Issue Date
December 23, 2010
Audit Report Number
2011-PH-1005
TO: Frances Bush, Director, Office of Community Planning and Development,
Washington, DC, Field Office, 3GD
FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
3AGA
SUBJECT: The District of Columbia, Washington, DC, Did Not Administer Its HOME
Program in Accordance With Federal Requirements
HIGHLIGHTS
What We Audited and Why
We audited the District of Columbia’s (grantee) administration of its HOME
Investment Partnerships program (HOME) at the request of the U.S. Department
of Housing and Urban Development’s (HUD) Office of Affordable Housing.
This is our second and final of two reports issued in relation to the grantee’s
administration of its HOME program. The objective addressed in this report was
to determine whether the grantee’s Department of Housing and Community
Development properly administered its HOME program by providing home
ownership and rehabilitation assistance in accordance with Federal requirements,
ensuring that its Community Housing Development Organizations (CHDO) were
eligible and complied with HOME program requirements, and implementing
sufficient controls over the receipt and expenditure of HOME funds.
What We Found
The grantee did not administer its HOME program in accordance with Federal
requirements. It (1) obligated more than $2.5 million in HOME funds for an
activity/project that was significantly delayed and not completed, (2) did not
properly manage funds that it drew for downpayment assistance and financing of
home repairs, (3) committed and disbursed CHDO operating funds for an
ineligible CHDO, and (4) did not properly account for program administrative
funds. These deficiencies occurred because the grantee did not have and/or
implement sufficient procedures to ensure that it complied with program
requirements. As a result, it charged more than $1.6 million in ineligible costs to
its HOME program and could not support approximately $6.5 million in costs
charged to the program. The grantee also accumulated more than $1.5 million in
funds that it could have used to improve its administration of its HOME program
and/or fund additional eligible HOME projects.
What We Recommend
We recommend that the Director of HUD’s Washington, DC, Office of
Community Planning and Development require the grantee to recover more than
$1.6 million that it spent on ineligible expenses and provide support for
approximately $6.5 million in expenses or repay that amount to the HOME
program. In addition, the grantee should use approximately $1.6 million in
accumulated funds to improve its administration of the program and/or fund
additional eligible HOME projects. Lastly, we recommend that the grantee create
and implement procedures to ensure that HOME funds are disbursed and used in
compliance with applicable requirements.
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 discussed the report with the grantee during the audit and at an exit
conference on November 29, 2010. The grantee provided written comments to
our draft report on December 10, 2010. The grantee generally concurred with our
findings and stated that improvements would be implemented to address the
management challenges noted in our report. The complete text of the auditee’s
response, along with our evaluation of that response, can be found in appendix B
of this report.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: The Grantee Obligated More Than $2.5 Million in HOME Funds for 5
an Activity That Was Significantly Delayed and Not Completed
Finding 2: The Grantee Did Not Properly Manage Funds for Downpayment 10
Assistance and Financing of Home Repairs
Finding 3: The Grantee Obligated and Disbursed Funds for an Ineligible CHDO 17
Finding 4: The Grantee Did Not Properly Account for Program Administrative 21
Funds Drawn
Scope and Methodology 31
Internal Controls 32
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 34
B. Auditee Comments and OIG’s Evaluation 35
C. Schedule of Excessive CDBG Assistance 47
D. Analysis of HOME Funds Held Beyond 15 Days of Being Drawn 48
E. Schedule of Unsupported Rehabilitation Costs 49
3
BACKGROUND AND OBJECTIVE
The HOME Investment Partnerships program (HOME) was created under Title II of the
Cranston-Gonzalez National Affordable Housing Act, as amended, and is regulated by 24 CFR
(Code of Federal Regulations) Part 92. The HOME program provides formula grants to States
and localities that communities use- often in partnership with local nonprofit groups- to fund a
wide range of activities that build, buy, and/or rehabilitate affordable housing for rent or home
ownership or provide direct rental assistance to low-income people. HOME is the largest
Federal block grant to State and local governments designed exclusively to create affordable
housing for low-income households. Participating jurisdictions may choose among a broad
range of eligible activities, using HOME funds to (1) provide home purchase or rehabilitation
financing assistance to eligible homeowners and new home buyers; (2) build or rehabilitate
housing for rent or ownership; or (3) for “other reasonable and necessary expenses related to the
development of non-luxury housing,” including site acquisition or improvement, demolition of
dilapidated housing to make way for a HOME-assisted development, and payment of relocation
expenses.
As a participating jurisdiction, the District of Columbia (grantee) administers its HOME program
through its Department of Housing and Community Development. The grantee received the
following HOME grants from the U.S. Department of Housing and Urban Development (HUD)
over a 4-year period:
Consolidated annual HOME funds
action plan year received
2007 $8,664,762
2008 8,731,505
2009 8,452,914
2010 9,322,221
Total $35,171,402
The grantee spends its HOME funds on the following major programs/activities:
• Affordable housing/real estate development
• Home Purchase Assistance program
• Single Family Residential Rehabilitation program
• Community housing development organizations (CHDO)
In addition, 10 percent of HOME funds are authorized for the grantee’s administrative costs.
Our objective was to determine whether the grantee properly administered its HOME program
by providing home ownership and rehabilitation assistance in accordance with Federal
requirements, ensuring that its CHDOs were eligible and complied with HOME program
requirements, and implementing sufficient controls over the receipt and expenditure of HOME
funds.
4
RESULTS OF AUDIT
Finding 1: The Grantee Obligated More Than $2.5 Million in HOME
Funds for an Activity That Was Significantly Delayed and Not
Completed
The grantee did not ensure that funds provided to a subrecipient for a HOME activity/project
were expended in a timely manner. The grantee obligated $2.5 million for the activity in 2001
but approved several modifications/extensions, which allowed the subrecipient to delay
completion of the activity for more than 8 years. The grantee drew more than $767,600 for the
activity from 2001 to 2008. In 2009, the grantee transferred most of the remaining funds to
another HOME activity due to the project delays. However, it failed to determine or ensure that
the new activity was eligible for HOME funds. The deficiencies occurred mainly because the
grantee overlooked key HUD guidance and did not establish or implement sufficient policies or
procedures to ensure that it complied with program requirements. As a result, it made more than
$10,400 in ineligible disbursements and could not support more than $2.4 million in HOME
funds disbursed.
The Grantee Allowed
Significant Delays Without
Assessing the Feasibility of the
Project
The grantee entered into an agreement with Safe Haven Outreach Ministries, Inc.
(subrecipient), to acquire and/or rehabilitate affordable rental housing properties
at two sites in the southeast area of the District of Columbia in August 2001. The
initial grant period was from August 2001 through August 2003. The grantee
obligated $2.5 million in HOME funding for the activity in 2001; however, the
subrecipient did not start construction in relation to the activity (project).
Between August 2003 and February 2008, the grantee executed three
modifications to the agreement, which allowed the subrecipient to delay
completion of the project to August 2009. The agreement modifications indicated
that the grantee allowed the extensions because the subrecipient stated that it
faced various issues, including challenges with raising funding needed from
additional sources, changing the initially planned project sites from two to one,
reconfiguring the mix of initially proposed units, and issues with zoning as well as
the building permit and competitive bidding (for general contractor) processes.
In conjunction with the approval of the modification that allowed the initial 2-year
extension from August 2003 to August 2005, a grantee official expressed the
following in a memorandum, “While I do not endorse extensions over a one-year
period, I have agreed to the 2-year extension you propose in the hopes that I will
5
not have to approve a third extension, which should raise some serious questions
about this project.” Nevertheless, the grantee approved two more 2-year
extensions, which extended the timeframe to complete the project to August 2009.
