Issue Date
September 23, 2011
Audit Report Number
2011-SE-1008
TO: Doug Carlson, Director, Portland Office of Community Planning
and Development, 0ED
//signed//
FROM: Ronald J. Hosking, Regional Inspector General for Audit, 0AGA
SUBJECT: The Idaho Housing and Finance Association Did Not Always Comply With
HOME Investment Partnerships Project and Cost Eligibility Regulations
HIGHLIGHTS
What We Audited and Why
We audited the Idaho Housing and Finance Association’s HOME Investment
Partnerships Program because the U.S. Department of Housing and Urban
Development (HUD) had not performed a comprehensive monitoring review of
Idaho Housing’s program since 2007 and it received approximately $6 million in
HOME grants from HUD in each of the fiscal years 2008 through 2010.
The objective of our review was to determine whether Idaho Housing complied
with HOME project and cost eligibility requirements.
What We Found
Idaho Housing did not always comply with HOME project and cost eligibility
requirements. Specifically, it (1) did not always inspect acquisition and
acquisition and rehabilitation projects for compliance with property standards and
(2) disbursed HOME funds to borrowers for ineligible and unsupported costs.
What We Recommend
We recommend that HUD require Idaho Housing to perform or procure
independent inspections for property standards requirements and require owners
to make necessary repairs. If repairs are not made within a reasonable time, Idaho
Housing should be required to reimburse its HOME trust fund from non-Federal
funds for the more than $2.6 million expended on these projects. In addition,
Idaho Housing should be required to reimburse its HOME trust fund from non-
Federal funds for the $58,001 expended on ineligible costs, provide supporting
documentation for any portion of the $399,327 which it cannot support as being
eligible, implement effective policies and procedures, and receive technical
assistance from HUD.
For each recommendation in the body of the report without a management
decision, please respond and provide status reports in accordance with HUD
Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or
directives issued because of the audit.
Auditee’s Response
We provided the discussion draft to Idaho Housing on August 26, 2011, and
requested a response by September 9, 2011. Idaho Housing provided a response
on September 9, 2011. Idaho Housing agreed with our findings and
recommendations. The complete text of the auditee’s response can be found in
appendix B of this report.
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: Idaho Housing Did Not Always Inspect Projects for Compliance 5
With Property Standards
Finding 2: Idaho Housing Disbursed HOME Funds to Borrowers for Ineligible 11
and Unsupported Costs
Scope and Methodology 14
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs 18
B. Auditee Comments 19
C. Ineligible and Unsupported Costs by Recommendation and Project 21
D. Projects Reviewed 22
BACKGROUND AND OBJECTIVES
The National Affordable Housing Act of 1990 created the U.S. Department of Housing and
Urban Development’s (HUD) HOME Investment Partnerships Program. In January 1991, the
governor of Idaho designated the Idaho Housing and Finance Association as the appropriate
agency to act on behalf of the State of Idaho for all purposes under the Act. HUD has allocated
almost $18 million in HOME funds to Idaho over the past 3 grant years.
Grant year Grant amount
2008 $ 5,544,297
2009 6,171,896
2010 6,167,417
Total $17,883,610
The intent of Idaho Housing’s HOME program is to increase the availability of safe and decent
housing for low- and very low-income families, seniors, and individuals. Idaho Housing used
HOME funds for
New construction of affordable rental housing;
Acquisition or rehabilitation of affordable rental housing or both;
Direct downpayment assistance to home buyers; and
New construction, and acquisition and rehabilitation of home-buyer properties.
The objective of our review was to determine whether Idaho Housing complied with HOME
project and cost eligibility requirements.
RESULTS OF AUDIT
Finding 1: Idaho Housing Did Not Always Inspect Projects for
Compliance With Property Standards
Idaho Housing did not always inspect HOME projects for compliance with applicable property
standards. This condition occurred because Idaho Housing lacked the internal controls needed to
adequately manage compliance with property standards from project application through
completion. As a result, HUD and Idaho Housing lacked assurance that more than $2.6 million
in HOME funds was used for eligible HOME activities and that the intended program benefits
were realized.
Idaho Housing did not always inspect HOME acquisition and acquisition and rehabilitation
multifamily projects for compliance with applicable property standards.
