oversight

The City of Syracuse, NY, Did Not Always Administer Its CDBG Program in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-10-25.

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

                                                                Issue Date
                                                                   October 25, 2011
                                                                Audit Report Number
                                                                   2012-NY-1003




TO:        William O’Connell, Director, Community Planning and Development, Buffalo,
                                          New York, 2CD



FROM:      Edgar Moore, Regional Inspector General for Audit, NY/NJ, 2AGA

SUBJECT: The City of Syracuse, NY, Did Not Always Administer Its CDBG Program in
           Accordance With HUD Requirements

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the operations of the City of Syracuse, NY, pertaining to its
             Community Development Block Grant (CDBG) program. We selected the City
             based on a risk analysis of upstate New York grantees, which identified Syracuse
             as high risk. The objectives of the audit were to determine whether the City
             administered its CDBG program effectively, efficiently, and economically in
             accordance with applicable rules and regulations. Specifically, we wanted to
             determine whether City officials had (1) established and implemented the
             necessary controls to ensure that program activities were adequately documented
             and administered in accordance with HUD regulations, and (2) expended CDBG
             funds for eligible activities.

 What We Found
             The City did not always administer its CDBG program in accordance with HUD
             regulations. Specifically, it had administrative weaknesses in its float loan
             program. City officials could not demonstrate that $907,195 in float loan funds
             used to finance 11 new housing construction activities (1) were provided to
             qualified nonprofits; (2) were necessary, reasonable, and adequately supported;
             and (3) met a national objective. As a result, $162,200 in ineligible costs and
           $744,995 in unsupported costs were incurred, and City officials’ ability to ensure
           that CDBG program objectives were met was diminished.

           Review of four CDBG Special Housing Program activities revealed that City
           officials did not ensure that national objectives were obtained; costs charged were
           necessary, reasonable, and adequately supported; and performance goals were
           achieved. As a result, ineligible costs of $53,990 and unsupported costs of
           $415,927 were incurred.

           In addition, 38 CDBG activities administered by both the City and various
           subrecipients, budgeted for funding during program years 2004-2007, had been
           either not completed or not started due to a lack of controls. As a result,
           performance goals were not achieved for various activities for which $408,282 in
           CDBG funds had not been drawn from the line of credit. We attribute these three
           deficiencies to City officials’ not implementing adequate administrative control
           procedures to ensure compliance with CDBG program requirements.

What We Recommend
           We recommend that the Director of HUD’s Buffalo Office of Community
           Planning and Development instruct City officials to (1) repay from non-Federal
           funds the $162,200 in ineligible float loan activity costs; (2) submit
           documentation to justify the unsupported float loan costs of $744,995 and
           unsupported Special Housing Program costs of $415,927, so that HUD can make
           an eligibility determination, and repay any amounts determined to be ineligible;
           (3) reallocate for other viable activities the $408,282 in unused CDBG funding
           authority related to the 38 activities from program years 2004-2007 that had been
           either not completed or not started or return the unused funds to the U.S.
           Treasury; and (4) establish controls to ensure that costs are eligible and necessary
           before being charged to the program, program activities meet a national objective,
           and performance goals are accomplished.

           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 discussed the results of the review during the audit, provided a copy of the
           draft report to City officials, and requested their comments on September 14,,
           2011. We held an exit conference on September 28, 2011, and City officials
           provided their written comments on October 4, 2011, at which time they
           disagreed with some of the issues in the findings. 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 Objectives                                                          4

Results of Audit
      Finding 1: Administrative Weaknesses Existed in the City’s Float Loan Program 5

      Finding 2: City Officials Did Not Always Comply With HUD Regulations         12
                 When Disbursing CDBG Funds

      Finding 3: Performance Goals for Certain CDBG Activities Were Not Always
                 Achieved                                                          18

Scope and Methodology                                                              23

Internal Controls                                                                  25

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use               27
   B. Auditee Comments and OIG’s Evaluation                                        28




                                            3
                      BACKGROUND AND OBJECTIVES

The Community Development Block Grant (CDBG) program was established by Title I of the
Housing and Community Development Act of 1974, Public Law 93-383 as amended, 42 U.S.C.
(United States Code) 5301. The program provides grants to State and local governments to aid
in the development of viable urban communities. Governments are to use grant funds to provide
decent housing and suitable living environments and to expand economic opportunities,
principally for persons of low and moderate income. To be eligible for funding, every CDBG-
funded activity must meet one of the program’s three national objectives. Specifically, every
activity, except for program administration and planning, must

       Benefit low- and moderate-income persons,
       Aid in preventing or eliminating slums or blight, or
       Address a need with a particular urgency because existing conditions pose a serious and
       immediate threat to the health or welfare of the community.

The City of Syracuse, NY, is a CDBG entitlement grantee. The U.S. Department of Housing and
Urban Development (HUD) awarded the City more than $6 million in CDBG funding in fiscal
year 2008, more than $6.1 million in 2009, and more than $6.6 million in 2010. In addition, the
City received more than $1.6 million in funds under the American Recovery and Reinvestment
Act of 2009. These funds are available to support a variety of activities directed at improving the
physical condition of neighborhoods by providing housing rehabilitation and public
improvements and facilities, fostering economic development by providing technical and
financial assistance to local businesses and creating employment, or improving services for low-
or moderate-income households. The City operates under a mayor-council form of government,
and its CDBG activities are administered both in-house and by outside nonprofit organizations.
The City is responsible for overseeing, monitoring, and managing CDBG activities. The files
and records related to the City’s CDBG program are maintained in City Hall, Syracuse, NY.

The objectives of the audit were to determine whether the City administered its CDBG program
effectively, efficiently, and economically in accordance with applicable rules and regulations.
Specifically, we wanted to determine whether City officials had (1) established and implemented
the necessary controls to ensure that program activities were adequately documented and
administered in accordance with HUD regulations, and (2) expended CDBG funds for eligible
activities.