As of August 2009, 8 years after the initial agreement was executed, the
subrecipient had not completed the project.
The grantee failed to properly assess the feasibility of the project and did not
demonstrate a sense of urgency in relation to the completion of the project,
leading to significant delays in completing affordable housing and program funds’
being tied up for more than 8 years. The grantee should have considered
reprogramming the HOME funds obligated for the project to other feasible
HOME-eligible projects.
The Grantee Overlooked HUD
Requirements
The grantee overlooked HUD policy (HOMEfires Volume 3, Number 5), which
states that a grantee must have immediate plans to produce housing when it
commits funds to a project and that construction or rehabilitation must be
reasonably expected to start within 12 months. According to HUD policy, failure
to begin construction within 12 months due to unforeseen circumstances does not
automatically necessitate the cancellation of the project or render it ineligible.
Grantees with projects experiencing significant delays must document causes for
the delays and assess the likelihood of the project’s going forward. A grantee
should consider cancelling a construction project nearing the end of the 12-month
period if it does not appear that construction is likely within a reasonable period
thereafter and should keep HUD informed of its concerns.
As stated above, the grantee failed to assess the feasibility of the project, leading
to significant delays in completing affordable housing and program funds’ being
tied up for more than 8 years. The grantee did not have policies or procedures for
addressing project delays and, thereby, ensuring compliance with HUD
requirements. Also, the grantee did not have documentation indicating that it had
informed HUD of the significant project delays. The grantee needs to develop
and implement policies and procedures that outline a process for dealing with
project delays.
Project Acquisition Funds Were
Not All Eligible or Supported
The grantee disbursed more than $767,600 for property acquisition and other
related activities. Documentation supporting the funds drawn disclosed that the
6
grantee charged approximately $10,400 in ineligible costs, which consisted of a
duplicate cost of $6,000 and about $4,400 for a property at a site that was
eliminated from the grant agreement in conjunction with the August 2003
modification. The grantee also could not support approximately $368,260 of the
amount disbursed. It could not provide contractor invoices and/or cancelled
checks to show that the expenses were valid.
The grantee stated that it would obtain documentation for the unsupported costs
from the applicable vendors. However, it disagreed that the funds related to the
property at the eliminated site were ineligible. It stated that the costs were
included in costs for the original architectural designs and assessments for the
initially planned project and that those designs and assessments were then used to
determine that the elimination of one site would result in a project that would
better meet the housing mission of the subrecipient. Therefore, the architectural
designs and assessments were legitimate predevelopment expenses that helped to
determine that it would be better to develop affordable housing at only one of the
two initially planned sites. We disagreed with the grantee’s assessment because
the two sites in question were 3 miles apart. In addition, one invoice, totaling
$3,800, was for the cleaning of trash and rug removal for properties at both sites.
If the grantee does not complete the initially planned project, it must repay the
entire disbursement of approximately $767,000 to HUD. The grantee stated that
it would repay HUD the amount by December 31, 2010. However, HUD must
ensure that the grantee repays the funds.
The Grantee Lacked Adequate
Support for Funds
Recommitted to a New Project
During our audit, the grantee drew about $1.7 million of the obligated HOME
funds for the subrecipient’s project and transferred it to a new HOME activity.
However, it failed to determine or ensure that the new activity was eligible for
HOME funds. The grantee drew the funds to provide acquisition financing for the
purchase of 18 affordable cooperative home ownership units. The grantee
accepted an income certification from the cooperative development’s consultant,
stating that the income from the cooperative members was true and accurate. The
certification indicated that income was unknown for two cooperative members.
The grantee failed to verify the cooperative members’ income by obtaining and
examining source documents evidencing annual income as required by 24 CFR
92.203(a)(1)(i).
Also, the tenant income schedule indicated that 9 of the 18 units were occupied as
shown below.
7
Number of Number in
Bedroom size
cases household
5 1 4
4 1 3
According to 24 CFR 92.251(a)(2), properties assisted with HOME funds must
meet all applicable local housing quality standards and code requirements, and if
there are no such standards or code requirements, the housing must meet the
housing quality standards in 24 CFR 982.401. District of Columbia Municipal
Regulations, title 14, part 402.3, states that each room used for sleeping by two or
more occupants shall be a habitable room containing at least 50 square feet of
habitable room area for each occupant. Also, 24 CFR 982.401(d)(2)(ii) requires
dwelling units to have at least one bedroom or living/sleeping room for each two
persons.
The grantee did not verify income for all of the cooperative members and did not
ensure that the cooperative units complied with HOME property standards.
Consequently, approximately $1.7 million in HOME funds that it recommitted to
provide acquisition financing for the purchase of the cooperative units was
unsupported.
The Grantee Needs To
Reprogram $30,100 in HOME
Funds
Of the $2.5 million in HOME funds that the grantee obligated in 2001 for the
subrecipient’s project, about $30,100 remained after it drew approximately
$767,600 for the acquisition costs associated with the original project and
transferred approximately $1.7 million to the new HOME activity. The grantee
should reprogram the remaining funds for other eligible HOME activities.
Conclusion
Contrary to HUD requirements, the grantee did not ensure completion of its
subrecipient’s project in a reasonably timely manner. The grantee tied up $2.5
million obligated for the project for more than 8 years; however, the subrecipient
did not complete the project. The grantee tried to correct the situation by
transferring at least $1.7 million to a new HOME activity. However, it failed to
determine whether that activity met HOME requirements. These deficiencies
occurred mainly because the grantee overlooked key HUD guidance and did not
establish or implement sufficient policies or procedures to ensure that it complied
with program requirements. As a result, it made more than $10,400 in ineligible
8
disbursements and could not support more than $2.4 million in HOME funds
disbursed.
Recommendations
We recommend that the Director of the Washington, DC, Office of Community
Planning and Development require the grantee to
1A. Repay the HOME program from non-Federal funds $10,404 for the
HOME funds disbursed for ineligible costs.
1B. Provide supporting documents for $368,260 spent on the acquisition of the
initially planned project or reimburse the HOME program that amount
from non-Federal funds.
1C. Complete the initially planned project or reimburse the HOME program
from non-Federal funds $389,000 1 for funds disbursed toward project
acquisition costs.
1D. Provide documentation to show that the new project meets HOME
requirements or reimburse the HOME program from non-Federal funds
$1,702,205 for funds disbursed for the acquisition of the project.
1E. Establish and implement policies and procedures to assess the feasibility
of pending or delayed projects to ensure that HOME funds are used in a
reasonably timely manner to meet the intent of the HOME program.
1F. Establish and implement policies and procedures to ensure that applicable
grantee staff is properly trained and fully aware of HUD requirements to
ensure that the intent of the HOME program is met.
1G. Deobligate $30,131 in funds associated with the $2.5 million initially
obligated in 2001 and reprogram the funds for other eligible HOME
activities, thereby putting the funds to better use.
1
$767,664 less ineligible costs of $10,404 and unsupported costs of $368,260
9
Finding 2: The Grantee Did Not Properly Manage Funds for
Downpayment Assistance and Financing of Home Repairs
The grantee did not properly manage funds that it drew and/or provided for downpayment
assistance and financing of home repairs. Contrary to HUD requirements, it provided HOME
funds for the purchase or rehabilitation of properties with property values that exceeded
allowable limits. It also used Community Development Block Grant (CDBG) funds to provide
supplementary downpayment assistance that exceeded allowable amounts. In addition, the
grantee improperly held HOME funds in excess of 15 days of being drawn and could not support
some of its disbursements for rehabilitation costs without required documentation. Because it
failed to properly manage assistance that it provided for home purchases or rehabilitation, the
grantee made ineligible HOME and CDBG draws or payments of approximately $1.3 million
and could not support about $42,000 in HOME payments.
