Issue Date
August 18, 2011
Audit Report Number
2011-LA-1016
TO: William Vasquez, Director, Los Angeles Office of Community Planning and
Development, 9DD
FROM: Tanya E. Schulze, Regional Inspector General for Audit, Region IX, 9DGA
SUBJECT: The City of Compton Did Not Administer Its HOME Program in Compliance
With HOME Requirements
HIGHLIGHTS
What We Audited and Why
We audited the City of Compton‟s (City) HOME Investment Partnerships
Program (HOME) in response to a citizen complaint generally alleging misuse
of HOME funds by the Community Redevelopment Agency (subrecipient)
administering the program, including allegations stating that more than $4
million in HOME funds was missing and that program objectives were not
met.
Our audit objective was to determine the validity of the complaint allegations,
whether program objectives were met, and if program activities complied with
HOME requirements.
What We Found
Although we found nothing to support allegations that funds were missing
from HOME funding, we determined that the City and its subrecipient did not
properly administer the program in accordance with HUD requirements.
Required completion data were not always entered to close out funded
activities, and appropriate source documentation had not been maintained to
support activity costs or salary and wages charges. In addition, home-buyer
eligibility was not correctly determined, and HOME affordability
requirements were not always maintained. Finally, HOME funds were not
always used within the required timeframe, and program income was not
always processed in such a way to ensure compliance with HOME
requirements.
What We Recommend
We recommend that the Director of HUD‟s Los Angeles Office of
Community Planning and Development require the City to support or repay
more than $2.2 million in HOME withdrawals for unsupported activity
expenditures and unsupported salaries and wages. The City should also repay
$193,420 for two home buyers who were ineligible to receive assistance,
$100,000 in HOME funds used for a property that did not maintain
affordability standards, and $72,397 that was drawn for a cancelled activity.
Policies and procedures should be established or revised as necessary for the
administration of the program, and the City should implement regular
monitoring of its subrecipient.
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.
Auditee’s Response
We provided the City the draft report on June 10, 2011, and held an exit
conference with the City on June 15, 2011. The City generally disagreed with
our report.
We received the City‟s response on June 27, 2011. The complete text of the
auditee‟s response, along with our evaluation of that response, can be found in
appendix B of this report. The auditee also included some additional
schedules with its response; however, we did not include these in the report
and they are available upon request.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: Required Completion Data Were Not Entered in a Timely Manner and 6
Adequate Drawdown Source Documentation Was Not Provided
Finding 2: The Allocation of HOME Salaries and Wages Did Not Comply With OMB 13
Circular A-87
Finding 3: Home Buyers‟ Income Eligibility Was Not Adequately Determined, 16
Affordability Requirements Were Not Maintained, and Key Agreement
Provisions Were Not Documented
Finding 4: Funds Were Not Expended for Eligible Costs Within 15 Days of Drawing 21
Down Funds From the U.S. Treasury
Finding 5: Program Income Was Not Processed in Accordance With HOME 23
Requirements
Scope and Methodology 28
Internal Controls 30
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 32
B. Auditee Comments and OIG‟s Evaluation 34
C. Schedule of Deferred Equity and First-Time Home Buyer Loan Deficiencies 47
D. Schedule of Missing Loan Agreement Provisions 48
E. Criteria 49
3
BACKGROUND AND OBJECTIVE
The HOME Program
The HOME Investment Partnerships Program (HOME) is authorized under Title II of the
Cranston-Gonzalez National Affordable Housing Act. The program regulations are
contained in 24 CFR (Code of Federal Regulations) Part 92 and the HOME Investment
Partnerships Program Final Rule. HOME funds are awarded annually as formula grants to
participating jurisdictions and used to fund a wide range of activities that build, buy, or
rehabilitate affordable housing for rent or home ownership or provide direct rental assistance
to low-income households. According to 24 CFR 92.500 (a)(b)(c), HUD establishes a
HOME Investment Trust Fund United States Treasury account, which houses the funds that
are allocated to each participating jurisdiction. The participating jurisdiction may use a
separate local HOME account to house deposits disbursed from the Treasury account. The
program allows State and local governments to use HOME funds for grants, direct loans,
loan guarantees or other forms of credit enhancement, rental assistance, or security deposits.
Further, a participating jurisdiction may invest HOME funds as equity investments, interest-
bearing loans or advances, non-interest-bearing loans or advances, interest subsidies,
deferred payment loans, grants, or other forms of assistance that U.S. Department of Housing
and Urban Development (HUD) determines to be consistent with the regulation. Households
must meet certain low-income limit criteria published by HUD to receive HOME assistance.
HOME funds are managed through HUD‟s Integrated Disbursement and Information System
(IDIS), which disburses funds that are allocated or reallocated and reports information on the
use of HOME funds in the U.S. Treasury account.
The City of Compton
The City of Compton, CA (City), was officially incorporated on May 14, 1888. The City‟s
elected officials include the mayor, four city council members, city attorney, city treasurer,
and city clerk. The City‟s administration is comprised of a city manager and two assistant
city managers.
As a participating jurisdiction, the City is responsible for the overall administration and
oversight of Community Development Block Grant (CDBG), Emergency Shelter Grant
(ESG), and HOME program funds, as well as Neighborhood Stabilization Program (NSP)
and Homelessness Prevention and Rapid Re-Housing Program funds. Between 2009 and
2010, the City was awarded more than $4 million in CDBG funds, $1.7 million in HOME
funds, and nearly $200,000 in ESG funds. The City also received CDBG Recovery Act
grants totaling $1.4 million and more than $3 million in NSP funds. The City‟s HOME and
NSP programs are managed through its Community Redevelopment Agency.
The Community Redevelopment Agency
The mission of the Community Redevelopment Agency (subrecipient) is to support the
City‟s mission of creating a viable, affluent, self-reliant, and safe community by causing the
4
resurgence of Compton‟s physical, economic, and social development through dynamic
growth achieved by commercial, industrial, and residential progress. The subrecipient serves
as the economic development arm of the City for rebuilding and generating economic vitality
in the community. The overriding objective of the subrecipient is to implement the council‟s
policy of fostering growth by using tax increment revenues, in combination with State and
Federal resources; providing physical and social infrastructure to stimulate growth; and
providing gap financing options to attract private investment for retail and residential
development, as well as job development, in the community.
As a subrecipient to the City, it administers the HOME-funded First Time Home Buyer
(FTHB) program, which provides homeownership assistance, and the Residential
Rehabilitation (RR) program (comprised of its Emergency Assistance, Deferred Equity Loan,
and Fix-It Programs), which provides assistance to homeowners by eliminating property code
violations and unsafe living conditions. To ensure that homebuyer properties remain
affordable, HUD requires participating jurisdictions to impose either resale or recapture
provisions, at its option. Resale requires the assisted housing to be made available for
purchase by another family who qualifies as low income and will use the property as their
principal residence, if the original family does not continue to reside in the property.
Recapture provisions must ensure the participating jurisdiction recoups all or a portion of the
HOME assistance to home buyers, if the housing does not continue to be the principal
residence of the family. The time period the assisted family must remain in the property is
based upon the amount of assistance provided.
The above programs may also generate program income, which can include, but is not
limited to, proceeds from repayment of loans provided to participants and any interest earned
on program income in interest bearing accounts. According to CPD Notice 97-9, Section
III.E, earned program income must be disbursed on eligible activities before requesting
HOME entitlement funds, which are received by the participating jurisdiction as part of its
original allocation.
In a 2008 single audit report, the City‟s independent auditor made 13 findings related to the
City‟s HOME program. Eight findings were fully implemented, two were partially
implemented, and three were not implemented. A 2009 single audit report contained four
HOME-related findings. In addition, HUD performed a 2009 monitoring review of the
City‟s HOME, ESG, and NSP programs, which resulted in four findings related to the
HOME program. HUD closed out all four findings in June 2010. The findings generally
stated that there were deficiencies in the City‟s income verifications, determination of
maximum property rehabilitation values, and maintenance of adequate source documentation
for its activities.
We initiated the review in response to a citizen complaint alleging misuse of more than $4
million in HOME funding and nonachievement of program objectives. The objective of our
audit was to determine the validity of the allegations, whether program objectives were met,
and if program activities complied with HOME requirements.
5
RESULTS OF AUDIT
Finding 1: Required Completion Data Were Not Entered in a Timely
Manner and Adequate Drawdown Source Documentation
Was Not Provided
The City‟s subrecipient did not enter required completion data into IDIS in a timely manner
for 15 of its program activities. In addition, one of its activities needs to be cancelled, and
the balances for two of its activities need to be reallocated to current activities. The
subrecipient also could not provide adequate source documentation to support 10 open
activities, totaling more than $2.2 million for funds that were committed in IDIS between
1993 and 2005. This deficiency was due to the subrecipient‟s lack of understanding of
HOME requirements and a lack of an adequate quality control system to ensure that required
project completion data were complete, accurate, entered into IDIS in a timely manner, and
supported. In addition, the subrecipient had not been routinely monitored by the City.
Failure to enter project completion data negatively affects the City‟s score on several
program performance indicators and may negatively impact future funding for the program.
In addition, there was insufficient information available to determine whether more than $2.2
million in program funds was expended for eligible HOME activities.
Final Draw Activities Overdue
The subrecipient did not maintain an adequate quality control system to
ensure that required project completion information and beneficiary data were
complete, accurate, and entered into IDIS within 120 days of final draw in
accordance with 24 CFR 92.502(d)(1). The IDIS Report C04PR22, Status of
HOME Activities, dated January 2011, listed 12 activities with a status of
“final draw,1” 2 were more than 11 years overdue to be completed, and 3 were
more than 10 years overdue. All funds that were committed were drawn for
each activity listed in the below table.
1
“Final draw” status means that all committed funds have been drawn but financial and beneficiary information
has not yet been entered. Entering the required financial and beneficiary information would result in
“complete” status.
6
Status
IDIS 120-day project
Commit2 /final Days Years
activity completion Drawn amount
date draw overdue overdue
no. due date
date
53 4/21/97 9/26/06 1/24/07 1,457 3.99 $118,950
55 10/27/93 8/20/97 12/18/1997 4,781 13.10 $151,800
56 4/3/95 7/30/03 11/27/03 2,611 7.15 $412,000
57 10/22/96 8/20/97 12/18/1997 4,781 13.10 $107,000
173 7/1/97 6/23/99 10/21/99 4,109 11.26 $269,876
275 7/1/98 8/26/99 12/24/99 4,045 11.08 $299,406
347 7/1/99 6/29/00 10/27/00 3,737 10.24 $616,643
606 7/31/03 8/31/04 12/29/04 2,213 6.06 $40,487
633 7/31/03 8/31/04 12/29/04 2,213 6.06 $40,000
832 8/3/06 10/24/07 2/21/08 1,064 2.92 $136,000
917 2/8/07 11/4/09 3/4/10 322 .88 $855,000
1080 2/2/10 2/2/10 6/2/10 232 .64 $800,000
After the completion of our fieldwork, the auditee updated the “status/final
draw dates” for Activities 55 and 57 and changed the status of Activity 53 to
“completed.” After reviewing documentation provided by the auditee, we
determined that the Activity 53 documents only supported a portion of the
funds that were drawn.
Overdue Open Activities
The City also had three activities with “open” status in IDIS that need to have
completion information entered into HUD‟s system and one activity with
“open” status that needs to be cancelled. HOMEfires, Volume 6, No.1,
August 2005 states, “Participating Jurisdictions must report HOME project
completion and beneficiary data for initial occupants timely by entering it in
IDIS on a regular basis, and periodically review the status of all projects in the
system to identify those that need to be cancelled (see appendix E).” The
following table identifies the four activities that need to be completed or
cancelled.
2
The commit date represents the date on which program funds were first committed to the activity.
