oversight

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)

                                                              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