                                                4
                                 RESULTS OF AUDIT

Finding 1: Administrative Weaknesses Existed in the City’s Float Loan
           Program
The City had administrative weaknesses in its float loan program. City officials could not
demonstrate that $907,195 in float loan funds used to finance 11 new housing construction
activities (1) were provided to qualified nonprofits; (2) were necessary, reasonable, and
adequately supported; and (3) met a national objective. Moreover, City officials did not
administer the City’s float loan program in accordance with program regulations. We attribute
these deficiencies to City officials’ general unfamiliarity with the float loan program requirements
and the failure to establish administrative control procedures to ensure compliance with CDBG
program requirements, including ensuring that costs were eligible and necessary before being
charged to the program. As a result, $162,200 in ineligible costs and $744,995 in unsupported costs
were incurred, and City officials’ ability to ensure that CDBG program objectives were met was
diminished.


 Background
               Regulations at 24 CFR (Code of Federal Regulation) 570.301(b) permit a grantee to
               use undisbursed funds in the line of credit within its CDBG program account, which
               are budgeted in statements or action plans for one or more activities that do not need
               the funds immediately for unfunded activities. Such funds are referred to as the
               “float,” and an activity that uses such funds is called a float-funded activity. The
               float-funded activity must meet all of the requirements that apply to CDBG activities
               and generally must be expected to produce program income in an amount at least
               equal to the amount of the floated funds used and be repaid in 2.5 years.

               The primary purpose of the City’s new construction float loan program is to use
               CDBG funds secured by a letter of credit to provide area nonprofit organizations
               with zero percent construction financing for new single-family homes. These homes
               are then sold to an income-qualified buyer. The City administered 11 new
               construction float loan activities during the 2006 and 2007 program years reviewed.
               The weaknesses are discussed in detail below.


 Inadequate Documentation
 Regarding the Qualifications of
 the Nonprofits Provided
 Funding

               Section 570.207(b)(3) of the CDBG regulations states that CDBG funds may not be
               used for the construction of new permanent residential structures or for any program

                                                 5
to subsidize or assist new construction except when carried out by an eligible entity
pursuant to section 570.204(a) of the CDBG regulations. More specifically, the
entity must qualify as a community-based development organization (CBDO).

To qualify as a CBDO, the entity must, among other things, maintain at least 51
percent of its governing body’s membership for low- and moderate-income
residents, owners or senior officers of private establishments and other institutions
located in and serving its geographic area of operation, or representatives of low-
and moderate-income neighborhood organizations located in and servicing its
geographic area of operation.

Contrary to this requirement, City officials did not maintain adequate documentation
demonstrating that any of the three nonprofits provided CDBG funding for new
housing construction qualified as a CBDO. While the program files did include
some information as to the makeup of the board of directors, none of the files
contained specific information to confirm that the board members met the
requirements cited above. Moreover, in the City’s 2007 summary of consolidated
plan projects report to HUD, the City acknowledged that two of the three nonprofits
that received new housing construction funding were not qualified CBDOs.
Consequently, the City’s new housing construction program did not comply with the
CDBG regulations. Therefore, costs incurred were not supported, as there was a
lack of documentation to demonstrate that the new housing construction activities
were carried out by qualified CBDOs.

A total of $907,195 in Federal Funds was disbursed for the 11 float loan new
construction activities as follows:

                                                        Federal
   Program year Activity name                           funds           Notes
                                                        disbursed
           2007       Property A Tennyson Ave.          $ 75,000        Ineligible
           2007       Property B Sedgwick Street           90,000
           2007       Property C Palmer Ave.               93,087
           2007       Property D Palmer Ave.               78,087
           2007       Property E Palmer Ave.               93,087
           2007       Property F Palmer Ave.               93,087
           2006       Property G Howard Street             50,000
           2006       Property H Coolidge Ave.             84,247
           2006       Property I Coolidge Ave.             87,200       Ineligible
           2006       Property J Coolidge Ave.             81,200
           2006       Property K Coolidge Ave.             82,200
   Total                                                $ 907,195

Contrary to program requirements, because City officials did not maintain adequate
documentation demonstrating that any of the three organizations provided CDBG
funding for new housing construction qualified as a CBDO or maintain documents

                                   6
           to support that the costs incurred were reasonable and supported by financial
           records, these costs were questionable. Further in two cases, in addition to the lack
           of documented CBDO qualifications, the homeowners did not meet the income
           requirements (income was too high); therefore, these two cases were ineligible. In
           summary, of the $907,195 in questioned costs incurred, two cases totaling $162,200
           ($75,000 + $87,200) were considered to be ineligible, and the remaining nine cases
           totaling $744,995 were considered to be unsupported.

Costs Not Necessary,
Reasonable, and Supported

           City officials did not adequately monitor their new housing float loan program to
           ensure that construction costs were necessary, reasonable, and adequately supported.
           Specifically, in those instances in which the nonprofit chose a contractor to perform
           the work, no evidence was provided to show the method used to select the
           contractor, that the contractor selection was effective in promoting free and open
           competition, or that adequate controls were in place to monitor the costs charged for
           construction work for reasonableness. Additionally, in cases in which the nonprofit
           chose to be the general contractor on the new construction project, the proposed
           project costs were based on budgeted amounts, rather than documentation such as
           contracts and invoices as required. Moreover, for one of the new housing
           construction projects, the City was unable to provide the project files in support of
           the new housing construction costs; therefore, the total costs for the project could not
           be determined.

           Apart from the above, for the 10 new construction float loan activities for which the
           City was able to provide the project files, City officials did not provide evidence that
           they performed any type of onsite monitoring of the construction work.
           Additionally, there was no evidence that City officials obtained property appraisals
           on the newly constructed homes to justify the reasonableness of the costs incurred.
           This issue is particularly important since the average purchase price was $184,186,
           and during this same period, the National Association of Realtors reported that the
           median price of a home in Syracuse, NY, was $105,950. Consequently, the City’s
           control over the reasonableness and propriety of the costs incurred under its new
           housing construction float loan program were questionable.

           Regulations at 24 CFR 570.506(h) provide details regarding the financial records
           that are to be maintained by the City to support how CDBG funds are expended.
           Such documentation must include, to the extent applicable, invoices, schedules
           containing comparisons of budgeted amounts and actual expenditures, construction
           progress schedules signed by appropriate parties, and other documentation
           appropriate to the nature of the activity.




                                              7
Inadequate Documentation To
Demonstrate That a CDBG
National Objective Was Met

          City officials were unable to provide documentation showing that new construction
          float loans met one of the three national objectives of benefiting low- and moderate-
          income persons, aiding in preventing or eliminating slums or blight, or addressing a
          need with particular urgency because existing conditions posed a serious and
          immediate threat to the health or welfare of the community. All of the float loans
          were listed in HUD’s Integrated Disbursement and Information System as low-mod
          housing benefit, community development financial institution, or neighborhood
          revitalization strategy area activities that are carried out for the purpose of providing
          or improving permanent residential structures by a community development
          financial institution or pursuant to a HUD-approved neighborhood revitalization
          strategy.