7
Status
Percentage
IDIS date Committed
Commit Drawn completed
activity (Date of amount Balance
date amount (Drawn/committed
no. last
amount
action)
46 5/13/96 8/20/97 $56,720 $31,407 $25,313 55%
48 10/29/96 8/20/97 $300,000 $296,555 $3,445 99%
631 7/30/03 8/16/10 $0 $0 $0 0%
810 6/23/05 10/24/07 $368,250 $368,249.50 $0.50 100%
Activities 46 and 48
The last draw for both activities 46 and 48 was on August 20, 1997.
Therefore, the City‟s subrecipient needs to reallocate the $28,758 ($25,313 +
$3,445) total remaining balance to other current activities. In addition, the
subrecipient needs to enter completion information into IDIS.
Activity 631
Activity 631 reflects a commit date of July 30, 2003, but showed $0
committed or drawn as of August 16, 2010. Since the activity remained
inactive for 7 years and no funds were committed or drawn, the subrecipient
should cancel this activity. After the completion of our fieldwork, the
subrecipient stated the activity should not be cancelled and provided
additional documentation. However, the documents provided did not support
this position, as the same information had also been furnished as support for
Activity 53.
Activity 810
The subrecipient had not updated activity 810‟s status since the date of the last
draw, October 24, 2007. IDIS showed the activity as 100 percent complete;
therefore, the subrecipient needs to enter completion information into IDIS.
After the completion of audit fieldwork, the subrecipient provided additional
documentation to support the draw down for this activity and changed the
status to “completed.” However, the new information did not support the
draw down. Therefore, this activity should not be closed until sufficient
documentation is available.
Inadequate Support for More
Than $2.2 Million Drawn
The 15 open activities also included 10 activities that did not have adequate
support documentation. Further, 9 of the 10 activities had a commit date
before 2000 and either had no name identified or did not clearly indicate what
IDIS activity was funded. Therefore, we reviewed those nine activities to
determine whether the City‟s subrecipient maintained adequate financial
8
documentation to support the charges in IDIS and whether program funds
were used for eligible HOME activities. In addition, we reviewed a tenth
activity that had been reopened during fiscal year 2009-2010 after the
subrecipient completed its final draw in fiscal year 2008-2009.
During our fieldwork, the subrecipient provided documentation for 8 of the 10
activities reviewed; however, the information in the files was not sufficient to
support the amounts shown as committed and drawn in IDIS. Further,
although some of the files included IDIS drawdown screens, vouchers, or
invoices from a community housing development organization, the majority
of the files did not contain source documentation to support the amount paid,
including cancelled checks, paid bills, receipts, etc., in accordance with HUD
requirements. In addition, invoices provided for one activity were
questionable because they appeared to have been produced from the same
source, although they were supposed to have been from multiple vendors and
did not appear to be the original documents. After the completion of
fieldwork, the subrecipient provided additional documentation for 8 of 10
activities reviewed; however, the new information still did not fully support
the draw downs made for the activities. In some cases, the expenditure
amounts on the documentation did not reconcile to the IDIS draws, appeared
applicable to different IDIS activity numbers, or the same documentation was
provided to support more than one activity number.
Given that the subrecipient did not provide adequate source documentation for
the majority of the 10 IDIS activities and related commitments and draws
reviewed, we were unable to determine whether program funds were used for
eligible HOME activities, and more than $2.2 million drawn in IDIS was
unsupported, as detailed in the table below.
9
IDIS
Commit Drawn Unsupported
activity Activity type
date amount amount
no.
Acquisition 5/13/96 $31,407 $31,407
46
only
48 Rehabilitation 10/29/96 $296,555 $296,555
Acquisition 4/21/97 $118,950 $109,630
53
only
New 10/27/93 $151,800 $124,572
55
construction
New 4/3/95 $412,000 $271,461
56
construction
New 10/22/96 $107,000 $23,238
57
construction
New 7/1/97 $269,876 $269,876
173
construction
275 Rehabilitation 7/1/98 $299,407 $299,407
347 Rehabilitation 7/1/99 $616,643 $475,471
810 Rehabilitation 6/23/05 $368,250 $368,250
Totals $2,671,888 $2,269,867
Subrecipient Not Monitored
The City informed us that it had established procedures and had been
monitoring other organizations receiving HUD funding; however, the City
acknowledged that as of September 2010, no HOME program monitoring of
its subrecipient had yet occurred. 24 CFR 92.504 (a) states that participating
jurisdictions are responsible for managing the day-to-day operations of their
HOME program and that each contractor and subrecipient must be reviewed
annually. HUD Handbook 6509.2, Community Planning and Development
Monitoring Handbook, Exhibit 7-19 advises participating jurisdictions to
monitor subrecipients to ensure that they maintain adequate records to comply
with program requirements such as record retention. Although the activity in
question occurred a number of years ago, the City should monitor the status of
the activities and the subrecipient‟s efforts to close or adjust them.
In addition, there was no agreement between the City and the subrecipient
outlining program requirements. 24 CFR 92.504 (c)(2)(iii) requires that the
agreement between the City and subrecipient comply with Uniform
Administrative Requirements documented in 24 CFR 92.505(a). The
requirements state that 24 CFR Part 85.20, which contains specific source
documentation requirements, applies to participating jurisdictions receiving
HOME funds. By the end of our fieldwork, the City and its subrecipient had
10
established an agreement. However, we did not review the individual
provisions to determine whether the agreement referenced all necessary
provisions or whether they had been implemented.
Conclusion
Failure to enter project completion data into HUD‟s IDIS negatively affects a
participating jurisdiction‟s score on several HOME performance reports,
understating actual accomplishments and reducing the participating
jurisdiction‟s statewide and national overall rankings. The widespread failure
of participating jurisdictions to enter data in a timely manner results nationally
in underreporting of actual HOME program accomplishments to Congress and
the Office of Management and Budget (OMB), which may negatively impact
future funding for the program. In addition, delays in entering project
completion data impact and extend the record retention requirement for the
activities. The subrecipient was unable to support more than $2.2 million in
HOME expenditures in open IDIS activity to demonstrate whether program
funds were spent for eligible activities. The subrecipient acknowledged that
the missing documentation made it more difficult to enter reliable and
accurate data into IDIS to close the activities. If satisfactory project
completion data are not provided, HOME regulations allow HUD to suspend
further project setups or take other corrective actions. According to HUD
regulations, participating jurisdictions are responsible for managing day-to-
day operations of their programs. Therefore, the City must monitor the
subrecipient to ensure that data are complete, accurate, and supported.
Recommendations
We recommend that the Director of HUD‟s Los Angeles Office of
Community Planning and Development
1A. Require the subrecipient to enter project completion information into
IDIS for activities 46, 48, 55, 56, 57, 173, 275, 347, 606, 633, 832,
917, and 1080 and cancel activity 631. In addition, Activities 53 and
810 should be reopened until the subrecipient provides sufficient
documentation to support the draw downs for these activities.
1B. Require the subrecipient to reallocate the remaining balance for
activities 46 ($25,313) and 48 ($3,445) to other current activities
immediately.
1C. Require the subrecipient to support the $2,269,867 drawn from the
U.S. Treasury or reimburse its HOME program from non-Federal
funds.
11
1D. Require the City and subrecipient to establish and implement effective
policies and procedures to ensure that an adequate quality control
system is maintained and required project completion information and
beneficiary data are complete, accurate, entered into IDIS in a timely
manner, and supported.
1E. Require the City to regularly monitor the subrecipient, to ensure that
project data are complete, accurate, timely, and supported.
1F. Require the City to conduct training for subrecipient personnel on
HOME program requirements pertaining to entry of activity
completion data and maintenance of supporting documentation for
HOME projects and activities.
12
Finding 2: The Allocation of HOME Salaries and Wages Did Not
Comply With OMB Circular A-87
The City‟s method of allocating program salaries and wages to the HOME program was not
supported by employee timesheets breaking out time spent on each program as required by
OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments,
Attachment B, Selected Items of Cost, Paragraph 8, Compensation for Personal Services.
The City‟s noncompliance was due to its lack of understanding of the OMB time
documentation requirements. As a result, there was no assurance that these charges were
accurate.
Time Charged to Program
Based on Predetermined
Estimates
We identified $61,959 in salaries and wages that was charged to the HOME
program using transaction listings from July 2008 through December 2010.
The City and its subrecipient prepared annual budgets that estimated the
percentage of time their employees were expected to work on various
programs during the year, including the HOME program. The percentages
were then entered into the City‟s accounting system annually to calculate the
amounts that were allocated to the program. The budget estimates did not
reflect all of the staff working on the programs and were not regularly updated
to reflect changes that may have occurred during the year to the number of
staff members working on programs or their work assignments. However,
OMB Circular A-87, Attachment B, Selected Items of Cost, paragraphs 8
(h)(4) and (5), states that when employees work on multiple activities, time
worked must be supported by personnel activity reports or equivalent
documentation. Budget estimates or other distribution percentages
determined before services are performed do not qualify as support for
charges to Federal awards (see appendix E).
The City used the same methodology to charge HOME program salaries
during fiscal years 2008-09 and 2009-10. The City‟s 2008 and 2009 single
audit reports contained a finding which stated that personnel costs allocated to
the HOME program were not supported by personnel activity reports or
equivalent documentation. Since then, the City had attempted to obtain
compliance by distributing sample timecard formats to each department.
However, full compliance had not yet occurred.
13
Distribution of Time Worked
Not Reflected on All Employee
Timesheets
Our discussions with City and subrecipient management confirmed that
employees worked on more than one program. We sampled timesheets for
fiscal years 2009 through 2011 and found that not all employees identified
time worked by program. As a result, there was insufficient documentation to
determine whether the amounts charged to HOME funds were reasonable
compared to the actual hours spent on HOME activities.
City Maintained Annual
Administrative Cap Not
Exceeded
The City maintained that although it used annual budgeted estimates, it still
did not exceed the 10 percent HOME program funding cap that it is allowed to
charge annually. The City explained that an accountant reviewed total
administrative program charges near the end of the fiscal year and made
adjustments to the total, charging any amounts exceeding the cap to the City
or its subrecipient. Regulations at 24 CFR 92.207 allows a participating
jurisdiction to charge up to 10 percent of the HOME formula allocations for
administrative costs such as necessary salaries, wages, and related costs, and
the City did not exceed this threshold. However, 24 CFR 92.505(a) requires
the charges to be supported in compliance with OMB time and attendance
records requirements.
Conclusion
The salaries of the City‟s employees were not properly tracked and charged to
the HOME program in compliance with OMB Circular A-87. The charges
were based on annual, predetermined percentages, which do not qualify for
support for charges to Federal awards. This was due to the City‟s lack of
understanding of OMB Circular A-87 time documentation requirements. As a
result, the City needs to discontinue its method of allocating salaries and
wages and replace it with a method that is based on the actual time charged by
its personnel as required by OMB Circular A-87. The City should also
conduct regular monitoring to ensure that the subrecipient maintains the
appropriate time distribution records and makes appropriate charges to its
HOME program.
14
Recommendations
We recommend that the Director of the Los Angeles Office of Community
Planning and Development
2A. Require the City to support or repay from non-Federal funds the
$61,959 in salaries and wages charged to the HOME program between
July 2008 and December 2010.
2B. Require the City and its subrecipient to establish and implement a
timekeeping methodology that accurately reflects charges made to the
program and written policies and procedures to ensure compliance
with OMB Circular A-87.
2C. Require the City to conduct regular monitoring of its subrecipient to
ensure that appropriate time distribution records are maintained.