The Grantee Provided $699,538
in Ineligible Assistance
Through Its Single Family
Residential Rehabilitation
Program
Contrary to HUD requirements, the grantee provided HOME funds for properties
with after-rehabilitation values that exceeded the maximum allowable limits. The
grantee provided the funds through its Single Family Residential Rehabilitation
program which provides financing to existing homeowners for home repairs.
According to regulations at 24 CFR 92.254(a)(2) and (b)(1), neither the purchase
price for housing nor the estimated value of a property after rehabilitation may
exceed 95 percent of the median purchase price for the area as described in
paragraph 92.254(a)(2)(iii). Based on paragraph 92.254(a)(2)(iii), the grantee
could have either used the single-family mortgage limits under Section 203(b) of
the National Housing Act or 95 percent of the median price of single-family
homes in an area as the price limit when awarding HOME funds for
downpayment assistance. The Economic Stimulus Act of 2008 (Public Law 110-
185) provided temporary increased Section 203(b) limits; however, in March
2008, HUD issued guidance via HOMEfires Volume 9, Number 3, indicating that
using the higher limits would constitute a violation of the HOME statute. HUD
provided its own limits, as shown below, for our audit period.
Maximum purchase price or after-
rehabilitation value
Period 1 unit 2 unit 3 unit
2006 to 5/1/2008 $362,790 $464,449 $561,411
2008 (effective 5/2/2008) 427,500 547,292 661,549
10
Data from HUD’s Integrated Disbursement and Information System (IDIS)
indicated that the grantee provided approximately $699,500 in HOME funds
through its Single Family Residential Rehabilitation program for 13 ineligible
properties or activities as shown in the table below.
After-
IDIS activity After- rehabilitation
number rehabilitation value from file HOME funds
(identifier) value from IDIS documentation drawn
929 $809,592 $603,980 $155,592
891 579,888 418,870 98,046
892 425,000 385,060 97,151
977 2 512,570 759,500 75,000
758 440,000 431,570 69,485
982 463,539 404,520 63,539
890 501,534 392,430 62,613
984 515,610 515,610 20,698
979 575,043 442,020 15,043
901 447,666 432,810 14,856
883 400,000 364,030 9,515
894 553,640 505,030 9,350
761 360,000 364,030 8,650
Total $699,538
Activities 977, 984, and 979 in the table above were subject to the property limits
effective May 2, 2008, and the rest of the activities were subject to the limits
before that date. None of the properties was eligible for HOME funds because the
after-rehabilitation values exceeded the limits established by HUD. Also, we
noted some other issues in relation to four of the draws. The draws for activities
761 and 883 were for the same rehabilitation costs at the same property.
Therefore, although the draws were for slightly different amounts, the grantee
apparently made a duplicate draw. Also, for activity 890, the grantee received a
payoff of the HOME funds but erroneously credited the funds to the CDBG
program. In addition, the grantee did not perform a final inspection for the
rehabilitation work performed for activity 982 to ensure that the property
complied with standards required by regulations at 24 CFR 92.251.
The data we obtained also indicated that there were discrepancies between the
after-rehabilitation values in IDIS and the after-rehabilitation values in the project
files as shown in the table above. We requested but did not receive an
explanation from the grantee for the discrepancies. The grantee must ensure that
it enters accurate financial data into IDIS as HUD relies on the information in the
system for reports to Congress and grantee monitoring.
2
The property for this IDIS activity number had three units.
11
Because it did not comply with HUD requirements, the grantee improperly
awarded more than $699,500 in program funds for ineligible properties. The
grantee must repay these funds to the HOME program.
The Grantee Provided $324,733
in Ineligible Funds Through Its
Home Purchase Assistance
Program
Based on information from IDIS, we determined that the grantee provided HOME
funds for the purchase of nine properties with prices that exceeded the maximum
allowable limits. As shown above, in March 2008, HUD provided maximum
limits for the purchase price or after-rehabilitation values of properties eligible for
HOME funds.
Contrary to HUD requirements, the grantee provided about $324,700 in HOME
funds through its Home Purchase Assistance Program for nine ineligible
properties or activities as shown in the table below.
IDIS activity
number Purchase price HOME funds drawn
(identifier)
741 $377,000 $ 75,540
909 420,000 40,097
823 370,184 35,000
824 419,684 35,000
841 398,000 34,975
822 396,140 30,550
574 560,000 28,748
852 382,000 24,973
777 422,733 19,850
Total $324,733
Based on HUD’s established maximum purchase prices or after-rehabilitation
values, the properties above were not eligible for HOME funds.
CDBG Funds Were Used for
$159,840 in Ineligible Payments
For six of the nine HOME activities above, the grantee used CDBG funds to
provide supplementary home purchase assistance that exceeded the allowable
amounts. According to HUD guidance in Office of Community Planning and
12
Development (CPD) Notice 07-08, CDBG funds may be used for direct home
ownership assistance to facilitate and expand home ownership for low- and
moderate-income households and may be used to pay any or all of the reasonable
closing costs associated with the home purchase on behalf of the home buyer.
CDBG funds may also be used to pay up to 50 percent of the downpayment
required by the lender for the purchase on behalf of the home buyer. The
grantee’s policy for its Home Purchase Assistance program did not address the 50
percent limit on downpayments. The grantee’s policy was to provide the lesser
of 4 percent of the purchase price or $7,000 for closing costs and up to $70,000 in
downpayment assistance based on household income by household size.
Based on the HUD requirements, the grantee provided approximately $159,800 in
excess CDBG assistance for the six properties (see appendix C). For each
property, we calculated the maximum CDBG assistance by allowing the
maximum of $7,000 in closing costs plus half of the downpayment and closing
costs required from the home buyer.
The grantee stated that the home buyers needed the CDBG assistance provided to
be able to afford the properties and that it had reduced its limits to a maximum of
$4,000 for closing costs and $40,000 for downpayment assistance. Nevertheless,
for the six properties identified, the grantee paid more than $159,800 in ineligible
CDBG assistance because it overlooked HUD requirements.
The Grantee Needs To
Implement Subsidy-Layering
Guidelines
For activity 909 from the table above, the grantee gave more HOME assistance
than was necessary to provide affordable housing. In this case, the home buyer
did not make a downpayment, and apart from approximately $40,000 in HOME
assistance provided, the home buyer also received a $250,000 home ownership
credit funded through HUD’s Section 5(h) home ownership program. In addition,
the home purchase was funded with seller financing of about $76,700 from the
District of Columbia Housing Authority (Authority). The Authority received
about $93,000 in cash from the property sale.
According to subsidy-layering requirements at 24 CFR 92.250(b), the grantee was
required to evaluate the project in accordance with its established guidelines for
subsidy layering to ensure that the HOME funds provided in combination with
other governmental assistance were not more than necessary to provide affordable
housing. Also, the grantee certified each year, as part of its consolidated annual
plan submission that it would evaluate projects in accordance with its subsidy
layering guidelines and would not invest any more HOME funds in combination
with other Federal assistance than necessary to provide affordable housing. The
grantee would or should not have committed HOME funding for the activity if it
13
had performed an adequate review of subsidy layering. The grantee was drafting
subsidy-layering guidelines during the audit. It needs to establish and implement
subsidy-layering guidelines to ensure that it does not award more HOME funds
than necessary to provide affordable housing.
The Grantee Held HOME
Funds in Excess of 15 Days of
Being Drawn
The grantee held HOME draws in excess of the allowed timeframe for 18
properties that were rehabilitated under its Single Family Residential
Rehabilitation program. Regulations at 24 CFR 92.502(c)(2) require that funds
drawn from the United States Treasury account be expended on eligible costs
within 15 days. Interest earned beyond 15 days of a disbursement belongs to the
United States and must be promptly remitted. Funds not expended for eligible
costs within 15 days of a disbursement must be returned to HUD for deposit into
the grantee’s United States Treasury account of the HOME Investment Trust
Fund.