          However, examination of the project files showed that there was no documentation
          to show that the new construction activities undertaken by the nonprofits were part
          of a planned neighborhood revitalization project of sufficient size and scope to have
          an impact on the decline of a designated geographic location within the City’s
          jurisdiction. Regulations at 24 CFR 570.204(a)(1) require that to qualify as an
          eligible activity, the new construction must be part of a neighborhood revitalization
          project of sufficient size and scope to have an impact on the decline of a designated
          geographic location within the jurisdiction of the City. To the contrary, inspection
          of the newly constructed properties showed that the neighborhoods as a whole
          consisted of many vacant and rundown properties, with no evidence that a
          neighborhood revitalization had occurred (see photographs for newly constructed
          and existing properties on Palmer Avenue). Inspection of the neighborhood
          identified many vacant and boarded-up houses in the area.




                                              8
        Palmer Ave.
       Newly constructed
    property provided HUD
     and other grant funds
           $118,087




        Palmer Ave.
    Existing abandoned and
    boarded-up property –
           Example 1




            Palmer Ave.
       Existing abandoned and
       boarded-up property –
              Example 2




9
                                                                          Palmer Ave.
                                                                      Existing abandoned and
                                                                       boarded-up property –
                                                                             Example 3




           There was a lack of evidence to support that the City’s activities met a national
           objective, since new construction activities had to be of a sufficient scope to have
           made an impact on revitalizing a geographic area within the City and this did not
           appear to be the case.

Float Loan Program Not in
Compliance With HUD
Requirements

           Regulations at 24 CFR 570.301(b) provide that a float-funded activity must meet all
           the requirements that apply to CDBG activities and generally must be expected to
           produce program income in an amount at least equal to the amount of the floated
           funds used. Contrary to this requirement, City officials did not administer their new
           housing float loan program in a manner that would provide for a return of program
           income in an amount at least equal to the amount of the floated funds used. As
           previously noted, the City’s new construction float loan program used CDBG funds
           secured by a letter of credit to provide nonprofits with zero percent construction
           financing for new single-family homes. The homes were then to be sold to an
           income-qualified buyer. Upon the sale of the home, part of the loan repayment was
           provided by the City in the form of a HOME Investment Partnerships Program or
           CDBG grant to the homeowner, thus the nonprofit was required to repay only a
           portion of the original amount loaned.

           Moreover, the CDBG eligibility of the new housing activities carried out with float
           loans was not adequately supported since City officials were unable to document
           that the nonprofits that participated in the program qualified as CBDOs or that the
           activity met a national objective of the CDBG program.

           Further, the project files lacked adequate detail on how potential homeowners
           qualified for or were selected for the program. There was no documentation
           showing whether this program, which provided for the purchase of a new home at a
           substantial discount, was advertised to the public at large or that the potential


                                             10
             homeowners were selected from a waiting list. Accordingly, City officials did not
             comply with applicable regulations for float-funded activities as required.


Conclusion

             Review of the City’s administration of its new home construction float loan
             activities, revealed that adequate controls to ensure compliance with applicable
             regulations for float-funded activities had not been established. Specifically, there
             was inadequate evidence that the nonprofit companies provided funding qualified as
             CBDOs; costs were necessary, reasonable and supported; and a CDBG national
             objective was met. As a result, $162,200 in ineligible costs and $744,995 in
             unsupported costs were incurred. We attribute these deficiencies to City officials’
             general unfamiliarity with HUD’s regulations pertaining to float-funded activities
             and inadequate controls to ensure compliance with program requirements.


Recommendations

             We recommend that the Director of HUD’s Buffalo Office of Community Planning
             and Development instruct City officials to

             1A. Reimburse from non-Federal funds the ineligible costs incurred of $162,200,
                 of which $87,200 was paid from HOME program funds and $75,000 was paid
                 from CDBG funds.

             1B. Submit documentation to demonstrate that its new housing construction
                 activities were carried out by qualified CBDOs and support the reasonableness
                 of the $744,995 in costs incurred so that HUD can make an eligibility
                 determination. For any costs determined to be ineligible, HUD should require
                 the City to reimburse the HOME program from non-Federal funds.

             1C. Develop administrative control procedures to ensure compliance with CDBG
                 program requirements, including ensuring that costs are eligible and necessary
                 before being charged to the program.




                                              11
Finding 2: City Officials Did Not Always Comply With HUD
           Regulations When Disbursing CDBG Funds
City officials did not always disburse CDBG funds in compliance with HUD requirements.
Review of the four CDBG Special Housing Program activities, funded through the City’s CDBG
and Technical Assistance Grant programs, revealed that the City did not always adequately
monitor and administer grant- and subgrant-supported activities to ensure the effective and
efficient use of HUD resources. Specifically, City officials did not ensure that national
objectives were attained; costs charged were necessary, reasonable, and adequately supported;
and performance goals were achieved. These deficiencies were due to the lack of emphasis and
insistence by management that procedures be in place to ensure that grant and subgrant activities
were continuously and thoroughly monitored for compliance and progress, fully supported by
adequate cost documentation, and performed and administered efficiently. As a result, ineligible
costs of $53,990 and unsupported costs of $415,927 were incurred.



 Background

               Three of the four activities reviewed were administered by nonprofits, and the
               fourth was administered directly by the City. City officials were responsible for
               implementing controls and monitoring procedures to ensure compliance with all
               program requirements. However, there was a lack of documented monitoring by
               City officials for all the activities reviewed. The detailed results of the review and
               conclusions reached relating to each of the activities reviewed are contained in the
               following sections.

 Activity 1 - Tully Street

               City officials disbursed $90,973, consisting of $80,973 in CDBG funds and
               $10,000 in Technical Assistance Grant funds, to subsidize and bring in line with
               the market value the total development costs of a newly constructed home on
               Tully Street, Syracuse, NY, without ensuring that a national objective of the
               CDBG program had been accomplished or that the costs incurred were reasonable
               and adequately supported. Regulations at 24 CFR 570.200(a)(2) require that each
               recipient ensure and maintain evidence that each of its activities assisted with
               CDBG funds meets one of the three national objectives as contained in its
               certification. Moreover, Office of Management and Budget (OMB) Circular A-
               87, Attachment A, Section C.1.a provides that to be allowable under Federal
               awards, costs must be necessary and reasonable for proper and efficient
               performance and administration of Federal awards and be adequately
               documented.

