oversight

The Virginia Housing Development Authority, Richmond, VA, Generally Administered Its Tax Credit Assistance Program Funded Under the Recovery Act in Accordance With Applicable Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-10-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                                Issue Date
                                                                                      October 25, 2010
                                                                                Audit Report Number
                                                                                      2011-PH-1001




TO:                Clifford Taffet, Director, Office of Affordable Housing, DGH

FROM:               John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
                     3AGA

SUBJECT:           The Virginia Housing Development Authority, Richmond, VA, Generally
                   Administered Its Tax Credit Assistance Program Funded Under the Recovery
                   Act in Accordance With Applicable Requirements


                                              HIGHLIGHTS

    What We Audited and Why

                   We audited the Virginia Housing Development Authority (Authority) because it
                   received $44.2 million in Tax Credit Assistance Program (Program) funds under
                   the American Recovery and Reinvestment Act of 2009 (Recovery Act), which
                   was the second largest amount of these funds awarded in Region III 1. Our
                   objective was to determine whether the Authority administered its Program in
                   accordance with Recovery Act and applicable U.S. Department of Housing and
                   Urban Development (HUD) requirements.

    What We Found


                   The Authority generally administered its Program in accordance with Recovery
                   Act and HUD requirements. Specifically, it (1) met the required fund
                   commitment deadline, (2) selected and funded eligible projects, (3) executed
                   written agreements that complied with requirements, (4) received and disbursed
                   Program funds in a timely manner, (5) ensured that Davis-Bacon prevailing wage
                   requirements were met, (6) completed environmental clearances and obtained
1
    Region III encompasses Pennsylvania, Virginia, Maryland, West Virginia, Delaware and the District of Columbia.
           HUD approval of requests for release of funds before executing written
           agreements, and (7) met increased transparency and reporting requirements.
           However, the Authority did not obtain lobbying certifications as required by the
           Recovery Act.

What We Recommend


           We recommend that the Authority obtain lobbying certifications from its Program
           contractors and subcontractors. It took immediate corrective action during the
           audit to obtain the required certifications.

           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 a discussion draft audit report to the Authority on October 7, 2010,
           and discussed it with the Authority at an exit conference on October 14, 2010.
           The Authority provided written comments on the draft audit report on October 20,
           2010. It agreed with the audit report. The complete text of the Authority’s
           response can be found in appendix A of this report.




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                           TABLE OF CONTENTS

Background and Objective                                                        4

Results of Audit
      Finding: The Authority Generally Administered Its Program in Accordance   5
      With Applicable Requirements

Scope and Methodology                                                           9

Internal Controls                                                               10

Appendixes
   A. Auditee Comments                                                          11




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                      BACKGROUND AND OBJECTIVE

The Virginia Housing Development Authority (Authority) is a nonprofit organization created by
the Commonwealth of Virginia in 1972. It was established to help Virginians attain quality,
affordable housing, and it is responsible for administering the State’s Low-Income Housing Tax
Credit (LIHTC) program. The Authority’s mortgages are funded by bonds, which are available
to home buyers and developers of quality rental housing. The Authority also teaches free home
ownership classes and helps elderly and disabled people make their homes more livable. It also
works with local governments, lenders, developers, and community service organizations to help
Virginians find quality housing. Since 1972, the Authority has made financing available for
131,000 single-family homes and 96,000 multifamily apartments.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009 (Recovery Act) into law. The purpose of the Recovery Act is to jump-start the Nation’s
ailing economy, with a primary focus on creating and saving jobs in the near term and investing
in infrastructure that will provide long-term economic benefits. The Recovery Act appropriated
$2.25 billion under the HOME Investment Partnerships program (HOME) heading for a Tax
Credit Assistance Program (Program) grant to provide funds for capital investments in LIHTC
projects. The U.S. Department of Housing and Urban Development (HUD) awarded Program
grants to the 52 State housing credit agencies including the District of Columbia and the
Commonwealth of Puerto Rico. These 52 agencies are the only eligible grantees for the
program.

Although Program funds were appropriated under the HOME heading, these funds are not
subject to any HOME requirements other than the environmental review and can only be used in
LIHTC projects, which are administered through the U.S. Department of the Treasury. HUD
awarded grants to facilitate development of projects that received or will receive LIHTC awards
between October 1, 2006, and September 30, 2009. On July 17, 2009, HUD awarded the
Authority $44.2 million in Program funds.