15
Finding 3: Home Buyers‟ Income Eligibility Was Not Adequately
Determined, Affordability Requirements Were Not
Maintained, and Key Agreement Provisions Were Not
Documented
The City‟s subrecipient did not ensure that income for 13 HOME program participants was
determined and supported in accordance with program requirements. Also, the subrecipient
did not ensure that HOME-assisted properties met the required affordability period or that
funds were applied to the property. Finally, written agreements with participants did not
contain clear affordability provisions to document the disposition of assisted properties if
they no longer remained in the properties. This condition occurred because the subrecipient
lacked the necessary procedures and controls regarding the administration of the program.
As a result, ineligible persons received assistance, and HOME affordability objectives were
not met.
Income Eligibility Not Always
Determined or Supported in
Accordance With HOME
Requirements
Our review of 13 loan participant files disclosed that 2 participants that
received assistance to purchase homes did not meet the definition of a low-
income family as defined by 24 CFR 92.2. The HOME program requires
HOME funds to be targeted to households that are low and very low income.
However, the participants had incomes that exceeded 80 percent of median
income for the area, as determined by HUD. The two home buyers were
inappropriately qualified using 120 percent moderate income limits, which
was not applicable to the HOME program. The home buyers received a total
of $193,420 in HOME downpayment assistance. Because the two
participants‟ income exceeded the allowable limit, they were ineligible to
participate in the program and should not have received assistance.
In addition, income for participants was not determined in accordance with
HOME Income Eligibility requirements documented in Chapters 1 and 2 of
the Technical Guide for Determining Income and Allowances for the HOME
program (see appendix C).
Ten participant files did not indicate what income definition was used
to qualify participants, and the subrecipient did not have written
policies
16
and procedures at that time to otherwise identify which income
definition was used.3
Seven participant files did not contain the minimum amount of
documentation needed to make a complete assessment of income.
Four home buyers‟ incomes were incorrectly calculated. The
frequency of two home buyers‟ pay was not correctly determined,
causing income to be incorrectly calculated. The income
determinations for the third and fourth home buyers did not consider
all pay documentation in their files.
Overtime income for four participants was not separately analyzed for
continuance.4
With the exception of two participants wrongfully qualified for assistance
(above), we recalculated the remaining incomes and determined the
participants to be eligible to receive assistance.
HOME Affordability
Requirements Not Met and Not
Clarified in Written
Agreements
We confirmed that one property of six reviewed had been foreclosed on and
was no longer owned or occupied by the HOME-assisted participant. The
property was purchased in September 2006 with $100,000 in HOME
assistance. It was sold to a banking institution in November 2009 and
purchased by new owners in September 2010 with no recovery of the HOME
investment. According to 24 CFR 92.254 (a)(4), if more than $40,000 in
assistance is provided, the property must remain the principal residence of the
family for a minimum of 15 years; otherwise, the participating jurisdiction
must repay the HOME investment (see appendix E). This requirement is
applicable to termination of affordability restrictions due to foreclosure or
transfer in lieu of foreclosure. HOMEfires Policy Newsletter Volume 5, No.
2, June 2003, states that participating jurisdictions should regularly review
projects and intervene before default. If the property goes into default, the
participating jurisdiction must work with the project owner and primary
lenders to maintain the project as affordable housing throughout the
affordability period or the participating jurisdiction must repay the HOME
account.
3
The HOME program requires participating jurisdictions to use one of three definitions of annual income to
determine income eligibility of applicants (annual income as defined by 24 CFR 5.609, annual income as
reported by the U.S. Census long form, or adjusted gross income as defined by the Internal Revenue Service
Form 1040).
4
Chapter 2 of the Technical Guide for Determining Income and Allowance for the HOME program requires
earned overtime to be analyzed to determine whether the income will continue to be a regular part of the
participant‟s income.
17
However, the written agreement for the HOME assisted purchase of the
property did not clearly specify whether the property would be resold to
another eligible low-income participant or whether the City would recapture
all or a portion of the HOME investment in the event that the participant did
not remain in the property. HOMEfires, Volume 5, No. 5, November 2003,
states that either resale or recapture provisions must be selected at the time
assistance is provided. However, the home-buyer agreements contained
language pertaining to both resale and recapture options and did not clearly
state which recovery method would be used to ensure that the property
remained affordable.
One Property Never Occupied
by Owner
We confirmed that another property was never occupied by the home buyer.
The subrecipient told us that the loan was cancelled. However, the $125,329
in HOME funds that was drawn to fund the purchase was not cancelled in
IDIS or used to fund other eligible activities. In addition, the check was
outstanding for 2 years. Since our inquiry, the subrecipient had taken steps to
reallocate the $125,329 to other activities. However, the funds remained
unused for nearly 2 years, and a balance of $72,397 in drawn funding
remained listed as available in IDIS. HOME requires repayment of drawn
funds, plus applicable interest, not expended within 15 days, to the U.S.
Treasury account of the HOME Investment Trust Fund.
Annual Recertifications Not
Timely and Accurate
The annual recertification letter provided by the subrecipient was dated 3
years after the initial property purchase for the foreclosed-on property. In
addition, 3 annual recertification letters were sent to the property address of
the cancelled home buyer who never occupied the property.
All HOME Provisions Not in
Agreements
Ten agreements for homeowners and home buyers assisted between fiscal
years 2006-07 and 2008-09 did not contain all minimum required HOME
provisions documented in 24 CFR 92.504(c)(5)(see appendix D).
Two homeowner agreements did not describe the rehabilitation work
to be undertaken. Files contained many bid proposal forms but did not
18
incorporate a final bid or estimate in the agreement. In addition,
specific property standards were not detailed, and the estimated value
of the assisted property after rehabilitation was not included in the
agreement.
Eight home-buyer agreements did not include a deadline for
acquisition of the assisted housing and did not identify the assisted
housing as low-income. An assessment to determine whether the
assisted property exceeded the 95 percent of median purchase price for
the area was included in the file but not incorporated into the
agreement.
Seven home-buyer agreements included both resale and recapture
provisions and did not specify which option would be used to ensure
continued affordability of the assisted property.
Amounts of assistance identified on the agreements were inconsistent
and sometimes varied greatly from the actual amount of assistance
provided, as reflected in IDIS. The actual amount of assistance
provided to one participant was $49,690. However, the agreements in
the file stated that the participant would receive a maximum of
$25,000.
Conclusion
Income determinations performed for 13 home buyers did not always comply
with HOME program requirements, and HOME long-term affordability
requirements were not met. In addition, HOME funds remained unused and
were not available to fund other eligible HOME activities for nearly 2 years.
The subrecipient lacked the necessary procedures and controls to assist in
making income determinations, to maintain affordability, and to ensure that
HOME funds were used in an effective and timely manner. Most of the
deficiencies occurred during the City‟s fiscal years 2006-07 through 2008-09,
when the subrecipient did not have written policies and procedures for its
HOME program. Since that time, a written procedure had been established,
and loans issued after that timeframe contained fewer errors. However, the
HOME account must be reimbursed for the two ineligible participants and the
foreclosed-on property that did not maintain affordability. The subrecipient is
also required to reimburse the HOME account for the remaining loan balance
for the property that was never occupied by the home buyer. Since HOME
funds were drawn but not expended within the required 15-day timeframe,
interest, if applicable, would also be due.
Recommendations
We recommend that the Director of HUD‟s Office of Community Planning
and Development require the City to
19
3A. Repay from non-Federal funds $193,420 for two households that were
wrongfully qualified for assistance (see appendix C, loans 3 and 4).
3B. Repay to the HOME account $100,000 for the foreclosed-on property
for which HOME affordability requirements were not maintained.
3C. Repay to the HOME account the remaining $72,397 balance of the
cancelled $125,329 loan, plus applicable interest, for which HOME
funds were drawn but not expended within the required 15-day
timeframe. The $52,932 reallocated to other activities based on Office
of Inspector General (OIG) inquiries is considered funds put to better
use.
3D. Establish and implement procedures and controls to assist in
preventing future instances of noncompliance with HOME income
determination, affordability, and written agreement requirements.
20
Finding 4: Funds Were Not Expended for Eligible Costs Within 15
Days of Drawing Down Funds From the U.S. Treasury
The City and subrecipient did not, in a timely manner, reallocate HOME funds withdrawn
from the U.S. Treasury to other activities after program expenses were cancelled. This
occurred because their procedure of drawing down funds to reimburse the City for HOME
expenses was inadequate to ensure that the program funds were expended for eligible costs
within 15 days of drawdown. Therefore, the subrecipient may continue to draw down and
hold HOME funds instead of using them for eligible expenses, increasing the risk the City
may earn interest on HOME funds and not remit it to HUD.
Voucher Revision Delays
The City‟s subrecipient drew down HOME funds, on a reimbursement basis,
after the City had paid for the program expense. This process should ensure
that any HOME funds drawn down from the City‟s U.S. Treasury account are
expended for eligible costs within 15 days as required by 24 CFR 95.502(c)(2)
(see appendix E).
Although the funds were drawn immediately or shortly after a check was
issued for the program expense, the check had not necessarily cleared. As a
result, in the case of unforeseen obstacles such as a voided check or a property
falling out of escrow, the City and the subrecipient may not have become
aware of this situation and reallocated the voucher to another eligible expense
within the 15-day timeframe.
The two vouchers we reviewed demonstrated that it could take as many as 343
days to successfully reallocate a voucher to eligible costs after initial
drawdown. In one case, the City issued a check for $115,969 for a first-time
home buyer applicant on April 13, 2009, and program funds were drawn down
from the U.S. Treasury and deposited into the City‟s bank account on April
29, 2009. The City voided the original check on June 1, 2009, and ultimately
reallocated the funds to multiple activities between September 2009 and April
7, 2010, which was 153 to 343 days after final draw, far exceeding the 15-day
requirement. In addition, $85 remained unexpended as of April 1, 2011, 702
days after the draw, although it was reflected in IDIS as reallocated.
Although it was the City‟s and subrecipient‟s practice to reallocate the funds
to other activities, HUD regulations require any funds that are drawn down
and not expended for eligible costs within 15 days of the disbursement to be
returned to HUD for deposit into the participating jurisdiction‟s U.S. Treasury
account.
21
Therefore, the City and subrecipient need to revise their procedures and
controls to ensure that HOME funds exceeding the 15-day expenditure period
are immediately returned to HUD for deposit into the U.S. Treasury account.
Interest Earned on Delays
HUD regulations allow for the participating jurisdiction to retain any interest
earned on program funds drawn from the U.S. Treasury within the 15-day
expenditure period. However, any interest earned after 15 days belongs to the
United States and must be remitted promptly to HUD. Therefore, by not
expending its HOME funds within 15 days of drawdown, the City may have
earned interest on HOME funds, which it may not have remitted to HUD.
In the case of the specific vouchers reviewed, the funds were either in the
City‟s non-interest-bearing account, or the City did not earn interest on its
interest-bearing accounts during the periods in question due to insufficient
fund balances. Therefore, the City did not earn interest on those funds;
however, this may not be the case with future revisions.
Conclusion
The City and subrecipient did not reallocate HOME funds to other eligible
activities in a timely manner after they were cancelled. Their procedure was
inadequate to ensure that funds were expended for eligible costs within 15
days of draw down from the U.S. Treasury. Therefore, the City and
subrecipient may continue to draw down HOME funds and hold them for
extended periods instead of returning them to HUD, increasing the risk that
the City may earn interest on HOME funds and not remit it to HUD.
Recommendations
We recommend that the Director of HUD‟s Los Angeles Office of
Community Planning and Development
4A. Require the City and subrecipient to establish and implement effective
policies and procedures to ensure that the subrecipient expends funds
for eligible costs within 15 days of drawing down funds from the U.S.
Treasury or returns the funds to HUD.
4B. Require the subrecipient to reallocate the $85 outstanding for voucher
1666597 to an eligible HOME expense and immediately remit any
accrued interest to HUD.