               For program year 2009, City officials identified the national objective for this
               activity in HUD’s Integrated Disbursement and Information System as the

                                                12
            prevention or elimination of slums and blight. It appeared that City officials may
            have tied this activity to the national objective of slums and blight, rather than
            low-mod benefit, because the record showed that the owners of the newly
            constructed home had incomes that exceeded the low-mod limits established by
            HUD; therefore, the activity would not have met the low-mod benefit national
            objective. However, while the activity was listed as meeting the objective of slum
            and blight, it was not until October 2009 that the nonprofit’s officials requested
            that City officials provide write-down funding for the newly constructed home,
            stating that they had demolished the previous structure located at the Tully Street
            address in February 2009. Consequently, since the former structure was
            demolished in February 2009, any slum and blight conditions would have been
            addressed at that time. Moreover, in March 2011, inspection of the Tully Street
            neighborhood found that the houses in that area generally appeared to be in good
            condition, further supporting that this area did not show signs of slum or blight
            conditions.

            City officials also were not able to provide documentation for the $90,973 in
            CDBG and Technical Assistance Grant funds used for this activity to show that
            the costs were necessary and reasonable and supported by proper source
            documents. For example, while the files contained a property cost summary
            report that referenced a construction contract for $235,714, a 5 percent
            contingency fee of $11,785, an additional nondescriptive 15 percent fee totaling
            $37,305, and many other soft cost items, the files contained no detailed
            documentation in support of the costs identified on the property cost summary.

            Thus, City officials had not implemented adequate controls to ensure that each of
            its CDBG-assisted activities met one of the three national objectives as contained
            in its certification, nor had they implemented adequate controls to ensure that
            costs incurred were necessary and reasonable for proper and efficient performance
            and administration of Federal awards or that costs were adequately documented.
            Therefore, the $90,973 in funds used for this activity was considered unsupported
            pending an eligibility determination by HUD.

Activity 2 - East Kennedy Street

            City officials disbursed $227,765, consisting of $44,500 in CDBG and $183,265
            in Technical Assistance Grant funds, in the form of loans to subsidize the sale of a
            two-family rental property by a nonprofit corporation without ensuring that the
            costs incurred were necessary, reasonable, and adequately supported or that a
            national objective of the CDBG program had been accomplished.

            Regulations at 24 CFR 85.20(b)(2) provide that grantees and subgrantees must
            maintain records which adequately identify the source and application of funds
            provided for financially assisted activities. These records must contain
            information pertaining to grant or subgrant awards and authorizations,

                                             13
obligations, unobligated balances, assets, liabilities, outlays or expenditures, and
income. Also, 24 CFR 85.20(b)(6) provides 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.

OMB Circular A-87, Attachment A, Section C.1.a provides that to be allowable
under Federal awards, costs must be necessary and reasonable for proper and
efficient performance and administration of Federal awards and costs must be
adequately documented. Moreover, OMB Circular A-122, Attachment B, Section
16 provides that costs of fines and penalties resulting from violations of or failure
of the organization to comply with Federal, State, and local laws and regulations
are unallowable.

Review of the files for the East Kennedy Street property revealed that $44,500 in
costs paid with CDBG funds was not related to the sale of the property. These
costs included back taxes and water bills for other properties owned by the
borrower. The costs also included a worker’s compensation judgment that was
owed by the purchaser to the State of New York that was incorporated into the
closing for the East Kennedy Street property and paid from the CDBG loan
proceeds. Since these costs were not related to the East Kennedy Street property,
they would not represent necessary or reasonable costs of the activity, and,
therefore, the $44,500 was considered ineligible.

Additional HUD funds of $183,265, consisting of $42,792 from 2001 and
$140,473 from 2004 Technical Assistance Grants, provided as subsidy for the sale
of the East Kennedy Street property and paid to the seller of the property, were
considered unsupported pending a HUD eligibility determination since City
officials were unable to provide adequate supporting documentation for the costs
incurred. Specifically, there was no support for many of the line items shown on
the HUD-1 settlement statement. For example, documentation was not provided
to support funding sources, including the funding agency and applicable grant
number, or for lines 205 SNI (Syracuse Neighborhood Initiative) and 207
developer’s fee.

In addition, City officials did not provide documentation showing that the national
objective of benefiting low- and moderate-income persons was met as required by
regulations at 24 CFR 570.200(a)(2) because they were unable to provide a rental
history for the property and income verification data for the occupants of the
property to show that the property had been rented to low-income residents after
the sale of the property.

In summary, for the East Kennedy Street activity, the $44,500 in CDBG funds
expended for costs that were not related to the property sold was considered
ineligible. In addition, the $183,265 in Technical Assistance Grants expended for
this activity that lacked proper source documents for the costs incurred and



                                 14
            documentation to show that a national objective had been met, was considered
            unsupported pending a HUD eligibility determination.

Activity 3 - Cherry Street

            City officials disbursed $64,543 in CDBG funds to subsidize the sale of three
            rental properties from a local nonprofit entity to a private third-party investor
            without ensuring that a national objective of the CDBG program had been
            accomplished, costs incurred were adequately supported, and performance goals
            for the activity had been achieved.

            Specifically, City officials did not provide property appraisals to support that the
            sales prices for the properties were reasonable, documentation verifying that the
            purchaser of the three properties qualified as a low-mod income individual, or
            property rental information for tenants that may have occupied the properties after
            the sale to ensure that the tenants were low-mod income qualified to support
            meeting a national objective. Therefore, the City did not adequately monitor the
            activity to ensure that performance goals were achieved.

            Regulations at 24 CFR 570.501(b) provide that the recipient is responsible for
            ensuring that CDBG funds are used in accordance with all program requirements.
            The use of designated public agencies, subrecipients, or contractors does not
            relieve the recipient of this responsibility. The recipient is also responsible for
            determining the adequacy of performance under subrecipient agreements and
            procurement contracts.

