financial management system that complied with HUD requirements (see finding 2). The Municipality did not develop and implement controls and procedures to ensure that accurate information on HOME activities was reported to HUD (see finding 3). 25 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Funds to be put to number Ineligible 1/ Unsupported 2/ better use 3/ 1A $2,399,428 1B $2,499,717 1C $766,480 1D 1,143,845 2A 2,355,889 2B 39,338 2C 2,263,799 2D 2,854,395 2E 14,732 3A 2,696,072 3B 1,608,619 3C 467,723 3D _________ _________ 61,970 Total $3,030,279 $4,809,387 $11,332,341 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/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of the audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures. 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 noted in preaward reviews, and any other savings that are specifically identified. In this instance, if the Municipality implements recommendations 1B, 1D, 2D, 3A, 3B, 3C, and 3D, funds will be available for other eligible activities consistent with HOME requirements. 26 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 27 Comment 1 Comment 2 Comment 3 28 29 30 Comment 3 31 Comment 3 Comment 4 32 33 34 Ref to OIG Evaluation Auditee Comments Comment 5 35 36 37 Comment 6 38 Comment 7 Comment 7 39 Comment 8 40 Comment 9 41 42 43 44 45 Comment 10 46 47 Comment 11 Comment 12 Comment 13 48 Comment 14 49 50 51 Comment 15 52 Comment 15 53 Comment 16 54 Comment 17 Comment 18 55 Comment 18 Comment 19 56 57 58 59 60 61 62 Comment 20 63 64 Comment 21 Comment 22 65 66 OIG Evaluation of Auditee Comments Comment 1 The Municipality stated that some of the conditions identified in the audit report do not comply with the definition of a finding as established by HUD monitoring handbook. It requested that finding 1A be reclassified as a “concern” and not as a finding. We conducted the audit in accordance with generally accepted government auditing standards, not HUD’s monitoring handbook. The evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We do not agree with the Municipality’s comments and did not modify the report finding and recommendations. Comment 2 The Municipality believes that comments made by its employees were not supported or validated and did not reflect the official opinion of the Municipality. It requested that all employee comments included in the report be eliminated if they were not validated by the auditors. We interviewed various Municipality officials that were responsible for the administration of the HOME program including the program manager, project inspector, accounting manager, and the Federal funds manager. The statements made by the employees corroborated the conditions cited in the report. The Municipality did not provide additional information to indicate the information provided by the employees was incorrect. Comment 3 The Municipality believed that it complied with all program requirements. It stated that the Cranston Gonzalez Act and HUD regulations did not establish timeframes for occupying HOME funded housing units. The Municipality contends that the report failed to mention that 56 percent of the developed units were occupied, and that the slow progress was attributed to the current housing market conditions. The Municipality also stated that it will take additional efforts to promote the occupancy of the units and offer additional subsidies and incentives to assist low income homebuyers to acquire the units. While the Cranston Gonzalez Act does not specifically set time limits for the occupancy of HOME funded projects, HUD regulations at 24 CFR 92.504(a) provides that the Municipality is responsible for managing the day-to-day operations of its HOME program, ensuring that HOME funds are used in accordance with all program requirements and written agreements, and taking appropriate action when performance problems arise. The vacant units of HOME funded projects did not meet program objectives of providing decent, safe, sanitary, and affordable housing to low- and very low-income families. The Municipality also failed to mention that 27 percent of the occupied units were not sold to HOME program participants in violation of grant agreements signed with the developers. The Municipality will need to work with HUD during the audit 67 resolution process to demonstrate the eligibility and feasibility of the activities with signs of slow progress. Comment 4 The Municipality stated that the total development cost for the CHDO activity was $16.7 million and partially funded with $4 million in HOME funds, about 23.95 percent of the total development costs. It also stated that the sale of the units for this activity generated gross proceeds totaling more than $4.9 