For 18 properties, the grantee drew but did not disburse about $507,800 for
eligible costs within 15 days of draws as required (see appendix D). About
$254,500 of the total draw had not been expended. Approximately $183,200 of
that amount was associated with 10 properties that were included in the 13
ineligible Single Family Residential Rehabilitation program activities discussed
above. The remaining $71,300 was associated with eight eligible activities;
however, the funds must be returned to HUD since they were not expended within
15 days of being drawn. The grantee must also remit interest related to the total
draw of about $507,800 that was not expended within 15 days.
The Grantee Could Not
Support About $42,000 in
Rehabilitation Costs
The grantee could not support $42,295 in program funds that it provided through
its Single Family Residential Rehabilitation program for the rehabilitation of five
properties/units (see appendix E). The missing documentation included cancelled
checks and/or paid invoices for expenses, adequate justification for temporary
relocation expenses, and evidence that it secured HOME funds for the minimum
affordability period.
According to regulations at 24 CFR 92.508(a)(3)(ii), the grantee should have
maintained supporting documentation for each project in accordance with 24 CFR
85.20(b)(6), which requires that accounting records be supported by source
documentation such as cancelled checks and paid bills, etc. Also, 24 CFR
14
92.254(a)(5)(ii)(A) requires recapture provisions to ensure that HOME assistance
to home buyers will be recouped if the housing does not remain the principal
residence of the buyer(s) for the minimum required period or period of
affordability. The grantee violated these requirements by not maintaining
adequate documentation for the program funds it spent. Also, based on
regulations at 24 CFR 92.251(a)(2), one of the five units was potentially
overcrowded because the file documentation indicated a family size of eight in a
three-bedroom property.
The Grantee Was Unaware of
or Overlooked Requirements
The grantee was not aware of the limits on maximum purchase price or after-
rehabilitation values provided by HUD via its HOMEfires policy issuances.
Therefore, it improperly capped the allowable sales price or postrehabilitation
value at the single-family mortgage limits under the Section 203(b) program. The
grantee’s limits as of March 17, 2008, were as follows:
Maximum purchase price or after-rehabilitation value
1 unit 2 unit 3 unit
$729,750 $934,200 $1,129,250
The grantee’s limits significantly exceeded the HUD limits (shown in section
above on $699,538 in ineligible assistance provided through the grantee’s Single-
Family Residential Rehabilitation program).
In certain instances, the grantee overlooked HUD requirements. For example, it
did not expend funds drawn within the required timeframe and did not maintain
sufficient documentation to support its expenditures.
Conclusion
The grantee provided HOME funds for the purchase or rehabilitation of ineligible
properties. It also used CDBG funds to provide supplementary home purchase
assistance that exceeded allowable amounts. In addition, the grantee improperly
held program funds in excess of 15 days of being drawn and could not support
some of its disbursements for rehabilitation costs. These deficiencies occurred
mainly because the grantee was unaware of or overlooked HUD requirements.
Because it failed to properly manage its program funds, the grantee made
ineligible HOME and CDBG draws and/or payments of approximately $1.3
million and could not support approximately $42,000 in HOME funds.
15
Recommendations
We recommend that the Director of the Washington, DC, Office of Community
Planning and Development require the grantee to
2A. Repay the HOME program $1,024,271 from non-Federal funds for
assistance paid in cases in which the value of property exceeded the
allowed limits.
2B. Repay the CDBG program $159,840 from non-Federal funds for
assistance paid in cases in which the amount provided exceeded 50
percent of the downpayment required.
2C. Repay the HOME program $71,325 from non-Federal funds for funds
drawn but not expended on eligible costs within 15 days.
2D. Determine the interest on $507,854 in HOME draws held in excess of 15
days and remit that amount to HUD.
2E. Provide adequate supporting documents to substantiate the eligibility of
$42,295 spent on rehabilitation costs or repay that amount from non-
Federal funds.
2F. Establish and implement policies and procedures to ensure that HOME
funds drawn for purchase and rehabilitation assistance are disbursed in
accordance with applicable requirements related to property value limits,
subsidy layering, timeframes for expending funds drawn, and associated
return of funds and/or interest when appropriate.
2G. Establish and implement procedures to ensure that CDBG funds provided
for downpayment assistance do not exceed HUD limits.
16
Finding 3: The Grantee Obligated and Disbursed Funds for an Ineligible
CHDO
The grantee set up HOME program activities for an organization, Mi Casa, Inc. (Mi Casa), as a
CHDO although it did not meet HUD’s CHDO eligibility requirements. The grantee reserved
and committed HOME funds, totaling more than $708,500, for Mi Casa. This violation occurred
because the grantee’s former staff approved Mi Casa as a CHDO in error and the grantee lacked
controls to ensure its compliance with the applicable requirements. As a result, the grantee made
ineligible draws of more than $429,300 for Mi Casa, leaving a balance of about $279,200 that
should not have been reserved for Mi Casa for CHDO activities.
CHDO Did Not Meet Eligibility
Requirements
Mi Casa did not meet the definitions of a CHDO provided at 24 CFR 92.2.
According to the regulations, a CHDO must have among its purposes the
provision of decent housing that is affordable to low-income and moderate-
income persons as evidenced in its charter, articles of incorporation, resolutions,
or by-laws. In addition, it must maintain accountability to low-income
community residents by (1) maintaining at least one-third of its governing board’s
membership for residents of low-income neighborhoods, other low-income
community residents, or elected representatives of low-income neighborhood
organizations and (2) providing a formal process for low-income program
beneficiaries for advising the organization in its decisions regarding the design,
siting, development, and management of affordable housing. HUD CPD Notice
97-11, Attachment A, section III, paragraphs A and B mirror these requirements.
Also, according to the notice, a CHDO’s governing documents must reflect the
one-third low-income board requirement.
Mi Casa had a board resolution which indicated that its purpose was to provide
decent, affordable housing to low- and moderate-income persons. However, it did
not have the one-third low-income board requirement in any of its governing
documents and did not provide adequate documentation to show that it
maintained at least one-third of its governing board’s membership for residents of
low-income neighborhoods, other low-income community residents, or elected
representatives of low-income neighborhood organizations.
The Grantee Certified an
Ineligible CHDO
The grantee improperly certified Mi Casa as a CHDO in July 2004, although it
did not meet the eligibility requirements. Before certifying Mi Casa, the grantee’s
17
special assistant requested that it provide documents to show that at least one-
third of its elected representatives were residents of low-income neighborhoods.
The documents submitted by Mi Casa showed that only two, or 28 percent, of its
seven board members certified that their home address was in a low- income
neighborhood. One of the two was the executive director whose listed address
was the same as Mi Casa’s. Nevertheless, the grantee certified Mi Casa as a
CHDO.
The grantee’s special assistant left in 2006, and the grantee gave the responsibility
of certifying CHDOs to its Office of Program Monitoring (OPM). In January
2007, an OPM coordinator recertified Mi Casa as a CHDO. Our review of Mi
Casa’s board member directories for 2005, 2006, and 2007 indicated that Mi Casa
did not have the board member certifications necessary to show that at least one-
third of its elected representatives were residents of low-income neighborhoods.
Therefore, the grantee improperly recertified Mi Casa as a CHDO.
The Grantee Reserved/
Committed and Disbursed
Funds for an Ineligible CHDO
Between 2004 and 2008, the grantee reserved and committed more than $708,500
in HOME funds for Mi Casa and disbursed more than $429, 300 of the amount
committed as shown in the table below.
