U.S. Department of Housing and Urban Development
Region 4, Office of Inspector General
Office of Audit, Box 42
Richard B. Russell Federal Building
75 Spring Street, SW, Room 330
Atlanta, GA 30303-3388
(404) 331-3369
MEMORANDUM NO:
2011-AT-1802
January 27, 2011
MEMORANDUM FOR: 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 Arecibo, Arecibo, PR, Charged the HOME Program With
Expenditures That Did Not Meet Program Objectives
INTRODUCTION
We audited the Municipality of Arecibo’s (Municipality) HOME Investment Partnerships
Program (HOME). We selected the Municipality for review as part of our strategic plan based
on the results of a previous audit of the Puerto Rico Department of Housing’s (Department)
HOME program, which disclosed that the Department disbursed HOME funds for land
acquisition that did not meet program requirements at a 288-unit housing project named Bello
Monte. During the audit, we found documentation indicating that the Bello Monte project also
received HOME funds from the Municipality. The objectives of this audit were to determine
whether the Municipality committed and/or disbursed HOME funds for the Bello Monte housing
project and whether it met program objectives.
We provided a draft report to the Municipality on December 16, 2010, and discussed the report
with Municipality officials at an exit conference on December 20, 2010. The Municipality
provided written comments on January 14, 2011 and generally agreed with the
recommendations. The Municipality’s response, along with our evaluation of that response, can
be found in appendix B of this report. Attachments to the Municipality’s response were not
included in the report, but are available for review upon request.
For each recommendation without a management decision, please respond and provide status
reports in accordance with U.S. Department of Housing and Urban Development (HUD)
Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued
because of the audit.
METHODOLOGY AND SCOPE
To accomplish our objectives, we
Reviewed applicable statutes, regulations, and relevant HUD program requirements;
Reviewed Municipality files associated with the Bello Monte project;
Interviewed applicable HUD and Municipality officials;
Reviewed all the Municipality’s HOME program obligations and disbursements
associated with the Bello Monte project. Specifically, we reviewed the Municipality’s
HOME program obligations and disbursements reported in HUD’s Integrated
Disbursement and Information System (IDIS) for the Bello Monte project.
Our review generally covered the period July 19, 2006, through September 30, 2010. We
conducted the review from October through November 2010 at the offices of the Municipal
Development Department in Arecibo, PR, and the HUD Office of Community Planning and
Development in San Juan, PR.
We did not conduct the audit in accordance with generally accepted government auditing
standards since we did not consider the internal controls or information systems controls of the
Municipality and the results of previous audits. We did not follow standards in these areas
because our goal was to aid HUD in identifying potential noncompliance on the part of other
participating jurisdictions that also funded the ineligible activities identified during the audit of
the Puerto Rico Department of Housing. To meet our objectives, it was not necessary to fully
comply with standards, nor did our approach negatively affect our review results.
BACKGROUND
The HOME program is authorized under Title II of the Cranston-Gonzalez National Affordable
Housing Act as amended. 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 may use HOME
funds to carry out multiyear housing strategies through acquisition, rehabilitation, new housing
construction, and tenant-based rental assistance. IDIS is used to monitor HOME commitments
and draws for the various activities.
The Municipality has administered the HOME program since 1992. It is the eighth largest
participating jurisdiction in Puerto Rico, administering more than $2.1 million in HOME funds
during the last 3 grant years as follows:
Grantee Grant year Authorized funds
Municipality of Arecibo 2010 $756,658
Municipality of Arecibo 2009 759,514
Municipality of Arecibo 2008 681,771
2
The Municipality’s Development Department was responsible for administering HOME funds.
Its books and records were maintained at 158 José de Diego Avenue, Arecibo, PR.
A previous audit of the Puerto Rico Department of Housing’s HOME program disclosed that
HOME funds were disbursed for land acquisition that did not meet program requirements at a
288-unit housing project named Bello Monte. During the audit, we found documentation
indicating that the Bello Monte project also received HOME funds from the Municipality.
The objectives of this audit were to determine whether the Municipality committed and/or
disbursed HOME funds for the Bello Monte housing project and whether it met program
objectives.
RESULTS OF REVIEW
The Municipality Obligated and Disbursed More Than $115,000 in HOME Funds for
Ineligible Land Acquisition at the Bello Monte Housing Project
Contrary to HUD’s regulations, the Municipality disbursed HOME funds for the purchase of
land that could not be used to provide housing for low- and very low-income families.
Regulations at 24 CFR (Code of Federal Regulations) 92.205(a)(2) state that acquisition of
vacant land must be undertaken only with respect to a particular housing project intended to
provide affordable housing.
In December 2006, the Municipality disbursed $141,000 in HOME funds to a community
housing development organization (CHDO) for the acquisition of approximately 69 acres of land
to develop a 288-unit housing project named Bello Monte. The land acquisition included
approximately 25 acres of protected wilderness area that needed to be preserved in its natural
state and could not be developed. As a result, the Municipality charged the HOME program
more than $52,000 for expenditures that did not meet program objectives and would not generate
benefits or expand the supply of decent, safe, sanitary, and affordable housing to low- and very
low-income families. Therefore, the disbursement of HOME funds to acquire land not intended
to provide affordable housing was not consistent with program requirements and was an
ineligible use of program funds.