22
Finding 5: Program Income Was Not Processed in Accordance With
HOME Requirements
The City and its subrecipient had a $220,772 discrepancy in the program income balance. In
addition, the City did not record interest on program income funds as program income
received, and the City‟s subrecipient‟s methods of processing program income did not ensure
that the City disbursed program income before making cash withdrawals from the U.S.
Treasury. This problem is due to the City‟s and its subrecipient‟s lack of understanding of
HOME requirements, a lack of adequate policies and procedures, and infrequent monitoring.
Therefore, additional program income may have been attributable to the program, and there
is a risk that entitlement funds will be expended before program income.
Program Income Balance
Discrepancy
As of December 2010, the City‟s accounting records indicated that there was
$220,772 in program income remaining to be used, while its subrecipient and
IDIS indicated that there was no available program income. 24 CFR
92.508(a)(5)(iv) set forth that each participating jurisdiction must establish
and maintain sufficient records to enable HUD to determine whether the
participating jurisdiction has met its requirements, which include financial
records demonstrating adequate budget control and evidence of periodic
account reconciliations (see appendix E). However, the City did not regularly
perform complete account reconciliations with its subrecipient, increasing the
risk that the subrecipient might not report all program income to IDIS and the
City would ultimately expend entitlement funds before program income.
A 2008 single audit finding stated that the City had not accurately reported
receipt of program income and did not accurately record it in the City‟s
financial records and in IDIS. In approximately February 2009, the
subrecipient started updating its program income within IDIS. According to
the subrecipient, it reconciled program income receipts in the City‟s general
ledger with program income entries within IDIS and added adjusting entries
as necessary. Previously, subrecipient staff had not realized that program
income needed to be entered into IDIS and, therefore, only maintained
internal program income logs to track the amount of program income
obtained.
We found other discrepancies between the accounting department‟s
spreadsheet and the information entered into IDIS. Most of the discrepancies
arose from the accounting department‟s practice of recording cancelled
23
HOME expenditures as program income if HOME funds had already been
drawn down from IDIS.
Since the subrecipient was revising the voucher and not entering it into IDIS
as program income, the process automatically created a discrepancy between
the City‟s and subrecipient‟s records. As a result, the City risked reporting
inaccurate program income totals. Therefore, the City needs to implement
alternate methods of tracking these amounts. However, our review of these
items did not explain the December 2010 discrepancy of $220,647.5 Until the
City can explain how that discrepancy arose, we have to conclude that the
subrecipient did have an additional $220,647 unrecorded program income
available for use.
Interest on Program Income
Not Recorded
The City did not record interest allocated on program income funds as
program income received, as required by 24 CFR 92.2, Definitions, and CPD
Notice 97-9, Section III.A. In response to a finding in its 2008 single audit
report, the City developed procedures to ensure that interest income received
was allocated equitably to the HOME general ledger fund account. The City
allocated interest to HOME funds for fiscal year 2008 through July 2009,
totaling $56,853. Although a portion of this interest was earned on City funds
that had been drawn from the U.S. Treasury to reimburse the City for HOME
expenses it had already incurred, the remaining portion of the interest was
earned on $463,010 in program income that was maintained in the City‟s
interest-bearing account at various points since fiscal year 2008. Although the
City initially deposited HOME program income into its non-interest-bearing
account, it then moved the program income to its interest-bearing account.
However, the City did not record the interest earned on the program income as
additional program income, as it incorrectly considered everything in the
interest-bearing account as City funds. HUD regulations state that program
income includes interest earned on program income. The city controller‟s
staff agreed that program income was going into the interest-bearing account
and that the balance was not only representative of HUD reimbursements.
Therefore, a portion of the $56,853 total interest allocated to HOME general
ledger account funds should have been recorded as available program income
received and available for eligible HOME program activities.
5
We identified two transactions, totaling $125, missing from the City‟s spreadsheet that reduced the
discrepancy balance to $220,647.
24
Program Income Procedures
Increasing Risk to Program
The subrecipient‟s methods of processing program income did not ensure that
the City disbursed program income to pay HOME program costs before
making cash withdrawals from the U.S. Treasury. The subrecipient‟s method
included
The subrecipient‟s consultant provided notification when there was a
“large balance” of program income. The subrecipient completed a
substantial amendment identifying what activities it would apply its
program income to, which was presented to the city council. Prior
substantial amendments totaled $2 million, $1.2 million, and $93,926
in accumulated program income, which was then incorporated into the
budgets for fiscal years 2006-2007, 2008-2009, and 2010-2011,
respectively.
The subrecipient notified the consultant of the city council-approved
activities to fund.
The consultant funded those activities until the program income was
all committed.
24 CFR 92.504(c)(2)(vi) states “Program income must be disbursed before the
subrecipient requests funds from the participating jurisdiction.” CPD Notice
97-9, Section III.E explains, “A participating jurisdiction may not draw down
HOME allocation funds while allowing program income to accumulate in its
local account. Available program income must be used to pay the next
eligible program cost (or portion thereof).” In addition, 24 CFR 92.502(c)(3)
states, “HOME funds in the local account of the HOME Investment Trust
Fund must be disbursed before requests are made for HOME funds in the
United States Treasury account.” However, the subrecipient‟s method
increased the risk that entitlement funds would be drawn from the U.S.
Treasury when program income was available, either because the subrecipient
accumulated the program income for a substantial amendment or the funds
were later committed to specific activities.6 Once the subrecipient committed
the program income to an activity, it did not reallocate and commit the
program income to another activity even if that activity needed a disbursement
of funds before the originally committed activity. Therefore, although the
subrecipient ensured that it committed program income before committing
entitlement funds, it did not ensure that it disbursed program income before
drawing funds from the U.S. Treasury.
CPD Notice 97-9, Section III.B states that the participating jurisdiction must
be able to reasonably predict anticipated program income during the next
6
We did not test for or identify instances of these issues occurring in the past.
25
program year. Thus, the participating jurisdiction's financial management
system should enable the participating jurisdiction to track program income
receivable.
According to HUD, most cities add anticipated program income to their
allocation of entitlement funds and identify how they are going to spend the
overall balance, which allows them to use program income as needed.
However, the City did not consistently record estimated program income in its
annual action plans. In fiscal year 2011, the City estimated no program
income for all programs, despite having regular sources of program income
and annually accruing significant program income in the past. When the City
estimated program income, such as for fiscal years 2009 and 2010, the action
plan specified which projects and programs the income would be allocated to,
instead of including that amount in its total allocation available for the year
and allowing the City to use the funds as needed.
Conclusion
The City and subrecipient did not process program income in accordance with
HOME requirements because they lacked an understanding of HOME
requirements. The City lacked adequate policies and procedures, and no
recent monitoring had been performed to identify discrepancies between the
City‟s and the subrecipient‟s records. As a result, there may have been
additional program income due to the program, and the City risked drawing
entitlement funds before disbursing all program income.
Recommendations
We recommend that the Director of HUD‟s Los Angeles Office of
Community Planning and Development
5A. Require the City to reconcile the accounting department‟s program
income spreadsheet to the subrecipient‟s program income logs to
determine the origin of the $220,647 discrepancy and make any
necessary adjustments to program income in IDIS.
5B. Require the City to track entitlement funds that have been drawn for
cancelled activities separately from program income.
5C. Require the City to determine the amount of interest applicable to
program income while in the interest-bearing account and record it as
program income funds in IDIS.
26
5D. Require the City and subrecipient to establish and implement effective
policies and procedures to ensure that the City disburses program
income to pay HOME program costs before making cash withdrawals
from the U.S. Treasury.
5E. Require the City and its subrecipient to obtain training on HOME
program requirements pertaining to tracking and recording of program
income.
5F. Require the City to conduct regular monitoring to identify and resolve
discrepancies among program income records.
27
SCOPE AND METHODOLOGY
We performed our onsite audit work at the City, located in Compton, CA, between August
2010 and March 2011. Our audit generally covered the period July 2006 through June 2010.
To accomplish our audit objectives, we reviewed
IDIS Report C04PR22, Status of HOME Activities, covering program years 1993
through 2010 to determine whether activities were supported with adequate
documentation and to determine whether completion data was entered into IDIS
within the required timeframe. After reviewing the City‟s IDIS Draw Down policies
and procedures and verifying selected IDIS data in Line of Credit and Control System
(LOCCS) reports, we determined the data was reliable for our use during the audit.
We obtained the following information regarding the 27 activities identified with a
status of “final draw” (20) or “open” (7):
Twelve “final draw” and 3 “open” activities exceeded HUD‟s 120-day
deadline for entering completion data into IDIS.
15 “final draw” activities had funds that were partially drawn down, and had
no activity for more than 6 months.
Nine of the 15 had commitment dates between 1993 and 1999 and did not
clearly identify what type of activity was funded. We selected those nine
activities for further review. In addition, we selected one additional activity
for further review because it was reopened after the final draw down.
IDIS Report C04PR09, Program Income Detail Report, as of December 2010, to
assist in determining whether the amount of program income identified in the City‟s
accounting records agreed to amounts reported in IDIS and to determine proper
allocation of interest income. We further reviewed two reconciling amounts to
determine if the funds were expended for eligible costs within HUD‟s 15-day
timeframe.
FYs 2008-09, 2009-10, and 2010-11 Departmental Budgeted Estimates and tested 34
corresponding timesheets for 6 employees who work on the HOME program to
determine whether the employees were reflected on the estimates and to determine
whether the employees were identifying time worked by program as required by
OMB Circular A-87.
A nonstatistical sample of 13 loans out of a universe of 72 loans (35 home buyer and
37 homeowner). Ten of the loans were issued during the City‟s fiscal years 2006-07
through 2008-09, and 3 were issued during fiscal years 2009-10 and 2010-11. Our
sample primarily included loans that were issued during the timeframe of the citizen
complaint (the City‟s fiscal year 2008-09) and loans where applicants‟ income
appeared to exceed the HUD income limit. Our results apply to the items selected
and were not projected to the entire universe of loans.
The ten written agreements for homeowners and home buyers assisted between fiscal
years 2006-07 and 2008-09.
28
Public search information for the 35 home buyer loans and selected 6 who were no
longer listed as owners of their assisted properties for further review.
Applicable HUD regulations, including 24 CFR Part 92; HOME Investment
Partnerships Program Final Rule; 24 CFR Part 85; Administrative Requirements for
Grants and Cooperative Agreements to State, Local, and Federally Recognized Indian
Tribal Governments; and OMB Circular A-87, Cost Principles for State, Local, and
Indian Tribal Governments.
The City and subrecipient‟s internal policies and procedures, including HOME
program and financial procedures related to administration of the program.
Transaction listings for the City‟s fiscal years 2007-08 through 2009-10.
The City‟s single audit reports for fiscal years 2008 and 2009.
The City‟s 2008-09 through 2010-11 action plans and fiscal years 2005-2010 and
2010-2014 consolidated plans. We also reviewed fiscal years 2008-09 and 2009-10
consolidated annual performance and evaluation reports.
The City‟s 2008, 2009, and 2010 grant agreements.
The City‟s organization charts, agendas, meeting minutes, and resolutions.
2008 HUD program review letter and 2009 and 2010 HUD monitoring reports.
We also interviewed appropriate HUD, City, and subrecipient management and staff.
We conducted the review 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 objective. We believe that the evidence obtained provides a reasonable basis for our
finding and conclusion based on our audit objective.
29
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
objective:
Policies and procedures to ensure that program activities meet
established objectives.
Policies and procedures to ensure that program activities comply with
applicable laws and regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a
control does not allow management or employees, in the normal course of
performing their assigned functions, the reasonable opportunity to prevent,
detect, or correct (1) impairments to effectiveness or efficiency of operations,
(2) misstatements in financial or performance information, or (3) violations of
laws and regulations on a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant
deficiencies:
The City did not have sufficient policies and procedures to ensure that
Funded activities were supported with adequate documentation
(finding 1).