HOME Regulations Require
Inspections
The HOME regulations at 24 CFR (Code of Federal Regulations) 92.251(a) state
that grantees must ensure compliance with property standards requirements at the
time of project completion. Housing that is constructed or rehabilitated with
HOME funds must meet minimum building code requirements before project
completion. Idaho Housing defined these requirements in chapter 2 of its HOME
administrative plan and exhibit C, Written Rehabilitation Standards.
Housing that is acquired with HOME funds must meet all applicable State and
local housing quality standards and code requirements, and if there are no such
standards or code requirements, the housing must meet the HUD housing quality
standards in 24 CFR 982.401, Section 8. Idaho Housing stated in chapter 2 of its
administrative plan that acquisition projects must meet minimum property
standards set forth in the Section 8 program housing quality standards.
Rehabilitation Projects Were Not
Inspected for Compliance With
Minimum Code Requirements
Idaho Housing did not determine whether three multifamily acquisition and
rehabilitation projects met HOME minimum building code requirements at the
time of project completion. It provided more than $1 million in HOME funds for
the acquisition of these projects. U.S. Department of Agriculture Rural
Development grant assistance and Low Income Housing Tax Credits provided
funds for their rehabilitation. However, Idaho Housing did not inspect them for
compliance with the minimum code requirements as established in its
rehabilitation standards.
These projects were rehabilitated between 2008 and 2010. While there was some
electrical work done on the projects, not all of the electrical systems were brought
up to rehabilitation standards effective in 2008. In the units we visited, there was
no evidence of any electrical inspection or permit since the 1970s.
Idaho Housing’s rehabilitation standards state that all units must have ground
fault circuit interrupter receptacles or protection for all exterior, bath, and kitchen
sink receptacles. During our site visit, we noted that many of the electrical outlets
did not have ground fault circuit interrupter (GFI) receptacles where required.
Kitchen outlet no GFI Exterior outlet no GFI or cover
These standards also state that the heating system must be in sound condition and
not present a health or safety hazard, but we noted that some of the units had
electrical baseboard heaters that were rusted and corroded.
Rusted baseboard heater
In addition, the rehabilitation standards specify that wood that touches the earth
must be pressure treated. We noted that the exterior of one of the projects had
wood between the vinyl siding and the ground that was not in good repair as
required by the standards and was not pressure treated wood.
Exterior wood not pressure treated
The purpose of our visits was to determine whether there were obvious
rehabilitation standards violations, not to conduct a full inspection of the projects.
Therefore, other violations may exist.
Acquisition Projects Were Not
Inspected for Compliance With
HUD Housing Quality Standards
Idaho Housing did not determine whether four multifamily acquisition projects
met minimum housing quality standards at the time of project completion. It
provided more than $1.5 million in HOME funds for the acquisition of these
projects but did not inspect them for compliance with HUD's housing quality
standards. According to Idaho Housing’s 2008 administrative plan, acquisition
projects that are not going to be rehabilitated must meet HUD's Section 8 housing
quality standards. These standards require that the property be decent, safe, and
sanitary. The four “Village” multifamily projects were acquired with HOME
funds during 2008 and 2009.
Idaho Housing’s HOME administrative plan provided for a physical needs
assessment to be performed and all critical items to be corrected. However, the
physical needs assessment did not include all of the elements required in a
housing quality standards inspection and did not require an inspection of all units
for compliance with housing quality standards. In addition, the owners did not
always correct items identified as critical.
The physical needs assessment for Leisure Village II included replacement of all
windows and exterior paint within the first 2 years. However, only some of the
windows were replaced, and the exterior trim was not painted. Excess cash that
had been withheld at closing for these activities went to the owner. During our
site visit, we noted that the exterior trim paint was flaking off the wood and
several beams were splitting. Although not mentioned in the physical needs
assessment, we also noted that one unit’s sliding glass door was difficult to open
and had not been replaced and the threshold wood was rotting, causing a potential
safety hazard.
Rotten wood under sliding glass door threshold
Trim paint flaking Beam rotting
Idaho Housing Lacked Internal
Controls for Property
Standards.