million. The Municipality contends that $1.19 million (23.95 percent) are HOME proceeds and that the funds were reimbursed by the former CHDO and reported in HUD’s system as program income. It claimed that it took proper corrective action and requested the elimination of the finding. The Municipality’s position is not consistent with the grant agreement signed with the CHDO. The grant agreement permitted the CHDO to retain 90 percent of the proceeds generated from the sales of the units to develop new housing projects. However, the Municipality only required the CHDO to reimburse about 23.95 percent of the gross proceeds for new housing projects and not the 90 percent stated in the agreement. The $4.9 million in gross sales proceeds the Municipality claims the project generated is not consistent with information provided. The grant agreement established a maximum selling price of $90,000 for the three bedroom units and $65,000 for the one bedroom units. Based on this information, the gross proceeds from the sale of the units should have been $9,080,000. It should be noted, that the independent accountant report dated July 8, 2011, stated that the mortgage deed of 98 units reflected a sales price that exceeded what was established in the grant agreement. Therefore, the gross proceed amount could be higher. The Municipality did not explain why the terms of the grant agreement were not followed and required the former CHDO to reimburse a much smaller amount. In addition, it did not provide any documentation that could explain the basis for the gross proceeds it claimed the activity generated. The Municipality will need to provide adequate documentation to HUD during the audit resolution process that could clarify and support the claims, and demonstrate that funds recuperated were properly reprogrammed for eligible efforts. We therefore did not modify the finding and recommendations. Comment 5 The Municipality informed us that it initiated legal proceeding to recuperate the HOME funds in March 2010, and requested HUD to debar the developer. The Municipality initiated legal action against the developer in March 2010. However, in November 2010, the Municipality ceased collection efforts and released the developer of any responsibility. It was not until we asked about the status of these activities that the Municipality re-opened its lawsuit against the developer in January 2011. 68 Comment 6 The Municipality stated it deobligated $1,143,845 for the terminated activities. However, the Municipality did not provide us additional documentation that could demonstrate it reprogrammed the funds to other eligible efforts. It will need to provide HUD documentation to show that the funds were properly reprogrammed. Comment 7 The Municipality stated that it will revise its internal controls and procedures to address the issues associated with the finding. It also stated that it has an annual monitoring plan that is included in the Consolidated and Annual Action Plan. The Municipality requested that the report be corrected since it has a monitoring plan. We acknowledge the Municipality’s efforts to improve its controls and procedures associated with the HOME program. The statement related to the lack of a monitoring plan was eliminated from the report. Comment 8 The Municipality stated that the amount paid for the acquisition of the properties were reasonable, and that it provided a copy of the appraisals to demonstrate that the acquisition price was either at or below the market price. Therefore, it requested the elimination of this part of the finding. The appraisals submitted were incomplete and the information provided did not demonstrate the reasonableness of the costs. In addition, in one of the properties the sales price was $30,000 higher than the appraised value. The Municipality did not provide us adequate support that could show the reasonableness of the charges. We therefore did not modify the report finding and recommendation. Comment 9 The Municipality stated that the original supporting documents were available for review. However, the Municipality did not provide us with the documentation for our review. It will need to provide documentation showing the reasonableness and allowability of the expenditures for HUD’s evaluation. Comment 10 The Municipality stated that it will make an analysis to determine the cost that is allocable to HOME and other programs. Comment 11 The Municipality believes that CPD Notice-01-11 allows the reimbursement of costs incurred before the execution of a grant agreement with the developer. It stated that the disbursements were related to soft costs and requested that the questioned costs be reclassified as unsupported. Notice 01-11 provides guidance on the environmental review process required under the HOME program. Contrary to the Municipality’s statement, the notice does not make reference of the reimbursement of costs incurred by a developer prior to the execution of the grant agreement. The Municipality did not provide us adequate support that could show the allowability and allocability of the disbursements. We therefore did not modify the report finding and recommendation. 