30
Program activities complied with program requirements (findings 2, 3,
4, and 5).
Program objectives were met (finding 3).
31
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported Funds to be
number 2/ put to better
use 3/
1B $28,758
1C $2,269,867
2A $61,959
3A $193,420
3B $100,000
3C $72,397 $52,932
4B $85
5A $220,647
Totals $365,817 $2,552,473 $81,775
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. These costs consist of the HOME assistance provided
to two home buyers who did not meet program income requirements, plus HOME
funds that were used for a cancelled activity and a property that did not maintain
affordability.
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. These costs include HOME
activity expenditures and program salaries and wages for which documentation was
not sufficient to support eligibility. In addition, the $220,647 discrepancy is
considered unsupported until the City and subrecipient reconcile their program
income records.
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. The $28,758 in outstanding committed funds will result in funds put to
better use when reassigned to other activities. Also, the $52,932 reassigned from a
32
cancelled activity to other HOME activities as a result of our audit is considered
funds to be put to better use. Finally, the $85 should be reallocated to another eligible
expense.
33
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
34
Comment 2
Comment 1
35
Comment 3
Comment 4
Comment 5
36
Comment 6
Comment 7
37
Comment 8
Comment 8
Comment 9
Comment 10
Comment 11
Comment 12
Comment 13
Names were redacted for privacy reasons.
38
Comment 14
39
Comment 15
40
OIG Evaluation of Auditee Comments
Comment 1 The OIG disagrees that the recommendation to HUD requiring the
subrecipient to support or repay over $2 million in HOME funds withdrawn is
unreasonable. 24 CFR 92.508(a)(3) outlines specific recordkeeping
requirements for HOME assisted projects. The criteria states that project
records must provide a full description of each project assisted with HOME
funds, including the location, form of HOME assistance, and the units or
tenants assisted with HOME funds. In addition, project records must show the
source and application of funds, including supporting documentation in
accordance with 24 CFR 85.20. The projects discussed in our report are still
considered by HUD to be open activities, as they either had a status of “open”
or “final draw” and had not been recorded as completed in HUD‟s Integrated
Disbursement and Information System (IDIS). Therefore, the subrecipient
was obligated to retain records through the applicable period commencing
after project completion as outlined in 24 CFR 92.508 (c ). Whether or not
the transactions initially occurred when the City or its subrecipient had
different management has no bearing on the City and subrecipient‟s
responsibility to maintain supporting documentation. In addition, HUD
advised the City in June 2008 and May 2009 to review its “HOME PJs Open
Activities Report” to identify open activities in IDIS that needed to be closed
or cancelled.
Comment 2 The OIG acknowledged in the report that HUD performed monitoring reviews
of the City‟s HOME program, and has since closed out the findings and
deficiencies discussed in its monitoring report. We also acknowledged that
our review of more recent loans issued during the City‟s fiscal years 2009-10
and 2010-11, revealed that the subrecipient‟s income verification process had
improved. However, this statement was meant to apply to the recent
improvement in the subrecipient‟s income eligibility determination process,
not to other aspects of the HOME program. We found other deficiencies
during our review including a property that did not maintain affordability and
funds that were drawn and remained outstanding for a homebuyer who did not
occupy the property. The deficiencies in these areas were due to a lack of
procedures and controls to ensure that only eligible persons received
assistance (loans issued during the City‟s fiscal years 2006-07 through 2008-
09), and that HOME affordability objectives were met. We therefore
recommend the subrecipient obtain training in the areas where deficiencies
still exist, including timely entry of activity completion data and maintenance
of adequate supporting documentation (Finding 1) and tracking and recording
of program income (Finding 5).
Comment 3 The OIG took care to ensure that all roles and responsibilities of the relevant
parties were clearly and specifically identified. The report does not contain
“generalizing statements” regarding the subrecipient‟s performance. If the
City had responsibility for a particular transaction, we identified it as such.
41
Accordingly, if the subrecipient was responsible, we identified it as the
responsible party. This is particularly evident in Findings 4 and 5, where the
roles that the City and the subrecipient played with regard to deficiencies in
drawing down funds and processing program income are discussed in detail.
Comment 4 The OIG ensured that all findings were based on the evidence that was made
available by the auditee. Although the unsupported costs span back to prior
years, the lack of support is not solely the responsibility of or due to inaction
of previous administrations, as the subrecipient‟s response contends. Written
HUD communications show that the subrecipient was notified of open
activities in IDIS as recently as 2008 and 2009, which was under the current
administration (see Comment 1). In addition to a lack of documentation to
support charges made in IDIS, we found deficiencies in other areas including
lack of timeliness for expenditure of HOME funds and processing of program
income. The foregoing deficiencies existed under the current administration
and have not been rectified as the response states.
Although the subrecipient had begun the process of cleaning up activities
within HUD‟s IDIS system, the process was far from complete. OIG
reviewed the additional documentation provided by the subrecipient after the
completion of fieldwork; however, the documentation only supports an
additional $234,254 of the $2,504,121 million previously reported as
unsupported. Accordingly, we reduced our total unsupported amount to
$2,269,867. Much of the documentation provided could not be reconciled to
the amounts charged to the activities, as it either far exceeded the amounts
identified in IDIS or were far less, with no documentation linking the
expenditures to the activity numbers in question. In other cases, information
indicated that the documentation actually applied to different activity
numbers. We also noted that Activities 53 and 810 had been changed to a
“completed” status in IDIS after the completion of audit field work. However,
the documentation provided did not support this change in status. The
subrecipient also stated that Activity 631 should not be cancelled, and
documentation showed expenditures had been made under this activity.
However, the support did not substantiate that the activity should remain
open, as the same documents had also been provided as the support for
Activity 53. The subrecipient will need to continue its cleanup process to
reconcile inconsistencies and to fully support the charges that were made in
IDIS.
Comment 5 The OIG acknowledges that subrecipient staff was in the process of
researching and closing out its open activities in IDIS. However, activities
917 and 1080 showed a status of “final draw” on HUD‟s IDIS Report
C04PR22, Status of HOME Activities (Entitlement). The last draws for these
activities were completed in November 2009 and February 2010, respectively.
24 CFR 92.502(d)(1) states that “complete project completion information
must be entered into the disbursement and information system, or otherwise
42
provided, within 120 days of the final project drawdown. If satisfactory
project completion information is not provided, HUD may suspend further
project set-ups or take other corrective actions.” Although neither activity is
complete, the subrecipient should expedite its process as necessary to ensure
this information is entered as soon as possible.
OIG disagrees that the subrecipient has submitted adequate source
documentation to “validate and substantiate” the $2.3 million in unsupported
charges in IDIS (see Comment 4).
The subrecipient‟s response stated it provided a copy of its HOME Policies
and Procedures Manual to OIG. Further, it stated that the manual was
reviewed and edited by various consultants from the HUD Los Angeles Field
Office, and that the manual includes a 10 percent retention to be withheld
from projects until completion. However, this does not appear to address the
lack of timely entry of completion data for open projects identified in our
report; nor does it address the lack of adequate documentation to close out the
projects in IDIS or support project expenditures. The subrecipient should
ensure that its policies and procedures are amended to include measures to
address these issues.
In consideration of points brought forward by the subrecipient during the exit
conference we have removed recommendation 1G.
Comment 6 The OIG acknowledges the subrecipient is attempting to provide the necessary
documentation to support salaries and wages charged to the HOME program.
However, as stated in the report and in subsequent discussions, budget
estimates do not comply with OMB Circular A-87 requirements, which state
that time worked must be supported by personnel activity reports. Budget
estimates are unallowable for time worked charged to federal awards. The
estimates used by the City also lack accuracy, as they do not include all
personnel who work on the HOME program. Only actual time records
evidencing hours worked along with supporting salary and wage computations
will comply with OMB Circular A-87 requirements.
Comment 7 We disagree with the subrecipient‟s response. The HOME program
participant referenced in our report did not remain in the assisted property for
a minimum of 15 years as required for HOME assistance over $40,000 (see 24
CFR 92.254 (a) (4)). The agreement for the homebuyer did not clearly
specify which option, resale or recapture, would be exercised in the event the
participant did not remain in the property for the required time period.
Further, the conclusions and recommendations of past reviews, whether from
HUD or another entity, do not pertain to conclusions and recommendations
obtained during our review, as the basis, scope, and approach of our audits
vary significantly from HUD reviews. Our audit report does state the
subrecipient‟s performance recently improved with respect to its income
43
verification process for participants. However, this statement does not apply
to other areas reviewed and does not negate the fact that the assisted property
did not fulfill the affordability requirement of 24 CFR 92.254(a) (4).
Comment 8 The $193,420 was used to fund loans for two participants whose incomes
exceeded the 80 percent HOME income limit. Therefore, the funds must be
repaid, as they were used for ineligible HOME activities. The participants
were qualified using a higher moderate income limit of 120 percent. The
subrecipient‟s response states that HOME funds were used due to incorrect
coding of the transaction. However, inter-office correspondence found in
each of the files states that the applicants were qualified using 120 percent
income limits and that HOME funds should be used to fund the respective
loans.
Comment 9 The $100,000 that was used to assist the foreclosed property should be repaid
because the property did not meet HUD‟s affordability requirement. HOME
regulations at 24 CFR 92.254(a)(4) state that HOME-assisted housing must
meet affordability requirements for at least 15 years if assistance exceeded
$40,000. 24 CFR 92.503(b)(1) states “any HOME funds invested in housing
that does not meet the affordability requirements for the period specified in
92.252 or 92.254, as applicable, must be repaid by the participating
jurisdiction in accordance with paragraph (b)(3) of this section.”
The subrecipient‟s response indicates the funds should not have to be repaid
due to the net proceeds limitation available under the recapture option. The
criteria states “that the amount of HOME funds subject to recapture should be
based on the amount of net proceeds (if any) from the foreclosure sale” and
that “in the event of foreclosure sale where net proceeds are zero, the HOME
subsidy cannot be recovered.” There are several problems with the
subrecipient‟s use of the criteria. First, the agreement between the
homebuyers and the subrecipient did not specify which of the two options,
resale or recapture, would be used should the homebuyers fail to occupy the
property throughout the required affordability period. The agreement
contained language pertaining to both resale and recapture options. Second,
the City‟s 2006-2007 Action Plan, which covered the time period of the loan,
references resale restrictions, not recapture. Third, if the recapture option
applied, the only way that the City would be limited to net proceeds (if any) is
if it had specifically stated this in the agreement with the homebuyers (see
HOMEfires, Volume 5, No. 2, June 2003, “Homebuyer Housing with a
Recapture Agreement”). However, since the homebuyer agreement did not
clearly specify a method of recovery, including a limitation to net proceeds,
the City is required to repay the $100,000 HOME investment.
Comment 10 The criteria referenced in the report, 24 CFR 92.254(a)(4), is contained in the
HOME Investment Partnerships Program Final Rule, 24 CFR Part 92, dated
44
September 16, 1996, and updated through December 22, 2004. Therefore, the
requirement existed prior to the referenced 2006 loan. We also verified the
existence of the criteria in the 2005 and 2006 versions of the Code of Federal
Regulations. Therefore, OIG is not punitively applying the rule retroactively
against the City.
Comment 11 In addition to adding 24 CFR 92.254(a)(4) to its FY 2011-2012 Annual
Action Plan, the City and its subrecipient should ensure that future agreements
with participants identify which option, resale or recapture, will be used if the
property does not remain affordable. If the City chooses to use the recapture
option, it should ensure that the agreement includes the treatment of any net
proceeds from the voluntary or involuntary sale of the property.