The Recovery Act imposed additional reporting requirements and more stringent obligation and
expenditure requirements on the grant recipients. For example, the Authority was required to
commit at least 75 percent of its grant funds by February 16, 2010. It was also required to
demonstrate that project owners expend 75 percent of the grant funds by February 16, 2011, and
expend 100 percent of the grant funds by February 16, 2012. Transparency and accountability
are critical priorities in the funding and implementation of the Recovery Act.

Our objective was to determine whether the Authority administered its Program in accordance
with the requirements of the Recovery Act and applicable HUD requirements.




                                               4
                                     RESULTS OF AUDIT

Finding: The Authority Generally Administered Its Program in
Accordance With Applicable Requirements
The Authority generally administered its Program in accordance with Recovery Act and HUD
requirements. Specifically, it (1) met the required fund commitment deadline, (2) selected and
funded eligible projects, (3) executed written agreements that complied with requirements, (4)
received and disbursed Program funds in a timely manner, (5) ensured that Davis-Bacon
prevailing wage requirements were met, (6) completed environmental clearances and obtained
HUD approval of requests for release of funds before executing written agreements, and (7) met
increased transparency and reporting requirements. Although the audit disclosed no material
deficiencies in the Authority’s Program, the Authority did not obtain lobbying certifications as
required by the Recovery Act. The Authority took corrective action during the audit and
obtained required lobbying certifications from contractors and subcontractors.



    The Authority Met the
    Required Commitment
    Deadline


                   Under the Recovery Act and HUD’s Office of Community Planning and
                   Development (CPD) Notice CPD-09-03-REV, 2 the Authority was required to
                   commit at least 75 percent of its Program grant of $44.2 million by February 16,
                   2010. The Authority was able to commit 100 percent of its Program funds by the
                   required deadline. It allocated its grant funds for the acquisition and rehabilitation
                   of 16 projects located in the State of Virginia. As of August 2, 2010, the
                   Authority had also disbursed more than $26 million, or 60 percent, to 13 projects.

    The Authority Selected and
    Funded Eligible Projects

                   HUD Notice CPD 09-03-REV required the Authority to distribute Program funds
                   competitively under the requirements of the Recovery Act and pursuant to its
                   qualified allocation plan. The notice also provides that projects eligible to receive
                   grant funds are rental housing projects that received an LIHTC award under Section
                   42(h) of the Internal Revenue Code of 1986 during the period October 1, 2006, to
                   September 30, 2009. All of the projects for which the Authority awarded grant
                   funds were eligible to receive Program grant funds, and a competitive process was
                   used in accordance with its qualified allocation plan. The Authority awarded $44.2
2
    Revised July 27, 2009

                                                     5
           million in Program grant funds to 16 LIHTC projects for eligible activities including
           rehabilitation of rental units and the acquisition of projects that would provide low-
           income housing.

Written Agreements Complied
With Program Requirements

           HUD Notice CPD-09-03-REV required the Authority to execute legally binding
           written agreements with each project owner. The written agreement was required
           to set forth all of the Program and crosscutting Federal grant requirements
           applicable to the funding and make these requirements enforceable through the
           recordation of a restriction that is binding on all owners. The Authority executed
           written agreements with all 16 project owners to set forth the requirements of the
           program. All Program written agreements were signed and dated before any
           Program funds were disbursed.


The Authority Received and
Disbursed Funds in a Timely
Manner


           The Authority drew down $26 million in grant funds from HUD’s automated Line
           of Credit Control System and disbursed grant funds for eligible expenses within the
           3-day requirement. Under the Recovery Act and HUD Notice CPD 09-03-REV, the
           Authority was required to disburse funds to eligible activities within 3 days of the
           receipt of Federal funds. HUD Notice CPD 09-03-REV also required the Authority
           to disburse funds after a request for release of funds was approved. The Authority
           disbursed the funds after approval was provided and within 3 working days as
           required.