69 Comment 12 The Municipality stated that it agreed that $335,000 were used for duplicate or unrelated project costs. It will need to provide HUD documentation to show that the funds were properly reimbursed. Comment 13 The Municipality stated that the developers were reimbursed $617,327 for ineligible acquisition costs because the HOME funds were provided as interim construction loans, and that these will be returned when the units are sold. The HOME funds cannot be used to defray ineligible expenditures, or provide financing for ineligible efforts. The Municipality should not wait for the sale of the properties and must immediately reimburse the ineligible costs to the HOME program. Comment 14 The Municipality informed us that the $472,514 was non-HOME proceeds reimbursed by a CHDO associated with the sale of the Paseo del Conde housing project. It also stated that $300,346 in HOME funds was incorrectly used and that its HOME program bank account was reimbursed with local funds. The report stated that $772,860 in program income was used to repay the HOME program. However, the Municipality claims that $472,514 of these were non- HOME proceeds. The Municipality did not comment on the remaining balance and did not provide us additional documentation that could demonstrate that the funds were not used for the ineligible efforts. As mentioned in comment four, the Municipality’s claim is not consistent with the agreement signed with the CHDO. In addition, it will need to provide proper documentation to show that the funds were properly reimbursed from non-Federal funds. Comment 15 The Municipality believes that it complied with program requirements and that all HOME obligations were incurred and disbursed before Federal funds were drawdown from HUD. It stated that all disbursements are made from its general fund account and then seeks reimbursement from HOME bank account. The Municipality claimed that all corrective actions were taken and requested the elimination of the finding. Despite the Municipality’s claim, HOME funds were not disbursed in a timely manner in violation of HUD requirements. It failed to disburse HOME funds in its local bank account before requesting additional grant funds. As a result, it consistently maintained a high cash balance in its local bank account, maintaining a monthly average balance of $3.4 million during the 22-month period ending April 2011. The Municipality did not provide adequate support that could substantiate their position. Accordingly, we did not modify the report finding and recommendations. Comment 16 The Municipality believes that the differences were the result of accounting methods used. It stated that its accounting records are accurate, current, and complete. However, it did not provide us additional documentation that could 70 explain the discrepancy or the disposition of the $14,732 drawn from HUD. Accordingly, we did not modify the report finding and recommendations. Comment 17 The Municipality stated that during the audit it updated its accounting records to ensure that receipts and expenditures were properly recorded and requested the elimination of the finding. However, the municipality did not provide us additional documentation that could substantiate their claim. Therefore, we did not modify the finding and recommendations. Comment 18 The Municipality believes that its financial system complies with requirements and the deficiencies disclosed are associated to program income and only require a revision to the internal controls and procedures. The Municipality requested to revise the corrective action to indicate the need for establishing controls and procedures. The Municipality’s financial management system did not comply with HUD requirements since it did not support the eligibility of disbursements, allowed the use of funds for ineligible purposes, did not use funds in a timely manner, and did not account for program receipts. Contrary to the Municipalities belief, the deficiencies found are not limited to program income and do affect all aspects associated with the administration of the HOME program. The Municipality did not provide us additional documentations that could substantiate its claim. We therefore did not modify the report finding and recommendation. Comment 19 The Municipality believes that it