Comment 12 24 CFR 92.502 (c) (2) states “Any funds that are drawn down and not
expended for eligible costs within 15 days of the disbursement must be
returned to HUD for deposit in the participating jurisdiction‟s United States
Treasury account of the HOME Investment Trust Fund. Interest earned after
15 days belongs to the United States and must be remitted promptly, but at
least quarterly, to HUD, except that a local participating jurisdiction may
retain interest amounts up to $100 per year for administrative expenses and
States are subject to the Intergovernmental Cooperation Act (31 U.S.C. 6501
et seq.).” Therefore, the subrecipient must repay the $72,397 balance of the
cancelled $125,329 loan to the HOME account.
Comment 13 The City has not rectified all deficiencies in its administration of the HOME
program. The subrecipient‟s income verification process has improved (as
stated in the report). However, the existence of written policies and
procedures does not mean that the entire program is in compliance with
HOME program rules. During our fieldwork, the subrecipient only became
aware that the homebuyer no longer lived in the foreclosed property after our
inquiries. In addition, annual recertification notices were sent out to verify
continued residency three years after the initial purchase of the property. In
addition, three annual recertification letters were sent to the property address
of the cancelled home buyer who never occupied the property. We do not
consider the recommendation to be “null and void” just because the
subrecipient submitted its policies and procedures manual to OIG, as we
found that some program deficiencies still exist and need to be corrected.
Comment 14 Although the subrecipient submitted it HOME Program Policies and
Procedural Manual to OIG, this does not render OIG‟s recommendation for
the City and subrecipient to establish and implement effective policies and
procedures “null and void.” Further, the subrecipient‟s HOME Manual does
not include guidance covering expenditure of HOME funds within the
required 15-day time period, nor do the City and subrecipient‟s IDIS
Drawdown Policies and Procedures. The vouchers that we reviewed
demonstrated that it could take as many as 343 days to successfully reallocate
45
a voucher to another eligible expense after the initial drawdown. Funds for
one activity were drawn in April 2009; however, the check was voided in June
2009. The funds were reallocated to other activities between September 2009
and April 2010, which far exceeded the 15-day requirement. In addition,
HOME funds that were drawn to assist a homebuyer who never occupied the
property remained outstanding for two years, until OIG inquired about the
status of the funds. Our report never indicated that the funds were used for
ineligible activity, but rather, the funds were not used within the required
timeframe. Accordingly, the subrecipient should establish new procedures or
improve its current procedures to address this issue. Although the
subrecipient states the OIG‟s recommendation should be eliminated, we noted
its response stated its intention to “revise current policies and procedures that
will ensure that checks have cleared the bank for proposed eligible HOME
project prior to requesting a drawdown from the US Treasury.” We agree that
the subrecipient should continue revising its procedures to better ensure that
funds are expended within the required 15-day timeframe. Therefore, the OIG
recommendation will stand.
Finally, as mentioned in the subrecipient‟s response, the $85 was reflected in
IDIS as reallocated to another expense. However, the subrecipient should
coordinate with the Controller‟s office as the City‟s financial transaction
listings reflected the amount was still outstanding at the time of our review.
Comment 15 The City and subrecipient need to resolve the $220,647 discrepancy between
the accounting department‟s spreadsheet and the subrecipient‟s program
income logs and make any necessary adjustments to program income in IDIS.
In addition, the City should ensure that entitlement funds drawn for cancelled
activities are tracked separately from program income. Any interest earned on
program income in interest bearing accounts should be recorded as program
income in IDIS. The City should regularly monitor the subrecipient to
identify and resolve present and any future discrepancies among program
income records.
46
Appendix C
SCHEDULE OF DEFERRED EQUITY AND FIRST-TIME HOME BUYER LOAN
DEFICIENCIES
Annual
income per
Total OIG Income Income 3 months’
Program loan calculation HUD < or = definition income
/loan Funds amount No. in (excluding income HUD used documentation Overtime Correct annual income
Loan no. type committed per IDIS household Overtime) limit limit? identified? in file? analyzed? calculation used?
Deferred equity and first-time home buyer loans (fiscal years 2006-07 through 2008-09)
1 DEL 3/22/2007 $49,690 3 $18,000 $49,900 Y N N N/A Y
2 DEL 8/8/2007 $24,893 3 $20,717 $53,300 Y N N N N
3 FTHB 2/28/2009 $93,530 3 $62,500 $54,600 N N N N/A Y
4 FTHB 2/28/2009 $99,890 1 $48,880 $42,450 N N N N Y
5 FTHB 2/28/2009 $150,000 6 $42,719 $70,350 Y N Y N/A Y
6 FTHB 2/28/2009 $149,909 2 $48,036 $48,500 Y N Y N N
7 FTHB 2/28/2009 $148,564 3 $41,600 $54,600 Y N N N/A Y
8 FTHB 2/28/2009 $125,283 1 $38,304 $42,450 Y N Y N/A Y
9 FTHB 2/28/2009 $144,915 3 $37,098 $54,600 Y N Y N/A Y
10 FTHB 3/2/2009 $125,329 1 $24,232 $42,450 Y N N N N
Fiscal years 2006-07 through 2008-09 total deficiencies (sum of all “N”s 2 10 6 4 3
Sum of all “Y” answers 8 0 4 0 7
Sum of all “N/A” 0 0 0 6 0
First-time home buyer loans (fiscal years 2009-10 through 2010-11)
11 FTHB 10/28/2009 $108,548 2 $45,760 $50,750 Y Y N N/A Y
12 FTHB 1/4/2010 $85,650 2 $50,478 $50,750 Y Y Y N/A N
13 FTHB 7/1/2010 $22,770 2 $23,568 $53,000 Y Y Y N/A Y
Fiscal years 2009-10 and 2010-11 total deficiencies (sum of all “N”s) 0 0 1 0 1
Sum of all “Y” answers 3 3 2 0 2
Sum of all “N/A” 0 0 0 3 0
47
Appendix D
SCHEDULE OF MISSING LOAN AGREEMENT PROVISIONS
Loan Nos.7
Total Total
Required provision 1 2 3 4 5 6 7 8 9 10 Ys Ns
24 CFR 92.504 (c)(5) - Required Provisions in Written Agreements -
Homeowners/Homebuyers
If homeowner agreement, must specify
Amount of assistance Y Y 2 0
Form of assistance Y Y 2 0
Rehabilitation work to be done N N 0 2
Date for completion (if homeowner agreement) Y Y 2 0
Property standards to be met N N 0 2
Must also conform to 24 CFR 92.254(b)(1) & (2) and specify
Housing is principal residence at time of funds commitment. N N 0 2
Purchase price does not exceed 95% of the median purchase price for the area. N N 0 2
If home buyer agreement, must specify
Amount of assistance Y Y Y Y Y Y Y Y 8 0
Form of assistance (grant, amortizing loan, deferred payment loan) Y Y Y Y Y Y Y Y 8 0
Use of funds (e.g., downpayment, closing costs, rehabilitation) Y Y Y Y Y Y Y Y 8 0
Deadline by which housing must be acquired N N N N N N N N 0 8
Must also conform to 24 CFR 92.254(a) (2), (3), & (5) and specify
The housing is single family. Y Y Y Y Y Y Y Y 8 0
The purchase price does not exceed 95% of the median purchase price
N N N N N N N N 0 8
for the area.
The family is low income. N N N N N N N N 0 8
The housing will be principal residence of family. Y Y Y Y Y Y Y Y 8 0
Applicable affordability period Y Y Y Y Y Y Y Y 8 0
Either resale or recapture provisions N N N N Y N N N 1 7
Ys 3 3 6 6 6 6 7 6 6 6
Ns 4 4 4 4 4 4 3 4 4 4
Total 7 7 10 10 10 10 10 10 10 10
7
Loans 1 and 2 are homeowner agreements and loans 3 through 10 are home buyer agreements. Blank boxes are due to non-applicability of criteria.
48
Appendix E
CRITERIA
24 CFR 85.20(b)(6), states, “Accounting records must be supported by such source
documentation as cancelled checks, paid bills, payrolls, time and attendance records, contract
and subgrant award documents, etc.”
24 CFR 92.2, Definitions, states that program income includes “interest earned on program
income pending its disposition.”
24 CFR 92.203(a), Income Determinations, states, “the HOME program has income
targeting requirements for the HOME program and for HOME projects. Therefore, the
participating jurisdiction must determine each family is income eligible by determining the
family‟s annual income.”
24 CFR 92.203(a)(2), Income Determinations, explains that for families other than those
who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental
assistance, the participating jurisdiction must determine annual income by examining the
source documents evidencing annual income (e.g., wage statement, interest statement,
unemployment compensation statement) for the family.
24 CFR 92.203(b), Income Determinations, states, “When determining whether a family is
income eligible, the participating jurisdiction must use one of the following three definitions
of „annual income‟:
(1) „Annual income‟‟ as defined at 24 CFR 5.609 (except when determining the income
of a homeowner for an owner-occupied rehabilitation project, the value of the
homeowner‟s principal residence may be excluded from the calculation of Net Family
Assets); or
(2) Annual Income as reported under the Census long-form for the most recent available
decennial Census.
(3) Adjusted gross income as defined for purposes of reporting under Internal Revenue
Service (IRS) Form 1040 series for individual Federal annual income tax purposes.”
24 CFR 92.207, Eligible Administrative and Planning Costs, states, “A participating
jurisdiction may expend, for payment of reasonable administrative and planning costs of the
HOME program and ADDI [American Dream Downpayment Initiative], an amount of
HOME funds that is not more than ten percent of the sum of the Fiscal Year HOME basic
formula allocation plus any funds received in accordance with § 92.102(b) to meet or exceed
participation threshold requirements that Fiscal Year.”
24 CFR 92.254, Qualification as Affordable Housing: Homeownership
a. Acquisition with or without rehabilitation, states that housing that is for acquisition
by a family must meet the below affordability requirements.
1. The housing must be single-family housing.
49
2. The housing must be modest housing as follows:
i. In the case of acquisition of newly constructed housing or standard
housing, the housing has a purchase price for the type of single family
housing that does not exceed 95 percent of the median purchase price for
the area, as described in paragraph (a)(2)(iii) of this section.
ii. In the case of acquisition with rehabilitation, the housing has an estimated
value after rehabilitation that does not exceed 95 percent of the median
purchase price for the area, described in paragraph (a)(2)(iii) of this
section.
iii. If a participating jurisdiction intends to use HOME funds for homebuyer
assistance or for rehabilitation of owner-occupied single-family properties,
the participating jurisdiction may use the Single Family Mortgage Limits
under Section 203(b) of the National Housing Act (12 U.S.C. [United
States Code] 1709(b)) (which may be obtained from the HUD Field
Office) or it may determine 95 percent of the median area purchase price
for single family housing in the jurisdiction, as follows. The participating
jurisdiction must set forth the price for different types of single family
housing for the jurisdiction. The 95 percent of median area purchase price
must be established in accordance with a market analysis which ensured
that a sufficient number of recent housing sales are included in the survey.
Sales must cover the requisite number of months based on volume: For
500 or more sales per month, a one-month reporting period; for 250
through 499 sales per month, a two-month reporting period; for less than
250 sales per month, at least a three-month reporting period. The data
must be listed in ascending order of sales price. The address of the listed
properties must include the location within the participating jurisdiction.
Lot, square and subdivision data may be substituted for the street address.
The housing sales data must reflect all, or nearly all, of the one-family
house sales in the entire participating jurisdiction. To determine the
median, take the middle sale on the list if an odd number of sales and if an
even number, take the higher of the middle numbers and consider it the
median. After identifying the median sales price, the amount should be
multiplied by .95 to determine the 95 percent of the median area purchase
price. This information must be submitted to the HUD Field Office for
review.
3. The housing must be acquired by a homebuyer whose family qualifies as a low-
income family and the housing must be the principal residence of the family
throughout the period described in paragraph (a)(4) of this section.