            Since City officials were unable to provide documentation to show that $64,543
            in CDBG funds expended for the Cherry Street properties was necessary,
            reasonable, and adequately supported or met a national objective, the costs
            incurred for this activity were considered unsupported pending an eligibility
            determination by HUD.

Activity 4 – Hartson-Rowland

            A total of $86,636 in CDBG funds was used to pay for costs related to the cleanup
            of the properties, repairing or replacing water heaters and furnaces, and purchase
            of new washers and dryers to replace those that were damaged as a result of a
            water main break located on or near the area of Hartson and Rowland Streets
            without ensuring that the funds expended were eligible, necessary, reasonable,
            and adequately supported. In addition, City officials were unable to provide
            documentation showing that these activities met the listed national objectives of
            slum or blight spot benefits and low-mod housing benefits.




                                             15
             Regulations at 24 CFR 570.200(a)(2) require that each recipient ensure and
             maintain evidence that each of its activities assisted with CDBG funds meets one
             of the three national objectives as contained in its certification. City officials
             indicated that they treated this activity as an emergency addressing an urgent need
             due to the damage caused by a water main break. However, a review of the files
             provided for this activity did not show that the recipient certified that the activity
             was designed to alleviate existing conditions, which posed a serious and
             immediate threat to the health or welfare of the community. The documents in
             the files also did not show that the event was of recent origin or had recently
             become urgent or that the recipient was unable to finance the activity on its own
             and that other sources of funding were not available as required by regulations at
             24 CFR 570.208(c). Consequently, there was no assurance that the use of CDBG
             funds represented necessary or reasonable costs to the program or that a national
             objective of the program was attained.

             Review of the disbursement documentation for the $86,636 charged to CDBG
             activities relating to the water main break revealed that the costs included $9,490
             for the purchase of new washers and dryers. However, according to regulations at
             CFR 570.207(b)(1)(iii), the purchase of equipment, fixtures, motor vehicles,
             furnishings, or other personal property not an integral structural fixture is
             generally ineligible.

             In summary, for the Hartson-Rowland activity, $9,490 was determined to be
             ineligible, and the remaining $77,146 was considered to be unsupported costs for
             which HUD will need to make an eligibility determination.

Conclusion

             Review of the four CDBG Special Housing Program activities, funded through
             the City’s CDBG and Technical Assistance Grant programs, revealed that the City
             did not adequately monitor and administer grant- and subgrant-supported
             activities to ensure the effective and efficient use of HUD resources. Specifically,
             City officials did not ensure that national objectives were attained; costs charged
             were necessary, reasonable, and adequately supported; and performance goals
             were achieved. These deficiencies were due to the lack of adequate controls over
             grant- and subgrant-supported activities. As a result, ineligible costs of $53,990
             and unsupported costs of $415,927 were incurred.




                                               16
Recommendations

         We recommend that the Director of HUD’s Buffalo Office of Community
         Planning and Development instruct City officials to

         2A.      Repay from non-Federal funds the ineligible costs incurred of $53,990
                  (44,500 related to the East Kennedy property and $9,490 related to the
                  Hartson-Rowland property).

         2B.      Submit documentation to justify the unsupported costs incurred of
                  $415,927 ($90,973 related to the Tully Street property, $183,265 related to
                  the East Kennedy Street property, $64,543 related to the Cherry Street
                  properties, and $77,146 related to the Hartson-Rowland Street properties)
                  so that HUD can make an eligibility determination. For any costs
                  determined to be ineligible, HUD should require the City to reimburse the
                  CDBG program from non-Federal funds.

         2C.      Establish controls to ensure that grant- and subgrant-supported activities
                  are adequately monitored and administered to provide assurance that funds
                  have been used only for eligible activities that meet a national objective,
                  costs incurred are necessary and reasonable, and performance goals are
                  achieved.




                                           17
Finding 3: Performance Goals for Certain CDBG Activities Were Not
           Always Achieved
As of February 1, 2011, the City had 38 CDBG activities, administered by both the City and
various subrecipients, budgeted for funding during program years 2004-2007 that had been either
not completed or not started. This condition existed because the City had not implemented
controls to ensure that (1) CDBG activity performance goals were achieved, (2) Federal awards
were administered effectively and efficiently, and (3) each of its activities assisted with CDBG
funds met one of the three national objectives as contained in its certification. As a result,
performance goals were not achieved for various activities for which $408,282 in CDBG funds
had not been drawn from the line of credit; therefore, these funds should be reallocated for other
activities that are viable or returned to the U.S. Treasury.



 CDBG Performance Goals Not
 Always Achieved

               Review of the City’s grantee performance report, as contained in the Integrated
               Disbursement and Information System as of February 1, 2011, revealed that
               performance goals were not always achieved for CDBG activities.

               As indicated in the following chart, the City had 38 budgeted CDBG activities for
               program years 2004-2007, which were administered by both the City and various
               subrecipients, that had been either not completed or not started as of February 1,
               2011. For the 38 activities identified, $408,282 in funds had not been drawn from
               the line of credit as follows:

               City of Syracuse, NY - CDBG program open activities in fiscal year 2007
               and earlier
                                                                             Drawn
               Program        Integrated Disbursement and         Funded      thru    Balance
                 year          Information System activity        amount     2/1/11   available
                          2601 - Parks and Recreation - Youth
                 2004     Pgms                                    $50,031        $0     $50,031
                          2602 - Parks and Recreation - On
                 2004     Summer Pgm                                25,047    8,400      16,647
                          0026 – Tomorrow’s Neighborhoods
                 2004     Today (TNT) Sector Escrows                16,000    5,198      10,802
                 2005     2803 - TNT Sector Escrows                 16,000   10,216       5,784
                          2807 - Fair Housing Enforcement
                 2005     Activities                                50,000   49,772         228
                          2811 - Housing Referral and Advocacy
                 2005     Pgm                                        8,848    6,286       2,562
                 2005     2812 - Project Summer Hope                25,000   24,264         736