Idaho Housing lacked the internal controls needed to ensure compliance with
property standards from project application through completion. Its
administrative plan put the responsibility for compliance with property standards
on the project owner, it did not have detailed procedures for project completion,
and the administrative plan was not always used to develop procedures for
monitoring compliance with property standards.
Idaho Housing’s administrative plan put the responsibility for compliance with
property standards on the project owner. However, Idaho Housing, as the
participating jurisdiction, was ultimately responsible for ensuring that projects
complied with applicable property standards, and the owners did not perform the
required inspections.
A 2007 Portland, OR, Office of Community Planning and Development
monitoring report issued a finding on Idaho Housing for not ensuring compliance
with property standards. The report stated that Idaho Housing “…is responsible
for ensuring compliance with the property standard requirements of 92.251(a)(2)
through its own inspections …”
The administrative plan was not always used to develop procedures for
monitoring compliance with property standards. Idaho Housing did not have
written procedures other than the plan for monitoring compliance with property
standards.
HUD and Idaho Housing Lacked
Assurance That Funds Were
Used for Eligible Activities
HUD and Idaho Housing lacked assurance that more than $2.6 million in HOME
funds was used for eligible HOME activities and that the intended program
benefits were realized. The tenants lived in housing that was not durable and in
which electrical hazards existed. In addition, the projects were not always safe
and decent.
Recommendations
We recommend that the Director of the HUD Portland Office of Community
Planning and Development
1A. Require Idaho Housing to perform or procure independent inspections for
minimum building code requirements on the acquisition and rehabilitation
properties that received HOME funding and require the owners to make any
repairs necessary as a result of the inspections. If repairs are not made
within a reasonable time, Idaho Housing should be required to reimburse its
HOME trust fund from non-Federal funds for the $1,022,898 expended on
ineligible projects.
1B. Require Idaho Housing to perform or procure independent inspections for
HUD housing quality standards on the acquisition-only properties that
received HOME funding and require the owners to make any repairs
necessary as a result of the inspections and identified in the earlier physical
needs assessments. If repairs are not made within a reasonable time, Idaho
Housing should be required to reimburse its HOME trust fund from non-
Federal funds for the $1,591,620 expended on ineligible projects.
1C. Ensure that Idaho Housing management and staff prepare and implement
effective written policies and procedures for compliance with HOME
property standards requirements from initial application through project
completion.
1D. Provide technical assistance to Idaho Housing to ensure that its management
and staff comply with HOME regulations.
Finding 2: Idaho Housing Disbursed HOME Funds to Borrowers for
Ineligible and Unsupported Costs
Idaho Housing disbursed HOME funds to borrowers for ineligible and unsupported costs. These
payments occurred because Idaho Housing did not fully implement its cost controls.
Consequently, it spent about $58,000 on ineligible activities that would otherwise have been
available to benefit low- and very low-income families, seniors, and individuals. In addition,
neither HUD nor Idaho Housing had assurance that more than $399,000 spent on unsupported
costs was used for eligible activities.
Idaho Housing disbursed HOME funds to borrowers for ineligible and unsupported costs.
Idaho Housing Disbursed
Funds for Ineligible Costs
Idaho Housing disbursed HOME funds to one borrower for an ineligible asset
management fee. This fee was a required fee under the Low Income Housing Tax
Credit program, which was one of the funding sources for the project. Although
the fee was required for the program, it did not qualify as an eligible fee under the
HOME program since it did not meet any of the cost categories under the eligible
project costs identified in 24 CFR 92.206 through 92.209. According to 24 CFR
92.214(a)(9), Prohibited Activities, HOME funds may not be used to pay for any
cost that is not eligible under 24 CFR 92.206 through 92.209.
Contrary to 24 CFR 92.504(c)(1)(i), Idaho Housing executed a written agreement
with the borrower without completing a budget specifying the tasks that were
eligible for HOME funding. Specific requirements include the tasks to be
performed, a schedule for completing the tasks, and a budget. These items must
be in sufficient detail to provide a sound basis for Idaho Housing to effectively
ensure that HOME funds were not used for ineligible activities.