4. Periods of affordability. The HOME-assisted housing must meet the affordability
requirements for not less than the applicable period specified in the following
table, beginning after project completion.
50
5. Resale and recapture. To ensure affordability, the participating jurisdiction must
impose either resale or recapture requirements, at its option.
i. Resale. Resale requirements must ensure, if the housing does not continue
to be the principal residence of the family for the duration of the period of
affordability, that the housing is made available for subsequent purchase
only to a buyer whose family qualifies as a low-income family and will
use the property as its principal residence.
ii. Recapture. Recapture provisions must ensure that the participating
jurisdiction recoups all or a portion of the HOME assistance to the
homebuyers, if the housing does not continue to be the principal residence
of the family for the duration of the period of affordability.
b. Rehabilitation not involving acquisition. Housing that is currently owned by a
family qualifies as affordable housing only if:
1. The estimated value of the property, after rehabilitation, does not exceed 95
percent of the median purchase price for the area, described in paragraph
(a)(2)(iii) of this section; and
2. The housing is the principal residence of an owner whose family qualifies as a
low-income family at the time HOME funds are committed to the housing.
c. Ownership interest. The ownership in the housing assisted under this section must
meet the definition of “homeownership‟‟ in § 92.2.
d. New construction without acquisition. Newly constructed housing that is built on
property currently owned by a family which will occupy the housing upon
completion, qualifies as affordable housing if it meets the requirements under
paragraph (a) of this section.
24 CFR 92.500(a)(b)(c), The HOME Investment Trust Fund
a. General. A HOME Investment Trust Fund consists of the accounts described in
this section solely for investment in accordance with the provisions of this part. HUD will
establish a HOME Investment Trust Fund United States Treasury account for each
participating jurisdiction. Each participating jurisdiction may use either a separate local
HOME Investment Trust Fund account or, a subsidiary account within its general fund
(or other appropriate fund) as the local HOME Investment Trust Fund account.
51
b. Treasury Account. The United States Treasury account of the HOME Investment
Trust Fund includes funds allocated to the participating jurisdiction under § 92.50
(including for a local participating jurisdiction, any transfer of the State‟s allocation
pursuant to § 92.102(b)(2)) and funds reallocated to the participating jurisdiction, either
by formula or by competition, under subpart J of this part; and
c. Local Account.
1. The local account of the HOME Investment Trust Fund includes deposits of
HOME funds disbursed from the Treasury account; the deposit of any State funds
(other than HOME funds transferred pursuant to § 92.102(b)(2)) or local funds
that enable the jurisdiction to meet the participating threshold amount in § 92.102;
any program income (from both the allocated funds and matching contributions in
accordance with the definition of program income); and any repayments or
recaptured funds as required by § 92.503.
2. The participating jurisdiction may establish a second local account of the
HOME Investment Trust Funds if:
i. The participating jurisdiction has its own affordable housing trust fund
that the participating jurisdiction will use for matching contributions to the
HOME program;
ii. The statute or local ordinance requires repayments from its own trust
fund to be made to the trust fund;
iii. The participating jurisdiction establishes a separate account within its
own trust fund for repayments of the matching contributions; and
iv. The funds in the account are used solely for investment in eligible
activities within the participating jurisdiction‟s boundaries in accordance
with the provisions of this part, except as provided under § 92.201(a)(2).
3. The funds in the local account cannot be used for the matching contribution and
do not need to be matched.
24 CFR 92.502(c)(2), Program Disbursement and Information System, General,
Disbursement of HOME funds, states, “HOME funds drawn from the United States
Treasury account must be expended for eligible costs within 15 days. Any interest earned
within the 15 day period may be retained by the participating jurisdiction as HOME funds.
Any funds that are drawn down and not expended for eligible costs within 15 days of the
disbursement must be returned to HUD for deposit in the participating jurisdiction‟s United
States Treasury account of the HOME Investment Trust Fund. Interest earned after 15 days
belongs to the United States and must be remitted promptly, but at least quarterly, to HUD,
except that a local participating jurisdiction may retain interest amounts up to $100 per year
for administrative expenses and States are subject to the Intergovernmental Cooperation Act
(31 U.S.C. 6501 et seq.).”
52
24 CFR 92.502(c)(3), Program Disbursement and Information System, Disbursement of
HOME Funds, states, “HOME funds in the local account of the HOME Investment Trust
Fund must be disbursed before requests are made for HOME funds in the United States
Treasury account.”
24 CFR 92.502(d)(1), Program Disbursement and Information System, Project
Completion, states, “Complete project completion information must be entered into the
disbursement and information system, or otherwise provided, within 120 days of the final
project drawdown. If satisfactory project completion information is not provided, HUD may
suspend further project set-ups or take other corrective actions.”
24 CFR 92.503(b)(1), Program Income, Repayments, and Recaptured Funds, states,
“Any HOME funds invested in housing that does not meet the affordability requirements for
the period specified in § 92.252 or § 92.254, as applicable, must be repaid by the
participating jurisdiction in accordance with paragraph (b)(3) of this section.”
24 CFR 92.504, Participating Jurisdiction Responsibilities; Written Agreements; Onsite
Inspection, Executing a Written Agreement
(a) Responsibilities. The participating jurisdiction 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 use of State recipients,
subrecipients, or contractors does not relieve the participating jurisdiction of this
responsibility. The performance of each contractor and subrecipient must be
reviewed at least annually.
(b) Executing a written agreement. Before disbursing any HOME funds to any entity,
the participating jurisdiction must enter into a written agreement with that entity.
Before disbursing any HOME funds to any entity, a State recipient, subrecipient, or
contractor which is administering all or a part of the HOME program on behalf of the
participating jurisdiction, must also enter into a written agreement with that entity.
The written agreement must ensure compliance with the requirements of this part.
(c) Provisions in written agreements. The contents of the agreement may vary
depending upon the role the entity is asked to assume or the type of project
undertaken. This section details basic requirements by role and the minimum
provisions that must be included in a written agreement.
(2) Subrecipient. A subrecipient is a public agency or nonprofit selected by the
participating jurisdiction to administer all or a portion of the participating
jurisdiction‟s HOME Program. The agreement between the participating
jurisdiction and the subrecipient must include:
i. Use of the HOME funds. The agreement must describe the use of the
HOME funds, including the tasks to be performed, a schedule for
53
completing the tasks, a budget, and the period of the agreement. These
items must be in sufficient detail to provide a sound basis for the
participating jurisdiction effectively to monitor performance under the
agreement.
ii. Program income. The agreement must state if program income is to be
remitted to the participating jurisdiction or to be retained by the
subrecipient for additional eligible activities.
iii. Uniform administrative requirements. The agreement must require the
subrecipient to comply with applicable uniform administrative
requirements, as described in § 92.505(a).
(5) Homebuyer, homeowner or tenant receiving tenant-based rental or security
deposit assistance. When a participating jurisdiction provides assistance to a
homebuyer, homeowner or tenant the written agreement may take many forms
depending upon the nature of assistance. As appropriate, it must include as a
minimum:
i. For homebuyers, the agreement must conform to the requirements in §
92.254(a), the value of the property, principal residence, lease-purchase, if
applicable, and the resale or recapture provisions. The agreement must
specify the amount of HOME funds, the form of assistance, e.g., grant,
amortizing loan, deferred payment loan, the use of the funds (e.g., down-
payment, closing costs, rehabilitation) and the time by which the housing
must be acquired.
ii. For homeowners, the agreement must conform to the requirements in §
92.254(b) and specify the amount and form of HOME assistance,
rehabilitation work to be undertaken, date for completion, and property
standards to be met.
iii. For tenants, the rental assistance contract or the security deposit contract
must conform to §§ 92.209 and 92.253.
24 CFR 92.504(c)(2)(vi), Participating Jurisdiction Responsibilities; Written
Agreements; Onsite Inspection, Subrecipient, states, “Program income must be disbursed
before the subrecipient requests funds from the participating jurisdiction.”
24 CFR 92.505(a), Applicability of Uniform Administrative Requirements, states, “the
requirements of OMB Circular No. A-87 and the following requirements of 24 CFR part 85
apply to the participating jurisdiction, State recipients, and any governmental subrecipient
receiving HOME funds: §§ 85.6, 85.12, 85.20, 85.22, 85.26, 85.32-85.34, 85.36, 85.44,
85.51, and 85.52.
54
24 CFR 92.508(a)(3)(ii), Recordkeeping, General, Project Records, states, “each
participating jurisdiction must establish and maintain sufficient records to enable HUD to
determine whether the participating jurisdiction has met the requirements of this part.” At a
minimum, records including “the source and application of funds for each project, including
supporting documentation in accordance with 24 CFR 85.20, are needed.”
24 CFR 92.508(a)(5)(iv), Recordkeeping, General, Financial Records, states, “each
participating jurisdiction must establish and maintain sufficient records to enable HUD to
determine whether the participating jurisdiction has met the requirements of this part.” At a
minimum, records demonstrating adequate budget control, in accordance with 24 CFR 85.20,
including evidence of periodic account reconciliations, are required.
CPD (Office of Community Planning and Development) Notice 97-9, HOME Program
Income, Recaptured Funds, Repayments, and CHDO [community housing development
organization] Proceeds, Section III.B, states, “The participating jurisdiction must also be
able to reasonably predict anticipated program income during the next program year. Thus,
the participating jurisdiction's financial management system should enable the PJ
[participating jurisdiction] to track program income receivable (such as the amount and date
of principal and interest due on a HOME loan).”
CPD Notice 97-9, HOME Program Income, Recaptured Funds, Repayments, and
CHDO Proceeds, Section III.A, states, “HOME program income is defined in the
Definitions section of the HOME Final Rule at 24 CFR 92.2. Program income means gross
income received by the participating jurisdiction, subrecipient or State recipient which is
directly generated from the use of HOME funds (including HOME program income) and
matching contributions. When program income is generated by housing that is only partially
assisted with HOME funds or matching funds, the income shall be prorated to reflect the
percentage of HOME funds or match used. Following is a list of examples. Please note that
this is not an exclusive list.
(1) Proceeds from the disposition by sale or long-term lease of real property acquired,
rehabilitated, or constructed with HOME funds or matching contributions;
(2) Gross income from the use or rental of real property, owned by the participating
jurisdiction, State recipient, or a subrecipient, that was acquired, rehabilitated, or
constructed with HOME funds or matching contributions, less costs incidental to
generation of the income (Note: rental income from property owned by entities other
than the participating jurisdiction, a State recipient or a subrecipient does not
constitute program income);
(3) Payments of principal and interest on loans made using HOME funds or matching
contributions;
(4) Proceeds from the sale of loans made with HOME funds or matching contributions;
55
(5) Proceeds from the sale of obligations secured by loans made with HOME funds or
matching contributions;
(6) Interest earned on program income pending its disposition; and
(7) Any other interest or return on the investment permitted under §92.205(b) of HOME
funds or matching contributions (Note: this does not include recaptured funds,
repayments or CHDO proceeds).
CPD Notice 97-9, HOME Program Income, Recaptured Funds, Repayments, and
CHDO Proceeds, Section III.B, states, “the participating jurisdiction is not required to
identify program income by program funding year. However, the participating jurisdiction
must be able to identify which projects generated program income and which projects
received program income, including the amount. The participating jurisdiction must also be
able to reasonably predict anticipated program income during the next program year. Thus,
the participating jurisdiction's financial management system should enable the PJ to track
program income receivable (such as the amount and date of principal and interest due on a
HOME loan).”
CPD Notice 97-9, HOME Program Income, Recaptured Funds, Repayments, and
CHDO Proceeds, Section III.E, states, “a participating jurisdiction may not draw down
HOME allocation funds while allowing program income to accumulate in its local account.
Available program income must be used to pay the next eligible program cost (or portion
thereof).”
