Issue Date
March 21, 2011
Audit Report Number
2011-PH-1008
TO: Clifford Taffet, Director, Office of Affordable Housing, DGH
//signed//
FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
3AGA
SUBJECT: The West Virginia Housing Development Fund, Charleston, WV, Generally
Administered Its Tax Credit Assistance Program Funded Under the Recovery
Act in Accordance With Applicable Requirements
HIGHLIGHTS
What We Audited and Why
We audited the West Virginia Housing Development Fund’s (Fund) Tax Credit
Assistance Program (Program) due to a complaint from the Recovery and
Transparency Board. We also audited the Fund’s Program because it was the
only housing finance agency across the Nation that had not spent any of its
Program funds. The funds were made available under the HOME Investment
Partnerships Program (HOME)1 for capital investments in low-income housing
tax credit projects. Our objective was to determine whether the Fund
administered its Program in accordance with the American Recovery and
Reinvestment Act of 2009 (Recovery Act) and applicable U.S. Department of
Housing and Urban Development (HUD) requirements.
What We Found
The Fund generally administered its Program in accordance with Recovery Act
and HUD requirements. Specifically, it (1) met the required fund commitment
1
Although Program funds were appropriated under the HOME program, funds are not subject to any HOME
program requirements other than the completion of environmental reviews.
deadline, (2) selected and funded eligible projects, (3) executed written
agreements that complied with requirements, (4) received and disbursed Program
funds in a timely manner, (5) ensured that Davis-Bacon prevailing wage
requirements were met, (6) completed environmental clearances and obtained
HUD approval of requests for release of funds before executing written
agreements, (7) met increased transparency and reporting requirements, (8)
obtained lobbying certifications as required by the Recovery Act, and (9) met the
required expenditure deadline. However, regarding the reporting of job creation
information, the Fund did not report 38 full-time equivalents (FTE) created during
the first three quarters of 2010.
What We Recommend
We recommend that HUD require that the Fund maintain the FTE data that were
not reported until the Federal Government requests the information.
Auditee’s Response
We provided a discussion draft audit report to the Fund on March 4, 2011, and
discussed it with the Fund at an exit conference on March 14, 2011. The Fund
provided written comments on the draft audit report on March 16, 2011. It agreed
with the conclusions and recommendation in the report. The complete text of the
auditee’s response can be found in appendix A of this report.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding: The Fund Generally Administered Its Program in Accordance With 5
Applicable Requirements
Scope and Methodology 10
Internal Controls 11
Appendix
A. Auditee Comments 12
3
BACKGROUND AND OBJECTIVE
The West Virginia Housing Development Fund (Fund) is a component unit of the State of West
Virginia created under the provisions of Article 18, Chapter 31, of the Code of West Virginia in
1931. It was established to develop and improve housing opportunities for West Virginians and
is responsible for administering the State’s low-income housing tax credit (LIHTC) program.
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009 (Recovery Act) into law. The purpose of the Recovery Act is to jump-start the Nation’s
ailing economy, with a primary focus on creating and saving jobs in the near term and investing
in infrastructure that will provide long-term economic benefits. The Recovery Act appropriated
$2.25 billion under the HOME Investment Partnerships program (HOME) heading for a Tax
Credit Assistance Program (Program) grant to provide funds for capital investments in LIHTC
projects. The U.S. Department of Housing and Urban Development (HUD) awarded Program
grants to the 52 State housing credit agencies including the District of Columbia and the
Commonwealth of Puerto Rico. These 52 agencies are the only eligible grantees for the
Program.
Although Program funds were appropriated under the HOME heading, these funds are not
subject to any HOME requirements other than the environmental review and can only be used in
LIHTC projects, which are administered through the U.S. Department of the Treasury. HUD
awarded grants to facilitate development of projects that received LIHTC awards between
October 1, 2006, and September 30, 2009. On July 1, 2009, HUD awarded the Fund $16.5
million in Program funds.
The Recovery Act imposed additional reporting requirements and obligation and expenditure
requirements on the grant recipients. For example, the Fund was required to commit at least 75
percent of its grant funds by February 16, 2010. It was also required to demonstrate that project
owners expended 75 percent of the grant funds by February 16, 2011, and expend 100 percent of
the grant funds by February 16, 2012. Transparency and accountability are critical priorities in
the funding and implementation of the Recovery Act.
Our objective was to determine whether the Fund administered its Program in accordance with
the requirements of the Recovery Act and applicable HUD requirements.