Idaho Housing Disbursed
Funds for Unsupported Costs
Idaho Housing disbursed HOME funds to five borrowers for unsupported general
requirements costs. Although these costs might have been eligible costs, the
borrowers did not have full documentation to substantiate what activities
specifically were considered construction general requirements. According to
Idaho Housing’s HOME program administrative plan, all disbursement requests
to Idaho Housing must be evidenced by full documentation in the form of bills,
invoices, or receipts. Because there was no supporting documentation, we were
not able to substantiate the eligibility of the draw requests. Idaho Housing
accepted this requirement as an industry standard for contractors to include as a
part of the contractor’s construction progress payment.
Written Agreements Did Not
Define Eligible Costs
Idaho Housing’s written agreement with project owners did not always define the
eligible costs that were to be paid for with HOME funds. This oversight was
brought to Idaho Housing management’s attention in 2004 and again in 2007
HUD monitoring reviews. HUD cited Idaho Housing for not specifying how the
HOME funds were to be used in its written agreements. Since HOME-funded
rental housing projects usually include development costs that are ineligible for
HOME funding, the specific use of HOME funds needs to be identified in the
project agreement and is a required element of written agreements.
In addition, Idaho Housing did not require contractors to submit full
documentation of specific costs incurred. It paid what was submitted on the Idaho
Housing form called “Request for HOME Draw” and the borrower’s form called
“Owner’s Draw Request,” which listed only the summary project line item costs.
Idaho Housing should have obtained documentation to support the items listed on
the forms to determine the eligibility of the draw requests. Although Idaho
Housing adopted the industry practice, the industry practice was not developed to
further prudent HOME grant management.
Idaho Housing Inappropriately
Spent Costs
Idaho Housing inappropriately spent about $58,000 on ineligible activities that
would otherwise have been available to benefit low- and very low-income
families, seniors, and individuals. In addition, neither HUD nor Idaho Housing
had assurance that more than $399,000 spent on unsupported costs was used for
eligible activities.
Recommendations
We recommend that the Director of the HUD Portland Office of Community
Planning and Development to require Idaho Housing to
2A. Reimburse its HOME trust fund from non-Federal funds for the
$58,001 expended on ineligible costs.
2B. Provide supporting documentation for the $399,327 in unsupported
costs or reimburse its HOME trust fund from non-Federal funds for
any costs that remain unsupported.
2C. Implement its cost controls by requiring detailed eligible costs in its
written agreements and comparing those costs to the drawdown
requests for eligibility.
SCOPE AND METHODOLOGY
Idaho Housing spent more than $19.8 million in HOME funds on 553 activities, of the activity
types shown below, from April 2008 through February 2011. We obtained this information from
HUD’s Integrated Disbursement and Information System.
Funds
Type Activity expended
Single family Acquisition and new construction $ 771,851
Single family Acquisition only 6,328,265
Single family New construction 569,118
Multifamily Acquisition and new construction 1,075,115
Multifamily Acquisition and rehabilitation 1,022,898
Multifamily Acquisition only 1,974,372
Multifamily New construction 5,504,610
Administration and other 2,602,353
Total $19,848,582
To achieve our objectives, we reviewed HUD and Idaho Housing criteria and contracts, met with
HUD and Idaho Housing staff, and reviewed HUD and Idaho Housing files and other records.
We initially reviewed a statistically sampled selection of vouchers to determine whether Idaho
Housing obtained sufficient documentation to support the eligibility of costs. Based on the
voucher review, we determined that a review by project would best meet our objectives. We
selected 22 projects for project eligibility, with HOME dollars committed ranging from $35,000
to nearly $1.4 million. These projects consisted of all new construction multifamily projects that
exceeded $140,000 and all multifamily acquisition and acquisition and rehabilitation projects. In
addition, we selected all single-family new construction projects that were built in Southeast
Idaho.
For cost eligibility, we reviewed all 11 HOME multifamily new construction projects. We did
not review the other multifamily projects’ costs since we questioned them entirely based on
noncompliance with property standards.
Our review of the single-family downpayment assistance program did not disclose any findings.
See appendix D for a listing of projects selected for review and total amount drawn through
February 2011.
We obtained and reviewed project files for pertinent documentation such as project applications,
loan and regulatory agreements, HOME fund drawdowns, project physical needs assessments,
HOME project monitoring performed by Idaho Housing, and project closeout documents. We
also made site visits to all projects reviewed.