CHDO Reserved and
Fiscal year fund type committed Disbursed Remaining
2004 Operating $154,926 $154,926
2005 Operating 167,396 167,396
2006 Operating 168,169 107,033 $ 61,136
2007 Reserved 165,390 165,390
2008 Operating 52,719 52,719
Totals $708,600 $429,355 $279,245
The disbursements were made in relation to three operating grants that the grantee
set up for Mi Casa between July and September 2008. The grantee set up the first
two grants on July 18, 2008, and the third grant on September 9, 2008. However,
the grantee had not entered into an agreement with Mi Casa for housing to be
developed, sponsored, or owned by Mi Casa as required by 24 CFR 92.300(e).
Therefore, Mi Casa was not eligible for CHDO operating funds. The grantee
acknowledged that Mi Casa should not have been certified as a CHDO. It stated
that the funds were provided to Mi Casa in anticipation of the organization’s
being approved for a HOME-eligible project but that Mi Casa never qualified for
such a project. It also stated that it had established sufficient controls to ensure
that CHDO operating funds would not be disbursed unless the CHDO had been
approved for a HOME-eligible project. However, in this case, Mi Casa did not
18
qualify as a CHDO. Therefore, the grantee must also establish and implement
procedures to ensure that it certifies CHDOs in accordance with HUD
requirements.
The Grantee Lacked Controls
The grantee did not have sufficient controls in place to ensure that it certified
CHDOs properly. Based on discussions with grantee staff, we determined that the
grantee lacked adequate controls because it did not (1) have employee position
descriptions for staff responsible for monitoring and certifying CHDOs, (2)
provide training for employees responsible for certifying CHDOs, and (3)
establish and implement policies and procedures related to the awarding of
CHDO operating grants. Also, our review of a compliance checklist for the third
operating grant to Mi Casa disclosed that grantee staff certified in 2008 that the
organization met the CHDO qualification requirements discussed above. There
were no documents available to support this assertion. In addition, the grantee
conducted a monitoring review of Mi Casa in October 2008 and reported no
deficiencies or findings. Therefore, the grantee needs to establish the controls
described above to ensure that it certifies CHDOs in accordance with HUD
requirements.
Conclusion
The grantee reserved, committed, and disbursed HOME program funds for Mi
Casa, an ineligible CHDO, because it had failed to establish and implement
sufficient controls to ensure that it certified CHDOs in accordance with HUD
requirements. As a result, it reserved and made more than $429,300 in ineligible
disbursements and improperly reserved about $279,200 in program funds. The
grantee must repay the HOME program for the ineligible disbursements,
reprogram the improperly reserved funds to eligible HOME activities, and
implement adequate controls to ensure that it only certifies eligible CHDOs for
participation in the HOME program.
Recommendations
We recommend that the Director of the Washington, DC, Office of Community
Planning and Development require the grantee to
3A. Repay the HOME program $429,355 from non-Federal funds for the
HOME funds disbursed to an ineligible CHDO.
19
3B. Deobligate $279,245 in available funds associated with the ineligible
CHDO and reprogram the funds for other eligible HOME activities,
thereby putting the funds to better use.
3C. Establish and/or implement controls such as employee position
descriptions, relevant employee training, and policies and procedures
regarding the proper certification and management of CHDOs.
20
Finding 4: The Grantee Did Not Properly Account for Program
Administrative Funds Drawn
The grantee did not account for administrative funds that it drew for its HOME program as
required. It could not provide required supporting documentation, such as approved cost
allocation plans and timesheets, to support its administrative costs. These problems occurred
because the grantee lacked key controls needed to ensure its compliance with program
requirements for record keeping. Consequently, it could not support more than $3.9 million in
funds that it drew to administer its HOME program. The grantee also accumulated more than
$1.5 million in administrative funds that could have been used to improve the administration of
its program and fund additional eligible HOME projects.
The Grantee Did Not Follow
Record-Keeping Requirements
The grantee failed to maintain the necessary records to support more than $3.9
million in funds that it drew for the administration of its HOME program. More
than $2.8 million of the funds was allocated to various categories of
administration. The remaining $1.1 million was allocated to a subrecipient
(Greater Washington Urban League) for the administration of the grantee’s Home
Purchase Assistance program.
Regulations at 24 CFR 92.508 require grantees to maintain sufficient records to
show their compliance with record-keeping requirements for the HOME program.
Paragraph 92.508(a)(3)(ii) provides that grantees must maintain records on the
source and application of funds for each project in accordance with 24 CFR
85.20, which states that grantees must follow applicable Office of Management
and Budget (OMB) cost principles in determining the reasonableness,
allowability, and allocability of costs (paragraph (b)(5)). Paragraph (b)(6) further
states that 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. In addition, regulations at 24 CFR 92.207(e)
provide that indirect costs may be charged to the HOME program under a cost
allocation plan prepared in accordance with OMB requirements as applicable.
Based on OMB requirements, grantees are required to obtain certified and
approved cost allocation plans from the Federal Government. 3 Each grantee must
submit a cost allocation plan to the Federal Government for each year in which it
claims central service costs under Federal awards. 4 OMB provides that the
Federal agency with the largest dollar value of awards with an organization will
3
OMB Circular A-87, attachment A, section H
4
OMB Circular A-87, attachment C, section D, paragraph 1
21
serve as the cognizant agency for the negotiation and approval of the indirect cost
rates and other rates such as fringe benefit and computer charge-out rates. 5 OMB
also provides that personnel activity reports or equivalent documentation must be
maintained to support the salaries or wages for employees working on multiple
activities or cost objectives. 6
As discussed below, the grantee did not comply with the requirements above and,
therefore, could not support more than $3.9 million in program funds.
The Grantee Could Not
Support $2.8 Million Used for
Various Administrative
Categories
Contrary to HUD requirements, the grantee lacked appropriate supporting
documents for $2.8 million in funds that it allocated to various categories of
administration for the HOME program.
The grantee could not specify how much it charged to indirect costs. However,
records from IDIS indicated that it charged about $55,800 to general
administration/overhead. The grantee also could not provide supporting
documents for two sample administrative draws selected totaling about $1.1
million. We asked the grantee to provide related supporting documents, such as
payrolls and time and attendance records, for the two sample draws. The grantee
stated that the employee (agency fiscal officer) responsible for analyzing the
supporting documents for the draws in question was no longer with the
organization and that attempting to get the related timesheets could prove
cumbersome and time consuming and might not produce the required support.
Based on the lack of documentation for the two sample draws and the grantee’s
response to our request for the supporting documentation, we classified the entire
$2.8 million as unsupported. The grantee must provide supporting documents for
these draws as required or repay the amount drawn to the HOME program.
The Grantee Could Not
Support $1.1 Million Allocated
to a Subrecipient
The grantee used HOME funds to pay the Greater Washington Urban League
(subrecipient) to administer its Home Purchase Assistance program. The grantee
drew HOME funds in November 2008 and September 2009, totaling about $1.1
million, for the subrecipient. Neither the grantee nor its subrecipient maintained
5
OMB Circular A-122, attachment A, section E, paragraph 2a
6
OMB Circular A-87, attachment B, paragraphs 8h(4) and (5)
22
adequate supporting documents for the funds drawn. As stated above, HUD
requirements provide that OMB cost principles must be followed and that
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.
We reviewed 12 files associated with the $1.1 million in HOME funds drawn and
determined that the documentation was not sufficient to show that the funds were
spent on administrative and planning costs for the HOME program. For example,
the subrecipient’s employees charged time on their timesheets for the Home
Purchase Assistance program using a generic job category code “HPAP.”