On July 21, 2009, the Municipality awarded the CHDO a second HOME grant totaling more
than $643,000 for the development of the Bello Monte housing project. The second grant to the
CHDO included $63,600 for the acquisition of an additional 19 acres of land that had to be
preserved in its natural state for mitigation purposes.1 Thus, the additional land could not be
used to develop affordable housing for low- and very low-income families. As of November 15,
2010, no funds had been disbursed for this acquisition. The commitment of HOME funds to
acquire land not intended to provide affordable housing was not consistent with program
requirements. The Municipality must deobligate and reprogram the funds to other eligible
efforts.
1
The Puerto Rico Department of Natural Resources required the CHDO to transfer to the State approximately 19
acres of land to mitigate the ecological impact of the development of the Bello Monte housing project. To comply
with this requirement, the CHDO planned to use HOME funds to acquire the new portion of land and transfer it to
the Commonwealth of Puerto Rico.
3
The Bello Monte Housing Project Reflected Slow Progress
The Municipality executed an agreement in July 2006 with a CHDO for site acquisition and
construction of the Bello Monte housing project. According to the agreement, the construction
of the housing units should have started in July 2007, with a completion date of July 2011.
However, as of November 2010, the construction had not started. Regulations at 24 CFR 92.2
state that if the project consists of rehabilitation or new construction, commitment to a specific
project occurs when the participating jurisdiction and project owner have executed a written,
legally binding agreement under which HOME assistance will be provided for a project of which
construction can reasonably be expected to start within 12 months of the agreement date. HUD
regulations at 24 CFR 92.504(a) also 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. More than 4 years had elapsed, and the construction work
had not started.
Although the property was acquired in August 2007, our inspection disclosed that the
construction of the 288-unit housing project had not started as evidenced by these pictures.
The Municipality disbursed more than $483,000 for the Bello Monte housing project, which
reflected slow progress without assurance that the project was feasible. According to a HUD
official, the project had encountered problems in complying with environmental requirements
from a local agency. The Municipality failed to ensure the timely completion of the activity. As
a result, HUD had no assurance that this activity provided the intended benefits and met HOME
objectives.
HUD’s Information System Contained Inaccurate Information
IDIS contained inaccurate information concerning the Bello Monte project. This information
included incorrect funding amounts. The awarded amount shown in IDIS was incorrect,
resulting in an overstatement of HOME commitments of more than $45,000. The grant
agreement amount for the Bello Monte project totaled $1,043,035, but the funded amount
according to IDIS was $1,088,073. The Municipality’s HOME program coordinator
acknowledged that the HOME commitments were overstated and informed us that the
Municipality would seek HUD assistance to correct the funded amount. As a result, more than
$45,000 in HOME funds was not available for use and to meet program objectives. The
Municipality must deobligate and reprogram the funds to other eligible efforts.
4
RECOMMENDATIONS
We recommend that the Director of the San Juan Office of Community Planning and
Development
1A. Require the Municipality to reimburse the HOME program from non-Federal funds the
$52,011 charged to its HOME program for the ineligible land acquisition.
1B. Determine the eligibility of the $431,489 disbursed for the Bello Monte housing project
with signs of slow progress and reevaluate the feasibility of this activity. The
Municipality must reimburse HUD from non-Federal funds for any amount determined
ineligible and reprogram to other eligible efforts any unexpended funds if the activity is
terminated.2
1C. Require the Municipality to reprogram and put to better use $63,600 in commitments for
ineligible land acquisition.
1D. Require the Municipality to deobligate the $45,035 in overstated HOME program
commitments associated with the Bello Monte project and reprogram the funds to other
eligible efforts.
2
A total of $483,500 disbursed for the Bello Monte housing project was adjusted to consider $52,011 questioned in
recommendation 1A.
5
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds to be put
number Ineligible 1/ Unsupported 2/ to better use 3/
1A $52,011
1B $431,489
1C $63,600
1D _______ ________ $45,035
Total $52,011 $431,489 $108,635
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 Office of Inspector General (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 1C and 1D, funds improperly committed for the ineligible land
acquisition and the overstated commitments will be available for other eligible activities
consistent with HOME requirements.
6
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
7
Comment 1
8
Comment 2
Comment 3
Comment 4
9
OIG Evaluation of Auditee Comments
Comment 1 The Municipality believes that the disallowed amount should be based on an
appraised value of the land to be used for preservation purposes and that it should
be required to reimburse only $9,442.
The disallowed amount was determined based on the acquisition price of $2.5
million for the 69 acres of land. The supporting documentation provided did not
differentiate or make reference on the type(s) of property acquired or the price.
The Municipality did not provide us adequate support that could substantiate their
claim. Accordingly, we did not modify the report finding and recommendations.
Comment 2 The Municipality stated it will provide further information to HUD with respect to
the feasibility of the Bello Monte housing project.
Comment 3 The Municipality stated it will reprogram the $63,600 in ineligible land
acquisition commitments to project construction costs. It will need to provide
documentation to establish the allowability and feasibility of this action for
HUD’s evaluation as stated in recommendation 1B. We therefore did not modify
the report finding and recommendation.
Comment 4 The Municipality stated it deobligated the $45,035 overstated commitment.
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 show that the funds were properly reprogrammed.
10
The Municipality of Arecibo Charged the HOME Program With Expenditures That Did Not Meet Program Objectives
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-01-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)