complied with all commitment requirements established by HUD. It stated that it had signed conditional commitment agreements with the developers and requested that the finding be eliminated from the report. Contrary to the Municipality’s claim, the conditional commitment letters submitted by the Municipality do not comply with HUD requirements. In a 2005 HUD monitoring review, the Municipality was advised that such type of agreements were not acceptable for the obligation of HOME funds. In addition, the Municipality did not address the issue of inaccurate dates entered into HUD’s system. The Municipality did not provide us additional documentations that could substantiate its claim. Therefore, we did not modify the report finding and recommendation. Comment 20 The Municipality sated that in a 2004 monitoring review HUD requested the reimbursement of HOME funds invested in the terminated projects, and that the funds were returned with local funds. It stated that in February 2011 it requested HUD assistance to reprogram the reimbursed funds, but HUD denied their request until the OIG audit was completed. The Municipality’s request to HUD was associated with the reprogramming of funds reimbursed to the HOME program. It was not related to the reprogramming 71 of the unexpended obligations for activities that were terminated or for assistance that was no longer needed. Contrary to the Municipality’s claim, the restriction imposed by HUD did not affect its ability to deobligate and reprogram the unexpended obligations. The Municipality did not provide us additional documentations that could substantiate its claim. Therefore, we did not modify the report finding and recommendation. Comment 21 The Municipality sated that in February 2011 it requested HUD assistance to reprogram the $467,723 repayments, but HUD denied their request until the OIG audit was completed. Although HUD restricted the reprogramming of the repayments, the Municipality was not diligent in the administration of the repayments. The Municipality initiated the reprogramming process about three years after HUD instructed the reimbursement of HOME funds and after we asked about the status of these activities. The Municipality must work with HUD to deobligate and reprogram the $467,723 in repayments. Comment 22 The Municipality stated it deobligated $61,970 for the activities in which the funding amount was overstated. However, the Municipality did not provide us additional documentation that could demonstrate it reprogrammed the funds to other eligible efforts. It will need to provide documentation to HUD to show that the funds were reprogrammed to other eligible efforts. 72 Appendix C LIST OF UNSUPPORTED PROJECT DISBURSEMENTS Activity number Project name Amount Comments Land acquisition costs of $550,000 were not supported. Supporting documentation 1331 Tapia’s Court $630,207 for an additional disbursement of $80,207 was not provided by the Municipality. Supporting documentation for the 546 Los Portales II 491,022 disbursement of $491,022 was not provided by the Municipality. Land acquisition costs of $400,000 were not supported. Supporting documentation 1259 Cataluña Court 470,743 for an additional disbursement of $70,743 was not provided by the Municipality. Land acquisition costs of $366,000 were 1088 Padre Colón Apartments 366,000 not supported. Land acquisition costs of $175,000 were 1352 San Miguel Apartments II 175,000 not properly supported. Land acquisition costs of $135,000 were 1257 Chalets de Landrau 135,000 not supported. Supporting documentation for the 1332 D’Río Project 73,095 disbursement of $73,095 was not provided by the Municipality. Supporting documentation for the 1255 Participant A 14,822 disbursement of $14,822 was not provided by the Municipality. Total $2,355,889 73 Appendix D LIST OF INELIGIBLE PROJECT DISBURSEMENTS Activity number Project name Amount Comments Project costs of $302,900 were incurred 546 Los Portales II $302,900 before the grant agreement with the Municipality was executed. The Municipality used $300,000 in HOME funds for the acquisition of a 1003 William’s Court 300,000 foreclosed-upon property that was previously acquired with HOME funds, resulting in a duplication of costs. Project costs of $241,477 were incurred before the grant agreement with the 1016 Gilberto Monroig 241,477 Municipality was executed. This amount included $25,663 for land acquisition that did not relate to the program. Project costs of $168,631 were incurred 877 Vistas del Horizonte II 168,631 before the grant agreement with the Municipality was executed. Project costs of $80,000 were incurred 1332 D’Río Project 80,000 before the grant agreement with the Municipality was executed. Project costs of $38,505 were