However, the grantee’s consolidated annual action plan, as well as the grant
agreement executed by the subrecipient, stated that the Home Purchase Assistance
program was funded with HOME, CDBG, and local funds. The subrecipient
provided the following information regarding Home Purchase Assistance program
activities and the related funding for the period October 2007 through September
2008.
Funding source Number of loans Amount
Repay 344 $13,630,427
CDBG 217 7,153,448
HOME 160 6,296,175
Totals 721 $27,080,050
According to the subrecipient, the “repay” category represented loans funded with
local funds. Based on the information above, about 50 percent of the Home
Purchase Assistance program activity was funded with local funds, and only 23
percent was funded with HOME funds. Also, the subrecipient charged other
items to the Home Purchase Assistance program including costs for housing
counseling and indirect costs. Therefore, the employee timesheets should have
included a breakdown of activities by the different funding sources as required by
OMB. Neither the grantee nor the subrecipient could provide a breakdown of the
time charged by the subrecipient’s employees to the Home Purchase Assistance
program. Because the grantee failed to maintain records as required, we could not
determine the validity of approximately $1.1 million in costs charged to the
HOME program.
The Grantee Did Not Have an
Approved Cost Allocation Plan
The grantee did not have approved cost allocation plans for each year during the
audit period as required by OMB. The grantee prepared cost allocation plans for
fiscal years 2007, 2008, and 2009. HUD did not review the 2007 and 2008 plans
because the grantee did not provide the distribution of salaries or wages supported
by personal activity reports or equivalent documentation when HUD monitored
23
the grantee in 2008. The grantee’s cost allocation plan for fiscal year 2009 is
currently under review by HUD.
The Grantee Lacked an
Effective Process for Tracking
Payroll Costs
The grantee did not have a mechanism for determining payroll costs charged to
various funding sources as required by OMB guidance, which states that
personnel activity reports or equivalent documentation must be maintained to
support the salaries or wages for employees working on multiple activities or cost
objectives. Grantee staff could not tell us whether (1) any employees charged 100
percent of their time to the HOME program, (2) employees charged time to
indirect costs on their timesheets, and (3) any employees were not required to fill
in timesheets.
We tested whether the grantee maintained the appropriate records by requesting
time sheets for two employees that worked on an activity under its Single-Family
Residential Rehabilitation program that was funded with both HOME and local
funds. The time sheets provided only indicated hours worked and did not allocate
the hours to funding sources. The grantee stated that employee hours were
allocated in its in-house PeopleSoft Human Resources/Payroll System; however,
it did not provide related evidence or supporting documents. One of the time
sheets reviewed indicated that the employee was a motor vehicle operator. This
information was consistent with the grantee’s employee listing. We requested the
employee’s personnel file because it did not make sense for a motor vehicle
operator to be tasked with processing a single-family residential rehabilitation
case. The grantee could not provide the employee’s personnel file. Because the
grantee failed to implement a process for maintaining adequate time records for
its employees that worked on activities with multiple funding sources, it lacked
the necessary controls to ensure that payroll costs were properly allocated to the
appropriate funding sources.
Subrecipient Monitoring Was
Not Adequate
The grantee did not perform adequate or effective monitoring of its subrecipients
in accordance with HUD requirements and its own monitoring policy as stated in
its annual action plans for fiscal years 2008 through 2010. Based on regulations
at 24 CFR 92.504(a), the grantee is responsible for managing the day-to-day
operations of its HOME program, ensuring that program funds are used in
accordance with all requirements, and taking appropriate action when
performance problems arise. The use of subrecipients or contractors does not
relieve the grantee of this responsibility. The performance of each contractor and
24
subrecipient must be reviewed at least annually. Paragraph (d)(1) states that
during the period of affordability, the grantee must perform onsite inspections of
HOME-assisted rental housing to determine compliance with the property
standards of 24 CFR 92.251 and verify the information submitted by the owners
in accordance with the requirements of 24 CFR 92.252 no less than every 3 years
for projects containing 1 to 4 units, every 2 years for projects containing 5 to 25
units, and every year for projects containing 26 or more units.
In its annual action plans for fiscal years 2008 through 2010, the grantee stated
that components of its project monitoring included monitoring for compliance
with HUD program rules and administrative requirements and financial
monitoring to ensure compliance with all Federal regulations governing financial
operations.
In the case of the Greater Washington Urban League, the grantee did not perform
effective monitoring of the subrecipient. The grantee performed six monitoring
reviews of the subrecipient during fiscal years 2007 through 2009 but failed to
identify or determine the problems with the subrecipient’s record keeping and
recommend corrective action. During one of the reviews, the grantee noted that
the subrecipient maintained appropriate time distribution records for employees
working on Federal and non-Federal activities. Based on our review of the
monitoring report, it appeared that the grantee accepted and documented the
subrecipient’s responses to interview questions from a financial records checklist.
Also, the grantee noted in its 2008 monitoring that the subrecipient had not
submitted cost allocation plans since fiscal year 2005; however, there was no
evidence to show that it took any action to address the issue. The grantee did not
receive a cost allocation plan for fiscal year 2008 from the subrecipient until
February 2008.
The grantee also did not comply with the requirements for annual monitoring of
subrecipients and onsite inspections for HOME-assisted rental housing. The
grantee’s stated monitoring activities for fiscal years 2007 (beginning October 1,
2006) through 2010 were as follows:
Active CHDOs
Fiscal year Number Monitoring reviews performed
2007 15 11
2008 15 6
2009 15 1
2010 11 4
25
Completed projects under affordability requirements
Fiscal year Number Monitoring reviews performed
2007 No data provided by grantee
2008 22 14
2009 22 11
2010 22 0
The information provided indicated that the grantee did not monitor all of its
active CHDOs at least annually between fiscal years 2007 and 2010. For the
completed projects under affordability requirements, 13 of the 22 projects had
more than 25 HOME units each. Therefore, the grantee, at a minimum, should
have performed onsite inspections annually for the 13 projects based on HUD
requirements.
The grantee did not provide evidence of any type of monitoring in fiscal year
2007. For fiscal year 2008, the grantee monitored 14 projects but only performed
desk reviews and no onsite inspections for the projects. For fiscal year 2009, the
grantee reviewed 11 projects but only provided support for onsite inspections of 9
projects.
We asked the grantee why it did not perform monitoring as required. The grantee
stated only that it was not done. Therefore, the grantee appeared to have
overlooked HUD requirements.
The Grantee Must Implement
Needed Communication
The grantee needs to implement an effective communication process between its
staff and staff assigned to its office from the DC Office of the Chief Financial
Officer (OCFO). During the audit period, seven OCFO staff members were
assigned to the grantee’s office. These staff members reported to an agency fiscal
officer (AFO). According to the grantee, the AFO was responsible for analyzing
supporting documents for the fund draws questioned. A review of the AFO
position description indicated that the incumbent was also responsible for
maintaining regular contacts with program managers and advising and assisting
management officials by supplying financial management data. However, the
grantee failed to ensure an effective communication process between its staff and
the AFO as evidenced by its failure or inability to provide the required
documentation for the fund draws questioned. As stated above, the grantee
indicated that the AFO responsible for analyzing the documentation was no
longer with the organization and that it likely would not be able to provide the
support requested.
26
We noted that there was frequent turnover associated with the AFO position
during the audit period and that there had been five AFOs since October 2006.
Two of the five AFOs were acting in that position as shown in the table below.
AFO/acting AFO Period
AFO October 2006 to middle of 2007
Acting AFO Middle of 2007 to May 2009
AFO May 2009 to December 2009
Acting AFO December 2009 to August 2010
AFO August 2010 to present
While the high turnover associated with the critical AFO position may have
contributed to the grantee’s documentation problems, the grantee is ultimately
responsible for ensuring that sufficient documentation exists to show its
compliance with record-keeping requirements for the HOME program.