                                               18
                                                             Drawn
Program       Integrated Disbursement and          Funded     thru    Balance
  year         Information System activity         amount    2/1/11   available
          2816 - Parks and Recreation - Youth
 2005     Pgm                                       50,031        0      50,031
 2005     2818 - Parks & Rec - Plays On             25,047   24,750         297
 2006     3092 - Arise-Home Access Program          40,000   39,901          99
          3104 - Home Headquarters - SHARP
 2006     Pgm                                       70,000   60,505       9,495
          3105 - Home Headquarters - SHARP
 2006     Pgm-PS                                    30,000   28,748       1,252
          3117 - ARISE - Housing Referral and
 2006     Advocacy                                   8,848    1,242       7,606
          3125 - Dunbar Association - After
 2006     School Pgm                                15,000   12,500       2,500
          3137 - Spanish Action League - Career
 2006     Services                                  15,000   14,805         195
          3138 - Spanish Action League -
 2006     Housing Pgm                               10,400    9,773         627
          3144 - Latinos Unidos - Southwest
 2006     Community Ctr                              3,000    2,422         578
          3182 - Parks and Recreation - Summer
 2006     Evening Rec                               20,000        0      20,000
          3183 - Parks and Recreation - Expanded
 2006     Rec Prgm                                  25,000   20,000       5,000
          3184 - TNT Tomorrow’s
 2006     Neighborhoods Today-ESCR                  16,000   10,157       5,843
          3228 - Planning and Contractual
 2006     Services                                  50,000    3,926      46,074
 2006     3318 - 700 Oswego Street-LALIGA           27,000   26,453         547
          3319 - Foreclosure Intervention
 2006     Program                                   90,000   64,840      25,160
          3413 - Home Headquarters - Distressed              186,76
 2007     Property Program                         203,500        2      16,738
          3422 - Code Enforcement - Relocation
 2007     Expenses                                  10,000        0      10,000
          3432 - Parks and Recreation - Expanded
 2007     Pgm                                       25,000   20,000       5,000
          3434 - Parks and Recreation – “Plays
 2007     On” Pgm                                   20,000   12,000       8,000
          3438 - Greater Love in Christ - Rehab
 2007     Pgm                                       10,000        0      10,000
          3456 - Salud - Latinos United Against
 2007     Disparities                               24,148        0      24,148
                                                             329,49
 2007     3458 - Southwest Community Center        348,000        8      18,502
 2007     3460 - Westcott Kids Club                 19,500   16,291       3,209
          3462 - YMCA - Residential
 2007     Advisement Pgm                             7,000        0       7,000


                               19
                                                                        Drawn
            Program       Integrated Disbursement and         Funded     thru     Balance
              year         Information System activity        amount    2/1/11    available
              2007    3464 - SWCC - Latinos Unidos             10,000     3,000       7,000
              2006    3601 - Salina Street South 5617          16,430         0      16,430
              2007    3728 - Empire Avenue 219                  6,490         0       6,490
              2007    3746 - TNT Sector Escrows                16,000   11,641        4,359
              2007    3945 - Wadsworth Street 317               3,989         0       3,989
              2007    3953 - Kimber Avenue 130                  5,323         0       5,323
           Total                                                                   $408,282

           Regulations at 24 CFR 570.208 provide the basis for determining whether an
           activity meets a national objective, and activities that are not completed do not
           meet a national objective. Further, a 2003 HUD guide book, entitled “Ensuring
           Subrecipient Timeliness,” under the part labeled “Select Subrecipients and
           Activities That Will Meet Timeliness Standards” provides that communities that
           receive entitlement funds from the CDBG program are required to use their funds
           in a timely manner.

           Since the above activities had not been started or completed, the City did not meet
           its performance goals and did not meet the national objectives of the activities.
           Therefore, the $408,282 is questioned and should be reallocated to other eligible
           activities or returned to the U.S. Treasury.

Effective Program
Administration

           Based on the above activities that had not been completed or started for periods
           ranging from 2004 to 2007, City officials did not appear to have effectively and
           efficiently administered their CDBG funds. Regulations at 24 CFR 85.40(a)
           require that grantees be responsible for managing the day-to-day operations of
           grant- and subgrant-supported activities. Grantees must monitor grant- and
           subgrant-supported activities to ensure compliance with applicable Federal
           requirements and that performance goals are achieved. Grantee monitoring must
           cover each program, function, or activity.

           OMB Circular A-87, Attachment A, Section A.2.a provides that governmental
           units are responsible for the efficient and effective administration of Federal
           awards through the application of sound management practices.

           City officials’ lack of monitoring of subgrantees led to the condition described
           above. If proper monitoring had occurred, City officials could have effectively
           administered these activities, ensuring that funds were expended and activities
           were completed in a timely manner.

           Apart from the above, City officials should consider a 2003 HUD guidance,
           entitled “Ensuring CDBG Subrecipient Timeliness,” which recommends that if a
                                           20
             proposed activity cannot be completed or nearly completed in 1 year, the project
             should be phased. An example of a project being phased is funding the design
             and engineering the first year and construction the next year. The guidance also
             provides that if funds are recaptured from a subrecipient, one option would be to
             reallocate the funds to existing, faster moving projects that can absorb the funds
             within the grant year or to projects with a shortfall of funds. Another option
             would be to reallocate funds to entities on a waiting list of potential subrecipients
             identified in the consolidated plan or elsewhere that did not receive awards
             because demand for CDBG funds exceeded the supply.

Meeting National Objectives

             Regulations at 24 CFR 570.200 (a)(2) require that each recipient under the
             entitlement program ensure and maintain evidence that each of its activities
             assisted with CDBG funds meets one of the three national objectives as contained
             in its certification. Criteria for determining whether an activity addresses one or
             more of these objectives are found in the regulations at 24 CFR 570.208. The
             national objectives include benefiting low- and moderate-income persons,
             addressing slums or blight, and meeting a particularly urgent community
             development need because existing conditions pose a serious and immediate
             threat to the health or welfare of the community. Therefore, as mentioned above,
             because little or no activity had taken place for the listed activities for an extended
             period, the national objectives were not accomplished. Thus, the undrawn funds
             should be either reprogrammed or used for activities that are viable and meet one
             of the national objectives or returned to the U.S. Treasury.

Conclusion

             Since funding for the 38 CDBG activities identified above was available but had
             not been drawn during the last 3½ to 6½ years, the City did not ensure that
             program activities were accomplished in a timely manner, performance goals
             were achieved, or a national objective was met for the undrawn budgeted amounts
             as required by regulations at 24 CFR 570.208. Therefore, these funds should be
             reallocated to other activities that are viable or returned to the U.S. Treasury.
             This condition can be attributed to City officials’ lack of monitoring of
             subgrantees to ensure that all program regulations were complied with.