We did not rely on automated data other than to select our initial sample, and we reviewed
hardcopy documents for our analysis.
Our audit covered the period April 2008 through February 2011. We expanded the period as
needed to evaluate historical and current information pertinent to our review. We performed our
audit work onsite at Idaho Housing, 565 West Myrtle, Boise, ID, and at various project sites
throughout the State from March through July 2011. We briefed Idaho Housing management
and HUD’s Portland Office of Community Planning and Development management throughout
the audit.
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
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
Effectiveness and efficiency of operations,
Reliability of financial reporting, and
Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objective:
Policies and procedures for determining compliance with applicable laws
and regulations.
We assessed the relevant control 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:
Idaho Housing did not have adequate controls in place to ensure that
inspections were performed on projects for compliance with property
standards (finding 1).
Idaho Housing did not have adequate controls in place to ensure that
HOME funds disbursed to borrowers complied with HOME requirements
for eligibility and support of costs (finding 2).
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Ineligible Unsupported
number 1/ 2/
1A $1,022,898
1B $1,591,620
2A $58,001
2B 399,327
Total $58,001 $3,013,845
1/ Ineligible costs are costs charged to a HUD 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 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.
Appendix B
AUDITEE COMMENTS
OIG Evaluation of Auditee Comments
Evaluate each comment (as concisely as possible) referenced in the first part of
this appendix where the comments are presented.
Appendix C
INELIGIBLE AND UNSUPPORTED COSTS
BY RECOMMENDATION AND PROJECT
Integrated Disbursement and
Recommendation Information System Ineligible Unsupported
number number and activity costs costs
1A 5153 - Clover Creek I Apartments 558,220
1A 5154 - Clover Creek II Apartments 302,710
1A 5155 - Clover Creek III Apartments 161,968
Total 1A $1,022,898
1B 5158 - Freedom Village 270,800
1B 5159 - Leisure Village II 716,330
1B 5160 - Leisure Village VIII 296,700
1B 5161 - Leisure Village X 307,790
Total 1B $1,591,620
2A 5184 - Cardona Senior Apartments $58,001
Total 2A $58,001
2B 5184 - Cardona Senior Apartments $ 60,682
2B 5935 - Kathy Reed Senior Apartments 117,154
2B 4766 - Lakeview Family Apartments 9,360
2B 5574 - Lynn Peterson Disabled Apts 170,931
2B 5185 - Rosslare Senior Apartments 41,200
Total 2B $ 399,327
Total $58,001 $3,013,845
Appendix D
PROJECTS REVIEWED
IDIS* Costs
number IDIS activity Type committed
5184 Cardona Senior New construction $ 1,074,849
5153 Clover Creek I Acquisition & rehabilitation 558,220
5154 Clover Creek II Acquisition & rehabilitation 302,710
5155 Clover Creek III Acquisition & rehabilitation 161,968
5158 Freedom Village Acquisition only 270,800
5406 Green Meadows Condos Acquisition only 35,000
5935 Kathy Reed - Neider House New construction 1,398,039
4766 Lakeview Family Apartments New construction 1,057,490
5159 Leisure Village II Acquisition only 716,330
5160 Leisure Village VIII–Willow Creek Acquisition only 296,700
5161 Leisure Village X Acquisition only 307,790
5574 Lynn Peterson - Fruitland New construction 1,386,325
4940 Market Lake Acquisition only 392,752
5955 Mill River Seniors New construction 440,000
5937 PNHS Homebuyer Infill 2009 New construction 280,000
5677 Ponderosa Family Apartments New construction 300,000
5868 River Street Senior Apartments New construction 515,000
6118 Riverstone West Family Apts New construction 517,500
5058 Rose Park New construction 800,000
5185 Rosslare Senior New construction 900,000
Multiple SEICAA Homebuyer New construction 960,000
5936 Tullamore Senior Apartments New construction 143,164
Total reviewed $12,814,637
* IDIS = HUD’s Integrated Disbursement and Information System
The Idaho Housing and Finance Association Did Not Always Comply With HOME Investment Partnerships Project and Cost Eligibility Regulations
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)