The Authority Ensured That
Davis-Bacon Prevailing Wage
Requirements Were Met

           Under the Recovery Act and HUD Notice CPD 09-03-REV, the Authority was
           required to ensure that contractors and subcontractors hired with Recovery Act funds
           were paid prevailing wages in compliance with the Davis-Bacon Act. The Davis-
           Bacon requirements apply prospectively to the construction project as of the date of
           the Program award. Requirements of 40 U.S.C. (United States Code) Section 3145
           and 29 CFR (Code of Federal Regulations) Part 3 state that contractors and
           subcontractors working on covered projects must submit weekly certified payroll
           records to the grantee for all laborers and mechanics, identifying their job
           classifications, rate of pay, and the daily and weekly hours worked. The

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           Authority adequately ensured that its contractors and subcontractors met this
           requirement.

Environmental Clearances
Were Completed and Requests
for Release of Funds Were
Approved as Required


           Under HUD Notice CPD-09-03-REV, the Authority was required to complete an
           environmental clearance and obtain a HUD-approved request for release of funds
           before executing written agreements with project owners. We reviewed the
           environmental clearances for all 16 projects and determined that the Authority
           ensured that all of the projects had environmental clearances performed before the
           execution of written agreements and the disbursement of Federal funds.

The Authority Met Increased
Transparency and Reporting
Requirements

           Under the Recovery Act and HUD Notice CPD-09-03-REV, the Authority was
           required to post on its Web site a description of its competitive selection criteria
           for awarding Program funds to eligible projects. The Authority was also required
           to identify all projects selected for funding and post the amount of each Program
           award on its Web site. The Authority complied with these requirements.

The Authority Did Not Obtain
Lobbying Certifications as
Required



           Under the Recovery Act and HUD Notice CPD 09-03-REV, the Authority was
           required to follow requirements set forth in 24 CFR Part 87. Regulations at 24 CFR
           Part 87 require that recipients of Federal contracts, grants, loans, or cooperative
           agreements certify that they will not use appropriated funds to influence or attempt
           to influence an officer or employee of the Federal Government. The Authority had
           not obtained lobbying certifications from its Program contractors or subcontractors
           as required by 24 CFR Part 87. The Authority acknowledged that it had not
           obtained the lobbying certifications because it misunderstood the requirements. It
           believed that lobbying certifications were only required from contractors or
           subcontractors that had participated in lobbying activities. However, after we
           brought this matter to the attention of responsible officials, they took immediate
           corrective action and obtained lobbying certifications from contractors and
           subcontractors as required by the Recovery Act and 24 CFR Part 87.
                                             7
    Recommendations



                 We recommend that the Director of HUD’s Office of Affordable Housing require
                 the Authority to
                 ∗
                  1A.     Obtain and review the required lobbying certifications from contractors
                          and subcontractors that were paid with Program grant funds.




∗
  The Authority took corrective action during the audit and obtained the required lobbying certifications. We
reviewed the certifications and confirmed that they met the requirements of 24 CFR Part 87. A management
decision, completed action, has, therefore, been entered into the Audit Resolution and Corrective Action Tracking
System for recommendation 1A. No further action is required. The audit recommendation is closed.


                                                         8
                        SCOPE AND METHODOLOGY

We conducted the audit from May to September 2010 at the Authority’s offices located at 601
South Belvidere Street, Richmond, VA, and our offices located in Richmond, VA. The audit
covered the period February 2009 through May 2010 but was expanded when necessary to
include other periods.

To achieve our audit objective, we reviewed

   •   Relevant background information;

   •   The Recovery Act;

   •   Section 42 of the Internal Revenue Code pertaining to the LIHTC program;

   •   Policies and procedures related to the Program’s award process, expenditures, and
       disbursements;

   •   Written agreements and environmental clearance determinations for Program award
       recipients; and

   •   Davis-Bacon wage records and lobbying certifications submitted by Program award
       recipients.

We conducted interviews with the Authority’s staff and officials from HUD’s Office of
Affordable Housing. We conducted onsite reviews of rehabilitation work in progress for the
Twin Canal and Fairhills developments, where grant funds were being used. We selected and
reviewed a sample of five projects that received more than $20.5 million in Program grant funds.
The award amounts ranged from approximately $1.4 million to nearly $8.6 million.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               9
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


               We determined that the following internal controls were relevant to our audit
               objectives:

               •      Policies, procedures, and other management controls implemented to ensure
                      that the Authority administered Program funds in accordance with the
                      Recovery Act and HUD requirements.

               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.

               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance regarding the effectiveness of the
               internal control structure as a whole. Accordingly, we do not express an opinion on
               the effectiveness of the Authority’s internal control.




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                 APPENDIX

Appendix A

             AUDITEE COMMENTS




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