                                               21
Recommendations

         We recommend that the Director of HUD’s Buffalo Office of Community
         Planning and Development instruct City officials to

         3A.      Reallocate for other viable activities the $408,282 in unused CDBG
                  funding authority related to the 38 activities from program years 2004-
                  2007 that have been either not completed or not started or return the
                  unused funds to the U.S. Treasury.

         3B.      Implement controls to ensure that CDBG activity performance goals are
                  achieved, Federal awards are administered effectively and efficiently, and
                  each of its activities assisted with CDBG funds meets one of the three
                  national objectives as contained in its certification.




                                           22
                         SCOPE AND METHODOLOGY
The onsite audit work for this review was conducted at the City’s offices, located in Syracuse, NY,
between January and July 2011. Our audit scope covered the period January 1, 2008, through
December 31, 2010, and was expanded as necessary. To accomplish the objectives, we

       Reviewed applicable HUD regulations, the Code of Federal Regulations, and other
       requirements and directives that govern the CDBG program.

       Reviewed the City’s applicable policies and procedures used to administer CDBG activities.

       Reviewed the City’s action plans, grant agreements, and agreements between the City and
       its subrecipients and contractors, including verifying whether national objectives were met.

       Interviewed City personnel responsible for administration of the City’s CDBG program.

       Obtained and reviewed documentation from the City pertaining to CDBG activities
       reviewed.

       Reviewed HUD’s monitoring reports and files for the City’s CDBG program, including
       verifying any reported corrective actions.

       Reviewed independent public accountant audits and financial reporting, including analysis
       of noted findings and control weaknesses applicable to City operations including the CDBG
       program.

       Reviewed all costs charged to the CDBG program activities tested during the audit, along
       with the applicable supporting documentation provided.

       Reviewed information systems data from HUD’s Integrated Disbusement and Information
       System (IDIS) for background and information purposes. We performed a minimum level
       of testing and found the the computer processed data to be adequate for our purposes.


During the audit, we reviewed various CDBG activities including float loans and grant- and
subgrant-supported Special Housing Program activities. We also analyzed the City’s progress in
completing planned activities to determine whether performance goals were accomplished in a
timely manner.

Specifically, for review of float loan activities, we selected a nonstatistical sample of 11 new
construction float loans, consisting of all of the float loans made in program years 2006 and
2007. The City had not budgeted any float loan activities since program year 2007. Therefore,
we reviewed 100 percent of the Federal funding totaling $907,195 for the 11 activities.

To review the grant- and subgrant-supported Special Housing Program activities, we selected a
nonstatistical sample of four activities budgeted for CDBG funding from program years 2005
                                                 23
through 2009. The total amount of CDBG funds budgeted from 2005 through 2009 for the
City’s Special Housing Program activities was $796,480. Of that amount, the sample of four
activities included CDBG costs of $236,652, or about 32 percent of all CDBG Special Housing
Program budgeted amounts for those program years. Other HUD funding sources were used to
supplement additional costs associated with the sample of four Special Housing Program
activities reviewed. Specifically, 2001, 2004, and 2005 Technical Assistance Grant funding of
$193,271 and additional CDBG funds of $40,000 budgeted for the 2006 Home HeadQuarters
Distressed Property Program activity were also disbursed in support of the four Special Housing
Program activities reviewed. The total amount of Technical Assistance Grant funding awarded
to the City for the related 2001, 2004, and 2005 grants amounted to more than $20 million, while
the 2006 HeadQuarters Distressed Property Program activity was budgeted for a total of
$203,500.

To analyze the progress of the City in completing planned activities to determine whether
performance goals were accomplished in a timely manner, we reviewed the City’s grantee
performance report as contained in the Integrated Disbursement and Information System as of
February 1, 2011, to determine whether performance goals had been achieved for CDBG
activities. We reviewed all CDBG activities contained in the grantee performance report for
program years 2007 and earlier to determine whether any of the activities had budgeted amounts
that had not been drawn down from the line of credit as of February 1, 2011. The review showed
that the City had 38 CDBG activities budgeted for funding from program years 2004-2007 that
had been either not completed or not started. For the 38 activities identified, administered by
both the City and various subrecipients, $408,282 had yet to be drawn from the line of credit.

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 objectives.




                                               24
                              INTERNAL CONTROLS

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

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

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



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

                  Effectiveness and efficiency of operations - Policies and procedures that
                  management has implemented to reasonably ensure that a program meets its
                  objectives.

                  Reliability of financial data and reporting - Policies and procedures that
                  management has implemented to reasonably ensure that valid and reliable data
                  are obtained, maintained, and fairly disclosed in reports.

                  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.




                                                 25
Significant Deficiencies


             Based on our review, we believe that the following items are significant deficiencies:

                    City officials did not have adequate controls over effectiveness and
                    efficiency of operations when they did not ensure that 38 CDBG activities
                    budgeted for funding during program years 2004-2007 had been started or
                    completed as of February 1, 2011, and did not always ensure that CDBG-
                    funded activities achieved a national objective of the program (see
                    findings 1, 2, and 3).

                    City officials did not have adequate controls over reliability of financial data
                    and reporting when they did not adequately monitor grant and subgrant
                    activities or maintain sufficient documentation in support of costs charged
                    to CDBG activities (see findings 1 and 2).

                    City officials did not have adequate controls over compliance with laws and
                    regulations as they did not always comply with HUD regulations while
                    disbursing CDBG funds (see findings 1 and 2).




                                              26
                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE

 Recommendation          Ineligible 1/    Unsupported      Funds to be put
        number                                     2/      to better use 3/

      1A               $162,200
      1B                                   $744,995
      2A                 53,990
      2B                                   415,927
      3A                                                     $408,282
     Total             $216,190           $1,160,922         $408,282


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 this instance, if City officials implement our
     recommendation and reallocate the more than $400,000 in unused funds, they can assure
     HUD that these funds will be put to better use.




                                             27
Appendix B

                Auditee Comments and OIG’s Evaluation
Ref to OIG Evaluation           Auditee Comments




Comment 1


Comment 2


Comment 3




Comment 4



Comment 5




                                 28
Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 7



Comment 8




Comment 9




Comment 10




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12




Comment 13




Comment 14




                         30
Comment 1   City officials indicate they will provide documentation that they subsequently
            qualified two of the three entities as eligible CBDO’s to HUD as part of the audit
            resolution process. However, HUD officials will need to make a determination if
            the three entities were eligible to receive funding when the activities took place.