Therefore, it must implement a formal communication process with OCFO staff
assigned to its office to ensure that documentation for its fund draws is
maintained in accordance with program requirements.
HUD Monitoring Disclosed
Deficiencies
HUD monitoring disclosed issues with the grantee’s administration of its HOME
program. In its 2005 monitoring report, HUD noted that the grantee did not have
an approved cost allocation plan and that its personnel did not maintain time
sheets that showed the hours spent on programs administered. HUD also noted
that the grantee did not review the performance of program participants at least
annually in accordance with 24 CFR 92.504(a). In its 2008 monitoring review,
HUD noted the same issue regarding the personnel time sheets. HUD also noted
various issues relating to the grantee’s overall administration of its HOME
program, including its failure to comply with certain program requirements and
take sufficient action to address program performance deficiencies.
Single Audit Reports Disclosed
Deficiencies
The fiscal year 2007 single audit of the grantee disclosed that it did not have an
approved cost allocation plan and did not perform the annual onsite inspections
required by regulations at 24 CFR 92.504(d). The cost allocation plan finding
remained an issue in the fiscal year 2008 single audit. The 2008 audit stated that
most grantee employees did not use the enhancements of the PeopleSoft Human
Resources/Payroll System, designed to allow employees to charge hours directly
to specific grant programs or other locally funded projects requiring specific
allocation of costs.
27
The Grantee Had Begun To
Take Corrective Action
During the audit, the grantee began to take action to address some of the issues
identified. It developed a time sheet to track employee hours by fund type and
project starting in October 2009. It also submitted its fiscal year 2009 cost
allocation plan to HUD, and HUD stated in a letter, dated September 30, 2010,
that the plan was under review.
The Grantee Can Improve
Program Oversight With Its
Administrative Funds
The grantee reserved and disbursed administrative funds between fiscal years
2007 and 2009 as shown below.
Fiscal Amount Available to
Total disbursed
year reserved disburse
2007 $1,238,417 $1,121,656 $ 116,761
2008 840,850 414,683 426,167
2009 932,222 0 932,222
Total $1,475,150
As the table above shows, the grantee had almost $1.5 million in undisbursed
funds available for its administration of the HOME program. The funds
represented about 1½ years’ worth of unspent administrative funds. Also, the
grantee’s annual action plan for fiscal year 2010 indicated that it added an
additional $100,000 in program income to HOME administrative funds. The
undisbursed administrative funds could be used to strengthen the grantee’s
administration of the HOME program. Part of the strengthening should include
the grantee’s (1) performing annual monitoring of all the subrecipients and
applicable HOME projects (see above), (2) setting up a system to adequately
account for HOME administrative funds, and (3) improving communication with
the AFO or appropriate OCFO staff. Any excess funds could be used to fund
other eligible HOME projects. Therefore, any funds the grantee does not use to
strengthen the administration of the HOME program should be reprogrammed for
the use of HOME-eligible projects. This measure would help the grantee ensure
that the HOME program’s main goal of providing affordable housing for low-
income households is accomplished more efficiently.
28
Conclusion
The grantee could not support more than $3.9 million in funds that it drew for the
administration of its HOME program. It failed to maintain adequate
documentation to support its administrative costs mainly because it lacked key
controls needed to ensure its compliance with record-keeping requirements for the
HOME program. The grantee also accumulated more than $1.5 million in
administrative funds that it could have used to improve the administration of its
HOME program and fund additional eligible HOME projects. Doing so would
have enabled the grantee to better meet the main HOME program goal of
providing affordable housing for low-income households.
Recommendations
We recommend that the Director of the Washington, DC, Office of Community
Planning and Development require the grantee to
4A. Provide adequate documentation to support the $3,977,925 or repay that
amount from non-Federal funds to the HOME program.
4B. Obtain approved cost allocation plans from HUD to use as a basis for
charging indirect costs to the HOME program.
4C. Approve Greater Washington Urban League’s cost allocation plans as
required by OMB so that the subrecipient has a proper basis for charging
indirect costs to the HOME program.
4D. Require its subreceipent, Greater Washington Urban League, to implement
a system for maintaining time records that track employee time charges to
the HOME program as required by OMB.
4E. Implement an effective communication process with the appropriate
OCFO staff to ensure compliance with record-keeping requirements for
the HOME program.
4F. Identify at least annually its universe of HOME program recipients and
applicable projects to be reviewed and monitor this universe including
required onsite visits.
4G. Establish a procedure, on an annual basis, on which to base future funds
obligated for administrative costs on actual administrative expenses. This
29
procedure will ensure that any amount in excess of actual expenditures is
recommitted for use on eligible HOME projects.
4H. Recommit any portion of the $1,575,150 7 not used by the grantee to
improve its administration of the HOME program for use on eligible
HOME projects.
7
The grantee added $100,000 in program to the $1,475,150, bringing the total available to $1,575,150.
30
SCOPE AND METHODOLOGY
We performed the onsite fieldwork for the second audit of the grantee between November 2009
and June 2010 at the office of the grantee located at 1800 Martin Luther King, Jr. Avenue, SE,
Washington, DC. The audit covered the period October 1, 2006, through April 30, 2009, but was
expanded when necessary.
To accomplish our audit objective, we
• Reviewed applicable Federal regulations.
• Reviewed grantee documents including but not limited to its 5-year consolidated plan,
consolidated annual action plans, consolidated annual performance evaluation reports, single
audit reports of Federal awards programs, organization charts, employee listing, CHDO
monitoring reports, cost allocation plans, and grant agreements with subreceipents.
• Analyzed IDIS for relevant data tables and preformatted reports.
• Reviewed applicable HOME program reports from HUD’s Web site.
• Communicated with officials and employees of the appropriate HUD CPD divisions as well
as officials and employees of grantee subreceipents.
• Reviewed HUD’s monitoring reports on the grantee.
• Reviewed Home Purchase Assistance program case files, Single Family Residential
Rehabilitation program case files, CHDO files, settlement statements, invoices, checks,
timesheets, and other documents to ensure that HOME funds were expended for eligible
activities.
• We evaluated the entire universe of home activities (847) at the beginning of the audit and
made selections for review based on risk indicators including high property values and draw
amounts. We reviewed grantee files and other related documents for the selections made as
discussed in the audit findings.
In certain instances, we found that data in IDIS did not reconcile with related file documentation.
Therefore, in those instances, we relied on information from supporting documents in program
case files and not the data in IDIS.
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.
31
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:
• Effectiveness and efficiency of operations – Policies and procedures that
management has implemented to reasonably ensure that a program meets its
objectives.
• Compliance with applicable laws and regulations – Policies and procedures
that management has implemented to reasonably ensure that resource use is
consistent with 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:
32
• The grantee did not ensure that program funds were expended within the
required timeframe (findings 1 and 2).
• The grantee did not ensure that program funds were only spent on eligible
activities (findings 1, 2, and 3).
• The grantee did not implement adequate policies and/or procedures to ensure
compliance with record-keeping requirements (findings 2 and 4).
• The grantee did not comply with requirements for subrecipient monitoring
(finding 4).
33
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported 2/ Funds to be put
number to better use 3/
1A $ 10,404
1B $ 368,260
1C 389,000
1D 1,702,205
1G $ 30,131
2A 1,024,271
2B 159,840
2C 71,325
2E 42,295
3A 429,355
3B 279,245
4A 3,977,925
4H 1,575,150
Totals $1,695,195 $6,479,685 $1,884,526
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or Federal, State, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
3/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
that are specifically identified. In these instances, if the grantee implements our
recommendations, it will use (1) $30,131 obligated in 2001for eligible HOME activities,
(2) $279,245 in reprogrammed funds to support additional eligible HOME activities, and
(3) $1,575,150 in excess administrative funds to improve monitoring of the HOME
program and recommit any unused portion for eligible HOME projects.