4
RESULTS OF AUDIT
Finding: The Fund Generally Administered Its Program in Accordance
With Applicable Requirements
The Fund generally administered its Program in accordance with Recovery Act and HUD
requirements. Specifically, it (1) met the required fund commitment deadline, (2) selected and
funded eligible projects, (3) executed written agreements that complied with requirements, (4)
received and disbursed program funds in a timely manner, (5) ensured that Davis-Bacon
prevailing wage requirements were met, (6) completed environmental clearances and obtained a
HUD approval request for release for funds before executing written agreements as required, (7)
met increased transparency and reporting requirements, (8) obtained lobbying certifications to
ensure compliance with 24 CFR (Code of Federal Regulations) Part 87, and (9) met the required
expenditure deadline. However, the Fund did not report 38 full-time equivalents (FTE) created
for the first three quarters of 2010 as required. This condition occurred because the Fund
misunderstood reporting requirements. It believed that since it had not disbursed funds to the
Program developers, it was not necessary to report the FTEs. By not reporting the number of
FTEs created, it did not provide the general public access to accurate information concerning the
number of jobs created with Program funds.
The Fund Met the Required
Commitment and Disbursement
Deadlines
Under the Recovery Act and HUD’s Office of Community Planning and
Development (CPD) Notice CPD-09-03-REV,2 the Fund was required to commit
at least 75 percent of its Program grant of $16.5 million by February 16, 2010. It
was able to commit more than $15.1 million, or 91.5 percent, of its Program funds
by the required deadline. It allocated its grant funds for the acquisition, new
construction, and rehabilitation of 15 projects located in the State of West
Virginia. The Fund was also required to disburse at least 75 percent of its
Program funds by February 16, 2011. As of February 15, 2011, the Fund had
disbursed more than $12.4 million, or 75 percent, to 13 projects. Therefore, it met
the required commitment and disbursement deadlines.
2
Revised July 27, 2009
5
The Fund Selected and Funded
Eligible Projects
HUD Notice CPD 09-03-REV required that the Fund distribute Program funds
competitively under the requirements of the Recovery Act and pursuant to its
qualified allocation plan. The notice also provided that projects eligible to receive
grant funds were rental housing projects that received an LIHTC award under
Section 42(h) of the Internal Revenue Code of 1986 during the period October 1,
2006, to September 30, 2009. All of the projects for which the Fund awarded grant
funds were eligible to receive Program grant funds, and a competitive process was
used in accordance with its qualified allocation plan. The Fund awarded $16.5
million in Program grant funds to 15 LIHTC projects owned by 9 Program
developers for eligible activities including rehabilitation of rental units and the
acquisition of projects that would provide low-income housing.
Written Agreements Complied
With Program Requirements
HUD Notice CPD-09-03-REV required that the Fund execute legally binding
written agreements with each project owner. The written agreement was required
to set forth all of the Program and crosscutting Federal grant requirements
applicable to the funding and make these requirements enforceable through the
recordation of a restriction that was binding on all owners. The Fund executed
written agreements with all 9 developers for 15 projects to set forth the
requirements of the Program. All Program written agreements were signed and
dated before Program funds were disbursed.
The Fund Received and
Disbursed Funds in a Timely
Manner
The Fund drew down $12.4 million in grant funds from HUD’s automated Line of
Credit Control System and disbursed grant funds for eligible expenses within the 3-
day requirement. Under the Recovery Act and HUD Notice CPD 09-03-REV, the
Fund was required to disburse funds to eligible activities within 3 days of the receipt
of Federal funds. HUD Notice CPD 09-03-REV also required that the Fund
disburse funds after a request for release of funds was approved. The Fund
disbursed the funds after approval was provided and within 3 working days as
required.
6
The Fund Ensured That Davis-
Bacon Prevailing Wage
Requirements Were Met
Under the Recovery Act and HUD Notice CPD 09-03-REV, the Fund was required
to ensure that contractors and subcontractors hired with Recovery Act funds were
paid prevailing wages in compliance with the Davis-Bacon Act. The Davis-Bacon
requirements apply prospectively to the construction project as of the date of the
Program award. Requirements of 40 U.S.C. (United States Code) 3145 and 29 CFR
Part 3 state that contractors and subcontractors working on covered projects must
submit weekly certified payroll records to the grantee for all laborers and
mechanics, identifying their job classifications, rate of pay, and daily and weekly
hours worked. The Fund adequately ensured that its contractors and
subcontractors met this requirement.
Environmental Clearances
Were Completed and Requests
for Release of Funds Were
Approved as Required
Under HUD Notice CPD-09-03-REV, the Fund was required to complete an
environmental clearance and obtain a HUD-approved request for release of funds
or certified environmental determination for categorically excluded projects
before executing written agreements with project owners. We reviewed the
Fund’s certified environmental clearances for all 15 projects and determined that
the Fund ensured that all projects had environmental clearances performed before
the execution of written agreements and the disbursement of Federal funds.