Comment 2   HUD officials will need to make a determination as to the eligibility of the costs
            based on the documentation to be provided by City officials.

Comment 3   City officials indicate that since January 2010, they have implemented a risk
            based approach to monitoring and that they would provide a schedule of the
            planned monitoring to HUD. We believe additional controls need to be
            implemented to ensure compliance with procurement requirements and that
            effectively promote full and open competition.

Comment 4   City officials indicate that the reimbursements for new construction were and are
            reviewed by a City inspector, and that a new form, which more explicitly
            documents the City’s approval of the work done, will be used in the voucher
            process. Nevertheless, we believe additional controls and monitoring are needed
            to ensure that construction costs are necessary, reasonable and adequately
            supported.

Comment 5   City officials indicate that appraisals were obtained for private and non-private
            financing of new construction. Although the costs of new construction are higher
            than the median sales price it is worth it because the new construction has
            increased the value of the surrounding properties. However, City officials were
            not able to provide appraisals for the properties provided funding and there was a
            lack of documentation to support the reasonableness of the costs incurred.

Comment 6   City officials acknowledge the lack of documentation in its files regarding
            revitalization activities and have instituted new procedures, which require the
            requesting entity to provide detail plans for every property on the block for which
            funds are requested. The proposed action is responsive to the finding and HUD
            will have to determine the adequacy of corrective action as part of the audit
            resolution process.

Comment 7   City officials contend that all float loan funds were repaid to the program and
            reported as program income. Float loans are supposed to be repaid from the
            activity that benefited from the float loan. However, these float loans were repaid
            in part using HOME and CDBG funds, which is not in compliance with the
            requirements for repayment of float loans.

Comment 8   City officials indicate that there was proof of the eligibility of each prospective
            home owner, but that there was a lack of documentation that the information had
            been confirmed by City officials. City officials indicated that additional controls
            will be implemented to document that prospective participants’ income eligibility
            is verified. The audit determined that the tenant files did not always contain proof

                                             31
              of tenant income eligibility and as a result $162,200 disbursed for two over
              income purchasers was questioned. Furthermore, there was a lack of
              documentation of whether the program was advertised to the public at large or
              that the homeowners were selected from a waiting list. Therefore, HUD will have
              to determine the adequacy of the proposed corrective actions as part of the audit
              resolution process to ensure compliance with program requirements.

Comment 9     City officials indicated that the acquisition, demolition and subsequent new
              construction of this property was the entire scope of the project, which eliminated
              a blighted condition; therefore, the national objective of elimination of slums and
              blight was achieved. City officials stated that they cited this neighborhood as the
              most distressed of the City and Region in their Consolidated Plan, and they are
              awaiting HUD’s approval to designate this area as a Neighborhood Revitalization
              Strategy Area (NRSA). Thus the neighboring good conditions were the result of
              ongoing revitalization funded by CDBG and Technical Assistance grants. While
              the activity was listed as meeting the objective of slum and blight, it was not until
              October 2009 that the nonprofit’s officials requested that City officials provide
              write-down funding for the newly constructed home, stating that they had
              demolished the previous structure located at the Tully Street address in February
              2009. Consequently, since the former structure was demolished in February
              2009, any slum and blight conditions would have been addressed at that time.
              Moreover, in March 2011, inspection of the Tully Street neighborhood found that
              the houses in that area generally appeared to be in good condition, further
              supporting that this area did not show signs of slum or blighted conditions.
              Therefore, we do not accept the City’s position that it views the acquisition,
              demolition and subsequent new construction of the house at 521 Tully Street as
              the entire scope of the project. Thus, the elimination of an abandoned property is
              not an automatic precursor to constructing a new home. Furthermore, records
              showed that the owners of the newly constructed home had incomes that exceeded
              the low-mod income limits established by HUD and therefore would not have met
              the low-mod benefit national objective. Thus, by failing to meet the low-mod
              income requirements and not being slum and blight, we consider the new home
              construction costs for this activity to be unsupported pending a HUD eligibility
              determination.

Comment 10 City officials indicated that they would provide HUD additional information on
           the costs associated with this activity and that they viewed contingency fees such
           as the 15 percent non-descriptive costs as a sound business practice and an
           allowable planning fee under the Technical Assistance program. However,
           City officials were not able to provide documentation for the $90,973 in CDBG
           and Technical Assistance Grant funds used for this activity to show that the costs
           were necessary, reasonable, and supported by proper source documents. In
           addition, although City officials believe that the non-descriptive 15 percent fee is
           a good business practice, allowable under the Technical Assistance program, it
           should be noted that the non-descriptive fee totaled $37,305, while the Technical
           Assistance funds invested in this activity only totaled 10,000. As such, HUD

                                               32
              officials will have to make a determination as to the eligibility of the costs for this
              activity as part of the audit resolution process.

Comment 11 City officials indicated they would provide HUD information on the funds used
           for this property and income data for the current occupants of the property. The
           City officials’ proposed actions are responsive to the finding.

Comment 12 City officials indicated appraisals of the properties were not done to avoid further
           soft costs related to this transaction. Rather, the City based the reasonableness of
           the purchase price on the City’s assessed valuation of the property as well as its
           familiarity with sales prices in the Near East Side neighborhood. In addition, they
           will provide HUD with up-to-date tenant data forms documenting the income of
           the current occupants of each of the properties. However, since City officials did
           not provide documentation to support the reasonableness of the costs, and the
           income levels of the occupants of the property, HUD will have to determine the
           eligibility and reasonableness of the costs as part of the audit resolution process.

Comment 13 City officials indicate that although they were unable to locate documentation that
           the prior Mayor had declared this situation to be an emergency, they believe that
           this activity was eligible because the property is in a revitalization neighborhood.
           City officials also agreed that the costs for new appliances were not eligible; as
           such, they indicated that they would work with HUD to resolve this issue as part
           of the audit resolution process. Thus the actions of the City officials’ are
           responsive to the finding.

Comment 14 City officials agreed with finding 3 and will request a formal reallocation of these
           funds either through a substantial amendment to its Consolidated Plan or with its
           submission of the 2012 Action Plan. The City officials’ actions are responsive to
           the finding.




                                                33