incurred 1257 Chalets de Landrau 38,505 before the grant agreement with the Municipality was executed. Project costs of $34,080 were incurred 1259 Cataluña Court 34,080 before the grant agreement with the Municipality was executed. Project costs of $15,000 were incurred 1352 San Miguel Apartments II 15,000 before the grant agreement with the Municipality was executed. A penalty was paid for not executing a 1331 Tapia’s Court 10,000 sales option contract within the prescribed timeframe. Total $1,190,593 74 Appendix E LIST OF COMMITMENTS TO REPROGRAM AND PUT TO BETTER USE Days elapsed from last drawdown IDIS* IDIS Last IDIS date as of Activity Activity funding committed drawdown amount May 31, number name date amount date** unexpended 2011 Comments Terminated activities with unexpended balances in HUD’s information system HUD questioned the activity in a 2004 monitoring. Barriada July 1, Dec. 2, 20 $622,300 $529,591 4563 However, the Municipality did not reprogram the Figueroa 2006 1998 unexpended commitments. Plaza HUD questioned the activity in a 2004 monitoring. Apr. 15, June 11, 242 Garden 874,000 494,359 4372 However, the Municipality did not reprogram the 1999 1999 Apartments unexpended commitments. The Municipality terminated this activity because it Pepe Oct. 9, May 7, 360 614,740 39,080 754 was not feasible. However, it did not reprogram the Santana 2000 2009 unexpended commitments. Other activities with unexpended balances in HUD’s information system The construction work was completed in 2005. Los Sept. 17, Aug. 27, 546 1,080,000 239,245 2468 However, unexpended commitments were not Portales II 2002 2004 reprogrammed. Península HUD’s deadline for completing the activity was de Cantera July 16, Mar. 24, 1091 4,000,000 157,085 68 March 31, 2011. However, the Municipality did not - Paseo del 2007 2011 reprogram the unexpended commitments. Conde Vistas del The construction work was completed in 2006. Nov. 24, Oct. 30, 877 Horizonte 800,000 79,972 578 However, the Municipality did not reprogram the 2004 2009 II unexpended commitments. The construction work was completed in 2007. Gilberto Mar. 31, Apr. 16, 1016 587,473 53,135 775 However, the Municipality did not reprogram the Monroig 2006 2009 unexpended commitments. The construction work was completed in 2000. Sector May 19, Mar. 4, 248 207,600 9,033 3375 However, the Municipality did not reprogram the Figueroa 1999 2002 unexpended commitments. Padre The construction work was completed in 2009. July 13, Oct. 22, 1088 Colón 1,395,083 7,119 586 However, the Municipality did not reprogram the 2007 2009 Apartments unexpended commitments. Total $10,181,196 $1,608,619 * IDIS = HUD’s Integrated Disbursement and Information System ** As of May 31, 2011, activities were reported in IDIS as open. 75 Appendix F LIST OF PROGRAM INCOME AND RECAPTURED FUNDS REVIEWED Receipt Reported date in Days elapsed from number Amount Receipt date HUD’s information system receipt date Unreported receipts 923060 $19,998 Feb. 18, 2010 * 431 923063 53,220 Oct. 4, 2010 * 203 923064 31,830 Oct. 4, 2010 * 203 923065 65,611 Oct. 4, 2010 * 203 923070 15,000 Nov. 9, 2010 * 167 923071 50,000 Nov. 9, 2010 * 167 923072 33,500 Nov. 9, 2010 * 167 923073 39,200 Nov. 12, 2010 * 164 923074 44,000 Nov. 12, 2010 * 164 923075 57,200 Jan. 12, 2011 * 103 923076 41,600 Jan. 12, 2011 * 103 923077 61,776 Jan. 12, 2011 * 103 923079 61,776 Jan. 12, 2011 * 103 923080 69,276 Jan. 12, 2011 * 103 923082 30,000 Mar. 30, 2011 * 26 923083 31,300 Mar. 31, 2011 * 25 Total $705,287 Reported receipts 923041 $8,250 Sept. 3, 2009 June 12, 2010 282 923042 10,154 Sept. 3, 2009 June 12, 2010 282 923043 40,337 Oct. 6, 2009 June 12, 2010 249 923044 51,000 Oct. 6, 2009 June 12, 2010 249 923045 36,397 Oct. 6, 2009 June 12, 2010 249 923046 31,050 Oct. 6, 2009 June 12, 2010 249 923047 49,000 Oct. 6, 2009 June 12, 2010 249 923048 47,317 Oct. 6, 2009 June 12, 2010 249 923049 34,300 Oct. 6, 2009 June 12, 2010 249 923050 22,862 Oct. 6, 2009 June 12, 2010 249 923051 45,965 Oct. 6, 2009 June 12, 2010 249 923052 42,312 Oct. 6, 2009 June 12, 2010 249 923053 48,102 Oct. 6, 2009 June 12, 2010 249 923054 37,225 Oct. 6, 2009 June 12, 2010 249 923055 11,460 Nov. 4, 2009 June 12, 2010 220 923056 13,865 Nov. 4, 2009 June 12, 2010 220 923057 45,211 Nov. 4, 2009 June 12, 2010 220 923058 31,753 Nov. 4, 2009 June 12, 2010 220 923059 60,607 Jan. 27, 2010 June 12, 2010 136 923061 46,000 Mar. 1, 2010 June 16, 2010 107 923062 13,304 Apr. 23, 2010 June 16, 2010 54 Total $726,471 * Program income and recaptured funds had not been reported in HUD’s information system as of April 25, 2011. 76
The Municipality of San Juan Did Not Properly Manage Its HOME Investment Partnerships Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)