HUD Handbook 6509.2, Community Planning and Development Monitoring
Handbook, Exhibit 7-19, Guide for Review of Subrecipient Management, provides
guidance on participating jurisdictions‟ evaluation of subrecipients.
HOMEfires Policy Newsletter Volume 5, No. 2, June 2003, Preserving Affordability,
states, “To preserve affordability, PJs should negotiate as part of the original financing
agreement, purchase options, rights of first refusal or other preemptive rights to purchase the
housing before foreclosure or transfer in lieu of foreclosure. PJs should regularly review the
management and financial condition of projects so that they can intervene before projects
reach the point of default. If a project goes into default, the PJ must work with the project
owner and primary lenders to maintain the project as affordable housing for the remaining
affordability period or the PJ must repay the HOME account.”
HOMEfires Policy Newsletter Volume 5, No. 2, June 2003, Homebuyer Housing with a
Resale Agreement, states, “Section 92.254(a)(5)(i)(A) of the HOME Rule provides that the
affordability restrictions for homebuyer housing subject to a resale agreement may terminate
upon foreclosure, transfer in lieu of foreclosure or assignment of an FHA insured mortgage
to HUD. However, this does not terminate the long-term affordability requirements. The
affordability requirements would be met if the housing is sold to another HOME-eligible
low-income family and the new homebuyer agrees to enter into a resale agreement for the
remaining affordability period. Homebuyer housing with a resale agreement that is
56
presumed to meet the affordability requirements pursuant to § 92.254(a)(5)(i)(B) continues to
meet the affordability requirements even after a foreclosure.
“If the PJ provides additional HOME funds to the new homebuyer or invests additional
HOME funds in a property, the original affordability period is terminated and a new
affordability period starts. The length of the new affordability period is determined by the
amount of HOME funds invested.”
HOMEfires Policy Newsletter Volume 5, No. 2, June 2003, Homebuyer Housing with a
Recapture Agreement, states, “Homebuyer housing with a recapture agreement is not
subject to the affordability requirements after the PJ has recaptured the HOME funds in
accordance with its written agreement. If the ownership of the housing is conveyed pursuant
to a foreclosure sale, the family may or may not have a recapture obligation, depending upon
the option the PJ has chosen in accordance with §92.254(a)(5)(ii)(A). Unlike rental housing
and homeownership housing under resale restrictions, the amount of HOME funds required
to be repaid in the event of foreclosure is the amount that would be subject to recapture under
the terms of the written agreement with the homebuyer. If the recapture agreement provides
for shared net proceeds, the amount subject to recapture is based on the amount of net
proceeds (if any) from the foreclosure sale. If the recapture agreement requires the entire
amount of the HOME investment from the homebuyer or an amount reduced prorata based
on the time the homebuyer has owned and occupied the housing measured against the
affordability period, the amount required by the agreement is the amount that must be
recaptured by the PJ for the HOME program. If the PJ is unable to recapture the funds from
the family, the PJ must repay the HOME account in the amount due pursuant to the recapture
agreement. [Please note that in the case of noncompliance other than foreclosure (e.g.,
homebuyer is no longer using the property as a principal residence), the amount the PJ must
repay is the entire HOME investment rather than the amount due under the written
agreement.] Regardless of the terms of its written agreements, it is important that the PJ
establish mechanisms that ensure that it will be notified of pending foreclosures so that it can
attempt to recoup some or all of the HOME subsidy.”
HOMEfires, Volume 5, No.5, November 2003, states, “a A PJ must select either the resale
or recapture option for its HOME assisted homebuyer projects at the time the assistance is
provided. The PJ may select one option for all of its HOME-assisted homebuyer projects or
choose on a case-by-case basis depending upon market conditions and/or the buyer's
preference. In addition, all options that the PJ will employ must be identified in its
Consolidated Plan and approved by HUD.
HOMEfires, Volume 6, No.1, August 2005, states, “PJs must report HOME project
completion and beneficiary data for initial occupants timely by entering it in IDIS on a
regular basis, and periodically review the status of all projects in the system to identify those
that need to be cancelled. The HOME final rule at 24 CFR 92.502(d)(1) requires PJs to enter
project completion information into IDIS within 120 days of making a final draw for a
project. Failure to do so is a violation of this provision and of 24 CFR 92.504(a), which
states that PJs are responsible for managing day-to-day operations of its program. The final
57
rule states that HUD may suspend further project set-ups or take other corrective actions, if
satisfactory project completion data is not provided.
HUD Technical Guide for Determining Income and Allowances for the HOME
Program, January 2005, Chapter 2, Assessing Information, Variations in Pay, states,
“For applicants whose jobs provide steady employment (e.g., 40 hours a week, 50 weeks a
year), it can be assumed that there will only be slight variations in the amount of earnings
reflected in monthly or bi-weekly pay stubs. In such cases, three consecutive month‟s worth
of income documentation is an appropriate amount upon which to base a projection of
income over the following 12-month period.
“For those whose annual employment is less stable or does not conform to a twelve-month
schedule (e.g., seasonal laborers, construction workers, teachers), PJs should examine income
documentation that covers the entire previous twelve-month period. Such workers can
experience substantial variations in earned income over the course of a year. As such, an
examination of three month‟s worth of income documentation may not provide an accurate
basis upon which to project the applicant‟s income over the following 12 months.”
HUD Technical Guide for Determining Income and Allowances for the HOME
Program, January 2005, Chapter 2, Assessing Information, Sources of Earned Income,
states, “In addition to hourly earnings, PJs must account for all earned income. In addition to
the base salary, this will include annual cost of living adjustments (COLAs), bonuses, raises,
and overtime pay. In the case of overtime, it is important to clarify whether overtime is
sporadic or a predictable component of an employee‟s income. If it is determined that an
applicant has earned and will continue to earn overtime pay on a regular basis, PJs should
calculate the average amount of overtime pay earned by the applicant over the pay period the
PJ is using to calculate income eligibility (3 months or 12 months). This average amount is
then to be added to the total amount of projected earned income over the following 12-month
period.”
HUD Technical Guide for Determining Income and Allowances for the HOME
Program, January 2005, Chapter 2, General Requirements, Anticipating Income, states,
“The HOME regulations at 24 CFR 92.203(d)(1) require that, for the purpose of determining
eligibility for HOME assistance, a PJ must project a household‟s income in the future. To do
so, a “snapshot” of the household‟s current circumstances is used to project future income.
In general, a PJ should assume that today‟s circumstances will continue for the next 12
months, unless there is verifiable evidence to the contrary. For example, if a head of
household is currently working for $7.00 per hour, 40 hours per week, the PJ should assume
that this family member will continue to do so for the next year. Thus, estimated earnings
will be $7.00 per hour multiplied by 2,080 hours, or $14,560 per year.
“This method should be used even when it is not clear that the type of income received
currently will continue in the coming year. For example, assume a family member has been
receiving unemployment benefits of $100 per month for 16 weeks at the time of income
certification. It is unlikely that the family member will continue on unemployment for
another 52 weeks. However, because it is not known whether or when the family member
58
will find employment, the PJ should use the current circumstances to anticipate annual
(gross) income. Income would therefore be calculated as follows: $100 per week x 52
weeks, or $5,200.
“The exception to this rule is when documentation is provided that current circumstances are
about to change. For example, an employer might report that an employee currently makes
$7.50 an hour, but a negotiated union contract will increase this amount to $8.25 an hour
eight weeks from the date of assistance. In such cases, income can be calculated based on
the information provided.”
OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments,
Attachment B, Selected Items of Cost
8. Compensation for personal services.
a. General. Compensation for personnel services includes all remuneration, paid
currently or accrued, for services rendered during the period of performance under
Federal awards, including but not necessarily limited to wages, salaries, and fringe
benefits. The costs of such compensation are allowable to the extent that they satisfy
the specific requirements of this Circular, and that the total compensation for
individual employees:
(1) Is reasonable for the services rendered and conforms to the established policy
of the governmental unit consistently applied to both Federal and non-Federal
activities;
(2) Follows an appointment made in accordance with a governmental unit‟s laws
and rules and meets merit system or other requirements required by Federal
law, where applicable; and
(3) Is determined and supported as provided in subsection h.
h. Support of salaries and wages. These standards regarding time distribution are in
addition to the standards for payroll documentation.
(1) Charges to Federal awards for salaries and wages, whether treated as direct or
indirect costs, will be based on payrolls documented in accordance with
generally accepted practice of the governmental unit and approved by a
responsible official(s) of the governmental unit.
(2) No further documentation is required for the salaries and wages of employees
who work in a single indirect cost activity.
(3) Where employees are expected to work solely on a single Federal award or
cost objective, charges for their salaries and wages will be supported by
periodic certifications that the employees worked solely on that program for
the period covered by the certification. These certifications will be prepared
at least semi-annually and will be signed by the employee or supervisory
official having first hand knowledge of the work performed by the employee.
(4) Where employees work on multiple activities or cost objectives, a distribution
of their salaries or wages will be supported by personnel activity reports or
equivalent documentation which meets the standards in subsection (5) unless a
statistical sampling system (see subsection (6)) or other substitute system has
59
been approved by the cognizant Federal agency. Such documentary support will
be required where employees work on:
(a) More than one Federal award,
(b) A Federal award and a non-Federal award,
(c) An indirect cost activity and a direct cost activity,
(d) Two or more indirect activities which are allocated using different
allocation bases, or
(e) An unallowable activity and a direct or indirect cost activity.
(5) Personnel activity reports or equivalent documentation must meet the
following standards:
(a) They must reflect an after-the-fact distribution of the actual activity of
each employee,
(b) They must account for the total activity for which each employee is
compensated,
(c) They must be prepared at least monthly and must coincide with one or
more pay periods, and
(d) They must be signed by the employee.
(e) Budget estimates or other distribution percentages determined before
the services are performed do not qualify as support for charges to
Federal awards but may be used for interim accounting purposes,
provided that:
(i) The governmental unit's system for establishing the estimates
produces reasonable approximations of the activity actually
performed;
(ii) At least quarterly, comparisons of actual costs to budgeted
distributions based on the monthly activity reports are made. Costs
charged to Federal awards to reflect adjustments made as a result
of the activity actually performed may be recorded annually if the
quarterly comparisons show the differences between budgeted and
actual costs are less than ten percent; and
(iii) The budget estimates or other distribution percentages are
revised at least quarterly, if necessary, to reflect changed
circumstances.
(6) Substitute systems for allocating salaries and wages to Federal awards may be
used in place of activity reports. These systems are subject to approval if
required by the cognizant agency. Such systems may include, but are not
limited to, random moment sampling, case counts, or other quantifiable
measures of employee effort.
(a) Substitute systems which use sampling methods (primarily for
Temporary Assistance to Needy Families (TANF), Medicaid, and
other public assistance programs) must meet acceptable statistical
sampling standards including:
(i) The sampling universe must include all of the employees whose
salaries and wages are to be allocated based on sample results
except as provided in subsection (c);
60
(ii) The entire time period involved must be covered by the
sample; and
(iii) The results must be statistically valid and applied to the period
being sampled.
(b) Allocating charges for the sampled employees' supervisors, clerical
and support staffs, based on the results of the sampled employees, will
be acceptable.
(c) Less than full compliance with the statistical sampling standards noted
in subsection (a) may be accepted by the cognizant agency if it
concludes that the amounts to be allocated to Federal awards will be
minimal, or if it concludes that the system proposed by the
governmental unit will result in lower costs to Federal awards than a
system which complies with the standards.
(7) Salaries and wages of employees used in meeting cost sharing or matching
requirements of Federal awards must be supported in the same manner as
those claimed as allowable costs under Federal awards.
61
The City of Compton Did Not Administer Its HOME Program in Compliance With HOME Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-08-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)