34
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
35
Comment 1
Comment 2
36
Comment 3
Comment 3
Comment 3
Comment 4
37
Comment 4
Comment 4
Comment 5
Comment 1
38
Comment 6
Comment 4
Comment 4
Comment 1
Comment 1
Comment 4
39
Comment 7
Comment 7
Comment 7
40
Comment 7
Comment 7
Comment 4
Comment 1
41
Comment 1
Comment 4
Comment 1
Comment 1
42
Comment 8
Comment 9
Comment 4
43
44
OIG Evaluation of Auditee Comments
Comment 1 The grantee’s response included 11 enclosures containing additional
documentation to support its position on the audit findings. Due to volume, these
documents were not included in the report. The documentation provided was not
sufficient to change our conclusions. In certain instances, the grantee stated it
was working on obtaining additional documentation. The grantee must provide
the information along with any other additional documentation it locates or
prepares to HUD for assessment during the audit resolution process.
Comment 2 The grantee contends that all funds disbursed were eligible with the exception of
$6,000. However, due to its failure to complete the project it has agreed to repay
the total disbursement of $767,600 which we considered ineligible, making its
argument on the component funds moot.
Comment 3 The additional documentation provided by the grantee is not sufficient to change
our conclusions. For example the documentation indicates overcrowding in
several units; and, for one unit, the tenant’s income verification form was not
signed. In one case, the tenant’s income exceeded the allowable limit for the unit
size. Further, the grantee is in the process of finalizing additional documentation.
Therefore, we maintain that it lacked adequate support for funds it recommitted to
the new project.
Comment 4 We are encouraged by the procedures/steps that the grantee has stated it has
planned or in progress to address the audit findings and recommendations.
Comment 5 Our audit conclusions and related recommendations are supported by work
performed in accordance with generally accepted government auditing standards,
as well as our operations policy. The grantee did not award the program funds in
accordance with related requirements; therefore, we maintain our position, and
cannot waive the audit finding. The grantee must work with HUD to
appropriately resolve the issue.
Comment 6 The grantee asserts that it provided funds through its Home Purchase Assistance
program for the acquisition of the properties as well as the related closing costs,
and seeks to make a distinction between providing assistance for acquisition and
providing assistance for reasonable closing costs. However, its program policies
state that the amount of financial assistance provided to eligible households will
be based on the sum of downpayment and closing cost assistance. Accordingly,
we evaluated the funds it provided based on the requirements related to
downpayments and closing costs, and found that it provided about $159,800 in
excess assistance for the properties in question. Also, feedback from the
Entitlement Communities Division in HUD’s Office of Community Planning and
Development indicated that the CDBG assistance provided appeared excessive.
45
Comment 7 Based on the documentation provided by the grantee, we have updated the report
to show that Mi Casa’s resolution reflects that its purpose is to provide decent,
affordable housing to low- and moderate-income persons.
The purpose of CPD Notices pertaining to the HOME program is to explain how
HOME program regulations should be interpreted and applied. The checklist in
the CPD Notice 97-11, Attachment A is a tool for grantees to determine the
documents they must receive from a nonprofit before it may be certified or
recertified as a CHDO. Therefore, we maintain that the CHDO was improperly
certified. Also, HUD’s Office of Affordable Housing disagrees with the grantee’s
position.
The grantee provided an undated amended board resolution for Mi Casa after the
audit. The amended resolution states that Mi Casa will amend its by-laws to
reflect the one-third low-income board requirement. The grantee must ensure that
Mi Casa amends its by-laws to reflect the requirement. The other additional
documentation provided is not sufficient to prove that the CHDO maintained at
least one-third of its governing board’s membership for residents of low-income
neighborhoods, other low-income community residents, or elected representatives
of low-income neighborhood organizations.
Comment 8 The grantee stated that it was only required to perform onsite inspections for 11
projects; however, the additional documentation it provided shows that it was
required to perform inspections for 12 projects. The grantee’s position is based
on an updated project listing. However, for the period of our review, the grantee
had 13 projects that should have been reviewed annually. Therefore we maintain
that it did not monitor all of its active CHDOs at least annually between fiscal
years 2007 and 2010.
Comment 9 We have updated the report to show that the grantee provided support for onsite
inspections of nine projects instead of the seven originally reported.
46
Appendix C
SCHEDULE OF EXCESSIVE CDBG ASSISTANCE
IDIS activity number
Maximum assistance
Assistance program
Housing Purchase
Funds required at
according to OIG
Closing cost limit
Excessive CDBG
Downpayment
HOME funds
CDBG funds
assistance
assistance
closing
841 $76,950 $34,975 $41,975 $7,000 $ 500 $ 1 $ 7,250 $ 34,725
823 77,000 35,000 42,000 7,000 2,500 45 8,272 33,727
824 77,000 35,000 42,000 7,000 4,030 2,500 10,265 31,735
822 68,100 30,550 37,550 7,000 11,880 4 12,942 24,608
852 56,945 24,973 31,973 7,000 5,000 6,566 12,783 19,190
777 46,700 19,850 26,850 7,000 4,000 3,990 10,995 15,855
Total excessive CDBG assistance $159,840
47
Appendix D
ANALYSIS OF HOME FUNDS HELD
BEYOND 15 DAYS OF BEING DRAWN
Balance of draws not
expended for
rehabilitation costs
Amount
expended
IDIS after 15 days
activity Date of Total Eligible Ineligible of being
Number number draw drawn activity activity drawn
1 665 4/12/2007 $136,814 $ 1,770
4/12/2007
2 666 and 62,096 3,731
5/3/2007
3 889 7/22/2008 140,056 52,790
4 890 7/22/2008 62,613 $ 2,798 $ 54,439
5 891 7/22/2008 98,046 18,416
6 892 7/22/2008 97,151 4,204 84,848
7 894 7/22/2008 9,350 50
8 901 7/22/2008 14,856 100
9 902 7/22/2008 8,162 8,162
10 932 7/22/2008 10,288 3,170
11 929 7/22/2008 155,592 97,865 44,361
12 896 7/24/2008 6,864 624
13 976 10/21/2008 21,230 205 21,025
14 977 10/21/2008 75,000 9,000
15 979 10/21/2008 15,043 15,043
16 982 10/21/2008 63,539 15,102
17 984 10/21/2008 20,698 20,698
18 987 10/21/2008 49,453 873 48,580
Totals $71,325 $183,276 $253,253
Balance of draws not expended for
$254,601
rehabilitation costs
Amount of draws not expended within 15 days $507,854
48
Appendix E
SCHEDULE OF UNSUPPORTED
REHABILITATION COSTS
IDIS activity Unsupported
number amount Required support/documentation
976 $15,949 Cancelled checks supporting rehabilitation costs.
889 13,500 Justification for relocation costs.
Documentation to show that HOME funds will be
recaptured if the housing does not continue to be the
principal residence of the family for the duration of the
period of affordability as required by 24 CFR
932 7,118 92.254(a)(5)(ii)(A).
987 3,000 Support (e.g., invoice) for relocation costs.
Support (e.g., invoices) for $1,022 and $933 included in the
unsupported amount and a cancelled check for the $1,022
cost. The grantee must also provide justification for $773 in
665 2,728 storage costs.
Total $42,295
49
The District of Columbia, Washington DC, Did Not Administer Its HOME Program in Accordance With Federal Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-12-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)