The Fund Met Increased
Transparency and Reporting
Requirements
Under the Recovery Act and HUD Notice CPD-09-03-REV, the Fund was
required to post on its Web site, a description of its competitive selection criteria
for awarding Program funds to eligible projects. The Fund was also required to
identify all projects selected for funding and post the amount of each Program
award on its Web site. It complied with these requirements.
7
The Fund Obtained Lobbying
Certifications as Required
Under the Recovery Act and HUD Notice CPD 09-03-REV, the Fund was required
to follow requirements set forth in 24 CFR Part 87. Regulations at 24 CFR Part 87
require that recipients of Federal contracts, grants, loans, or cooperative agreements,
who receive more $100,000 in funds, certify that they will not use appropriated
funds to influence or attempt to influence an officer or employee of the Federal
Government. The Fund obtained lobbying certifications from its Program
contractors or subcontractors as required by 24 CFR Part 87.
The Fund Did Not Report Job
Creation Data in a Timely
Manner
Under the Recovery Act and Office of Management and Budget (OMB) Circular
10-08, the Fund was required to report the number of jobs created with its Program
funds. FTEs were to be estimated by dividing the total number of hours worked
and funded by the Recovery Act within the reporting period by the quarterly hours
in a full-time schedule. The determined amount was to be reported as the number
of jobs created for the specific period. We reviewed the Recovery Act Web site to
determine whether the Fund complied with the additional reporting requirements
associated with the Recovery Act. The Fund did not report job creation data in a
timely manner. We reviewed the documentation collected and maintained by the
Fund to determine the number of jobs to be reported. Based on documentation
reviewed, 38 FTEs were created during the first three quarters of 2010. However,
the Fund did not report the FTEs created during the first three quarters as required.
When we asked Fund officials why they had not reported the data, they stated that
they had not reported the data because they had not disbursed Program funds and
had misinterpreted the requirements. After funds were disbursed for the fourth
quarter ending December 31, 2010, the Fund reported that 18 jobs had been created
during the 3-month period.
OMB Circular 10-08 requires that if a grantee has to make corrections to previous
quarters on Recovery.gov, corrections can only be made for the preceding quarter if
the current quarter has not ended. If the deadlines have passed, the grantee is
required to maintain the FTE data until the Federal Government requests the
information, and the Recovery Transparency Board will then determine how the
information will be made available on Recovery.gov.
8
Recommendation
We recommend that the Director, Office of Affordable Housing, require the Fund to
1A. Maintain the FTE data that were not reported until the Federal
Government requests the information.
9
SCOPE AND METHODOLOGY
We conducted the audit from November 2010 to February 2011 at the Fund’s offices located at
814 Virginia Street East, Charleston, WV, and our offices located in Richmond, VA. The audit
covered the period February 2009 through October 2010 but was expanded when necessary to
include other periods.
To accomplish our objective, we reviewed
Relevant background information;
The Recovery Act;
Policies and procedures related to the Program’s award process, expenditures, and
disbursements;
Written agreements and environmental clearance determinations for Program award
recipients; and
Davis-Bacon wage records and lobbying certifications submitted by Program award
recipients.
We conducted interviews with the Fund’s staff. We conducted onsite reviews of rehabilitation
work in progress for the Washington Manor and Littlepage Terrace developments where
Program grant funds were being used. We non-statistically selected and reviewed a sample of 4
developers who developed 10 projects with funds totaling more than $11.3 million in Program
grant funds. The award amounts ranged from approximately $94,000 to nearly $5.5 million.
To achieve our audit objectives, we relied in part on computer-processed data in the Fund’s
database. Although we did not perform a detailed assessment of the reliability of the data, we
did perform a minimal level of testing and found the data to be adequate for our purposes.
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.
10
INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
Effectiveness and efficiency of operations,
Reliability of financial reporting, and
Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objective:
Policies, procedures, and other management controls implemented to ensure
that the Fund administered Program funds in accordance with the Recovery
Act and HUD requirements.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does
not allow management or employees, in the normal course of performing their
assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
impairments to effectiveness or efficiency of operations, (2) misstatements in
financial or performance information, or (3) violations of laws and regulations on a
timely basis.
We evaluated internal controls related to the audit objective in accordance with
generally accepted government auditing standards. Our evaluation of internal
controls was not designed to provide assurance regarding the effectiveness of the
internal control structure as a whole. Accordingly, we do not express an opinion on
the effectiveness of the Fund’s internal control.
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APPENDIX
Appendix A
AUDITEE COMMENTS
12
13
The West Virginia Housing Development Fund, Charleston, WV, Generally Administered Its Tax Credit Assistance Program Funded Under the Recovery Act in Accordance With Applicable Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-03-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)