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.
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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
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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.
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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)